BNL_Stores_Case Analysis Template (4) - SMGT4470 Case...

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SMGT4470 Case Analysis Template Student Name: ______Jonathan Samis________________________ Case Title: _________BNL Stores_________________________ A. Issue Identification (2 marks) Immediate The immediate issue identified would be the fall of BNL’s share price, which had declined drastically from a reported high of $100 per share to less than $10. The analysis is aimed at determining as to whether or not the new strategies were the cause of the drop in BNL’s share price. Basic The basic issue identified would be that BNL’s management undertook a series of new business strategies, strategies that included expanding the number of supercenter stores aimed at selling more durable goods, and as a means to increase sales began offering store credit to customers. Store managers received an annual bonus based upon net income for their particular store, and because of this many we over granting store credit to boost net income, which in turn increases the size of their bonus. B. Quantitative and Qualitative Data Analysis ( Apply 2 to 3 analytical tools) (5 marks) Analysis Tool 1 Net Profit Margin (amounts in 000’s) 2007 2008 2009 2010 Net Income $238,738 $256,195 $73,916 -($1,415,678) Sales $9,344,524 $11,176,830 $12,568,581 $11,974,768 Net Profit Margin 2.55% 2.29% 0.59% -11.82% Net profit margin ratio represents how much net income per sales earned. Net profit margin Ratio=Net Income/Sales x 100% (Example 238,738 / 9,344,524 = 0.0255 x 100 = 2.55). Net profit margin is calculated as a percentage of the net income to sales. It expresses how much each dollar earned by BNL transfers to actual earnings for the company. Assessing the net profit margin of BNL stores, it is evident that the net profit margin had declined from 2.55% to -11.82% between 2007- 1
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SMGT4470 Case Analysis Template 2010. From 2002 - 2006 net profit margin was fairly consistent being calculated at 3.42% in 2002 and 3.14% in 2006. While sales increased immensely, the negative trend seen in the net profit margin ratio could be explained by the increase rate of selling, especially on credit as well other general and or administrative expenses. These expenditures have increased from 2004 to 2005 by as much as 25% from $1,615,437 to $2,018,114. This could also be the result of the increase in bonuses managers received as motivation for enticing customers to purchase items on credit. This analysis tool has revealed that 2009 had an extremely low profitability ratio, as well in 2010 the number dropped to a negative ratio and was calculated at being -11.82%, despite sales in 2009 and 2010 being the highest in the nine years reported. In 2010 operating income was calculated at negative ($2,255,909), with 11.3% of operating expense accounted for by selling costs reported at $256,067. To sum things up, the profitability ratio has been declining from 3.42% in 2002 to -11.82% in 2010. This could be the result of higher operating expense growth over that of sales earned growth. Although in 2010 operating income was calculated as being negative, BNL still managed to pay out dividends. The company could have made this payout as a means to keep investors happy and interested, as well as a way to potentially increase BNL’s share price. Considering this information from the point of view of an
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