“We Are One” is a clothing retailer with seven a product line that includes hoodies, tank tops, and jumpsuits. The brand also sells shorts, joggers, sweatshirts, and short and long sleeve t-shirts. The company has established short and near short term goals for the next one, three, and five years. The company seeks to achieve a net profit of $350,000 in the first year, $800,000 in the third, and $1,200,000 in the fifth. The analysis below highlights the company’s potential in attaining these objectives. Indeed, companies must have goals to enhance the sustainability of a company’s future (Suryanto and Thalassinos, 2017). Financial goals in business planning are also essential in assessing corporate risks (Izuymov et al., 2017) for use by shareholders (Gapsalamov et al., 2017) and for determining profitability (Bittman et al., 2017). The analysis below highlights the company’s potential in attaining these objectives.
In the first year, “We Are One” intends to sell 680 units of all seven products at varying profitability points. Since the company could offer a 10% discount, it expects a gross profit of $394,740. After expenses, estimated at $153,202.2, the company will make $241,537.8 in net profit, which is less than the target net profit of $350,000. The company’s management resolved to re-invest up to 74 percent of the net profits and distribute the rest shareholders.
By the third year, it is expected that the cost of goods will increase by 3% after adjusting for inflation and other variables; however, the retail price will remain the same. These adjustments will influence the brand’s markup and gross margins. However, the company intends to compensate for the rise in costs by selling 1500 units of each product, which is 10,500 units – meaning the company will thus have to procure 1560 units for each product. Consequently, the cost of goods sold will rise from $118,318.2 to $243,750, representing a 106.01 percent raise. This year, the company expects to gain a gross revenue of $857,250, which means a 117.17 percent raise. Equally, the gross margin for all sales will rise to 71.6%, up from 70%. The company’s expenses will also rise by $29,535 after an increase in salaries, cost of bags, and rent, which is expected to increase by 10%. Overall, the company’s net profit of $674,512.5 falls short of the targeted $800,000 – a factor attributable to rising costs of goods and expenses. In this year, the company will re-invest $380,000 and share $294,512.5 among investors.
The cost of goods is expected to rise by a further 3 percent in the fifth year while the selling price will remain the same for all products. This year’s objective is to procure 2340 units of each product and sell 2300 units of each. The purchase will cause an increase in the cost of goods sold, gross and net profits. This year, “We Are One’s” goal is to make $1,335,150 in net revenue, a goal it will achieve should they sell the expected number of units. However, the rise in profits comes in the wake of an increase in expenses. Employees will demand $32,000 more than the third year, while marketing costs will rise to $40,054.5. The packaging cost will also rise to $18,000 and rent to $81,312 from $73,920 to years prior. The company’s objective in the fifth year is to make a net profit of $1,094,783.5, re-invest 47 percent and share $574,783.5 among shareholders.
To achieve its objectives, “We are One” should increase the target unit sales. An increase in the overall gross profit set against the rising cost of business should enable the company to meet its objectives on the amount of net profit sought. The company should also seek ways to stop the increasing cost of goods sold by seeking alternative suppliers or creating efficiencies on its supply chain.
References
Bittman, B., Davies, A., Russell, W., & Goussakova, E. (2017). Advance Placement and the achievement gap in the 21st century: A multiple linear regression of marginalized populations in AP enrollment. Research in Social Sciences and Technology, 2(2).
Gapsalamov, A. R., Vasilev, V. L., & Ilyin, A. G. (2017). State planning of the Russian economy: Past and present. International Journal of Economic Perspectives, 11(1), 474-480.
Izuymov, I. V., Sadykova, H. N., Liman, I. A., Korenkova, S. I., Ignatova, Y. V., & Bogdanova, J. Z. (2017). Economic and legal review of pretrial warning of insolvency in foreign legislation. Man in India, 97(20), 475-493.
Suryanto, T. (2017). Cultural ethics and consequences in whistle-blowing among professional accountants: An empirical analysis. Journal of Applied Economic Sciences, 12(6) 1725-1731.