An Analytical Report on Wesfield Incorporation Finance Essay

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Establishment: It was founded in 1903 in Georgia as a manufacturing of disposable paper cones for the growing textile industry. Employees: Westfield employed more than 1000 person in operations throughout the United States. Position: Westfield was the leading manufacturing of paper tubes for the paper industry, the 3rd largest manufacturing of composite cans, and one of the largest users of west paper. Conversion to packaging company: Westfield was a paper company but through accusations and internal development, it was now (in 1986) disrobed as a packaging company. The company was moving into plastic packaging with the production of plastic containers to complement the composite can product line. Composite cans Project Composite can are manufactured from convolutedly or spirally owned plies of paperboard with labels and liners of foil, plastic or paper. The major advantage of composite cans is that they offered definite cost advantage. For can manufacturers, they were less expensive to fabricate than material and glass container. The composite cans could be produced at a rate of 24000 per hour. No proprietary technology was employed in the manufacture of composite cans. Companies competed on quality, service, and packaging innovation. Price was already low – less than one half can per cent. There was little room for price wars. Packaging innovation was either developed internally or at the instance of a customer. Customers allows try to introduce their product at a differentiated form. So as to insure competitive advantage then other competitors and to insure cost saving. The outside packaging was usually the first thing the consumer saw of the product were making the decision of which the product to buy. The package had to be easily filed and functional in holding the product without product without package or product deterioration. The composite can satisfied a majority of these characteristics requirement. It met customers’ need for a strong, lightweight alternative to metal and glass containers and could take advantage of high speed filling equipment with minimal changeover cost. Criteria of project selection When any project is evaluated, Westfield maintains the following criteria: 1) Westfield requires a 15% after tax return on investment. 2) Pricing should cover the following cost: variable and manufacturing cost, plant fixed cost, marketing, technical and administrative cost (MTA), and recovery of initial capital outlay. 3) Westfield used a straight line depreciation period of eight years and allocated MTA as 5 percent of net sales. 4) Account receivable and inventory averaged 25% days of sales and 50 day of cost of goods sold, respectively. Critical Analysis of the Project People: Every organization is the group of people striving to achieve common goal. People are the blood of every organization. So it is very important to select good and effective people those can achieve the organization’s goal. This people must be directed by the efficient leader. By analyzing people composition of the company is quite good. It is the third largest company of its industry. It is lead by right people. Project management: A successful Project Manager must effectively manage the resources assigned to the project. This includes the labor hours of the designers, the builders, the testers and the inspectors on the project team. It also includes managing any labor subcontracts. However, managing project resources frequently involves more than people management. The project manager must also manage the equipment used for the project and the material needed by the people and equipment assigned to the project. People: Project employees, vendor staff, subcontract labor  Equipment: Cranes, trucks, backhoes, other heavy equipment or Development, test, and staging servers, CD burners or Recording studio, tape decks, mixers, microphones and speakers. Material: Concrete, pipe, rebar, insulation or CD blanks, computers, jewel cases, instruction manuals. Managing the people resources means having the right people, with the right skills and the proper tools, in the right quantity at the right time. It also means ensuring that they know what needs to be done, when, and how. And it means motivating them to take ownership in the project too. Team leadership: Team leadership differs from traditional top-down leadership in the following ways: Responsibility for group effectiveness is not on the leader’s shoulders but is shared by the group. Control over the final decision is not held by the leader but is best left to the group. The importance of one’s position and power are de-emphasized in team leadership. The leader perceives the group not as a set of individuals but as an “interacting and collective team.” The task-oriented functions of the team are not performed only by the leader but are shared by the entire group through its new roles. Group maintenance functions are not performed systematically but are emphasized and shared by the group as a whole. Socioemotional processes and interactions, while mostly ignored by leaders in top-down settings, are observed closely by team leaders. Expressions of members’ needs and feelings are not discouraged but are encouraged by team leaders and are dealt with openly in meetings. SWOT Analysis Strengths: Westfield was the leading manufacturer of paper tubes for the paper industry. It is the 3rd largest manufacture of composite cans and one of the largest users of waste paper. Price is lower each cans at one and half cent The major advantage of composite cans was that they offered definite cost advantages. Weakness: Packaging innovation was either developed internally or at the instance of a customer. Historically Westfield was thought of as strictly a paper company Opportunities: Westfield had just licensed a plastics forming process, The plastic package was an attractive substitute for composite cans. Plastic packaging provided a functional solution to a long problem. Composite can satisfy the customer demand for convenient, reasonable packaging. Plastic would give Westfield a proprietary technological competitive advantage and provide its customer with a container that Westfield’s competitors could not offer. Threats The composite cans market had been threatened by alternative packaging type, principally plastic. If the plastic technology cannot be introduced portfolio in the market, the competitors will take the advantage of sneaking market share of Westfield. Take the more effective plasticak technology in time. Competitors can be more effective plastitek technology before the implementation of Westfield technology. As a result the Westfield expected market share can significantly fall. Risk Analysis Business risk Business risk is the uncertainty of income flows caused by the nature of a firm’s business. The more uncertain the income flows of the firm, the more uncertain the income flows to the investors. Business risk depends on a number of factors that are as follows Demand variability: The more stable the demand for a firm’s products, other things held constant, the lower its business risk. Sales Variability Variability of Net Income Sales price variability: Firms whose products are sold in highly volatile markets are exposed to more business risk than similar firms whose output prices are more stable. Input cost variability: Firms whose input costs are highly uncertain are exposed to a high degree of business risk. Ability to adjust output prices for changes in input costs: Some firms are better able than others to raise their own output prices when input costs rise. The greater the ability to adjust output prices to reflect cost condition, the lower the business risk. Ability to develop new products in a timely, cost effective manner: Firms in such high-tech industries as drugs and computers depend on a constant stream of new products. The faster its products become obsolete, the greater firms businesses risk. Foreign risk exposure: Firms that generate a high percentage of their earnings overseas are subject to earnings declines due to exchange rate fluctuations. Also, if a firm operates in a politically unstable area, it may be subject to political risk. The extent to which cost are fixed (operating leverage): If a high percentage of its costs are fixed, hence do not decline when demand falls, then the firm is exposed to a relatively high degree of business risk. This factor is called operating risk. Financial risk Financial risk is the uncertainty introduced by the method by which the firm finances its assets. If a firm uses only common stock to finance assets, it incurs only business risk. If in addition to using common stock, a firm borrows money to finance investments, it must pay fixed financing charges prior to providing income to the owners. Presently west field, Inc debt is low in so it incurs less financial risk but when the company will go for higher debt to capital structure then it will raise the financial risk. Financial Leverage: Financial leverage is created by sources of financing that have fixed costs such as primarily debt requiring interest payments, preferred stock which obligates the company to make preferred dividend payments, & leases which requires specified lease payments. These financing costs effects the company’s EPS in the same way that operating fixed cost effects EBIT. The more fixed charge financing the firm uses, the more leverage it will have. The degree of financial leverage is calculated as: The degree of financial leverage reflects the leverage in the firm that is due to the firm’s financing policy. The effect of financial leverage is to magnify changes in EBIT into larger changes in EPS. The British expression of financial leverage is ‘gearing’. DuPont Analysis The importance of ROE as an indicator of performance makes it desirable to divide the ratio into several components that provide insight into the causes of a firms’ ROE or any changes in it. This breakdown of ROE into components ratios is generally referred to as the Dupont system. To begin, ROE ratio can be broken down into two ratios- net profit margin and equity turnover.

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Net Income

Sales

Total Assets

Total Debt

Total Assets

Asset Turnover

Profit Margin

Financial

Plan

Return on Assets A¸

(1-Debt/Assets)

Return on

Assets

Return on

Equity

=

From the figure we can see that Westfields return on equity was 18.29 % in year 1981 and after that return on equity decreased to 13.14 % in 1982 and 14.18% in year 1983. But after that ROE increases and in year 1985 ROE increased to 16.9%. Qualitative Judgment Price -Quality- Service Relationship If Westfield can ensure better quality service than other competitors it can charge little bit higher price. Competitive advantage Plastitek would give Westfield a proprietary technological competitive advantage and provide its customers with a container that Westfield’s competitors could not offer. Market Share Westfield already holding 23% market share of the total FCJ market. As their strategy in case of plastitek is proactive rather than reactive, so it has an opportunity to charge a higher price. Findings If Westfield launch Plastitek at the prevailing price of composite cans it can earn after tax ROI of 12.5% over the estimated eight year life of the project. If the projects life is stretched for further two years past its eight year estimated life it can earn on an average ROI of 13.67% over the life of the project. To meet the target after tax ROI of 15% Westfield would have to charge a price of $53.75 per thousand units that is $ 1.41 ( $ 53.75-$ 52.34) higher than the prevailing price of composite cans. NPV of the Plastitek project (at the prevailing price of composite cans For the estimated eight year life $ 847.39 thousands For 2 years past estimated eight year life $2394.57 thousands 5. IRR of the Plastitek project (at the prevailing price of the composite can) For the estimated eight year life 18.9% For 2 years past estimated eight year life 21.39% 6. NPV of the Plastitek project (at the new price of $ 53.75 per thousands) For the estimated eight year life $ 2763.29 thousands For 2 years past estimated eight year life $4514.86 thousands 7. IRR of the Plastitek project ( at the new price of $53.75 thousands) For the estimated eight year life 18.9% For 2 years past estimated eight year life 21.39% Recommendation Composite can project should be replaced by innovative Plastitek technology and will charge a price of $ 53.75 per thousands of cans. Besides this some significant recommendations are given below: Westfield should increase the employee cohesiveness by facilitating various social campaigns inside the organization. Management process should segmented in small groups and delegating authority to this small group to influence innovation. Besides management innovation technological innovation should bring to fulfill the customer needs and demand. Though financial condition of the firm is good more dynamic decision should bring in to accelerate their growth. Justification Targeted after tax ROI could be ensured with charging little bit higher price or premium of $ 1.41 than prevailing price (per thousand cans) to make the project economically feasible. Expected NPV with different scenarios is positive. Expected NPV with additional risk and inflation adjusted WACC is positive. The premium adjusted price that has ensured the targeted return would be quite possible because of Quality services provided by west field Introduction of innovative packaging system that would enhance price level through differentiating customers’ product than other competitors via increasing demand for Westfield’s plastitek packaging system. The tendency of moving toward plastic packaging of the industries that could provide the opportunity of price premium via increasing demand. IRR is higher than risk and inflation adjusted WACC Conclusion It could be expected that projects are managed and therefore that management theory would apply to the management of projects but this research has revealed that the commercial nature of the origin of management and the industrial nature of the origin of projects has kept these two theories on separate paths. Of particular interest has been the discovery that neither management nor project management, despite their importance to society and longevity of application, have to date not been ascribed professional status. That is to say no formal accredited body represents the “profession” in either case. If one is to consider that these two occupations are responsibly for practically all of wealth production and consumption, then greater is the surprise that no governing body exists.

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An Analytical Report On Wesfield Incorporation Finance Essay. (2017, Jun 26). Retrieved August 16, 2022 , from
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