- created 07 Jun, 2019
Vicious Cycles went shopping and bought Pakihara, who—in turn—own Hot Wheelies. As we think about that, let's keep the maths simple.
Hot Wheelies has a shareholder value of $3.66. As owners of Hot Wheelies that value effectively is transferred to Pakihara. If Hot Wheelies can get their SHV up by, say, $20, then, without doing anything Pakihara's SHV will go up by that amount. Likewise, an increase in Pakihara's SHV effectively drives up Vicious Cycles SHV (let's ignore any multipliers).
So, if through their own efforts Hot Wheelies goes up by $20, then Pakihara will go up by $20, and in turn, Vicious Cycles will go up by $20. THEN, if through their own efforts, Pakihara can go up by $30, then Vicious Cycles will go up by $30. In other words, if Hot Wheelies go up by $20, and Pakihara go up by $30, then Vicious Cycles will go up by $50 before they do anything. If Vicious Cycles can, through there own efforts, go up by say $30, then their total increase in SHV will be $80. So they could go from $65 to $140. And that is without extraordinary performance on their part. That could really hurt Road Rascal's position.
Of course, there are a lot of ifs in there. And the biggest if is "If they can leverage the expertise they have". So far, I don't see any clear evidence of that. Afterall, as you will see, Pakihara's sales haven't materially increased, nor has Hot Wheelies. It's more a case of them getting costs under control.
Anyhow, let's look at the big picture.
The consumer surplus is still pretty big. Actually, it is huge. At over $1.2Bn it dwarfs the industry's sales revenue (still).
And the sales revenue continues to grow. One has to wonder if that is because what firms' are doing or is it some kind of underlying fundamental. How long can this growth go on for? Still, sales revenue is not even one-third of the consumer surplus.
Hey, big surprise. The actual total spend on advertising has started to go down. I wonder what's behind that change?
Looking at the spending ratio by firms, Spikes Inc have made a notable drop. Perhaps worryingly, Hot Wheelies ratio is pretty high. Their parents should be able to help them put some better numbers in for advertising and PR, to get that under control. But it is out of whack with their level of sales. Just look at where Road Rascal's and Vicious Cycles sit. There along way away from the big spenders (relatively).
If advertising is under control, then it's not clear that the same can be said for quality. However, it is true that some firms did need to spend more on advertising (and some sure needed to spend less). It might take a couple more rollovers to see if the levels are right or not.
There is massive overcapacity in the industry. The poor situation has turned into a bad situation. Some firms need to be cutting their cloth to fit. I.e., scaling back their production facilities; or finding ways to grow demand to fill that idle time.
But despite that, firms are getting more efficient (at least as measured by the COGM per SCU). How low can that number go?
That reduction has been accompanied by a decrease in cycle time. Firms are starting to really tune their manufacturing machine.
And they've done that tuning despite an ever-increasing array of products. Nice work people!
But all that tuning is for nought if you can't accurately forecast your demand. Here firms vary wildly. Look at the split between the firms at the top of the graph and those at the bottom. That's a key indicator of who is 'in control' and understands whats going on. That said, Life Cycles, Pakihara, Good Luck Bikes, and Cruiserz all had lost sales.
So how have firms fared? Looking at the profit of the industry, the overall picture looks much rosier.
But that upward trend hides a number of issues that are more evident when we look at profit firm by firm.
|Good Luck Bikes||$67,804,302.00||$17,725,191.00||26%|
At the top, Road Rascal's are generating a remarkable 31% margin with a profit of over $32m. Indeed most firms have very tidy margins. However. both Hot Wheelies and Spikes Inc need to do some work to get back into profitability, otherwise they'll be back into insolvency. Both Pakihara and Vicious Cycles have a vested interest in being as helpful as they can toward Hot Wheelies. Let's see how effective their inter-teamworking is.
I'm still left wondering how much higher Vicious Cycles sales would have (and their profit), if some of their management time hadn't been taking up with evaluating their takeover of Pakihara. It would have been quite reasonable to assume (from the previous rollover) that they could have had sales around $65m, and if they realized that 20% margin ... well, who knows what would have happened on the path that wasn't traveled.
I am a bit surprised that so many firms are rated as having "High Margins". Not "Good", Not "Okay" but "High". That means the chances of buying an "Okay" firm is becoming increasing difficult (read that as expensive). If someone like Good Luck Bikes, Cruiserz, or Life Cycles wanted to merge with another company, that may no longer be possible — but then again, I've not really dug into the figures on that.
As for the league table, Road Rascals remain at the top.
|Good Luck Bikes||$45.20||$44.19||$17,725,191.00||$67,804,302.00||49,795|
Anyway, with two more rollovers to go, there could still be a lot of movement, and Road Rascals place is by no means certain.