Slick Jim’s Used Cars: Analysis of Business Performance

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Introduction

Slick Jim’s Used Cars sells pre-owned cars with the business managed by the owner Jim Slick and five other employees. Although the company is making profits, there is concern about the earnings not meeting the expected levels. One of the reasons identified for lower profitability is the practice of the company to deal with all types and categories of cars, without the correct knowledge on the type/category of car, which provides maximum profit to the company. Besides this, there are other issues like poor bookkeeping resulting in inadequate information to the owner on the total expenses including commission and advertising costs. In order to make the reporting comprehensive with adequate and meaningful information, this report suggests the use of MS Excel to prepare and present various management information report to the owner/manager to make informed business decisions. Various issues in connection with the business of Slick Jim’s Used Cars are discussed herein. The report also produces model input, processing and reports using MS Excel made for the business done during the month of January 2010 by the company.

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Profitability for Different Car Categories

An analysis of the profits earned by the company from different categories of cars sold during the month of January indicates the following results.

Car Category wise Profitability.

Car Category Sales Profit
(Before advt.
Cost)
Margin
(Before advt.
Cost)
Margin
(After advt. Cost)
Hatch 98950.00 24681.50 24.94% 22.91%
Soft Roader 19200.00 4028.00 20.98% 18.48%
Sedan 299584.00 46096.48 15.39% 13.06%
4 Wheel Drive 243299.00 34667.04 14.25% 10.11%
Prestige 549450.00 62677.50 11.41% 8.42%
Commercial 112290.00 8548.40 7.61% 3.67%
Utility 89900.00 5504.00 6.12% 2.45%
People Mover 111700.00 5460.50 4.89% 2.38%

From the table, it may be observed that though a smaller amount of sales is done in the case of the Hatch category of cars this category has given the maximum margin of profit at 22.91% of the sales. In the case of car categories like Commercial, Utility and People Mover the profit margin is very low. Therefore, it is advisable to concentrate on purchasing and selling categories like Hatch, Sedan and Soft Roader instead of investing the money in categories like Commercial and Utility where the margin after payment of commission and advertising costs the profit margin is comparatively lower.

Fast Moving Car Category

The following tables indicate the number of days the different categories of cars stayed in the business from the day they are bought until sold. This information will provide an idea of the category of cars the business has to concentrate on.

Number of Days – Cars Remained in the Business.

Category Days Category Days Category Days Category Days
Utility 327 sedan 94 Sedan 5 4 wheel drive 271
Utility 309 sedan 54 Sedan 2 4 wheel drive 206
Utility 280 sedan 41 Hatch 382 4 wheel drive 190
Prestige 287 sedan 31 Hatch 41 4 wheel drive 173
Prestige 258 sedan 28 Hatch 20 4 wheel drive 130
Prestige 256 sedan 23 Hatch 19 4 wheel drive 107
Prestige 220 sedan 21 Hatch 12 4 wheel drive 61
Prestige 177 sedan 20 Hatch 4
Prestige 175 sedan 18 commercial 315
Prestige 167 sedan 15 commercial 212
Prestige 150 sedan 14 commercial 173
Prestige 143 sedan 13 commercial 150
Prestige 110 sedan 13 commercial 95
people mover 340 sedan 9
people mover 277 sedan 9
people mover 274 sedan 9 soft roader 17
people mover 269 sedan 8
people mover 189 sedan 7

From the above table, it is clear that Sedan is the most popular moving used car, as out of the 57 cars dealt with in the month of January 20 of them (About 35%) were Sedan. This category of cars also does not stay for a longer time with the company. The margin (after advertising cost) is not so less as compared to the higher-end cars which not only involve huge capital being locked in them (See purchase cost table below) they also stay for a longer duration with the company. Perhaps it appears that there are not enough customers looking for high-end cars in the used car segment. This substantiates the earlier discussion on reduced dealing of bigger cars.

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Purchase Cost and Profitability of Cars.

Category No. of Cars Purchase
Cost
Percentage
of Total
Purchase
Percentage
of
Profit
Prestige 10 459300.00 36.14% 8.42%
Sedan 20 244500.00 19.24% 13.06%
4 Wheel Drive 7 198900.00 15.65% 10.11%
People Mover 5 102330.00 8.05% 2.38%
Commercial 5 99250.00 7.81% 3,67%
Utility 3 80800.00 6.36% 2.45%
Hatch 6 71300.00 5.61% 22.91%
Soft Roader 1 14500.00 1.14% 18.48%
Total 57 1270880.00 100%

Discussion on Future Sales

From the analysis of the profitability as related to the purchase cost, it appears that even though the investment in the Prestige category is more, they seem to result in the profitability of 8.42% on sales. However, these cars have on average stayed with the company for a period of 194 days. If we take, the average cost of $ 45,930 (total cost of $ 459,300 divided by a number of cars 10) and calculate the interest cost of 12% for 194 days it comes to $ 2,970, which works out to 5.40% on the average sales cost of $ 54,945. In effect, these cars though high in the volume are not contributing much to the profits of the company. On the other hand, Sedan cars are sold within an average period of 20 days. Therefore, the company should concentrate more on buying and selling the Sedan category, which appears to be fast-moving.

Identification of Issues

From the system of MS Excel, a wide range of information may be made available to the management. For instance, the following reports highlight the performance of the company during the month of January 2010.

  1. Total Profitability Report (Appendix 2)
  2. Car Category-wise Profitability Report (Appendix 3)
  3. Salesperson-wise Profitability Report (Appendix 4)
  4. Updated Profit for Each Category after advertising Costs (Appendix 5)

Salesperson wise Sales and Profitability.

Salesperson Sales Percentage to Total Sales Profit
Margin
Jim 731,284 47.97% 12.82%
Stephanie 313,899 20.59% 13.45%
Franco 479,190 31.44% 11.62%
Total 1,524,373 100.00%

From the salesperson-wise profitability report, it is observed that Jim is handling almost 50% of the sales himself. The other salespersons should be pulled to increase their sales figures.

By investing in large cars, which stay with the company there is a clear loss of interest and turnover. With the money blocked in the large high-end cars, a greater number of Sedan cars can be bought and sold to improve the profits for the company.

Conclusion

This report discussed at length the performance of Slick Jim’s Used Car business. From the analysis, it appears that the capital of the company is being blocked in high-end cars where the profit margin is low. It also appears from the data analyzed that the expensive cars stay for a longer time with the company, incurring heavy interest costs. It also becomes known almost the owner/manager Jim Slick handles fifty percent of the sales volume.

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Recommendations

The following are the few recommendations this report makes to the business of Jim Slick.

  • To look into the possibility of dealing in a maximum of three fast-moving categories of used cars (Immediate)
  • To fix sales targets for other salespersons and link the commission with a minimum volume of sales (Based on a discussion with the salesmen and as decided by the owner)
  • To implement an effective Management Information System (MIS) using MS Excel as appended to this report (Immediate)

Appendix 1 IPO Charts

Total Commission Calculations.

INPUT PROCESSING OUTPUT
Car category
Sales Price per car
Commission percentage
Step 1: look up commission percentage for input car category type

Step 2: commission =
Actual Sale Price × relevant percentage

Commission on all cars

Commission Calculations Car Category wise.

INPUT PROCESSING OUTPUT
Car category
Sales Price
Commission paid per car
Purchase price per car
Step 1: SUMIF
Sales price for each car category type

Step 2: SUMIF commission paid for each car category type

Step 3: SUMIF
Purchase price for each car category

Step 2: Profit per car category =
Actual Sale Price per category – commission paid – purchase price

Commission on each category of cars
Profit per each category of car

Salesperson wise Commission Report.

INPUT PROCESSING OUTPUT
Name of Sales person

Total sale price

Total commission paid

Total purchase price

Step 1: SUMIF
Sales price for each car category type

Step 2: SUMIF commission paid for each car category type

Step 3: SUMIF
Purchase price for each car category

Step 2: Profit per car category =
Actual Sale Price per category – commission paid – purchase price

Commission paid to each salesperson

Profit per each category of car

Total Advertisement cost for each Car.

INPUT PROCESSING OUTPUT
Table of Advertisement Cost Parameters for various car category:
Web Site Advertising
Magazine

Table of local and state newspapers & cost parameters

Advertising Campaign Length (weeks)

Step 1:, look up Web Site and Magazine advertising cost for input car category

Step 2: look up local and state newspaper and cost for input type of advertising

Step 3: Total Advertisement cost for each car = Magazine cost + Web Site cost + [((Newspaper type × times per week)+ (Newspaper × times per week))* Advertising campaign length ]

advertisement cost for each car

Total Advertisement cost for each Car Category.

INPUT PROCESSING OUTPUT
Total Advertisement cost car wise
Sales price per car category
Commission paid per car category
Advertising cost – website, Magazine, local newspaper and state newspaper
Step 1:, SUMIF Web Site advertising cost for input car category

Step 2:, SUMIF Magazine advertising cost for input car category

Step 3:, SUMIF local newspaper advertising cost for input car category

Step 4:, SUMIF State Newspaper advertising cost for input car category

Step 5:, Total Advertising Cost = Advertising cost on website + Magazine + Local Newspaper + State Newspaper

Step 6: Total Profit = Sales price – commission paid – purchase price – Total advertising cost

advertisement cost for each car category
Total profit after advertising costs for each category

Insurance Premium Calculator.

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INPUT PROCESSING OUTPUT
Car price
Base rate
Starting fees
Insurance premium rate from input schedule
Step 1: IF car price is
> $ 5000
> $ 5000.01 < $ 15000
> $ 15000.01 < $ 30000
> $ 30000.01

Step 2: Insurance premium =
Actual car Price × relevant percentage

Step 3: Total Insurance Charges = Base Rate + Starting fees + Insurance premium

Total Insurance Premium for input car prices

Appendix 2

Total Profitability Report

Total Profitability Report

Appendix 3

Car Category wise Profitability Report

Car Category wise Profitability Report

Appendix 4

Salesperson wise Profitability Report

Salesperson wise Profitability Report

Appendix 5

Car Category wise Profitability Report (Updated for Advertising Costs)

Car Category wise Profitability Report (Updated for Advertising Costs)

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Reference

BusinessEssay. (2022, February 18). Slick Jim’s Used Cars: Analysis of Business Performance. Retrieved from https://business-essay.com/slick-jims-used-cars-analysis-of-business-performance/

Reference

BusinessEssay. (2022, February 18). Slick Jim’s Used Cars: Analysis of Business Performance. https://business-essay.com/slick-jims-used-cars-analysis-of-business-performance/

Work Cited

"Slick Jim’s Used Cars: Analysis of Business Performance." BusinessEssay, 18 Feb. 2022, business-essay.com/slick-jims-used-cars-analysis-of-business-performance/.

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BusinessEssay. (2022) 'Slick Jim’s Used Cars: Analysis of Business Performance'. 18 February.

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BusinessEssay. 2022. "Slick Jim’s Used Cars: Analysis of Business Performance." February 18, 2022. https://business-essay.com/slick-jims-used-cars-analysis-of-business-performance/.

1. BusinessEssay. "Slick Jim’s Used Cars: Analysis of Business Performance." February 18, 2022. https://business-essay.com/slick-jims-used-cars-analysis-of-business-performance/.


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BusinessEssay. "Slick Jim’s Used Cars: Analysis of Business Performance." February 18, 2022. https://business-essay.com/slick-jims-used-cars-analysis-of-business-performance/.