California choppers

1. Critical Issues

To maintain their financial stability, California Choppers (referred as CC in the document later) must resolve the following:

a) Not managing its asset efficiently thus creating a cash flow problem

b) Governance problem/ likelihood of Management turnover

c) Not targeting youth market (exploiting this factor will likely lead to significant gains in profits and/or market share) (presenting annual motorcycle show)

2. Analysis - Options & Decision Criteria

2.1 Causes of the issues:

a) Issue: Not managing its asset efficiently thus creating a cash flow problem because:

* Invested heavily in factory equipment

* Expand operations in US market

* Expand operations in International market without completing its expansion in US

b) Issue: Governance problem/ likelihood of Management turnover because:

* Doakes aggression and controlling nature - if it persistent, it will likely lead to have issues with senior management in the near future

c) Not targeting youth market (exploiting this factor will likely lead to significant gains in profits and/or market share) (presenting annual motorcycle show)

2.2 Criteria used to decide:

Currently, the company is in a bit of financial mess. One of the big problems is not managing its current assets to their maximum efficiency. The quantitative analysis follows:

A/R

(It is assumed that all sales were credit sales since there was no single line item for credit sales)

California Choppers’ balance sheet shows that A/R and Inventory comprises upto 85% of total current assets. The days in sales ratio of 165 days in 2005 is way above the industry average of 32 days showing that CC is having trouble collecting on sales it provided customers on credit and it is indirectly extending interest-free loans to their clients. California Choppers should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning