Principle of Financial Management: Industry Analysis, Company Description, Financial Instrument Analysis, and Competitor Analysis

This article provides an analysis of the retailing industry in Australia, with a focus on Kogan.com. It includes information on industry competition, company description, financial instrument analysis, and competitor analysis.

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PRINCIPLE OF FINANCIAL MANAGEMENT
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Principle of Financial Management
1 Industry Description
Retailing industry is one of the largest industries in Australia. The industry faces stiff
competitions from new firms. The industry is dominated by key players in terms of total
revenue or revenue share such as the Metcash, Big W, Kogan.com, Wesfarmers, Woolworths
Group, ALDI Group and JP Hi-Fi among others. Despite the stiff competition, the industry
has experience 3.7% increase in the year ended 2018 as compared to 3.7% reported in the
second quarter in the same year (Mordor Intelligence 2019). This industry is mostly
segmented based on distribution channels, product categories as well as market dynamics.
The industry has witnessed significant positive increment in spite of the rising household
debts as well as low increase in the wages.
Australian retail industry relies on the unruly powers like altering consumer consumption
arrays as well as influx of the foreign firms which focus on creating fresh techniques in
retailing. Moreover, the industry has been experiencing disruption. In specific, the increasing
invasion of the foreign firms has not just altered retailing scenery but has also changed
customer preferences. There has been noteworthy change in the customer likings mainly as a
result of technology advancements. The industry registered increment of around 2.6 per cent,
3 per cent as well as 5 per cent in the South Australia, in Victoria as well as in South Wales.
The competition in retail industry in Australia is regulated by ACCC (Australian Competition
and Consumer Commission. This commission promote health competition as well as fair
trading within the industry (Industry, 2011). The regulator ensures that each and every firm
operating in the retail industry adhere to the set rules and legislation to enhance fair

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competition. There is not industry group that assists in regulating competition in the retail
industry in addition to regulator.
2 Company Description
Kogan.com is considered as a domestically-owned public entity, deriving its revenues from
online sales of products and services. It operates within New Zealand and Australia with its
headquarter being in Melbourne. In other words, it is the online seller of the consumer goods
and electronics (Kogan.com 2019). Further, Kogan.com Limited is the collection of retail as
well as services trades. Its brand is well-known for the price control via digital competence.
The business is mainly engrossed in making the in-demand services and products more
accessible and affordable. Its products includes Video and TV, tablets and computers,
cameras, Appliances, audio, phones and office suppliers, health and beauty, gadgets, shoes
and fashion, home and garden, pantry and sports. The company operates under the following
chief segments; that is, Kogan Marketplace, Kogan Broadband, Kogan Travel, the Kogan
Retail, the Kogan Insurance as well as Kogan Mobile (Kogan.com 2019). The firm is
basically engrossed on making the in-demand goods as well as services more reachable and
within your means. Its Kogan Marketplace and Kogan Retail segments provide more than
fifty thousand products from more than fifty brands. Its Kogan Travel segment provides
travel bookings and holiday packages, as well the hotel bookings via the hotels.kogan.com as
well as cruises vial cruises.kogan.com. Its Kogan Internet and Kogan Mobile segments offers
customer acquisition, marketing as well as branding while the Kogan Insurance segment
offers landlord, travel, contents, car and home insurance services. Kogan.com Limited
provides various products under numerous classes that include tablets and computers,
cameras, home and garden, phones, baby, family and kids, audio, office supplies, video

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games, beauty and health, luggage and outdoors, gadgets, sports, toys, automotive and tools
as well as pantry (Kogan.com 2019).
Kogan.com is managed by five senior management members. These include the CEO, the
COO and CFO, CTO, the head of operational development, operational manager as well as
director of the strategy. These forms the overall management team of Kogan.com
(Kogan.com 2019).
3 Financial Instrument Analyses
Financial instruments comprises of some of the assets that could be traded or packages of the
capital which might be traded. They might be cash, proof of ownership interest within a firm
(share) or the contractual right in delivering or receiving cash. Besides, financial instrument
might be grouped into derivative or cash instruments. The cash financial instruments are
unswervingly firm and prejudiced by market and could be securities which are transferable
easily. They might be loans and deposits agreed by lenders or borrowers. On the other hand,
derivative instruments are valued based on vehicles’ primary the mechanisms like interest
rates, assets or the indices. Under Kogan.com Ltd 2018 annual report, it is evident that the
company deals with following financial instruments; first the rental bonds, account
receivables, the interest received, loans as well as borrowings, trade and the other payables,
financial assets, cash and the cash equivalents (Cotton 2018).
Off the balance sheet comprises of the financial items which are effectively liabilities or
assets within an entity but fails to appear on an entity’s balance sheet. An entity keep specific
liabilities and assets items off the balance sheet to present t investment community cleaner
balance sheet compared to what it would be if the items are included. Some of the most off
balance sheet items include the leaseback agreement, operating leases as well as receivables.

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Thus, financial instrument in the off balance sheet was leases, bonds, and interests. The
volume of OBS in comparison to balance sheet of Kogan.com was lower since the financing
cash inflows was relatively higher as the principal repayment on lease liabilities would
current be included in financing undertaking instead of the operations undertakings. Besides,
interest would also be included in the financing activities (Cotton 2018). Generally, the
income statement would be higher as understood interest in payment of leases for the OBS
leases would be treated as part of finance expenses instead of the operational expenses.
4 Part A: Financial Ratio Analysis
Ratio analysis comprises of chief financial indicators of organization’s or firms financial
performance and is derived from different financial statements (Kumbirai & Webb 20100).
This assists in assessing or examining organization’s solvency, efficiency and profitability.
Profitability Ratios
Profitability ratios are some of the financial ratios applied in determining how profitable an
entity is in utilizing its resources to generate income or profit (Horrigan 2013). Some of the
most significant profitability ratios that would be used in evaluating strengths and weaknesses
of Kogan.com would be net margin, gross margin, ROE and ROA.
Gross Margin
It is gotten by getting percentage of gross profit by total sales. It shows pricing decisions over
time.
2018 = 80,593,442/412,312,395 * 100% = 19.55%

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2017 = 51,693,480 / 289,517,780 * 100% = 17.86%
Net Margin
The ratio compares entity’s net income to total sales. It measures organization’s capacity in
translating revenues to earnings (Kaminski, Sterling Wetzel & Guan 2014).
2018 = 14,110,993 / 412,312,395 * 100% = 3.42%
2017 = 3,739,865 / 289,517,780 * 100% = 1.29%
ROA
The ratio measures organization’s management efficiency in utilizing its assets to generate
some income or earnings. It examines proportion of the net income of an entity to its assets
over one year (Phillips, Volker & Anderson 2009).
2018 = 14,110,993 / 105,984,673 * 100% = 13.31%
2017 = 3,739,865 / 80,323,856 * 100% = 4.66%
ROE
It offers return that organization’s management intends to realize from the company’s equity.
It examines proportion of the net income of an entity to its equity over one year (Vogel
2014).
2018 = 14,110,993 / 47,881,258 * 100% = 29.47%

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2017 = 3,739,865 / 42,671,685 * 100% = 8.76%
Efficiency ratios
Inventory Turnover
The ratio display relative size of the inventories and impact it has on amount of the cash
readily available in settling liabilities. This measures proportion of COGS over inventories.
2018 = 331,718,953 /50,200,175 = 6.61
2017 = 237,824,300/ 39,741,987 = 5.98
Asset Turnover
It measures or reveals number of times net assets are turned into revenue over one year.
2018 = 412,312,395/ 105,984,673 = 3.89
2017 = 289,517,780 / 80,323,856 = 3.60
Receivable turnover
It displays number of times account receivable is turned into liquid cash over a year.
2018 = 412,312,395 / 4,999,536 = 82.47
2017 = 289,517,780 / 2,045,324 = 141.55

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Short-and long-term solvency Ratios
They determine capacity of a firm in settling its short-term and long-run debt commitments
once it is due. These include current, quick, debt as well as debt/equity ratios.
Current ratios
The ratio measures capacity of an entity to settle its short-term debts using its short-run assets
or the most liquid assets. It measures organization capacity to settle short-run debts in
emergency by liquidating the current assets.
2018 = 58,103,415 /47,881,258 = 1.21
2017 = 37,652,171 /42,671,685 = 0.88
Quick ratio
The ratio is computed by measuring capacity of an entity to settle or pay off its debts using
the short-term debts or by liquidating its inventories or assets.
2018 = (99,042,837 - 50,200,175) /57,386,059 = 0.85
2017 = (74,440,508 - 39,741,987)/ 37,557,000 = 0.92

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Debt ratio
It is the most basic long-term solvency ratio used in examining percentage of organization’s
assets financed by total debts (Kumbirai & Webb 20100). It is gotten by getting proportion of
net debts over its net assets.
2018 = 58,103,415 / 105,984,673 = 0.55
2017 = 37,652,171 / 80,323,856 = 0.47
Debt to equity ratios
It measures or examine amount of debt an entity utilises in comparison to total equity
(Kumbirai & Webb 20100).
2018 = 58,103,415 /47,881,258 = 1.21
2017 = 37,652,171 /42,671,685 = 0.88
Based on the above financial ratio analysis, it is evident that the company is financially
strong. This is based on the fact that its profitability ratios increased over the past three years.
Besides, the company has significantly high short-term solvency ratio meaning that is has not
been struggling to settle its short-term debts over the years. Moreover, its debt ratio is a clear
sign the company is less financially leveraged; thus, at lower financial risk. Furthermore, the
company has significantly high efficiency ratios meaning that it has been efficient on how it
utilizes its assets, how it converts its inventories as well as how it collects money from the
debtors. All these are extensive signs that Kogan.com Limited is financially stable and
healthy.

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Part B: Competitor Analysis
Kogan.com Limited competes with big companies for market share. Therefore, some of the
chief competitors for Kogan.com include JB Hi-Fi, Dick Smith, Harvey Norman, The Good
Guys, Westfield Shopping Centre as well as Officeworks (Reuters 2019). The competition is
based on quality, price and value of the products as well as location. Kogan.com significantly
similar brand products as it chief competitors at relatively lower price. For instance, on could
find products like Nikon, Fitbit, Samsung or Apple at fraction of price compared to what is
offered at other firms within the same industry. Moreover, Kogan.com Ovela office furniture
provides several similar designs to its competitors for significantly much better value than its
competitors. In fact, one enjoys massive savings whenever s/he switches from competitors.
Kogan.com has removed all its middle men meaning that its costs or prices are relatively
lower and thus it always passes savings to its clients. Further, to strive in the competition,
Kogan.com provides return policy whereby once the buyer is not fully satisfied with their
purchases they could return the products and request for another one.
New entrance of new firms in the online marketing over the past years has opened new
opportunities to invest vast amount of cash in online platform. The investment has opened
significantly fresh sales channels for the company. The company could leverage the
opportunity by understanding its clients better as well as serving all their needs based on big
data analytics. The stiff competition that resulted in development of the market results in
dilution of the competitor’s advantage and in turn enables the company increase its
competitive edge compared to other rivals (Reuters 2019). Further, competition created an
opportunity for Kogan.com since with stiff competition that lead to emergence of new
environment policies to curb unfair competition this create level playing ground for different
companies operating in this industry. This represent a good opportunity for this company to

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drive home advantages in the new or advanced technology and in turn gain relatively high
market share in new product categories. Further, the competition resulted in government
intervention that in turn opened new market. To be more specific, with government
intervention and adoption of government free trade and new technology agreement, offered
Kogan.com an opportunity in entering the new emerging technology market. This could pose
significantly good opportunity for Kogan.com to increase in its overall sales over time. With
stiff competition, this presented Kogan.com with an opportunity to increase in its online
marketing technology, which in turn offers a greater opportunity for the firm to practice
differentiated pricing tactic. This would enable Kogan.com to maintain all its loyal clients
with good services and lure fresh clients through other value-added proposals (Reuters 2019).
The new or advanced technologies designed by competitors could pose serious threat to
retails industry and in particular to Kogan.com in long-term. Further, the present competition
in the retail industry presents threat in Kogan.com major operation since it would force
Kogan.com to pay significantly higher margins to local distributors. This would in turn result
in reduced profit margin for the company since it expenses would end up increasing (Reuters
2019).
5 Financial Market Analysis
Financial players within the retail interact freely with one another. For instance, investors and
regulators are very close to one another and interacts freely exchanging ideas on the
companies’ conduct over the years (Cotton 2018). Besides, even offer advises to investors
regarding specific companies operating within the industry and their performance over time
with aim of enhancing them with relevant information to make well-informed investment
decisions. Further, borrowers and financial intermediaries have mutually beneficial

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relationships where they closely interact with the financial intermediaries to give them
advices on the way forward regarding their credit rating. They in fact relate very close with
the aim of assist one another. In this sense, the financial intermediaries get some bonuses or
cash for acting as a mediator between the borrower and the bank or creditors.
There is no need for government intervention within the industry. Besides, irrespective of the
stiff competition in Australian domestic retail industry, this is not the right time for the
government to intervene to assists retailors compete. This would be the worst mistake that
Australian government could make when vulnerable industries like retail industry become
exposed to the global rivalry. In fact, without government intervene, emergence of the online
shopping might be lauded and would offer clients wide range of the products which otherwise
might not be readily available and permits better decision by making the price comparison
between firms within the retail industry simple (Vanhegan et al 2012). This would ultimately
boost client utility. For example, in case the Australian government decide to intervene in the
retail industry, by taxing imported retail products to protect the domestic retail industry,
clients would loss the utility gain and therefore, there would be no single incentive for
domestic retails sector to invent and passionately compete for the sales from the domestic
clients. Besides, protectionism in retail industry is not the answer, and would only serve small
selected interest within the retail industry to detriment majority of the clients. Basically, there
is no need for government intervention since instead of making things better it would make
them worse by leading to decline in the companies’ sales. For instance, with the introduction
of the mandatory services and goods tax on the low-value imported products, this directly
affect decrease-price electronics imported that were marketed to organization’s several
subscribers. This would in fact make companies to add a certain percentage to their cheaper
products; hence, decreased sales.

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Kogan.com has been involved in unethical practice in 2015 where it was ordered to pay
approximate $32,400 as penalty following infringement notices associated with misleading or
false representation on price of a computer monitor during 20% discount advertising on the
eBay store. The company is said to have increased price of computer monitor prior to start of
the promotion; hence, while clients whispered they had acknowledged advertised twenty per
cent discount-off newly-increased price, they truly got nine per cent off previously-advertised
prices and when promotion ended it changed that price. Further, Kogan.com was accused of
vigorously endorsing dollar and percentage price contrasts based on unreliable computations
of what clients could be projected to pay for products instead of prices charged by the firm. It
was forced to modify the advertising in order to comply with the national trade undertaking.
After these practices were detected, ACCC issued official warning (Cotton 2018). The
regulator also requested Kogan.com to offer information linked to pricing and marketing of
the promotion running in June, raising the market speculation of impending assessment.
6 Findings, Conclusion and Recommendations
Based on the financial market analysis of retail industry in Australia, it is evidence that
industry is unhealthy at the moment for Kogan.com. Besides, the company is full of unfair
and stiff competition. This is more likely to make the company incur huge losses over the
years since it would be forced to lower its price below the recommended margin in order to
survive in the industry. In conclusion, retail industry is said to be experiencing stiff
competition with relatively one regulator to control competition and ensure that there is fair
competition in the industry. As such it is evident that Kogan.com Limited competes with big
companies for market share such as The Good Guys, JB Hi-Fi, Dick Smith, Norman,
Westfield Shopping Centre as well as Officeworks. In fact, it was also established that the
competition in this industry is based on quality, price and value of the products as well as

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location. As such, has lowered its prices to enable its clients enjoy significant savings. In
fact, it is the lowest priced products across the market. Besides, it was found out that the
competition expose Kogan.com to both opportunities and threats. For instance, it was
established that through the competition within the industry, Kogan has had an opportunity to
invest vast amount of cash in online platform which is more likely to open fresh sales
platforms for the firm. Moreover, it was established that the competition enabled Kogan.com
understand its clients better as well as serve all their needs based on big data analytics.
Furthermore, it was found out that the stiff competition created an opportunity for
Kogan.com since with stiff competition that lead to emergence of new environment policies
to curb unfair competition this create level playing ground for different companies operating
in this industry. Further, the competition was found to lead to government intervention which
in turn offered an opportunity for the company to go to new markets. For instance, it was
established that government intervention and adoption of government free trade and new
technology agreement, offered Kogan.com with an opportunity to get into new emerging
technology market which could in turn increase in its overall sales over time. Despite the
opportunities, the competition in retail industry is found to pose significantly some threats to
the company. For instance, it was found out that competition brought about threats to
Kogan.com where the company would be forced to pay higher distribution margins; hence,
increased operational costs.
Despite the stiff competition in the retail market, it was found out that the market players
within this industry interact freely with one another. This is to assist them get mutual benefits
relations from one another. In other words, they interact openly with one another which in
turn help the benefits. Kogan.com should put in place some strict procedures and processes
that might help it ensure agreement with the Australian consumer law. Besides, the company
should take its chief obligation under the ACCC very seriously. The company should strive to

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be a service-oriented company instead of just being product-oriented. This would assist the
company to thrive in the stiff competition and gain significantly huge amount of customer
base. The company should also strive to build efficient or effective supply chain with several
suppliers.

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