Sevcon Case Analysis

Industry Trend: Increase in Revenue

Business Risk: Not keeping up with the industry trend

Risk: Overstatement of Revenue

Sevcon, Inc. is part of the Electrical Equipment Manufactuing in the US industry. In a report issued by IBISWorld in September 2011, they projected that the revenues for companies in this industry will increase about 4.2% each year from now until 2016 (IBISWorld pg. 5). It has been shown that the use of fossil fuels has lead to the increase in global warming. The need to find alternative sources of energy has been a popular topic around the world due to the world’s changing environment. IBISWorld expects that this need for an alternative source of energy has increased the consumer demand in the electrical equipment industry. The consumer demand is also expected to increase due to the slight increase in spending following the recession. The industry experienced a significant decline in sales from the recession in 2009 and they have begun to see their sales rise again.

Sevcon, Inc. reports in their 10-K that they have increased their involvement in producing electric on-road vehicles. They reported that they were skeptical of entering this market because they were unsure of how the demand would be in 2011 (10-K pg. 10). In December of 2010, the IRS expanded the “Plug-in Electric Vehicle Credit” to include more electric on-road vehicles. This provides both individuals and taxpayers up to a $7,500 tax credit for their electric vehicles that they purchase in 2011 (www.IRS.gov). This tax credit provides the industry an opportunity to sell more electric vehicles due to the savings that taxpayers will receive on their 2011 federal tax returns.

This expected increase in revenue for the industry also increases the inherent risk for the company. Sevcon, Inc. is presented with an opportunity to overstate their revenues. Since it is expected of companies in the electrical equipment industry to report an increase in their revenue of about 4.2% for...