Hatfield Medical Supplies Case Questions And Sample Answers

  1. Do you think Jaiden Lee should develop a strategic plan for the company? Why?

Lee should develop for Hatfield Medical Supplies a strategic plan. He should develop the plan since it will help define the company’s direction or strategy and help the company in formulating decisions on resource allocation. As well, the plan will assist the company’s management appreciate how it relates with the extant competition (Kono, 1994).

  1. What are the central elements of such a plan?

Strategic plans have several principal elements. The elements include executive summary, elevator pitch, corporate mission statement, SWOT analyses, and organizational goals. Others are corporate KPIs (Key Performance Indicators), industry analyses, competitive advantages and analyses, and marketing plan. Other important elements in strategic plans are teams, operations plans, and financial projections (Kono, 1994). In a given strategic plan, the finance-related section may have models used in assessing the prospective outcomes of the opportunities that a business is pursuing. The financial projections in the plan help in the mapping out of business goals (Clark & Krentz, 2004; Jovanovic & MacDonald, 1994).

  1. Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, briefly explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.

Capital intensity refers to the amount of capital, both real and fixed, that is available to a business in comparison with the other extant production factors particularly labor (Jorgenson & Vu, 2005). When capital intensity declines, the less new resources, especially money, are required in supporting additional sales thus AFNs lessens, other factors remaining unchanged. Economies of scale plus quick growth impacts on the intensity, other factors remaining unchanged.

When sales grow, AFN increases since additional assets are needed. When sales grow, AFN decreases since fewer assets are needed. The decrease of accounts payable raises AFN since it lessens liabilities that are deemed spontaneous. When profit margins increase, AFNs decrease owing to the increase of retained, as well as total, earnings. The reduction of payout ratio reduces AFN owing to the reduction of the need for outside financing.

  1. Define the term self-supporting growth rate. Other things held constant, would the calculated capital intensity ratio change over time if the company were growing and were also subject to economies of scale and/or lumpy assets?

Self-supporting growth rate refers to the highest rate of growth that a company could attain if it did not access outside financing, or capital. Other factors remaining unchanged, there would be changes in the computed ratio of capital intensity of a company if it has a sustained growth and remains subject to assets that are deemed lumpy or economies of scale (Churchill & Lewis, 1983; Evans, 1987).

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