Mgmt485FinalProjectIsatouOGaye.docx

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43 2015.0 2016.0 2017.0 2018.0 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 Return on Total Assets (ROA) The ROA ratio measures the company ability to produce income using their assets. As mentioned the company assets are predicted to increase in the next two years as well as income. With net income nearly doubling from 2016 to 2017 the ROA ratio is going to increase. From 2017 to 2018 the net income increase is offset by the predicted increase in fixed asset for the
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44 year. The 2018 ROA ratio increase but only by 1%. Even with an increase in fixed assets the increase in net income is enough to raise the ratio. This shows the company is more effectively using assets to generate income. Strategy Evaluation Strategy evaluation is based off of three main activities. The first activity is to examine the underlying bases of the firms strategy. The second is to compare expected results with actual results. Lastly, it is important to take corrective actions to ensure that performance conforms to plans. When developing strategies, predictions must be made. Predictions are made based on factual analysis of previous years. Predictions are rough estimates due to price differentiation between the costs of doing business. Office Depot is operating under the assumption that it is using the best strategy, however the 100% debt financing option The first assumption is that SG&A cost will decrease with implementing an e-commerce strategy. The expense for the predicted two years was determined by accounting the store closures. If this assumption is not met and other selling expenses increase then the EBIT will not be reached. Based on current information, the assumed decrease is 2.4 percent in 2017 and 4.2 percent in 2018. Selling expenses can fluctuate and assumed rates can vary.
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45 Another assumption was an increase of online sales from the strategy of 20 percent each year. That is assuming that customers will par take in online sales. Office Depot cannot force their customers to buy from their online website so if the assumption is not met then strategy will not be a success and the company will start to see a steady decline in profits. In recent years, Office Depot has acquired OfficeMax to help accelerate growth. They purchased OfficeMax under the assumption that it will be beneficial by helping them compete with their main competitors. If the assumption is not met, then they will face many problems, including net losses and additional expenses. Office Depot predicted that they will only have to take a 100-million-dollar loan to cover the e-commerce strategy. That is assuming that the current liabilities will stay the same and that there will be no additional long term liabilities. If this assumption is not met and the company has to take on more debt that is going to reduce their overall profit. The company cannot predict the unexpected need to take on additional debt if a problem arises.
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