Chasse-Neige Business Analysis

TO:                Karen Taylor

FROM:                Business Development Division

DATE:                August 7, 2015

SUBJECT:        Chasse-Neige Analysis Report

Dear Ms. Taylor,

Attached is the requested business report on Chasse-Neige.  After extensive research, the Business Development Team recommends passing on financing Chasse-Neige.  Our extended reasoning and analysis on this decision is in the attached file.

Sincerely,

Coleman Walker

Business Development

K2 Finance

Chasse-Neige Company Analysis

Winter sports manufacturer Chasse-Neige has recently applied for a loan of $750,000 with an 8% interest rate ($60,000 per year).  The company currently manufactures throughout British Columbia and in some parts of Alberta and would use this loan for strategic hiring and product development.  Despite positive financials over the years, we highly recommend not funding the company because the company has issues with their resources that make it a very risky investment.

Snowboarding Market is on the Decline

The most important factor when investing is to analyze the market to see if there is a possibility of success. Chasse-Neige currently only manufactures two products, both of which are snowboards.  According to SnowSports Industries America’s latest market research, snowboards and snowboard gear sales have decreased as much as 21% over the past four years.  Meanwhile, skis and ski equipment sales are constantly increasing.  The numbers indicate that consumers prefer skiing to snowboarding and investing in a company that only sells product in a declining market will result in a loss for K2.  If K2 were to give Chasse-Neige a loan, the terms would have to state that the company expands into ski equipment, as that is where the demand is.

Chasse-Neige Currently Lacks Resources for Product Expansion

Assuming Chasse-Neige agrees to expand into skis, the company’s two current products need to be modified as well to compete with the other major snowboard brands.  Therefore, in order for Chasse-Neige to achieve long-term success, the company would have to invest in expertise to develop snowboards that can compete with other major brands, as well as hire more expertise to help infiltrate the skiing market.  The company does not have the resources for this expansion and in order to increase resources, the company would be spending a large amount of the loan just to get profitable products started.

Company Capital Hinders Manufacturing Expansion

Chasse-Neige currently has two options for manufacturing expansion, Squamish Nation or Mexico.  Despite losing some control over quality assurance and rapid design changes, Mexico would be the ideal location to expand because the wage differential would lead too much higher profit margins.  However, the company does not currently have the capital to make the move to Mexico, meaning our loan would be used to fund the expansion.  The K2 loan that Chasse-Neige requested would not be enough for ski expansion as well as manufacturing expansion.  That means Chasse-Neige would expand to Squamish Nation if given the loan.  Although Squamish Nation gives aboriginal funding and tax credits, it does not avoid wage differential, which means there would be no significant decrease in profit margins.  Although staying local would be the ethically correct thing to do, K2 is a finance company and because all other major brands manufacture in cheaper countries, Chasse-Neige would not be able to compete and maintain profit.