ARB Corporation: Overview, Porter Five Force Analysis, Research and Development, Ratio Analysis, DuPont Analysis, Share Price and Growth Rate, Recommendations and Conclusions

This document provides an overview of ARB Corporation, including its products and services. It also includes a Porter Five Force Analysis, research and development strategies, ratio analysis, DuPont analysis, and recommendations and conclusions. The document offers insights into the company's profitability, liquidity, solvency, and efficiency.

Running Head: ARB CORPORATION 1
ARB CORPORATION

Running Head: ARB CORPORATION
Overview
ARB CORPORATION is one of the most renowned companies in the industry of the motor
vehicles. ARB Corporation Limited structures, produces, convey, and sell engine vehicle
embellishments and light metal designing works in Australia, the United States, Thailand,
and Europe. The major feature of this organization is that it gives security hardware,
including bull bars and frontal assurance, side rails and insurance steps, back insurance gear,
under vehicle security items. The items like summit side insurance items, frontal insurance
frameworks; recuperation hardware, for example, winches, ties, and jacks all are produced
and manufactured along with the recovery essentials (ARB CORPORATION B, 2018).
Porter Five force Analysis of ARB Corporation
Threat of New Entrant
The threat of new entrant in the market highlight how new players raise the threat for the
existing players in the market. Considering the case of ARB Corporation which deals in the
equipment of vehicles will face a low level of threat from the new entrants in the Australian
market because taking entry in the industry require huge resource and capital investment.
Even, if the product differentiation is high then the new entrant in the market losses strength
(Fern Fort University, 2019).
Threat of Substitute
The presence of a substitute product in the market results in making the environment
challenging for the business. However, in the case of ARB Corporation, the threat of
substitute is low because switching cost of utilizing the substitute product is very high and the
customer could not gain the similar value from the substitute products that they receive from
the products of ARB Corporation (Easton and Sommers, 2018).

Running Head: ARB CORPORATION
Competition among existing players
The competition among existing players highlights the intensity of competition for ARB
Corporation. The competitive rivalry in this industry is low because there are a very limited
number of strong players in the market. In addition to this, the products offered in this
industry are differentiated and every business target diverse segment.
Power of Buyer
The bargaining power of the customers indicates the pressure on the business to get quality
products at high prices. The buyer's power for the ARB Corporation is low because there is a
very limited number of players present in the market which offer quality products, hence it
comes with a high switching cost.
Power of Supplier
The bargaining power of the suppliers in the industry highlights the pressure applied by
suppliers on the business. The power of supplier is high for ARB Corporation because
supplier switching cost is higher for the business due to contractual relationships. In addition
to this, there are a limited number of suppliers in the market and demand for their products is
higher, which strengthens their position against ARB Corporation (IBIS World, 2018).
Research and Development of ARB Corporation
Clearly articulated growth strategy- The growth strategy of ARB Corporation is comprised of
product development and new stores roll out in the Australian market. Product development
has allowed ARB Corporation to gain more scale and increase share in the market. The
number of newly introduced products of the company is Tailgate Assist, Jack, and LINK.
These products have also contributed to making strong sales of the company. In addition to
this, ARB Corporation also conducts deep research and development for which it spends a

Running Head: ARB CORPORATION
sufficient amount of investment. This result in confirming the healthy pipeline of the new
products in newly introduced vehicles as well as existing vehicles (Gable, 2018).
The strategy of the company for opening new stores is to target more sites in Australia where
the company is presently underrepresented. There are around 63 ARB Corporation stores in
the market of Australia. Present and future store rollouts have comprised a new format of the
stores which has been well accepted by the patrons (ARB Corporation, 2016).
Ratio Analysis
Ratio analysis is the technique which is used by the corporates lie ARB CORPOARTION in
order to find out the performance of the company on the various frontiers. There are several
categories which are being analysed under the ratio analysis category namely the
profitability, operating efficiency, the liquidity as well as the solvency of the company
(Fernandes, Leal, Figueiredo and dos Reis, 2018).
Profitability
Form the below analysis it can be stated that that the profitability of the company has not
fluctuated majorly. In fact there is a set range in each of the category as the net profit margin
has been 13% and it reduced to 12% in the year 2018 majorly due to the low sales growth and
the increase in the sales and the administrative expenses immediately (Altman, Iwanicz‐
Drozdowska, Laitinen and Suvas, 2017). The return on equity on the other hand remained at
17% only. The investors will be unhappy with this situation as the company is not making
enough value for the funds unvested by the investors. Further the operating efficiency is
again stuck at 17% due to the surge in the other operating expense by 3%. Over all the
company has the good margin it can be increased by avoiding unnecessary expenses on sales

Running Head: ARB CORPORATION
and the volume of the sales shall be increased by inducing new features (ARB
CORPOARTION I, 2018).
Profitability 2016 2017 2018 2016 2017 2018
Net Profit Net income 47439 49152 50969 13% 13% 12%
Net sales 356905 382599 423975
Return on Equity Net income 47439 49152 50969 19% 18% 17%
Net Equity 249608 272341 303062
Operating profit
margin
Operating profit 60230 65192 72223 16.9
%
17.0
%
17.0
%
Net sales 356905 382599 423975
Total Asset turnover Net Sales 356905 382599 423975 1.40 1.36 1.38
Average total
Assets
255816.
5
280838.
5
307525.
5
Liquidity
The liquidity position of the ARB CORPORATION as can be seen from the graph will state
that the current ratio of the company was 3.63 which were beyond the normal benchmark and
it’s said the company was having the sound cash conversion cycle, however thereafter there
is a reduction in the ratio and it reached to 2.93. The situation is not at all worse and the
company needs to get rid of the obsolete technology to overcome the leverage of the
unutilized assets (Garanina and Belova, 2015). Moreover the company has the sound current
ratio yet the quick ratio is struggling to reach the benchmark of the company. The quick ratio
was 0.80 and it immediately fell to 0.41 due to increase in the purchase of the inventory on
cash. The above scenario suggests that the company needs to focus on the liquidity position
(Rakićević, Milošević, Petrović and Radojević, 2016).

Running Head: ARB CORPORATION
2016 2017 2018
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Liquidity ratios
Quick Ratio
Current Ratio
Solvency
The solvency of the ARB CORPORATION can be depicted by the debt to equity as well as
the times interest coverage ratio which suggest that as such there is no long term liability the
company is involved with (Curtis, Lewis-Western and Toynbee, 2015). This might sound a
huge compliment yet the company can focus on the long term liabilities as it will improve the
liquidity position as well and the ability to pay back can also be judged form it. Further the
proportion of the debt to equity is minimal at 0.20 and the company can opt for the long term
liabilities to have the tax advantage (Rauch and Wende, 2015).
Efficiency
The efficiency of the company is poor in collecting the money from the inventory area. The
inventory realization is quite poo in case of the ARB CORPORATION as earlier the
company was realizing the cash in 198 days and now it have been increased to 210 days and
this is situation if the red alert which needs immediate attention from the side of the
management of the ARB CORPOARTION (Amelec, 2015). The realization from the
accounts receivables on the other hand has been normal in comparison to the inventory
realization. The company is realizing the cash in 47 days and this again can be reduced to the

Running Head: ARB CORPORATION
30 days if the invoice is generated on the monthly basis, the credit terms are reduced against
the discount schemes. For the inventory the company shall not stack up rather it shall build
the concept of the just in time (Sandström, 2016).
DuPont Analysis
The DuPont investigation (otherwise called the DuPont character or DuPont model) is a
structure for dissecting major execution promoted by the DuPont Corporation. DuPont
examination is a valuable method used to decay the various drivers of profit for value (ROE).
Deterioration of ROE enables speculators to concentrate on the key measurements of
monetary execution independently to recognize qualities and shortcomings (Jin, 2017). Form
the DuPont analysis of the ARB CORPORATION it can be stated that the company needs to
increase the return on equity. In the year 2016, the returns were 26.52% and they reduced to
24.59% and 23.19% (Al Nimer, Warrad and Omari, 2015). This can be interpreted by
observing the fall in the net profit margin and the low generation of the revenue against the
asset that have been purchased by the company. The financial leverage might have reduced
but not to a greater extent. The company needs to reduce the share count buy repurchasing
the shares and can opt for long term liabilities at low interest cost.
DUPONT Analysis 2016 2017 2018
Return on Equity
Profit Margin Net income /Net sales 13% 13% 12%
Total Asset
Net sales/Average total
assets 1.40 1.36 1.38
Financial leverage Total Assets /Total Equity 1.43 1.40 1.40
26.52% 24.59% 23.19%

Running Head: ARB CORPORATION
Share price and Growth Rate
After the calculation the share price of the company is found at $25.57 and it can be observed
that the share price is overvalued in comparison to the existing share price. Further the
growth rate of the company comes to 6.21% and this again depicts that the growth strategy is
low as the external factors also contribute in it (Yuen, 2017). Though the beta value is 1.16
and it’s huge, the company has the market risk premium of 6%. Therefore the risk is high and
it needs to be reduced. Overall it can be interpreted that the company shall sell the shares and
can earn greater returns (Gable, 2018).
Recommendations and conclusions
Form the above analysis it can be stated that the overall performance of the company is sound
in terms of the ratio analysis, the cost of the capital being 6% is higher and the beta value is
also high in comparison to the growth rate. Further the share is also over valued and in that
case the investors are advised to earn via selling some portion of the company. The procedure
of the organization for opening new stores is to target more destinations in Australia where
the organization is by and by underrepresented. The assets needs to be utilized properly and
the earnings must be increased in order to provide the greater returns to the investors. The
overall position of the company is satisfactory.

Running Head: ARB CORPORATION
Reference
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Running Head: ARB CORPORATION
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Running Head: ARB CORPORATION
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