Jones Company

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Issue 4: The individual division’s performance and strategy needs to be assessed in relation to the overall strategy of JCL

Concept(s): profitability analysis, financial analysis, benchmarking

Qualitative Analysis: Performance is measured by sales which will lead managers to inflate sales and only focus on revenues. They have no incentive to improve operations to lower costs or expenses to save the company money. Budgets are not made until 3 months after the start of the year, this is problematic because the company cannot forecast the amount required to sustain profitability and adjust expenses accordingly. There are quality and quantity difference in the products produced from a lack of communication of responsibilities between the departments. Quantitative Analysis: The lumberyard department is the least profitable and has lower turnover ratios than manufacturing. However, its ROE and fixed assets turnover are the highest. Manufacturing is making higher profit margins. Both division’s profitability falls below the industry averages. Lumberyard was above before 1994 but has steadily dropped since then. JCL’s cash flow statement also indicate that the company spent all its cash inflows, from fiscal year 2001, into acquisition of capital asset, dividend payments, and stock redemption. From a strategic planning perspective, JCL could have better allocate its resources and could have analyzed and invested in other projects where it can generate better yield to benefit the company in the long-run (Exhibit 3, 5, 6).

Recommendation: Use overall financial ratios of JCL that include expense measurements to provide incentives for management. Management from each department will be rewarded for positive performance from both departments.

Exhibit 1: Land Swap Comparison

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Exhibit 2: Transfer Price Analysis[pic 2]

Exhibit 3: Department Profitability

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Exhibit 4: Sales Turnover Exhibit 5: Financial Ratio Analysis [pic 4][pic 5]

Exhibit 6: Financial Statement Analysis[pic 6]

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