Global Manufacturing Enterprise Business Development Assignment Sample

Analyzing Logitech's Financial Performance and Business Opportunities

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Global Manufacturing Enterprise Business Development

Part 1. Case Study Competitive Review

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a) Income statement and performance analysis of Logitech

i) Income statement of Logitech

Income statement of Logitech

 

 

 

 

2022

2021

“Sales/Revenue

5,035

4,849

Sales Growth

3.83%

65.15%

Cost of Goods Sold (COGS) incl. D&A

3,060

2,710

COGS excluding D&A

2,951

2,634

Depreciation & Amortization Expense

109

76

Depreciation

81

47

Amortization of Intangibles

28

29

COGS Growth

12.91%

46.90%

Gross Income

1,975

2,139

Gross Income Growth

-7.68%

95.99%

 

 

 

Gross Profit Margin

39.23%

-

SG&A Expense

1,266

1,074

Research & Development

187

209

Other SG&A

1,079

865

SGA Growth

17.90%

35.18%

EBIT

709

1,066

Unusual Expense

6

6

 

 

 

Non Operating Income/Expense

8

-2

 

 

 

Non-Operating Interest Income

1

2

Pretax Income

713

1,060

Pretax Income Growth

-32.77%

231.24%

 

 

 

Pretax Margin

14.15%

-

Income Tax

121

185

 

 

 

Income Tax - Current Domestic

55

112

Income Tax - Current Foreign

41

42

Income Tax - Deferred Domestic

27

29

 

 

 

Income Tax - Deferred Foreign

-2

3

 

 

 

Consolidated Net Income

592

875

Net Income

592

875

Net Income Growth

-32.30%

97.09%

 

 

 

Net Margin

11.76%

-

Net Income After Extraordinaries

592

875

Net Income Available to Common

592

875

EPS (Basic)

3.47

5.19

EPS (Basic) Growth

-33.05%

95.12%

 

 

 

Basic Shares Outstanding

167

169

EPS (Diluted)

3.47

5.09

EPS (Diluted) Growth

-31.76%

94.34%

 

 

 

Diluted Shares Outstanding

170

172

EBITDA

818

1,142

EBITDA Growth

-28.35%

208.54%

 

 

 

EBITDA Margin

16.25%

-

EBIT

709

1,066”

Logitech’s operating profitability is measured by its “gross profit margin, SG&A expense, and EBIT”. These three metrics are used to evaluate Logitech’s operating performance in key markets and gauge its ability to generate profits from its core operations.

Logitech’s “gross profit margin” 39.23% in 2022 indicating that the company achieved higher gross profits. This increase can be attributed to the company’s strategies to increase its prices and reduce the costs of its products. Furthermore, Logitech’s “SG&A expenses” decreased in the same period, from 1,266 in 2022 to 1,279 in 2021. This increase can be attributed to the company’s aggressive marketing strategies, which led to an increase in sales in key markets (Brooks and Oikonomou, 2018). Finally, Logitech’s EBIT decreased from 709 in 2022 to 1,066 in 2021. This increase can be attributed to the company’s efforts to increase its efficiency and reduce its costs by making use of automation and other technological advances. Logitech’s operating performance in key markets is also affected by external factors such as the global economic conditions, competition from other technology companies, and changes in consumer pReferences. For example, the company’s sales in key markets may be negatively affected by the global economic recession or inflation that reduces consumer spending power. Moreover, Logitech’s sales in key markets may be adversely affected by the emergence of new competitors that offer better products at lower prices. Furthermore, the company’s sales in key markets may be affected by the changes in consumer preferences, such as the shift from wired to wireless technology. Overall, Logitech’s operating performance in key markets is affected by both internal and external factors. The company’s strategies to increase its prices and reduce its costs, as well as its aggressive marketing strategies, have enabled it to achieve higher gross profits and sales in key markets (Cockcroft and Russell, 2018). However, its performance is also affected by external factors such as the global economic conditions, competition, and changes in consumer preferences. As such, Logitech needs to continuously monitor these factors in order to remain competitive and profitable in key markets.

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ii) Profit margin ratio analysation of Logitech

Ratio calculation

 

 

 

“Gross Profit margin ratio

GPM

(Revenue - COGS) / Revenue

 

2022

(5035 - 3060)/5035

0.39225

2021

(4849- 2710)/4849

0.44112”

 

 

 

Net profit margin ratio

“NPM

(Net income/sales) *100

 

2022

(592/5035)*100

11.7577

2021

(875/4849)*100

18.045”

 

 

 

“Operating profit margin ratio

 

EBIT / Sales

 

2022

709/5035

0.14081

2021

1066/4849

0.21984”

Logitech has had quite a competitive performance in the last two years, based on the “gross profit margin (GPM) and net profit margin (NPM) ratios”.

In 2022, their GPM was 0.39225422 and their NPM was 11.75769613. This indicates that Logitech was able to maintain a high “gross profit margin”, despite the fact that the “net profit margin” was lower than the previous year. In 2021, their GPM was 0.441121881 and their NPM was 18.04495772, indicating that they had a higher “net profit margin”.

Logitech's “operating profit margin (OPM)” also shows their competitive performance over the last two years. In 2022, their OPM was 0.1408143 and in 2021, it was 0.219839142. This suggests that Logitech was able to maintain a higher “operating profit margin” in 2021, compared to the previous year (Costa et al. 2022).

Overall, Logitech has performed well in the last two years. Their “ability to maintain a high gross profit margin” despite the lower “net profit margin” is an effect on their competitive performance. They have also managed to keep their “operating profit margin” above their competitors, suggesting that they have been successful in managing their costs. Logitech has been able to remain competitive in the market, and this has resulted in their financial success.

iii) Recent financials and business situation of Logitech

The financials of Logitech show that they have had consistent growth in the past two years. In 2022, their “sales/revenue” increased by 3.83% from the previous year, while their “cost of goods sold (COGS)” increased by 12.91%. This indicates that their sales are increasing at a faster rate than their costs, resulting in higher gross income. The “gross profit margin” of 39.23% indicates that Logitech is making a profit on their sales. Meanwhile, their “SG&A expense” increased by 17.90%, indicating that they are investing more in their “operations and marketing efforts”. The EBIT of 709 million in 2022 was lower than the 1,066 million in 2021, but this is primarily due to the increase in “SG&A expenses”. The “non-operating interest income” of 1 million in 2022 was also lower than the 2 million in 2021 (Elgazzar et al. 2019). However, “the pretax income” of 713 million in 2022 was still higher than the 1,060 million in 2021. Logitech's net income was 592 million in 2022, which was lower than the 875 million in 2021. This was due to “the higher pretax income, but the higher SG&A expenses” resulted in lower net income margins. Overall, Logitech's financials in the past two years have been strong. They have seen consistent growth in “sales and profits”, and their operations and marketing efforts have been paying off. They have been able to maintain a healthy “gross profit margin” and have been able to increase their pretax income.b) Business opportunity to develop the next generation of ‘Smart Home’ systems

Logitech is a leading provider of “consumer electronic products” and has a diverse product portfolio that includes “computer mouse, keyboards, webcams, gaming headsets, and other accessories”. Their products are used by both consumers and businesses, making them a leader in the tech industry. The emergence of the ‘Smart Home’ market presents a significant growth opportunity for Logitech. The “Smart Home” market is estimated to be worth “$48.8 billion by 2025” and is expected to experience a “Compounded Annual Growth Rate of 10.4%”. This presents Logitech with a chance to capitalize on a growing industry and develop products that will be used in the home automation space.

  • To capitalize on this opportunity, Logitech should focus on optimizing their business operations to increase profitability and margins (Güleç and Bekta?, 2019). Logitech’s “gross profit margin, operating profit margin, and net profit margin” all decreased from 2021 to 2022. In order to improve their margins and profitability, Logitech should focus on reducing their costs, increasing their pricing, and improving their product mix. This will help them to increase their margins, which will in turn allow them to invest more in product development and marketing.
  • Logitech should also invest in “research and development” to create innovative products that will be used in the home automation space. This will help them to develop products that are tailored to the needs of customers and that are competitively priced.
  • Additionally, Logitech should focus on building strong relationships with their suppliers and partners in order to ensure that they are receiving the best quality components and materials at the most competitive prices.
  • Finally, Logitech should focus on strengthening their brand and marketing efforts in order to ensure that their products are well-known and that they are targeting the right customers. This will help them to drive sales of their products and ensure that they are able to capitalize on the growth of the Smart Home market.

Overall, the emergence of the Smart Home market presents a significant growth opportunity for Logitech. To capitalize on this opportunity, Logitech should focus on optimizing their business operations, investing in “research and development”, building strong relationships with their suppliers, and strengthening their brand and marketing efforts (Hashemkhani Zolfani et al. 2018). By doing so, Logitech will be able to capitalize on the growth of the Smart Home market and increase their profitability.

Part 2. Investment and Project Appraisal

a) NPV valuation

i) Net Present Value (NPV) Calculation:

Year 0: Initial Investment = -£5.4 Million

Year 1: Sales Revenue = 5 x 1507000 = £7,535,000

Profit Margin = 25%

Profit = 7,535,000 x 0.25 = £1,883,750

Year 2: Sales Revenue = 5 x 1507000 = £7,535,000

Profit Margin = 25%

Profit = 7,535,000 x 0.25 = £1,883,750

Year 3: Sales Revenue = 5 x 1507000 = £7,535,000

Profit Margin = 25%

Profit = 7,535,000 x 0.25 = £1,883,750

Year 4: Sales Revenue = 5 x 1507000 = £7,535,000

Profit Margin = 25%

Profit = 7,535,000 x 0.25 = £1,883,750

Year 5: Sales Revenue = 5 x 1507000 = £7,535,000

Profit Margin = 25%

Profit = 7,535,000 x 0.25 = £1,883,750

Net Present Value (NPV) = -£5.4M + £1,883,750 x (1/(1.1) + (1/(1.1)^2) + (1/(1.1)^3) + (1/(1.1)^4) + (1/(1.1)^5))

NPV = -£5.4M + £1,883,750 x (3.79)

NPV = £1739412

The NPV of this project is £1739412 which means that if the firm invests £5.4M in this project, then the firm will make a profit of £1739412 over the 5 years.

ii) Sensitivity Analysis

Sales Erosion of 10%:

Year 0: Initial Investment = -£5.4 Million

Year 1: Sales Revenue = 5 x (1507000 x 0.9) = £6,781,500

Profit Margin = 25%

Profit = 6,781,500 x 0.25 = £1,695,375

Year 2: Sales Revenue = 5 x (1507000 x 0.9) = £6,781,500

Profit Margin = 25%

Profit = 6,781,500 x 0.25 = £1,695,375

Year 3: Sales Revenue = 5 x (1507000 x 0.9) = £6,781,500

Profit Margin = 25%

Profit = 6,781,500 x 0.25 = £1,695,375

Year 4: Sales Revenue = 5 x (1507000 x 0.9) = £6,781,500

Profit Margin = 25%

Profit = 6,781,500 x 0.25 = £1,695,375

Year 5: Sales Revenue = 5 x (1507000 x 0.9) = £6,781,500

Profit Margin = 25%

Profit = 6,781,500 x 0.25 = £1,695,375

Net Present Value (NPV) = -£5.4M + £1,695,375 x (1/(1.1) + (1/(1.1)^2) + (1/(1.1)^3) + (1/(1.1)^4) + (1/(1.1)^5))

NPV = -£5.4M + £1,695,375 x (3.8)

NPV = £1042425

Sales Erosion of 20%:

Year 0: Initial Investment = -£5.4 Million

Year 1: Sales Revenue = 5 x (1507000 x 0.8) = £6,028,000

Profit Margin = 25%

Profit = 6,028,000 x 0.25 = £1,507,000

Year 2: Sales Revenue = 5 x (1507000 x 0.8) = £6,028,000

Profit Margin = 25%

Profit = 6,028,000 x 0.25 = £1,507,000

Year 3: Sales Revenue = 5 x (1507000 x 0.8) = £6,028,000

Profit Margin = 25%

Profit = 6,028,000 x 0.25 = £1,507,000

Year 4: Sales Revenue = 5 x (1507000 x 0.8) = £6,028,000

Profit Margin = 25%

Profit = 6,028,000 x 0.25 = £1,507,000

Year 5: Sales Revenue = 5 x (1507000 x 0.8) = £6,028,000

Profit Margin = 25%

Profit = 6,028,000 x 0.25 = £1,507,000

Net Present Value (NPV) = -£5.4M + £1,507,000 x (1/(1.1) + (1/(1.1)^2) + (1/(1.1)^3) + (1/(1.1)^4) + (1/(1.1)^5))

NPV = -£5.4M + £1,507,000 x (3.8)

NPV = £326600

Sales Erosion of 30%:

Year 0: Initial Investment = -£5.4 Million

Year 1: Sales Revenue = 5 x (1507000 x 0.7) = £5,274,500

Profit Margin = 25%

Profit = 5,274,500 x 0.25 = £1,318,625

Year 2: Sales Revenue = 5 x (1507000 x 0.7) = £5,274,500

Profit Margin = 25%

Profit = 5,274,500 x 0.25 = £1,318,625

Year 3: Sales Revenue = 5 x (1507000 x 0.7) = £5,274,500

Profit Margin = 25%

Profit = 5,274,500 x 0.25 = £1,318,625

Year 4: Sales Revenue = 5 x (1507000 x 0.7) = £5,274,500

Profit Margin = 25%

Profit = 5,274,500 x 0.25 = £1,318,625

Year 5: Sales Revenue = 5 x (1507000 x 0.7) = £5,274,500

Profit Margin = 25%

Profit = 5,274,500 x 0.25 = £1,318,625

Net Present Value (NPV) = -£5.4M + £1,318,625 x (1/(1.1) + (1/(1.1)^2) + (1/(1.1)^3) + (1/(1.1)^4) + (1/(1.1)^5))

NPV = -£5.4M + £1,318,625 x (3.8)    5010775

NPV = £-389225

As the sales erosion increases, the NPV of the project decreases. At a sales erosion rate of 30%, the NPV of the project is £-389225 which is a decrease of £2128637 from the initial NPV.

b) The development of next-generation products

The decision to fund the development of next-generation products should take into account both “cost effectiveness and competitiveness”.

Cost effectiveness looks at the cost of developing and producing the product compared to its potential “return on investment”. This includes the “cost of materials, labor, research and development and marketing”.

Competitiveness looks at the potential of the product to be successful in the market, taking into account the existing competition, consumer preferences, and the product’s ability to meet consumer needs. When considering cost effectiveness, it is important to consider the cost of developing the product, as well as the price of materials and labor (Kasprowicz et al. 2022). Additionally, the “research and development cost” associated with creating a new product should be taken into account. All of these costs should be weighed against the potential “return on investment”.

Competitiveness should also be examined. A product should be able to compete with existing products in the market and meet a need that is not currently being met. It should also be priced in a way that is competitive and attractive to consumers. Additionally, research should be conducted to understand consumer preferences and how the product can meet their needs. Ultimately, the decision to fund the development of next-generation products should be based on an analysis of cost effectiveness and competitiveness (Kourtis et al. 2019). While cost is important, it should not be the only factor considered when making the decision. It should be viewed in conjunction with the potential for success in the market.

Part 3. Innovation Planning

a) Market forecast for smart home

i) Innovation Adoption Curve and sale forecast

The innovation adoption curve is a model that describes the adoption or acceptance of a new product or innovation, according to the demographic and psychological characteristics of the adopters. It suggests that the process of adoption starts with innovators and moves through early adopters, early majority, late majority and laggards.

Market Forecasts

Forecast Sales The projected sales for the ‘Smart Homes’ market can be estimated using the innovation adoption curve (Kwilinski et al. 2019). Assuming that the market size for the UK is £507 million, the estimated sales for the firm can be calculated as follows:

Innovators: 2% of the total market size

Early Adopters: 13% of the total market size

Early Majority: 34% of the total market size

Late Majority: 34% of the total market size

Laggards: 17% of the total market size

Therefore, the total projected sales for the firm in the ‘Smart Homes’ market will be:

Innovators: £10.14 million

Early Adopters: £65.91 million

Early Majority: £172.38 million

Late Majority: £172.38 million

Laggards: £86.19 million

Total: £507 million

Projected Profits

The projected profits of the firm can be estimated by applying a profit margin to the projected sales. The typical profit margin for a project ranges from 24% to 40%. Assuming a profit margin of 32%, the projected profits of the firm would be:

Innovators: £3.24 million

Early Adopters: £21.09 million

Early Majority: £55.16 million

Late Majority: £55.16 million

Laggards: £27.58 million

Total: £162.23 million

ii) Effect of Delayed Launch

If the project development phase is delayed by two years and the market share of the firm is reduced by 4 percentage points, then the estimated sales and profits of the firm would be as follows:

Reduce in sale

Innovators: £9.73 million

Early Adopters: £63.27 million

Early Majority: £165.48 million

Late Majority: £165.48 million

Laggards: £82.74 million

Total: £486.7 million

Reduce in profit

Innovators: £3.11 million

Early Adopters: £20.25 million

Early Majority: £52.95 million

Late Majority: £52.95 million

Laggards: £26.48 million

Total: £155.74 million

Therefore, the delay in the project development phase would result in a decrease in the estimated sales and profits of the firm by approximately 20.3% and 7.49% respectively.

b) Planning project development activities

“Planning and budgeting project development activities including risk assessment” are essential elements of successful project management. They are designed to ensure that projects are completed on time, within budget, and to the required quality standards.

Planning involves detailing the “project’s activities, tasks, and timeline”. It requires identifying potential risks and issues that may impact the project’s timeline and budget (Moll and Yigitbasioglu, 2019). A detailed plan reduces the likelihood of unforeseen obstacles that could delay or derail the project. The plan also helps ensure that project resources are used efficiently and that resources are available when needed.

Budgeting is also important for successful project completion. Allocating resources to fund the project, analyzing and understanding the cost of each phase of the project, and managing the financial resources throughout the project is essential. Budgeting helps to ensure that the project is completed within the allocated resources and that the project does not go over budget.

Risk assessment is also a critical component of successful project management. Risk assessment involves identifying potential risks that may affect the timeline and completion of the project. Assessing the potential risks helps project managers to develop strategies to mitigate these risks and ensure that the project is completed on time and within budget.

Overall it is said that “planning, budgeting, and risk assessment” are essential elements of successful project management (Nigri and Del Baldo, 2018). They help to ensure that projects are completed on time, within budget, and to the required quality standards. By “planning, budgeting, and assessing risks”, project managers can improve the likelihood of project on-time delivery and success (commercially and financially).

Reference list

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Cockcroft, S. and Russell, M., 2018. Big data opportunities for accounting and finance practice and research. Australian Accounting Review, 28(3), pp.323-333.

Costa, M.A.S., Guerino, G.C., Leal, G.C.L., Balancieri, R. and Galdamez, E.V.C., 2022. Exploring performance measurement practices in Brazilian startups. Total Quality Management & Business Excellence, 33(5-6), pp.637-663.

Elgazzar, S., Tipi, N. and Jones, G., 2019. Key characteristics for designing a supply chain performance measurement system. International Journal of Productivity and Performance Management.

Güleç, Ö.F. and Bekta?, T., 2019. Cash flow ratio analysis: The case of Turkey. Muhasebe ve Finansman Dergisi.

Hashemkhani Zolfani, S., Yazdani, M. and Zavadskas, E.K., 2018. An extended stepwise weight assessment ratio analysis (SWARA) method for improving criteria prioritization process. Soft Computing, 22(22), pp.7399-7405.

Kasprowicz, T., Starczyk-Ko?byk, A. and Wójcik, R.R., 2022. The randomized method of estimating the net present value of construction projects efficiency. International Journal of Construction Management, pp.1-8.

Kourtis, E., Kourtis, G. and Curtis, P., 2019. An integrated financial ratio analysis as a navigation compass through the fraudulent reporting conundrum: a case study.

Kwilinski, A., Volynets, R., Berdnik, I., Holovko, M. and Berzin, P., 2019. E-Commerce: Concept and legal regulation in modern economic conditions. Journal of Legal, Ethical and Regulatory Issues, 22, pp.1-6.

Moll, J. and Yigitbasioglu, O., 2019. The role of internet-related technologies in shaping the work of accountants: New directions for accounting research. The British Accounting Review, 51(6), p.100833.

Nigri, G. and Del Baldo, M., 2018. Sustainability reporting and performance measurement systems: How do small-and medium-sized benefit corporations manage integration?. Sustainability, 10(12), p.4499.

Nwachukwu, C., Vu, H.M. and Fadeyi, O., 2019. Assessment Of Financial Performance Of Selected Money Deposit Banks In Nigeria: A Ratio Analysis Approach. Management Strategies Journal, 43(1), pp.53-63.

Peymankar, M., Davari, M. and Ranjbar, M., 2021. Maximizing the expected net present value in a project with uncertain cash flows. European Journal of Operational Research, 294(2), pp.442-452.

Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management accounting research: Status and future focus. International Journal of Accounting Information Systems, 29, pp.37-58.

Saputra, F., 2022. Analysis of Total Debt, Revenue and Net Profit on Stock Prices of Foods And Beverages Companies on the Indonesia Stock Exchange (IDX) Period 2018-2021. Journal of Accounting and Finance Management, 3(1), pp.10-20.

Taouab, O. and Issor, Z., 2019. Firm performance: Definition and measurement models. European Scientific Journal, 15(1), pp.93-106.

Zore, Ž., ?u?ek, L., Širovnik, D., Pintari?, Z.N. and Kravanja, Z., 2018. Maximizing the sustainability net present value of renewable energy supply networks. Chemical Engineering Research and Design, 131, pp.245-265.

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