This document summarizes key financial ratios and performance metrics for L'Oreal Malaysia for the year 2008. It discusses ratios in five categories: liquidity, leverage, activity, profitability, and production/operations. For each ratio, it provides the calculation and compares L'Oreal Malaysia's performance to industry benchmarks or standards. Overall, the ratios indicate that L'Oreal Malaysia had strong liquidity, moderate leverage, good asset utilization, high profit margins, and ensured consistent quality, safety and environmental standards across its production facilities.
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This document summarizes key financial ratios and performance metrics for L'Oreal Malaysia for the year 2008. It discusses ratios in five categories: liquidity, leverage, activity, profitability, and production/operations. For each ratio, it provides the calculation and compares L'Oreal Malaysia's performance to industry benchmarks or standards. Overall, the ratios indicate that L'Oreal Malaysia had strong liquidity, moderate leverage, good asset utilization, high profit margins, and ensured consistent quality, safety and environmental standards across its production facilities.
This document summarizes key financial ratios and performance metrics for L'Oreal Malaysia for the year 2008. It discusses ratios in five categories: liquidity, leverage, activity, profitability, and production/operations. For each ratio, it provides the calculation and compares L'Oreal Malaysia's performance to industry benchmarks or standards. Overall, the ratios indicate that L'Oreal Malaysia had strong liquidity, moderate leverage, good asset utilization, high profit margins, and ensured consistent quality, safety and environmental standards across its production facilities.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
This document summarizes key financial ratios and performance metrics for L'Oreal Malaysia for the year 2008. It discusses ratios in five categories: liquidity, leverage, activity, profitability, and production/operations. For each ratio, it provides the calculation and compares L'Oreal Malaysia's performance to industry benchmarks or standards. Overall, the ratios indicate that L'Oreal Malaysia had strong liquidity, moderate leverage, good asset utilization, high profit margins, and ensured consistent quality, safety and environmental standards across its production facilities.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
Financial ratios are computed Irom an organization`s income statement and balance sheet. Computing Iinancial ratios is like taking a picture because the results reIlect a situation at just one point in time. Comparing ratios over time and to industry averages is more likely to result in meaningIul statistics that can be used to identiIy and evaluate strengths and weaknesses. There are Iive types Iinancial ratios include liquidity ratios, leverage ratios, activity ratios, proIitability ratios and growth ratios. 4.1.3.1 Liquidity Ratios (million) I. Current Ratio Currcnt Asscts Currcnt LIabIIItIcs
6,648.2 m 7,356.4 m
t0.90x
Comment For each and every one ringgit oI short term debt, L'Oreal Malaysia has current assets by t0.90x. For example iI current liabilities are rising Iaster than current assets, the current ratio will Iall, and this could spell trouble. Because the current ratio provides the best single indicator oI the extent to which the claims oI short-term creditors are covered by assets that are expected to be converted to cash Iairly quickly, it is the most commonly used measure oI short term solvency. II. Quick Ratio Currcnt Asscts-InvcntorIcs Currcnt LIabIIItIcs
6,648.2-1,635.5 m 7,356.4 m
0.68x
Comment
For each and every one ringgit oI short term debt, L'Oreal Malaysia has current assets by t0.68 without relying on inventories. For example, Inventories are typically the least liquid oI a Iirm`s current assets; hence they are the current assets on which losses are most likely to occur in a bankruptcy. ThereIore, a measure oI the Iirm`s ability to pay oII short-term obligations without relying on the sale oI inventories is important 4.1.3.2 Leverage Ratios (million) I. Debt-to-Total-Assets Ratio otaI Dcbt otaI Asscts
2,270.6+2,506.6 m 22,956.9 m
20.81
Comment
20.81 oI L'Oreal Malaysia investment is Iinanced by debt Iinancing, while 79.19 oI the investment is Iinanced by equity Iinancing. For example, the percentage oI total Iunds that are provided by creditors.
II. Times-Interest-Earned Ratio PrIts beIre terest d tes t terest rges
2,31. 2. 1 2,31.
38.46x Comment
L'Oreal Malaysia has about 38 times oI the ability to pay and meet its annual interest and taxes.For example, Times-Interest-Earned measures the extent to which operating income can decline beIore the Iirm is unable to meet its annual interest`s costs. Failure to meet this obligation can bring legal action by the Iirm`s creditors, possibly resulting in bankruptcy.
III. Debt-to Equity Ratio otaI Dcbt otaI StockhoIdcrs EquIty
2,270.6+2,506.6 m 11,828.7 m
40.39
Comment For each and every one ringgit of shareholders` investment, L'Oral Malaysia can get debt by $0.40 40.39 cents. For example, the percentage of total funds provided by creditors versus by owners.
4.1.3.3 Activity Ratios (million) I. Inventory Turnover SaIcs Invcntory oI fInIshcd goods
17,541.8 m 1,635.5 m
10.73x Comment
The inventory turnover oI L'Oreal Malaysia is 10.73 times Ior year 2008. For example, excess inventory is, oI course, unproductive, and it represents an investment with a low or zero rates oI return and low turnover, must wonder whether the Iirm is actually holding obsolete goods not worth their stated value compared to the industry average.
II. Fixed Assets Turnover SaIcs FIxcd Asscts
17,541.8 m 16,308.7 m
1.08x Comment For each and every one ringgit invest in Iixed assets, L'Oreal Malaysia can generate sales by t1.08. For example, Iixed assets reIlect the historical costs oI the assets. It is measure sales productivity and plant and equipment utilization.
III. Total Assets Turnover SaIcs otaI Asscts
17,541.8 m 22,956.9 m
0.76x Comment For each and every one ringgit invest in total assets, L'Oreal Malaysia can generate sales by t0.76. For example, sales should be increased, some assets should be sold, or a combination oI these steps should be taken iI company is not generating a suIIicient volume oI business given its total assets investment.
4.1.3.4 Profitability Ratios (million) I. Gross ProIit Margin SaIcs mInus cost oI good soId SaIcs
17,541.8- 5,240.1 m 17,541.8 m
70.13 Comment For each and every one ringgit oI sales, L'Oreal Malaysia can generate net income by t 70.13. For example, this ratio measures the total margin available to cover operating expenses and yield a proIit.
II. Operating ProIit Margin EarnIngs bcIorc Intcrcst and taxcs(EBI{ SaIcs
2,631.6 m 17,541.8 m
0.15
15
Comment For each and every one ringgit oI sales, L'Oreal Malaysia can generate Earnings beIore interest and taxes by t0.15 15 cents. This ratio measures proIitability without concern Ior taxes and interest.
III. Net ProIit Margin ct Incomc SaIcs
1,950.9 m 17,541.8 m
11.12
Comment For each and every one ringgit oI sales, L'Oreal Malaysia can generate net income by t11.12. For example, this ratio measures proIits aIter tax per euro oI sales.
IV. Return on Total Assets (ROA) ct Incomc otaI Asscts
1,950.9 m 22,956.9 m
8.5
Comment
For each and every one ringgit oI total assets investment, L'Oreal Malaysia can generate net income by t0.085 8.5 cents. For example, this ratio measures aIter tax proIit per dollar oI assets; this ratio is also called return on investment (ROI). V. Return on Stockholders Equity (ROE) ct Incomc otaI StockhoIdcrs EquIty
1,950.9 m 11,828.7 m
16.49
Comment For each and every one ringgit oI shareholders` investment, L'Oreal Malaysia can generate net income by $0.17 16.49 cents. For example, this ratio measure aIter tax proIits per dollar oI stockholders` investment in the Iirm.
4.1.4 Production/operations Production or operations is a manuIacturing operation transIorms or converts inputs such as raw materials, labor, capital, machines, and Iacilities into Iinished goods and services. Then, according to Pearce and Robinson operations are an activities, costs, and assets associated with converting inputs into Iinal product Iorm (production, assembly, packaging, equipment maintenance, Iacilities, operations, quality assurance, and environmental protection. According to Roger Schroeder suggested that production/operations management comprises Iive Iunctions or decisions areas include process, capacity, inventory, workIorce, and quality. L'Oreal Malaysia has Iour criteria production and technology such as consistent quality worldwide, workplace saIety and environment, and making own products locally. 4.1.4.1 Consistent Quality Worldwide L'Oreal Malaysia has 94 oI output Irom the group`s Iactories is certiIied to comply with ISO 9001/2000. The L'Oreal Quality systems such as conception and conIormity ensure that the same strict standards are complied with at all the production sites in all parts oI the world. Quality is monitored by internal audits and external audits conducted by organizations such as the Food & Drug Administration in the USA. The quality control is executed at each step in the manuIacturing process is monitored: reception oI raw materials, manuIacturing and packaging processes, and beIore dispatch oI Iinished products. 4.1.4.2 Workplace Safety and Environment SaIety, Industrial Hygiene and Environment are oI the utmost importance to L'Oreal Malaysia. A monthly SaIety, Hygiene and Environment report covers more than 100 key indicators at L'Oreal sites. Water and energy consumption as well as waste and waste recovery are among L'Oreal main concerns. Most oI L'Oreal Iactories are ISO 14001 certiIied Ior the environment and OHSAS 18001 or OSHA VPP Ior saIety. In addition, the saIety oI consumers is oI paramount importance to L'Oreal. For nearly 100 years L'Oreal have manuIactured and marketed saIe and eIIicacious beauty products around the world with the highest level oI consumer satisIaction. L'Oreal Malaysia view consumer saIety to be L'Oreal Malaysia Ioremost responsibility that's why all new products and ingredients are subject to rigorous saIety testing. Because L'Oreal Malaysia takes saIety so seriously L'Oreal Malaysia employs teams oI toxicologists and physicians who work together with the scientiIic community to ensure the saIety oI all L'Oreal products. As a pioneer in the development oI reconstructed skin technology, since the 1980's L'Oreal Malaysia has used human epidermis and dermis models to assess the saIety and eIIicacy oI products. In 1989 L'Oreal Malaysia initiated a corporate-wide policy which prohibits product testing on animals. This policy was adopted Ior the saIety assessment oI all our cosmetic products, and it assures that L'Oreal Malaysia continues producing innovative products while ensuring saIe usage Ior customers. L'Oreal's Malaysia policy requires that meet or exceed all governmental saIety laws in each oI the 130 countries in which L`Oreal products are sold. 4.1.4.3 Making L`Oreal Own Products Locally Quality and saIety is L'Oreal priorities at all times, and direct production gives the control need to guarantee the highest standards. L'Oreal own workIorce and L'Oreal own sites account Ior 94 oI total production. L'Oreal production policy is based on local manuIacturing: the number oI units produced in each oI the world`s main regions is proportional to sales in that region. 4.1.5 Management Information Systems A management inIormation system`s purpose is to improve the perIormance oI an enterprise by improving the quality oI managerial decisions. An eIIective inIormation system thus collects, codes, stores, synthesizes, and presents InIormation in such a manner that it answers important operating and strategic questions. A management inIormation system (MIS) is a system or process that provides the inIormation necessary to manage an organization eIIectively. MIS and the inIormation it generates are generally considered essential components oI prudent and reasonable business decisions. L'Oreal Malaysia is developing and manuIacturing inIormation systems, such as the Point oI Sales System (POS) to gain inIormation about customer`s purchases. For example L'Oreal Malaysia having partnership with Parkson by implementing management inIormation systems such as Point oI Sales System (POS) Ior counter inventory management. L'Oreal provides Point oI Sales System (POS) and hardware at each Parkson stores to track sell out or inventory level oI Parkson`s stores, discuss with buyer Ior replenishment to provide right stock, right quantity, and right time. Then, with the Point oI Sales System (POS) also can improve stock availability, reduce loss on sales, better anticipation and planning Ior each store, ability to view the inIormation real-time at L'Oreal daily, schedule reliability, improve service level, and improve consumer satisIaction and value. InIormation oI Parkson`s sell out and inventory level oI each Parkson`s store are transmitted daily to L'Oreal Malaysia. From that, L'Oreal Malaysia can do analysis about customer needs Ior L'Oreal product. Figure 4.0:Efficient Supply Chain: Consumer Needs
4.1.6 Research and development The major area oI internal operations that should be examined Ior speciIic strengths and weaknesses is research and development (R&D). According to Pearce and Robinson research and development is a activities, costs, and assets relating to product R&D, process R&D, process design improvement, equipment design, computer soItware development, telecommunications systems, computer assisted design and engineering, new database capabilities, and development oI computerized support systems. L'Oreal Malaysia invests in R&D because they believe that such an investment will lead to a superior product or service and will give them competitive advantages. Research and development expenditures are directed at developing new products beIore competitors do, at improving product quality, or at improving manuIacturing processes to reduce costs. L'Oreal Malaysia have own research and development whereby the main Iacts and Iigures regarding research and development is a 2961 employees oI 60 diIIerent nationalities working in 30 diIIerent disciplines, 533 million dedicated to cosmetic and dermatological research in 2006, 16 research centers across the world and 13 evaluation centers, 1/3 oI the research and development budget devoted to basic research, 120 molecules designed and patented over the last 40 years, 4000 Iormulas developed each year, 569 patents Iiled in 2006 and 100 active cooperation agreements with leading academic, and research institutions. Then, L'Oreal Malaysia have do research on skin, hair, and colour to gain knowledge and provide tool that solve the problem. 4.1.6.1 Research & Development Center Activities The Research and Development oI processes interIaces between Iormulation and manuIacturing. This department works in cooperation with the Research Department to implement optimum large-scale production oI Iormulas developed in L'Oreal laboratories. The Packaging Research Department creates the packaging Ior tomorrow`s products L'Oreal ability to innovate keeps at the IoreIront oI progress in packaging technology. L'Oreal sees its approach to packaging as one oI the elements that set the Group's products apart. L'Oreal packaging is saIe to use and saIe Ior the environment. The Group registers about 70 packaging patents a year. Then, L'Oreal opens more research center to conduct activities that improve L'Oreal product. Established in 2000, The L'Oreal Institute Ior Ethnic Hair & Skin Research is the Iirst and only research Iacility operated by a beauty company whose sole mission is to conduct and promote basic science research to better understand the unique properties oI the hair and skin oI people oI AIrican descent worldwide. L`Oreal plans to open similar institutes in other countries to study hair and skin speciIic to that region. Other than that, L'Oreal has opened in September a new research Iacility in China, the L'Oreal Research Center in Pudong. Its main mission will be to conduct and support basic science research to vastly improve present understanding oI the structure and behavior oI Chinese hair and skin. The decision to invest in China is part oI a long term global strategy and commitment to Iormulate cosmetic products that meet consumer needs the world over, whilst continuing to respect cultural diversity. Furthermore, L'Oreal have been do research on skin, colour and hair to do survey on consumer expectations, assess the saIety and the eIIiciency oI products and measure perIormance as perceived by consumers and design tools and methods Ior measuring physical parameters in order to assess the eIIiciency and appropriateness oI hair and colour products.
4. 2 The Internal Factor Evaluation (IFE) Matrix A summary step in conducting an internal strategic-management audit is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy- Iormulation tool summarizes and evaluates the major strengths and weaknesses in the Iunctional areas oI a business, and it also provides a basis Ior identiIying and evaluating relationships among those areas. Regardless oI how many Iactors are included in an IFE matrix, the total weighted score can range Irom a low oI 1.0 to a high 4.0, with the average score being 2.5. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores signiIicantly above 2.5 indicate a strong internal position. Table 4.1: IFE Matrix Key Internal Factors Weight Rating Weighted Score Strentgh 1. In business Ior a century already a veteran cosmetics company in the world.
0.07
3
0.21 2. t15.8 billion consolidated sales in 2006 (worldwide).
0.04
3
0.12 3. 19 global brands a sustainable business model
0.05
2
0.10 (as L'Oreal continues to acquire other cosmetics companies and made their brands under L'Oreal.
4. In Finance (worldwide): Strong growth in 2006 annual results such as Sales: 8.7 , t 15.8 billion, Operating proIit: 12.1, Net earnings per share (1): 14.7, Dividend (2): 18 , t 1.18 per share. (1) Diluted net earnings per share based on net proIit excluding non- recurrent items aIter minority interest.
0.03
3
0.09 5. Each brand beneIits Irom the considerable investments in research made by the L'Oreal Group.
0.15
2
0. 30 6. The Group's research eIIorts, unique in the beauty industry, permit each brand to beneIit Irom Iormulas. 0.08 4 0.32 7. In Human Resources (worldwide) L'Oreal has 60,851 employees in 58 countries, 140 close partnerships with universities around the world, 4 Management Development Centers, L`Oreal rated the employer oI choice in 2006 Ior European business school students according to Trendence European Students Barometer and L`Oreal employees
0.05
3
0.20 worldwide have been involved in social commitment actions Ior over a decade.
8. In Human Resources (Malaysia) L'Oreal Malaysia employs over 500 employees and has a strong track record sales growth posting double digit increase Irom the previous year.
0.08
3
0.24 9. L`Oreal Malaysia, like the L'Oreal group, is organized in Iour operating divisions such as Consumer Products Division, Luxury Products Division, ProIessional Products Division and Active Cosmetics Division.
0.07 3 0.21 10. 94 oI output Irom the group`s Iactories is certiIied to comply with ISO 9001/2000. 0.05 4 0.20 11. A monthly SaIety, Hygiene and Environment report covers more than 100 key indicators at our sites. Water and energy consumption as well as waste and waste recovery are among their main concerns. Most oI their Iactories are ISO 14001 certiIied Ior the environment and OHSAS 18001 or OSHA VPP Ior saIety.
0.04 3 0.12 12. In R&D (worldwide) L'Oreal has 2,961 employees oI 60 diIIerent nationalities working in 30 diIIerent disciplines, t533 million dedicated to cosmetic and dermatological research in 2006, 16 research centers across the world, 1/3 oI the R&D budget devoted to Advanced Research, 120 molecules designed and patented over the last 40 years and 4,000Iormulas developed each year.
0.06 2 0.12 13. In Production and Technology (worldwide) L`Oreal has 42 Iactories around the world, 14,800 employees, 4.4 billion units manuIactured in 2005, 94 oI our products manuIactured in our plants, and Iactories manage to reuse, recycle or recover the energy Irom 93.8 oI their solid wastes.
0.05 2 0.10
Weakness 1. There are too many brands under L`Oreal Group which are competing in the same market.
0.12
4
0.48 2. Too many brands can cause conIusion among consumers.
0.03
1
0.03
The most important Iactor to being weakness in this L`Oreal Malaysia is there are too many brands under L`Oreal Group which are competing in the same market as indicated by the 0.12 weight and by a rating 4. This causes market share Ior each competing brand under the Group to shrink. L`Oreal Malaysia strongest on the Group's research eIIorts, unique in the beauty industry and 94 oI output Irom the group`s Iactories is certiIied to comply with ISO 9001/2000 as indicated by a rating oI 4 is the strength oI L`Oreal Malaysia. The Group's research eIIorts, unique in the beauty industry permits each brand to beneIit Irom Iormulas. This is because Iormulas speciIically adapted to the needs oI women and men worldwide, within each market or distribution circuit that is present.
94 oI output Irom the group`s Iactories is certiIied to comply with ISO 9001/2000. Because the L`Oreal Quality systems such as conception and conIormity ensure that the same strict standards are complied with at all the production sites in all parts oI the world. Finally, note that the total weighted score oI 2.87 is above the average (midpoint) oI 2.5, so this L`Oreal Malaysia is doing pretty well, taking advantage oI the internal strengths and improving the weakness Iacing the L`Oreal Malaysia. There is deIinitely room Ior improvement, though, because the highest total weighted score would be 4.0. As indicated by ratings oI 1, this L`Oreal Malaysia needs to improve more on the too many brands can cause conIusion among consumers. . For example, every brand that L`Oreal owns is categorized into 4 operating divisions. Lancome is categorized in Luxury Products Division catered to the upmarket and thereIore pricing Ior its products is higher compared to Maybelline which is categorized under the Consumer Products Division. Consumers would be 3. In Malaysia, there is no local Iactory which produces L`Oreal products. Nearest Iactories Bangkok and Jakarta.
0.03
1
0.03 %otal 1. 2.87 conIused and doubtIul towards the quality and value oI Lancome as both brands are manuIactured under the same Group. ThereIore, Loreal need to standardize all product and price so that the customers do not conIuse. Then, in Malaysia, there is no local Iactory which produces L`Oreal products. Nearest Iactories is a Bangkok and Jakarta. L`Oreal Malaysia needs to build local Iactory in own country to produce L`Oreal products. In addition, L`Oreal Malaysia can distribute L`Oreal products to customers Malaysia easily. 4.3 Conclusion As conclusion the L`Oreal Iinance annual result shows t15.8 billion consolidated sales in 2006 (worldwide). L`Oreal Malaysia has Iour criteria production and technology such as consistent quality worldwide, workplace saIety and environment and making own products locally. L'Oreal have own research and development and has opened a new research Iacility in China, in September the L'Oreal Research Center in Pudong to conduct more research activities. Internal Factor Evaluation (IFE) Matrix Ior L`Oreal Malaysia shows that total weighted score oI 2.87 is above the average (midpoint) oI 2.5, so this L`Oreal Malaysia is doing pretty well, taking advantage oI the internal strengths and improving the weakness Iacing the L`Oreal Malaysia. L'Oreal Malaysia use management inIormation system to gathers data about marketing, Iinance, production, and personnel matters internally, and social, cultural, demographic, environmental, economic, political, governmental, legal, technological, and competitive Iactors externally. Chapter 5 Strategies in Action 5.0 Introduction Strategies in Action discuss about long-term objectives, types oI strategies such as integration strategies, intensive strategies, and deIensive strategies. Then, also discuss about Michael Porter`s Iive generic strategies and means Ior achieving strategies use by L`Oreal Malaysia.
5.1 Long Term Objectives Long term objectives represent the results expected Irom pursuing certain strategies. Strategies represent the actions to be taken to accomplish long-term objectives. Objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units. Each objective should also be associated with a timeline. According to Pearce and Robinson long term objectives is a statement oI the results a Iirm seeks to achieve over a speciIied period, typically three to Iive years. Long term objectives L`Oreal Malaysia is a produce environmental Iriendly product means that L`Oreal Malaysia produce product without using any chemicals. Second, L`Oreal Malaysia need invest more in research to come up new product to satisIy customer`s needs. Third, L`Oreal Malaysia need to identiIy potential company Ior example Body Shop that bring proIits Ior L`Oreal group and then L`Oreal acquired with Body Shop. 6.2.3 The BCG Matrix The BCG Matrix was created by the The Boston Consulting Group (BCG) and it became on oI the most well-known portIolio management Decision Making Tools in the early 1970's. It is based on the product liIe cycle theory, and it is used to prioritize the product portIolio in a company or department. There are two dimensions - market share and market growth. The basic premise in using the Matrix is that the higher the market share a product has, the higher the growth rate and the Iaster the market Ior that product grows. (Decide-Guide.Com, 2008)
Figure 4.2: BCG Matrix
Division Revenues Percent Revenues Profits Percent Profits Percent Market Share Percent Growth Rate ProIessional Products t 623300000 15 t 519000000 17 3.3 Consumer Products t 2052800000 49 t1578000000 51 49 0.9 Luxury Products t1275700000 30 t 767000000 24 6.2 Active Cosmetics t269300000 6 t 259000000 8 3.3 Cosmetic total t4246500000 100 t3110000000 100 2.8
L`Oreal Malaysia BCG Matrix composed Iive divisions with annual sales ranging Irom t269300000 to t 2052800000. Consumer Products has the greatest sales volume, so the circle representing that division is the largest one in the matrix. The circle corresponding to Active Cosmetics is the smallest because its sales volume (t269300000) is least among all the divisions. The pie slices within the circles reveal the percent oI corporate proIits contributed by each division. As shown, Consumer Products contributes the highest proIit percentage, 51 percent. Then, ProIessional Products is considered a Cash Cow, Consumer Products is a Star, Luxury Products is a Question Marks, and Active Cosmetics is a Dog. O Question Marks- Luxury Products in Quadrant I have a low relative market share position, yet they compete in a high-growth industry. Generally these L`Oreal Malaysia cash needs are high and their cash generation is low. These businesses are called Question Marks because the L`Oreal Malaysia must decide whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them. For example, L`Oreal Malaysia can use this recommended tactics such as requires a lot oI cash to maintain market share. In addition, L`Oreal Malaysia need invest more cash or divest. O Stars- Consumer Products in Quadrant II businesses represent the L`Oreal Malaysia best long run opportunities Ior growth and proIitability. Consumer Products with a high relative market share and a high industry growth should receive substantial investment to maintain or strengthen their domain positions. Forward, backward and horizontal integration; market penetration; market development; and product development are appropriate strategies Ior these divisions to consider. L`Oreal Malaysia is likely to generate enough cash to be selI sustaining. For example, recommended tactics is an L`Oreal Malaysia need to promote their business more aggressively; L`Oreal Malaysia need expand their product or services, and invest in Research and Development to come out with new products. O Cash Cows- ProIessional Products positioned in Quadrant III have a high relative market share position but compete in a low-growth industry. Called Cash Cows because they generate cash in excess oI their needs, they are oIten milked. Many oI today`s Cash Cows were yesterday`s Stars. Product development or diversiIication may be attractive strategies Ior strong Cash Cows. However, as a Cash Cow division becomes weak, retrenchment or divestiture can become more appropriate. For example, L`Oreal Malaysia can use this recommended tactics such as business can be used to support other business units. Because L`Oreal Malaysia can use as deIend and should be managed to maintain their strong position Ior as long as possible. O Dogs- Active Cosmetics in Quadrant IV divisions oI the L`Oreal Malaysia have a low relative market share position and compete in a slow-or no-market-growth industry; they are Dogs in the L`Oreal Malaysia portIolio. Because oI their weak internal and external position, these businesses are oIten liquidated, divested, or trimmed down through retrenchment. When a division Iirst becomes a Dog, retrenchment can be the best strategy to pursue because many Dogs have bounced back, aIter strenuous asset and cost reduction, to become viable, proIitable divisions. Under the Dogs division represent that business is a cash trap. For example, L`Oreal Malaysia can use this recommended tactics to apply in their business such as L`Oreal Malaysia should Iocus planning or project on short term, do not conduct any risky project and reduce take any project in Iuture.
Chapter 1 Financial strengths In an environment made very diIIicult in 2008 by the economic crisis, L'Oreal is proving resilient and is continuing to grow in terms oI sales, net earnings per share and market share. With annual sales growth oI 3.1 like-Ior-like and 6.6 at constant exchange rates, L`Oreal continued to strengthen its positions in 2008 and increased its worldwide market share. In a year when the downturn in markets was combined with the adverse impact oI currency Iluctuations and costs in raw materials, the group's net proIit held up well, and growth in net earnings per share oI 3.8 based on reported Iigures and 6.8 at constant exchange rates is practically in line with the target announced in October. Then, L'Oreal Iour divisions shows growth oI each division are not growing very well such as the ProIessional Products Division achieved like-Ior-like growth oI 1.3 in 2008, 7.3 at constant exchange rates, aIter a Iinal quarter aIIected in the developed countries by the impact oI the economic crisis on salon visits. Despite this slowdown, the division has signiIicantly strengthened its worldwide leadership with market share gains in its 3 main zones. The Consumer Products Division achieved annual like-Ior-like growth oI 4.1, Iollowing a 4th quarter Iigure oI 2.5, in a market which has slowed slightly since September. The division`s three worldwide brands perIormed well, consolidating the division`s worldwide market share. In the context oI a very clear slowdown in the selective market in the Iinal quarter, the sales oI the Luxury Products Division contracted by -6.3 in the 4th quarter, but increased by 0.7 like- Ior-like in 2008. AIter the consolidation oI YSL Beaute Irom July 1st 2008, and at constant exchange rates, sales grew by 9.9. With this acquisition, three oI the division's brands are now in the top ten oI the selective market, and the division ranks world leader in its distribution channel. The sales oI the Active Cosmetics Division at December 31 st grew by 4.2 like-Ior- like. These results reIlect market share gains across the world, achieved through growth in new market positions
L'Oreal sales is very low compare to Body Shop increased by 4.6 and Galderma achieved record sales, with a like-Ior-like increase oI 17.1.
quarter sparking fears of a slowdown in the beauty industry. The world's largest cosmetics company Ielt the eIIects oI the US downturn as like-Ior-like sales in North America Iell 3.9 per cent. L'Oreal's poor perIormance on the other side oI the Atlantic held back the group's overall sales which grew 2.1 per cent to t4.359bn Ior the quarter. Commenting on the sales in North America, L'Oreal CEO Jean-Paul Agon said: e had been anticipating a lacklustre 1 st quarter, in fact, it turned out to be more difficult because of lower footfall in department stores and larger than expected inventory reductions by our distributors. Industry implications In the trading day aIter the announcement oI the sales Iigures shares in L'Oreal Iell by over 7 per cent but concern extended beyond the company. AIter the results were released a Deutsche Bank analyst downgraded shares in Procter & Gamble (P&G) Irom "buy" to "hold" citing worries about an industry-wide slowdown, according to Associated Press. The strength oI the Euro against the Dollar is exacerbating worries among European manuIacturers with a signiIicant presence in the US. Impact of weak dollar Looking at the L'Oreal Iigures, currency Iluctuations had a major impact as reported turnover Ior the quarter rose 2.1 per cent while like-Ior-like sales increased by 5.1 per cent. Meanwhile reported sales in Western Europe were unexceptional increasing 1 per cent compared to the same period last year. Despite these weak Iigures, L'Oreal continued to perIorm strongly in emerging markets with "rest oI the world" sales up 12.1 per cent on a reported basis.
References
http://www.brs-inc.com/models/model14.asp http://www.occ.treas.gov/handbook/mis.pdI http://www.decide-guide.com/BCG-matrix.html http://www.12manage.com/methodsbcgmatrix.html Brigham, E.F And Ehrhardt M.C (2005) inancial Management. Theory And Practice: South- Western. 443-452.
Appendix 4.1.3 Finance and Accounting For example, a church would monitor the ratio oI dollar contributions to number oI members, while a zoo would monitor dollar Iood sales to number oI visitors. A university would monitor number oI students divided by number oI proIessors. 4.1.4 Production/operations For example, the average hourly pay oI employees can signiIicantly aIIect total production costs and as evidenced in the 'Global Perspective, there is great variation in average employee pay among countries. 4.1.5 Management Information Systems For example, the company motto oI Mitsui, a large Japanese trading company is 'InIormation is the liIeblood oI the company. A satellite network connects Mitsui`s 200 worldwide oIIices. 4.1.6 Research and development For example, companies in the United States are expected to spend about $ 219 billion on R&D in 2007, a 3.4 percent increase over 2006. Analysts expect annual increases oI about 3 to 4 percent in R&D spending among U.S. companies through 2010. U.S. Iirms on average and collectively spends more on R&D than any other country in the world, although China`s R&D spending is increasing at an annual rate oI about 17 percent. U.S. corporate spending alone on R&D is 64 percent more than all R&D spending in China, including corporate, government, and academia combined.
4. 2 The Internal Factor Evaluation (IFE) Matrix An example oI an IFE Matrix Ior a retail computer store. Note that the two most important Iactors to be successIul in the retail computer store business are 'revenues Irom repair/services in the store and 'location oI the store. Also note that the store is doing best on 'average customer purchase amount and 'in-store technical support. The store is having major problems with its carpet, bathroom, paint, and checkout procedures. Note also that the matrix contains substantial quantitative data rather than vague statements; this is excellent. Overall, this store receives a 2.5 total weighted score, which on a 1-to-4 scale is exactly average/halIway, indicating there is deIinitely room Ior improvement in store operations, strategies, policies, and proceduAres. Table 4.3:A Sample Internal Factor Evaluation Matrix for a Retail Computer Store Key Internal Factors Weight Rating Weighted Score Strentgh 1. Inventory turnover increased Irom 5.8 to 6.7.
0.05
3
0.15 2. Average customer purchase increased Irom $97 to $128.
0.07
4
0.28 3. Employee morale is excellent.
0.10
3
0.30 4. In store promotions resulted in 20 percent increase in sales.
0.05
3
0. 15 5. Newspaper advertising expenditures increased 10 percent. 0.02 3 0.06 6.Revenues Irom repair/service segment oI store up 16 percent.
0.15
3
0.45 7. In-store technical support personnel have MIS college degrees.
0.05
4
0.20 8. Store`s debt-to-total assets ratio declined to 34 percent.
0.03 3 0.09 9. Revenues per employee up 19 percent. 0.02 3 0.06
Weakness Weaknesses 1. Revenues Irom soItware segment oI store down 12 percent.
0.10
2
0.20 2. Location oI store negatively impacted by new Highway 34.
0.15
2
0.30 3. Carpet and paint in store somewhat in disrepair.
0.02
1
0.02 4. Bathroom in store needs reIurbishing.
0.02
1
0.02 5. Revenues Irom businesses down 8 percent. 0.04 1 0.04 6.Store has no Web site.
0.05
2
0.10 7. Suppliers on-time delivery increased to 2.4 days.
0.03
1
0.03 8. OIten customers have to wait to check out. 0.05 1 0.05 Total. 1.00 4 2.50
5.1 Long Term Objectives For example, table 4.4 shows a particular organization could tailor these guidelines to meet its own needs, but incentives should be attached to both long-term and annual objectives. Table 4.4: Varying Performance Measures by Organizational Level Organizational Level Basis Ior Annual Bonus or Merit Pay Corporate 75 based on long-term objectives 25 based on annual objectives Division 50 based on long-term objectives 50 based on annual objectives Function 25 based on long-term objectives 75 based on annual objectives
6.2.3 The BCG Matrix An example oI BCG matrix is provided in Figure 4.5, which illustrates an organization composed oI Iour divisions with annual sales ranging Irom $ 4,000 to $80,000. Division 1 has the greatest sales volume, so the circle representing that division is the largest one in the matrix. The circle corresponding to Division 5 is the smallest because its sales volume ($5000) is least among all the divisions. The pie slices within the circles reveal the percent oI corporate proIits contributed by each division. As shown, Division 1 contributes the highest proIit percentage, 39 percent. Notice in the diagram that Division 1 is considered a Star, Division 2 is a Question Mark, Division 3 is also a Question Mark, Division 4 is a Cash Cow, and Division 5 is a Dog.