Science Technology Corporation

Reaction Paper: STC – Estimating Fund Requirements I personally believe that there were some irregularities from which Science Technology Company made its 5-year projection. Firstly, the company was clear on their vision or path on which they want to go – maintain its leadership in test technologies but it failed to take into consideration the growing competition which powers have been very evident between years 1980 and 1984. Secondly, they only based their budget purely on their vision towards sustaining market leadership by projecting higher sales increasing 30% year on year. Third, it failed to look into cost savings measure and instead research and development cost was driven directly by its high sales. And fourth, there had been lack of coordination among members of the leadership team of the company and let the process of budgeting and forecasting role entirely to its chief financial officer. The process of budgeting and forecasting embodies lots of coordination meetings among various key divisions in the company to align their goals on the company wide objectives. In STC, it is clearly mentioned in the first paragraph of the business case that the plan would greatly influence the financial policies and total development of the firm, if both the plan and the premises on which the budget was based were agreed upon and endorsed by the board or the management. With this, numbers were set so high driven by the objective to sustain market leadership.
Aside from drastic increase in sales projection, I also observed the following notable figures from its projected financial statements: (1) DSO - the company is facing problem on collection process as it projects single-digit cash on hand as compared to three-digit sales figures, (2) High inventory level – despite the nature of the company, it is unusual to have increasing inventory level projected at 58% of COGS, (3) Low fixed assets – it was projected that research and development cost is proportional to