Mercury Shoes Week 7 - Part 7 - Sportswear Essay Example

32820630   Mercury Shoes Week 7

 

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Introduction:

 

This paper analyses and discusses the impact of the ethical situation and the implementation of innovation of technology at the Mercury Shoes.

 

Analysis and discussion

 

Business impacts coming from ethical situation and the implementation of innovation of technology should be seen on the basis of evidence presented.  Their effects could be best seen in the financial statements particularly in the income statement, which measures the performance of the company for a given period.

A summary of the company’s performance shows the following:

Quarter, year
Total Revenue
Subtotal
Net earnings after taxes
1Q, 2003
627.96

( 9.66 )
2Q
622.44

( 2.10 )
3Q
683.89

31.07
4Q
725.01
2,659.30
32.04
1Q, 2004
654.37

( 21.34 )
2Q
683.48

( 1.05 )
3Q
726.99

12.07
4Q
764.90
2,829.74
18.06
1Q, 2005
695.67

( 12.79 )
2Q
675.54

( 12.70 )
3Q
727.21

22.10
4Q
763.07
2,861.49
30.66
1Q, 2006
644.32

( 54.02 )
2Q
653.71

( 50.60 )
3Q
722.04

( 27.36 )
4Q
750.56
2,770.63
( 16.84 )
Total revenues almost never increased for the past three years with net earnings appearing as negative figure for the last fourth quarter of 2006.  Further analysis revealed comparing profitability per quarters for the past the years 2003 to 2005 it was observed that it is only during third and fourth quarters that net earnings are positive implying there is seasonability of   the products.

As to liquidity, the company may be doing well but this will eventually deteriorate if losses or low profitability will continue.  The high debt to equity ratio of more than five is to one (5:1) from 2003 to 2005 and above ten is to one (10:1) fro 2006 the company indicates that the company is highly risk and if losses continued, bankruptcy is not a very far event to happen.  See Appendix A for details.

If we consider the effect to be measured in 2006, the ethical situation and the implantation of the innovation and technology will not be good to the company. It is given that Mercury Shoes is a very well known and well-respected athletic shoe company.  The company has been running into some trouble and with this new product hoping to turn things around.  Right now Mercury has been turning everyone away in all of the major markets and in the process margins are dropping as well.  If the results of the 2006 would be the figures and ratios that would be used to show the effect the technology, there seems to be not basis of making the business profitable.

Although they may have an efficient manufacturing process with innovative technology with state of the art facilities for producing a new product, results must show proof of better performance.

Its problems of  low factory utilization and insufficient use of corporate resources could indicate only two things its product is not selling well against competitors or the industry is no longer profitable.  Profits not improvement for the past three years indicate may indicate unacceptable performance.  Although the company has maintain a good liquidity as evidenced from current ratios of even more than 5: 1 for the past three years, eventually the company will have to fold if profitability (Meigs and Meigs, 1995) will not improve

Conclusion

Technology may be beneficial to business but it could also create competition where further profitability in the industry where Mercury Shoes operate.  With the technology that has come, better prospects should have been expected but no matter how do improve the technology if the demand for the companies products will not back it up because of changing tasted and preferences of the customer, the management of Mercury must evaluate remaining options and shift to more profitable industry.

Any good effect of the new product called TechStep where the company expects customers to be willing to pay a premium price, is still to be seen.  The company is advised rather to study whether there is demand for its products than merely hope.  This is also in the light of the of the low volumes of the product at the start.

The companies debt equity shows that the company is highly leveraged and if will not improve its profitability the faces the risks of bankruptcy.  It is high liquidity will also be lost if low margin or losses during first and second quarters will continue.

Appendices:

 

Appendix A – See Excel file.

 

 

 

References:

 

Meigs and Meigs (1995), Financial Accounting, McGraw-Hill, Inc.  New York, USA.

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