BUSINESS EVALUATION REPORT

ACTION INC.

Presented to: Angela Zhang

Presented from: May Jean, Liew
Student ID: 487943
Action Inc. 2

Executive Summary
This report provides an analysis and evaluation of the Action Inc.
current and future profitability and financial stability. The company was
growing gradually throughout 2012 to 2014 and is currently making an
average industry gross profit margin. Accounting Information provides
insight information of the past company performance that enables Action
Inc. to make effective decisions on future activities. According to the data
analyzed, the most profitable product is Eyewear product. While
the most profiting retailer type is from the Outdoor shop whereas
the most popular ordering method is from the website. Generally, Internet-
savvy consumer prefers to purchase products through the retail website. In
addition, other issues within the business are identified such as unrecorded
revenue; the significant decline in outdoor protection sales and deriving
negative margin in First Aid product in 2013. In order to maximize the
profitability of the company, Action Inc. should look into expanding new
market such as looking for new retailers, establishing an own website, as
well as aggressively advertise the top 10 products through internet
marketing. Furthermore, introducing a diverse range of higher margin
products like outdoor protection, golf equipment product and source for
cheaper suppliers. Lastly, a sound internal control system is recommended
for a better inventory management.

May Jean, Liew (487943)

Action Inc. 3

Table of Contents Page

1. Introduction………………………………………………..4

2. Main issues identified:

2.1 Profitable Products and Profit Margin………………………….6
2.2 Profitable Retailer Type…………………………………………….7
2.3 Profitable Ordering Method………………………………………..8

3. Other Issues
3.1 Decline in Outdoor Protection Revenues……………………….9
3.2 Unrecorded Revenues………………………………………………..9
3.3 Negative profit margin in First Aid in Q1 2013………………9

4. Recommendations
4.1 Increase Revenues……………………………………………………10
4.2 Decrease Cost…………………………………………………….…..12
4.3 Implement Internal Control……………………………………….12

5. Limitation of Accounting Information System……..13

6. Conclusion………………………………………………….13

7. Dashboard…………………………………………………..14

May Jean, Liew (487943)

Action Inc. 4

1. Introduction

This purpose of this report is to address:

• Products that generate the best value for Action Inc.

• Retailer type that generates the best value for Action Inc.
• Order taking method that generates the best value for Action Inc.
• Any other underlying issues and problems faced by Action Inc.
• Recommendations on the problems identified.

This report uses the Accounting data for analysis and has incorporated SWOT
analysis to study the core areas faced by Action Inc. Lastly, recommendations are
provided for effective decision-making.
 
 
 

Strength Weakness
1. Diversified Producsts 1. Decrease revenues in high profit
2. Growing Revenues margin products
3. Good Profit Margin 2. Unrecorded revenue
3. Negative margin identified

SWOT  
Opportunities Threats
1. Leverage on online sales to increase
revenues 1. Over depended sales by outdoor
shop and sports store
2.High profit margin from Golf
2. Foreign exchange loss
Equipment

 
 
 
 
 
 
May Jean, Liew (487943)
Action Inc. 5

This chart illustrates the type of products in Action Inc. arranged in accordance their total revenues:
1.  Eyewear  
2.  Watches  
3.  Naviga(on    
Personal
Accessories 4.  Knives  
5.  Binoculars  

1. Tents
2. Packs
Camping 3. Sleeping Bags
Equipment 4. Cooking Gear
5. Lanterns

1. Woods
2. Irons
Ac(on  INC.   Golf Equipment 3. Putters
4. Golf
Accessories

1. Tools
2. Rope
Mountaineering
Equipment 3. Safety
4. Climbing
Accessories

1. Insect
Repellents
Outdoor
Protection 2. Sunscreen
3. First Aid

May Jean, Liew (487943)

Action Inc. 6

2. Three Main Issues

2.1 Profitable Products and Profit Margin

The   top   two   best   selling   products   are   eyewear   and   watches.  Both   of   them   are   from   Personal  
Accessories  and  their  revenues  accounted  for  17%  of  the  total  sales.  It  followed  by  Tents  and  Packs  which  
both  are  from  Camping  equipment  line.  However,  their  gross  profit  margin  contribution  is  slightly  below  
average  at  just  36%  and  40%.  Generally,  the  most  profitable  products  are  from  three  product  types  that  
are  Personal  accessories  (green),  Camping  Equipment  (purple)  and  Golf  Equipment  (red).  

Top  10  Revenues  By  Product  Type  

 $150.00     60%  
Millions  

50%  
 $100.00     40%  
30%  
 $50.00     20%  
10%  
 $-­‐         0%  

Sum  of  Revenue   Average  of  Gross  margin  

 
 
 
 
 
 
 
 
 
 
 
 
 
 

May Jean, Liew (487943)

Action Inc. 7

2.2 Profitable Retailer Type

 
Outdoor  shops  produce  the  largest  revenue  accounted  for  34%  of  total  sales.  It  followed  by  sports  
store  and  department  store.  These  3  retailers  contributed  to  78%  of  total  sales.  While  golf  shop  and  direct  
marketing  contribute  to  the  highest  gross  margin.  The  golf  shop  is  generally  selling  at  a  premium  due  to  
its   nature   of   the   sport.   Therefore,   the   margin   from   the   golf   shop   is   inevitably   higher   than   other  
distribution  channels.    
 
 

Types  of  Retailer  

 $250.00     54%  
MILLIONS  

52%  
 $200.00     50%  
 $150.00     48%  
46%  
 $100.00     44%  
 $50.00     42%  
40%  
 $-­‐         38%  

Sum of Revenue Average of Gross margin

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May Jean, Liew (487943)
Action Inc. 8

 
2.3 Profitable Ordering Method

Placing  an  order  through  the  website  is  the  primary  source  of  ordering  method  which  accounted  
for  64%  of  total  sales.  It  then  followed  by  phone  calls  order  and  sales  visit.  This  could  indicate  that  most  
of  the  consumers  are  IT  savvy  and  their  age  group  is  around  20-­‐40.  They  prefer  to  shop  online  rather  than  
shop  visit  due  to  its  convenience  and  hectic  schedule.    

Order Taking Method

Ordering
Method Percentage
Web 85.06%
Telephone 6.37%
Sales visit 5.95%
Fax 1.48%
Mail 0.67%
Special 0.37%
E-mail 0.09%

Web Telephone Sales visit Fax Mail Special E-mail

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May Jean, Liew (487943)
Action Inc. 9

3. Other Issues
3.1 Decline in Outdoor Protection Revenues

The   revenue   for   outdoor   protection   line   has   dropped   significantly   from   2012-­‐2013.  This   product  
line  has  the  highest  margin  contribution.  The  main  products  that  caused  this  a  significant  drop  is  insect  
repellent   and   sunscreen.  These   products   have   dropped   53%   and   67%   respectively.  This   is   alarming   as  
these  products  used  to  generate  the  greatest  margin  for  the  company  are  now  no  longer  profiting.    
 

Insect Repellents and Sunscreens

Revenues 2012 - 2013
2 70%
MILLIONS

1.5 65%

1 60%

0.5 55%

0 50%
Insect Repellents Sunscreen

2012 - Sum of Revenue 2013 - Sum of Revenue

2012 - Average of Gross margin 2013 - Average of Gross margin

 
 
 
3.2 Unrecorded Revenues
 
Price  was  not  recorded  in  some  products.  This  issue  needs  to  be  investigated  if  this  was  due  to  the  
human  error  or  accounting  system  error.    
 
 
3.3 Negative profit margin in First Aid in Q1 2013

The   selling   price   for   First   Aid   product   was   lower   than   the   cost   price   and   it   leads   to   a   -­‐3%   profit  
margin.  This  may  indicate  that  there  is  some  error  in  the  accounting  information  system  that  captured  
the  price  wrong.  
 

May Jean, Liew (487943)

Action Inc. 10

4. Recommendations
4.1 Increase Revenues
4.1.1 New Market

• Action  Inc.  should  constantly  source  new  retailers  especially  specialized  in  the  outdoor  
shop  and  heavily  promoting  the  most  profitable  products.  By  doing  so,  the  company  could  
negotiate  a  lower  cost  with  suppliers.  
• Majority  of  the  sales  are  generating  through  the  distributors  website.  Therefore,  Action  
Inc.  should  consider  in  developing  an  own  website  and  advertise  heavily  on  the  Internet  
such  as  Facebook  and  Google.  
 
 

Revenues by Ordering Method from Top 4 Retailers

$200.00
$180.00
$160.00
$140.00
Millions

$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$-
Web

Telephone
Fax

Web
Telephone
Fax

Web
Telephone

Web
Telephone
Mail

Mail
E-mail

E-mail
Sales visit

Sales visit

Sales visit

Sales visit
Special

Outdoors Shop Sports Store Department Store Golf Shop

 
 
 
 
 
 
 
 
 
 
 

May Jean, Liew (487943)

Action Inc. 11

4.1.2 Increase Golf Equipment Product range

• Revenues  for  the  golf  equipment  product  have  increased  34%  from  2012  to  2013.  This  shows  
that  the  demand  for  golf  equipment  is  very  popular  and  additional  products  should  be  added  
to  the  range.  Furthermore,  it  has  the  highest  profit  margin  contribution.  

Gross Margin by Products

80%
70%
60%
50%
40%
30%
20%
10%
0%

Golf Equipement Revenue 2012 - 2013

$40.00
Millions

$35.00

$30.00

$25.00

$20.00 2012

$15.00 2013

$10.00

$5.00

$-
Golf Equipment

 
 
 
May Jean, Liew (487943)
Action Inc. 12

 
4.2 Decrease Cost
4.2.1 New Suppliers

• Action  Inc.  should  consider  looking  into  the  Asia  market  like  China  to  source  cheap  suppliers  
for   outdoor   protection.   Since   the   profit   margin   is   very   high   for   this   category,   Action  
Inc.  should  make   it   a   priority   to   gain   back   the   market   share   for   Insect   Repellents   and  
Sunscreens.    
• Action   Inc.  could  try   to   source   for   designers  in   the   USA   instead  of  
Denmark.  This  could  reduce  the  time  and   money   spent   due   to   the  time  and   geographically  
differences.  It  could  also  reduce  the  exposure  of  foreign  exchange  loss  if  EUR  against  USD.      
 
 
 
4.3 Sound Internal Control
• The   negative   margin   and   unrecorded   revenue   should   be   closely   monitored.  Implementing   internal  
control  such   as  segregation  of   duty   between   stock   count   and   accounting   record.   Perform  
inventory  reconciliation  every  month  end,  ensure  the  price  up  to  date  and  send  to  all  the  retailers.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

May Jean, Liew (487943)

Action Inc. 13

5. Limitation of Accounting Information System

The  data  obtained  is  in  the  quantifiable  term,  it  is  essential  to  look  into  the  qualitative  area  for  
effective  decision-­‐making.  For  example,  the  company  should  take  into  account  on  customer  satisfaction  
when  introducing  a  new  product  by  giving  out  free  samples  and  conducting  surveys.  

6. Conclusion
In  conclusion,  Action  Inc.  is  growing  steadily  in  terms  of  revenue  and  its  profit  margin.  However,  
the   company   should   look   into   expanding   the   company   by   having   its   own   distribution   channel   and  
introducing   additional   high   margin   products.   Furthermore,   strong   internal   control   should   be  
implemented  in  the  company  so  that  could  minimize  the  risk  of  loss  of  revenues.  Lastly,  the  company  can  
continue  leverage  on  the  expertise  that  has  gained  in  capture  higher  market  share  and  ensures  customer  
satisfaction.  
 

 
 
 

 
 

Main issue

May Jean, Liew (487943)

 Action Inc. 14

Dashboard

Top 10 Revenues By Gross Margin by

    Products
    Product Type        
       
    $150.00     0.8   80%  
70%
MILLIONS

0.6 60%
$100.00             50%
   
0.4
 

      40%
$50.00 30%
0.2
    20%
$- 0 10%
   
Eyewear
Tents
Woods
Cooking

Tools
Binoculars

Putters
Insect
0%
Navigation

First Aid
Safety

   
   
   
    Sum of Revenue Average of Gross margin
   
   
    Types of Retailer Order Taking Method
   
    $250.00 54%
52%
MILLIONS

$200.00 50%
    $150.00 48%
46%
    $100.00 44%
$50.00 42%
    $-
40%
38%
   
               
     
Web Telephone Sales visit Fax
   
    Sum of Revenue Average of Gross margin Mail Special E-mail
   
   
   
   
   
   
   
   
   
   
   

     
May Jean, Liew (487943)