Thai Silk Company, LTD Case Analysis

The purpose of this research is to perform a case analysis on the Thai Silk Company, Ltd., as of mid1979s. The results of this analysis are presented in the following sections: Background; Statement of the Problem; Analysis of the Problem; and Recommendation for Action.

The Thai Silk Company, Ltd. is the major player in thesilk products industry in Thailand. Over the past five years,company sales have increased 2.4 times, while net profits haveincreased 2.7 times.

From 1973 through 1977, net profit as a percentage of sales remained relatively stable (ranging from a low of 9.3 percent to a high of 10.7 percent). In 1978, however, net profits as a percentage of sales increased dramatically to 12.5 percent (from 9.3 percent in 1977). The primary reason for this improvement appears to be related to two major backward integration actions by the company. These actions, in which Thai Silk became the controlling shareholder in joint venture operations related to the company's primary business activities, provided the company with greater control over essential activities, which, in turn, enabled Thai Silk to both better serve its customers, and reduce costs of operation, and led to a significant net profit improvement.

1 2 The bulk (82.4 percent) of the company's sales are derivedfrom the sale of finished silk goods. Of this finished silk goods total, somewhat less than twothirds of the sales occu

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among alternatives in the capital investment process is generally referred to as capital bud geting. Capital budgeting involves the making of investment decisions related to fixed assets. The "capital" in capital budgeting refers to the investment of financial resources in assets, while the "budgeting" refers to the revenue inflows and outflows related to the capital investment over a specified period of time. The purpose of capital budgeting is twofold. First, the process must determine whether or not a proposed capital investment will be a profitable one over the specified time period. Second, the process must provide management with a means of selecting between alternatives. It is essential for 4 management to have an effective and an efficient means of selecting between alternative investment proposals, because capital is scarce in most organizations. Scarcity requires an effective decision process. Additionally, most organizational investment decisions are time sensitive. Timeliness requires that a decision process be efficient, as well aseffective. There are a number of factors which must be incorporated into the capital budgeting decisionmaking process, if it is to be both effective and efficient. The quest
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Approximate Word count = 1409
Approximate Pages = 6 (250 words per page)