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Financial Statement Analysis Report

   

Added on  2019-10-09

13 Pages4543 Words148 Views
1Assignment -2Financial Statement AnalysisStudent Roll No:

2Part-1The two companies that are selected are Harvey Norman and Wesfarmers limited. Both thesecompanies represent conglomerates in the retail domain across different sectors, and yetrepresent comparable ventures with financial and business significance based in Australia.Wesfarmers Limited has interests that span to a predominant extent across Australia as well asNew Zealand markets focusing on retail, fertilisers, chemicals, industrial / safety products, andcoal mining. Harvey Norman represents multi-national retailer for bedding, furniture,communications products, consumer electrical products, and computers. So on the strategy basedon the buyers potential, the HN should focus to open their new stores to those areas where thepotential of the buyer are higher and the buyer population should targeted instead of open in avacuum. In terms of Wesfarmers, the potential to growth is higher so the services should bespread to other countries as well to test and drive the sales potential.In terms of competitive business, the HN sales has been improved and carry out much morepotential in the market so the company should focus to operate as per the policy framed vs. tojump into the new areas without the significance idea and motive. The competitors are there inthe business but the vision will lead the business to growth and sustainability. The product is at aoptimum range and is influencing the buyer than the competitors product so it should be on thesame strategy. For WF, there are multiple product/services offered but only one product is givinghigher growth i.e. coal, so they must benchmark with the competitor to check the idea of loss tothe business and should grow in the market.For both the companies the update is required to be made, as there potential in the market ishigher and both the company needs to work on their strategy to grow the business. Theaccounting analysis of the firm are to be widespread to good ERP system and the controltechniques should be adopted. The company should follows the IFRS discipline also to preparethe financials as per the IFRS guidelines and report their financial statement every year to therevenue authorities. Also, the benchmark should be done with the competitors so to move aheadand identify the areas where needs to work on. The business development are subject to changeso, we believe the change is required in terms of:-Good governance system;-MIS reporting of the company;-Market strategy of the company;-Working on operational efficiency to increase the profit margins and get the turnoverover cycle to mark-Financial ratios should be improved.Part -2

3Assessing and reporting Operating Management decomposition analysis.Harvey NormanThe Company is working under the broad hierarchy and good governance. The company hasbeen lead by the shareholders who perform the decision activity for the major chucks ofelements. Followed by the Board of directors, who are responsible to decide the and conclude themajor operations of the company after getting the MIS and reporting from the each division ofthe operating team. Normally the Chief operating officer is handling the operational issues andreporting the same to the board and executing directors. This is how the operating management isbeen decomposed by the company.Company has structured to work in a retail segment, which is similarly spread across the world.All these retails MIS are been reported to the regional managers who further report to the countryhead and the country head reports to their respective Vice-presidents and vice-presidents to theCEO of the company. This is how the management presents its hierarchy in terms of reportingand resolving the operating issues within the management. The board meeting is usually heldonce or twice the quarter where all the key operating management issues are been discussed andresolved to any point of term. Other operation of the company has been spread in terms of Franchisee. Each franchisee ownsand controls the franchisee business of the that franchisee. They themselves control over the day-to-day operations of the franchisee business and they posses the power to decide necessary salesdrivers, control over margins, operating cost so that they can maximize profitability of their ownfranchisee business. This franchising operation segment in Australia records the total feesreceived from franchise holders including the rent, fees and outgoing the use of a brandedcomplex and interest on the financial accommodation facility that the company provides to allfranchise before they operate in the market.WesfarmersThe company operates with the major division where each division are been reviewed by thedivision head and the division heads are been working with the company operating officers andthe executing officers who are responsible to decide the work and provide inputs to the board.Further to this, the company has its division in terms of:-Burnings;-Coles-Departmental Stores-Officer works-Industrials

4All these wings are operating within the Australia and New Zealand and deliver their services tothe citizen of the company. These services are been operating in terms of stores in near places ofthe countries. The operation of the company is been responsible to achieve good improvementsin terms safety performance, maintain a strong work force, enrich to the person who seek for theproduct and service of the company. As the company is also in the business of the chemicals andother potential hazards materials the company needs to take care of the safety of the operationalstaffs and have to hear the complaints of the customers who are receiving the service from thecompany. These are to be done in terms of the divisions head managers and it further engage theoperational heads if the things are not been resolved within the division head managers. Theoperation of the company should not be diluted with the short provisions as the services providedby the company should be sustainable and should be served to the person in need.Ratio 'sHV 2018HV HALFWES 2018WES HALFGROSS PROFIT MARGIN33.48%32.00%6.07%11.43%EBIT MARGIN27.91%28.13%6.07%11.43%EBITDA MARGIN32.17%31.91%7.86%13.28%Harvey Norman During the year 2018 the gross margin was improved than 2017, which has been reported lessduring first half year of 2019. The cost of goods sold has been excess during the first half period.EBIT margin gives a significant influence to represent the earnings of the company beforeinterest and tax. Interest and taxes are two component which are payable to the stakeholders ofthe company, these costs are not related to operating business of the company. During the year2018 the operating margin of the company has been reported at 27.91%, which has beenincreased during half year 2019. This shows that company has been able to reduce the indirectcost related to the business despite the gross margin has decreased the EBIT margin hasincreased. Further the EBITDA margin further improved for firms operating profitability byexcluding depreciation cost which can also be termed as non-cash expenses. EBITDA marginhas been reduced during the first half year, which states that the depreciation cost may haveincreased due to increase in fixed assets during the year.WesfarmersGross margin has been increased tremendous during the first half year of 2019, due to increase inrevenue by 36% and decrease of cogs by 23%. The total effect has increased the gross profitmargin to 11.43%. The operating profits margin before interest and tax is also higher than thelast year. There was least depreciation effect during the first 6 months of 2019, due to which theEBDITA margin has been increased to 13.28%. Comparing to the Harvey Norman the ratios has been increased during the first half year of 2019.

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