Comparing Business Performance of Companies in the Same Industry

Two companies were chosen in the Canadian Beverage industry, analyzed and compared their performances in the following context:

-Industry analysis,
-Socio-Economic analysis,
-Financial analysis.

Finally, recommended courses of action.

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...standards are highlighted in this exhibit.

Cott Corporation has an exhaustive product mix, allowing them to rely on their secondary products in the event of a shock in the environment. This flexibility has allowed them to rely on more debt to fund their operations and investment. Exhibit 11 provides a diagram of the relationship between operating and financial risk. Clearly Canadian lacks the extensive product line, forcing them to maintain a cap on their acquired debt. Refer to Exhibit 11 for a more detailed analysis. Exhibit 12 illustrates the product life cycle for various Cott and Clearly Canadian Products while Exhibit 13 provides a portfolio model of the two companies.

The sales mix of the companies must also be taken into consideration. Carbonated beverages for Cott Corporation is the leading product, generating approximately 65% of total revenues for the firm. However Agriculture Canada also mentions that a major challenge in this industry is the increased consumer awareness of health. This is a possible explanation to the decrease in revenue since 1997. Cott must attempt to diversify its sales mix to minimize their dependence on the carbonated beverage component. Clearly Canadian essentially has an even proportion of sales within each of its product categories. See Exhibits 14 and 15 for a ranking of the companies' product characteristics. These exhibits chart the two companies in relation to price/quality and brand/health conscious. Exhibits 16 and 17 provide other relevant financial information including cash flow statements, income statements and balance sheets for the past five years for Cott and Clearly Canadian respectively.

STOCK PRICE PERFORMANCE

Exhibits 18 and 19 give a representation of the stock price activity for the past four years of Cott and Clearly Canadian respectively. As can be seen from the stock price time series for Cott, there was initially a downward trend in 1997 and 1998, however by the middle of 1999, there was a steady increase resulting in a closing price of $23.65 at September 30, 2001. A scatter plot illustrating a relationship between the stock price and net income can be seen in Exhibit 20. The correlation value was 0.715, indicating a strong relationship between the stock price and this variable. In other words, the stock price is strongly reliant on the performance of the firm to generate profit. Management must take this into consideration and utilize this information to ensure their strategy of adding value to the firm is reflected in their focus on profit.

In terms of Clearly Canadian's stock price, Exhibit 19 gives a visual representation of its trends over the past four years. A severe increase in price was seen in 1999. By referring to the ratio analysis of this firm, it can be gathered that their ability to generate a profit in 1998 created a positive value in 1999, raising the stock price. Management should be concentrating on these ratios to increase value of the firm.

WEIGHTED AVERAGE COST OF CAPITAL

The weighted average cost of capital (WACC) is a tool managers use to help decide which projects or investments a firm should be participating in. Acceptance of project's ...