MG112A Business Policy & Strategy

CASE ANALYSIS
By: Group 2
Group Members:
Derama, Grace T.
Guintibano, Clarice I.
Aguila, Christian Dave O.
I.

Title of the Case: Inner-City Pain Corporation (Revised) Case

II.

Time Context: A financial difficulty during a slowdown in the overall economy and
housing market

III.

Central Problem:
Statement of the Problem: What are the strategic steps that Mr. Walsh can make
to improve the financial situation and reputation of Inner-City Paint Corporation?
Symptom: A financial difficulty experiencing by Inner-City Paint Corporation because
of large amount of liabilities and a deficit in owners equity.
Cause:
Problems regarding employees:
-unskilled laborers and non-union workers
-hiring of more part-time workers than full-time
Problems regarding product/inventory:
-Inconsistent selling price
-Weak average collections
-Weak controls for inventory
Problems regarding Customer perception
-Customers dictates the price and payments
-Distorted business reputation

IV.

Viewpoint: Mr Walsh, the President/Owner

V.

Statement of Objectives:

Must Objectives:

To install an internal control system in three months

Immediate training of employees in 2 weeks

Hire experts for different function areas such as marketing, accounting, finance and
human resource in a month.
To engaged with an auditor and consultant immediately within the month.

Want Objectives:

VI.

To increase the average collection by 30 %.

To reduce the salary given to the president by 50%.
To reduce the liabilities by 50%.
To increase profit by at least 60%.
Areas of Consideration
Financial Analysis:
Inner-City Paint Corporation's revenue for the year is $1,784,080. It experienced a
Net Income of $ 17,610.
Profitability Ratio:
Return on assets = Net Income/ Average Assets for the Period
17,610/294,565 = 5.98% (This indicates that the company is very asset-heavy)
Liquidity Ratio:
Current Ratio = Current Assets/Current Liabilities
262,515/285,030 = 0.92 (Inner-City Paint Corporation has a problem meeting its
short-term obligations)
Strategic Factors affecting Inner-City Paint Corporation:
Environment: Mr. Walsh manages the company the same way he did when he
started the company. He doesnt delegate or empower employees. He also doesnt
have a policy around recruiting and hiring the right employees for the job that is
affecting the growth of the company because he cant trust hiring new salesmen he
is losing an opportunity to penetrate the market and getting a bigger share, the same
issue exists with hiring unskilled laborers that is affecting his productivity level and
the opportunity to serve larger clients and getting larger orders.
Product: Mr. Walsh didnt anticipate possible change in the external environment; he
also didnt have a strategic plan for company growth and the steps that he needs to
take when his company grows. Therefore, he got lost and couldnt deal with the
problem of slow down in the housing market and economy overall and didnt have an
options. His inventory record keeping is also a major problem that is holding his
customers from relying on him for big orders.

Competition and Market Entry: Inner-City Paint is confronted by aggressive

competition in its business. There are small paint manufacturers in Chicago that
supply the immediate area. The market for paint is highly competitive. It doesn't
compete with giants such as Glidden and DuPont. Competition among the giants
isn't that fierce, but they lose their large orders to them.
Financial Structure: Inner-City Paint is in a difficult financial situation due to the fact
that they have to pay their suppliers and taxes and because they didnt have an audit
because Me. Walsh didnt want to incur the expense of it.

INTERNAL ENVIRONMENT
STRENGTHS
1. Competitive price
2. Fast delivery for contractors
3. Steady growth in the market
4. Consistent growth of the company
5. Low cost of raw materials
6. Fast service
7. Consistent quality

WEAKNESSES
1. Lack of handing over, employee
empowerment and operating without
management or financial controls
2. Lack of a consistent and reliable
inventory control system
3. Customer perception as a company
that negotiates price and unreliable to fill
large orders.
4.Low financial resources
5. Lack of domestic & international
presence
6. Lack of management & financial
controls
7. Unskilled employees

EXTERNAL ENVIRONMENT
OPPORTUNITIES

THREATS

1. Increasing market share by

taking larger order
2. Purchasing a computer to
organize business and reduce
needless paperwork
3. Hiring professional salesmen to
ensure consistent growth and
consultants to identify problems
and provide solutions

1. Slowdown in the housing market

combined with the slowdown in
the overall economy caused
financial difficulty for the
company.
2. Rumors abound that the
company is in difficult financial
straits, that it is unable to pay
suppliers, and it owes a
considerable sum for payment
on back taxes.
3. No audit has been performed.
This could lead to penalty by the
Internal Revenue
4. Strong competition from Glidden
and DuPont
5. Decreasing market
6. shipping costs
7. customers lack of confidence
8. Poor economy

With all of this information we can point out the following:

Major problem that is facing the company is that Mr. Walsh didnt include his
income taxes in his income statement; he owes $38,510 in taxes.
Most of the expenses are attributable to Walsh's salary. His six-figure income
is not the average salary of a president in such a small company.
High amount of bad debt.
Cost of goods sold is relatively high.

VII.

Alternative Courses of Action

ACA # 1: Engaged with a consultant to properly solve the errors of the companys
President in terms of management
Advantage: The problem can be solved immediately and it can make the company
stable and avoid bankruptcy
Disadvantage: It is costly, the company cannot produce cash for the fee to be paid to
the consultant
ACA # 2: It can make an additional loan to pay short-term loans.
Advantage: None
Disadvantage: It is absolutely not a good idea because it will just make the company
more buried in debt.

ACA # 3: Purchasing a computer to organize the business and reduce needless

paperwork
Advantage: It can make operations simple and efficient
Disadvantage: It is not a top priority for the company to buy computers, it will be
costly.
ACA # 4: Immediately collect the bad debts from the customers.
Advantage: Collections will generate cash for the company and will improve liquidity
ratios to become appealing to the creditors
Disadvantage: Theres a risk of non-collection.
ACA # 5: Provide an internal control system for inventory to monitor the flow of the
activities in inventory.
Advantage: It will help the company to control the flow if inventories and avoid
financial losses.
Disadvantage: It requires time and cost.
ACA # 6: Hire experts in the field of sales and production.
Advantage: They can help generate more sales and losses can be avoided in the
production due to unskilled workers.
Disadvantage: It will be costly.
VIII.

Final Decision
After making a thorough analysis, the company should undertake ACA # 1, 2, 4, 5 &
6 with additional considerations to be discussed in the detailed action plan.

IX.

Detailed Action Plan

The company should undertake the following courses of action:

TIME PERIOD
WITHIN 30 DAYS

30-90 DAYS

RECOMMENDED ACTION

Collect bad debt from clients

Hire salesmen and accounting managers
Pay his taxes before he gets audited.
Grow the business and solve current
financial problems.

Develop a computerized inventory

control system.
Take a cut in his six figures salary.
Find and research new suppliers.
To be able to provide timely delivery for
large orders.
Invest the money in growing the

90 DAYS-OVER

business and gaining more market

share.
Minimize the cost of goods sold.

Buy more equipment and trucks.

Improve management skills and create
policies.
To earn the business of larger clients.
To manage the business and the growth
of the company and to be able to acquire
companies in the future that will help him
in obtaining a larger market share.