Introduction

This project aims to outline the findings from an economic analysis, an industry analysis and a

company analysis. This method is viewed as the top down approach. A lot of interesting details

and information have been uncovered throughout this research. This research was conducted

with the effort of having a practical approach to theoretical aspects taught within the course and

to expand the knowledge of the researchers.

Economic Analysis

As an investor, potential or actual, it is vital that one conducts a security analysis which will aid

in determining which security to invest in that will yield maximum or satisfactory returns. The

market of securities as it relates to its performance in a country is strongly influenced by many

factors within the economic environment. These variables can negatively or positively affect the

various elements of securities, both in the short and long run. These economic factors include but

are not limited to the interest rate, inflation, unemployment, Gross Domestic Product (GDP) and

the exchange rate.

Interest Rate

Interest rates can be defined as the amount that is received in relation with the amount that is

loaned. It is expressed as a ratio of dollars that is received per hundred dollars lent. However,

when evaluating the movement of interest rates there are a number of factors that should be

considered. Interest rates are influenced strongly by the conditions of the economy. When the

economy is growing, consumers have jobs and savings to lend through banks, but they must also

borrow for large items, such as homes or cars to finance other purchases such as credit cards.

Interest rates will rise as the demand for fund increase and act as a ratio for fund that is available

and when the demand for fund is low interest rate will fall.

Inflationary pressures also affect interest rates because the rates paid on most loans are

fixed in the loan contract, thus a lender may reluctant to lend money for any period of time if the

purchasing power of that money will be less when it is repaid. The lender will therefore, demand

a higher rate known as inflationary premium. Therefore inflation pushes interest rates higher and

deflation causes rate to decline. According to trading economics the benchmark interest rate was

recorded at 5.75%. Jamaica’s average interest rate was 13.98% from 1996 until 2014, reaching a

high of 33% in October 1996 and records a low of 5.75% in February of 2013. Based on

historical data the interest rate projections will fall between 5.75% and 8.03%.

Inflation Rate

Inflation can be defined as a persistent, substantial rise in the general level of prices related to an

increase in the volume of money resulting in the loss of currency.( dictionary.com). According to

the Bank of Jamaica for 2013 inflation was 9.5% with respect to 8.0% in 2012 which is the third

in a year single digit constantly. Inflation increase as a result of significant administrative

adjustments in transportation and utility rates, also a continued depreciation in the exchange rates

and increased in the price of crude oil. Thus it in turns weakens the domestic demand conditions,

reduce the price of grains and reduce the cost of communication. There was evidence of price

that pass down on some durable goods such as clothing, footwear and household furnishings.

A report was done by the Bank of Jamaica for inflation for April 2014 which was -0.3%,

that was below the average inflation of 0.6% for April of the last five year. For 2014 inflation

was 7.6% relative to a 9.2% as at April 2013. For the calendar year to date inflation was 1.4%,

relative to 3.2% for the corresponding period of 2013. The deflation in April 2014 was as a result

in a decrease in the Housing, Water, Electricity and Gas which fully offset an increase in other

subdivisions in particular foods and non-alcoholic beverage and transportation. Food and non-

alcoholic beverage rose by 0.3% due to an increase in process foods. Transportation also rose by

0.4% that was reflected in an increase in the cost of petrol and petroleum related.

According to the statistical Institute of Jamaica inflation was recorded at 8.07% in May

0f 2014. Average inflation was 10.90% from 2002 until 2014, reaching a high of 26.49% in

August 2008, and a low of 5.29% in November 2006. (See appendix). From historic data the

projection for 2014- 2019 would falls between the 8.07%- 8.03% (see table 1)

Unemployment Rate

The unemployment rate in Jamaica measures the number of people actively looking for a job as a

percentage of the labour force. The labour force comprises of the total number of persons over

the age of fourteen who are willing and able to work. The rate of unemployment gives a good

indication of the state of the economy.

Throughout several years of observation, the unemployment rate of Jamaica has been

consistently fluctuating. Consequently, this has become a great concern for the economy.

Jamaica’s unemployment rate was at a record low of 9.80% in 2007. This was favourable

in contrast to an astonishing peak of 16.50% ten years prior in 1997. This high rate implies that

the economy was either underperforming or had a decreasing Gross Domestic Product (GDP) at

that point in time. This is not desirable for any country. The most previous rate of unemployment

reflected a percentage of 14.90 in the last quarter of 2013. According to the Statistical Institute of

Jamaica (STATIN), there has been a decrease of 1.5% and the current unemployment rate in

Jamaica from January 2014 is 13.40%.

Gross Domestic Product

GDP is the total market value of the country’s output. Hence, it is the market value of all final

goods and service produced within a given period of time by factors of production located within

a country (Case, Fair & Oster). The components of GDP include government consumption and

gross investment, gross private domestic investment, personal consumption expenditure and net

export. According to the Statistical Institute of Jamaica (STATIN), the Jamaican economy grew

1.6 percent in the first quarter of 2014 when compared to similar quarter of 2013. This is as a

result of increased output levels in both goods producing industries of 5.5 percent and the service

industries of 0.3 percent. The highest growth rate Jamaica has ever had is 2.2% in December of

2003 and recorded the lower of -1.9% in March 2009.

          It has be noted that the increase in goods producing industries was heavily influenced by

increased activities in Agriculture, Forestry and Fishing which was 17.7%, Mining and

Quarrying which was 8.5%, and Construction equating to 1.2%. However, there was some

decline in the Manufacturing Industry totaling 1.2%. This increase was due to favourable

weather conditions and government initiative in Agriculture and Fishing Industry while the

increased capacity  and utilization at the Bauxite and Aluminum Plant was the main factor

contributing to increased production in Mining and Quarrying Industry. The increased in the

Construction Industry was as a result of continued expansion in hotel and increased spending on

work on the Jamaica Development Infrastructure Program. 

          Juan Pedro Schmid (2014) states that the debt to GDP ratio measures a country's debt in

relation to its gross domestic product. This is illustrated by making comparison to what a country

owes to what it really produces. This ratio indicates the country’s ability to pay back its debt.

According to Schmid (2014) the debt to GDP ratio of a country at any given time depends on the

country's previous year debt stock, the fiscal balance, any possible effect of exchange rate

movement on debt denominated in foreign currency in inflation and changes in GDP.

Exchange Rate

An exchange rate is the value/price of a country currency for the purpose of conversion to

another. There are two components of an exchange rate, these are: domestic currency and a

foreign currency. A high exchange rate can be expected to lower a country balance of change,

while a low exchange rate will increase it. There are a number of factors which influence

exchange rate within a country, however for the purpose of this project the focus will be on

interest rate, inflation rate, unemployment and gross domestic product (GDP).

A high inflation rate in Jamaica compared to other countries will tend to reduce the value

of the Jamaican dollar, because a high inflation means that goods will increase in prices faster

than the USA therefore in the long run, changes in the relative inflation rate will affect the

exchange rate. On the other hand, if there is depreciation in the exchange rate, the inflation rate

should be higher. Depreciation means that the currency will buy less foreign exchange which

will cause imports to be more expensive and exports cheaper. Depreciation in the foreign

exchange will cause both cost-push inflation and demand pull inflation.

Inflation rate, interest rate and exchange rate are highly correlated. A high interest rate in

an economy offer lenders a higher return relative to other countries. Hence higher interest rates

will attract foreign capital and cause the exchange rate to rise. Because a high inflation rate

within a country economy will cause prices to rise and the value of the currency to decrease,

decreasing the interest rate will tend to decrease the exchange rates as well.

Like inflation rate and interest rate, unemployment rate also affect the exchange rate of a

country. High unemployment rates tend to weaken the value of a country currency, causing

interest rate to decrease, which will result in a reduction of investments by investors. The

opposite is true though. A lower unemployment rate in the long run will strengthen the exchange

rate of a country.

The gross domestic product (GDP) is one of the primary indicators of a country

economical health. It is the monetary value of all the finish goods and services produced within a

country over a specific time period. A high GDP growth rate will increase/appreciate the

exchange rate with the expectation that interest rate will also increase. A lower GDP growth rate

will decrease/depreciate the exchange rate with the expectation that interest rate will also

decrease.

The Jamaican dollar went from a record low of $59.80 in 2004 to a record high of

$112.27 to 1 USD in July 2014. The depreciation in the value of the Jamaican dollar affects the

other variables (inflation rate, interest rate, unemployment and GDP) which are important

indicators to know whether or not an economy is experiencing growth. They are also positively

correlated.

The forecast for the period 2010 - 2019 shows that the Jamaican dollar will experience a

further depreciate/devaluation, if the economy does not experience any growth. The Jamaican

dollar is expected to trade at $ 143.91 to USD 1.

The table below highlights the projections for the various economic factors that change over

time.

Year 2010 9.6 11.7 11.3 724359.4 85.862011 13.1 6 12.4 734534.6 86.82012 11.9 8 13 731002.4 92.982013 8.9 9.5 14.9 732440.9 106.382014 10.05 8.07 13.4 735762.4 109.942015 9.72 7.53 15.01 737833.63 116.732016 9.39 8.76 15.68 739904.86 123.532017 9.06 8.23 16.35 741976.09 130.322018 8.73 7.86 17.02 744047.32 137.122019 8.4 8.18 17.69 746118.55 143.91

Interest Rate (%)

Inflation Rate (%)

Unemployment Rate (%)

Gross Domestic Product ($)

Exchange Rate (%)

Effect of the International Economy on the National Economy

The United States of America dollar is used in most international transactions, so it stands to

reason that anything that happens with the US economy will affect the international finances in a

substantial way. With the recession that started with the failure of the subprime mortgage market

in the United States. The however has had a great impact on the Jamaica economy in that

economy is small and heavily dependent on a handful of foreign exchange.

Mundi report Jamaica is heavily dependent on services that accounted for more than 60%

of Gross Domestic Product (GDP) at the end of 2011. Most of the foreign exchange is from

tourism, remittances and bauxite/alumina. Remittances account for 15% of GDP and exports of

bauxite and alumina make up roughly 5%. The bauxite/alumina sector affected mostly by the

global downturn but tourism was supple. Tourism revenues account for 5% of GDP in 2011.

However there were many challenges to growth, high crime corruption, unemployment and

underemployment and a debt to GDP ratio nearly 130%. Jamaica’s debt burden was as a result of

the government bailout of the financial sector.

A debt exchange was created in 2010 in order to retire high price domestic bonds and

significantly reduce debt servicing which hinder the government ability to spend on

infrastructure and social programs particularly as job a loss was on the rise in a shrinking

economy. Jamaica was hard hit by the effects of the global economic crises, experiencing

economic contractions from 2008-10 and growth remains low. Administration faces challenges

in maintaining debt payments, while at the same time attaching serious problem that is

hampering economic growth. With all these economic pressures the government had no choice

but to turn to International Monetary Fund.

Industry Analysis

Manufacturing Industry in Jamaica

According to the business dictionary, manufacturing can be defined as the process of converting

raw materials, components or parts in to finished goods that meet a customer’s expectations or

specifications.

In Jamaica manufacturing plays an important role in the development of the economy. It

is often times consider as the focus of the economy as the driving force for growth. In the 1980s

and the 1990s manufacturing industry in Jamaica was on the high. However with high taxes,

high fuel cost and also with the increase of raw material have held back the industry. With the

decline in the industry in the 1990s the industry has remain the largest goods in the production

sector in the Jamaica economy. In competing in both the domestic and export market the basic

requirement for the sector is to achieve a high level of productivity. For manufacturing sector the

plan for vision 2030 Jamaica will make the move to higher level of productivity in adding value

using technology and environmentally sustainable process with motivated, productive employees

and regulate business environment.

Manufacturing in which raw material are altered in to finished products on a large scale is

a basic economic activity that has been characterized as the secondary sector, between the

primary sector of agriculture and mineral extraction, and the tertiary service sector.

Manufacturing sector represents a vital component of the economy. The manufacturing sector

plan also will have implications for other areas of national development including agro-

processing, non-metallic minerals, communication technology, energy, tourism and the

distributive trade. For the period of 2004- 2008 manufacturing represented 8.4% of Gross

Domestic Product.

Links between the economic outlook and the Manufacturing and Agricultural industry

performance

Economic trends can take two forms cyclical changes in the economy that arise from the ups and

downs from business cycle and structural changes that lack a cyclical pattern. Structural changes

occur when the economy is undergoing a major change in organization or how it functions.

Industry performance is related to the stage of the business cycle. What makes industry

analysis challenging is that every business cycle is different and those who look only at history

are in danger of missing the current and evolving trends that will determine future market

performance. After the economy has hit bottom and begins its recovery, consumer durable stocks

typically make attractive investments. Such stocks include industries that produce expensive

consumer items, such as cars, personal computers, and refrigerator. Pent-up demand for

expensive consumer purchases, delayed during recession, may be fulfilled during the coming

recovery.

Once business finally recognize the economy is recovering and current levels of

consumer spending are sustainable, they begin to think about modernizing, renovating, or

purchasing new equipment to satisfy rising demand, lower costs, expand markets, or provide

better service to customers. Thus, capital goods industries become attractive investments.

Traditionally, toward the business cycle peak, the rate of inflation increases as demand starts to

outstrip supply. Basic materials industries, which transform raw materials in to finished products,

become investor favorites. Because inflation has little influence on the costs of extracting or

finishing these products, the higher prices allow these industries to experience higher profit

margins.

During a recession, some industry sectors typically do better than others. Consumer

staples, such as pharmaceuticals, food, and beverages, tend to perform better than other sectors

because people still spend money on these necessities. As a result, these “defensive” industries

generally maintain their values during market declines.

If a weak domestic economy means a weak currency, industries with large export

components may benefit because their goods become more cost competitive in foreign markets.

The most attractive industries will be those with large markets in growing economies.

The relationship between the analyst economic projections and the forecasted industry

performance.

In creating economic success the manufacturing industry provides wealth and sustains jobs for

citizens in the country. However there are many challenges face by the industry in instance such

as the global economic slowdown which causes and increase in the price of fuel and cost of raw

materials which was then pass down to final consumer. The manufacturing industry is one of the

dominancy that contributes the Gross Domestic Product (GDP). In 2011 the industry provide

employment for 75,100 persons and 2012 75,000 persons for 2013 71,900 and is expected to still

contribute to some extent in the future as being illustrated in the graph below.

2011 2012 2013 2014 2015 2016 2017 2018 2019

75.1 75 71.970.799999999999769.199999999999

467.599999999999165.999999999999

264.399999999999

262.799999999998

9

Projected number of persons that will be Employed by the manufacturing

industry

The way forward for the Jamaican manufacturing industry is to make sure that interest rate

is trending downwards. Banks will be more willing to offer loan and maintain and maintain.

stability in the exchange rate. In the manufacturing sector it is representing an increase growth

for the last two quarters. Despite the trough economic condition, the manufacturing is predicted o

contribute positively as this segment will be the main aim for the government. The government is

expected to boost this sector to create employment through the money it receives from the

International Monetary Fund (IMF). Based on the research that was done it is expected that this

will continue, as this is a very important sector representing a large chunk of Gross Domestic

Product (GDP).There are investment opportunities in manufacturing industry years for years to

come.

Structural Influences on the Economy and Industry

Social Influence

There are other factors other than the economy which forms which forms part of the basic

environment. The social influence is one such major factor which is defined as the actions,

reactions and thoughts and individuals of a society or country which can manipulate the

performances of the economy and industry. However, changes in lifestyle choices, population

and social values can influence changes in industry, products and corporate strategies regardless

of economic growth a country experiences.

          The population and its size have important influences on the economy as a whole.

According , to the Economy and Social Survey of Jamaica recorded at year end 2013, 2,718,000

people in total with female being 1,372,500 and male 1,345,500. As stated by Index Mundi in the

year 2013, the Jamaican population consists of mostly person between the age of 25-54 years,

which account for 36% of the population while 5.5% where between the ages of 55-64 years.

Having a country comprising of mainly of younger persons creates an availability of human

resource who are more likely resistant to change. The various age mix has implications for the

manufacturing and agricultural sectors for example younger persons tend to have preferential

tastes to current fads than the older generation. This could influence sales positively for the

manufacturing industry that is concern with innovation in designing.

          Another major social influence on the economy is the lifestyle of its people. As defined by

the Oxford dictionary , lifestyle is the mode of living by an individual or group. Lifestyle choices

varies among individual and group and dictates the direction of the economy. The Statistical

Institute of Jamaica stated that 8.65% per 100 marriages ends in divorce in 2009 which slows

economic growth increasing the demand and housing and resources due to the separation.  This

consequently creates a rise in consumer spending which adversely reduces disposable income. In

addition, the changes and increase in dual-career families, population shift, and also

entertainment will influence the manufacturing and agricultural industry. The agricultural

industry could face a decline in human resource as more persons are migrating to urban areas

from rural areas in search of work, education and new lifestyle. On the other hand, the

manufacturing industry could face an increase in workers from rural area which in turn could

influence productivity.

Technology

 Technology has created a reservoir of knowledge that made available by science and technology

for socioeconomic development in a country. There have be advances in quite a number of

factors such as medicine, advance in communication, education, health care and a lot more

which have aid in the growth of the country's economy in many ways. As it relates to the

manufacturing industry improved techniques have created a haven for innovation and changed

where man power have been replaced by robots which perform continuous, strenuous, receive

and difficult task daily such as lifting heavy object and constructing and automobile from start to

finish. As for the agricultural industry, improved technology has been put in place to minimize

the amount of work done by an individual. For example, machines have been constructed to

grow chicken to full term in about 2 weeks or less as against the normal growth period of 6 to 8

weeks. Innovative technology can create immense return for an industry , gain competitive

advantage other industries and in turn facilitate growth of a nation.

Politics and Regulations

Today's social trend may very well become tomorrow's law, regulation or tax

( (Reilly,Norton,2006). There have been numerous laws enacted or have been written in the

constitution of Jamaica that encourages fair trading, protecting the consumer as well as

protection the employee. These laws have the ability to influence economic growth if they are

applied and adhere to. The Bureau of Standard of Jamaica and the Consumer Affairs

Commission are two such government agencies established to reform, educate, empower

consumer to protect themselves and also to protect consumer in the market place. The

Manufacturing industry is Govern by the Bureau of Standard of Jamaica. The standards ensure

that consumers are provided with quality goods, service processes and practices. The increase in

minimums wages as per January 6', 2014 of $600.00 can influence manufacturing and

agricultural industry performances, consequently increasing the cost of labour which would

ultimately affect the firm’s profitability. This could influence cash flows to the industry because

of the increased motivation of the employees due to the wage increase.  In contrast, laws enacted

can also stifle a country's performance. For example, many persons may view the recent

decriminalization of marijuana as being a profitable move for the country but this

decriminalization can have adverse effect such as the increase in smoking and also an increase in

trading activity of the herb.

Market Analysis

In Jamaica, the manufacturing process in which raw materials are transformed into finished

products on a large scale is considered an important economic activity. This has been described

as the secondary sector within the economy. The industry of agriculture on the other hand, is

characterized within the primary sector of the economy.

Even though the manufacturing industry in Jamaica has been experiencing relative

declines since 1990, it still in fact continues to be the largest contributor to the nation’s Gross

Domestic Product among the sectors that produce goods. Manufacturing and agro-processing

represent the application of technical know-how and process equipment. The manufacturing

industry comprises of several key factors that must be dealt with individually. They are

economies of scale, transport costs, closeness to customers, brand Jamaica and global

competitiveness.

Over the years, the agricultural sector has become quite vulnerable due to an increase in

competition from imports. This resulted from low productivity evident in that sector. This sector

is a critical component that has an extreme impact on the national development of an economy.

This industry has been plagued by many problems like increasing debt burdens and poor cane

quality. Its contributions to the nation’s GDP have fluctuated yearly because of natural disasters.

It, however, has positively impacted the rate of employment in the country.

In general both the market sizes of the agriculture and manufacturing industries are great

and there is potential for market growth in each industry. By effectively controlling or mitigating

the cost structure of each industry market profitability within the industries can increase.

Competitive Structure of the Industry

Over the past 20 years, the manufacturing industry has been plagued with the full extent of

competitive pressures that has posed challenges for the Jamaican economy. Most of the factors

that affect competitiveness in this sector stems from the constraints in the business environment

and the macro-economic environment. These factors would include limited access to capital

markets, overvalued exchange rates, high real interest rates, relative cost of labour among other

variables. These factors have influenced the degree of competition within the industry.

As it relates to the agricultural sector, the competitiveness of this industry has become

vital. The competitors are affected by the liberalization of trade regimes and this change has

affected the domestic markets as well as the export market. The scope of challenges that the

competitors face in this industry are inclusive of but not limited to high levels of praedial

larceny, limited economies of scale, low levels of investments in technology and the high cost of

some of the productive inputs. All of the challenges aforementioned have resulted in the

declining performance in this industry.

Forces Driving Industry Competition

The threat of new entrants into the industry can affect the degree of competitiveness in that

industry. The threat of new individuals entering into the manufacturing industry is relatively low

given the high startup capital needed for machinery and other fixed assets. However, the threat of

new entrants into the agricultural industry is really high. It takes very little to become a

competitor in that industry.

Rivalry that exists among existing firms within the industry is also a key factor to note.

The risk involved from the rivalry among competitors for both the manufacturing and

agricultural industries are high. There are many competitors already existent within these sectors,

many of which are not dependent on the other, hence, a high level of rivalry results.

Another force that drives competition is the threat of substitute products. This threat is

relatively medium in the manufacturing industry but extremely high in the agricultural industry.

Also to note, is the bargaining power that the buyers possess. This refers to the extent to

which consumers have the choice to buy from manufacturer or agricultural produce provider or

another. The bargaining power is high in both industries. If the consumers are not satisfied with

what is being produced and reared locally then they can opt to buy from other producers or

foreign goods.

The threat of suppliers is also another force to be mindful of. This threat is extremely

high in the manufacturing sector. Most manufacturers have to supply raw materials from abroad

and have little or no say in the costs that they have to absorb. For the agricultural industry on the

other hand, this threat is minimal.

Industry Life-Cycle Analysis

The manufacturing industry is currently in the mature growth stage of the life cycle. This is

evident because this industry reflects high levels of growth. At this stage, the customers place

extreme focus on the quality of the products and seek them at low prices. The agricultural

industry displays the characteristics of the stabilization and market maturity where the rate at

which it grows is similar to that of the economy.

Regulatory Environment

There are several legislations and regulatory institutions that help to support the fair and proper

functioning of the manufacturing and agricultural industry.

The main policy framework for the manufacturing industry comes from the National

Industrial Policy of 1996. There are a range of laws and institutions that guide the development

of the manufacturing industry. They include the Factory Construction Law, Jamaica Export Free

Zones Act, Bureau of Standards, Consumer Affairs Commission, Fair Trading Commission, and

Jamaica Intellectual Property Office among a host of many others.

For the agricultural industry, there are laws that relates to specific product items,

agricultural practices and also to individuals who operate within the agricultural sector. Some

examples of these regulations are the Irrigation Act, Coconut Insurance Act, Cocoa Industry

Board Act, Farm Loans Act, Fishing Industry Act, Pesticides Act, Praedial Larceny Prevention

Act, Sugar Reserve Funds Act, along with many more. In order to tackle some of the challenges

that are faced by the country in this industry the government drafted the Agricultural Trade

Policy which would address issues related to liberalization, exports and food safety.

These laws help to maintain environmental sustainability and aids in increasing

productivity within the Jamaican economy.

Company Analysis

After analyzing and assessing the various aspects of the manufacturing and the agricultural

industry, it is predicted that in the next five years the manufacturing industry will most likely

outperform the agricultural industry. Given this prediction, the company within this industry that

was selected for analysis is the Berger Paints Limited. This company is also expected to do well

in its operations. This is because construction will always be a continuous process over the years

regardless of economic changes and industry changes. Therefore, paint is an important product.

Qualitative Analysis

Firm’s Competitive Strategies

With the effort of trying to sustain a strong competitive advantage, Berger Paints Limited has

made good use of its core competencies that other competitors would find extremely difficult to

replicate. The high quality of the paint is considered to be the company’s main strongpoint.

The competitive strategy that Berger employs is the differentiation strategy. Porter (1985)

declares that by using this strategy the firm seeks to be unique in its industry along some

dimensions that are widely valued by buyers. It is evident that Berger uses this technique because

they have selected an attribute that is deemed as important to architects, homeowners, and

construction workers alike and have positioned itself to effectively meet these needs. Consumers

want to know that their assets will be protected during and after the decorative process. As a

result, Berger has created products that protects and enhances the durability of these assets. They

differ from other competitors such as Sherwin Williams, Diamond Paint and B-H Paints in that

they offer paints for every possible type of finishing and furnishings. To aid with décor concerns

they have also launched a state-of-the-art tinting platform in the retail stores.

Swot Analysis

A SWOT analysis is a tool used to assess the strategic position of an organization. It is a

framework used for identify the internal and external factors that have an impact on the firms

product 

Strengths

These are the characteristics of a company that makes it stands out and also gives it competitive

advantage over other firms.  One of the company's strengths is that it has excellent brand

awareness among its potential customers, and also it is centrally located in an easy to find area

whenever a customer needs to make a purchase. It remains the largest paint manufacturing

company in the English speaking Caribbean and produces 95% of its 200 paints locally. It has

high market product both in visibility and sale for product such as Berger 303 flat emulsion and

ever glow low sheen

Weaknesses

The weaknesses of a firm are those attributes which are unfavorable to the company. One of its

weaknesses is its heavy dependence on decorative segments where competition is intense.

Another downfall is the high cost associated with importing raw materials.

Opportunities

The opportunities of a firm include those possible endeavors in which the company can engage

to further increase its overall profitability. Berger Paint Company has potential growth prospect

in other countries.

Threats

The threats faced by a firm include those conditions that intimidate the current and future

profitability of the company. There could be new entrants in the the industry as well as the

market. Fluctuation in the price of raw material, labour and other resource can also be a treat to

Berger paints. The company can also experience stiff completion from other companies.

Favorable Attributes of the Firm

A company’s favorable attributes are its unique characteristics and qualities that allow it to stand

out and is the preferred choice for its customers.  It is this same uniqueness that attracts potential

customers.  The major qualities or characteristics of a company can be its competitive advantage,

market leadership and exceeding management style and heavy duty industrial finishes.

All customers inclusive of architects, contractor, interior designers, etc are offered technical

advice and color advice on the Berger brands available and also information on other special line

of products such as enamel, varnished wood preservation etc. the company has  several outlet

and distributors of the product for easy access for those who wish to make an order or purchase.

They provide a large variety of products to its customers and is able match any color to satisfy

the customer's preference.

Overview of the Product

Berger paints Jamaica Limited manufactures and distributes industrial and decorative paints and

paint related material. It is a subsidiary of Berger International Limited, itself a subsidiary of the

Asian Paints Group, a conglomerate which ranks among the top ten decorative coatings

companies in the world. Berger’s success has been the company ongoing commitment to the

development and manufactured of paint which are technologically correct, environmentally

friendly and formulated to withstand harsh tropical conditions. Home owners, Hoteliers and

business across the Caribbean have long shown a definite for colourful, welcoming Caribbean

homes. They as well as architects and interior designers are assured that the quality of Berger

product is maintained on a consistent basis.

Their laboratories have consistently introduced products that have set market standards-

products such as Berger 203, the premier flat emulsion, berger404, oil paint, Berger 2020, a

quick drying, gloss emulsion which is suitable for wood and concrete. They also include Berger

ever glow, an east to clean, low sheen emulsion which provide a perfect finish and is especially

suited for hard use areas such as kitchens, bathrooms and children’s rooms. It is also widely

accepted in the Berger nature’s white’s lines of pastel shades which reflect the beauty of nature’s

fruits and flowers.

Porter’s Five Forces Model

Michael Porter based his theory on the fact that determines the competitive intensity and

attractiveness of a market. His fives forces model is use in helping to identify where power lies

in a business settings. This is important has it is used to understand strength of the organization’s

of current competitive position and the strength of a position that an organization may look to

move in. Porter model is also used by strategic analysts to understand whether new products or

service are potentially profitable. In understanding the theory it can be used to identify areas of

strength, improve weakness and to avoid mistakes.

Porter’s five forces of competitive position analysis:

The five forces are:

Rivalry Among Existing Competitors- Berger Paints main focus is on building their

brand. Product differentiation and high prices are also followed as competitive strategy.

Rivalry among competitors in this industry has being low because firms have being able

to differentiate their product.

Threat of New Entrants- The driver to be successful is different in both market

segments that are decorative and industrial. With decorative segment the distribution

channel becomes most important for a player to be successful. For a new player to

succeed barriers to entries are huge. If an international player wishes to enter in to this

segment it would take a long time to establish a channel. In regards to industrial segment,

technology plays a crucial role as huge networking is not required. Therefore it is more

prone to new entrant. Getting a place in the market is very difficult as switching cost is

high for the customers.

Bargaining Power of Buyers- Customers in the decorative paint segment do not have

sufficient knowledge about the quality, properties and perceived benefits of a particular

paint. Therefore, there is a strong dependency for instance a painter, contractors or even

paint dealers in making decisions as to the type and brand of paint to buy and use thereby

becoming strong influence. With the industrial segment buyer do not have some buying

power. There are few buyers with few demands. Loss of one customer would hit the

company. However this can overcome by raising switching cost, by giving customers

specialize service.

Bargaining Power of Suppliers- For Berger paint it is not easy for the supplier to drive

up prices because raw materials are bought oversees.

Threat of Substitute Products- substitute is greater in rural market, in which awareness

about paint is still quite low, and it is considered as luxury good. The wall is either left

without any paint or substitutes like white wash are use. White cement is one of the most

preferred substitutes for paints in exterior walls. In the industrial segment products are

more customized and guided by technology. In case of decorative products the

technology has been preferred as the production can be divided on the basis of interior

and exterior like water base and solvent base.

BCG Matrix

The Boston Growth Matrix is a collection planning model that was developed based on

the observation that a company’s business units can be classified into four categories on market

growth and market share in regards to the largest competitor. The four categories are: dogs,

question marks, stars and cash cows as shown in the diagram above which give thoughts of the

company’s competitive act within its industry.

Dogs have low growth rate and market share and does not create or use large amounts of

cash.

Question marks are rapidly growing and creating a large amount of cash; however they

have a low market share and do not generate a lot of cash.

Stars generate a lot of cash in that their market share is strong and consume a lot of cash

due to a high growth rate as a result in each direction in the order to nets out.

Cash cows are describe as market leaders and has a return on assets more than the

growth rate of the market, and thus generating more cash than they will be able to

consume.

Berger Paints Jamaica Ltd. may be classified as “question mark” in the industry. It has a low

market share that is expected to change as to compare to the other player within the industry.

Both its Earning per Share (EPS) and P/E ratio is low. , Sherwin Williams, Berger had a lower

EPS and also P/E ratio. Sherwin Williams had values of $0.40 and 20.23 times respectively

while Berger Paints had $0.35 and 14.43 times.

Quantitative Analysis

Interpretation of Ratios

Liquidity

Current Ratios Quick

Ratios Cash flow

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Liquidity Ratios

201220132011

The Current Ratio is a liquidity ratio that measures a firm’s ability to honour its short term

contractual obligations. A current ratio below 1 means that the firm is in serious liquidity

problems that is their current liabilities exceeds current assets. Base on the ratios for 2011, 2012

and 2013 which reflects 5.47:1, 2.56:1 and 2.29:1 respectively means that Berger Paints is able

to meet its short term obligations once they become due.

Asset Management

Total

Asset T

urnover

Fixed

Asset T

urnover

A.Receiva

bles Tu

rnover

Inventory

Turn

over

Averag

e Collec

tion Period

Day Sal

es in In

ventory

00.20.40.60.8

1

Asset Management Ratios

201120122013

Total Asset Turnover is a type of asset management ratio, which measures a firm’s earnings

before interest and tax base on its total net assets. If a firm can generate more sales with fewer

assets it will generate a higher turnover which is good for the firm because it’s using its assets

efficiently. Base on this fact Berger Paints return from 2011-2013 were 1.71, 1.87 and 1.80

respectively.

Profitability

Profitability Ratios

Gross Profit Margin Net Profit Margin ROE ROA

The return on equity measures a firm overall profitability that is how much profit is made from

shareholders invested funds. The return on equity ratio for Berger Paints showed a Hugh

fluctuation from 14.06% in 2011 to 7.05% in 2012 and 7.09% in 2013. This is a decrease in

shareholders returns in 2012 and 2013.

Market Value

EPS P/E Ratio

Book Value/Share

Market to Book

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Market Value Ratios

201120122013

The P/E ratio is a valuation ratio of a company’s current share price (market price) compared to

its earnings per share. This ratio shows how much an investor is willing to pay per dollar of

reported profit. A higher P/E ratio indicate that’s investor or the market expects an increase in

earnings for the future. This tends to associate with firms that have a high growth rate. Investors

will therefore have high confidence in a company that has a high P/E ratio. Berger Paints ratio

has made steady progress over the period 2011-2013 it was 5.06 in 2011 and made a huge jump

to 10.13 in 2012.

Debt Management Ratio

Debt Management Ratios

Total Debt Ratio Debt -to-Equity TIE

Discounted cash flow, inclusive of all applicable methods of determining Berger Paints Ltd.intrinsic value.

Valuation of stock

1). The dividend model is used to calculate the valuation of Berger Paints Ltd Stock.

Po = DPS/Ks – g

Where, DPS = the expected dividend for the next period

Ks = the required rate of return for equity investors

G = growth rate in dividends

Required rate of return

The first step in calculating the required rate of return to find the cost of equity; which is

calculated by the following formula:

Cost of equity = Krf + (km)b.

Assumptions:

Dividend per share for 2013 was $0.13

Earnings per share for 2013 was $0.16

Average dividend payout ratio (2011-2013) = $0.13

The average ROE for the three year period is 9.58%

Risk free rate of 7.88% based on the 182 days Treasury bill rate as at November 2013.

Due to the low correlation between the movements of the JSE index and Berger Paints the beta

will be estimated at 1.00

The market risk premium was calculated by JSE using the relative volatility of the JSE versus the

NYSE and multiplying it by the market risk premium of the NYSE. The JSE MRP was

calculated to be 3.61%

This mean that Berger Paints cost of equity is 7.88% + (3.61)1.00 = 11.49%

Expected growth rate = (1 – payout ratio) * return on equity

Therefore, the expected growth rate is = (1 - .13)* .0958 = 8.33%

Average ROE = 9.58%

Po = DPS/Ks-g

= .13/ (.1149 - .0833) = $4.11

P/E Valuation Approach

The P/E valuation approach was used to calculate Berger Paints Ltd price using the average over

the three year period (2011-2013)

Stock price = EPS X P/E ratio

P/E Ratio = 8.44

EPS = $0.21

Therefore, stock price = 8.44 times X 0.21 = $1.77

2014 2015 2016 2017 2018 2019

0200000400000600000800000

100000012000001400000160000018000002000000

Sales Projections

Year

The diagram shows that there will be a steady increase in sales for Berger Paints Ltd over the

next five (5) years.

Recommendations and Conclusion

From the research that was done the researchers saw it fit to make the following

recommendations:

The Government of Jamaica should invest in a solar energy plant as to reduce the

cost of electricity; as a result the cost of producing will be cheaper. As such the

country will now be able to produce more locally and thus reduce the amount of

imports.

The economic analysis of Jamaica shows that government is spending far much

than they earn, the recommendation is that they capitalize on the resources that

are available to the country as we speak in order to earn more revenue for the

country. With an attempt to reduce the imports into the country which is currently

depleting our national reserve, a short term restriction can be made on luxury

items despite our internal demand for them.

The company analysis revealed we recommend that investors invest in this

company on the merit that the intrinsic value is greater than the price of the stock.

The intrinsic value is $1.77 and the current stock price is $1.62 investor should

buy this stock.

Appendices

Formula Sheet

FORECASTING IN EXCEL

=FORECAST(X,knownY,knownX)

RATIO CALCULATIONS

Particulars Formula 2011 2012 2013EPS Net income / Total #

of outstanding shares$0.32 $0.16 $0.16

ROE NIAT/Avg. Total Equity

14.60% 7.05% 7.09%

Average ROE ∑(NIAT/Total equity)/3

9.58%

Payout ratio from 2011-2013

DPS/EPS 0.41 0.81 0.81

Average payout ratio

∑(DPS/EPS)/3 $0.125

Expected Growth Rate

(1-payout ratio)*ROE 8.33%

DPS1 D0(1+G) $0.13Value of stock DPS1/Ks-g $1.77

Asset Management

Ratios

Formula 2011 2012 2013

Total Asset Turnover

Sales/Total Assets

1498241/874786 = 1.71 times

1540689/816724=1.87 times

1608216/895654=1.80 times

Fixed Asset Turnover

Sales/Fixed Assets 1498241/251782

=5.95 times

15440689/252432=6.10 times

1608216/249479=6.45 times

Acc. Rec. Turnover

Sales/(ave) Acc. Rec

1498241/277692=5.96 days

1540689/219132=7.03 days

1608216/216507=7.43 days

Inventory Turnover

Sales/Inventory 1498241/217979=6.87 days

1540689/249235=6.18 days

1608216/265319=6.06 days

Average Acc. 277692/1498241*36 219132/1540689*36 216507/1608216*36

Collection Period

Rec./Average Sale per day

5=67.65 days

5=51.91 days

5=49.14 days

Day Sales in Inventory

Inventory/Cost of Sales

365/6.87=53.03 days 365/6.18=59.06 days 365/6.06=60.23 days

Liquidity Ratios Formula 2011 2012 2013

Quick Ratio Current Asset - Inventory/CL

623004/113911=5.47

564292/220110=2.56

646175/282082=2.29

Current Ratio Current Asset /Current Liabilities

405025/113911=3.56

315057/220110=1.43

380856/282082=1.35

Cash Flow Ratio Operating Cash flow/CL 122422/113911=1.07

93509/220110=0.42

130521/282082=0.43

Debt Management

Ratio

Formula 2011 2012 2013

Total Debt Ratio TA- TE/TA 410254/874786=46.90

344007/816724=42.12

413854/895654=46.21

Debt to Equity Long Term Liabilities/TE

4102542/141793=2.89

344007/141793=2.43

413854/141793=2.92

TIE EBIT/Interest 101131/41=2466.63

50976/1574=32.39

47118/27=1745.11

Profitability Ratio

Formula 2011 2012 2013

Gross Profit Margin

Gross Profit/Net Sale

101091/1498241=6.75

50976/1540689=3.31

47118/1608216=2.93

Net Profit Margin

NIAT/Net Sale 67806/1498241=4.53

33317/1540689=2.16

34083/1608216=2.12

ROA NIAT/TA 67806/874786=7.75

33317/816724=4.08

34083/895654=3.81

ROE NIAT/(ave.) Total Equity

67806/464532=14.60

33317/472330=7.05

34083/480430=7.09

Market Value Formula 2011 2012 2013EPS Net Income for

ord. shareholders/Total # of ord. share

outstanding

67806000/214322393=$ 0.32

33317000/214322393=$0.16

34083000/214322393=$0.16

Book Value per share

Total Common Equity/Total # of common shares

464532/214322393=2.17

472330/214322393=2.20

480430/214322393=2.24

Market to Book Value

Market price per share/Book

Value per share

1.62/2.17=0.75

1.62/2.20=0.74

1.62/2.24=0.72

P/E Ratio Market price per share/EPS

1.62/0.32=5.06

1.62/0.16=10.13

1.62/0.16=10.13

ECONOMIC FACTORS PROJECTIONS

Year 2010 11.32011 12.42012 132013 14.92014 13.42015 15.012016 15.682017 16.352018 17.022019 17.69

Unemployment Rate

2010 2011 2012 2013 2014 2015 2016 2017 2018 201902468

101214161820

Unemployment Rate Projections

Unemployment Rate

Linear (Unemployment Rate)

Year

Unemployment Rate (%)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

9.6 13.1 11.9 8.910.050000000000

19.7200000000000

2 9.39000000000019.0600000000000

68.7300000000001

38.4000000000002

1

Interest Rate Projections in Jamaica for 2010-2019

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

11.706.00

8.009.50 8.07 7.53

8.76 8.23 7.868.18

Inflation Rate Projection in Jamaica for 2010-2019

2010 2011 2012 2013 2014 2015 2016 2017 2018 20190

20

40

60

80

100

120

140

160 Exchange Rate Forecast for period 2010-2019

Exchange Rate Forecast for pe-riod 2010-2019

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019710000

715000

720000

725000

730000

735000

740000

745000

750000

GDP Projections in Jamaica for 2010-2019

Gross Domestic Product

An illustration of the BCG Matrix

References

Bank of Jamaica, Retrieved on June 19, 2014 from

http://boj.org.jm/publications/publications_show.php?publication_id=5

Berger Paint Jamaica, Retrieved on July 20, 2014 from

http://www.bergeronline.com/caribbean/corporate/future.aspx

Case, K., Fair R., & Oster S., (2009), Principles of Microeconomics Prentice Hall

Collinder,A. (2013). Split emerges on rollback of tourism tax subsidies. The Gleaner Jamaica.

International Monetary Fund (1997) Manual on Monetary and Financial Statistics.

Ministry of Finance. Retrieved from

http://www.mof.gov.jm/budgets

Porter, M. (1985) Competitive Advantage Ch. 1, pp 11-15. The Free Press. New York.

Riley, F. & Norton, E. Investment Thompson South- Western 7th Edition

Statistical Institute of Jamaica, Retrieved June 16, 2014 from

http://statinja.gov.jm/

Trading economies Retrieved on June 19, 2014 from

www.tradingeconomies.com

The Jamaica Stock Exchange. Retrieved from

www.jse.com

nd.)U.S Trade policy and Jamaica –U.S Trade Relations. Retrieved from http://www.psoj.org/?

q=news/us-trade-poilcy-and-jamaica-us-trade-relations

Vision 2030 Jamaica- Manufacturing Plan (2009-2030). Retrieved from

http://www.ukessays.com/essays/economics/driving-forces-of-the-jamaican-economy-e

conomics-essay.php