Assignment Brief – Cullen Manufacturing Ltd

Cullen Manufacturing Ltd produces a range of saucepans and cooking pots. The manufacturing process is noisy and results in waste products that cannot be reused. The saucepans and pots are sold mainly online. Since becoming managing director of the family business four years ago, John Cullen has taken the following decisions:
• New machinery has been purchased. This led to higher than expected staff-retraining costs. Half of the necessary finance was borrowed. The government recently announced higher interest rates to deal with inflation.
• Cheaper raw materials and components were brought in, with orders taking place only twice a year. This was designed to maximise scale economies.
• Advertising and promotional expenses were doubled in efforts to increase sales.
• Payments to suppliers have been delayed in order to improve cash flow.
Despite these changes, the overall performance of the business is not encouraging. John has asked the company accountant to prepare a ratio analysis of key performance indicators for the last three years. Table 1 below shows the results.