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Table of Contents
1.0INTRODUCTION........................................................................................................... 4
1.1Company Profile......................................................................................................... 4
1.2Vision And Strategy.................................................................................................... 4
1.3Core Values................................................................................................................ 5
1.4Company Structure..................................................................................................... 5
1.5Corporate Social Responsibility..................................................................................6
2.0SWOT ANALYSIS......................................................................................................... 7
2.1Strengths.................................................................................................................... 7
2.2Weakness................................................................................................................... 9
2.3Opportunities.............................................................................................................. 9
2.4THREATS................................................................................................................... 10
3.0BALANCED SCORE CARD.......................................................................................... 11
3.1BALANCED SCORECARD FOR PERFORMANCE MEASUREMENT..................................12
3.2THE BALANCED SCORE CARD DOMESTICATED TO KAKUZI LTD................................15
3.3The Financial perspective......................................................................................... 15
3.4The customer perspective........................................................................................ 15
3.5Internal Business Processes...................................................................................... 16
3.6Learning and Growth................................................................................................ 16
4.0ASSESSMENT OF FINANCIAL HEALTH OF KAKUZI......................................................17
4.1Profitability............................................................................................................... 17
4.2Liquidity.................................................................................................................... 18
4.3Efficiency ................................................................................................................. 19
4.4Leverage................................................................................................................... 20
4.5Investor Concerns .................................................................................................... 21
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1.0
INTRODUCTION
1.1
Company Profile
Kakuzi Limited is a listed company trading on both the Nairobi and the London Stock Exchange.
The company engages in the cultivation, manufacture and marketing of tea, growing and marketing
of avocados, livestock farming, and a joint pineapple operation with Del Monte, macadamia and
forestry development. Kakuzi is the largest producer of Avocado in East Africa and exports
approximately 45% of the total volume from Kenya. Kakuzi is also focused on the development of
out grower and Smallholder Avocado growers.
Kakuzi limiteds parent company is Camellia Plc, a UK based corporate, with a 50.7% shareholding.
Kakuzi Limiteds subsidiaries include Estates Services Limited, Siret Tea Company Limited, and
Kaguru (EPZ) Limited. Kakuzi Limited has a joint venture agreement with Del Monte Kenya
Limited, for the growing of pineapples.
Kakuzi Limited operates in two separate locations in Kenya, the main operation and Head Office is
based at Makuyu about 65 Km North East of Nairobi and the other operation mainly Tea, is situated
in Nandi Hills about 350 Km North West of Nairobi.
Its plantations comprise 480 hectares of macadamia nuts, 408 hectares of avocados, 959 hectares of
tea, 64 hectares of pineapple, 1282 hectares for forestry and 7805 hectares for cattle farming. It
houses 861 permanent staff with a peak of an additional 720 fixed term contract staff dependent on
the seasonality of activities (Kakuzi, 2013).
1.2
Vision
Similar to all Camellia Plc. businesses, Kakuzi's vision establishes the long-term direction for the
company which is based on a number of guiding principles.
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Ensuring that the quality and safety of our products meet the highest international standards.
The continuous refinement and improvement of the companys existing businesses using our
internal expertise and financial strength.
Strategy
Kakuzi strategy is to continue focusing on a mixed agricultural portfolio to mitigate the profit cycle
risk to which agriculture has historically been subject to. Its core business activities are tea,
avocados, forestry and macadamia nut production.
Kakuzi key strategic thrust is developing macadamia nut production which will add scale and
customer service to parent company's existing operations in Malawi and South Africa (Kakuzi,
2013).
1.3
Core Values
1.4
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Chairman
Director
Director (Upto 7th August 2012)
Director
Director (Appointed on 29th November 2012)
Director (Appointed on 29th November 2012)
Managing Director
Finance Director
Kakuzi Company continues to dedicate a part of its profit to social responsibility activities aimed at
enhancing the living standards of those living close to its installations. Kakuzi businesses have the
potential to impact the communities in which they operate. Kakuzi continue to make a positive
contribution to these communities wherever possible in the passionate belief that the well-being of
the community has a positive impact on their operations.
The companys CSR mandated is to:
Consult the local communities affected by our businesses and ensure that all comments are
responded to and, where appropriate, acted upon
Understand how our businesses can most effectively support the needs of their local
communities and contribute to local programs and initiatives
Ensure the social effects of major investments are assessed and monitored at the planning
stage.
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Ensuring that resident children of employees of primary school age are in school
Access to company housing that meets or exceeds local norms or statutory requirement.
2.1
Strengths
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CSR and Environmental Initiatives: Kakuzi has given strong emphasis to this significant
operational area. We have ensured that all water supply sources within out control are
protected through planting and development of indigenous tree species. Our tea factory is
self-sustainable in fire wood supplies and our production factories for tea and avocado have
attained top level international certifications, such as ISO 22000, Global GAP and Rain
Forest Alliance. Our community outreach programmes have been successful and we will
continue to give a strong emphasis to this very important area of our operation. We have 12%
of our total land area covered by forestry (Kakuzi, Annual Reports, 2013)
The company operates in the agricultural, food and beverages industry and produces valuable
agricultural products that are on constant demand in the export market and locally. The
companys recent entry into avocado production has seen remarkable success driving profits
for 2011 and 2012. Its high-performing Fuertes and Hass avocado crop varieties especially at
its Makuyu operation have had increasing value especially in the European export market.
Good export market presence: The Company enjoys a strong presence in the export market
and access to the European market through its parent company, Camellia Plc.
To meet the international tea standards one must have top notch product inputs, thus for
Kakuzi having top of the range tea input produces quality outputs which are sought after in
many foreign countries, Kakuzi exports only the finest quality tea.
The location of its main businesses within the Nairobi metropolitan, with the main
establishment being at Makuyu favors the company in terms of asset value and in operations
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The company has large ownership of land assets including an agro forestry farm in Thika, tea
farm in Nandi Hills, which provide a strong asset base for the company.
2.2
Weakness
The company is part of the big 6 tea producing companies of the country, making the tea
market a very competitive sub sector.
Poor and infrequent communication of their product to the target market, little to no
advertising is done to create awareness of their products locally is a major hindrance to their
overall profitability.
The high fluctuation of prices for agricultural produce locally and internationally caused by
changes in weather affecting overall production affects the expected revenue and sales value
for the company (KHRC, 2008, p.22).
2.3
Opportunities
Kakuzi has the potential to further diversify their portfolio beyond those products they
currently have.
Large markets from the avocado and macadamia nut ventures the company has recently
diversified into.
The current high value of tea and fresh avocado especially in the international market
continues to bolster the companys financial position. The expected entry into the lucrative
macadamia and processed agricultural fruit market, and its long-term approach for agro
forestry are expected to bring sustainable business for the company in coming years
(Gikunju, 2007)
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The strategic alliances with the parent firm, the companys local subsidiaries and other agro
processing companies notably Del Monte (K) Ltd present wider business opportunities for
the company and its products.
Kakuzi s entry into marketing of avocado fruit internationally presents a new market
opportunity with high potential and very low competition from other major producers in the
region. Currently Kakuzi is the largest avocado exporter
THREATS
Foreign Exchange Rate Volatility: The group operates internationally and is exposed to
foreign exchange risk arising from various currency exposures, primarily with respect to the
US dollar and Euro. Foreign exchange risk arises from future commercial transactions, and
recognized assets and liabilities. This is a risk faced by the company on a yearly basis and
could result to adverse losses for the company.
At 31 December 2012, if the Shilling was weaker / stronger by 5% against the US dollar with
all other variables held constant, the consolidated post tax profit would have been Shs.
90,650 (2011: 4,537,000) higher/lower mainly as a result of US dollar trade receivables
(Kakuzi, Annual Reports, 2013).
Cash Flow Interest Rate Risk: The Group has borrowings and bank overdraft facilities at
variable rates, which exposes the Group to cash flow interest rate risk. The group regularly
monitors financing options available to ensure optimum interest rates are obtained (KHRC,
2008).
The Group has interest earning deposits, whose income would be subject to interest rate risk.
An increase/decrease in interest rates of 5% would have resulted in an increase/decrease in
post-tax profit of Shs 3,636,000 (2011: Shs 2,490,314) (Board-of-Directors-Kakuzi, 2011).
The global trend of being health conscious may affect tea consumption, the changing
lifestyles and attitudes towards healthier lifestyles has affected consumption among some
segments of the health conscious population.
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The company faces litigation surrounding its joint venture with Del Monte Ltd affecting the
companys marketing activity for its pineapple produce. The company lacks processing plant
for pineapple fruit and jeopardy surrounding its business relationship with Del Monte could
potentially lead to low returns and loss of significant market for the produce.
Difficult dealings with the labor union over employee conditions, which is common in most
horticultural and other plantation firms in Kenya, has affected its dealings with workers.
Unruly behavior amongst rioting workers has put business operations, personnel and property
at risk at the companys Makuyu operation, denting the companys image and creating
unnecessary costs through arson and destruction of crops (Were, 2008).
Adverse macroeconomic effects on its revenues especially caused by the high fluctuation in
the local currency have potential negative impact on its international market revenues, with
appreciating value of the shilling causing lower value for its tea and other products
internationally (KHRC, 2008).
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Customers.
shareholders and customers, what business processes 5. Regulatory & Social Processes
must we excel at?
of strategic themes
The financial health of Kakuzi limited has been on an upward trend over the five year period. The
company seeks to leverage on its existing assets for business diversification. As per the diagram
above it would be a good idea to increase efficiency of the company, in recent years especially e.g.
2012 the efficiency numbers have increased tremendously. Thus there is need to work on the
efficiency.
3.4
Customer satisfaction should always be the focus of every company. If customers are not satisfied,
they will eventually find other suppliers that will meet their needs or substitute products. Poor
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Reduction of the cash conversion cycle/ improved efficiency is also of importance as a longer CCC
will impact on the profitability of the company and leads the company into bad debts. Thus reduced
payables days of holding should be considered.
For efficiency and effectiveness of operations Kakuzi has been able to invest in internal capacity and
to modernize its operations in order to enhance its efficiency as well as invest in innovation in all its
business spheres as seen from the diversification of their portfolio.
3.6
Alignment of personal goals to the companys goals will ensure all employees are working to a
common goal. The feeling of belonging will help increase their morale which improves productivity.
This in turn has positive impacts on the overall productivity of the company.
Kakuzi encourages the professional and higher learning as well as continuous development,
continuous development/ learning is necessary to keep abreast of all the changes in the business
environment. In addition to continuous development and general professional training the company
should ensure that they hire the key technical talent to ensure processes are performed accordingly.
Having highly trained professional staff also resonates well with the consumers as they know that
they can get value for their money (Paul, 2005).
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5YEARANALYSIS
Profitability
a)
GrossProfit Margin/markup=
2008
2009
2010
2011
2012
Grossprofit * 100
Turnover
Gross Profit
Turnover
673,645.00
1,613,216.00
41.76%
876,778.00
2,008,157.00
43.66%
954,192.00
2,113,774.00
45.14%
1,167,418.00
2,376,862.00
49.12%
733,229.00
1,564,792.00
46.86%
THECOMPANYHASHIGHPROFITMARGINSWHICHWILLBEBENEFICIALFOR
FUTUREOPERATIONS
b) Net proft asapercentage of sales=Net profit
* 100
Sales
Net Profit
282,918
390,295
385,379
644,397
408,656
Turnover
1,613,216
2,008,157
2,113,774
2,376,862
1,564,792
c) ReturnonInvestment =
17.54%
19.44%
18.23%
27.11%
26.12%
Net Profit
* 100
Total Assets
Net Profit
Total Assets
=
282,918
390,295
385,379
644,397
408,656
2,283,983
2,343,199
2,614,898
3,817,320
3,571,700
12.39%
16.66%
14.74%
16.88%
11.44%
282,918
1,613,216
2,283,983
1,396,141
385,379
2,113,774
2,614,898
1,882,604
644,397
2,376,862
3,817,320
2,756,765
408,656
1,564,792
3,571,700
2,801,225
=
THEOVERALLPROFITABILITYOFTHECOMPANYISGOOD
Page 17 of 32
390,295
2,008,157
2,343,199
1,707,453
20.26%
22.86%
20.47%
23.38%
14.59%
4.2 Liquidity
ii)
Liquidity
Focusonliquidityasit isnormallythe main cause of companydownfall
a) Current Ratio =Current Assets
Current liabilities
Current Assets
Current Liabilities
229,477
312,322
=
0.73
275,217
134,224
2.05
432,800
222,394
1.95
1,174,645
351,157
3.35
1,237,473
146,023
8.47
229,477
312,322
34,103
=
0.63
275,217
134,224
48,979
1.69
432,800
222,394
41,568
1.76
1,174,645
351,157
179,830
2.83
1,237,473
146,023
65,428
8.03
Change inFixedassets
Change inWorkingCapital
6,901
312,322
85,464
134,224
217,866
222,394
0.98
897,332
351,157
2.56
897,540
146,023
0.02
0.64
6.15
Change
Change
Change
Change
Change
17,099
14,476
114,116
460,577
-308,448
-225,397
-132,358
136,729
870,608
-142,306
491,216
508,177
134,534
-686,788
859,410
Net Profit
=
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4.3 Efficiency
iii)
Efficiency
Inventories
Receivables
Payables
Cost of GoodsSold
Turnover
a)Inventorydaysof holding=
41,568
173,366
210,807
1,284,419
2,113,774
179,830
97,483
283,252
1,426,866
2,376,862
65,428
274,505
129,212
895,249
1,564,792
11
11Days
15
15Days
12
12Days
46
46Days
27
27Days
35
26
30
15
64
36
28
60
72
53
36Days
28Days
60Days
72Days
53Days
10
13
-18
-11
38
Receivables * 365
Turnover
RDOH
=
RDOH higher than 50may indicate collection problems and pressure on cash
flows, thus in 2012the RDOH was higher than 50signifyingcollection
problems
c) Payable daysof holding=
Payables
*365
Cost of goodssold
PDOH
48,979
140,774
90,604
1,195,941
2,008,157
Inventory *365
Cost of goodssold
IDOH
b) Receivable daysof holding=
34,103
154,657
110,492
1,121,010
1,613,216
d) Cashconversioncycle
=Inventorydaysof holding+Receivable daysof holding- Payable daysof holding
=
The longer the cash conversion cycle the greater the ability to experience bad
debts , the lesser the efficeincy of the company, Kakuzi is quite efficient as
the CCCis through the years is significantly low.
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4.4 Leverage
iv) Leverage (Gearing)
a)
Longtermdebt
Equity
LongTermdebt
Equity
=
b)
604,515.00
1,964,609
624,408.00
2,210,504
709,398.00
2,756,765
624,452.00
2,801,225
43.76%
30.77%
28.25%
25.73%
22.29%
685,997.00
1,567,633
312,322
604,515.00
1,964,609
134,224
624,408.00
2,210,504
222,394
709,398.00
2,756,765
351,157
624,452.00
2,801,225
146,023
63.68%
37.60%
38.31%
38.47%
27.50%
1,567,633
2,283,983
1,964,609
2,343,199
2,210,504
2,614,898
2,756,765
3,817,320
2,801,225
3,571,700
1.5
1.2
1.2
1.4
1.3
390,189
51,399
558,890
19,473
553,934
414
920,093
0
479,299
0
29
1,338
Longtermdebt+Current liabilities
Equity
LongTermdebt
Equity
Current Liabilities
The capital ratio has surpassed the prescribed amounts and should be
reevaluated as this could prove detrimental to the company
c)
Equity Multiplier = Total Assets
Equity
Equity
Total Assets
=
The equity multiplier is below the prescribed levels, thus the number of
times equity can be derived fromassets is also low.
d)
T.I.E=
685,997.00
1,567,633
Page 20 of 32
Investor
DividendPerShare
Market price
EarningsPerShare
1.00
23.00
13.12
2.50
31.75
17.34
2.50
81.50
15.87
3.75
69.50
28.06
3.75
40
19.35
57.04%
54.61%
19.47%
40.37%
48.38%
4.35%
7.87%
3.07%
5.40%
9.38%
7.62%
14.42%
15.75%
13.36%
19.38%
92.38
85.58
84.25
86.64
80.62
1.75304878
1.83
5.14
2.48
2.07
This shows that the company's shares are not stable and fluctuate yearly, the
issuingof dividends varies yearly as well.
DividendPolicy= Dividendpershare
Earningspershare
The company has agood high retention ratio which is an indicator of agood
growth. The company also seems to vary its issuingof dividends in each year
Retention
c) Price earningsratio=
Market price
Earningspershare
=
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CAPITAL STRUCTURE
2008 %
2009 %
2010 %
2011 %
2012 %
Amount(shs' 000) Proportions
Amount(shs' 000)Proportions Amount(shs' 000)
Proportions Amount(shs' 000) ProportionsAmount (shs' 000) Proportions
Equity
1,567,633
70%
1,964,609
74%
2,210,504
78%
2,756,765
80%
2,801,225
82%
Capital
LTD
685,997
30%
694,515
26%
624,408
22%
709,398
20%
624,452
18%
Structure
2,253,630
100%
2,659,124
100%
2,834,912
100%
3,466,163
100%
3,425,677
100%
As a rule of thumb Equity should never be below 67% and Long Term debt should never exceed 33% at the maximum , the figures above indicate
that Kakuzi is within the prescribed amounts of equity and long term debt for the five year period.
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2008
2009
2010
2011
2012
Cost of Equity, Amount(shs'
Ke
000) Proportions Amount(shs' 000) Proportions Amount(shs' 000) Proportions Amount(shs' 000) Proportions Amount(shs' 000) Proportions
DPS
1.00
2.50
2.50
3.75
3.75
Market Price
Ke
Ke
23.00
0.043478261
4%
31.75
0.078740157
8%
81.50
0.030674847
3%
Cost of financing the company with equity is quite low for four years (2008-2011), but in 2012 the cost of financing with
equity increased tremendously in 2012, which is not advisable.
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69.5
0.053956835
5%
40
0.09
9%
2008
Nominal cost of Debt, Kd
Finance cost
Long term debt
Borrowings
Kd
Kd
2009
2010
2011
2012
Proportions
Proportions
Proportions
Proportions
Proportions
51,399
685,997
0
7.492598364
Kd = 7.49%
19,473
604515
0
3.221260018
Kd = 3.22%
414
624408
0
0.066302802
Kd = 0.06%
709,398
0
0
Kd = 0%
624,452
0
0
Kd = 0%
2009
3.22126002
0.7
2.25488201
2.25%
2010
0.0663028
0.7
0.04641196
0.05%
2011
0
0.7
0
0%
2012
0
0.7
0
0%
2008
7.492598364
0.7
5.244818855
5.24%
4.10
WACC
Equity
Ke
LTD
Ki
Ko/WACC
Page | 25
2008
70%
4%
30%
5.24%
5%
0.05
2009
74%
8%
26%
2%
6%
0.06
2010
78%
3%
22%
0.05%
2%
0.02
2011
80%
5%
20%
0%
4%
0.04
2012
82%
9%
18%
0%
8%
0.08
2008
Value of Kakuzi Amount (shs'000)
EAT 282,918,000.00
WACC
0.05
Value 5,658,360,000
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2009
Amount (shs'000)
390,295,000
0.06
6,504,916,667
2010
Amount (shs'000)
385,379
0.02
19,268,950
2011
Amount (shs'000)
644,397,000
0.04
16,109,925,000
2012
Amount (shs'000)
405,104
0.08
5,063,800.00
YEAR2012
1 A WC/TA
Z- score
= 1,091,450 = 0.306
0.3667
YEAR2011
1.2 A WC/TA
3,571,700
1 B RE/TA
= 2,703,225 = 0.757
= 479,299
1.0596
1.4 B RE/TA
= 0.134
0.4428
3.3 C EBIT/TA
= 2,801,225 = 3.636
2.1814
= 2,658,765 = 0.697
0.9751
= 1,564,792 = 0.438
= 920,093
= 0.241
0.7954
0.6 D E/TL
= 2,756,765 = 2.599
1.5596
1,060,555
0.4337
3,571,700
0.99 E S/TA
= 2,376,862 = 0.623
0.6164
3,817,320
4.48
Page | 27
0.2589
3,817,320
770,475
1 E S/TA
= 0.216
3,817,320
3,571,700
1 D E/TL
= 823,488
3,817,320
3,571,700
3 C EBIT/TA
Z- score
4.21
YEAR2010
1 A WC/TA
Z- score
795,570
= 0.247
0.2966
YEAR2009
1.2 A WC/TA
Z- score
=
= 0.109
0.1313
= 1,866,609 = 0.650
0.9095
3,218,591
1 B RE/TA
2,873,255
= 2,112,504 = 0.656
0.9189
1.4 B RE/TA
3,218,591
3 C EBIT/TA
553,934
2,873,255
= 0.172
0.5679
3.3 C EBIT/TA
3,218,591
1 D E/TL
= 2,210,504 = 2.193
1.3157
= 2,113,774 = 0.657
0.6502
YEAR2008
Z- score
30,472
= 0.011
0.0137
= 1,469,633 = 0.552
0.7728
2,662,519
1 B RE/TA
2,662,519
3 C EBIT/TA
390,189
= 0.147
0.4836
= 1,567,633 = 1.432
0.8591
2,662,519
1 D E/TL
1,094,886
1 E S/TA
= 1,613,216 = 0.606
0.5998
2,662,519
2.73
Page | 28
= 0.195
0.6419
0.6 D E/TL
= 1,964,609 = 2.162
1.2973
0.99 E S/TA
= 2,008,157 = 0.699
0.6919
2,873,255
3.75
558,890
908,646
3,218,591
1 A WC/TA
2,873,255
1,008,087
1 E S/TA
314,307
3.67
Comparisons between the presented book values and calculated values shows that Kakuzi
Ltd is grossly undervalued, placing it as a better company to be purchased.
The company has considerably high profit margins , this is beneficial for future
operations of the company
The companys capital structure is sound, with equity above the prescribed 67% debt
below 33% at the maximum.
The prescribed normal for quick ratio should be 1.1; we can observe ratios of up to 8.03
in 2012. For the period under evaluation only the year 2008 had the prescribed ratio.
Page | 29
Between 2008 & 2010, the quick ratio is low, indicating the company doesnt keep
excess cash in hand, and relies too much on inventory to pay its short term liabilities,
while in 2011/12 the opposite is true.
RDOH higher than 50 may indicate collection problems and pressure on cash flows, thus
in 2012 the RDOH was higher than 50 signifying collection problems.
The longer the cash conversion cycle the greater the ability to experience bad debts , the
lesser the efficiency of the company, Kakuzi is quite efficient as the CCC is through the
years is significantly low.
Over the period under evaluation, the capital ratio has surpassed the prescribed amounts
and should be reevaluated as this could prove detrimental to the company.
The more times your T.I.E the better , if the T.I.E is low this means the company has a
lower capacity to pay debts, thus in 2011 & 2012, the company has no capacity to pay
debts.
"The company has a good high retention ratio which is an indicator of a good growth.
The company also seems to vary its issuing of dividends in each year
Recommendations
The company has greater capacity for diversification, thus it should look at other additional areas to
venture into.
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The companys marketing strategy should be made more aggressive, this is in a bid to create /
increase awareness of the brand and its product offerings.
6.2
Conclusions
Using Chepshys Confidence levels Model, Kakuzi Ltd has above average confidence levels.
The z-score of Kakuzi Ltd are above the margin 3, signifying that Kakuzi Ltds future
can be accurately predicted.
A confidence level of 95% is very high, hence this supports the conclusion that the firm is not
anywhere near liquidation.
Overall profitability is good; this is profitable for the companys future operations.
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