As the European society is already flooded with lots of competitors and other similar products, therefore, we cannot ignore the impact of competitors’ product on our sales and net income.
The Net Income shown by the budgeted income statement is negative. This essentially means that we will be losing our revenues to expenses in the first year of expansion. Hence, a very aggressive marketing plan has to be prepared in order to save our sales from getting cut by competitors’ products.
Based on the Income statement and Cash budget, the decision of expansion to Europe seems not a favourable decision. As the cash budget is indicating, our cash liquidity will turn to negative. The major reason is that the account receivable in the third and fourth quarter is high as compared to that of first and second. Therefore, improving liquidity the mechanism of cash collection has to be improved rigorously. Until and unless we make sure that less credit sales are done, we will not be able to improve the liquidity position. And if the trends goes so the first quarters and beyond of 2017 will also come up with poor liquidity position.
Also, we need to cut cost more if we want to go into expansion. With the current cost, we will not be able to earn profits as indicated by the negative net income in the budgeted net income statement. The raw material, labour and manufacturing head cost need to be cut down through various other ways. For example outsourcing and finding other suppliers.
Hence, with the current cost and other decisions, we cannot go into expansion to Europe. In order to go to Europe and expand market we need to take certain steps such as cutting cost. Moreover, intuition on the economy performance of Europe and the market performance has to be incorporated to figure out the performance of our stocks there.
The performance of stock is important because it helps in borrow funds which has a positive impact on the liquidity of the company. The market performance has an important role because if the market is performing well only then investors would be interested in taking shares of the listed companies.