Analyzing Financial Management Strategies of Wesfarmers Group

This report provides an analysis of Wesfarmers' financial management strategies within the Australian retail industry. It examines the industry overview, economic and competitive environments, and the influence of industry structure on Wesfarmers' financial management. The report identifies k...Read More

Running head: FINANCIAL MANAGEMENT OF WESFARMERS
Financial Management of Wesfarmers
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Industry Overview...........................................................................................................................2
Economic Environment...................................................................................................................2
Competitive Environment................................................................................................................3
Influence of Industry Structure on Financial Management.............................................................3
Threat and Opportunities.................................................................................................................4
Drivers of Income, Cost and Profit..................................................................................................4
Key Risks.........................................................................................................................................5
Financial Management Strategy for Risk Mitigation......................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................7

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Introduction
The main aim of this report is to analyze and evacuate different factors related to the
industry of Wesfarmers. The report also aims to analyze and value different kinds of strategies of
Wesfarmers. Wesfarmers is one of the major conglomerates of Australia and the company
operates in the retail industry of Australia (wesfarmers.com.au 2018). This report analyzes the
major strategies of Wesfarners.
Industry Overview
The Australian retain industry is one of the largest industries contributing largely towards
the development of Australian economy. Economic and social development of Australia is well
supporting the continuous growth of the Australian retain industry. Apart from this, rising
population and increased purchasing power of the customers is also providing boost to the
Australian retain industry. In the recent year, the Australian retail industry registered $169 billion
as a total revenue; and the annual growth of this industry from 2013 to 2018 is 0.7% (abs.gov.au
2018). Australian retail industry is a major source of employment in this country as 705,302
numbers of Australians are currently employed in this industry.
Economic Environment
Some major economic factors have major negative influence on the business growth of
Wesfarmers; they are rate of interest, exchange rate, rate of inflation and others. In addition, the
slow growth rate of this industry is another major hindrance for the growth of Wesfarmers. Apart
from this, different government policies like Competition and Consumer Act 2010, Australian
Consumer Law, Commerce (Trade Description) Legislation and others have influence on the

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business operations of Wesfarmers (business.gov.au 2018). Moreover, the wage rate of
Australian retain market is higher when compared to the global market and it negatively affects
the business of Wesfarmers.
Competitive Environment
It needs to be mentioned that Wesfarmers operates in a very competitive industry where
there is the exeiancer of some major competitors of the company; they are Woolworths. Metcash
Limited, Cantex Australia Limited, ALDI and others. In the presence of this intense competition,
Wes fames become forced to lower the price of their products and this aspect affects the
profitability of the company. Moreover, the long-term growth and long-term profitability of
Wesfarmers gets affected in the presence of this intense competition (Kotler 2015).
Influence of Industry Structure on Financial Management
It needs to be mentioned that the industry structure of Wesfarmers has influence on the
financial management of Wesfarmers. The business organizations under retain industry structure
of Australia have to incur huge amount of expenses and there is an increasing trend in this
expenses. For this reason, Wesfarmers needs to employee effective financial strategies for the
management of expenses. Apart from this, Wesfarmers has to incur different kinds of costs for
their business like direct cost, administrative cost and others. Thus, the adoption of correct cost
cutting system is required to be implemented as a part of financial management. Apart from this,
the industry structure has also influence on other aspects of financial management (Brigham and
Ehrhardt 2013).

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Threat and Opportunities
The presence of some major opportunities can be seen for the business of Wesfarmers.
Considering the worldwide growth of retail market, Wesfarmers has the opportunity expand their
business outside Australia. In addition, there is a large opportunity for Wesfarmers to register
effective growth in the online segment. Moreover, the company can diversify their business into
new segments and products. In this case, excessive competition from the existing competitors is
creating major a major threat for the company. Another major threat is the effect of world
economic downturn that leads to the decreased confidence and purchasing power of the
customers. The offering of specialized products by the competitors is also posing threat for the
business of Wesfarmers (Yuan 2013).
Drivers of Income, Cost and Profit
There are some major drivers of income, cost and profit in Wesfarmers and they are
called as Growth Enablers. The first driver is the presence of outstanding people as the company
always involves in attracting and utilizing outstanding people for the growth of the company.
The implementation of strong financial discipline in the financial decision making process is
another driver. As per Wesfarmers, an empowering culture can lead the company towards
financial excellence and thus, it is another driver. Innovation is considered as the next driver for
the financial success of Wesfarmers as innovative culture helps in fostering financial stability.
Wesfarmers always try to maintain a strong balance sheet that is a major driver for financial
success (wesfarmers.com.au 2018).

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Key Risks
At the time of conducting the business operations, Wesfarmers has to face with some
major financial risks. The key risks of Wesfarmers are liquidity risk, market risk and credit risk.
Wesfarmers has divided market risk in three major parts; they are foreign currency risk, interest
rate risk and commodity price risk. As all of these risks are key risks, the management of
Wesfarmers is required to develop strategies for minimizing them (wesfarmers.com.au 2018).
Financial Management Strategy for Risk Mitigation
It can be observed that Wesfarmers has developed a major framework for the mitigation
of the above-mentioned risks. The management of Wesfarmers has established divisional
structure, reporting line, appropriate authorities and responsibilities for the guidelines and limits
on business expenditures, capital expenditures, investment and others. There has been
development of operating cycle and divisional reporting requirements. Wesfarmers has also
developed the strategy of annual budgeting and monthly reporting system for the purse of
performance monitoring. There has been an implementation of appropriate due diligence for
acquisition and divestments. Most importantly, Wesfarmers has also implemented the strategy of
crisis management for their key businesses. There has been also implementation of internal
assurance programs (sustainability.wesfarmers.com.au 2018).
Conclusion
From the above discussion, it can be seen that he major economic factors have major
impact on the business of Wesfarmers like interest rate, inflation rate and others. The retail
industry of Australia provides opportunities as well as threats to Wesfarmers. From the above

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discussion, it can be seen that Wesfarmers has developed a major risk management framework
for mitigating the major risks like interest risk, market risk, currency risk and others.

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References
Abs.gov.au. (2018). 8501.0 - Retail Trade, Australia, Feb 2018. [online] Available at:
http://www.abs.gov.au/ausstats/abs@.nsf/mf/8501.0 [Accessed 8 Apr. 2018].
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage
Learning.
Business.gov.au. (2017). Retail & wholesale trade industry fact sheet. [online] Available at:
https://www.business.gov.au/info/plan-and-start/develop-your-business-plans/industry-research/
retail-and-wholesale-trade-industry-fact-sheets [Accessed 8 Apr. 2018].
Group, D. (2018). The Wesfarmers Way . [online] Wesfarmers.com.au. Available at:
http://www.wesfarmers.com.au/who-we-are/the-wesfarmers-way [Accessed 8 Apr. 2018].
Group, D. (2018). Who we are . [online] Wesfarmers.com.au. Available at:
http://www.wesfarmers.com.au/who-we-are/who-we-are [Accessed 8 Apr. 2018].
Kotler, P., 2015. Framework for marketing management. Pearson Education India.
Sustainability.wesfarmers.com.au. (2018). Risk management framework. [online] Available at:
https://sustainability.wesfarmers.com.au/our-principles/governance/robust-governance/risk-
management-framework/ [Accessed 8 Apr. 2018].
Wesfarmers.com.au. (2018). 2017 Annual Report. [online] Available at:
https://www.wesfarmers.com.au/docs/default-source/reports/j000901-ar17_interactive_final.pdf?
sfvrsn=4 [Accessed 8 Apr. 2018].

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Yuan, H., 2013. A SWOT analysis of successful construction waste management. Journal of
Cleaner Production, 39, pp.1-8.