Fitbit’s Organizational Structure
Fitbit is company that helps people lead healthy and active lives. It does so by empowering them with guidance, inspiration, and data provided by its fitness products. The company employs a tiered organizational structure which includes the chief executive officer at the top overseeing all the company’s operations (Fitbit, 2021). The organizational structure from production to customer service includes executives in the two divisions focusing on sales to consumers and enterprise customers. The company has a chief business officer who leads Fitbit’s sales team.
Fitbit further has in its structure, a chief technology officer, SVP and general manager for health solutions, SVP product, SVP and managing director for international affairs, and SVP, Americas Sales (Fitbit, 2021). The chief technology officer oversees the products’ technical demands and research and development. The SVP, general manager is tasked with all work related to the development of business and health system solutions for worker engagement. SVP Product oversees the company’s vision concerning products, features, and user experiences while the SVP, MD in involved in customer engagement and team building (Fitbit, 2021).
Financial Risk Associated with the Project
Fitbit seeks to boost sales and retain the existing customers by bringing customer service back. The move would cost $2 million for a call center. However, the project would be subject to risks, such as credit risk, liquidity risk, operational risk, profitability risk, and legal risk. Fitbit’s sales are declining, which means that the company cannot raise enough money for the project and would have to borrow. Fitbit could default on the debt due to disruptions in cash flows as the call center operations fail to break even (Zopounidis et al., 2021). Further issues with foreign exchange rates might lead to sovereign risk. If Fitbit would fail to pay such liabilities, then it would suffer a credit risk.
Liquidity risk could result from Fitbit’s inability to convert the existing assets into cash to finance the project. The need to raise $2 million for the call center operations could further face operational risk due to lack of proper controls or improper implementation of the project. If the project faces mismanagement or technical issues, Fitbit would suffer an operational risk due to improper implementation. Profitability risk would stem from failure of the project to manage cash flow, especially if Fitbit seeks to rely on internal financing for the call center project. Legal risk, on the other hand, would result from the need to add operations to the company in the form of a call center. The company would have to go through legal procedures that could result to risk (Zopounidis et al., 2021).
Analysis of Financial Statements for Budgeting and Savings Methods
The net income emanating from the project would determine the methods Fitbit would apply for budgeting and savings. The company’s net income would be the difference between revenues and costs. With costs being more than revenues, Fitbits net income is negative, implying that it is making a loss. However, negative net income would reduce Fitbit’s tax liability, but in this case the company is making losses, therefore losing money (Palepu et al., 2020). A negative earnings per share from continuing operations would ensue indicating that the company’s stock price is lower compared to earnings. A consistent negative earnings per share would lead to a risk of bankruptcy.
The company would need to look at the diluted earnings per share based on the diluted net income. Since the company is making losses the diluted net income would be negative and the convertible preferred stock and debt will result in lower adjusted net income as the adjusted net include does not include any interest expense (Palepu et al., 2020). Further, negative cash from operations which is earned through Fitbit’s routine operations would push the company to do more budgeting than saving. Therefore, Fitbit would have to borrow or raise new capital to ensure it finances the investment of the call center. Any positive cash flows from the investment would indicate that Fitbit is investing in its future growth amid the negative cash flow from financing (Robinson, 2020). As such, the negative cash flow from the call center investment would be a warning of bad asset purchasing selection.
Recommendations
Fitbit should accept the project because it will improve its bottom line by boosting sales. The 60 call, chat, and email agents will keep in touch with customers, making it possible for the company to pinpoint the areas that need improvement. The agents will help the company address all the bad reviews that the company had been dealing with. With the customer service department being outsourced and consisting only of a chat feature, it is difficult to get in touch with all customers, especially those do not have the time for chatting. Fitbit will be able to pinpoint problems and address them as they arise.
One would recommend a social media page where customers can get in touch with Fitbit through different platforms, such as Twitter, Facebook, and LinkedIn. The project shows positive cash prospects as the company gets to deal directly with customers. Investment in plant and equipment will provide Fitbit with the advantage of expanding operations and increased sales prospects. With the new call center, Fitbit will expand its margin of safety and lessen the break-even point for the new asset.
References
Fitbit (2021). Who we are. https://www.fitbit.com/global/us/about-us
Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020). Business analysis and valuation: Using financial statements. Cengage AU.
Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.
Zopounidis, C., Benkraiem, R., & Kalaitzoglou, I. (2021). Financial risk management and modeling. Springer.
Leave a Reply