Strategies to achieve financial targets, Financial Management

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The XYZ company supplies products to a number of original equipment manufacturers (OEM's). It employs 5,000 mostly unionized workers and generates about $2.2 billion in revenue annually. In 2002, it won an "Excellence Award" from one of its major client companies for having supplied an OEM product at the quality level of ten defects per million in three consecutive years, thereby exceeding the specific target of 15 defects per million set by this client. However, the corporate parent of the XYZ Company was less than happy with its financial performance. It declared this subsidiary a " troubled operations" in 2002, giving notice that if its business performance did not get better within certain time frame, the XYZ Company would be closed down or divested. The specific financial targets set by the corporate parent consisted of

(1) Net income (NOPAT) to sales ratio at 5 percent

(2) Earnings before interest and tax (EBIT) to sales ratio at 10 percent, and

(3) Return on assets at 22, 5 percent

Needless to say, management worked diligently to find ways to improve the company's business performance. One strategy was to induce 700 early retirements from the unionized workforce by November 2002. As of April 2002, only 480 workers signed up for this heavily promoted early retirement program that qualified them each to receive a $ 35,000 cash incentive. Besides encouraging workers to retire earlier, what other strategies do you think the XYZ Company should pursue to achieve all three of the noted financial targets?


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