Case Study on A123 Company

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After analyzing the case the company’s focus on hiring educated employees and innovation has provided the company with a competitive advantage and thus allowed them to remain in the forefront of this industry. According to Hoffman, “A123’s joint ventures, partnerships, and strategic alliances have strengthen their position in the transportation and electric grid market” (Hoffman). Both of which is important to their success.

Case Analysis: Financial Analysis

A123 has seen a significant increase in revenues between the year 2007 and 2010. In 2007 they had revenue of 41.3 million and 91 million in 2010. Overall the A123 sales are flat they see a nice increase one year with significantly decrease in the other year (Wheelen, 2014). The company is apparently spending a lot of its money in operational costs such as marketing, and money spent on the goods they need to make the products that they sell. The operating income has been very similar to the net income and therefore they have not seen a positive increase in their revenues. The company A123 is going to have to be forced to look into capital to continue to grow and be able to maintain the same operating level. The company is obviously receiving huge capital from investors because that is the only way that the company has been able to maintain a low level of debt. The product revenues for the consumer market went from 93% in 2007 to 26% in 2009. The consumer market definitely saw a decrease and not a little one but a significant one. Although there was a decrease in consumer, transportation was at 7% and then increases to 59% so it makes up for the decrease that the company saw in consumer products. The electric grid had absolutely no market and went up to 15%, and will probably keep rising because it is a fairly new market for them and they are just begging to get their feet wet with it. The fact that they spend a lot of their money on operational things and Research and development hasn’t happened to show any significant increases in their numbers as of yet. The fact that A123 could both benefit consumer and partner needs is very important because it means that it will make revenues more than one way, so if there is a decline in the partner sector than they can focus merely on the consumer sector and vice vesa (Wheelen, 2014).

The current Ratio is the ratio used to determine if the firm will be able to pay its liabilities. A123 does not have any debt, they have gotten investors to invest money in them and they have no accrued any long term or short term debt. The chart shown below Shows a firm’s ability to pay current liabilities using assets that can be converted to cash in the near term. Ratio should definitely be higher than 1.0 and the fact that the ratios are higher than 2.o means that this company has no debt to pay back which is one of the good signs acknowledged in this case (Wheelen, 2014).

Current Ratio

2008

2.15

2009

9.96

2010

2.61

A123 return on assets and all of them are negative and there is no significant increase in any of these numbers shown below from 2008 to 2009 you saw a bit of a drop in the negatives which is good but then in 2010 it raised back up again, not quite as high as it was in 2008 but it made up for the drop that it had made in 2009. These ratios show that the company has no significant increases and is basically making it just to run its operations and produce the goods (Wheelen, 2014).

Return On Assets

2008

-0.38

2009

-0.14

2010

-0.27

In conclusion A123 Systems needs to pick up on the revenues that they are producing because they are spending too much in the cost of making the actual goods than in what they are actually selling. A123 needs to make sure that their inventory is actually moving and not just sitting there because that will definitely put a strain on the company. Their short history has been filled with increasing costs and negative cash flows. The fact that their sales have maintained relatively flat and they have not experienced much profit in the last couple of years is something that raises an eyebrow (Wheelen, 2014).. They have been given a $249 million grant in toward their new plant in Michigan but if they do not begin to show some increase in profit the money will seemingly be invested by personnel or companies believing in the idea and the concept of what the company stands for and believing in the companies future but it will eventually go bankrupt. A123 needs to keep the focus of selling their products to first markets and then consumers because business-business is were the big money is. The fact that they keep getting government funding and have such strong relationships with them could definitely mean that they will have a little better luck making it long term because they will have the money to be backed up and they will not own that debt to anyone (Wheelen, 2014).

Case Analysis: Case Recommendations

Continue to focus on overcoming the common obstacles in addressing the requirements of transportation, electric grid services and consumer application.

The common obstacles in addressing these different market segments are similar across the board and being comparatively successful to its peers in overcoming them as quickly as possible would place A123 in an advantageous position. The traditional problems are as follows: delivering sufficient power for target applications, maximizing ability to operate for sufficient duration between charges, delivering of sufficient energy at high power, safety, increasing cycle and calendar, shortening charge time, maximizing power to size and weight ratio, minimizing self discharge during storage, lowering costs, and securing availability of expensive, variable, raw materials.

Hedge Foreign Currency Risk

Despite the fact that A123 has significant expenses, assets and liabilities that are denominated in foreign currencies that could adversely impact their gross profit, operating results, profitability and cash, the company has not used any forward contracts or currency borrowings to hedge exposure to foreign currency exchange risk. As A123