• Explain Each Phase Of Snc's Journey In Simulation?
Managing Growth Assignment
Name of the Student
FIN/571
Date
Faculty Name
Managing Growth Assignment
Throughout the course of study in Finance 571 class curriculum, different aspects of the corporate finance were discussed in the class and learn. This paper will discuss the analysis of Sunflower Nutraceuticals’ (SNC) journey to increase their working capital and maximized growth in next 10 years that is until 2021. In addition to that paper will also explain following
1. Explain each phase of SNC’s journey in simulation
2. How it will effect on SNC’s working capital
3. Effect of SNC’s limited access to financing
Overview of Sun Nutraceuticals’ Operation
According to the simulation synopsis Sunflower Nutraceuticals (SNC) is a privately …show more content…
owned and operated nutraceuticals distributor that provides dietary supplements to their customers, distributors and retailers across the country and specialized in dietary supplements, such as herbs, vitamins, and minerals (Harvard Business School Publishing, 2012). They are specialized in nutraceuticals products for woman of all ages. Since they stared their operation in 2006, SNC trying to achieve the growth by expanding their operations by opening new retail outlets, by introducing their own brands particularly sports drinks, multivitamins and metabolism-boosting powder for women.
SNC is has opportunity to become one of the leading distributor in nutraceuticals industries company is struggling to meet their ends and once they already forced to reach or surpass their credit line ($3,200,000) to finance their daily operational needs. Because of risker nature of the success in nutraceuticals industry SNC has very restrictive financing options. That limits their ability to expand and explore new business opportunities to approximately to 12%.
SNC’s Simulation (Phase 1-Years 2013-15) In the phase, one SNC has four opportunities to accelerate company’s growth and those are:
I. Discontinue Poorly Performing Products – SNC has almost 100 products in their stock those are not considered everyday go to products for their customers. Discontinuing those will help SNC’s a) to decrees its DSI to 87 days, b) reduced its EBIT by $65,000, c) sales drop of $1 million, and d) at the same it will help to create the room for fast moving and high demand products. This will also help SNC to rationalize its SKU counts.
II. Leveraging Supplier Discount – Considering collaboration with the Atlantic Wellness for nutraceutical product line, SNC will increase sales upwards of $2 million. In addition SNC will also accept Ayurveda Naturals’ contract and that will offer a favorable payment term of 2/30 with a net gain of 60 by doing this SNC can lower its AP if they pay Ayurveda Naturals within 30 days and kepp the 2% discount as discussed on raw materials.
III. Acquiring a New Customer – By acquiring health food giant Atlantic Wellness to their nutraceuticals products line SNC will also acquire new clients of Atlantic Wellness. That will help SNC to improve its EBIT by $260,000 and their sales figures will significantly increase to $4 million. Thought there is improvement in SNC’s sales and EBIT, their net working capital and profit margins will remain same as current. Additionally, acquiring Atlantic Wellness improves SNC’s sales, however it may cost increase in inventory and higher AR period. Higher inventory and AR costs are not a good for SNC because SNC must keep a minimum balance of $300,000 on hand to meet their day-to-day operational needs. However, there is a silver line in entire approach as they can balanced out the higher inventory and AR cost by negotiating a favorable payment conditions with Ayurveda Natural.
IV. Tighten Accounts Receivable – SNC’s main customer Super Sports Centers is accounted for 20% off their sales and Super Sports Centers pays them after 200-days that is well above company’s normal 90-days average. Therefore, SNC can drop Super Sports Center to improve its DSO. However this decision will reduce SNC’s sales by $ 2 million.
SNC’s Simulation (Phase 2-Years 2016-18)
In the phase, two SNC has three opportunities to accelerate company’s growth and those are:
I.
Expand Online Presence –SNC is hoping to explore the new horizons to expand their reach to newer customers and retail markets. SNC is presented an opportunity to create business alliance with online nutraceuticals giant Golden Years Nutraceuticals, which has larger, and more diverse customer base. This alliance will help SNC to reduce its DSO because online sales usually collect rapidly from seven, to three, to two days during 2016-18. In addition, SNC also saw a 14%, a 12%, and an 11% increase in their sales in year over year during 2016-18. This could be beneficial for SNC, as it will help them to improve their sales without any significant effect on company’s working …show more content…
capital.
II. Pursue Big-Box Distributions – A partnership with retail giant Mega-Mart, will allow SNC to see increase in sales significantly during 2016-18. However, this will drop SNC’s EBIT and margins 7.5%, to 6.85%, but it will help to improve SNC’s DSO, as their bills will be paid on time. Therefore, partnership with retail giant Mega-Mart brings top line growth for SNC at the reduced margins and reduced EBIT.
III. Developed a Private Label Product – Collaboration with Fountain of Youth Spas insisted, SNC to develop their own private label executive nutraceuticals products line to improve their sales when widening their customer base. By doing this SNC will improve, their sales in 2016-18 and increase margins by 2% while improving its DSO and DSI. This collaboration will result in higher EBIT for SNC at the cost of slightly higher accounts receivable cost.
SNC’s Simulation (Phase 3-Years 2019-21) In the phase, three SNC has three opportunities to accelerate company’s growth and those are:
I. Adapt a Global Expansion Strategies – SNC’s new client and distribution partner Viva Familia, will help SNC to expand its horizons in the fastest growing Latin America’s economies. SNC’s collaboration with Viva Familia will decrease SNC’s DSO by 2 days as a business term Viva Familia will be responsible for any delivery charges occurred in the transaction. Thought this partnership has increased SNC’s DSI by 2 days will help SNC to improve its sales by 2% at the current business margins.
II. Renegotiate Supplier Credit Terms – SNC’s has significantly improved its sales and purchasing power by adjusting its operation courser over the period therefore, they want to renegotiate its current credit terms with its vendors. Therefore, as an advantage, SNC used its prime China Based Dynasty Enterprises with other vendors. SNC tries to secure similar term with other vendors as their prime vendor is offered them 2/10 with a net of 30. This can reduced their overall cost of sales by SNC could use their negotiation tactics with other vendors because their main vendor, Dynasty Enterprise offered SNC profitable terms of 2/10 with a net of 30. This reduces SNC’s costs of sales by $200,000 and their AR by $817,000.
III. Acquire a High-Risk Client – Collaboration with Midwest Miracles can be risker for SNC as Midwest Miracles’ financial trouble. However, this partnership will improve SNC’s sales by 30% in 2019, but this exponential growth comes with the bigger risk that is Midwest Miracles has 20% chance of filing chapter 11 and 50% chance of a full recovery during bankruptcy protection. However this collaboration can bring the higher growth rate at the higher risk premium and likely to increase
SNC’s DSO to 190 Days and longer invoice pay-period.
Simulation 's Final Matrices Results Final Metrics Results (Figures Reflect 2013-2021):
EBIT (600% Increase): Figure went from $440 to $3,080,
Sales (213% Increase): Figure went from $10,000 to $31,340
Net Income (986% Increase): Figure went from $156 to $1,694
Free Cash Flow (599% Increase): Figure went from $264 to $1,847
Total Firm Value (60% Increase): Figure went from $3,248 to $5,209
Effects of Limited Access to Financing
When in startups entrepreneurs are trying to acquire the financing to adhere their expected growth in their business usually, face limitation in their financing options because of the higher risk of failure.
The common effects of this limited access to financing are:
1. They have to pay higher interest rates on a business credits and expansion loans.
2. Businesses are force to comply with the unnecessary, costly entry and exit procedures (Parrino, Kidwell, & Bates, 2012).
3. Limited access to finance usually limits the business expansion and growth that means company usually strive for rapid profits, SME, consumer/client base, etc.
4. It can also challenge on company’s ability to secure its own product’s intellectual property right, as procedure is complicated and expensive. Therefore, it limits their ability to claim product uniqueness.
Conclusion
This SNC simulation is excellent resource for student to learn how to manage growth and capital. Along the journey, it also provides simulated hands on experience to challenges any entrepreneurs/CEOs may face in today’s business world. As simulation describe how it becomes challenging to adhere the growth and managing capital specially when startups or company may face limited access to required business credits or loan at the reasonable rate and
time.
References
Harvard Business Publishing. (2012). Working capital simulation: managing growth. Retrieved December 9, 2013 from, http://forio.com/simulate/harvard/working-capital/simulation/?#page=dashboard.
Parrino, R., Kidwell, D. S, & Bates, T. W. (2012). Fundamentals of corporate finance (2nd ed). Hoboken, NJ: Wiley. Retrieved December 9, 2013 from, FIN/571 Foundations of Corporate Finance student website at the University of Phoenix (UOPX).
Name of the Student
FIN/571
Date
Faculty Name
Managing Growth Assignment
Throughout the course of study in Finance 571 class curriculum, different aspects of the corporate finance were discussed in the class and learn. This paper will discuss the analysis of Sunflower Nutraceuticals’ (SNC) journey to increase their working capital and maximized growth in next 10 years that is until 2021. In addition to that paper will also explain following
1. Explain each phase of SNC’s journey in simulation
2. How it will effect on SNC’s working capital
3. Effect of SNC’s limited access to financing
Overview of Sun Nutraceuticals’ Operation
According to the simulation synopsis Sunflower Nutraceuticals (SNC) is a privately …show more content…
owned and operated nutraceuticals distributor that provides dietary supplements to their customers, distributors and retailers across the country and specialized in dietary supplements, such as herbs, vitamins, and minerals (Harvard Business School Publishing, 2012). They are specialized in nutraceuticals products for woman of all ages. Since they stared their operation in 2006, SNC trying to achieve the growth by expanding their operations by opening new retail outlets, by introducing their own brands particularly sports drinks, multivitamins and metabolism-boosting powder for women.
SNC is has opportunity to become one of the leading distributor in nutraceuticals industries company is struggling to meet their ends and once they already forced to reach or surpass their credit line ($3,200,000) to finance their daily operational needs. Because of risker nature of the success in nutraceuticals industry SNC has very restrictive financing options. That limits their ability to expand and explore new business opportunities to approximately to 12%.
SNC’s Simulation (Phase 1-Years 2013-15) In the phase, one SNC has four opportunities to accelerate company’s growth and those are:
I. Discontinue Poorly Performing Products – SNC has almost 100 products in their stock those are not considered everyday go to products for their customers. Discontinuing those will help SNC’s a) to decrees its DSI to 87 days, b) reduced its EBIT by $65,000, c) sales drop of $1 million, and d) at the same it will help to create the room for fast moving and high demand products. This will also help SNC to rationalize its SKU counts.
II. Leveraging Supplier Discount – Considering collaboration with the Atlantic Wellness for nutraceutical product line, SNC will increase sales upwards of $2 million. In addition SNC will also accept Ayurveda Naturals’ contract and that will offer a favorable payment term of 2/30 with a net gain of 60 by doing this SNC can lower its AP if they pay Ayurveda Naturals within 30 days and kepp the 2% discount as discussed on raw materials.
III. Acquiring a New Customer – By acquiring health food giant Atlantic Wellness to their nutraceuticals products line SNC will also acquire new clients of Atlantic Wellness. That will help SNC to improve its EBIT by $260,000 and their sales figures will significantly increase to $4 million. Thought there is improvement in SNC’s sales and EBIT, their net working capital and profit margins will remain same as current. Additionally, acquiring Atlantic Wellness improves SNC’s sales, however it may cost increase in inventory and higher AR period. Higher inventory and AR costs are not a good for SNC because SNC must keep a minimum balance of $300,000 on hand to meet their day-to-day operational needs. However, there is a silver line in entire approach as they can balanced out the higher inventory and AR cost by negotiating a favorable payment conditions with Ayurveda Natural.
IV. Tighten Accounts Receivable – SNC’s main customer Super Sports Centers is accounted for 20% off their sales and Super Sports Centers pays them after 200-days that is well above company’s normal 90-days average. Therefore, SNC can drop Super Sports Center to improve its DSO. However this decision will reduce SNC’s sales by $ 2 million.
SNC’s Simulation (Phase 2-Years 2016-18)
In the phase, two SNC has three opportunities to accelerate company’s growth and those are:
I.
Expand Online Presence –SNC is hoping to explore the new horizons to expand their reach to newer customers and retail markets. SNC is presented an opportunity to create business alliance with online nutraceuticals giant Golden Years Nutraceuticals, which has larger, and more diverse customer base. This alliance will help SNC to reduce its DSO because online sales usually collect rapidly from seven, to three, to two days during 2016-18. In addition, SNC also saw a 14%, a 12%, and an 11% increase in their sales in year over year during 2016-18. This could be beneficial for SNC, as it will help them to improve their sales without any significant effect on company’s working …show more content…
capital.
II. Pursue Big-Box Distributions – A partnership with retail giant Mega-Mart, will allow SNC to see increase in sales significantly during 2016-18. However, this will drop SNC’s EBIT and margins 7.5%, to 6.85%, but it will help to improve SNC’s DSO, as their bills will be paid on time. Therefore, partnership with retail giant Mega-Mart brings top line growth for SNC at the reduced margins and reduced EBIT.
III. Developed a Private Label Product – Collaboration with Fountain of Youth Spas insisted, SNC to develop their own private label executive nutraceuticals products line to improve their sales when widening their customer base. By doing this SNC will improve, their sales in 2016-18 and increase margins by 2% while improving its DSO and DSI. This collaboration will result in higher EBIT for SNC at the cost of slightly higher accounts receivable cost.
SNC’s Simulation (Phase 3-Years 2019-21) In the phase, three SNC has three opportunities to accelerate company’s growth and those are:
I. Adapt a Global Expansion Strategies – SNC’s new client and distribution partner Viva Familia, will help SNC to expand its horizons in the fastest growing Latin America’s economies. SNC’s collaboration with Viva Familia will decrease SNC’s DSO by 2 days as a business term Viva Familia will be responsible for any delivery charges occurred in the transaction. Thought this partnership has increased SNC’s DSI by 2 days will help SNC to improve its sales by 2% at the current business margins.
II. Renegotiate Supplier Credit Terms – SNC’s has significantly improved its sales and purchasing power by adjusting its operation courser over the period therefore, they want to renegotiate its current credit terms with its vendors. Therefore, as an advantage, SNC used its prime China Based Dynasty Enterprises with other vendors. SNC tries to secure similar term with other vendors as their prime vendor is offered them 2/10 with a net of 30. This can reduced their overall cost of sales by SNC could use their negotiation tactics with other vendors because their main vendor, Dynasty Enterprise offered SNC profitable terms of 2/10 with a net of 30. This reduces SNC’s costs of sales by $200,000 and their AR by $817,000.
III. Acquire a High-Risk Client – Collaboration with Midwest Miracles can be risker for SNC as Midwest Miracles’ financial trouble. However, this partnership will improve SNC’s sales by 30% in 2019, but this exponential growth comes with the bigger risk that is Midwest Miracles has 20% chance of filing chapter 11 and 50% chance of a full recovery during bankruptcy protection. However this collaboration can bring the higher growth rate at the higher risk premium and likely to increase
SNC’s DSO to 190 Days and longer invoice pay-period.
Simulation 's Final Matrices Results Final Metrics Results (Figures Reflect 2013-2021):
EBIT (600% Increase): Figure went from $440 to $3,080,
Sales (213% Increase): Figure went from $10,000 to $31,340
Net Income (986% Increase): Figure went from $156 to $1,694
Free Cash Flow (599% Increase): Figure went from $264 to $1,847
Total Firm Value (60% Increase): Figure went from $3,248 to $5,209
Effects of Limited Access to Financing
When in startups entrepreneurs are trying to acquire the financing to adhere their expected growth in their business usually, face limitation in their financing options because of the higher risk of failure.
The common effects of this limited access to financing are:
1. They have to pay higher interest rates on a business credits and expansion loans.
2. Businesses are force to comply with the unnecessary, costly entry and exit procedures (Parrino, Kidwell, & Bates, 2012).
3. Limited access to finance usually limits the business expansion and growth that means company usually strive for rapid profits, SME, consumer/client base, etc.
4. It can also challenge on company’s ability to secure its own product’s intellectual property right, as procedure is complicated and expensive. Therefore, it limits their ability to claim product uniqueness.
Conclusion
This SNC simulation is excellent resource for student to learn how to manage growth and capital. Along the journey, it also provides simulated hands on experience to challenges any entrepreneurs/CEOs may face in today’s business world. As simulation describe how it becomes challenging to adhere the growth and managing capital specially when startups or company may face limited access to required business credits or loan at the reasonable rate and
time.
References
Harvard Business Publishing. (2012). Working capital simulation: managing growth. Retrieved December 9, 2013 from, http://forio.com/simulate/harvard/working-capital/simulation/?#page=dashboard.
Parrino, R., Kidwell, D. S, & Bates, T. W. (2012). Fundamentals of corporate finance (2nd ed). Hoboken, NJ: Wiley. Retrieved December 9, 2013 from, FIN/571 Foundations of Corporate Finance student website at the University of Phoenix (UOPX).