Financial Performance analysis and decision making of CEVA Inc.
CEVA Logistics is a leading player in supply chain management and logistics, granting all-inclusive services that provide smooth global business connectivity. CEVA is a worldwide network that operates in more than 160 countries. Its reach allows firms to handle the complexities of international selling by facilitating the seamless movement of products. As a key participant in the constantly modifying goods and logistics industry, CEVA is committed to excellence and prioritizes technical modernization and customer-centric customs (Cevalogistics.com., 2020). A staff gave to providing effective and innovative logistics solutions is the foundation of CEVA's success. The company's strategic strategy incorporates using cutting-edge technology, reassuring an innovative culture, and customizing services to satisfy the varied demands of customers from a range of sectors (Świszcz, 2019). CEVA is a reliable partner for companies looking to better overall efficiency and optimize their supply chains in the dynamic and dense global marketplace because of its extensive worldwide reach and commitment to operational excellence. Providing a smooth link between companies and their international goals, CEVA Logistics is a shining instance of dependability and creativity that keeps raising the bar for the logistics sector.
Examination of the financial accounts of the CEVA Inc, reflects that during the year, the companies, total revenue holdings though reflect an increase from 15% to 54% in 2022. But such an increase in the total revenue of CEVA Inc, was not effective in increasing the overall profitability position of the company from its previous year 2021. As per the information received from its consolidated income statement, CEVA Inc, reported an operating and net loss in the year 2020 and also in 2022. Moreover, such a loss percentage seems to have increased from that of its previous years to 181% in 2022 (annualreports.com, 2023).
Figure 1.
(Source: self-created)
Figure 2.
(Source: self-created)
Apart from such a factor, analysis of its liquidity position, using current and quick ratio, as shown in the figure 2. Also highlights, that during the year 2022, CEVA Inc’s financial position has detoriated from 5.95 times to 5.34 times and its quick ratio from 1.47 times to 0.82 times in 2022 (Oktavian and Handoyo, 2023). Which indicates that, the company’s current liquidity position has fallen, as its short-term assets holdings has fallen from its short-term liability holdings. Hence considering all such analysis, it can be stated, that during the year 2022, CENA Inc and its management, was not effective in improving its assets holdings or capital stature that form its previous year’s performance.
Figure 3.
(Source: self-created)
Similarly figure 3, also indicate an increase in the long-term debt holdings of CEVA Inc, from 18% to 19% and 15% to 16% in 2022 (annualreports.com, 2023). Henceforth, indicating an increase in their long-term debt holdings than from its equity and assets holdings. Such a decline in their assets and equity value from their respective long term liability value, can increase business solvency risks in the long run. Furthermore, figure 4, also effectively state the difference in their respective assets and liability holdings. As per such a figure, CEVA Inc’s initial trend of holding 3% assets and 7% long term liability holding proportion in their respective capital structure, increased to 4% overall assets holdings and 26% long term liability holdings (Gunawan et al., 2022). Thus, such a comparison provides strong evidence, that during the year 2022, CEVA’s management was ineffective in managing their assets and long-term liability value for reducing the future debt risk of the company.
Figure 4.
(Source: self-created)
Again, the figure 5, also indicate a lower cash and cash equivalent value, than the current liability value of the company. That is its cash ratio, has fallen from 75% to 64% and its return on capital rate from 36% to 49% respectively. Therefore, based on all such information and study, it can be effectively analyzed, that during the year 2022, CEVA Inc’s overall financial performance has fallen from its previous financial years and needs to be improved for better future performance.
Figure 5.
(Source: self-created)
Unlike Financial accounting practices, application of management accounting practices also plays an important role in improving the overall condition of a business. Managerial accounting concepts are considered as the internal valuation concepts, which helps a business and its management in planning the expenses and sales required, by employing various valuation methodology (Kanaan-Jebna et al., 2022). Moreover, managerial accounting concepts, plays an important role in pricing decision of a company and also managing the overall companies operational and distribution cost. Through analysis of the annual report of CEVA Inc, indicate an increase in the operating expenses of the company from its previous years. However, such a change doesn’t provide an effective information about the managerial aspect of the company, but considering the loss reported by the company, during the year 2022. The managerial position of the company seems to be weak, as it was not effective in improving its financial position respectively.
A crucial part of CEVA Logistics' strategic management is budgeting, which helps the business to successfully manage resources, meet financial targets, and improve overall operational effectiveness. To make sure that resources are used as efficiently as possible and that CEVA stays competitive in the quickly changing logistics sector, the company's budgeting process includes careful planning and analysis. The distribution of financial resources is a major component of CEVA Logistics' budgeting process (Świszcz, 2019). Based on market needs, projected development regions, and strategic goals, the corporation distributes funding to different divisions and services. To make well-informed judgements on resource distribution, this method entails evaluating past data, current market patterns, and future estimates. Another crucial component is operational budgets, which concentrate on regular tasks including distribution, storage, and transportation. To fulfil service level agreements with customers, optimize route planning, and reduce operating expenses, CEVA Logistics meticulously prepares these budgets. Demand is forecasted using advanced analytics and technology, which enables the business to dynamically modify resources and react quickly to changing market circumstances. Using activity-based budgeting, CEVA Logistics matches resources to tasks, providing a thorough understanding of the organisational cost drivers (Combé, 2019). This method promotes operational efficiency by improving transparency and enabling targeted resource allocation. Furthermore, the organization employs rolling projections, upholding an ongoing and flexible budgetary methodology. CEVA guarantees flexibility and responsiveness by routinely revising budgets in response to changing market circumstances and company needs (Yue et al., 2020). With the help of this dynamic approach, the firm may strategically negotiate the intricacies of the logistics sector, fostering long-term success in a continually evolving business landscape.
For CEVA to invest in technology, equipment, and infrastructure that improves its logistical capabilities, capital expenditures are essential. This involves making investments in cutting-edge transportation vehicles, digital technologies, and warehouses to boost productivity, shorten lead times, and provide real-time supply chain monitoring. CEVA maintains its competitive edge in a market where infrastructure and technology are essential by carefully allocating cash. Moreover, in CEVA Logistics, budgeting is essential to risk management. Budgets for contingencies are set aside to deal with unforeseen problems, such supply chain interruptions, unanticipated market swings, or geopolitical crises (Kukkonen, 2021). By taking a proactive stance, the business may manage uncertainty and maintain its commitment to providing dependable and consistent logistical services. CEVA's budgeting procedure is a strategic instrument for coordinating resources with the organization's overall objectives, not just a financial one. The iterative structure of the budgeting process, where modifications and revisions are guided by performance measurements and feedback loops, reflects the focus on continual improvement (Combé, 2019). CEVA Logistics' budgeting strategy is essential to its success in the cutthroat world of logistics. Through the strategic use of its financial, operational, and capital resources, CEVA maintains its agility, responsiveness, and ability to provide cutting-edge solutions to a wide range of clients. The company's dedication to quality is evident in both the services it provides and the way it manages and maximizes its resources using a strong and flexible budgeting system.
Investment Appraisal methods plays an effective role in accurate investment decision, thus the various methods that will help CEVA Inc, in valuing its vehicle purchase decision can be stated as follows:
Net present value method helps in analyzing the net cash flows of that the management of CEVA Inc, can obtained from using such a vehicle. Thus, providing an effective information to the management of CEVA Inc, in accurately predicting the value addition in the profitability of the company, from such a purchase decision, after considering the impact of inflation. For instance, if the vehicle cost $100000 and has a life of 5 years. And the management of the company estimate a net cash flow of $20000 per year till 5 years, then the total net worth of such an investment can be computed, for a cost of capital rate of 8% as shown in the table 1.
Hence from such a table, it is seen that such an investment of $100000, will have a negative impact on the overall companies’ profitability. Thus, providing effective evidence of not accepting such an investment option.
Apart from Net present value, application of payback period also plays an effective role in justifying such a purchase decision (Sinaga et al., 2023). Unlike Net present value, computation of payback period, helps in determining the period required for recovering the initial balance of such an investment. For instance, in the above scenario, the payback period, required for recovering the cost price of $100000, required for purchasing such a vehicle, comes out to be 3 years respectively. Therefore, providing an effective information to the management, for comparing the return expected from such an investment, with return from other investment options for a period of 3 years.
Unlike Payback period analysis, usage of accounting rate of return also assists a decision maker in sound investment decision (Delapedra-Silva et al., 2022). Though such a valuation model, includes a limitation, which can impact the overall investment return forecast. For instance, the average annual profit that can be derived from such a purchase, comes out to be (($20000*4)/5) =$16000 respectively. Hence based on such an analysis, the ARR rate from such a purchase decision comes out to be 16%, ($16000/100000) *100. Therefore, providing an effective information to the management in accepting such a purchase, with respect to market investment rate, at such a value. However, the limitation is, such an 16% return is computing ignoring the impact of time value of money, thus such a rate predicted includes a risk of future deterioration.
Since with the increase of time and inflation rate in an economy, the actual worth of money todays, declines from that in the future. Thus, considering such an impact, while computing the return from an investment, provide an actual picture to the decision, regarding the return that can be earned from such an investment decision. Which again assist in better and effective decision making for the management and results in earning future potential benefit. For instance, in the above scenario of purchasing a Vehicle worth $100000 and earning a net cash inflow of $20000 per year, though indicate a negative net return, but also reflects a positive accounting return rate of 16% (Sinaga et al., 2023). Thus, considering ARR investment appraisal method, such an investment of $100000 on a Vehicle having 5-year useful life, seems to be profitable for CEVA Inc, but in terms of NPV analysis, such an investment would generate a negative impact on the profitability position of CEVA Inc, thus impacting the cash holding of the company and its operational activities. The only difference, between both the investment appraisal method, it’s that NPV valuation considered the impact of time value of money, and thus discount the cash flows estimated by the management for predicting the return accurately, whereas the ARR method, fails to consider such a time value of money concepts and thus results in invalid decision making. Due to the existence of such facts, application of investment appraisal methods, which consider time value of money concept, for calculating the investment return or the benefits expected from an investment decision, is provided more preference than, the method, which doesn’t consider time value of money concepts.
EVA Logistics uses a multimodal pricing strategy that considers several approaches, which reflects the dynamic and intricate nature of the logistics sector. Cost-based pricing, value-based pricing, market-based pricing, yield management, and customer segmentation are all included in the company's strategic pricing framework.
1. Cost-Based Pricing: CEVA Logistics bases its service pricing on the overall cost of providing each service, which is a fundamental component. This covers indirect expenses like depreciation and administrative overhead in addition to direct costs like labour, warehousing, and shipping (Pecoraro, 2019). This strategy helps to preserve financial sustainability by ensuring that price covers the costs related to providing services.
2. Value-Based Pricing: CEVA employs a value-based pricing approach in addition to standard cost considerations. This entails evaluating the distinctive value proposition that the business provides to its clients. Important elements of this assessment include things like accessibility to a worldwide network, speed, dependability, and adaptability. CEVA may set prices that represent the perceived value of their services by considering the extra advantages they provide over rivals. This enables premium pricing in situations when more value is provided.
3. Market-Based Pricing: CEVA keeps a close eye on rival pricing and industry developments to maintain its competitiveness in the ever-changing logistics scene. Frequent pricing benchmarking and market research assist the business in evaluating the competitive environment and finding areas where it may stand out (Wang et al.,2023). CEVA makes sure its solutions are in accordance with industry standards and increases its appeal to clients by matching pricing with market dynamics.
4. Yield Management: CEVA Logistics uses yield management to put dynamic pricing methods into practice. This entails modifying pricing in response to variations in demand while taking seasonality, capacity limitations, and consumer urgency into account. CEVA demonstrates a proactive approach to revenue management by optimizing resource utilization and maximizing revenue potential via dynamic pricing adaptation to market circumstances.
5. Customer Segmentation: CEVA uses customer segmentation to customize pricing strategies to various consumer categories in recognition of the varied demands of its clients. This entails providing customized price schemes that correspond with the distinct needs and financial capacities of diverse clientele segments (Paridaens & Notteboom, 2023). Through comprehension and resolution of each segment's distinct needs, CEVA improves client happiness and loyalty.
Businesses use three main costing techniques—Marginal Costing, Absorption Costing, and Activity-Based Costing (ABC)—to analyze and assign expenses in various ways.
Marginal Costing:
Isolating the variable costs related to generating one more unit of output, marginal costing is a short-term decision-making approach. Fixed expenses are not attributed to specific items; rather, they are regarded as period costs (Gülden et al., 2023). This technique provides a clear picture of the extra expenses paid for each unit produced, making it especially useful in cases when capacity is limited. Marginal costing is essential for short-term pricing strategies and helps determine the contribution margin.
Absorption Costing:
On the other hand, absorption costing uses a preset overhead rate to allocate both variable and fixed expenses to each unit of output. This approach offers a thorough understanding of the whole cost of production, considering all expenses related to producing a good. In accordance with Generally Accepted Accounting Principles, absorption costing is often used for external reporting and financial reporting (GAAP). It guarantees that fixed expenses are included in product costs, providing a comprehensive view of profitability (Stašová, 2023).
ABC, or activity-based costing:
A complex technique called activity-based costing allocates overhead expenses to goods and services in accordance with the activities that they are used for. It acknowledges that not every product or service uses overhead resources in the same manner. Compared to absorption costing, ABC offers a more precise and detailed cost allocation; this makes it especially useful for businesses with a wide range of goods and intricate manufacturing procedures (Fatin & Wijayati, 2023). ABC improves the awareness of cost drivers and facilitates more informed decision-making about pricing strategies and resource allocation by directly connecting costs to activities.
These costing approaches provide insightful criticism of transport travel pricing systems. When there are immediate capacity restrictions, marginal costing is useful for making short-term choices because it provides a clear picture of the variable costs involved with each travel. But it can ignore fixed expenses that are essential to sustainability over the long run. Because of its thorough methodology, absorption costing guarantees that all expenses are considered; yet, if fixed costs are allocated unevenly, it may not fairly represent the contribution of each travel. By associating costs with activities, Activity-Based Costing (ABC) distinguishes itself and provides a more realistic representation of the cost drivers in the dynamic transportation environment (Genser & Kouvelas, 2022). ABC is especially helpful for businesses that provide a variety of services since it allows for a more sophisticated knowledge of the real expenses related to various kinds of transportation trips. CEVA Logistics' pricing strategy might be improved by including components of all three approaches, considering both short- and long-term sustainability and appropriately representing the nuances of its service offerings.
Short-Term Sources:
· Trade Credit: Involves obtaining goods or services with an agreement to pay later, typically within 30 to 90 days.
· Bank Overdrafts: Allows a company to overdraw its bank account up to a certain limit, providing short-term liquidity.
· Short-Term Loans: Borrowings with a maturity period typically ranging from a few days to a year (Cevalogistics.com., 2020).
Medium-Term Sources:
· Medium-Term Loans: Borrowings with a maturity period extending beyond one year but usually less than five years.
· Leasing: Acquiring assets on lease, providing flexibility, and preserving capital.
Long-Term Sources:
· Equity Financing: Raising capital by issuing shares to investors, resulting in ownership stakes.
· Long-Term Loans: Borrowings with a maturity period typically exceeding five years.
· Venture Capital: Investment from external parties in exchange for equity, often sought by startups or companies in expansion phases (Genser & Kouvelas, 2022).
· Increased Operational Flexibility: Trade credit and overdrafts, two short-term financing solutions, provide more freedom to manage your daily operating costs and ensure efficient logistical operations.
· Investment in Infrastructure and Technology: Long-term and medium-term financing options, including venture capital and medium-term loans, allow for the investment of infrastructure and cutting-edge technology (Loder et al., 2022). Maintaining competitiveness in the ever-changing logistics industry requires doing this.
· Risk Mitigation: One way to reduce financial risk is to diversify your sources of funding, such as venture capital and equity financing (Cevalogistics.com., 2020). Having a balanced financial structure makes a company resilient in times of economic depression.
· Capacity Expansion: Long-term financing makes large capacity increases possible, assisting in meeting customers' increasing needs and resolving scaling issues.
· Strategic Initiatives and Acquisitions: Long-term financing alternatives, such as stock and long-term loans, enable organizations to engage in strategic activities, such as mergers and acquisitions, which promote expansion and market consolidation.
annualreports.com, 2023. FORM 10-K Annual Report 2022. Available at https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_CEVA_2022.pdf
Cevalogistics.com. 2020. CEVA Logistics : World’s leading supply chain management. Cevalogistics.com. Available at https://www.cevalogistics.com/en
Combé, B. G. K. 2019. From data to insights: An advice to improve the capacity planning of temporary employees at CEVA Logistics Benelux (Master's thesis, University of Twente). Available at https://essay.utwente.nl/79742/
Delapedra-Silva, V., Ferreira, P., Cunha, J. and Kimura, H., 2022. Methods for financial assessment of renewable energy projects: A review. Processes, 10(2), p.184. Available at https://www.mdpi.com/2227-9717/10/2/184
Fatin, K., and Wijayati, N. 2023. Basic Analysis of Foreign Exchange Cost Allocation at PT X Using Activity Based Costing Method. Quantitative Economics and Management Studies, 4(5), 860-871. Available at https://qemsjournal.org/index.php/qems/article/view/1869
Genser, A., and Kouvelas, A. 2022. Dynamic optimal congestion pricing in multi-region urban networks by application of a Multi-Layer-Neural network. Transportation Research Part C: Emerging Technologies, 134, 103485. Available at https://www.sciencedirect.com/science/article/pii/S0968090X2100471X
Gülden, O. R. A. L., Mollaoğlu, M., and Bucak, U. 2023. Evaluating Trigger Effects of Covid-19 on Supply Chain Integration. Journal of Transportation and Logistics, 8(1), 29-35. Available at https://dergipark.org.tr/en/pub/jtl/issue/79774/1178903
Gunawan, R., Widiyanti, M., Malinda, S. and Adam, M., 2022. The effect of current ratio, total asset turnover, debt to asset ratio, and debt to equity ratio on return on assets in plantation sub-sector companies listed on the Indonesia Stock Exchange. International Journal of Economic, Business, Accounting, Agriculture Management and Sharia Administration (IJEBAS), 2(1), pp.19-28. Available at https://radjapublika.com/index.php/IJEBAS/article/download/139/126
Kanaan-Jebna, A., Baharudi, A.S. and Alabdullah, T.T.Y., 2022. Entrepreneurial Orientation, Market Orientation, Managerial Accounting and Manufacturing SMEs Satisfaction. Journal of Accounting Science, 6(1), pp.1-14. Available at https://jas.umsida.ac.id/index.php/jas/article/view/1590
Kukkonen, V. 2021. Cooperation within the supply chain: Inbound process development. Available at https://osuva.uwasa.fi/handle/10024/12514
Loder, A., Bliemer, M. C., and Axhausen, K. W. 2022. Optimal pricing and investment in a multi-modal city—Introducing a macroscopic network design problem based on the MFD. Transportation Research Part A: Policy and Practice, 156, 113-132. Available at https://www.sciencedirect.com/science/article/pii/S096585642100313X
Oktavian, E. and Handoyo, S., 2023. The Effect of Leverage, Profitability, Liquidity Ratio, and Inflation towards Financial Distress: Study From the Manufacturing Industry in Indonesia. International Journal of Management Science and Application, 2(1), pp.11-27. Available at https://ejournal.sultanpublisher.com/index.php/ijmsa/article/download/111/52
Paridaens, H., and Notteboom, T. 2022. Logistics integration strategies in container shipping: A multiple case-study on Maersk Line, MSC and CMA CGM. Research in Transportation Business & Management, 45, 100868. Available at https://www.sciencedirect.com/science/article/pii/S221053952200089X
PECORARO, P. 2019. Excellence through process management. Improving logistics processes with lean methodology. Business case: A3 thinking on TyreCity in CEVA logistics. Available at https://www.politesi.polimi.it/handle/10589/148650
Sinaga, A.S., Sari, M.M., Hutasuhut, A.A., Zahara, S.T., Amanda, A., Fitri, A. and Caesario, M.A., 2023. Comparison of capital budgeting methods: NPV, IRR, PAYBACK PERIOD. Available at https://wjarr.com/sites/default/files/WJARR-2023-1483.pdf
Stašová, L. H. 2023. Advantages and Suitability of Activity-Based Costing: A Study from Engineering Industry. Central European Business Review, 12(4), 1-31. Available at https://www.ceeol.com/search/article-detail?id=1196073
Świszcz, A. 2019. International cargo air transport. Transport Economics and Logistics, 83. Available at https://repozytorium.bg.ug.edu.pl/info/article/UOG81157881e14d4e59816fe2bc27144f71/
Wang, C. N., Nguyen, N. A. T., and Dang, T. T. 2023. Sustainable Evaluation of Major Third-Party Logistics Providers: A Framework of an MCDM-Based Entropy Objective Weighting Method. Mathematics, 11(19), 4203. Available at https://www.mdpi.com/2227-7390/11/19/4203
Yue, T., Sherwood, D., and de Koster, R. 2020. Managing Lean Success: A Warehouse Balancing Act (A). Available at https://repub.eur.nl/pub/131228/
