MBA403 Assessment: Wealth Report for Harvey Norman Holdings

This wealth report provides a detailed analysis of Harvey Norman Holdings Limited, focusing on its financial performance as of June 2019. The report examines the company's management structure, remuneration of key personnel, and strategic initiatives. It includes a comprehensive ratio analysis, evaluating metrics such as current ratio, quick ratio, inventory turnover, asset turnover, and profitability ratios like gross profit margin and net profit margin. The analysis reveals the company's strengths, including high-quality products and effective marketing strategies, as well as areas for improvement, such as efficient asset utilization. The report also discusses the company's objectives, including shareholder wealth maximization and risk management, and concludes with recommendations for future investment and operational improvements. The report is based on the 2019 annual report of Harvey Norman, which provides a detailed overview of the company's financial and operational performance.

Running head: WEALTH REPORT
Wealth Report
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Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Ratio Analysis............................................................................................................................3
Findings and analysis.................................................................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................8
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Executive Summary
In this assignment the management structures of Harvey Norman have been examined and
also the remuneration structure of their key personnel has been scrutinized. The financial
statements have been evaluated by doing financial analysis of 2019 annual report. The
strategies of the company have been discussed in detail. Company financial performance has
also been verified by applying ratio analysis. Different ratios have been determined by using
the formulas of ratios. The composition structure and the functions and role of the managing
committee have been discussed. The opportunities and the strength of Harvey Norman have
been examined.
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Introduction
In this paper, the wealth report has been prepared for the company Harvey Norman. The
company is engaged in doing business with various products such as computers, furniture,
electrical products, beddings, etc. The analysis has been done for the annual report of 2019.
The company is listed on the Australian Stock exchange. The financial analysis has been
done by considering the key financial ratios. Also, the non-financial part of the annual report
of company has been evaluated. The wealth report has been prepared by considering the
needs of the stakeholders.
Ratio Analysis
Harvey Norman Holdings Limited
Analysis of Financial Ratios
As on June 2019
Particulars 2019
1. Net Working Capital
(a) Current Assets 1,456,340,000
(b) Current Liabilities 899,108,000
Net Working Capital (a-b) 557,232,000
2. Current Ratio
(a) Current Assets 1,456,340,000
(b) Current Liabilities 899,108,000
Current Ratio (a/b) 1.62
3. Quick Ratio
(a) Current Assets 1,456,340,000
(b) Inventories 395,965,000
(c) Quick Assets (a-b) 1,060,375,000
(d) Current Liabilities 899,108,000
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Quick Ratio (c/d) 1.18
4. Inventory Turnover Ratio
(a) Sales 2,234,118,000
(b) Opening Inventories 345,287,000
(c) Closing Inventories 395,965,000
(d) Average Inventories 370,626,000
Inventory Turnover (a/d) 6.03
5. Asset Turnover Ratio
(a) Sales 2,234,118,000
(b) Net Tangible Assets 3,197,793,000
Asset Turnover (a/b) 0.70
6. Gross Profit Margin
(a) Gross Profit 723,385,000
(b) Sales 2,234,118,000
Gross Profit Ratio [(a/b)x100] 32.38
7. Net Profit Margin
(a) Net Profit 409,002,000
(b) Sales 2,234,118,000
Net Profit Ratio [(a/b)x100] 18.31
8. Return on Equity
(a) Profit after tax 409,002,000
(b) Total equity 3,197,793,000
Return on Equity [(a/b)x100] 12.79
9. Debt-Equity Ratio
(a) Long Term Debts 346,942,000
(b) Total equity 3,197,793,000
Debt-Equity Ratio (a/b) 0.11
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Table 1: Analysis of Ratio (Source: (Anon, 2019)
Findings and analysis
As it can be analysed from the annual report that there are 194 franchises of the company and
almost 86 of them are from overseas. The company Headquarter is in New South Wales
which is in Australia and it is the place where the company operates all of its business.
Almost 10000 employees who have been employed for operating the business. It has been
seen that the net assets in the previous year were of 3 billion dollars and it has been increased
to 3.2 billion dollars. The profit before deducting tax in 2018 was 530.17 million dollars and
it has shown an increasing trend of 8.4percent. The EPS showed an increasing trend of 4.5%
from 33.21 cents to 34.70 cents. From the above table it can be seen that the current ratio of
the company is 1.62. According to Malik et al.(2016, p-69), entity which has a current ratio
of more than one can fulfil the current obligations easily. Asset turnover of the current year is
0.70. According to Gârleanu and Pedersen (2018, p-1663), if the company has asset turnover
of less than 1 it means that the company is not utilizing the asset to the fullest to generate
revenues. The margin of gross profit is 32.38 which signifies that the entity is earning 32%
from its resources. The debt to equity ratio is 0.11. This ratio means that the company is only
using 11% of debt in its capital structure. According to Afolabi et al. (2019, p-5), low
percentage of debt indicates that the company is not a levered company. According to
Michalak (2016, p-317), if the amount of debenture and borrowings in the company is higher
than the amount of equity then it can be said that the entity is a levered entity.
The current strategy of company is to expand the business of retail outlets in Malaysia. The
company main strategy is to diversify its business throughout the world. The company has
planned to open 18 new outlets in overseas by the end of the financial year 2020. An
improvement in the franchise sales has been analysed in the 3rd quarter of march to June of
2019. The difference that has been noticed in the target market where the company is
operating is that they are not trying to diversify their operation they are focusing only to
increase the revenue through sales. The target market is trying to bring new products in the
market instead of diversification. The opportunities that have been analysed while evaluating
annual report of Harvey Norman are that it provides high and reliable quality of products to
their consumers at very low prices which are also affordable. The other strategy of the
management is to increase the brand name by incurring high expenditures on advertisement.
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The main strength of the company are that it offers discounts and promotional offers so that
the customers can be attracted and the company will be able to increase the number of
customers. According to McMurrian and Matulich (2016, p-83), if the customers increases
then automatically the wealth of the company will be maximized.
The management of Harvey Norman and the management of its franchise are using new
technologies both in online stores as well as in outlets. They are meeting customer
expectations by introducing digital transformation in their business process. The main
objectives of the policy of management are to develop sustainability for the shareholders of
the company and also to maintain a high rate of return for them. The other objectives are to
handle the probability of risks that can arise from decision which are short term. As the
company has employed high number of skilled employees to handle the new technologies the
customers are enjoying their service offering. The board of the company focussed on key
areas such as accountability, corporate responsibility, ethical compliances, maintaining
integrity in their operations. The responsibility of the risk management and strategy
implementation has been delegated to the management team and the CEO of the company.
The management team with the help of the CEO are managing effectively the operations as
well as the risk. This effective management can assist the company to attain its objective of
diversifying their shipping business globally.
It has been evaluated that the annual salary of the executive chairman in the previous year
was 719551 dollars and it has been decreased to 719069 dollars. The annual remuneration of
the CEO in 2018 was 2062925 and his remuneration also decreased by $2619. The non-
monetary perquisites of the CEO were 17026 and it also has shown a decreasing trend. There
are several competitors of Harvey Norman such as Flemings, Safeway, BI-LO, IGA, etc.
There are 8 members in the Board of directors and 10 members in the Audit committee and
also the company has one remuneration and nomination committee. The remuneration
committee consists of 8 members while there are only members in nomination committee.
One chartered accountant and one company secretary committee has been appointed by the
members of the Board to handle the books of accounts of the company effectively. It has also
been examined that the fee structure of the directors has been reviewed annually by the
shareholders. The retirement benefits are not vested to the directors who are non-executives.
It has been seen that only the CEO and CFO of the company are offered non-monetary
perquisites. The other directors can enjoy the benefits of superannuation funds at the time of
their retirement.
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Conclusion
It has been found that the management and the workforce of the company are focusing on to
maximize the wealth of their stakeholders and also they are focussed on achieving the long
term goals of the company. It has been examined that the profit and the EPS been increased
as compared to last year. The remuneration structure has been changed as compared to 2018
remuneration structure. It has also been found that the company is not utilizing its resources
efficiently. It has also been seen that to achieve success in the business company should focus
on other areas of business such as complying with ethical laws, maintaining integrity, and
accountability. The organization should also contribute to CSR. To successfully run a
business the management should develop different committees in their organization such as
audit committee, grievances redressal committee, remuneration committees. If these
committees are successfully developed then the organization would be able to achieve its
missions, and objectives easily. It has also been concluded that the employees should also be
provided with non-monetary perquisites such as pick and drop facility, housing
accommodation, and other perks.
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References
Afolabi, A., Olabisi, J., Kajola, S.O. and Asaolu, T.O., (2019). Does leverage affect the
financial performance of Nigerian firms?. Journal of Economics & Management, 37, pp.5-22.
Anon, (2019). [online] Available at: http://clients.weblink.com.au/news/pdf/2152294.pdf
[Accessed 27 Sep. 2019].
Gârleanu, N. and Pedersen, L.H., (2018). Efficiently inefficient markets for assets and asset
management. The Journal of Finance, 73(4), pp.1663-1712.
Malik, M.S., Awais, M. and Khursheed, A., (2016). Impact of liquidity on profitability: A
comprehensive case of Pakistan’s private banking sector. International Journal of Economics
and Finance, 8(3), p.69.
McMurrian, R.C. and Matulich, E., (2016). Building customer value and profitability with
business ethics. Journal of Business & Economics Research (JBER), 14(3), pp.83-90.
Michalak, A., (2016). The cost of capital in the effectiveness assessment of financial
management in a company. Oeconomia Copernicana, 7(2), pp.317-329.
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