Massachusetts Stove Company Case Study

Massachusetts Stove Company Strategic Options

Introduction
Massachusetts Stove Company is one of the last six remaining wood burning stove companies after recent changes implemented by the EPA. Even with the declining market for wood burning stoves, Massachusetts Stove Company has continued to steadily grow and profit for six straight years.
Profitability
Massachusetts Stove Company is the only stove company who sells their product via mail order which provides a niche market that other companies won’t be able to enter into. Massachusetts Stove Company also has the technology in their wood-burning stoves to distinguish their brand from the ever-shrinking list of wood burning stove manufacturers. The stoves come with catalytic combustors that

Massachusetts Stove Company return on Common equity ratio has fluctuated from 224% in year 3 all the way 32.6% in year 7. This change occurred because of the companies change in capital structure leverage. The reduction in the company's long-term debt and reduction in their deficit of retained earnings reduced their capital leverage, but this does not mean they are less profitable. Massachusetts Stove Company maintained a stable profit margin for ROCE from year 3 to year 7 and still saw increases in their net income. Over the past five years, the company has strategically crafted a niche market that is difficult for competitors to enter. Management has shown their abilities over the years to weather the recent EPA changes and declining wood stove market. While their profit margin for return on assets decreased, they managed to still increase sales enough in their niche market to increase their asset turnover and in the end, increase their return on assets. Even with major deficits in their retained earnings, the company worked through the tough regulations and low cash flow to not only continually grow their business, but turn

Their current ratio improved from 1.59 to 2.44 which shows the ability to cover current liabilities has improved. Massachusetts Stove Company strategically made decisions to not only increase their current assets quickly but also managed their liabilities to keep them from growing out of control. This means that the company could cover current liabilities at any time relatively easily with their cash, receivables, or other current assets. In terms of the market, Massachusetts Stove Company does have the demand of 220,000 active prospects they could try to sell stoves too if a dire need arose for quick cash. Management even brought their quick ratio to 1.08. Thus, they are in a position to cover any debt obligations that may come up quickly. Their inventory turnover has been relatively steady over the five years of data. In year 7 their inventory turnover reached 3.2 which means inventory is moving through to customers at an increased rate over the year which correlates with their increased sales. This statement is supported by the fact that the days inventory held for stoves has dropped over the past five years from 146 days in year 3 to 114 days in year 7. These reductions have allowed for the reduction of their days in accounts payable from 51 all the way down to 11. With this data, Massachusetts Stove Company is in a good financial position in terms of liquidity and