University of the East

College of Business Administration

Case 1: Toll Brothers Inc. 2007

Submitted by:
Dean Brian R. Vias

Submitted to:
Dr. Rosalinda Lacerona, MBA
I. Title of the Case
Toll Brothers Inc. 2007
II. Time Context
Year 2007
Current Mission:
We design, market, and arrange financing for single/family detached and
attached homes in luxury residential communities. We are also involved,
directly and through joint ventures, in projects where we are building, or
converting existing rental apartment buildings into high, mid and low-rise
luxury homes. We cater to move up, empty-nesters, active-adult, age
qualified and second home buyers in 21 states of the United States.
III. Summary
Toll Brothers Inc. was founded in 1967. The company is building houses
predominantly in its early years which results to expansion in the 20 th century
in various locations. The company reached its peak in the year 2005 where it
went downhill the following year. The company suffered high ending inventory,
diminished sales and bloating liabilities. Having the company enduring these
challenges, it is still having a strong edge in its industry. Toll Brother Inc. have
possible options in order to pursue moving forward. First, is through selective
acquisitions. Second is to maintain and grow the companys market share.
And last is to aggressively decrease its operating cost and overhead.
IV. Objective
To recover Toll Brothers Inc. financial status by increasing its profitability and
inventory turnover in a span of 3 years.
V. Central Problem
How will the company recover from the recession of its financial status?
VI. Areas of Consideration
Strengths
Strong market position
Broad scope in terms of geographical presence
Secured enough credit cash to be used for upcoming opportunities
Weakness
Declining profitability
 Rapid increase of liabilities
Slow turnover of inventories
Opportunities
Smaller builders under pressure due to downturn may lead to Tolls
acquisition
Consolidation in homebuilding industry
Wide variety of target customers in terms of age
Threats
US housing market is sluggish
Increasing competitors in US homebuilding industry
Aggressive advertising price reduction and increased sales incentives of
competitors

VII. Alternative courses of action

A. Expansion via selective acquisition
Due to housing downturn, the number of small builders are increasingly under
pressure which makes them a candidate for Tolls acquisition.
Acquiring some of these builders enhances the scope of the companys
operations.
B. Maintain or grow companys market share
The company can achieve this through aggressive price discounts, incentives
and other promotions. Doing this may increase the companys sales and
increase its turnover of inventories.
C. Cost reduction
The company can aggressively decrease cost and overhead in its operation.
This can be done by cancelling land acquisitions, reducing of employees and
closing segments which are underperformed.
Analysis

Criteria Pros Cons

A. Expansion via Increases the scope Prolonged housing
selective of companys downturn might
acquisition operation jeopardize the
Other builders might companys
sell their assets like profitability
land directly to the
company
 Might acquire
assets and reduced
cost due to housing
downturn
B. Maintain or grow Increases sales A decreasing profit
companys market Increases inventory margin due to
share turnover discounts in the
Increased long run
profitability
Can pressure other
competitors
C. Cost reduction Potential increase in Potential decrease
profit in efficiency due to
Reduces corporate downsized
expenses employees
Only reduces
corporate expenses
but not currently
completed houses
Affects the
companys long-
term profitability
and growth

Criteria ACA A ACA B ACA C

Long-term 8 9 7
effectivity
Addressing of 8 8 8
Central Problem
Short-term 7 7 6
effectivity
Implementation 7 7 7
Sustainability 6 8 6
Effect on 7 7 8
Financial Status
Total 43 46 42

VIII. Recommendation
I therefore conclude that the best possible solution to the problem is the
Alternative Course of Action B which is to maintain or grow the companys
 market share. This is because among the three courses, it is the most flexible
in terms of the effect on the financial status of the company. Adjusting the
price by way of discounting can affect the sales thus increases it and reflects
to the profit. Sales incentives are way of motivation to your workforce in order
to exert more effort. It might increase your corporate expenses, but it also
increases your sales and brings potential customers. Marketing promotions
can be optional but by doing this might increase not just the companys
potential customers but also prospective investors.
Since Toll Brothers Inc. has a competitive edge in its market, the company
can be diversified by using these acts.
IX. Plan of Action
Objective: To recover Toll Brothers Inc. financial status by increasing its
profitability and inventory turnover in a span of 3 years.

Target Possible Action Target Year

Increase companys Promoting price 2nd year
profitability discounts from various
Toll communities can
generate additional sales.
Since sales is directly
related to profit, as the
sales increases, profit
also increases at a
certain rate.
Increase companys Providing reasonable 2nd year
inventory turnover sales incentives. This
pushes the companys
employees to exert extra
effort to sell any unsold
inventories.
Increase potential Provide other marketing 1st - 3rd year
customers and investors promotions such as
advertisements for the
early years to gather
prospective customers.
After the profitability and
inventory turnover had
been stabilized, potential
investors may come and
take risk with the
 company

X. Potential Problem
A. What if profit margin decreased significantly?
B. What if there is no material increase in potential customers and investors?
C. What if there are excessive corporate expenses?
XI. Contingency Plan
A. We have to adjust the pricing discounts for it to not affect the profitability of
the company.
B. Price discounts can be done regressively, which means as times goes by,
the discounts decrease thus reduces the risk of deteriorating profit in the
long run.
C. Other marketing promotions can be removed since the company is
already well established and has a strong edge over other competitors.
D. Removing other marketing promotions reduces the weight over
decreasing the companys profitability