Company valuation is a cardinal process in an organization that is used to assess the elements of performance and financial condition. As a process, evaluation entails examination of economic and non-economic factors to determine the position of a company.
The results of the evaluation process enable a business to increase efficiency and effectiveness of various business processes. Moreover, it provides an opportunity for an organization to improve customer service, reduce costs of operation, and modernize business practices (Jones, 2007).
However, the most difficult task during company evaluation is identification of relevant areas that should be considered for the process. It is in this regard that this paper identifies several elements of evaluation that are applicable to Peet’s Coffee & Tea.
Peet’s Coffee and Tea
Peet’s Coffee and Tea is a global company that sells coffee products and operates a long chain of coffee houses across the world. The company is headquartered in California and has many branches all over the world.
The company offers a variety of coffee products that entail the full-leaf teas, whole-bean coffee, cold and hot coffee beverages, pastries and microground instant beverages (Baber, 2007). In addition to coffee products, the company sells other product varieties such as sandwiches, wines, and even beer depending on the target market.
Peet’s Coffee and Tea has managed to become one of the successful coffee companies due to its market share and highly diversified product line. Therefore, the evaluation of the company should consider key elements of economic and non-economic factors, which include competitive strategies, market share, financial position, and labor practices (Youngme & Quelch, 2003).
When evaluating competitive strategies of a business, it is cardinal to assess the capability of the strategies to overcome competition in a given market or industry.
Peet’s Coffee & Tea has competitive strategies that enabled it to outmatch its rivals in the coffee industry. The company employs competitive strategies that entail competitive pricing, product innovation, and customer value proposition (Anthony, Dearden, & Govindaraja 1992).
With regards to competitive pricing, the organization offers quality coffee products that are favorably priced to attract and retain its customers. Currently, the company has lowered prices of most coffee products by more than 10% across all the markets in the world.
The defensive approach taken by the company was also meant to enhance product value and increase the frequency of repeat purchases. Moreover, the approach was meant to enable the company outmatch the competitors who sell their products in supermarkets such as Folgers and Maxwell and Dunkin Donuts.
However, the organization monitors changes in the prices of raw materials such as coffee beans to ensure that the strategy is sustainable (Baber, 2007).
Peet’s Coffee and Tea relies on product innovation as a competitive strategy to achieve product-oriented differentiation. Product innovation involves developing new product features that meet the changes in consumers’ needs and wants.
Peet’s Coffee and Tea has ensured product innovation by producing coffee products that meet the changes in culture, social status, and geographical setting. For example, on the issue of culture the organization offers products that conform to cultural requirements of the consumers. A coffee product in Italy has completely different taste compared to the coffee in London or New York.
With regards to geography, it is appropriate to sell cold beverages in tropical regions and offer hot beverages in cold areas. Unpredictability of change sometimes makes it difficult for the organization to effectively utilize its product innovation strategies. The organization plans to invest in marketing research in order to predict changes in consumer behavior (Erasmus, 2008).
Customer Value Proposition
Customer value proposition is another competitive strategy that is used by the company to increase its competitiveness. It entails the total number of benefits that a consumer derives from the product or services offered by a company. Products with higher benefits enable the customers to attain higher value.
Peet’s Coffee and Tea has been able to achieve this by providing good packaging, offering products in a serene environment, and improving the quality of coffee products. Customer value proposition enables the organization to improve customer service and increase its sales revenue (Collan & Kinnunen, 2011).
Market share is another key element that is deemed important for this evaluation. A company’s market share is the proportion of the market that is occupied by the company in terms of customer dominance. A company’s market share is determined by its competitive factors.
In this case, Peet’s Coffee and Tea market share is influenced by the aforementioned competitive strategies (Baber, 2007). For example, defensive pricing approach used by the company has enabled the organization to attract retailers from various market segments.
Pricing approach used by a business determines the unit market share from the percentage of units sold. The market unit also determines the level of sales revenues and profitability (Anthony et al., 1992)
Peet’s Coffee & Tea relies on effective assessment of the competitors’ activities and changes in consumers’ behavior to evaluate its market share. Moreover, the organization relies on external factors that affect the market, such as government regulations and changes in economic conditions to assess its market share.
As an international organization, the company’s share is also affected by transactions in international markets. The movement of funds between countries affects economic variables such as inflation and exchange rate. Countries that maximize trade opportunities in export business are good places for investment since such countries have stable exchange rates and currencies.
The company also predicts the changes in demand and supply for key products that affect economic conditions of different countries across the world. The demand and supply of a key product such as oil is very important in evaluating economic conditions and determining the demand of coffee products.
Proper assessment of the market share must embrace the above-mentioned factors to enable an organization to determine its trade position in the industry. However, some of the factors that determine the performance of the market such as government, fiscal and monetary policies are very difficult to predict.
A company’s financial position is a key factor that should be considered during evaluation. Evaluation of a firm’s financial position enables organizational members to determine the profitability of the firm. Financial ratios used in determining profitability highlight the profit margin of an organization and its ability to withstand competition from other rivals in the same industry.
Evaluation of financial position also defiles the liquidity of the firm. Liquidity rations in the balance sheet reveal the size of a company’s working capital and the ability of an organization to meet its financial requirements. Moreover, efficiency ratios in financial statements determine the relationship between inventory and the revenue of an organization (Collan & Kinnunen, 2011).
Evaluation of Peet’s Coffee and Tea financial position should embrace the following factors: the cash position of the company, overhead costs, solvency of the company, changes in securities and prices.
Cash Position of the Company
Cash flows affect the performance and growth of an organization. Peet’s Coffee and Tea has a good cash position whereby the total amount of inflows is higher than the outflows. The organization operates under a cash flow strategy, which enables it to minimize expenditure but increase the value of earnings.
The company’s pricing strategy also enables to generate high sales revenue and increase the number of cash inflows. Moreover, the organization effectively controls its receivables by minimizing credit purchases and increasing investment in fixed assets (Erasmus, 2008).
The organization does not only focus on increasing its revenues but also controls overhead costs that emanate from expenditure in salaries, rents, power bills and other overhead charges. The company determines the percentage of revenues that can be used to meet the all the overheads. It keeps a good record of all the overhead costs.
Peet’s Coffee and Tea also ensures that expenditure in overhead needs is consistent with the level of sales revenue. However, any losses in sales of the organization have been associated with the increase in cost of overhead needs. The organization should therefore control cost of overhead to minimize losses and ensure efficiency in operations (Collan & Kinnunen, 2011).
Evaluation of financial position of a company also enables it to determine its solvency. Since most businesses rely on cash inflows from sales, it is therefore important to determine the ratio of cash in the bank to monthly expenses incurred by an organization. Peet’s Coffee and Tea relies on the ratio in its cash management and ensures effective control of all major expenses in the company.
The company also ensures effective debt collection method from the clients and reduces overreliance on accounts receivables to fund its operations. The organization has been very successful in managing its solvency in order to avoid bankruptcy (Anthony et al., 1992).
The labor practices in an organization determine its productivity and performance in the industry. Good practices adopted by organization ensure the competitiveness of the organization and its success. For example, for Peet’s Coffee and Tea to achieve its competitive strategies such as product innovation, it has to ensure that workforce has the right skills and experience that is needed to facilitate innovation.
Moreover, the company should ensure that its workforce is motivated towards the achievement of the company’s goals and objectives. The organization employs efficient labor practices to establish increased productivity of labor. These practices entail workforce planning and compensation policy.
Workforce planning is an activity that is employed by the organization to ensure that it hires the right number of workers who have right knowledge and experience pertaining to the job involved. The process also takes into account the regulatory and legislative requirements that govern labor practices.
Peet’s Coffee and Tea relies on strategic workforce planning in order to acquire the employees that are highly experienced, innovative and talented in various functions of the business. Workforce planning is also important to determine the demand and supply of labor in the market.
The organization embraces the fact that different categories of employees with specific skills are in varying demand by different organizations. For example, the demand for a nutrition analyst cannot be compared to the demand of a general company attendant. Therefore, the organization forecasts all labor requirements prior to the process of recruitment to avoid shortages in supply of highly skilled individuals.
Labor compensation policy is another key area that should be properly considered when evaluating a company’s labor practices. Such policy determines whether a company pays its workers according to the industry rate and adheres to the labor laws during compensation.
The policy should also enable the organization to effectively manage labor costs in order to reduce over expenditure in labor. Peet’s Coffee and Tea compensation policy enables the organization to pay its employees according to the legal labor requirements and industry rate.
In certain regions, the company pays its workers higher rates that are above the industry rates in order to attract highly qualified labor. The company’s compensation policy enabled it to achieve its competitive strategies by producing products of high quality and enjoy economies of scale.
Company evaluation plays an important role in assessing the performance of an organization. Peet’s Coffee and Tea evaluation is therefore important to identify the various factors that have contributed to its success. In addition to the aforementioned factors, Peet’s Coffee and Tea embraces equal treatment of all employees due to its highly diversified workforce.
The company embraces diversity to ensure that all employees are treated equally regardless of their differences that may be based on gender, race, nationality, tribe, religion, and age. The organization ensures that human resources functions such as selection, hiring, training, compensation, and retrenchment embrace diversity of the workforce. It also adheres to labor requirements to ensure equal treatment of all workers.
Peet’s Coffee and Tea also believes in diversity of the workforce as an element of improving creativity and innovation among the employees. The organization believes that different employees from different backgrounds have different ideas which should be shared for the benefit of the organization (Erasmus, 2008).
Anthony, R., Dearden, J., & Govindarajan, V. (1992). Management Control of Projects. Chapter 17 of Management Control Systems. Homewood, Illinois: Irwin.
Baber, J, (2007). A Knowledge-based Approach to Program Analysis. American Society for the Advancement of Project Management. Online Magazine, pp. 1- 11.
Collan, M. & Kinnunen, J. (2011). A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation. Journal of Real Options and Strategy, 4(1), 117-141.
Erasmus, L. (2008). Financial Performance in terms of the PFMA: What does it mean? Journal of Accountability and Auditing Research, 4 (8), 57– 66.
Jones, C. (2007, May 29). Peet’s moves roasting plant to double output of coffee. San Francisco Chronicle, p. B-2.