Dulux Group Limited Risk Analysis

This assignment delves into a comprehensive risk analysis of Dulux Group Limited. Employing ratio analysis, the study evaluates various risk factors impacting the company, including operational risks (e.g., manufacturing hazards), financial risks, market competition, and reputational threats. The analysis compares Dulux Group's risk profile to its competitors like Fortescue Metals Group, highlighting areas of strength and potential concern.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of Student:
Name of University:
Author’s Note:

1AUDITING THEORY AND PRACTICE
Table of Contents
Introduction......................................................................................................................................2
Risk Analysis...................................................................................................................................2
Evaluation of risks and control environment...................................................................................5
Comparison of the financial ratios with Fortescue Metals Group...................................................5
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

2AUDITING THEORY AND PRACTICE
Introduction
Dulux Group Limited is considered as one of the leading manufacturer and marketer of
the products pertaining to enhance, protect and maintain the interest of the common people. The
products are used to transform the household rooms with the use of latest designer colours,
industrial coatings to protect the landmark infrastructure like bridges and using construction
chemicals to reinforce the same. Dulux Group Limited has employed more than 4000 employees
across “Australia, New Zealand, Papua New Guinea, South-East Asia and China” (Chen et al.,
2016).
Some of the various types of the operating segments of the company are discerned with
Paints and Coatings, Garage Doors & Openers and Lincoln Sentry. The important discussion of
the report includes inherent risks and the control measures. The latter apart of the report has
further evaluated the risks and control environment and Comparison of the financial ratios with
“Fortescue Metals Group” (Contessotto & Moroney, 2014).
Risk Analysis
Inherent Risk Control Measures
Risk factors associated to growth of the
company- This factor is depicted in terms of
sustainable growth opportunities and pursuing
the other risk factors which may have an
impact on the long-term profitability.
The different types of the “internal growth”
issues and the “M&A capability” is supported
by the involvement of the external audit
advise. The board is able to oversight the
various types of the growth activities (Miran,
2017).
Key customer relationships- Dulux group is
considered as the largest form of the retail
customer to depict a substantial share of the
total revenue. Any form of loss of income
from the key customers may adversely impact
on the profitability of the company.
Dulux Group Limited’s ongoing investment is
considered with the iconic brands to drive the
consumer activity along with the important
retail channels to assist the customers for
succeeding. The main customer relationship is
further depicted with key retail channels for
assisting the customer’s success. This is

3AUDITING THEORY AND PRACTICE
further seen with the emphasizing in
providing superior service to the customers.
The company has also maintained the broad
base of retail and trade activities maintained
with the customers (Yoon, Hoogduin &
Zhang, 2015).
Continuity of business and catastrophic
event of hazards in the manufacturing and
IT systems- The group’s operations may get
impacted with accidents, natural disaster,
failure critical to the IT systems and other
catastrophic event which may hamper the
materiality aspect or disrupt the operations.
The disaster recovery plan is in the
appropriate compliance with the major sites
and critical IT systems. The company has
given an augmented in addressing the cyber
security threats. The rigorous safety and
hazards are identified with the audit
prevention system at key sites with significant
ongoing investment. Dulux has introduced
relevant insurance policies which includes the
necessary provision for interruption cover
(Lang & Soled, 2017).
Competitive threat and market disruption-
The risk associated to the Dulux Group’s
transnational competitors or new disruptive
Entrants may introduce the innovations along
with the lesser cost to the Australian Market.
The threatening of the market share of Dulux
Group’s market share and operating margins.
Dulux has been able to establish the brands
supported with ongoing marketing
investment. The important investment
activities are discerned with local innovation
and product formulation to make sure that the
amenities are well suited with the markets.
The use of multinational suppliers for the
decorative paint raw materials is able to
reduce the potential exposure to the
technology. Moreover, it is also with the
international product benchmarking
(Visvanathan, 2017).
Erosion of brand equity- The iconic brand
has been able to rely on the excellence and
The plans to initiate active stewardship is able
to be depicted with stewardship focus. The

4AUDITING THEORY AND PRACTICE
premium performance. The important loss of
the brand equity may have an adversative
effect on the “revenue and profit”.
regular superiority guarantee and testing
process is also evident with erosion of brand
equity (Wainman et al., 2017).
Product litigation and liability- The
litigation factors are related to the “product
liability, product recall, regulatory controls
or environmental practices”. The loss of the
any of the aforementioned aspect may lead to
adverse financial impact.
The company is able to take appropriate
initiative for the quality assurance aspect and
governance practices. The well-developed
complaints with appropriate responses is seen
as the mitigation initiative. The insurance
policy is also seen as the main factor to avert
the risk of product liability (Garnett et al.,
2015).
Key Input Volatility- The risk of supply
disruption is seen with the non-availability of
the key input associated to the materials
which may influence revenue or the value
volatility including effect on foreign
exchange.
The company is able to utilise the range of
suppliers and robust selection of the suppliers.
Dulux has shown robust supplier selection
processes. It has also been able to make the
necessary arrangement for the contingency
supply arrangements. The insurance policy
measures include business interruptions.
Some of the different types of the other
aspects are seen with the foreign exchange
hedging program (Rakhmanova, Nagumanova
& Naumova, 2016).
Regulatory Safety- The regulatory safety
aspect is considered with the aversion of the
damage in the workplace concerning
devastating results for the employees and
their families.
The company is able to put an augmented
focus on the prevention of fatality and
personal safety. There is a important
investment made for the safety, training and
audit (Demartini & Trucco, 2016).
Industrial Relations- The product supply
and materiality may be impacted in terms of
the extended industrial disputes associated to
the renegotiation of the shared contracts.
The company has implemented multiple
manufacturing and distributed sites. This
growth is brought with the continuing
development of the industrial relations

5AUDITING THEORY AND PRACTICE
capability. Continuous focus on the site based
productivity has been able to depict positive
employee relations (Wang, 2015).
Project execution risk – This particular
materiality risk is considered to have a
significant effect with the limited capital
availability having on the cost overrun of the
project.
The Rocklea manufacturing facility of the
company has continued to creation of water
based paint so that in case of a delay there is
no hazard to the client supply. The
knowledgeable project management team is
supported with a good project governance
initiative.
Evaluation of risks and control environment
The risk factors are seen to be taken into account with the Risk factors associated to
“growth of the company, Key customer relationships, Continuity of business and catastrophic
event of hazards in the manufacturing and IT systems, Competitive threat and market disruption,
Erosion of brand equity, Key Input Volatility, Industrial Relations, Product litigation and
liability”. The addressing of the risk factors is able to state on the active stewardship which is
depicted with stewardship focus. The orderly quality declaration and testing process is also
evident with erosion of brand equity. The disaster recovery plan is seen to be conducive for
addressing the relevant risk pertaining to IT (Pandit et al., 2014).
Comparison of the financial ratios with Fortescue Metals Group
Profitability Ratio Analysis
As per the recent performance of Dulux Group Limited the net profit of Fortescue Metals
Group is slightly higher. Similarly, in terms of Return on Equity the recent performance of the
competitor company is better than Dulux Group Limited.
Profitability Ratio Analysis: -
Dulux Group Limited Fortescue Metals Group
Particulars 2016 2015 2014 2016 2015 2014
Revenue (A) 1716.259 1687.834 1611.5 7083 8574 11753

6AUDITING THEORY AND PRACTICE
Net Profit/Loss (D) 130.4 112.8 104.5 985 316 2740
Common Stock(H) 365.293 351.245 291.661 984 7524 7569
Net Profit Margin (D/A) 7.60% 6.68% 6.48% 13.91% 3.69% 23.31%
Return on Equity (A/H)) 35.697% 32.114% 35.83% 100% 4% 36%
2016 2015 2014 2016 2015 2014
0.000%
20.000%
40.000%
60.000%
80.000%
100.000%
120.000%
35.697% 32.114% 35.829%
100%
4%
36%
Return on Equity
Duluxgroup Limited Fortescue Metals Group
2016 2015 2014
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
7.60% 6.68% 6.48%
13.91%
3.69%
23.31%
Net Profit Margin
Duluxgroup Limited Fortescue Metals Group
Short-Term Liquidity Ratio Analysis

7AUDITING THEORY AND PRACTICE
The current ratio of Dulux Group Limited is slightly better which shows that the
company has a lower risk of paying the short term liabilities with the current assets in hand.
c) Short-Term Liquidity Ratio Analysis: -
Dulux Group Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
Total Current Assets (A)
52270
5 532452 479602 2423 3529 4477
Total Current Liabilities (F)
32271
7 336263 304833 1634 1688 3270
Current Ratio (A/F) 1.62 1.58 1.57 1.48 2.09 1.37
2016 2015 2014
0.00
0.50
1.00
1.50
2.00
2.50
1.48
2.09
1.37
1.62 1.58 1.57
Current Ratio
Fortescue Metals Group Duluxgroup Limited
Interest Coverage Ratio Analysis
This aspect clearly depicts that Dulux Group Limited is in a better position in compared
to Fortescue Metals Group.
Interest Coverage Ratio Analysis: -
Dulux Group Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
EBIT 201 175 175 3,195 2,506 5,636
Interest Expenses 15.5 16.9 25.3 621 590 747

8AUDITING THEORY AND PRACTICE
Interest Coverage
Ratio 12.97 10.37 6.92 5.14 4.25 7.54
2016 2015 2014 2016 2015 2014
Duluxgroup Limited Fortescue Metals Group
0.00
5.00
10.00
15.00 12.97
10.37
6.92 5.14 4.25
7.54
Interest Coverage Ratio
Interest Coverage Ratio
Efficiency Ratio Analysis
The efficiency ratio interpretation has been able to depict that Dulux Group Limited is
clearly in a better position in compare to the competitor.
Efficiency Ratio Analysis: -
Dulux Group Limited
Fortescue Metals
Group
2016 2015 2014 2016 2015 2014
Revenue 1,716 1,688 1,612 7,083 8,574
11,75
3
Expenses
1517.87
6
1517.2
2
1442.57
1 675 644 741
Efficiency
Ratio 88.44% 89.89% 89.52%
9.53
%
7.51
% 6.30%

9AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Duluxgroup Limited Fortescue Metals Group
0.00%
20.00%
40.00%
60.00%
80.00%
100.00% 88.44% 89.89% 89.52%
9.53% 7.51% 6.30%
Efficiency Ratio
Efficiency Ratio
Market Performance Analysis
In term of EPS depiction Dulux Group is having an EPS of 34 cents in 2016 which is
higher than Fortescue Metals Group.
Earnings per share Analysis: -
Duluxgroup Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
Basic
EPS 34 30 28 32 10 88

10AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Duluxgroup Limited Fortescue Metals Group
0
10
20
30
40
50
60
70
80
90
100
34 30 28 32
10
88
Basic EPS
Solvency Ratio Analysis
As per the debt equity ratio interpretations Dulux Group has been able to keep this ratio
significantly low thereby depicting a lower risk profile.
Solvency Ratio Analysis: -
Dulux Group Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
Long
Term
Debt 363 350 346 5,188 7,188 7,159
Equity 365.238 351.245 291.661 8,406 7,537 7,583
Debt
Equity
Ratio 1.01 1.00 0.84 1.62 1.05 1.06

11AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Duluxgroup Limited Fortescue Metals Group
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
1.01 1.00 0.84
1.62
1.05 1.06
Solvency Ratio
Debt Equity Ratio
Conclusion
Based on the significant interpretation made in the study the primary risks are associated
to “growth of the company, Key customer relationships, Continuity of business and catastrophic
event of hazards in the manufacturing and IT systems, Competitive threat and market disruption,
Erosion of brand equity, Key Input Volatility, Industrial Relations, Product litigation and
liability”. The ratio analysis has depicted that the overall risk profile of Dulux Group Limited is
lower than its contemporaries such as Fortescue Metals Group.

12AUDITING THEORY AND PRACTICE
References
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Journal of Disclosure and Governance, 14(3), 241-250.