ITAB Shop Concept is the company of Swedish origin. It was established in 1970. Based on its 2013 annual report, we can determine that the main markets of the company are Sweden, Norway, United Kingdom, the Netherlands, Finland, Germany, and China. The company specializes in manufacturing and selling the store fixtures equipment, primarily for retail chains. This paper will focus on the analysis of the company’s effectiveness based on the available data, suggest recommendations for improvement and propose sales ideas.
One of the objectives of this paper is to examine the annual financial statements of ITAB Shop Concept and to make their appropriate financial assessment. Bansal (2014, p.153) stated that “financial statements are the medium by which a company discloses information concerning its financial performance”. To gain a basic understanding of the company’s financial status it is appropriate to use such technique of financial statements analysis as horizontal analysis. The horizontal analysis will be performed on Sales, Cost of Goods Sold, Gross Profit, Operating Expenses, Operating Profit, and Net Profit.
It can be observed from table 1 that in 2013 the Sales of ITAB Shop Concept have increased only by 30% compared to 2010 (Compound Annual Growth Rate is 9.1%); at the same time the Cost of Goods Sold has increased by 26%. This has resulted in the increase of the Gross Profit by 43% which exceeds the level of the Sales growth. The fact deserving positive evaluation is the increase of the Operating Expenses of ITAB Shop Concept only by 17% compared to 2010. This has resulted in the increase of the Operating Profit by 298% and the Net Profit by 619%. It can be stated that in case of ITAB Shop Concept a positive trend is observed.
In order to determine the company’s effectiveness, efficiency (activity) ratios are applied. Efficiency (activity) ratios measure how well the company uses its assets to generate income.
Asset Turnover Ratio shows how effectively total assets are used. In 2010-2013, the Asset Turnover Ratio of ITAB Shop Concept remained at the same level, and namely at about 1.4, but in 2012-2013 a slight negative downward trend is observed. In 2013 the indicator decreased by 6% as compared with 2011 and equaled to 1.38.
As for profitability, most of the company’s profitability ratios were almost constant during 2011-2013 as ITAB Shop Concept is a mature company. So it can be recommended to ITAB Shop Concept to identify ways to reduce expenses and to increase its efficiency. Besides, taking into account a low level of accounts payable of ITAB Shop Concept, it might be required to extend the time it takes to pay creditors. The company’s effectiveness in using the total assets to generate revenue is considerably high, but a significant decrease of the inventory turnover is observed. It is recommended to the company to re-examine its policy of the inventory management.
Regarding sales ideas, the company should try to expand its market. Eastern European and Asian markets can be very favorable and promising as the majority of the countries that belong to these markets are still developing, a lot of new retail shops are being opened there, and thus there is a demand for store fixtures and trading equipment. In order to be successful and to able to compete the competitors, ITAB Shop Concepts should be able to offer its products and a comparatively low price. It is important though that the products are of high quality and that a good customer service is offered with them. To facilitate communication with the clients and to maintain an effective supply chain, the company could open sales offices in several countries; that would also help to reduce the delivery terms and make the guarantee service more efficient which will be another benefit in the eyes of the clients and will help to increase sales. Another idea is to open a manufacturing factory in one of the third world countries; it will help to reduce the cost of the products due to the possibility to use cheap raw materials and labor, but at the same time there is a risk that it will influence negatively the quality of the products. As for Western European market, the company should participate in exhibitions and popularize its brand as a reliable and qualitative one. It should be perceived by the potential customers as a trustworthy company with good reputation.
Thus, ITAB Shop Concept is a manufacturer of store fixtures that sells its products mainly in the Western European market. Although the company has some difficulties that can be observed based on the efficiency ratios, in general it is operating rather effectively. In order to improve the situation, it can be recommended to find ways to reduce expenses, to extend the time it takes to pay creditors and to re-examine the policy of the inventory management. As for sales ideas, ITAB Shop Concept should consider the possibility to expand its business to Eastern European and Asian markets, to open sales offices, to open a manufacture in a third world country in order to benefit from cheap labor and resources. Besides, the company should maintain its reputation as a respected and reliable company with high quality products and good customer service.
References
Bansal, R. (2014). A Comparative Analysis of the Financial Ratios of Selected Banks in the India for the period of 2011-2014. Research Journal of Finance and Accounting, 5(19), p. 153-167
