High Performance Tire Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

High Performance Tire Case Solution

Workforce problems

Before Williams’s takeover; HPT used to rely on qualified and experienced professionals with productive sales force. However, under his cost cutting strategy; William replaced the high qualified professionals with non-professional new mechanics, leading towards a decline in the quality of services as well as the firm’s overall productivity. Along with it, the new accounting system implemented by cheap vendor resulted in high employee turnover,increasing the backlog and delaying the orders. The sales force was based on only commission, which resulted in customers’ alienation with aggressive sales. All these factors-were contributing in the deterioration of the company’s services as well as its image, which were required to be fixed as soon as possible.

Ratio Analysis

The ratio analysis has been performed in order to analyze the financial position of the company. The key ratios include the liquidity, profitability, efficiency, debt and the profitability ratios. In order to measure the company’s liquidity; current ratio and quick ratio have been calculated (See Appendix 1). Current ratio shows that how many assets are available for covering each unit of a liability. The company’s liquidity ratio has declined over the time, i.e. from 1.88 in 2001 to 0.93 in 2003. The company’s current ratio is much less than the industry’s average current ratio of 1.9, which means that the company’s liquidity position is not sufficient and it is unable to meet its current obligations through its current assets.

Similarly, the quick ratio, which is calculated by dividing the quick assets with the current liabilities, has also decreased over the time, i.e. from 0.38 in 2001 to 0.04 in 2002. The quick ratio is also less than the industry’s ratio of 0.51.

Additionally, the company’s efficiency ratios are calculated in order to measure the operational efficiency. The inventory turnover days show the number of days in which the inventory is turned over by the company. The company’s inventory turnover days have increased from 81 days in 2001 to 97 days in 2003. It shows that the company‘s operations have been disrupted, as the company lacks the skilled labor and is unable to turnover its inventory, as the company’s sales have also decreased.

Furthermore, the accounts receivable turnover days which show the number of days which the company takes to convert its accounts receivables into cash, are much less than the industry standards, i.e. 20 days. It might be due to stringent collection policies by the company, because of which it is losing its customers. The accounts payable turnover days that shows the number of days taken by the company to pay to its creditors, have increased to a greater extent, i.e. from 18 days to 41 days in 2003. It indicates that the company’s profitability position has declined and the company is unable to pay back to its suppliers.

The company’s profitability position has been analyzed by the gross profit margin, net profit margin, operating margin, return on assets and the return on equity. These all ratios have declined from 2001 to 2003, and all of the profitability ratios are well below the industry standards, highlighting the company’s vulnerable financial position.

The company’s debt ratio has also increased from 31% to 68% in the duration of 2001 to 2003. The industry’s average debt ratio is 30%, which shows that the company is unable to meet its operating expenditures, as a result of which; the company is left with no other choice than to take additional loans. The company’s ability to pay for interest expenses form its operating income, has decreased from 12 times in 2001 to 2.55 times in 2003, as shown by the times interest earned ratio, which is much less than the industry’s average TIE ratio of 14.63.

Recommendations

In order to get the company’s financial operation and market performance on track; the company should consider revising the whole organizational levels. First of all, William should be replaced by a potential and capable manager, who would have the potential to run the organization in its best interest. Secondly, the company should start offering the branded tires and it should diversify by offering different brands of tires. It is because, the company has lost its market shares as well as its customer base, just because of offering unbranded tires. Moreover.....................

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High Performance Tire Harvard Case Solution & Analysis