Essay about Noplat

951 Words Oct 23rd, 2013 4 Pages
Case Analysis: Loewen 1. Loewen was able to grow between 1990 and 1995 through pre-need sales, or sales of cemetery plots for future use. While the pre-arranged funeral service revenues could not be recognized immediately, revenues from the pre-sale of cemetery plots could be. With the Baby-Boomer generation aging into their 50s and 60s, this market represented the major source of growth in the early 1990s. We do not believe Loewen created value with this source of revenue as it was simply benefitting from these customers earlier than otherwise would have been expected.(What about investment income on Cash in Advance?). We feel that pre-selling the cemetery plots only served to steal from revenues that would have normally been …show more content…
Our assumption is Loewen only focusing on increasing volume through acquisition and not focusing increasing their quality or the higher margin Pre-Need business further reduced their Gross Margin over this time period. Furthermore, their explanation of a reduced death rate causing reduced margins to their shareholders doesn’t make sense as SCI and other competitors would also have seen a similar reduction. Also, in 1997 Loewen had a reversal of $3.1M in previously reported sales due to improper revenue recognition in 1996 and took a write-down of $2.1M in doubtful receivables in 1997. b. Operating Margin – SCI remained relatively stable, having operating margins ranging from 23.59% to 22.68% from 1996 to 1998 while Loewen’s operating margins decreased from 21.69% to 6.87%, reduction to OI% of 68.34%. Loewen’s declining operating margins were driven by the aforementioned decrease in gross margins, and exacerbated further by their poor management of SG&A. Loewen had an initial SG&A much higher than SCI (8.53% vs. 2.75%) and did not improve over the 3 year period while SCI continued to slightly improve (11.02% vs. 2.32%). Thus Loewen had unfavorable increase to its SG&A% of revenue over the period of 29.2%, while SI was able to increase its synergy reducing SG&A% of revenue 15.61%. c. Debt/Value Ratio – SCI kept a relatively consistent capital structure, ranging from 25.14% D/V in 1996 to 27.62% in 1998. On the

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