Salem Telephone Company Financial Analysis

Salem Telephone Company Financial Analysis In 2001, Salem Telephone Company established a subsidiary, Salem Data Services (SDS). The purpose of creating SDS is to provide revenue sources for subsidized telephony services and reduce the need to raise interest rates. Unfortunately, after three years, SDS did not meet the expectations of earnings. Actually, since SDS continues to suffer losses at a rate of 400 to 45,000 dollars a month, review of work is necessary. While servicing internal and external customers, SDS discovered that those computer systems have the remaining capacity to support additional commercial sales.

Based on the above analysis, Salem Data Services does not appear to be overwhelming responsibility of Salem Telephone Company. Over the past few months, the Salem data service has become more ruined and Salem Telephone Company may have to consider whether the company will grow when it is worth it. It is also very important to note that most of Salem's data service fixed cost (12.3%) comes from depreciation costs. This is not the actual cost of the company. Flores can make some changes to make the Salem data service more profitable and start by lowering the fixed cost of the company. Because its operating leverage is very high, revenues are very unstable. If the company is profitable, high fixed costs may be rewarded, but if you are trying to resolve even such a relatively new company, it is most effective to reduce business leverage.

Based on the above analysis, Salem Telephone Company believes that it is necessary to maintain Salem data service. The fixed cost of Salem Data Services was very high, there was no profit in the previous period, but Salem Telephone Company needs to maintain Salem data service. Chart 2 shows that the net loss from February to March was reduced by $ 16,987. If Salem Phone Company closes Salem Data Services, the company will save significant fixed costs, but you will have to spend money to compensate for your company's internal revenue.

At the moment, the Salem Data Service (SDS) appears to be a problem for the Salem Telephone Company (STC). It may seem to be based on the loss occurring; however, SDS can increase revenue during the past 3 months. If fixed costs are reduced by $ 212,939 (too much), SDS may be more profitable. Converting some of them to variable losses (to reduce losses) may be feasible. You can also improve the level of promotion. As you saw in question 5 (c), you can increase sales by 30% by increasing sales. Flores should try to sell the remaining time every month, for example by providing some special offers and bonuses. Therefore, several VCs / units and several FCs are covered per sales unit - Flores can pay some of the total fixed costs, so get better results at the end of the next few months