Reference no: EM133551044
Case study: Bert's Bikes and Toby's Tyres
Bert's Bikes and Toby's Tyres are two small retail outlets operating in the Adelaide suburb of Baylands. Both were set up as small listed companies by two brothers 20 years ago, and have operated more or less successfully since. Recently, the brothers have both realised that the markets for bicycles and Tyres in their area have changed, for better and for worse.
The market for bicycles has been affected by technological changes in bike design and renewed interest from those who follow international bike races such as the Tour de France and Giro Italia. However, many sales are made online, and Bert wonders if the ability of a small suburban shop to keep up with trends and reach its potential market has declined.
The market for Tyres has similarly been impacted by technology, and is also facing increased competition as Tyres are increasingly available from discount outlets. A small suburban shop faces the challenge of keeping sufficient stock across the full range, without incurring disproportionate storage costs. Given growing environmental and climate concerns, Toby wonders if specialising in motor vehicle accessories has any long-term future.
All sales of the businesses are made electronically, and both businesses expect accounts to be settled via the relevant banks within 45 days.
Required:
- Evaluate the profitability, operational management, financial management and investment management of the two companies using the information provided in Figures 1, 2 and 3.
- Based on your answer in (1) above, write a report that shows a comparative analysis of the performance of the two companies.
- Assume that the directors of Bert's Bikes intend to recommend a dividend of $87 000, and the directors of Toby's Tyres intend to recommend a dividend of $241 500. Comment on the directors' intention.
- Assume that Toby's Tyres values its land and buildings at fair value and made an upwards fair value adjustment of $300 000 last year. Bert's Bikes values its land and buildings at historic cost. What is the effect of such varying treatment of plant assets on the overall performance of each of the companies. Support your answer with examples.