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Solid agricultural company Essay

I. EXECUTIVE SUMMARY

Solid agricultural company is a family owned company that has been in existence since 1960. It operates piggery farms in Antipolo, Rizal and Meycauayan, Bulacan. It has grown conservatively due to limited family resources. The family has not resorted to, using borrowed funds. The company was previously primarily managed by Mr. Henry Koh. But in the recent years, his son Mr. Manuel Koh helped in the management of the company. Mr. Manuel Koh saw an opportunity for expansion.

The expansion is projected to increase revenue and decrease the cost of sales. This however requires substantial amount of capital that cannot be provided by the company alone. Additional resources are necessary. Mr. Bince and Mr. Antonio are interested in giving financial investment to the company to finance expansion in exchange for a management position. Mr. Bince, a CPA, would ask to be involved with accounting and the custody funds. Mr. Antonio will want to take on the marketing function.

II. VIEWPOINT
Mr. Manuel Koh

III. AREAS OF CONSIDERATION

*STRENGTHS
1.Koh’s mastery in agricultural development
2. Family owned company. Managed by Manuel who completed his degree in General Management at well-known Manila University
3.Debt free, the owner does not resort to borrowed funds.

*WEAKNESSES
1.Enough production of supply requirements of the pig finisher farms in Antipolo and Bulacan
2.Limited resources, do not resort in using borrowed funds.
3.Low Return on Investment (1.4%) and Net Profit Margin (0.62%)
4.Long growing period of hogs.
5.Large amount of working capital especially on cost of feeds

*OPPORTUNITIES
1. Proposed Novaliches farm may house the administration operations of Meycauayan farm, increasing the production of the latter.
2. Feed mill in Novaliches can produce the feeds for the expanded needs of the Antipolo and Meycauayan farms.
3. Novaliches is near to major markets of manila.
4. Increased population in Metro Manila and strong purchasing power increases demand.
5. Expansion in expected to increase revenues and decrease cost of sales.

*THREATS
1.High cost of feeds and price control on pork.
2.Novaliches farm do not guarantee success.
3.Competitive markets.

IV. STATEMENT OF THE PROBLEM

The company is considering expansion. However, they are not making enough profit to finance expansion.

V. STATEMENT OF OBJECTIVES

The objective of this analysis is to able to identify the best possible option for the company to be able to find resources to finance expansion within 2 months or as soon as possible before the seller went to US.

VI. ALTERNATIVE COURSE OF ACTIONS

ACA#1
To accept the offer and take Messrs. Bince and Antonio as co-owners of Solid Agricultural Company .

ADVANTAGES:
1. They can be able to invest the necessary amount to pursue with the expansion.
2. Messrs. Bince and Antonio can also provide expertise in agribusiness management

DISADVANTAGES:
1. Sharing of profit
2. From sole proprietorship to partnership

ACA#2
To form a new company with Messrs. Bince and Antonio to operate only the Novaliches project.

ADVANTAGES:
1. They can be able to invest the necessary amount to pursue with the expansion.
2. Messrs. Bince and Antonio can also provide expertise in agribusiness management.

DISADVANTAGES:
1. Sharing of profit.
2. Difficult in making final decisions.

ACA#3
To consider borrowing from the bank.

ADVANTAGES:
1. Helps in financing expansion.
2. Direct usage of money.

DISADVANTAGES:
1. Incurred interest expense
2. Take as an additional liabilities.

ACA#4
Selling of some excess and idle assets.

ADVANTAGES:
1. Get rid of the assets that are not important.
2. Additional financial resources or capital.

DISADVANTAGES:
1. Less machineries and operating assets.
2. Reduced value or possible loss on realization.

ACA#5
Contract between the seller of the property and Manuel Koh to take it as Trade credit.

ADVANTAGES:
1. Buy now, Pay later. Ability to buy on credit.
2. It is low cost – trade creditors don’t charge interest on the amount outstanding (unless payment is delayed well beyond the settlement date)

DISADVANTAGES:
1. Take as an additional liabilities.
2. If the property do not guarantee success, it will have possible bad debts.

VII. FINAL DECISION
To form a new company with Messrs. Bince and Antonio to operate only the Novaliches project. Messrs Bince and Antonio will take charge in financial resources for buying the site in Novaliches.

VIII. DETAILED PLAN OF ACTION

List of Activities

Person/s Involved

Timeframe
1. Create partnership agreement among Messrs Bince, Antonio and Manuel Koh

Mr. Manuel Koh

Within 1 week
(as soon as possible)
2. Communicate with the seller for settling the property agreement Messrs Bince, Antonio and Manuel Koh

1 week

3. Buying the production site.
Messrs Bince, Antonio and Manuel Koh

1 month
4. Project or operation planning
Messrs Bince, Antonio and Manuel Koh

1 month
5. Implementing the plan
Messrs Bince, Antonio and Manuel Koh
Starts within 1 month until the contract ends or subject for renewal.


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