Case Study -Bax Container Limited

Superior Technology
Ahead than competitor for 2-3
years .

Production Process
Collect component from
Energy Efficient supplier then assembled with
Technology(2015) own developed refrigarator
save energy up to 20%
BAX Container ltd

Product Types .

.
 BAX
MORE THAN 5% MARKET POSITION

EVERBRIGHT
Sales Revenue-10% Sales Revenue- 6%
DAXING

02 02
Long history and good trading record Long Hisory and good trading record

New Product ( 2014) Standard Product

03 Sale 8M Gross Margin 27.5% - 2014 Sale 6.0M Gross Margin (22%)-2014 03
Sale 6M Gross Margin 22.0%- 2013 Sale 6.2M Gross Margin (25%) - 2013

Market trend
04 04
Price erosion expected to intensify Price of new product incresed by 15%
 Profitability Performance

HIGHER
MSDA COMPANY
Special Marketing
promotion fees and Expense BENCHMARK
incentive bonus

INCREASED 3M TO 4M
Ionger manufacturing Working ASSET EMPLOYMENT
process increased Capital OVER 2M
payment term

#$100000 FOR
SPECIAL BOOTH REPLACEMENT
COST $30000, DAXING COMPUTER SYSTEM
# COMPANY POLICY IS
Depriciation life 3 year
TO REPLACE IN 4 YEAR
 Profitability Performance

HIGHER
MSDA COMPANY
Special Marketing
promotion fees and Expense BENCHMARK
incentive bonus

INCREASED 3M TO 4M
Ionger manufacturing Working ASSET EMPLOYMENT
process increased Capital OVER 2M
payment term

DAXING
SPECIAL BOOTH WHICH WILL COST $100000 AND IT WILL DEPRECIATE WITHIN 3 YEARS
#$10000 FOR REPLACEMENT OF OLD COMPUTER SYSYTEM
COMPANY POLICY IS TO REPLACE AFTER 4 YEAR
Tax Rate at 25%

M
Cost of Capital at 10%
Current Liabilities at 5% of current asset employed

BAX LIMITED
Customer profitability for Daxing and Everbright
For the year endind 2014 (In US million )
Daxing Everbright
Sale revenue 8.00 100.0% 6.00 100.0%
Cost of goods 5.80 72.5% 4.80 80.0%
Gross margin 2.20 27.5% 1.20 20.0%
Marketing 0.40 5.0% 0.18 3.0%
Selling 0.48 6.0% 0.18 3.0%
Delivery 0.24 3.0% 0.18 3.0%
Administration 0.16 2.0% 0.12 2.0%
MSDA expenses 1.28 16.0% 0.66 11.0%
Net operating profits 0.92 11.5% 0.54 9.0%
 Customer Operating Profit (COP) = Sale Revenue- Cost of goods – MSDA
BAX LIMITED
Customer profitability for Daxing and Everbright
For the year endind 2014 (In US million )
Daxing Everbright
Sale revenue 8.00 100.0% 6.00 100.0%
Cost of goods 5.80 72.5% 4.80 80.0%
Gross margin 2.20 27.5% 1.20 20.0%
MSDA expenses 1.28 16.0% 0.66 11.0%
Net operating profits 0.92 11.5% 0.54 9.0%

# Daxing is better than Everbright in terms of higher operating income

# New Product is better than standard product
 01 02 03 04

It is premature Amount of Financial Efficiency of

to conclude the finanacial Resource asset
profitability capital has not Constraint like employment is
Performance limited funds one of important
been considered.
measure to
compare
Return on Asset ( ROA)

Daxing (million) Everbright (million)

Net operating .92 .54

profits

Average asset 3.5 2

employed

ROA 26.3% 27%

Economic Value Added ( EVA)

Cost of Capital calculation

Daxing (million) Everbright ( million)

Assets 4 2

Liabilities .2 .10

Net Assets 3.8 1.9

Cost of (3.8*.10)=.38 (1.9*.10)=.19

capital(10%)
Economic Value Added ( EVA)

Daxing (million) Everbright (million)

Net operating .92 .54

profits

Tax (25%) (.23) (.135)

Net profit after tax .69 .405

Cost of capital (.38) (.19)

EVA .31 .215

 Performance at a glance
1

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
 Result Summary

Daxing is better in Financial Daxing generate

absolute profit Efficiency is more Shareholder
amount almost same Value

Daxing Represent a hope For BAX because of its exclusive sale for the new product
1 Customer profitability is simple
and easy to calculate

Why author emphasized on the customer 2

value rather than customer profitability?
 A

P
I
T
Year 1 2 3 Total F
profit
A
A 50000 60000 70000 180000
L
B 5000 5000 190000 200000
L
Cost of
Capital
15% S
PV of A 134873
PV of B 133056

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 B

P
I
T
F
Year 1 2 3 Total
profit A
A 50000 60000 70000 75000 255000 L
L
B 70000 -50000 300000 -55000 265000 S

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 C

P
I
T
Year 1 Total Profit realized
F
profit A
A 120000 25% 300000 150000 L
(50% 0 L
cash)
S
B 100000 25% 250000 200000
( 80% 0
cash)

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 D

P
I
T
F
Sale-cost of sales-MSDA
A
Cost
L of
L capital
S

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 A

P
I B
T
F C
A
L
L D

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