ACADIAN TIMBER

Financial Analysis of Acadian Timber

Financial Analysis of Acadian Timber

Risks and Solutions

Dependence on the Construction, Housing, Remodelling and Repair Market

The primary risk factor that affects the performance and productivity of the company is dependence of company's wood products on the construction, remodelling and repair activities in the market. The financial performance of the company is strongly related to the above factors. For instance, current slump in the demand of housing construction has also affected the demand of wood and log products in the country, this, in turn, leads to lower profits, productivity, revenue and cash flows for lumber mills who are important customers to Acadian.

Solution

The most viable solution to minimize the effect of this risk factor is to expand the distribution of products to other regions. The company is currently operating in the regions of United States, and the demand for new housing construction in United States is on the lower side. To maintain the demand of the wood and logs, the company should start exporting its products to countries where the demand for woods and logs is on the higher side (Naila, 2010, pp.26).

Price Volatility

The second most sensitive risk factor for the company is the fluctuation and volatility of the prices of its products. This is a factor that is present in the external environment and is beyond the control of Acadian company. For instance, the market prices for timber can be affected by changes in regional supply, demand and economic conditions. In addition to impacting Acadian's sales, cash flows and earnings, weakness in the market prices of its timber products may also have an effect on Acadian's performance.

Solution

In order to nullify the adverse of effect of this risk factor, the company should follow the strategy of Price skimming. The pricing strategy is one of many of marketing strategies the company can use and it's very prominent to get this strategy right because the right price strategy can earn the company revenues and market share. An estimate of businesses, commonly leaders in their industry, uses price skimming or market skimming as a pricing strategy (Goodpaster, 1991, pp.53-73).

Highly Competitive Industry

Timberland companies operate in a highly competitive business environment in which companies compete, to a large degree, on the basis of price and also on the basis of service and ability to provide a steady supply of products over the long term.

Solution

In order to become the leader in the wood industry, the company should concentrate on developing and establishing a core competency that others cannot imitate (Brigham, 2003, p. 99). For this purpose, the company can improve the quality of its products and services, the company can also perk up its customer care services, or it can also bring innovation to its products or processes (Drucker, 2004, pp. 75-79). Core competencies will allow business to deliver value to their customers. The litmus test for a core competency is that it is hard for competitors to copy or develop.

Opportunities

Consumption of wood products are expected to rise

Despite the current global economic ...