They had a profit of 4,339,987 while we only ad a profit of 3,949,209. A part of the reason why our net income didn’t meet our forecasts and profit before taxes fell short of Bickerer’s is due to the limited production of the youth bike. The demand for the product was above 80,000 units, however we were not able to capitalize on that because we had only projected the demand to be 30,000. Therefore we had a loss sale of 50,000 units according to the product report (appendix). The underestimation in sales was due to the lack of knowledge of how the market would react to the launch of the youth bike.
Overview Our goal for this rollover is to continue our steady increasing our share holder value and maintain our lead in the industry. This year, we want to continue directing our focus on the launch of the new youth bike. In order to achieve this, we made major of our decision directed towards marketing. We decided that’s our best option to maximize our sells for the new youth bike is to increase the price of the mountain bike to reduce the sale and hopefully direct the demand to the youth. We always found a way to decrease our operational cost to increase our revenue.
For our financial decisions, we shall repurchase our shares and try to pay out the maximum amount in dividends to potentially increase our shareholder value once again. Marketing Decisions In order to promote our new youth bikes, we decided to switch our focus from the mountain bike to the youth bike. We accomplished this by increasing the price from $735 to $850, make our mountain bike less appealing. Our reasoning for such a significant increase was to give us the ability to have a lower volume of supplies, leaving more capacity for the new eke.
Since we do not want high volume of sales for the mountain bike, we decided to eliminate all advertising and public relationship expenses for the mountain bikes. For the youth bike we decided to keep the advertising expenditure at 2 million in order to raise the awareness of this new product line. This also helps establish a good market share in case competitors also decide to launch the youth bike. Since we have a low capacity for the bike, we also decided to increase the price from $370 to $400, resulting in an increase in gross margin.
With this increase, we are still producing ATA high yet relatively low volume. Operations Decisions We decided to decrease the price of mountain bike production from $1 34 per bike to $108. The difference of $26 for 1 1 ,OHO units results in a saving of almost $300,000. In the meanwhile, we also decided to dump our finish goods inventory, incurring a loss of $175,000. We decided to increase our capacity from 20,000 to 27,500 and efficiency from 1 to We want to avoid increasing capacity significantly in order to avoid low efficiency.
At the amen time we want to keep our wastage at a minimum. We reduced our retail margin for the bike and sports store to 20% while reducing the discount stores to 27%. These new retail margins will allow us to increase our revenue. We decided to keep the support for the discount store the same because our distribution is the highest and we want it to remain that way. Financial Our financial strategy was to repurchase as much shares as possible while paying as much dividends as possible in order to raise our shareholder value. We spent $2, 290,000 in repurchasing our shares.
By doing so, it reduced our number of shares from 904,982 to 818,969. With 7. 1 million dollars in idle cash, we decided to increase dividends to $2 per share resulting in an expenditure of 1. 6 million in dividends, which is only 1 00,000 dollar in increase in expense from last year. With these financial changes, our share holders value continues to rise by a 389%, by far surpassing our competitors. Compared to our competitors, we had the lowest number of shares with the highest amount of dividends being paid. Bikes ‘Russ being in second place had a dividend payment of $1. And 1, 1 50,878 shares. Forecasted Results From the Forecast Results of 201 5 (appendix), we can assume that our net income will be 9,676,458, a sale revenue of 27,047,918, a gross margin of 19,031 654, and a net income (% of sale) to be 36%. We expect our volume of mountain bikes to fall, however our gross margin will continue to increase. We can anticipate our volume for the youth bikes to increase and decrease the amount of loss sales. With our increase in dividend payments and repurchasing shares, we can assume that our share holder’s value will continue to rise.