Organic NZ Balance Issues Analysis

Words: 1464 Pages: 2

Organic NZ is based in New Zealand. The company intends to enter the China and Middle Eastern markets with its milk powder product. This paper presents the company financial statement and a marketing plan to penetrate the markets in China and the Middle East.

Financial statement

Opening entries to set up the accounts

Organic NZ Balance sheet statement. As at 1^st February 2015.

Assets		Amount ($)
Current Assets
	Cash	105,000
	Petty Cash	5,000
	Temporary Investments	500,000
	Inventory	1,505,000
	Supplies	265,000
	Prepaid Insurance	70,500
	Total Current Assets	2,042,500
Investments		1,800,000
Property, Plant & Equipment
	Land	270,500
	Land Improvements	320,500
	Buildings	900,000
	Equipment	1,105,000
	Total fixed assets	2,105,000
Intangible Assets
	Goodwill	535,000
	Trade Names	1,101,000
	Total Intangible Assets	1,325,000
Other Assets		13,000
	Total Assets	3,754,500
Liabilities		Amount
Current Liabilities
	Trade Payables	75,000
Long-term Liabilities
	Notes Payable	120,000
	Bonds Payable	1,900,000
	Total Long-term Liabilities	2,201,000
Stockholders’ Equity		Amount
	Capital	1,637,500
	Total Liabilities & Stockholders’ Equity	3,754,500

The balance sheet is prepared based on the assumption that the business will commence the milk powder export on 1^st February 2015. To start up the export business, the owners will require a total capital amounting to $3,754,500. The owners will raise $1,637,500 and the remaining will be obtained by using long-term debt facilities amounting to $2,030,500.

Organic NZ Trial balance. As at 1^st February 2015.

Account	Debit	Credit
Cash	9,500
Petty Cash	600
Temporary Investments	51,000
Inventory	245,000
Supplies	46,000
Prepaid Insurance	9,600
Investments	170,000
Land	31,500
Land Improvements	35,300
Buildings	790,000
Equipment	1,100,000
Goodwill	355,000
Trade Names	1,150,000
Other Assets	19,000
Trade Payables		25,000
Notes Payable		101,000
Bonds Payable		2,050,000
Capital		1,715,000
Total	3,741,000	3,741,000

Forecast Monthly Cash Flow Budget Statement for the Year 2015
Particulars	Start up	Feb	March	April
Estimated Sales Units		1000	2000	3000
Sales Revenue		25,500	51,000	76,500
Cash Inflow
Accounts Receivable		25,500	51,000	76,500
Initial capital	1,637,500
Total (A)	1,637,500	25,500	51,000	76,500
Cash outflow
Cost of Sales		1505	25,000	37,500
Accounts Payable		11,200	22,400	27,500
Worker wages		13,300	13,300	13,300
Factory Rent		8,300	8,300	8,300
Electricity and Utilities		1,420	1,420	1,420
Other Admin expenses		1,020	1,020	1,020
Sales Promotion		4,120		4,120
Total (B)	447,600	39,360	46,440	69,010
Net cash (A) – (B)	240,400	-13,860	4,560	7,490
Opening balance		240,400	226,540	231,100
Closing Cash	240,400	226,540	231,100	238,590

Income Statement

Based on the projected cash flows for three months of operations in China, the following profit and loss statement is prepared.

Particulars	Feb	March	April
Sales Revenue	25,500	51,000	76,500
Worker wages	13,300	13,300	13,300
Factory Rent	8,300	8,300	8,300
Electricity and Utilities	1,420	1,420	1,420
Other Admin expenses	1,020	1,020	1,020
Sales Promotion	4,120		4,120
Total Expenses	28,160	46,440	69,010
Net Profit	-2,660	4,560	7,490

Table 4: Profit and Loss Statement.

The profit and loss statement indicates that the company’s sales in units are expected to grow by 1,000 additional units every month. Furthermore, the company’s revenues are expected to grow by 100% and 50% in March and April respectively. In three months of operations in China and the Middle East, the company is expected to generate total revenues of $153,000. The company will spend $4,120 on sales promotion in February and April. The company’s total expenses are expected to increase by 65% and 49% in March and April respectively. The company is also expected to generate profits after one month of operations. The total profits expected from the business in three months are $9,390.

Key Performance Indicators

The key performance indicators of the company’s plan of entry into the Chinese and Middle Eastern markets are provided in the following table.

Current Ratio	27.23
Quick Ratio	7.17
Inventory Turnover	0.05
Total Asset Turnover	4.22%
Return on Shareholders’ Equity	0.57%
Receivable Turnover	1.00
Debt to Equity Ratio	1.28
Cash Flow from Operations to Total Liabilities	(0.0008)

Table 5: Key Performance Indicators.

From the table, it could be indicated that the company could expect a low value of total asset turnover ratio from its business in the new markets. The liquidity position of the company will remain strong. The shareholders / owners of the business are interested in the return on their investments, which is measured by the return on shareholders’ equity ratio. The ratio value is just 0.57% that implies that the proposed entry in the new markets is expected to yield low returns in the first three months of operations. However, if the company goes ahead with the new markets entry then it could expect growth in its revenues and profits. The projections made for the business indicate that the company is expected to make sales on credit to its customers. As a result, the receivables turnover is expected to be 1.00. Furthermore, the company is expected to raise majority of funds required for the new investment from external sources as debt. The total debt to equity ratio is 1.28. The ratio value suggests that the company would finance 78% of funds required for its operations in China and the Middle East by external debt and only generate the remaining 22% of funds from its own equity. Another important ratio that is the cash flow from operations to total liabilities has a negative value, which suggests that the company’s new business will generate negative cash flows of $1,810 in the first three months of its operations. Although the company expects to generate profits from its operations, the net cash flow from operations is likely to be negative in the early months of operations.

Recommendations

The company should increase its distribution to achieve higher sales in the next few months.
The company should adopt a competitive pricing strategy to ensure that it can achieve higher sales in the future.
The company should continue to invest in promotional activities to attract customers in the new markets.

Marketing plan

Introduction

Basically, this marketing plan initially targets the China market with the Middle Eastern bloc markets to follow. In order to release the final milk powder product to the targeted markets, the process will commence with buying milk in New Zealand, processing it into baby formula and then shipping it to China. Our distributor will then release the final product into the market. The penetration is discussed in the marketing plan below.

Doing business in China and the Middle East

Marketing challenges

Political requirements conformity

The essential political requirements of the Organic NZ company towards the entry planning and development phases are those that impact directly on the stability of the Chinese and Middle Eastern cultures. The overall development levels exhibited by the Middle Eastern market are relatively stable and high though still fragile, thus, discouraging prospective investors. The rate at which the economies in Middle East and China are growing is incredibly rapid and this has led to the diversification of the economy.

Demographic segmentation

The penetration strategy should be that which causes minimum disturbances to the company in terms of financial resource and the dairy organizational activities. The demographic factors are deeply entrenched in the religious perceptions in China and the Middle East. These two markets are characterised by Buddhist and Islamic religions respectively. Thus, the company must present it milk powder product within these religious demographic characteristics to ensure that the potential customers are in a position to identify with the product.

Legal aspects

The provisions of patent and trademark rights in these markets have helped to eliminate the chances of fraudulent attempts on a company’s product. The trademark rights in China and the Middle Eastern regions will ensure that the company is not disadvantaged. The company could take up this as an assurance of the protection to its product against illegal dealers.

Marketing opportunities

The inflation rates in the target markets are at a minimum and the currency management authorities are confident that the rates are not only minute, but also manageable. Thus, it will not have a substantial macro effect on the market demand pillars. The company’s revenues are projected to increase if it chooses to invest in these markets. Besides, these markets have more than one billion potential customers.

Entry strategy

With a capital base of more than three million dollars, the company possesses veto powers above other milk powder exporters. Reflectively, to capture the distribution channel, the beneficial interests will be distributed across the commodity pool in the two markets. Also, this strategy will facilitate the restructuring effective sales and public awareness to develop product knowledge among the targeted clients in China and the Middle East. Correspondingly, the Organic NZ may seek to offer different packages and sizes for the milk powder product to ensure that customers, who buy in relatively smaller quantities but in bulk, are integrated in the marketing plan. Besides, the plan should offer a variety of different distributions channels that will be vital in the attraction of new customers in the Middle East and China markets.