BIKE

During the four financial years, BikeSmart has undergone a multitude of decisions and compromises, which had a great impact on the financial health of the company. Because of a young but eager to learn management team, our company went through positive, productive times, as well as through less pleasant periods.

During the first financial year, Y11, the majority of our company’s ratios dropped, except the personal expenses that relatively doubled. This effect was caused by the decision to produce less during that year, and use more of the stock that we already had stored, in order to reduce some of our costs. It created a loss in productivity and other important ratios, but only by giving us the financial advantage of having a smaller stock rotation and less expenses related to stock storage.

Because of the previous decision, starting with year 12 we decided to concentrate on increasing our production and maintaining a relatively lower stock volume and stock rotation. We decided to produce enough products that would allow us to cover the demand, and leave a stock of 500-800 units per product. By doing that, most of our ratios increased, ROI being up to 10%, and the productivity increasing substantially as well. The degree of capacity became 96%, which is close to the target percentage that we set of 90-95% and the stock rotation was of an exemplar 81 days for Product A and 59 days for Product B. Our management team finally went on the right track and all managers started to feel more confident.

In Y13 the situation changed when we were proposed the opportunity to enter the American market, a decision that presumes much risk, responsibility and calculations. After many discussions, we decided to participate on the American market only with Product A. It was the product that we concentrated on the most, and we regularly worked on its quality by investing in R&D and in training the workers that are producing it. We also bought many new machines that would increase our company’s productivity. Furthermore, after analyzing the price range that was demanded by the American market, we decided that Product A will be a competitive good on the market, with a very good price-quality ratio. We also decided that our company is not able to supply the entire demand of both markets, so we went to the American market targeting just a partial market share. In order to finance all our activity and eliminate the short term loan that was very costly, we decided to take a new long term loan of 3.000.000 EUR and emit 10.000 shares. 

The result was a positive ROE for the first time in the last few years, with a 2,3 % increase. The change in net sales increased substantially, especially for Product B, that experienced an additional 72%, an unprecedented result. Thus, productivity rose and operational expenses decreased because of a constant investment in R&D, training of the personnel and the procurement of new machines. We also assigned an important amount of money to equipment that would decrease the energy and waste consumption, decreasing it by respectively 14,4% and 19,2%. Everything started to feel naturally right, everyone started to feel the rhythm of work and production was going better than ever.

The final year Y14 is the one that took a hit, because of a rather risky decision took by the managers. In order to increase productivity and be able to supply the European and the American market better, we decided to increase the capacity of production of our company. In order to do that, we planned to sell 15 of the old machines, and buy only 3 new ones, making our workers to produce in shifts, but on fewer and more productive machines. On paper and calculations our idea worked, but what all our managers missed is the problem of how possible would it be to put our plan onto action.

After receiving the results of Y14, we realized that 182 people could not work on so few machines, and thus all our representative ratios declined dramatically. Because of that, it was impossible to produce all the planned volume, and our company only made all the possible Products A, until the degree of capacity utilization was 100%. As a result, Product B could not even be produced.

ROI went to an all-time low of -14% as well as ROE at -47 %. We also witnessed a decrease in productivity, sales, operational cash flow, stock rotation and a loss of -€ 8 537 000 in the end of Y14. The one plan that was realized is the planned decrease of energy and waste consumption.

As a conclusion, we can say that we experienced during the 4 years both highs and lows, but the most important is that we learned many lessons. We are now sure that plans need a rather realistic approach, and a small miscalculation can have a great impact. All in all, our managers are happy to have had the opportunity to do everything in their power to achieve the best results possible.