Sample Business Studies Paper on Essentra PLC, TPI and Hexcel

Introduction

A company’s primary goal is to ensure that it generates wealth for its investors through profit maximization. Shareholders appoint directors to manage the business and ensure it runs smoothly. The challenge arises when the investors cannot fully access their performance of the directors and managers. Investors should ensure that they can evaluate the perofmr4nmce of a business using all the financial tools available. Most stakeholders access a firm’s performance using its profit margins, which usually does not indicate its efficiency on other financial and non-financial measures. When organizations publish their financial statements, they fully disclose all the issues relating to their investment and activities to investors (Blessing and Onoja, 2015). Managers can use the DuPont analysis model to ensure that they establish the relationship between the various company variables, which will ensure that they get a true reflection of the company’s performance. It will also offer a platform where multiple stakeholders can diagnose a company’s operational and financial flaws. The financial statements Analysis and interpretation is a crucial tool in evaluating a firm’s performance, as it provides investors with the level of risk associated with that particular firm. The DuPont model application is essential in ensuring that it indicates how well an organization is effectively using its resources, compared to profitability that only reflects capital utilization. Business managers also need to apply the application of Porter and SWOT analysis methods to ensure that they make the right investment decisions, which will be crucial in ensuring business sustainability.

Objectives of the study

The aims of the business report are to conduct a thorough analysis of Essenta Plc, by comparing its performances against TPI composite and Hexcel corporation. To achieve these aims, the following objectives will guide this report:

  1. To conduct a SWOT analysis of Essentra Plc. TPI composite and Hexcel corporation To conduct a Financial analysis of Essentra Plc, TPI composite and Hexcel corporation
  2. To conduct a valuation of Essentra Plc, TPI composite and Hexcel corporation

 

A brief explanation on the industry under analysis

UK modern plastics industry was created in the 19th century, and it is a global leader in cutting edge technology. The industry in the UK has a turnover revenue of over 27 billion pounds. It employs over 150,000 employees directly and almost 500,000 indirectly. It has over 6000 firms in the country engaged in the trade and is the 3rd largest employer in the manufacturing segment in the UK. The industry is made up of three key sectors which are the machinery manufacture, material processors and material manufacture. It has a complex supply chain system ranging from the raw materials producers, additives and the consumer industries. Uk companies are global leaders in several ancillary innovations that are responsible for the country’s improvement in plastics processing means. The nation also boasts of having a strong materials testing sector that serves not only the plastic industry but also the composites, rubber plus the associated textile manufacturers.

Introduction Essentra PLC, TPI and Hexcel

Essentra plc

The company was established in the 1940s as the Bunzl Fibers division. The company in 1955 acquired Moss Plastics, which was a national plastic products manufacturer. The expansion of the business went on with the acquiring of the MSI Oilfield Products in 1994, which deals with supplying pipe protection products. Furthermore, it acquired Payne in 1996, which was a manufacturer of tear tapes. The business in 2005 demerged from Bunzl, following which it went on to purchase Duraco in 2007.  Duraco was a U.S company specializing in adhesive-coated products business (Essentra, 2020). The business also in 2007 purchased Lendell manufacturing, which was a foam manufacturer. The purchase resulted in the fibre and foam business combining to form a new division known as porous technologies. The business rebranded to Essentra Plc in 2013, with the name chosen to ensure key recognition of all its components. The business is organized into four departments consisting of packaging, filter products, component solutions, and specialist components. It is an international supplier of fibre and speciality plastic products. The business manufactures products such as plastic moulded, fibre, cigarette filters, and adhesive-coated products.

TPI composite

The company was formed in 1968 and is a global leader in providing composite materials globally. TPI’s headquarters are in Arizona but has a global footprint in countries like Mexico, The U.K, India, China, Germany, Turkey, and Denmark. Its experience comes from its years of experience in the manufacturing sector, where it was a leading manufacturer in industrial applications, composite structures, powerboats, and high-performance sails. The business’s primary product is the wind blades, which accounts for 18% of global sales (TPI, 2020). The wind blades sales brought in $1.4 billion in net sales, representing the over 9,500 wind blades sales. The advanced business uses advanced manufacturing technology, which ensures that its facilities produce the best products to meet their clients’ industrial needs. The company also leverages its innovation and advanced composite technology to supply unique, durable, lightweight, and high-strength composite product solutions used in the transportation sector by buses, trucks, and passenger automotive. The wind blades support the energy production Dec carbonization that is useful in providing significant greenhouse emissions, which are essential in mitigating climate change.

Hexcel Corporation

Hexcel was formed in 1995 through a combination of Ciba composites, California Reinforced plastics, and Hercules composites. It is an American business organization with a global network. Its headquarters are in Connecticut and sells its products in countries like China, Canada, France, The U.K, and Germany. The company products are sold in military, recreational, and commercial markets, where they are primarily used in the satellites, automotive products, wind blades, and sports equipment. The company’s main clients include the Boeing group, American Military and the Airbus group (Hexcel, 2020). The business has always traded in the New York stock market since 1980, under the ticker symbol HXL.

The business in 2017 was selected by Airbus to supply composite materials such as rotor blades and fuselage structures for its H160 helicopter. The business’s composite materials are used to develop and manufacture lightweight, structural materials using fibre-reinforced materials such as speciality reinforcements, and carbon fibres. The company operates in two segments that are engineered products and composite materials. The composite materials part includes the prepregs, while the engineered product consists of the moulded components and lightweight structures.

 

Literature Review

Introduction

Various scholars have delved into the different business analysis techniques that can be used to assist in making certain business decisions. As such, this chapter conducts a review of extant literature on business analysis techniques split into four main parts; review of the DuPont financial analysis, Porter’s five forces and a SWOT analysis.

DuPont defination

Researchers have done a lot of research regarding the use of DuPont analysis and the use of ratios. The literature’s main focus is on the DuPont analysis system’s effectiveness and viability as an instrument to measure a firm’s overall profitability and efficiency.

The DuPont model is useful to business stakeholders who want to evaluate business profitability over a couple of years. Barbie (2020) noted that the model was created at the turn of the last century by Donaldson Brown, though it has been modified twice since its conception. The DuPont model was created in the early 1900s to assess the profitability of a business. Flesher & Previts (2013) observed that after they recognized a mathematical relationship between the return on equity and profitability determined by the return on assets. It is because a ROA affects efficiency and profitability, plus the operating decisions of a business relating to planning. Warrad & Nassar (2017), in their study of Jordan industrial firms from 2008 to 2015 using DuPont analysis, noted that there was a significant impact of total asset turnover on the model on ROE. It also noted an effect on net profit margin and financing leverage on the DuPont Model of ROE.

The modifications led to the inclusion of the debt as an area of concern, which led to the DuPont model being an important business tool as it led to an increase in the ROE. Kijewska (2016) states that the latest modifications to the model have resulted in then DuPont approach to include five ratios that are to be used to determine ROE. It is because Managers are more concerned with accessing a firm’s financial performance from their annual statements, which results in the added significance in business financing decisions and operating decisions upon ROE continuing to be essential Rahman & Mia, (2018). The modified approach has revealed that the DuPont model can be used to identify why manufacturing companies experience financial problems. Another study by Rogova (2014) on the DuPont model’s application in Russia’s oil extracting organizations was done to show that the DuPont analysis application was useful in showing an organization’s efficiency. The study noted that DuPont model analysis was crucial in revealing factors of efficiency, impacting the companies’ investment appeal. The researchers also observed that the main benefit of the ROE application was that it was possible to disaggregate it into various profitability ratios. The model was also observed to favour shareholders, as it indicated efficiency and profitability from the investors’ view.

DuPont and profitability

DuPont does not require the use of many calculations to get the results. Doorasamy (2016) noted that the DuPont analysis model required a few calculations to get the necessary company financials. The researcher justified their research that the calculations would lead to significant results that are crucial for small business enterprises. The scholar noted that the original DuPont model could be useful in getting valuable insights into the company in return. However, the researcher also observed that the extended, modified DuPont model helped clarify the relatively complex business financial analysis. It resulted in giving business leaders the ability to fruitfully conduct financial and strategic planning successfully, as they had the right financial information to guide their decision-making principles. Huan & Hang (2020) also evaluated if the DuPont model information was associated with the analysts’ forecasts and the stock market returns. The researchers in their study examined the decomposition of earnings that included profit margin, asset turnover, and the market’s link with the DuPont components in the short and long-window tests. The study findings showed that asset turnover has explanatory power for future changes on the net operating assets return. The market better understands the future RNOA implications due to the use of the DuPont components.

According to Kharatyan et al. (2016) who examined the extended comprehensive modified DuPont analysis as a simple financial tool that can be utilized by business managers in their financial analysis to ensure they make the right decisions. The scholar noted that the DuPont analysis is appropriate in simplifying complex financial analysis. It is an effective business tool that is useful in identifying how the DuPont analysis model components affect the ROE of a business. Saleem and Rehman (2011) investigated the relationship between profitability and liquidity of Pakistan oil and gas companies. The study findings revealed a major effect of only liquid ratio on the companies’ return on assets. However, it was noted that there was an insignificant impact on the return on investment and ROE. The study findings also indicated that ROE is not considerably affected by the quick, current, and liquid ratios. The researchers also noted that ROI is significantly impacted by the quick, current, and liquid ratio.

Studies have also been done to find out the connection between profitability and cashflows. A survey by Taani and Banykhaled (2011) examined the association between profitability and cashflows in the Amman stock market. Regression analysis application was used to determine how various factors affect earnings per share (EPS) on 40 companies in the Amman stock market. The study findings showed that the debt to equity, return on equity, and the price to book value affect the Earnings per share significantly. Furthermore, it was observed that leverage ratios and the cash flow obtained from operating undertakings have a substantial influence on companies’ EPS.

DuPont indicators

Studies on the effect of applying several financial indicators over one financial indicator in accessing the performance of firms have shown that multiple indicators are the best to access a firm’s performance. Roaston and Roaston (2012) studied the effect of seven market indicators and five financial on the market and financial performances of eighty-six companies. The researchers noted that according to the root mean square error standards, and it led to the price-to-earnings ratio is usually a much better indicator of a company’s financial performance than the applications of other indicators. Herciu and Ogrean (2011), in their study, performed DuPont analysis on the world’s most profitable companies. The study findings showed that a company’s profitability should not usually be the only absolute and effective standard that investors can use to gauge a company’s performance. It is because it only provides a general overview of a firm’s activity, but it does not give details on other important areas, such as how a business manages its debt, dividend, and liabilities. Soros (2015) noted that Investors should who only look at profitability will not know other flaws within a company, such as the management implementing a project that will not have capital gains. DuPont analysis is useful as it will help investors know the importance of many aspects such as profitability ratios like return on assets, return on sale, and return on equity. Paulson et al. (2013), in their study of publicly listed companies in noted that the absolute measurements of measuring the performance of a company are not always reliable, which is why it is important to relate them to other indicators. Comparing them will expound the relationship between effort and effect, which will be effective for investors to achieve meaningful results.

The DuPont model is also a good indicator of a firm’s efficiency. Padake and Soni (2015) analyzed India’s top twelve banks using the DuPont model to find out their efficiency. The study findings indicated that the DuPont analysis application was useful in providing a better understanding of a company’s efficiency. The researchers noted that investors or other stakeholders should not judge a company’s performance by profit alone, as it may mislead their judgment. The use of one ratio may not provide accurate findings, as the financial institutions that made more profit in the study were not necessarily more efficient than the rest of the banks that had lower profit margins.

The DuPont system of analysis is based on ROE, with the key elements of the ratio being equity multiplier, net profit margin, and total asset turnover (McGowan and Stambaugh, 2012). The method is the most preferred approach in estimating a firm’s market value, which indicates the company’s leverage in improving the business’s future profitability by making it have better utilization of assets. It was observed that efficient use of resources would lead to improvements in shareholder return, as potential investors prefer higher leverage. Demmer (2015) did a study on the usefulness of the DuPont method from in areas such as predicting a business’s stock market returns, operating income, and its future profitability. The study noted that profit margin changes are essential in providing relevant and crucial information on an asset’s future returns. The study also stated that DuPont elements are partly influenced by the quality of the business’s expected earnings due to recent financial statement analysis research.

Researchers have studied the effect of using ROE, ROI, and ROA to determine business performance. Kabajeh et al. (2012), who examined the relationship in Jordan’s insurance listed companies using share prices for five years from 2002 to 2007, used the return-on-equity, return-on-assets, and return-on-investment. The scholars concluded that ROE, ROI, and ROA all show a strong association with market returns and share prices. However, ROE does not affect while ROI and ROA have a weak influence on share price individually. Kharatyan, D. (2016) examined the DuPont model in the industry setting. The author noted that the total profitability of simple decomposition using the DuPont model and the industry adjustment were essential in providing an enlarged predictive capability of prospect changes in RNOA. The study results are consistent with previous studies that abnormal asset turnover is usually more persistent than abnormal profit margins.

Research has also been done on the impact of using asset turnover and profit margins of a business to determine the effect on a firm’s profitability. In their study, Li et al. (2014) analyzed the effect of asset turnover and profit margin on the future net operating profit volatility. The authors conclude that DuPont decomposition elements, which are the asset turnover and the operating profit margin, provide information that predicts the operating profit volatility. Burja and Marginean (2014) analyzed DuPont components’ application on asset turnover and ROE. The research was done on Romania’s five largest furniture industry companies over 13 years. The researchers observed that ROE is correlated with return on assets and return on sales, but is negatively correlated or associated with equity multiplier.

Wu (2014) did an analysis of the association of profitability and forward PE. The researchers concluded that the PE ratio and ROE have a U-shaped relationship, which implies that businesses with higher forward price-earnings ratios will generate lower ROE in resultant years. Katchova and Enlow (2013), in their research, used the DuPont model to compare the agribusiness companies’ return on equity constituents. The researchers concluded that asset turnover had the greatest effect on ROE, showing that agribusinesses have greater operating efficiency. Another study by Pech and Noguera (2015) evaluated the relationship between stock returns and Mexico’s financial ratios. The researchers noted that reduced financial ratios successfully describe the stock returns. Delen et al., (2013) utilize factor analysis to observe if they are fundamental financial ratios dimensions by use of predictive modelling methods. The aim was to discover relations between firm performance and financial ratios. The researchers noted that ROE is mostly affected by net profit margin, leverage, and sales growth ratios.

Industry analysis using porter five forces

Businesses today need to use strategic analysis tools such as Porter’s forces model to determine if an industry is performing much better than its competitors. The model is useful in highlighting the five major forces that are crucial in affecting a firm’s competitive advantage (Dobbs, 2014). The five forces include the threat posed by the entrance of new competitors, consumers’ bargaining power, the power posed by suppliers, the threat of substitute goods and services, and the industry’s level of competitiveness.

The industry key players know that new entrants in the sector will result in bringing new methods and innovations that will put pressure on the key established players through schemes such as the reduction in product prices and providing clients with new value propositions. The key established players such as Hexcel and TPI composite have managed all these barriers to ensure that they remain among the global leaders. The threat posed by new entrants in the industry is quite low due to the established players are always defining the standards continuously. The industry requires a lot of capital to commence operations, which hinders many entrepreneurs from venturing into the industry (Yunna and Yisheng, 2014). The established businesses have already defined the standards and have invested a lot to ensure that they build economies of scale that are crucial in lowering the fixed cost per unit. The industry requires companies to spend a lot of resources in research and development to ensure that their products always remain innovative and attractive to clients, which creates a barrier to firms’ entry from investing in the industry.

Suppliers in the diversified machinery and plastic industry have numerous suppliers who provide the businesses with the raw key materials required for use in the sector. Powerful suppliers in the industry are known to utilize their negotiating power to ensure that they extract better margins, which may affect the profitability of the firms such as Hexcel and TPI composite. The business tackles supplier power by building efficient supply chains through the use of multiple suppliers. The industry key players also experiment with new product designs, which are crucial in ensuring that they can switch to different raw materials that can be substituted in case the cost of a specific raw materials goes up than its substitute.

Clients in the industry are mostly the other industries, though even individual consumers also purchase from the companies. Clients want the best products from the businesses but want t offer the lowest price available that may affect the profit margins of the business in the future. The companies tackle the problem by building a large customer base globally, which is crucial in ensuring that they do not rely on one area. Therefore it offers the opportunity to streamline its production processes and boost its sales area coverage (Pavel and Supinit, (2017). The businesses also have to continuously invest in new product offerings that will ensure that they innovate new products, limiting the power of consumers to seek discounts. Furthermore, new innovative product offerings will also stop the switch of consumers to their rivals’ products.

The threat of substitute products affects the profitability of the businesses in the industry, affecting their long-term survival. The threat is usually high, mostly if it offers a value proposition that exclusively differs from current industry offerings.

The industry deals with the issue through investing a lot in research and development that will lead to limits the threat of new substitute products. The businesses also have to be service-oriented, which limits their exposure to product offerings. The companies also increase the switching costs of their consumers by offering lower price ranges and new product offerings, limiting the chances of consumers switching to new products.

Businesses in the industry face the threat of existing competitors, which sometimes affects the prices of products that drive profit margins down significantly. The companies are operating in a very competitive industry, which requires businesses to come up with strategies that will ensure their survival and sustainability (Kibria et al., 2014). The enterprises ensure that they deal with the threat posed by existing competitors by building sustainable differentiation mechanisms. The businesses also collaborate with their competitors, which results in increasing their market dominance, which is crucial in maintaining their existing clientele.

SWOT Analysis

The SWOT analysis is a useful business tool that is applied by managers in the strategic planning process. It assists business leaders to get a better insight into both the internal and external business environment. It assists in making strategic decisions and plans through the analysis and positioning of a business environment and resources in four key areas that are the strengths, weaknesses, opportunities, and threats. The internal factors include the Strengths and weaknesses, which a business can control and are the factors that are crucial in supporting a company to achieve its objectives Gürel, and Tat, (2017). Opportunities and threats are external factors, and business has no control over and may affect the business if it wants to achieve its objectives. Business leaders should identify the factors in the four key areas, and businesses will be able to access the issues that affect their operations and profit maximization plans.

The SWOT analysis tool, according to Phadermrod et al. (2019), is the most used analysis tool by respondents, followed by the competitor’s analysis with 85%. The study noted that the SWOT analysis tool main advantage is that it is simple to use and understand. Another study by noted that the SWOT matrix comprises of maxi-maxi combination, which represents the weakness and opportunities that a business can exploit to ensure that they reach their objectives such as profit maximization. The mini-mini combinations are the weaknesses and threats that may lead to the business’s closure due to factors such as business having weak internal control systems that may present an opportunity for fraud occurrence. Gürel and Tat (2017), in their study, observed that a company should ensure it invests enough resources that will lead to it taking advantage of the existing opportunities and its strengths, which could positively affect the financial and non-financial performance of the company. Businesses should also invest sufficient resources to address the internal weakness in their systems or emerging external threats.

Every business has its strengths, which are a result of it improving its resources and capabilities, through which an organization will gain a competitive advantage over its rivals. Organizational strengths are the situations and characteristics in which it is more efficient and effective than its competitors (Schmid. and Hansson, 2018). Organizations can be observed to be weak, strong, or even equal to their competitors through five criteria. The criteria include relative production and technical capacity, Relative market situation, production, technical capacity, financial structure, and research capabilities. Weaknesses in a business at an organizational level are the circumstances in which the ability capacities and the present existence of a corporation are weaker compared with other companies. It results in its activities or aspects to be less effective to its rivals. The weaknesses in the organizational aspects negatively impact its performance, resulting in the business to lose its competitive advantage, and it cannot adequately respond to an opportunity or threat. Furthermore, the business is also unable to adapt to changes, which may hamper its progress.

Threats are circumstances that that come as a result of changes in the immediate environment, which prevents the organization from maximizing or returns or even lose its competitiveness. Vlados, (2019) noted that the threats sometimes result in constituting an impediment to the organizational success, which may cause unrecoverable financial damages. Opportunities in organizations are the present or future convenient situations or time that the environment presents a business to achieve its goals. The impact of opportunities is that they offer positive results for an organization. Opportunities are conditions found in the external business environment that allow a company to take advantage of its strengths, neutralize environmental threats and overcome its weaknesses.

Illustration of SWOT analysis

 

Strengths

Ø  Strong distribution network for their products globally

Ø  Outstanding performance in new markets where they have started trading their goods, which has led to them to have 100 markets

 

Weaknesses

Ø  Low research and development investment in the industry may affect the company’s future sales

 

 

Opportunities

Ø  New manufacturing technology may lead to differentiated pricing by the businesses

Ø  Lower inflation rate could open up credit facilities access due to market stability

                    

 

Threats

Ø  Imitation of low products and counterfeits may affect their sales

Ø  Rising wages could affect profitability

Ø  Intense competition in the industry may affect sales turnover

Ø  Rising costs of raw materials may make products expensive

Source, (author 2020)

 

 

Chapter 3

SWOT analysis

Hexcel SWOT analysis

Hexcel has numerous customers located in many nations globally, which requires it to invest in a strong supply chain network. It is also a successful business that uses a strong distribution network to ensure that its products are distributed to where their customers are located globally. Hexcel has invested heavily in ensuring that its production sites never lack sufficient raw materials. The business requires an effective supply of raw materials that will ensure its production systems do not fail, which the company has invested heavily by ensuring that they outsource their materials from several suppliers (Hexcel, 2020). The many years of operations have assured that it has a skilled workforce that always ensures that it accomplishes its vision, mission, and set targets. The skilled workforce knows the organization’s culture, which is crucial in ensuring that they work hard at ensuring that the organization meets its objectives. The organization has a strong research and development department that always ensures it always invests in the latest innovative products, which are crucial in maintaining existing and attracting new customers. The development department always ensures that staff are always trained, which improves their competence.

The business has weaknesses in its operations and daily activities that may affect its profitability and market dominance. The business marketing of products needs improvements since its unique selling proposition and positioning are not well defined. The challenge of not having a clear strategy is that it may lead to its rivals attacking any of if its key segments, as it will not quickly establish the problem (Hexcel, 2020). The business has a high attrition rate among its staff, resulting in business spending a lot on costs compared to its competitors on the hiring and development of employees. The business spends less on research and development costs than its rivals, which may hamper its ability to launch new products. Lack of innovative products will hinder the company from expanding its product portfolio, which may hurt its sales in the future. The business has the challenge of limited success outside offering its core business segment, which affects its ability to expand its revenue base. The corporation has a higher day’s inventory when compared with its competitors, which results in the business having to raise more capital for investment purposes when compared with its rivals. The problem will impact the business long term growth, as its projects will be taking longer to start and complete compared with its rivals.

Opportunities include the chances the business can take advantage to improve its market dominance and profit margins (Hexcel, 2020). The business has the chance to take advantage of the growth in population globally, which means that they will be more demands for their products globally. The changing client tastes, preferences, and needs preset the business with an opportunity to ensure that it streamlines its operations, which will be successful as the company has market knowledge derived from years of experience. The presence in emerging nations presents the business with an opportunity to ensure that it takes advantage and expands its operations in these countries. The merging nations such as India and Brazil are some of the fastest-growing economies globally with a big population, which provides the business with an opportunity to increase its market share and dominance plus also increasing its profit margins in the future.

The threats to any business are a challenge to its survival and existence, as it may negatively affect its profitability. The business’s threats include the recent Paris agreement that has resulted in the introduction of new regulations that companies have to comply to continue with their operations. The rules on environmental considerations that the businesses have to consider in their supply chain and production process systems, as non-compliance may lead to substantial financial penalties, loss of some customers, and even the partial or full closure of the business (Hexcel, 2020). Intense competition due to globalization leads to companies expanding to locations outside their countries with few restrictions, which is threatening businesses that have total dominance in their countries or regions.  It will lead to reduced market dominance, less profitability, and the company will also lose its competitive advantage.

TPI SWOT analysis

TPI has been in existence for long, and its products are sold globally, making it have a strong brand portfolio and recognition worldwide. The recognition is crucial in attracting and retaining customers. The strong brand reputation is useful when it wants to launch new products in the market, as customers will quickly want to associate with the company. The business has reliable suppliers who ensure that its manufacturing sites globally never lack raw materials required for their production processes. The reliance on many suppliers is healthy for the business as it protects itself from identifying with one supplier, who may sabotage operations (TPI, 2020). The firm has automated its operations, which is crucial in ensuring that it scales up and down its activities based on demand and market conditions, saving on costs. The business is also successful in executing new investment projects, which is crucial in ensuring that investors get favorable returns on the projects through the building in revenue streams. Its performance in new markets is superb as it always does enough research, which is based on the expertise it has gained from years of operation. It results in saving the organization saving on resources, which are reinvested in other developments. The geographical presence in many countries is critical in ensuring that it is not fully dependent on a single market. it ensures a wider market reach and a broad customer base. The business has a wide product portfolio that ensures it has diversified its operations and marker base. The diversified product portfolio also protects the business from dependence on one product, which cushions it from the effects of a slump in the product price.

All business has operational problems that may affect their profits. TPI also faces challenges that impact its production and operations. The business has the challenge of not yet embracing the latest sustainability practices in the industry, which is causing concern among environmentalists that it does not care enough about the environment (TPI, 2020). Companies nowadays are being forced to invest in sustainability practices to ensure that they do not lose part of their clientele sensitive to businesses that practice environmentally friendly practices.  The business may lose resources due to having poor inventory management practices, which tend to lead to resource wastage due to excessive or shortage of stock. A shortage of inventory may hamper successful production operations while excessive inventory leads to loss of income if it is not sold on time.

TPI has a chance to improve its production processes and market position, usually from the external environment. The development of new technologies presents the business with an opportunity to enhance its delivery and production processes, which will result in improvements in the innovation of products. The innovation of products will allow the business to enter into new markets, which will increase its market share. The adoption of advanced technological products will result in improving efficiency and decreasing costs. The rise in consumers’ disposable income due to the rise of the global middle class is presenting the business with an opportunity to improve its sales numbers and revenues, which will be a result of the rising demand for more products. Nowadays, there is a growing need for businesses to ensure that their supply chain and production processes are streamlined to meet environmental needs. They will ensure that they are sustainable and do not lose clients who may feel that they are environment-sensitive due to the emission caused by their processes (TPI, 2020). The business existence and market dominance offer it an opportunity to expand its operations, as it can easily access financing from banks. The financing will ensure that they can expand their operations and improve their processes, which will ensure that their products are of the highest quality possible.

Like any other business, TPI faces threats from the external environment that affect its operations. The challenge is that the supply of new products is not always common, which leads to high and low swings on the company’s sales figures in different accounting periods. The rising cost of raw materials poses a challenge to business profitability, as it will lead to its products to be expensive (TPI, 2020). The expensive products may reduce the customer base and profit margins, which will reduce its competitiveness. The changing regulatory framework also poses a threat to the business as it has to deal with stricter regulations in some countries such as China, which may pose challenges as legal standards are applications that differ from each nation to the other. If the company does not deal with the issue, it may lead to the business-facing expensive legal suits or even closure of their operations

Essentra SWOT analysis

The business has invested in a strong online presence that ensures it develops a strong relationship with its clients. Furthermore, it impacts e-WOM positively, which is crucial in attracting new clients. Then business has a strong financial position, which allows the firm to have enough resources that are crucial if it wants to make more investments. Its access to many suppliers is essential in ensuring that it has several sources of raw materials, which ensures that its production systems are always working. The business has a committed workforce that always ensures that it achieves its vision, which is crucial in ensuring that it meets its targets. The business locations are key to its survival and sustainability, as companies that are located near customers tend to attract more traffic that is crucial for marketing purposes (Essentra, 2020). The organization is strategically located, which ensures that it has a competitive positioning advantage over its rivals in enhanced brand image and lower expenses. Workforce diversity is also embraced in the organization, ensuring that it attracts human resources talent from all over the world. Workplace diversity can also act as a significant business strength, particularly when the organization intends to operate in the international market. It will ensure that it has employees who understand the local culture well, plus also ensuring that it attracts local talent.

Essentra PLC is a business that faces challenges with its daily operations and activities that sometimes reduce its profit margins. The problem of insufficient current assets compared to its rivals will affect its liquidity position, as it may lack the necessary resources required to ensure its operations run smoothly. The liquidity problem will lead to the business having a cash shortages problem, which will negatively affect its working capital (Essentra, 2020). The problem may persist in the business lacking enough resources necessary for its marketing purposes, which will hinder its product promotion activities. The challenge of having a high employee turnover may negatively affect the organization, as it shows the employees lack enough commitment that may hinder the organization’s smooth operations. It also leads the organization to spend a lot of resources on recruitment and development of new human resources, which is also a time-consuming process. The business also faces the challenge of financial planning, not meeting stakeholder expectations. TPI’s current asset and liquid ratio suggest that the company can improve its cash utilization mechanisms. TPI has the challenge of having high-day inventory compared to its competitors, which means that the business is not good at product demand forecasting. The demand forecasting challenge will lead to higher inventory, which implies that it is wasting resources.

Essentra Plc can improve its profitability and efficiency is it takes advantage of the opportunities the external environment offers, which will enhance its competitive advantage. The business should take advantage of social media platforms to advertise its products, which it can do by having a strong presence. Social media platforms offer companies an opportunity to connect with customers better and quicker, and it also provides a chance for the business to get feedback from customers. The Government green drive initiative also offers an opportunity for business for the company to supply the state with its products, as it has also been moving towards the green initiative program. The new taxation policy and low inflation rate offer the business a chance to increase their profitability and access to more credit opportunities in the market. The adoption of new technology will ensure that the company’s products remain competitive in the future, which will push the business towards practicing a differentiated pricing strategy (Essentra, 2020). The plan will ensure that it maintains its loyal customers while also attracting new clients by offering value oriented propositions. The increase in customer spending also provides an opportunity for the business to ensure that it increases its production output due to the rise in product demand. The firm has a stable cash flow, which is crucial for the company to invest in new and better product segments. It will result in providing the business with new technologies that are crucial in expanding the product offerings, which will expand the customer base.

Essentra Plc has not been able to maximize its potential in the industry due to external environment threats that affect its operations. The increasing number of competitors, both direct and indirect, affects the corporation’s ability to sustain and expand its operations. The rising inflation rates in some countries it operates in are posing challenges to making products expensive, which negatively affects sales revenues (Essentra, 2020).  It is because it is affecting consumer’s purchasing power and spending patterns. The prevalence of counterfeit products also poses the challenge of low-quality products, which will mostly reduce the firm’s profitability in emerging markets. The business is also facing a threat from a lack of innovative products, resulting in the company producing products based on their competitors.

 

 

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