Analysis of RadioShack - Essay Example

Analysis of RadioShackRadioShack is facing sustainability threat that its poor liquidity position exhibit. The company is in much debt and its cash outflow is not favorable. In order to stop the cash outflow, closure of its underperforming stores is proposed, though this depend on external factors, especially willingness of its creditors to allow for the necessary massive closure. The creditor will have to weigh between potential benefits of liquidation and potential benefits of turnaround that is not certain (Carrasco 1).

A description of how and why the Organization is not doing wellThe organization is not doing well in its profitability and liquidity aspects. The company is suffering from net cash outflow instead of net cash inflow and this threatens to deplete its cash and cash equivalent reserve. This means that the company may be bankrupt in the near future and creditors are likely to lose their stake in the company. The company is also not doing well in its profitability because this source of cash inflow could offset deficit in cash and cash equivalents that the company suffers (Carrasco 1).

Possible stiff competition and poor operational management could be the reasons the organization is not doing well. While a large percentage of the organization’s stores are based in the United States, these stores have not been profitable to generate sufficient cash and facilitate growth. Competition could have also constrained demand, leading to high levels of inventory, and reduced profitability. Assuming the role of competition in the organization’s performance, poor operational strategies that have failed to minimize cost would be another reason for the current condition.

Inefficient growth strategy is another reason for the condition because while the company is realizing challenges in its United States’ market while other markets remain promising, it has failed to shift its focus to the other regions (Carrasco 1). Economic Business Principles that are Central to the Organization’s ProblemsEconomic approach to “profit maximization and marginalism” are the central principles to the problem that the company faces (Nicholson and Snyder 374). Under the profit maximization principle and within the scope of a competitive market, the company should operate at a level where the difference from its marginal costs to its marginal revenue approaches zero from the positive side (Mankiw 283, 284).

This could inform production level and reduce or mitigate the realized negative cash flow, and develop creditors’ confidence and finance management’s efficiency. Marginalism principle would also inform the organization’s evaluation and adjustment of factors such as production volume and target market towards improving profitability and liquidity (Nicholson and Snyder 374; Carrasco 1). Most and least Important information in the Article The most important information in the article is the proposal a covenant renegotiation to allow the company restructure towards recovery.

This is because the information identifies a possible solution, to the problem, which promises to benefit all stakeholders, should it be successful. Information on what other authors have published on the problem is however the least important because it is not relevant to the article’s theme (Carrasco 1). Strategic Lessons that can be Learnt from the Assignment and RecommendationsThe main strategic lesson learnt from the assignment is the role of negotiation with stakeholders in developing solutions to problems and the role of strategic management in ensuring growth and sustainability of an entity.

The company’s need to a turnaround and the role of creditors in achieving this are the base of the lessons (Carrasco 1). RadioShack should consider expanding its market to more promising regions such as Mexico in order to improve its profitability into cash flow. The company should also control its internal factors such as operational capacity and closure of stores that run at significant losses (Carrasco 1). Woks citedCarrasco, Gonzalo. “RadioShack: The last glimpse of hope.” Seeking Alpha.

August 19, 2014. Web. December 6, 2014. Mankiw, Gregory. Principles of economics. Mason, OH: Cengage Learning. Nicholson, Walter and Snyder, Christopher. Microeconomic theory: Basic principles and extensions. Mason, OH: Cengage Learning.