The company also believes that vertical integration is critical to driving added value, by improving efficiency and by ensuring higher quality end products. It also views its research capabilities, its management team and its in-house seed supply as strengths from which it can draw competitive advantage. That said, the company appears to have a lack of cost control, which is a key weakness. In addition, it lacks diversification away from the palm oil business, with soybean oil being a relatively small component of its operation. Another weakness at Golden Agri is the lack of brand development. It has a large number of end-use products but many of these lack powerful, established brands. The company likely needs to offer more marketing support, as it has not competed in the retail sector long enough to build brand strength.
There is no harm in Michael buying shares of Golden Agri, but to recommend that he do so would need to take into account both his own personal financial situation and the price of the shares at the present moment. The company is on sound financial footing, but is not well-diversified. There is cause for concern that many of Golden Agri's financial ratios have deteriorated in the past year. The cost of sales has increased from 65% to 70% of revenues. Both selling and G&A expenses have increased significantly in the past year as well. That Golden Agri does not appear to have good control over its cost structure is a sign that caution should be taken when making the decision whether or not to invest in this company. There are no liquidity issues in the short-term, nor is the company's debt position in the long-term of any concern. Indeed, Golden Agri can take on significantly more debt than it already has. If there is any cause for concern, it is that Golden Agri is on a downward trend across most of its ratios. The firm has grown and it has expanded its product lines, but these investments do not appear to have manifested themselves in the revenue column as of yet. There are no strategic reasons why the company should reverse this trend soundly in the foreseeable future so all other things being equal I would not recommend that Michael purchase shares in Golden Agri.