A simple increase in Converse’s sales will
Not allow the company to achieve a positive Profit margin. This is due to excessively high COGS. We suggest Converse management Aim to achieve the industry average of COGS As 61% of sales (versus 76% for Converse). This will require management at Converse to Decrease COGS by 20%, producing an ROA Of 4.11%. Holding all other variables Constant, and assuming Converse Management is able to cut COGS by 20%, a 115% increase in sales would still be required To bring the ROA performance to the goal of 12.45%. Even if Converse management were Able to reduce inventory by 27% and accounts Receivable by 10%, making them on par with The sample group as a percentage of sales, the ROA would only increase from 4.11% to 4.87%. this suggests that the management of Converse needs to focus on reducing COGS And increasing sales. Although efforts by the Logistics manager to reduce inventory and Accounts receivable would be beneficial, Immediate concerns center on COGS and Sales.