Strategic Management in UK Assignment

STRATEGIC MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Analysis of performance..................................................................................................................1
Assess significant developments within Sports Direct and the wider Retail sector........................4
Assess challenges and opportunities for the company’s foreseeable future....................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................................8
Table 1Ratio analysis.......................................................................................................................1

INTRODUCTION
Sports Direct is one of the well-known company in the UK. Mentioned firm provide varied
sports related products and apparels. Currently, firm is facing lots of problems in its business
which can be measured in both monetary and non-monetary terms. In this regard detail analysis
is done in the report. Ratio analysis from year 2016 to 2019 is done and comments are made on
the firm performance. It is observed that in previous years lack of cost control was one of the
major problem which firm faced in its business. However, in last year sufficient improvement is
seen in firm performance. Apart from this, firm competitiveness is evaluated and specific
discussion is carried about firm Nike and Adidas as well as Sports Direct market strategy.
Further comments are made on area of improvements for the Sports Direct on basis of results
obtained from ratio analysis and general discussion. At end of the report, conclusion section is
prepared.
Analysis of performance
Table 1Ratio analysis
Ratio 2016 2017 2018 2019
Gross profit 1284 1330 1335 1583
Net sales 2904 3245 3359 3701
Gross profit ratio 44% 41% 40% 43%
Net profit 279 231 23 116
Net sales 2904 3245 3359 3701
Net profit ratio 10% 7% 1% 3%
Current assets 1311 1274 1543 2031
Current liability 740 540 708 598
Current ratio 1.771621622 2.359259259 2.179379 3.396321
Current assets 1311 1274 1543 2031
Liquid assets 702 629 873 978
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Current liability 740 540 708 598
Liquidity ratio 0.822972973 1.194444444 0.946328 1.76087
Debt 333 317 757 826
Equity 64 64 64 64
Debt equity ratio 5.20 4.95 11.82813 12.90625
Net profit 279 231 23 116
Total asset 2359 2448 2891 3148
ROA 12% 9% 1% 4%
Net profit 279 231 23 116
Equity 64 84 64 64
ROE 436% 275% 36% 181%
COGS 1619 1914 2024 2118
Average inventory 702 629 873 978
Inventory turnover
ratio 2.306267806 3.042925278 2.318442 2.165644
Net credit sales 2904 3245 3359 3701
Account receivables 292 397 292 432
Debtor turnover ratio 9.945205479 8.173803526 11.50342 8.56713
Interpretation
On analysis of facts given in the table it can be observed that from the year 2012 to 2015
revenue is increasing consistently. Due to this reason profit before tax and earning per share also
increase at sharp rate. Year on year basis growth rate of revenue increased at fast pace which
reflect that firm performance improve with passage of time. Interpretation of ratios are given
below.
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 Gross profit ratio: It can be seen from the table given above that gross profit ratio of the
firm decline form FY 2016 to FY 2018 and in year 2019 it increased slightly. This
happened because firm have lack of control on expenses in the business. Net profit ratio: Net profit ratio reflect the proportion of net profit to sales. It can be seen
from the table given above that net profit ratio declined from 10% to 1%. However, this
percentage increased slightly in year 2019. This reflect that Sports direct improved in
year 2019 on both gross and net profit ratio. It is the cost control which lead to generation
of better results in the business. Current ratio: Current ratio reflect the proportion of current assets to current liability. If
current ratio is 2:1 then it means that for each unit of current liability there must be 2
units of current assets (Williams. and Dobelman, 2017). Current ratio of Sports direct is
3.3 in year 2019 which clearly reflect that firm is fully capable to pay its current
liabilities on time to creditors. Reason behind high current ratio is that firm manage strict
control on its current liability. Liquidity ratio: Performance on this front is also good as it can be observed that liquidity
ratio of the firm increased from 0.82 to 1.76. This reflect that firm is able to pay current
liability on time. Debt equity ratio: It reflect capital structure combinations. Debt equity ratio of Sports
direct increased significantly as proportion of debt in capital structure is increasing
consistently. On other hand, equity value is same. It is matter of concern for the firm
because with increase in debt cost also increase. ROA: Return on asset is the one of the most important ratio because it reflects return that
is gained on asset that is in the business. More is the ROA it is assumed that firm is
making effective use of asset in its business. ROA decline from 12% to 4% which is not
good from firm point of view and this reflect that asset increase at fast rate in the business
but profit is not increasing at same rate. ROE: It refers to the return on equity which reflect return that is gained by investor on
equity (Robinson and et.al., 2015). It can be seen from the table that return decline from
436% to 181% which means that return on equity decrease but it is still high which good
from investor point of view. ROE is high because equity value is same across years but
profit amount keeps on changing consistently.
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 Inventory turnover ratio: It is the ratio which reflect the rate at which inventory convert
into sales in current time period. Table given above reflect that inventory turnover ratio
of the firm declined slightly. Low value means that firm is converting inventory in to
sales few times in a year. This reflect that firm management is less efficient. Debtor turnover ratio: Debtor turnover ratio reflect the number of times sales generated
through account receivables. Higher the ratio more it is assumed that firm generate sales
through debtors or by selling goods on credit basis. Debtor turnover ratio decline from
9.9 to 8.5 which is good for the firm.
Assess significant developments within Sports Direct and the wider Retail
sector
Sports Direct is one of the well know company across the Globe making available sports kits
and apparels to the people. In past couple of years Sports Direct make changes in its strategy
under which it comes with innovative approaches to shopping. It makes available all sort of sport
products at cheaper price in the market. Firm is following aggressive business expansion strategy
under which acquire brands like Lillywhites, Donnay, Dunlop Slazenger in order to expand
business at fast rate. These acquired brands are known for their best quality products (Sports
Direct demands inquiry into Nike-Adidas dominance., 2019). Hence, this strategy play a crucial
role in the firm business success. In terms of shopping experience Sports Direct is much behind
its rivals and due to this reason, it is making lots of changes in its business. Under this, firm is
renovating its stores and making them as best place to purchase so that more and more customers
can be created in the business. Moreover, firm make heavy investment on its employees training
and introduce a share scheme which assist it in retaining employees in the business as can be
observed that employee retention rate declined to just 17% from 35%. Thus, it can be said that
firm to great extent focusing on its human resources and physical evidence of marketing mix to
improve business success rate.
In the industry also, trends are changing at fast rate, Nike told its retailers that it will stop
selling its products to them because their sales methods are no longer aligned to the company
strategy. Thus, firm may sell its entire products through online stores or it may explore other
options. Adidas and Nike have higher bargaining power and due to this reason, they are
attempting to reduce supply of the product which ultimately will lead to elevation in price and
profitability for both firms. Thus, market will become more competitive in future time period.
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Situation of stakeholders
Stakeholders like customers have less number of options because already there are few
players in the market and existing players are acquiring small firms. Thus, if this trend will
remain in the market then in future time period number of rivals will be very less. Hence,
bargaining power of the firms will increase. In current time period also, same situation persists
and customers not have much option because either they can purchase products from Adidas and
Nike or any other specific firm. These firms already charge higher price by considering their
brand value. Hence, it can be said that in upcoming time period situation of customers may
become worse.
Regulatory authority
In UK there are multiple regulatory authorities which govern varied sports.
The Association of European Professional Football Leagues
Bowls England
The British Boxing Board of Control
The British Darts Organisation Limited
Assess challenges and opportunities for the company’s foreseeable future
One of the main challenge on front of the business firm is that it has low control on cost
incurred in the business. However, in latest report it is observed that firm to some extent control
cost but if previous years financials will be taken in to account then in that case it can be
observed that cost was out of control and was increasing consistently. Rate of growth of revenue
was smaller than growth rate of expenses. On this basis it can be said that varied control
measures firm need to take in its business so that cost can be keep in control. In this regard entire
business operations can be analysed and by doing so areas where cost is high can be identified
and it can be investigated whether cost is high because of management inefficiency or there is
any other reason behind cost elevation. (Matthew, 2017) By taking corrective actions on time in
future time period profitability can be increased to great extent. Current ratio and liquid ratio
both values are high and, on this front, also there is no problem. However, higher current ratio
also means that firm is not utilizing its current assets in its business. It may be because of
slowdown in the business. If that is the reason behind higher current and liquid ratio then in that
situation it is matter of concern. Debt equity ratio is increasing at fast pace which reflect that
with passage of time burden of interest will also increase at rapid rate. Firm have to earn revenue
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according to growth rate of interest payments so that its burden can be bear in the business. If
growth rate of profit will be low and interest payment burden will increase consistently at current
rate then in that situation it become difficult to make handle debt burden. Thus, it is one of major
matter of concern.
Ratios are indicating that return on asset is declining substantially. This means that firm
is not able to generate sufficient amount of revenue from its business. It can be said that assets
are not effectively used by the firm for its benefit. Thus, for one or two years firm must not
increase its assets and must attempt to make best use of current asset (Kolyperas and et.al.,
2016). By doing so sufficient amount of cash can be retained in the business and can use to
accelerate business growth. Inventory turnover ratio value is also indicating that firm is not able
to convert its inventory quickly in to sales and it is its one of major concern. This is the area
where firm if work properly then it can resolve above problems to great extent.
Opportunity is that firm have substantial amount of current assets and it can use it to
finance its day to day working capital requirements. To finance its day to day needs it do not
need to take bank overdraft facility in its business. Other opportunity for Sport Direct is that it
can expand its business in the Indian market and can offer product at cheaper price. In India
market already, there is presence of Adidas and Nick but people in that market prefer to purchase
cheap products at good quality. Sport Direct by making available product at cheaper price can
capture large untapped market. Thus, it is one of the big opportunity that firm can tapped in the
Indian market.
Thus, if current trends and available opportunities are taken into account then in that case it
can be said that in future time period many more challenges will come in front of the Sports
Direct. This is because well established players already are in better position and they are
acquiring other companies. Thus, competition certainly will be high, current problem firm faced
is that it does not have sufficient infrastructure that can assist it in generating sales. Moreover,
current assets are not able to generate sufficient revenue in the business. Thus, in future time
period if current situation persist then in that case huge amount of cash will get stuck in assets. It
is very important for the business firm to prepare strategy so that push can be given to current
sales. In this regard business can be expand in to the new market which still is not covered by
large giants on large scale. From such kind of market good amount of profit can be earned. Thus,
in future time period firm will need to adopt unique strategy compete with rivals. It will need to
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update products and refine services so that different image can be created in the eyes of
customers. Such kind of things will help firm in developing edge of rivals and capturing niche in
the market. There is need to evaluate multiple unique options so that people can be served in
better way relative to rivals in the existing markets.
CONCLUSION
On the basis of above discussion, it is concluded that there is significant importance of the
ratio analysis approach for the firms because by using it performance of the firm is evaluated on
multiple fronts and by taking corrective actions performance is improved to large extent. It is
also concluded that sports industry is becoming more complicated and few players like Adidas
and Nike are capturing market to great extent. Due to this reason it become difficult for other
firms to compete with these rivals as Nike and Adidas comes in category of must have brands
and because of this people other then these do not assume other firms product as better quality
item.
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REFERENCES
Books and Journals
Kolyperas, D. and et.al., 2016. Applying a communicating vessels framework to CSR value co-
creation: Empirical evidence from professional team sport organizations. Journal of Sport
Management. 30(6). pp.702-719.
Matthew, B.T., 2017. Financial management in the sport industry. Routledge.
Robinson, T.R. and et.al., 2015. International financial statement analysis. John Wiley & Sons.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book
Chapters. pp.109-169.
Online
Sports Direct demands inquiry into Nike-Adidas dominance., 2019. [Online]. Available
through:< https://www.theguardian.com/business/2019/oct/14/sports-direct-demands-
inquiry-into-nike-adidas-dominance>.
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