Strategic Analysis Report: Keystone Excavating Ltd Business Strategies

This report provides a strategic analysis of Keystone Excavating Ltd, focusing on its business and corporate-level strategies within the construction industry. It outlines the company's turnaround retrenchment strategy implemented in response to economic challenges, including office closures and asset sales. The report conducts an internal analysis using financial ratios, evaluating liquidity, leverage, and profitability. While the company demonstrates adequate liquidity and leverage, the profitability analysis reveals declining margins and losses in 2016. The conclusion highlights the firm's financial difficulties, emphasizing the need for strategic adjustments to improve profitability. The report references key academic sources on strategic management and financial analysis.

STRATEGIC MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Outlining current business level and corporate-level strategies..................................................1
PART 2............................................................................................................................................1
Internal analysis with the help of financial ratios.......................................................................1
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUCTION
Strategic management is important part in making well-structured strategies for
maximising overall performance of firm. Present report deals with outlining business level of
Keystone Excavating Ltd engaged in construction industry and corporate-level strategies.
Moreover, internal analysis will be made through financial ratios.
PART 1
Outlining current business level and corporate-level strategies
Keystone Excavating Ltd is working in the construction industry and had attained steady
growth within short time period. However, with hit of economic recession, economy of Alberta
noticed negative economic outlook which Keystone Excavating Ltd had never faced. The drastic
decrease in oil prices, contraction in oil and gas sector has affected business and created complex
business working environment (Hill, 2017).
The current business level is not adequate as company was already in deficit in 2016 and
fewer tenders were being issued. The forecast was also not good for 2017. Lalli, CEO of firm
made decision to close down Edmonton office, reducing Calgary office and exiting residential
market. Moreover, sale of assets were also made. In 2016, little demand for used equipment
outside of Alberta was prevailing as recession was not significant in US and Canada. Unloading
of heavy construction machineries left deficit in Alberta in which 100 pieces were left out.
However, current position of company is not adequate.
The corporate-level strategy implemented by firm is turnaround retrenchment strategy
which is implemented to reverse decline being earned in revenues (Wheelen and et.al., 2017).
Another one is purpose-driven turnaround strategy in order to convert loss making areas into
profit-making ones. This helps to protect legacy of Keystone Excavating Ltd in effective manner.
PART 2
Internal analysis with the help of financial ratios
Liquidity ratios-
Current ratio of company was 0.89 in 2014 which increased to 1.22 in next year with
slower reduction to 1.20 in 2016. While, receivables turnover ratio was 4.08 in 2014 increased to
4.62 in 2015 and reached 0.30 in 2016. Thus, it can be said that overall short-term payment
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obligations will be met by company. Internal position of company is adequate but requires
standard ratio of 2:1 for meeting payment obligations.
Leverage ratios-
Debt to equity ratio is increased from 0.25 in 2014 to 0.41 in 2016 which is appropriate
as it is near to standard ratio of 0.40 and utilising debt adequately. Total Debt to Total Assets was
0.62 in 2014 and decreased to 0.48 and leverage has also decreased. The debt was high in earlier
years but now organisation is using equity as well. By this, overall leverage has come down
leading to have good capital structure (Financial Ratios. 2018). Thus, internal position in case of
leverage ratios seems to be appropriate.
Profitability ratios-
Gross operating margin including and excluding depreciation both are unpromising as
they are declining at a rapid rate (Greco, Figueira and Ehrgott, 2016). This highlights that
company is not controlling upon operating expenses. In addition to this, net operating margin
including and excluding depreciation have become negative, showing that loss is made in 2016.
Return on Asset is also decreased implying that business is not using assets for generating sales.
Return on Equity was -1.60 in 2014 and increased to 8.67 in 2015 and then alleviated to 4.45 in
2016. In all, Keystone Excavating Ltd is loss-making firm and internal position in relation to
profitability is not good.
CONCLUSION
Hereby it can be concluded that Keystone Excavating Ltd is facing problems in making
adequate earnings and deficit is being noticed. The financial ratios provide that leverage and
liquidity is however, good but profitability position of firm has become worse. This has resulted
in closing down some offices.
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REFERENCES
Books and Journals
Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York:
Springer.
Hill, T., 2017. Manufacturing strategy: the strategic management of the manufacturing function.
Macmillan International Higher Education.
Wheelen, T. L and et.al., 2017. Strategic management and business policy. Pearson.
Online
Financial Ratios. 2018 [Online]. Available Through:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/>.
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