According to the data, we can conclude that the acquisition of ABC Company is likely to be a bad deal for the subsidiary. It is due to the leading financial indicators showing low revenue turnover, a high percentage of debt, low gross and net profit. Based on these metrics, ABC does not appear in the best light for many subsidiary departments, so the CEO should listen to their attitude toward the deal.
The finance department is primarily interested in its growth and ensuring that it has a high revenue stream made up of turnover and revenue. The finance department may view ABC Company as a high-risk organization. It is due to the growth of their assets while their debt is growing (BDC). Long-term debt also shows growth, which creates additional risk when trying to leverage assets or recycle debt. The notion of recycling is probably out of reach for ABC because of its high cost of goods production and low income. Gross revenues and net income are reduced, so the finance department is unlikely to be interested in acquiring additional cargo. The department can probably address issues such as turnover and offer a loan solution, but overall, ABC is not a prosperous company to develop.
The sales department is more likely to call attention to the lack of fixed points of sale. The high cost of producing goods with large materials may be due to the lack of a pronounced capital strategy. It should also be noted that the equity capital does not exceed 100 million, which is a relatively minor figure that has been decreasing for three years. The sales department may see this as an inability to implement a sales strategy (BDC). In general, the department may be interested in a “clean site,” but the low net income will be discouraging. As a result, the company will either win or lose many times over and enter into new debt that the sales department will not solve at the expense of high production turnover.
ABC’s marketing operations are weak and in need of considerable refinement. The marketing department may see this as an excellent sign to adopt new technology and resort to radical changes in strategy. High risk can be discouraging, but since the company primarily does not rely on its assets and cannot develop them, a new marketing move can solve problems (BDC). Creating new promotions and campaigns will increase interest and stimulate sales and a possible increase in turnover and overall organizational efficiency. The marketing department is likely to be neutral about the takeover of the new company and make it an experimental site with variability in pricing policy.
The subsidiary is growing, and new employees will inevitably be needed. The human resources department can screen people for their functional potential and prepare a unique position when the ABC Company is incorporated. However, it is worth understanding the risk that employees may be untrained, especially in finance or management (BDC). You will probably have to spend money to provide training, but the chance that it will pay off will be higher than failure. Layering new skills will be more accessible, and increasing the staff will improve the attitude toward ABC’s products.
It is impossible to say precisely what kind of impression ABC Company will create in the legal department. There will probably be a long review of credit history and communication with equity partners. In addition, the subsidiary’s lawyers will try to make sense of the payment scheme and try to relate the vast production costs to the risks of theft and regulatory violations. These actions will put additional strain on the company and may hurt the overall impression of the validity of its activities.
Reference
BDC. 4 ways to assess your business performance using financial ratios. BDC, Web.