A successful internet startup company, CanGo has grown from a small retailer of books to an online retail hub where customers can purchase games, movies, music, and books. CanGo is looking to move forward into new and emerging markets such as online gaming while seeking to enhance their current operations through the use of technology. In order to help address any issues which may occur because of these proposed changes, CanGo has enlisted our consulting firm to help them with their financial and managerial problems. We have identified several key areas in which the company could stand to improve, and highlighted several important financial ratios which will help the firm to monitor its position as it moves forward. Along with these insights, we have suggested several new innovations which could help place CanGo into position to become a leader in online retail and gaming.
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SWOT Analysis of CanGo Inc.
Strengths and Weaknesses (Internal)
CanGo Inc. has been an established company for over 6 years. The company has an impressive track record for selling books online. Liz, the CEO and her employees want to branch out into different venues. Because the company already has a strong customer base, it won’t be as difficult as a company just starting out. Offer a new product:
Offering a new product will bring in additional revenue. According to market researcher DFC Intelligence, the video game industry is expected to grow from $66 billion worldwide in 2010 to $81 billion by 2016. Professional Staff:
All of CanGo employees have a college background. They use critical thinking and logical reasoning to solve problems. The employees are the backbone of the company that can help grow the business into a large corporation. Low Overhead:
CanGo operate their business out of an office. They do not have to worry about the expenses that some of the larger company accumulate.
No company mission, vision, or value statement:
CanGo does not have an identity that explains the company’s existence. Nor does the company have any guiding principles. It is also very important that the stakeholder, employees, and the customers know what the company’s plans are for the future.
No strategic plan:
Liz and her employees have a lot of great ideas and want to put them into action. The problem is that the company does not have a plan, timeline, or any kind of charts, graphs and documentation to explain how they were going to go about implementing their ideas.
Shortage of employees:
CanGo has 10 employees who are great at their current positions. If the company plans on expanding the company, Liz and her management staff cannot add more responsibility to her already stressed out employees. This would cause employees added stress which could lead to reduce quality in their work.
CanGo is running low on their finances. Several events have to occur if the company want to branch out. Equipment has to be upgrade, additional staff has to be in place, capital is required for marketing and research.
Opportunities and Threats (External)
Online gaming is growing at a rapid pace:
According to DFC Intelligence, online gaming has surpassed digital music in revenue and is moving closer to passing online movies. This is a great time for a company like CanGo to branch out into the online gaming venture.
Issue an Initial Public Offering (IPO):
If CanGo goes public, this would allow their company greater access to capital. CanGo can use the capital to hire new employees and invest in new equipment. Joint venture: CanGo can collaborate with an video game software developement company. This would provide the company with experienced software developers to kick of the launch of the online gaming venture. Established customer base:
CanGo already has an establish customer base. The company can sell the new product to their own customers at a discounted rate. This would help with marketing the new games.
Established online game competitors:
Already established customers are going to try to choke out anybody who is a threat. Those companies have an established team in every department who are always looking to improve the product. CanGo has to step up the quality in their product to outshine already established company’s Pricing Wars
Online gaming is very competitive. Because there are so many company’s already establish, CanGo has to offer a product that is very attractive in price. Not enough advertising:
Online gaming is a huge market and everybody is trying to get a piece of the action. If the company lacks a strong marketing plan, the online venture could have a severe effect on the company.
CanGo currently operates primarily as an online retailer of books, compact discs, mp3 files, videos, and video game software. This configuration has allowed them to take advantage of internet marketing and expand their customer base worldwide. Despite the drawbacks of increased competition, overall growth in internet retail sales is projected to continue for many years to come, providing CanGo with ample opportunities for continued growth and expansion. The Forrester Research Firm projects that online sales in the U.S. alone will reach $248.7 billion by 2014, with an estimated increase of 10% in the five years following. (“The growth of,”) Online sales in foreign markets will also continue to grow as internet technology expands into developing markets such as Africa.
Despite these advantages, CanGo will have to continue to improve and innovate in the fields of marketing and customer service. While the internet provides equal access for all companies, large web based retailers such as Amazon and Ebay have begun to dominate the market. Leveraging their significant market presence with the increase in popularity of Ebooks, Amazon has positioned itself to take over 50% of the online book sales market by the end of this year. (windwalker, 2011) Book sales have provided a consistent revenue stream for CanGo, and the loss of this business to competitors could damage the company’s bottom line. In order to prevent this, we have suggested that CanGo move ahead with plans to streamline and automate their order fulfillment process allowing for faster and more accurate delivery of products to customers.
As the newest venture for CanGo, the online gaming market will also provide ample opportunities for launching new products and reaching new customers. A study by the Entertainment Software Association found that 72% of all American households play computer or video games. (Entertainment Software Association, 2011) If CanGo can market to these customers effectively, they will stand to gain a significant portion of this $25 billion dollar industry. In order to succeed in this endeavor, CanGo may need to expand its customer base by using marketing strategies which appeal to consumers outside of their current demographic. CanGo prides itself on appealing to younger consumers; however the video game market for older players is expanding. In 2011, 29% of all video game purchasers were over the age of 50. (Entertainment Software Association, 2011) By appealing to these customers, CanGo will be able to market their games to players in every age group.
This shift in market demographics is not unique to online gaming. While the younger generations were the first to begin shopping frequently from web based retailers, increased use of internet technology along with the potential for increased savings has led to more frequent purchasing by older Americans as well. 68% of Americans aged 31-44 report that they shop online, outpacing their younger counterparts in the 18-30 age group at only 54%. (“Online shopping by,” 2010) Studies also show that older Americans tend to make larger purchases online than younger Americans.
In order to increase consumer confidence when making these larger purchases, we have suggested that CanGo create a system which allows customers to provide feedback and reviews on the products which they purchase. Such product reviews will help consumers who may hesitate to purchase more expensive items without seeing them in person to understand exactly what they product they are purchasing will be like. Through this system CanGo will also gain valuable insight into the shopping experiences of its customers, allowing them to continually change their approach to meet their needs.
By implementing these new features as well as expanding their marketing into new demographics, CanGo stands to benefit from the increased use of online shopping by consumers. The web based structure which CanGo has developed will allow them to implement new features quickly and without alienating current customers. By continuing to enhance the overall customer experience and seeking new innovations in customer relations and marketing, CanGo is well positioned to expand their customer base far into the future.
CanGo Financial Analysis
The success of CanGo will depend on its ability to make a reasonable profit over the next five years, while being able to pay all it financial obligation and earning a rate of return which is at or above the industry average. In order to help facilitate CanGo employees and investors in determining both the company’s areas of financial strength and weakness, we have highlighted several ratios which provide an overall view of CanGo’s financial position. The key investment ratios which we have prepared can be divided into the four key areas of: efficiency, financial leverage, liquidity, and profitability. The first of these ratios, Receivables turnover, measures how efficiently the company is collecting payments from their credit customers. This ratio can be calculated by measuring the company’s annual credit sales against their average value of accounts receivable. In this case, this analysis provides us with a rate of: 50,000,000/33,000,000 =1.51 %. This number indicates that CanGo is managing their credit collections well and is taking in payments in a timely fashion, The next ratio we have highlighted with regards to efficiency is the Inventory turnover ratio. This number indicates how many times or how often the inventory is sold and replaced during the year. In this case, CanGo’s Inventory turnover ratio is 9,000,000/32,000,000 =2.8%. The higher this number climbs, the more times the company is selling off the products it has purchased to sell and therefore the more profit they will be able to make.
This is not a bad ratio for an internet retailer, however, CanGo will want to continually monitor this ratio as they move forward into new markets. The next ratio we want to explore deals with financial leverage. The Debt to Equity ratio is important to investors because it indicates how much of the company’s assets are funded by debt as opposed to equity. Firms which take on too much debt run the risk of losing the flexibility to take advantage of new opportunities as they open up. CanGo’s financial reports indicate a debt to equity ratio of: 94,900/141,000 = 67%. This tells us that less than three quarters of CanGo’s assets are funded through debt, and also that CanGo could pay off all of its debts with equity if they suddenly became due. CanGo will continue to remain attractive to investors as long as they can keep this number at this rate or lower. They will want to analyze this number carefully when making new investments in order to prevent taking on too much debt. A key indicator of a company’s liquidity is the Current ratio; this ratio gives us an even better sense of how likely it is that a company will be able to pay off its short term debts as they come due. If this ratio is high, the company will be in a better position to pay its obligations within 1year or less. CanGo’s Current Ratio is =202,020,000-37,500,000 = 5.3872.
Based on this ratio, CanGo would be able to pay off its current debts five times over, making the company a safe bet for investors. Anything under 1 would indicate that the company would not have the ability to pay off its current debt if it had to. The final ratio which we want to look at deals with the firm’s profitability. This ratio, the Return on assets ratio, measures a company’s earnings in relation to all of the resources it had at its disposal (the shareholders’ capital plus short and long-term debt). 5,486,000/235,900,000= 0.023 It shows how efficient a company is utilizing its assets in order to maximize the profits generated by them. By better understanding these financial ratios, CanGo will be better equipped to evaluate the costs and benefits of possible future expansions and investments. CanGo’s financial position is strong; however they will need to be careful to note the effects that future decisions have upon these numbers. Going forward, CanGo financial Costs will include the following:
Initial Costs :Monthly Recurring costs :
Warehouse space $2,000
Staffing/Training $40,000 ( 6 Month)
IT Support ( 1 Year ) 3,000
Software/ Hardware $150,000
Equipment Maintenance: $660
The growth of online shopping . (n.d.). Retrieved from http://www.wwwmetrics.com/shopping.htm windwalker, S. (2011, 0203). Amazon positioned for 50% overall market share by end of 2012 . Retrieved from http://seekingalpha.com/article/250507-amazon-positioned-for-50-overall-market-share-by-end-of-2012 Entertainment Software Association. (2011). 2011 sales demographic and usage data. Retrieved from http://www.theesa.com/facts/pdfs/ESA_EF_2011.pdf Online shopping by age group. (2010). Retrieved from http://www.internetretailer.com/trends/consumers/
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