Date: October 1, 2012
To: Coast4Life Board of Directors
From: Pat Brown, CMA
Subject: Analysis of Strategic and Operational Alternatives and Recommendations
After the terrorist attack, the worldwide cruise industry experienced an immediate decline in bookings. The board of directors have mandated that Coast4Life remain profitable during this downturn which is expected to last until 2014.
Identification of issues: (Appendix 1)
• $3.6 million required to repair Coastal Native before 2013 season.
• A quick ratio of 1.59 indicating that the company has sufficient liquid assets to cover its short term debts during the downturn.
• Coast4Lifes solvency has steadily decreased over the past three years indicating the company is reaching its optimal operating level and its exposure to interest rates has decreased significantly.
• A steady gross margin, but has been increasing its profit margin and ROA indicating indirect operating costs have decreased.
• DOL of 2.96 for 2012 indicating if overall revenues drop by 30% to 35%, EBIT will drop by 88% to 104% which will put the company in a loss position. (See Appendix 6)
Identification of alternatives:
Alternative 1) Divest the Fraser Dry Dock
Alternative 2) Target a more profitable market segment
Alternative 3) Register Coast4Life’s ships in Liberia and hire unskilled crew and hospitality workers
Alternative 4) Implement a web-bases booking system
Analysis of alternatives:
Eliminates seasonal layoffs General manager is against this alternative
Wages relate to 42% of total revenues Layoffs could damage relationships
Expected dry dock charges to increase for ship maintenance as compared to industry average Might affect the safety of the ship
Receiving a much higher value than current net book value Dry dock operated at full capacity and contributed to the...