Hey, can anyone help me look at the case of NWC, and answer Question#3 in the instructions file. Thank you!

Instructions on Case Study 1 North West Company (NWC) Reading Tips: Read the NWC case several times. At least three times. The first-time reading is to skim through the case scenario to understand the case context. Second time, read the requirements (question 1, 2 and 3) and then reread the case to high light the key areas to investigate and delve into. The third-time reading is from the perspective of formulating recommendation(s). Additionally, read chapter 7 of your financial accounting text book (John Parkinson). Particularly, from page 238-267, for sharpening your understanding of financial statement analysis and gaining knowledge on using the accounting information, generated from the analysis, in long term decision making. Synopsis of NWC: The NWC is a growing food retailor operating in markets that other large food retailers tend to avoid. The company has operated retail locations in Western and Northern Canada, Alaska, the South Pacific, and the Caribbean. NWC and the food retail market provide the context to analyze the financial performance of a growing company in a distinct segment of a major industry. Learning objectives of NWC case: Develop students' understanding of financial statements. Complete a preliminary evaluation of the financial position and historical performance of a form, and in particular, demonstrate financial statement analysis calculations and understand their purpose, how to interpret them, and the significance of these calculations -specifically, in comparison to a rival or industry indicators. Case response requirements: After reading the NWC case, answer the following requirements: Q1: How has NWC performed financially? (Use the financial statements analysis techniques that you have learned from chapter 7 of your financial accounting text book. Q2: How does the firm's domestic performance compare to its international performance? Q3: Should the investment fund company continue evaluating NWC as a potential investment? Submission information: Add a cover page stating the name of the group members who actively participate in the case writing assignment. Also mention the name of the group members as \"NONPARTICIPATIVE\" who hasn't participated in the case analysis. Use a formal report writing style. For any citation, use APA style. On behalf of each group, submit ONE COPY, either a word file or a PDF file\" the case response in \"Case response 1 (NWC)\" submission box in your respective section's Moodle. There is no page limit, but you are highly encouraged to be PRECISE. Submission deadline: Friday, October 20, 2017 by 11:55 pm. 1. Accounting for Non-financial Managers Taslima Nasreen ADMS 1500 Fall 17 York University Accounting for Non-financial Managers Taslima Nasreen ADMS 1500 Fall 17 York University Table of Contents North West Company: Analyzing Financial Performance.................................................................5 Scuby's Enterprises: Starting a Business in Ghana........................................................................13 9B16B017 NORTH WEST COMPANY: ANALYZING FINANCIAL PERFORMANCE1 Jennifer Alex, Mark MacIsaac, and Neil Maltby wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright 2016, Richard Ivey School of Business Foundation Version: 2016-10-26 It was June 2015, and Angela Robinson sat at her desk and contemplated the work in front of her. Robinson had graduated from university in May, and had been hired by an investment fund company as a junior analyst. Her company invested in portfolios of equity securities, and Robinson's new job required her to review the financial performance of potential investment targets, and make a recommendation to a senior analyst. The senior analyst to whom she reported would review her performance reports and, depending on the results, would either reject the company as an investment candidate or proceed to the next phase of analysis. The first company Robinson had been tasked to review was the North West Company Inc. (NWC). As Robinson looked over NWC's 2014 annual report (see Exhibits 1-3 for selected financial information), she considered how to approach her analysis. She needed to thoroughly assess NWC's past financial performance; this would impact her company's decision on whether to proceed. In particular, Robinson wanted to assess NWC's profitability from both its Canadian and international operations. She also wanted to assess NWC's financial structure, because this would provide an indication of whether and how future expansion could be financed. THE NORTH WEST COMPANY With roots that could be traced back 350 years, NWC was a growing food retailer that had made a name for itself by operating in markets that other large food retailers tended to avoid. Headquartered in Winnipeg, Manitoba, the company operated retail locations in Western and Northern Canada, rural Alaska, the South Pacific, and the Caribbean. While NWC sold apparel, home goods, and outdoor products, 78.2 per cent of its revenue was attributed to food sales.2 Operating under banners such as Northern, NorthMart, Giant Tiger, Cost-U-Less, and AC Value Centers, NWC reported total sales of CA$1.6 billion in 2014.3 This sales figure was reached through serving remote communities, which involved adapting to the local market preferences 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of The North West Company Inc. or any of its employees. 2 \"A Time to Invest: The North West Company Inc., 2014 Annual Report,\" North West Company, 9, accessed August 9, 2016, www.northwest.ca/content/annual_filings/2014_YE_-_Annual_Report_-_APR9-15.pdf. 3 Ibid., 33; all currency amounts in the case are in CA$ unless otherwise specified. 5 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. 2. Page 2 9B16B017 NWC operated two distinct segments: Canadian and international. While originally based in Canada, in 1992, the company expanded its business by acquiring the Alaska Commercial Company.4 NWC chose to keep the chain of stores operating under the existing name: AC Value Centers. This move allowed NWC to use the Alaska Commercial Company's existing distribution networks and relationships, and expand west into Alaska, becoming a main food retailer for several remote U.S. communities. After the success of the first international acquisition, NWC continued to grow, and purchased Cost-U-Less in 2007. While this type of retailer was familiar for NWC, the locations were not. Cost-U-Less was found in the Caribbean, the South Pacific, and U.S. territories. As Edward Kennedy, NWC's chief executive officer, said, \"At first glance, it may look different from what we do today, but, in fact, it is an exceptional strategic fit with our capabilities in serving unique, physically distant markets.\"5 Twelve years after NWC's initial push outside of Canada, international sales accounted for 35.8 per cent6 of NWC's business. THE CANADIAN FOOD RETAIL INDUSTRY In 2013, the Canadian food retail industry was valued at more than $112 billion, and was projected to grow at a compound annual growth rate (CAGR) of 5.8 per cent over the 2012-2017 period to a total value of $142.5 billion.7 Hypermarkets (combining a department store and a grocery supermarket), supermarkets, and discounters represented 68 per cent of the retail industry, whereas convenience stores and gas stations represented about 24 per cent. As of 2013, Loblaw Companies Limited was the leading food retailer in Canada by sales, followed by Empire Company Ltd. (including Sobeys and Safeway), Metro Inc., Costco Wholesale Corporation, and Wal-Mart Stores, Inc. (Wal-Mart.)8 Many outlets owned by these firms offered a range of products in addition to food, such as pharmaceuticals, clothing, electronic and household goods, books, flowers, and financial services. As a result, for many consumers, food retailers had become a onestop shopping experience. Besides breadth of product offerings, price and convenience had become important criteria for consumers, and key drivers of competition among retailers. In recent years, increased concerns regarding the need for healthy offerings had played a more prominent role for consumers.9 The competition among food retailers was fierce. Pete Luckett, the founder and former owner of Pete's Fine Foods, a small retailer of specialty foods in Nova Scotia, referred to rivalry in the industry as an \"onslaught of corporate chains\" and a challenge for small independent retailers.10 Competition had intensified in the industry, among both food retailers and non-food companies that were becoming active in the industry.11 With almost no consumer switching costs and minimal growth in consumer spending in recent years due to low population growth,12 food retailers experienced increasing pressure on their bottom line. 4 \"History,\" NWC, accessed August 9, 2016, www.northwest.ca/about-us/history.php#prettyPhoto[history]/3. \"News Release: North West Company Fund to Acquire Cost-U-Less,\" NWC, accessed August 9, 2016, www.northwest.ca/contentews_releases/121.pdf. 6 \"A Time to Invest: The North West Company Inc., 2014 Annual Report,\" NWC, op. cit., 9. 7 \"MarketLine Industry Profile: Food Retail in Canada,\" MarketLine, March 2013. 8 Jamie Sturgeon, \"Here's Who's Really Winning Canada's Grocery Wars,\" Global News, November 19, 2014, accessed August 9, 2016, http://globalnews.caews/1678970/heres-whos-really-winning-canadas-grocery-wars. 9 \"MarketLine Industry Profile: Food Retail in Canada,\" op. cit. 10 \"Pete Luckett: It Was the Right Time to Sell,\" Canadian Grocer, November 3, 2015, accessed August 9, 2016, www.canadiangrocer.com/top-stories/pete-luckett-is-was-the-right-time-to-sell-59226. 11 \"Grocery Retailers in the US,\" Euromonitor, January 2016, accessed August 9, 2016, www.euromonitor.com/groceryretailers-in-the-us/report. 12 Sturgeon, op. cit. 5 6 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. and cultures, high shipping costs, and selling to a population with income that was lower than the national average. Page 3 9B16B017 Whereas rivalry amongst competitors and consumer choice defined the mainstream Canadian market, food retail in Northern Canadian markets was characterized by limited offerings, high prices, and few competitors. As of the beginning of 2012, remote markets were served by seven northern retailers. NWC had 127 grocery stores across Northern Canadian, while Arctic Co-operatives Ltd. had 31 stores. According to The Globe and Mail, stores could order groceries in bulk by sea or winter road, but many items were transported by air. Given the transportation distances to remote areas and the small populations served, as well as high operating costs, the price of food was much greater than in mainstream markets. In its survey of food prices for a basket of assorted goods, The Globe and Mail determined that $113.99 worth of groceries in mainstream Canadian markets would cost $219.90 in northern markets.13 Such discrepancies led to growing concerns over the viability of communities in the north, particularly Inuit communities. In 2013, Leesee Papatsie's \"Feeding My Family\" campaign aimed to raise awareness about the price of food and highlighted ethical issues related to food retail in northern markets.14 In 2011, the federal government revised a subsidy program, entitled \"Nutrition North,\" to offset high prices for 103 remote communities, though this was focused on transportation costs and not on the costs of labour, building and maintenance, and electricity.15 According to Michael McMullen, NWC's executive vice president of Northern Canada retail, most of the price was related to the cost of doing business, such as transportation costs, storage space, and inventory levels.16 While the Nutrition North program subsidized reduced food costs, this only applied to items that were on the eligibility list. As such, gaining healthy, affordable food was a challenge for consumers, communities, and companies alike. FOOD RETAIL IN UNDERSERVED U.S., CARIBBEAN, AND SOUTH PACIFIC MARKETS NWC's U.S. operations focused on Alaska, which shared many market similarities with the Canadian North. Overall, the U.S. food retailing channel was expected to post a CAGR of 1 per cent at constant 2015 prices, driven by higher food prices rather than an increase in purchasing.17 Wal-Mart, with its dominant position in the hypermarket channel, was expected to continue expansion through its Wal-Mart Neighborhood Market and Wal-Mart Express formats. The health-oriented segment, including retailers like Whole Foods, was expected to remain the fastest growing. Consequently, mid-market retailers felt competitive pressures both from hypermarkets, where customers went for lower-priced staple products, and premium providers. NWC's expansion into the South Pacific and the Caribbean was similar to that of other players expanding into emerging markets. Companies often entered emerging markets through franchise partnerships with local operators, or through acquisitions of local players. While this approach was partially due to local legislative requirements regarding foreign direct investment, it also allowed retailers from developed countries to expand internationally as local retail infrastructure was modernized.18 13 Ingrid Peritz, \"Speaking Out Against $600-a-Week Grocery Bills,\" The Globe and Mail, January 12, 2015, accessed February 16, 2016, www.theglobeandmail.comewsational/the-north/why-is-food-so-expensive-in-nunavut-shop-foryourself-and-find-out/article15915054. 14 Ibid. 15 Ibid. 16 Lauren Strapagiel, \"Nunavut Food Prices: Poverty, High Costs of Northern Businesses Leave Some Inuit Unable to Cope with Expenses,\" The Huffington Post, June 11, 2012, accessed February 16, 2016, www.huffingtonpost.ca/2012/06/11unavut-food-prices-protest-inuit-poverty_n_1588144.html. 17 \"Grocery Retailers in the US,\" op. cit. 18 \"Emerging Markets: Overview and Growth in Opportunities in Grocery Channels,\" Euromonitor, September 2014, accessed August 9, 2016, www.euromonitor.com/emerging-markets-overview-and-growth-in-opportunities-in-grocery-channels/report. 7 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. FOOD RETAIL IN NORTHERN CANADA 9B16B017 FUTURE PLANS During 2014, NWC management completed a thorough review of its operations and identified areas of the business where it planned to focus its efforts. It defined its \"strategic priorities aimed at solidifying and growing market share within top markets and product and service categories.\"19 These priorities involved plans for 12 communities in Northern Canada, as well as focusing its non-food offerings in areas such as baby and children's products, large-pack size, and automotive, and its food offerings in categories such as produce and meat.20 NWC wanted to tailor its offerings to the unique communities, overhaul selected existing stores, and foster community relationships. According to The Winnipeg Free Press, \"The company plans to spend another $65 million this year and $150 million over the next three yearsKennedy said NWC is open to acquiring another retail operation or maybe even a wholesale/distribution operation.\"21 CONCLUSION Robinson reviewed NWC's financials, and the industry and competitive financial information she had already researched (see Exhibit 4). Her report would need to include an assessment of NWC's profitability, liquidity, and financial structure. Robinson was particularly interested in NWC's international operations; although international expansion held with it the potential for significant revenue growth, Robinson wondered whether the profit potential was as great as that of NWC's operations in Northern and Western Canada. Robinson also knew that if NWC did choose to expand its international operations, it would require significant capital investment. She wondered whether NWC could take on additional debt to finance such a venture. 19 \"A Time to Invest: The North West Company Inc., 2014 Annual Report,\" NWC, op. cit., 6. Ibid., 6. 21 Murray McNeill, \"North West Company Shifts into Expansion Mode,\" The Winnipeg Free Press, June 11, 2015, accessed March 2, 2016, www.winnipegfreepress.com/businessorth-west-company-shifts-into-expansion-mode-306882151.html. 20 8 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. Page 4 Page 5 9B16B017 2014 Fiscal Year ($ in Thousands) Consolidated Statements of Earnings Financials SalesCanadian operations 1,042,168 SalesInternational operations 582,232 SalesTotal 1,624,400 EBITDACanadian operations 100,896 EBITDAInternational operations 36,942 EBITDATotal operations 137,838 Net earnings 62,883 Consolidated Balance Sheets Financials Current assets 315,840 Current liabilities 150,229 Long-term debt and other liabilities 244,787 Equity 329,283 Other Retail Metrics Number of storesCanadian Number of storesInternational Selling square feet (000s) end of year Canadian stores Selling square feet (000s) end of year International stores Sales per average selling square foot Canadian Sales per average selling square foot International Number of employeesCanadian operations Number of employeesInternational operations 2013 2012 2011 2010 1,022,985 520,140 1,543,125 111,225 27,111 138,336 64,263 1,043,050 470,596 1,513,646 106,510 27,207 133,717 63,888 1,028,396 466,740 1,495,136 97,998 27,883 125,881 57,961 978,662 469,442 1,448,104 98,781 26,983 125,764 69,656 299,071 209,738 138,334 322,440 303,896 190,184 164,960 296,250 295,836 128,002 215,206 283,709 284,789 185,377 144,736 286,475 2014 178 47 1,422 2013 178 48 1,386 2012 177 46 1,375 2011 183 46 1,466 2010 184 46 1,445 676 696 660 655 654 $742 $741 $ 734 $702 $682 $849 $767 $ 716 $713 $718 4,921 1,726 4,839 1,853 4,768 1,568 5,233 1,668 5,301 1,601 Note: EBITDA = earnings before interest, taxes, depreciation, and amortization. Source: Adapted from \"A Time to Invest: The North West Company Inc., 2014 Annual Report,\" North West Company, accessed August 9, 2016, www.northwest.ca/content/annual_filings/2014_YE_-_Annual_Report_-_APR9-15.pdf. EXHIBIT 2: SELECTED FINANCIALS FROM NWC'S CONSOLIDATED STATEMENTS OF EARNINGS ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year Ended January 31, 2015 January 31, 2014 1,624,400 1,543,125 (1,160,182) (1,088,071) 464,218 455,054 (366,752) (354,994) 97,466 100,060 (6,673) (7,784) 90,793 92,276 (27,910) (28,013) 62,883 64,263 Sales Cost of sales Gross profit Selling, operating, and administrative expenses Earnings from operations Interest expense Earnings before income taxes Income taxes Net Earnings for the Year Net Earnings per Share Basic Diluted Weighted Average Number of Shares Outstanding (000s) Basic 1.30 1.29 1.33 1.32 48,432 48,413 Source: Adapted from \"A Time to Invest: The North West Company Inc., 2014 Annual Report,\" North West Company, accessed August 9, 2016, www.northwest.ca/content/annual_filings/2014_YE_-_Annual_Report_-_APR9-15.pdf. 9 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. EXHIBIT 1: FIVE-YEAR SUMMARY OF SELECTED NWC FINANCIALS Page 6 9B16B017 Current Assets Cash Accounts receivable Inventories Prepaid expenses Non-Current Assets Property and equipment Goodwill Intangible assets Deferred tax assets Other assets Total Assets Current Liabilities Accounts payable and accrued liabilities Current portion of long-term debt Income tax payable Non-Current Liabilities Long-term debt Defined benefit plan obligation Deferred tax liabilities Other long-term liabilities Total Liabilities Shareholders' Equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive income Total Equity Total Liabilities & Equity January 31, 2015 January 31, 2014 29,129 72,506 204,812 9,393 315,840 22,353 70,527 198,856 7,335 299,071 311,692 33,653 22,485 28,074 12,555 408,459 724,299 286,875 29,424 21,514 19,597 14,031 371,441 670,512 142,788 6,271 1,170 150,229 128,999 77,800 2,939 209,738 195,125 36,556 2,392 10,714 244,787 395,016 105,062 18,417 2,012 12,843 138,334 348,072 167,460 2,831 140,527 18,465 329,283 724,299 166,069 3,528 145,762 7,081 322,440 670,512 Source: Adapted from \"A Time to Invest: The North West Company Inc., 2014 Annual Report,\" North West Company, accessed August 9, 2016, www.northwest.ca/content/annual_filings/2014_YE_-_Annual_Report_-_APR9-15.pdf. 10 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. EXHIBIT 3: SELECTED FINANCIALS FROM NWC'S CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS) Page 7 9B16B017 Loblaw 2014 2013 31.60 29.80 75.20 76.20 Revenue cost and margin analysis Revenue growth (%) Cost growth (%) Cost as a percentage of sales (%) Profitability Return on sales (%) Earnings growth (%) Return on equity (%) Earnings per share ($) Solvency Current ratio Debt to equity ratio 0.10 -91.50 0.40 0.14 1.90 1.47 1.63 1.43 1.96 9.00 2.21 Industry Average 5.60 74.00 1.40-3.50 -41.00 18.00-30.00 1.60-1.70 1.30-1.60 Source: Created by the case authors using Loblaw Companies Limited, Reshaping Retail: Loblaw Companies Limited 2013 Annual Report, accessed September 1, 2016, http://s1.q4cdn.com/326961052/files/doc_financials/2013/Loblaw_2013_AR_ EN.pdf; Loblaw Companies Limited, Innovation & Execution: Loblaw Companies Limited 2014 Annual Report, accessed September 1, 2016, s1.q4cdn.com/326961052/files/doc_financials/2014/655210_Eng_LR_v001_h33m0e.pdf; \"Grocery Stores Industry,\" CSIMarket, Inc., accessed August 9, 2016, http://csimarket.com/Industry/industry_growth_rates.php? rev&ind=1305; \"Industry Income-Expense Statements,\" BizStats, accessed August 9, 2016, www.bizstats.com/corporationindustry-financials/retail-trade-44/food-beverage-and-liquor-stores-445/food-and-beverage-stores-445115/show; \"Industry CenterGrocery Stores,\" Yahoo! Finance, accessed August 9, 2016, http://biz.yahoo.com/ic/734.html; \"Supermarket Facts,\" Food Marketing Institute, accessed August 9, 2016, www.fmi.org/research-resources/supermarket-facts; \"Supermarkets & Grocery Stores,\" The Retail Owners Institute, accessed August 9, 2016, http://retailowner.com/Benchmarks/Food-andBeverage-Stores/Supermarkets-Grocery-Stores. 11 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. EXHIBIT 4: SELECTED LOBLAW COMPANIES LIMITED AND INDUSTRY FINANCIAL RATIOS 3. SCUBY'S ENTERPRISES: STARTING A BUSINESS IN GHANA Juliana Faircloth, Helen Fisher and David MacNicol wrote this case under the supervision of Francis Ayensu and Nicole Haggerty solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright 2014, Richard Ivey School of Business Foundation Version: 2014-04-01 In October 2011, Nana Ofosu looked up from up from the papers he had been reviewing and stretched. As he gazed out at the booming market, he was again inspired by the challenge he had set himself: to start a business, Scuby's Enterprises Limited (Scuby's), to provide photocopying services to the population of Koforidua, Ghana. He was now trying to decide if this was a feasible business proposition. He refocused on the papers, determined to make the decision soon. He hoped to begin operations in December so that the business would be established before school started again in January 2012. ECONOMY Ghana was established as a country in 1960. It now has one of the highest gross domestic products (GDP) and fastest growing economies in Africa. 1 The main Ghanaian industries are agriculture, mining and, most recently, oil. Over half of the working population is engaged in agriculture. 2 Mining has become an increasingly important player in the country's industrial picture; Ghana is now the second largest producer of gold in Africa. 3 Most recently, oil has begun to play a major role in the economy. In 2007, an oilfield was discovered that is currently estimated to contain up to three billion barrels of oil. This number is expected to rise as exploration continues. 4 In addition, Ghana is known as one of the most economically sound countries in Africa. Although it continues to experience high levels of corruption within its political system, this corruption is considered minimal in comparison with other African countries. 5 1 www.worldbank.org/en/country/ghana; www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html .accessed March 15, 2014 2 www.infoplease.com/encyclopedia/world/ghana-country-africa-economy.html,accessed on March 15, 2014 3 www.gepcghana.com/gold.php, accessed March 15, 2014 4 www.bloomberg.comews/2010-12-01/ghana-oil-reserves-to-be-5-billion-barrels-in-5-years-as-fields-develop.html, accessed March 15, 2014 5 www.bbc.co.ukews/world-africa-13433790, accessed March 15, 2014 13 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. 9B14M041 Page 2 9B14M041 Koforidua is the capital of the Eastern Region of Ghana. More informally known as K-dua, it currently has a population of 96,266 people. 6 The most common form of occupation in the region is self-employment, mostly in the informal marketplace, which employs almost 90 per cent of the working population. 7 With this many people working solely in the informal market, the photocopying industry in Koforidua is underdeveloped. This is especially apparent when compared with the significantly more advanced market in Accra, Ghana's capital city. In both Koforidua and Accra, photocopying services were normally offered as a supplement to general business services rather than the main offering. Although Koforidua is the capital of the Eastern Region, the cost of living and operating a business there is significantly cheaper than it is in larger cities such as Accra. As the commercial centre of the region, the marketplace is crowded with individual vendors selling a wide range of products including clothing, food, electronics and appliances. Storefront locations are limited, leaving many vendors operating in small booths lining the streets. In general, there is little differentiation between the product offerings of competing vendors, so success depends on creating strong customer relationships. The physical layout of the market and its booths and the lack of product differentiation fosters a highly competitive environment. Most vendors decide on selling prices through avid and much enjoyed negotiation instead of pre-set listed prices. Other more established stores have set, non-negotiable prices. Ofosu could chose to sell solely through negotiations; however, based on his business education, he believed that having listed prices would be beneficial to the business. ALL NATIONS UNIVERSITY All Nations University, the largest university in Koforidua, was established in 2002. Since then, it has grown from only 37 students to approximately 3,000 students. Many students and faculty, who travel from surrounding African countries to teach and attend the university, live on and around the campus. The main semesters run from September to April, but there is also a summer semester. This means that students and faculty are at the university all year round, with a higher number of students during the winter months. MANAGEMENT CAPABILITIES When Ofosu was growing up, his mother worked as a vendor in the informal marketplace. As a result, he was extremely familiar with and comfortable in the market environment. After graduating from high school, he moved to Accra where he studied marketing at the Ghana Institute of Management and Public Administration, a well-recognized institution throughout Africa. During these years, he opened a small retail clothing store. This provided him with the opportunity to become familiar with the operations of a small start-up business and allowed him to generate significant savings. With many entrepreneurial family members and friends, Ofosu had a large network of knowledgeable supporters, potential investors and employees. In addition, he possessed a keen entrepreneurial spirit and valued many of the aspects of small business ownership including being able to work for himself, having the authority to make important business decisions and being able to make more creative decisions. 6 7 http://population.mongabay.com/population/ghana/2299522/koforidua, accessed March 15, 2014 http://wiego.org/wiego/informal-economy-ghana-comparative-perspective, accessed March 15, 2014 14 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. INDUSTRY Page 3 9B14M041 Ofosu felt he had the skills and resources to successfully start a photocopy store in Koforidua, especially since he had access to a store located just outside the gates of All Nations University. With this location, he felt he would be able to attract a stable customer base consisting of students and faculty throughout the year. Currently, there were no other stores that competitively offered photocopying services in Koforidua. From his previous retail clothing store savings and investments from friends and family, Ofosu had GHS7,000 8 to invest in the new business. A photocopying store would require a significant initial investment. He would need to purchase two photocopy machines, a Ricoh and a Canon, as well as a laptop for the initial operations of the business. The photocopy machines would cost GHS1,900 and GHS2,000 respectively, and the laptop would cost GHS700. General set-up costs of the store would be GHS2,000. Investments and their costs are further summarized in Exhibit 1. The store would operate Monday to Sunday from 8 a.m. to 8 p.m. Ofosu would begin by hiring one employee, whom he would pay GHS250 per month. This employee would be trained on the job so that Ofosu could get the store up and running as quickly as possible. Ofosu estimated many other possible costs related to the business. General maintenance would cost GHS100 per month. Electricity for the store would be GHS200 per month. These expenses are listed in Exhibit 2. Variable costs included paper, ink and drums for the photocopier (a drum rolls the paper out of the photocopier). One box of paper, containing 2,500 sheets, cost GHS28. One bottle of ink cost GHS50. Both the Ricoh photocopier and the Canon would require a bottle of ink. The Ricoh could produce 53,000 sheets per bottle of ink while the Canon could produce 40,000 sheets. The drum for each photocopier cost GHS250 and could be used for 30 boxes of paper each. Ofosu determined that the average selling price of a photocopied sheet of paper would be GHS0.05. DEMAND FORECAST Ofosu felt that his primary market would be the students and teachers of All Nations University. This would ensure a reasonably stable demand throughout the year for photocopying services. He estimated both a high and low annual demand forecast for the first three years of operations. He expected demand to be somewhat seasonal, following the school calendar. The summer semester was significantly less busy than the fall and winter semesters so demand would be higher for eight months of the year and lower for the four months of summer. In year one, he estimated 50 customers per day during the fall and winter and 25 customers per day in the summer. In year two, he estimated 55 customers per day during the fall and winter and 25 per day in the summer. In year three, he estimated 60 customers per day during the fall and winter and 25 customers per day in the summer. FUTURE OPPORTUNITIES Ofosu's initial business plan was to offer only photocopying services to his customers. However, he knew that should the business be successful, there was opportunity for growth. In the shorter term, he was 8 Exchange rate in October 2011: CDN$1=GHS1.54; see www.freecurrencyrates.com/convert-CAD-GHS. 15 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. THE OPPORTUNITY 9B14M041 interested in expanding his services to provide binding, posters, passport photos, small billboards and some related merchandise such as USB keys and hard drives. In the long term, he hoped to expand geographically to another location in Koforidua and potentially to the nation's capital, Accra. CONCLUSION Ofosu sat down to look at the numbers. Before moving forward with opening the photocopying store, he wanted to determine how many customers he would need to break even and what kind of return he would generate over the next three years. He also wanted to keep in mind his personal and professional goals when assessing the opportunity. 16 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. Use outside these parameters is a copyright violation. Page 4 Page 5 9B14M041 Initial Investments Ricoh Photocopier Canon Photocopier Laptop General Setup Cost (GHS) 1,900 2,000 700 2,000 Source: Company files. EXHIBIT 2: FIXED COSTS Fixed Costs Wages Electricity General Maintenance Cost per month (GHS) 250 per employee 200 100 Source: Company files. 17 For use only in the course Accounting for Non-financial Managers at York University taught by Taslima Nasreen from October 02, 2017 to December 20, 2017. 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