Accounting and Case Analysis of Fantasia SpA
Buy custom Accounting and Case Analysis of Fantasia SpA essay
The performance of Fantasia SpA has been on a steady upward trend for the last four years due to the good managerial skills employed by Roberto Ponti, which led to among other things, automation of the manufacturing process. This upward performance is seen from the financial statements of the company that show improved net sales against reduced expenses leading to increased profit before tax by 35.87% in 2004. For Fantasia to maintain steady growth in the future, a number of strategies need to be employed to make the production sustainable.
Further Minimization of cost
The reports available show that Fantasia has maintained low costs of production due to the full automation of manufacturing process. The costs that need to be controlled include production, distribution, staff and administrative costs. However, the policy of not laying off staff as long as they work hard and support the company in difficult time adopted by Ponti still pushes the cost of production high. When automation is done, many manual jobs are rendered redundant; this means that if this policy remains in operation, then many will be paid without maximizing their productivity (Dyl & Keaveny 1983).
The company should therefore retain employees who support the machines in terms of maintenance and the normal routine machine operation attendants to be able to maximize on their human capital. There is need to review this policy to reach at equilibrium between maximum production and number of staff necessary for this level of production, any redundant staff left should then be relieved (Dyl & Keaveny 1983). This will not only minimize staff related costs like wages and overheads but also make the production process smooth and efficient, way beyond what it is today.
Marketing and Expansion
Fantasia has not fully utilized the marketing potential to be able to reach as many more customers as possible. Marketing strategies that needs to be employed include marketing research, targeting, positioning and fully employing the 4P’s of marketing mix that include product, price, place and promotion (Kerin & Regan 2008).
a) Marketing research
This involves identifying new customer target groups that have not been fully tapped and new product lines that need to be opened for maximization. The company should also try to advertise the products to make the products the most preferred traditional toys in the market. The building of the brands positions the products in the minds of the users and children and this loyalty is achieved through high quality standards availability and producing different appealing designs of the products (Dibb & Simkin 2008).
The production of toys should be well planned to have different production lines with high quality, well branded, proper packaging, distribution channels and display of the products (Dibb & Simkin 2008). The safety measures of the customers should also be considered since toys are majorly used by children who are vulnerable to safety issues. Every parent would want to buy a product that has safety features to ensure that the children are not hurt during their interaction with the toys. Producing toys that meet and exceed the set safety standards will not only cement the Fantasia brand but will also create customer loyalty to these toys (Montoya 2008). This will improve sales volumes for Fantasia as well as help in keeping the products competitive in the existing and new markets.
Many customers usually avoid products that they perceive to be either underpriced or overpriced. Marketing research will therefore help them develop appropiate pricing method while considering the cost of production. Favorable pricing of quality products leads to high sales volumes and subsequently increased revenues as well as being competitive (Kerin & Regan 2008). A price that is both profitable and within the reach of the target customers should be set, especially for new products in the Fantasia product line to keep the company competitive and profitable in the present and future.
Proper distribution channels needs to be put in place to increase market presence of the products. In addition to the existing outlets, stores, small gift shops, supermarkets and hypermarkets, Fantasia should open more selling points and should employ both wholesaling and retailing techniques to maximize on the available market. Customers usually look at consistency and availability of the products in a manner that they can always get the products on demand (Kerin & Regan 2008). These features of consistency and availability should therefore be in play when scouting for new distribution agents of the Fantasia products.
This involves advertisement of the products. The company needs to take advantage of the high technology marketing techniques that include internet, World Wide Web in addition to what they have already employed (Montoya 2008). In today’s world, most if not all the people with access to the internet use the services of the social media, Fantasia should shift focus to reaching the target customer via the available social sites where the said customers spend enough of their time while online. Facebook, Twiiter and any other relevant site should with immediate effect be used for relaying adverts of Fantasia products (Kerin & Regan 2008). This will help reach as many people as possible around the world at ago. Customers can as well read the qualities and other information about the product online and post their comments on what they think of these products, this will increase the chances of persuading more customers as well as taking note of what improvements to make to keep the product most suitable to the customers.
According to the report analyzed, Fantasia should seriously consider differentiating the products to different makes, designs, and qualities that that are used across different market segments in all seasons (Gervais 2009). It is noted that much sales were realized during the 4th quarter and periods proceeding summers with 60% and 27% of the total sales respectively. This is a dangerous trend for a growing company. Internationally, different countries have summer holidays in different periods of the year. Fantasia should therefore expand their market base to international level, to be able to have consistent peak sales periods throughout the year. This will eventually lead to nearly double improvement in sales by the end of the year and increased production volumes to meet these demands as well as profit growth.
Overhaul Credit Policy
The official credit policy in place at Fantasia is that receivables are to be paid within 90 days while payables to suppliers are to be done within 60 days. This is not appropriate since the reverse should be the case to keep the company liquid. An organization should always receive payments from clients way before making payments to suppliers (Ali 2000). It is this policy that in a way has led to the increase of credit line to€ 5.6 million that is way above the provided € 5 million. If this policy is not changed, then Fantasia’s capital will be held in debts to unmanageable levels up to including stalling of operations. Fantasia should with immediate effect change its credit policy and demand payments from customers in 60 days or earlier while arranging with the suppliers to receive their dues in 90 or more days (Ali 2000). This will keep them afloat by increasing liquidity status.
At present, the minimum cash balance at Fantasia is 2 million Euros, with the planned expansion program; this must be increased to an appropriate level. The services of a finance expert should be sought to take into account all the existing and planned activities to arrive at the minimum that is necessary for smooth operations.
There is need for Fantasia to start sourcing supplies from cheaper sources. Since the company is opposed to outsourcing production to Asian manufacturers who help in cutting logistics and transportation costs, it is very necessary that the horizon is widened while sourcing for raw materials to be profitable. The company can turn to Asia and Africa for cheaper inputs, this should however be done while taking into account the quality standards in place so that not poor quality materials that could compromise the set standards find their way into Fantasia. Due diligence should be taken when sourcing for potential suppliers and these materials should also be purchased in bulk where discounts can be negotiated to guarantee lower costs of supplies.
The present dividend policy requires that 50% of profits should be paid in dividends; this is not sustainable if growth is to be realized. Any company seeking to grow must start by keeping a reasonable portion of total profits as reserves, it is these reserves that help in catering for expansion and additional production costs (Frankfurter, Wood & Wansley 2003). Additional production is a necessity in expansion because with new markets comes new demands and to keep market presence, more units of Fantasia products must be generated. It is therefore inherent that parts of profit are ploughed back to minimize dependence on borrowed capital from financial institutions (Frankfurter, Wood & Wansley 2003: Lease RC. 2000) which are usually very expensive. Fantasia must with immediate effect alter its dividend policy and reduce dividends payable to a reasonable minimum or even suspend payments during the period of national and international expansion.
Listing at the Stock Market
The new expansion plan may necessitate considering the offer of minimal shares through an IPO into the Italian stock market to raise more funds. This is however an option that should be considered if all the capital raising alternatives from financial institutions and other sources prove elusive since Fantasia is a family business and Ponti would like to keep it that way.
In as much as Antonia, Roberto’s daughter hold an MBA, it is of huge significance that Ponti brings on board some new non relative blood into the management, this will not dilute the business and its values but instead inject a fresh point of view in managerial issues to Fantasia. Change in many occasions may not be well implemented when the management has close sentimental attachment to traditional ways of doing things and since Fantasia has been family run for many years, implementing the recommended changes may not be properly undertaken if the implementers remained Ponti and her favorite daughter.
Fresh members of the management team are an option that is necessary to provide alternative point of view during the implementation of recommended changes. Professionals should hence forth be hired to offer their much needed expertise to Fantasia as a compliment to Ponti and daughter’s inputs.