Managing Financial Resources and Decisions: Nissan Case Study Analysis

This report presents a comprehensive financial analysis of Nissan, examining its market position, resource management, and strategic decisions. It begins by identifying key issues related to leadership, market, finance, strategy, and products. The report delves into Nissan's market structure, analyzing profitability, demand, supply, and production behavior. It applies supply and demand concepts, exploring drivers and elasticity, and suggests internal strategies to stimulate demand. Furthermore, it investigates short and long-run costs, profitability, and production analysis. The report provides a ratio analysis of Nissan's financial performance, identifying areas of concern such as solvency and capital turnover, and recommending strategic improvements in pricing, product quality, and financial management. The analysis highlights the need for changes in leadership and R&D investments to ensure long-term profitability and market share, while also considering the impact of government policies on EV production.

Running head: MANAGING FINANCIAL RESOURCES AND DECISION
Managing Financial Resources and Decision
Name of the Student
Name of the University
Author Note

1MANAGING FINANCIAL RESOURCES AND DECISION
Table of Contents
Question 1....................................................................................................................................2
Question 2....................................................................................................................................2
Question 3....................................................................................................................................3
Question 4....................................................................................................................................5
Question 5....................................................................................................................................8
Question 6....................................................................................................................................8
Question 7....................................................................................................................................8
Question 8....................................................................................................................................8
Question 9..................................................................................................................................11
Question 10................................................................................................................................12
Question 11................................................................................................................................12
Question 12................................................................................................................................12

2MANAGING FINANCIAL RESOURCES AND DECISION
Question 1
The main issues in the case study are related to the following areas and are as follows:
 Leadership/Management: The main area of concern is the methods adopted under the
leadership of Carlos Ghosn. In order meet a previously set sales target of the battery-
powered car Leaf, the prices of the car were reduced to a very low level. Similarly, these
strategies resulted in the tarnishing of the image of the product Leaf as a whole.
 Market: The major issue faced by Nissan in this regard is the fall in the sale of its electric
vehicle Leaf. It remains the only car in Nissan to be not able to meet its sales target on a
yearly basis. The company’s strategy failed to maintain a balance between obtaining
more market share and having a sustainable level of profitability as a part of the business.
 Finance: The entry price of Leaf was cut by 18 percent to $28800 since its launch in
2010. The lease prices offered were also as low as $199 per month for three years. As of
2015, the company could retain only 44% of its original price, which was much lower
than the 83% of Tesla.
 Strategy/ Decision Making: The Company needs to find an appropriate strategy to
establish the reputation of its vehicles in the market. Similarly, the new investment of
$300m being invested in Japan also needs to be spent carefully for the benefit of the
business.
 Products: The reputation of the products being currently sold by Nissan in the market is
not very good in the current scenario. The issues faced by the business include the launch
of the eight new electric cars by 2022 and help them reach the intended market levels.

3MANAGING FINANCIAL RESOURCES AND DECISION
Question 2
In the current scenario, Nissan is being left behind in terms of the sale of the electric cars
made by it. It is the only company whose sales in 2019 are lower than those in 2018. The image
of the car is also of that of a discount car and there are doubts about the value of the product.
Nissan is currently operating in a monopolistic market as the prices of one of the products is
likely to impact the market as a whole. The market is currently very small at 1 percent in terms
of the global demand for the products. The profitability of the industry has gone up over the
years due to the continuous increase in the prices of the products over the years. The supply
pricing of the market has been steadily declining on the basis of the increase in the supply
produced by the entities. The production behaviour of a majority of the entities suggests an
increase in the annual production on the basis of their market share.
In the current scenario, Nissan needs to focus on providing high quality products which
are able to compete with the quality of Tesla. The constant decline in the sales suggests that
consumers are more interested in a quality product than one which is available for a lower cost.
Hence, the strategy should be changed towards making the business more profitable. Nissan can
also improve its performance by increasing its focus on the quality of production. The
competitiveness of the markets clearly suggest the dominance of Tesla. It has been able to
produce the majority of the required cars at a desired quality. Nissan should not position itself as
a cheaper car and should instead focus more on the quality of its products. It should position
itself a premium car providing the required quality at the prices charged by it.
Question 3
The influencing factors for demand and supply: Demand determines the consumer’s ability
and desire to purchase a good given with a certain budget constraint. Meanwhile, the supply

4MANAGING FINANCIAL RESOURCES AND DECISION
refers to the amount available for the consumers at certain price level. Therefore, price is the
important determining factor for both demand and supply.
In case of Nissan, the company can influence the demand by changing the price level.
The car sale can be increased as response to reduction in the price level as price and demand are
inversely related.
Internal ways to stimulate demand: The inclusion of advanced technical features is considered
as the most effective internal way to stimulate the demand for cars. The company’s latest
innovation, ProPILOT assistance driver system and e-POWER models are expected to boost the
car demand of Nissan.
Drivers of demand function: According to the economists, price, income, cost of related
commodities, choice and preference of the customers and price expectation are the key drivers of
the demand function.
Relevant factors affecting demand of Nissan and its response: Considering the current
dwindling situation of the car market, the management of the company should focus on the
sustainable progress with strong profitability. Improvement in the planned regional models is the
best response to counter the decreasing demand of the car market.
Implication of elasticity: Elasticity refers to the change in the demand with respect to change in
other economic factors. Meanwhile, inelasticity refers to the situation when change in the
economic factors does not affect the demand of commodity and services. As Nissan car counts
under the luxury goods which is highly price elastic. Therefore, the change in the price level
greatly influences the demand for Nissan cars.

5MANAGING FINANCIAL RESOURCES AND DECISION
Figure 1: Elasticity model of Nissan car
The figure 1 describes that Nissan cars have relatively elastic demand implying that a
small change in the price can bring large impact on the demand. For instance, a small drop in the
price level from P1 to P3 augments the demand in a large amount from Q1 to Q3. Hence, it can
be assumed that keeping the car price at affordable rate will be the best selling strategy for the
concerned manufacturing company. In terms of the financial statement 2019, the increasing car
sale of 2.5% (approximately) in the Chinese market has been driven by the affordable price of
Sylphy sedan and Venucia model.
Question 4
Short and long run cost: According to the economic theory, the short run cost is comprised of
both fixed cost and variable cost, whereas, fixed cost does not get included into the long run.
Labour cost, logistic expenditure and tariff quota are calculated under the variable cost.

6MANAGING FINANCIAL RESOURCES AND DECISION
Following the recession 2009, the overall car market has been experiencing decreasing
operational profit due to falling demand. In this regard, the company has decided to slash 12500
numbers of employees to reduce the operational cost of the company.
Profitability of the company: Profitability refers to the company’s financial condition. It
attracts the investors to invest into the company’s business. Position of stakeholders, market
share and equity are the determining parameters for the company’s profitable condition. As per
the recent financial statement, the company has registered only 1.6 billion as operating profit as
compared to 109.1 billion operation profit in Q1 in 2018.

7MANAGING FINANCIAL RESOURCES AND DECISION
Production analysis:
Figure 2: Production analysis of Nissan
The figure 2 explains the production analysis incorporating the concept of MC, MR, ATC
and TC in the production framework. As per the production theory, a manufacturing firm will
continue the production until MC gets equal to MR. This point is referred as the breakeven point
which asserts that Nissan car will continue the production process after attaining the breakeven
point.
Production strategy of the company: The production strategy depends on the degree of TR,
TVC and TC. The car manufacturing company continues to produce if TR is greater than equal
to TC. Nissan is interested to continue the manufacturing process till TR<TVC.

8MANAGING FINANCIAL RESOURCES AND DECISION
Question 5
As the current profitability of Nissan is very low, there needs to be an increase in the
prices of the products to earn high levels of profits by the entity. As the image of a discounted
car available at a lower price has not helped the sale of the Leaf model, there needs to be a
restructuring of the products offered for sale by the entity. A premium pricing strategy would
help the entity both in terms of improving the profitability and the market share of the entity.
Question 6
The old leadership of Nissan intended to make the highest amount of sales of the product
in terms of volume. However, this leadership forgot about other significant aspects like the
pricing of the product, profitability of the entity and the innovation required to sustain a higher
share of the market. This short term approach resulted in the entity losing its profitability in the
market and also losing the market share in terms of sales. However, the new leadership
recognizes the need for the changes to be made to make the business more profitable in the long
run. The investments made in the R&D activities of the business are also a necessary change
brought about by the entities.
Question 7
As the focus of the companies is increasing towards the usage of EVs and the reduction
of emissions, I do not think there will be any restrictive changes brought about by the countries
which will act as a bottleneck to the profitability of Nissan’s business. The policies implemented
by the different governments should be more encouraging towards improving the production of
the EVs by the existing automobile companies.
Question 8
The ratio analysis of the company produced the following results:

9MANAGING FINANCIAL RESOURCES AND DECISION
Particulars Formula FY
2017
FY
2018
Current
Assets
115303
93
116131
05
Current
Liabilities
674438
4
773053
1
Current Ratio Current Assets/Current Liabilities 1.7096
29
1.5022
39
Sales 119511
69
115742
47
Capital
Employed
620347
9
624301
9
Capital
Turnover
Sales/Capital Employed 1.9265
27
1.8539
5
Cost of
Goods Sold
981400
1
967040
2
Opening
Inventory
857818 880518
Closing
Inventory
880518 827289
Average (Opening Inventory + Closing Inventory)/2 869168 853904

10MANAGING FINANCIAL RESOURCES AND DECISION
Inventory
Inventory
Turnover
COGS/Average Inventory 11.291
26
11.324
94
Net Profit
after Tax
763657 341915
Depreciation 53928 55685
Short term
Liability
674438
4
773053
1
Long term
Liability
629384
1
559830
4
Solvency
Ratio
(Net profit after tax + Depreciation)/Short term Liability
+Long term Liability
6% 3%
The current ratio of the entity has come down from 1.7 to 1.5. This suggests that the
entity has been increasing its dependence on the short term loans which increases its risk of
insolvency in the short run. While the current level is still manageable, the entity needs to keep
this in check to benefit itself.
The capital turnover ratio is also coming down. This suggests that the capital employed
by the entity is not being used in a manner which is beneficial for the organisation. The turnover
needs to improve in relation to the capital employed to ensure the continuing growth of the
organisation.

11MANAGING FINANCIAL RESOURCES AND DECISION
The inventory turnover is being maintained by the organisation at the same level. This
means that the entity is able to quickly sell of the inventory available with it in the business. The
efficiency of the entity has been consistent.
From the above analysis, it is quite evident that the main concern of the company is the
solvency. The company has not been able to generate sufficient net profits as a percentage of the
short term and long-term liabilities implemented by it as a part of the business. The financial
situation of Nissan can be improved by the increasing the net income generated by the business
and by reducing the dependence of the company on short-term liabilities. The target will be the
pricing of the products and the quality of the products produced by the entity. The problem is
internal as the main cause is the lack of R&D and appropriate pricing strategy by the company.
In the present scenario, investments can be made in Nissan due to the changes in the
management of the company. The balance sheet of Nissan has been quite stable for the past two
years without any significant changes in the entity’s position. The assets, liabilities and equity
have mostly remained the same. There has been a significant decline in the net income of the
entity which is a cause for concern in the short run. However, the cash generated by the entity
from its operations has increased. The shareholders and creditors should be concerned about the
short term performance of the company.
Question 9
Nissan should increase its price levels to improve the profitability in the short run. The
costs should also be worked upon by the entity. In the long term, there should be more
investment in the R&D and capital expenditure to ensure that the business produces competitive
products which improve its profitability in the long-run. The net profits of the entity should also
be increased.