The table below highlights a firm that has dramatically increased its profitability in a few years. But they have focused on a short-term, not long-term, basis and you need to determine what impact this may have.
|Year 0||Year 1||Year 2||Year 3|
|New product development||2m||1m||0.5m||0m|
|Sales force commissions||2m||1.75m||1.5m||1m|
|Total ‘future’ investment||8m||5.75m||4.5m||2m|
- Based on the bottom-line net profits figure only, how happy would the firm be with these results?
- Essentially, how has the firm been able to deliver these profit results?
- What concerns do you have for the firm? Do you see their profitability continuing to increase?
- What advice would you have for the management of this firm?