Introduction: This paper presents an assessment of the operations of a fictitious business and its financial performance. It is also hereby evaluated to determine whether it should continue with the operations or shut down completely. The business enterprise that is subject to this assessment is a company, with 100 workers. It has a production capacity of 6,000 units per month. The workers are on duty for 20 days in a month with their wage being $ 70 per day. The outputs fetch $ 32 per unit. The variable inputs cost $ 2,000 in a day while the marginal cost of the last unit produced is $ 30. It is also provided that the fixed costs of the company exceed the revenue accruing to the company. The foregoing therefore, are the details of the company.
The current environmental scan factors relevant to decision making include the market conditions, laws and regulations concerning the business, the social factors like the culture of the external environment, costs of inputs, and technological advancements (Sheffrin, 2003). These are some of the factors which have the effect to influence the operations of the company. The company has little control over them. Laws of the land must be adhered to and followed to the letter. Where they change, the company too has to make changes to confirm with the new legislations. The market has also its factors. The methods employed by the competitors can force the company to take the same route. Changes in tastes and preference, prices, demand, all these greatly affect the manner in which the company handles its affairs. Technological changes too have an effect. Costs of production can go up or down based on the methods of production used. Where an improved method is introduced, that reduces the costs of production; the company has no otherwise than follow the new system. Failure to do that, the company would incur huge costs and thereby losses.
The following factors have the greatest impact on the operations of the company in its operations. The market factors are the most crucial ones. Every business entity has an objective of running at a profit (Hirshleifer, 2005). Where the market factors like demand goes down to the levels that the company cannot meet its costs, then it would be forced to shut down. It is therefore important that these factors be closely monitored with an aim of constantly being in touch with any market changes that may affect the company. Changes in technology are also another market factor of crucial relevance.
Legislation is also an important aspect. The laws regulating the operations of the business have to be upheld. This is to ensure harmony in the operations and hence avoid tussles with the authorities. Failure to respect that would lead to measures implemented to shut the business. The requirements needed to run the business must be met. It is therefore important for the company to be aware of any rules governing its operations and uphold them lest the company be forced to close. These are therefore the important environmental factors that have major effect on the operations of the company.
The rationale for the above points is based on their relevance concerning the impact the factors have on the operations of the business. Where the market factors have a negative effect upon the company, then the company would immensely be disadvantaged. In cases where the factors have a positive effect, then the company would benefit since it earns more and thereby profits. In the case of laws and regulations, they must be upheld. Failure leads to forced closure or many legal battles leading to huge costs.
In evaluating the financial performance of the company, the total costs are to be compared to the total revenue accruing to the company. Where the revenue exceeds the costs, then the performance is good given that a return is earned. On the other hand, in case the costs are higher than the revenue earned, then the performance is not impressive because there is no return earned on the investment. The calculations are done as below;
Total variable costs: 100×70= 7,000×20 = 140,000 per month
Variable inputs 2,000×20= 40,000 per month
Total = $ 180,000 per month
Total revenue: 600×32 = 19,200
From the above calculations, the costs are higher than the revenue in a period of one month. This is even before the fixed costs are added. It is also provided that the fixed costs far outweigh the revenue. The marginal cost of producing an extra unit is also positive $ 30. This shows that the company does not run at a profit. No return is earned on the investment. The performance is therefore not impressive as it ought to be. The drivers of performance, the profits or loss, are the main indicators in this case. Where profits are earned, the performance is deemed impressive. In case of losses, then the performance is below par.
For this company to make profits, efforts must be made to understand why it makes such huge losses. This can be attributed to some unnecessary costs incurred (Bradley, 1991). This should be investigated and where it is established to be a fact, then they be reduced or avoided altogether. Another reason is likely to be low production. The units produced are low and hence less earnings made. This should also be studied so that the company produces at an optimal level. The quality of the products can also be unsatisfactory. This often leads to low sales in the market and hence low income in profits. These are the major likely causes. Their comprehensive study should reveal the areas to be addressed for better results and income to the company.
In order to implement the recommendations, an assessment of the company should first be done. This would indicate the area that requires attention. Where this has been established, then the recommendations should be implemented systematically. For instance where it is the production which is low, then plans are to be made to ensure the production is increased. This could include hiring more employees if there is need and getting more raw materials for the production. Where the obstacle was a low quality in the produce, then efforts be made towards improving the same. Once such is addressed, then the company would start making profits.
The company can however decide to continue with the operations or discontinue based on the performance. If the company is able to earn a sustainable return, then in this case operations must be continued. In cases where the company cannot make a profit, then there would be no need to maintain operations. This is because; it would be running at losses. It is therefore better to reduce the amount in losses than continue making them. Once the company has established the financial performance position, it should move with speed to address the situation. This is important to avoid excessive losses from being incurred.
Conclusion: Businesses are established with an aim of earning a return. The aim of this paper was to provide an assessment of the company’s external environment factors that have an effect on the activities of the company and its financial performance. The performance has been observed to be poor. Various factors could be responsible for the situation. It is recommended that an investigation into the activities of the company be done to establish why it runs at such losses. This could help in addressing the issues for a better future performance. Where it is found to be unfeasible for the company to continue operating, it should be shut down. Where there are prospects of earning a return, then the operations can be continued. By so doing, an appropriate decision would be made and hence save on any unnecessary costs.