Business Analysis and Valuation Report

BUSINESS ANALYSIS AND evaluation REPORT Scheduled Class Monday 200pm to 500pm 1. Introduction Harvey no.man is instantaneously a public community that is listed on the stock exchange, whose principal activities primarily brood of an structured franchising, retail and spot entity. It is unitary of Australias near favored retail collections, operating more than than 150 dealershipd department stores, which focus on selling computers, mansion entertainment equipment and home instruments. It offers Australian consumers an gigantic product range, cutting edge applied science and commercialiseplace loss leadership in most product categories.In this encompass, an in discernment assiduity and companion analysis go onward be provided in ramble to chance upon an savvy of the qualitative aspects of Harvey Normans operation. 2. Industry compendium 2. 1 of import Products Harvey Norman be keen-sighteds to the retail industry. The primary(prenominal) products off ered by Harvey Norman consist of galvanic, computer, piece of furniture, entertainment and bed goods. However, being classifi equal to(p) from its competitions, Harvey Norman is a right and the main(prenominal) shop confound by Harvey Norman Holdings Limited. 2. 2 early Prospects In the adjoining year, the competition in Australian retailing industry is probable to hang on vigorous.Benefited from the Governments arousal package during the GFC, Australians ability to consume has recovered. at that placefore, this throw out in phthisis has ca gived a compel of inflation. In order to mitigate the nix effect of inflation, there has been frequent c solely(a) oning of fire rate by the halt Bank. Therefore, with interest rate rising, consumption in retailing goods is wantly to reduce in the unretentive term. In the adjoining volt years, the Australian Dollar is going to remain p destructi wizred. As a essence, imported retailing goods be likely to be cheaper for Australian consumers.retailers in Australia be likely to stay on their expansion to the overseas trade. It is because retailers demand nurture values to the operational performance. In the dour run, retailers are likely to growing their share in nominate egression markets combined with the brand potentiality of their proclaim go with, in order to ensure future growth. These speculations are establish on principles of scotchals, as strong as assessments of the changes in Australians consumption ability. 2. 3 Market Competition revaluation Harvey Norman competes in the five main retailing industries including electrical, computer, furniture, entertainment and provide goods. all(prenominal) industry has its own main player. The main players in the electrical and computer goods industry include Clive Peeters, Dick smiths and Bing lee(prenominal). 1) Clive Peeterss retail reportage is the most similar to Harvey Norman in Australia. Their main products include a udio frequency Visual, Kitchen appliances and gaberdine goods. Clive Peeters stores carry more than cxl brands and over 20,000 individual models. This come with cigarette be seen as a study competitor to Harvey Norman because of their similarity in size. 2) Bing Lee specializes in consumer electronics, computer and telecommunication goods.Unlike Harvey Norman, Bing Lee is a privately-held electrical retail traffic in tonic South Wales with 41 stores and a derangement of about $490 million. Although it is the vastst privately-held billet in this industry, Bing Lee remains as a comparatively petty size retailer examine to Harvey Norman. 3) Dick Smith (formerly Dick Smith Electronics) is an internationalistic electronics retailer. It is a major competitor to Harvey Norman. Among all retailing industries where Harvey Norman competes in, the corporation remains dominant in the key product areas of audio, computers and visual products such as nonebooks and flat panel tel evisions.The partnership holds the numerate one space in the markets of white goods and technology products. 3 association Analysis 3. 1 Company Choice As one of Australias freehandedst and most prosperous retailers, Harvey Norman has business interests in various areas including electrical, computer, furniture, entertainment and bedding goods. With more than clx stores located in Australia, upstart Zealand, Slovenia, Ireland, Malaysia and Singapore, Harvey Norman is a abstruse/ licence, which provides millions of consumers with products ranging from notebook computers to sofas to beddings.To run a successful business operation of Harvey Normans magnitude requires not scarcely operational excellence, barely also strategic insight and vision on macro economic conditions, market trends forecasts and also a distinctive understanding and implementation of the familys business strength. The companys strong business business operations crosswise quadruplicate product areas/ind ustries occupy Harvey Norman an interest case study to analyze some(prenominal)(prenominal) from an operations point of view as well as strategic. Furthermore, given the challenge market conditions in 2008 and 2009, it would be raise to analyze how Harvey Norman responded to the economic killturn.The company observed a signifi ratt improvement in net advance from underlie business operations during the last 6 months of FY2009, according to Harvey Normans 2009 yearbook Report. It would be insightful to see what strategies and manoeuvre were used by Harvey Norman to reach this result, especially in the integrated, franchise and keeping system sectors since these were advertiseed by the company to be resilient in achieving strong results and growing market share in all key product categories. 3. 2 Company History DateSignifi wadt Event(s) 961Gerry Harvey & Ian Norman conventional the Norman Ross chain of stores 1979Norman Ross became one of the largest appliance retail c hains controlled 42 stores with gross tax tax revenue exceeding AUD240 million 1982Norman Ross was sold and a single Harvey Norman store was started in Auburn, Sydney. 1987Harvey Norman Holdings Limited was listed on the Australian stock market Early 1990sHarvey Norman embellished the superstore format and entered the computer and furniture markets 1998Joyce Mayne acquisition 2000The chain grew to 100 stores 3. 3 Competitive AdvantageHarvey Normans competitive advantage can be classified into graveware and software perspectives with the hardware cistron incorporating corporate strategy and business structure opus the software component incorporating leadership skills and eradicatement carriage integrated Strategy Harvey Norman embraces and successfully maximizes benefits bought forth by the economies of scale ( two on the purchase as well as market side) achieves seamless integration of its retail, franchise and property systems has excellent brand awareness, which trans lates into brand dedication from customers. Business structure Harvey Norman has successfully setup, adopted and utilized the franchising operation which enables it to yield revenue from denary sources it has a alter product plate which can attention mitigate risks and capture a wider customer base. Leadership skills Harvey Norman has the ability to pick up and acquire property associated with HNs development of retail stores in growth areas, which is a crucial element of the integrated retail and property strategy. Management style Leadership is able to respond to market change and demand in force(p)ly both in terms of products and operations. For example, Harvey Norman has spread out its product offerings and operations into various countries in solution to increase demand (from both local and foreign markets). 3. 4 fancy up Analysis Strengths Franchising Operation Improved technology and affix chain management systems. ( spheric mathematical product Management Syst em) Economies of scale both in purchasing and marketing. Effective integrated retail, franchise and property system and low geartrain supports to trespass competitors ill luck. Weaknesses Issue of low salary bank putting continuous pressure Closure of its export and distribution businesses in Singapore and Malaysia has negatively impacted on the increaseability in Asia market. Own only little market shares in the gambol industry. Opportunities The strong performance of the franchising operating component Expand franchising operations in potential drop geographic areas and run awaying product offerings using abiding fiscal capability. Growing market shares in many overseas market such as Malaysia, New Zealand, Slovenia and Ireland OFIS brand is expanding in Australian market as a discount retailer of stationery Threats elevated inflation, capital market liquidity crisis and lessen demand because of Global monetary crisis are affecting the business both locally and inte rnationally. Fall in price on electrical items due to rise of Australian dollar are directly wakeless make margin and increasing expenses. 3. 5 Future Prospects for Harvey Norman Next yearThere has been 10 new franchised complexes undecided in Australia and a total of 8 leased stores were closed in 2009. A number of stores were also opened in offshore markets including the new OFIS brand, which implies that Harvey Norman is constantly growing its operations and expanding geographically. Net profit from underlying business operations was batch by 15. 2% as a result of many spell out down of assets, revaluation of assets and expenses photographn place in the first half year of 2009. However, franchise gross revenue revenue increased by 4%.With the continuous expansion and write down done in the pecuniary year ended in June 20009, it is unadorned that sales revenue and net profit giveing improve in the next year. Next Five Years The companys strong pecuniary piazza and lo w gearing allow it to come out to expand its operations and adds value to its brands and businesses across its value chain in the next five years. As proven in the financial gameylight 2009, the net profit afterward tax had declined from 358. 45 million to 214. 35 million as a result of the increased amount of expenses and trading firing of some segments.However, the gross profit has increased, utmost that business is improving and growing. Moreover, the consolidated comeliness has increased by $1. 12 billion, which dropped the debt/ justice from 26. 61% to 26. 56%. It means the company is trying to strengthen their equity put down for the next five years as well as the long run. In the Long Run In the long run, Harvey Norman has many opportunities to continuously grow in the future. It has an effective integrated retail, franchise and property system that allows the company to make substantial profit from its owned operations, franchised operations and leased property.Harve y Norman and many of its brands wipe out become the market leaders in its industry and it will continuously extend its product offering across all the brands to maintain its market position. It is confident that Harvey Norman will continuously perform well in the long run. 3. 6 new-make performance Table 1-3 represents the recent 3 years performance of HVN During last triplet years, there is a more or less incensement in its revenues, the revenue (exclude interest) raised from 2008 to 2009 by 2. 4% as well as from 2007 to 2008 grew by 6. 6%.Table1 HVN Revenues, Expenses and specie Flows FY2009 ($m) Revenues (Exclude Int) Expenses (Exclude D&A)EBITDAExpenses (D&A)EBITNet gold Flows $2436. 0$1963. 28$472. 7$91. 04$381. 7$82. 71 Table1 HVN Revenues, Expenses and Cash Flows FY2008 ($m) Revenues (Exclude Int)Expenses (Exclude D&A)EBITDAExpenses (D&A)EBITNet Cash Flows $2378. 4$1873. 24$505. 2$84. 39$420. 8$-127. 18 Table1 HVN Revenues, Expenses and Cash Flows FY2007 ($m) Revenues ( Exclude Int)Expenses (Exclude D&A)EBITDAExpenses (D&A)EBITNet Cash Flows $2229. 8$1819. 82$410. 0$74. 88$335. 1$50. 58gross revenue revenue for the Harvey Norman consolidated group consists of sales made by New Zealand, Ireland, Northern Ireland, Slovenia and the controlling interest held in Pertama Holdings Limited in Singapore. Consolidated sales revenue also includes Harvey Normans controlling interest in several(prenominal) retail partnerships and the company-run OFIS stores in Australia Consolidated sales revenue for the year ended 30 June 2009 was $1. 44billion compared to $1. 43billion for the year ended 30 June 2008, an increase of 0. 83%, despite the sales revenue decreased in some regions like public of Ireland and New Zealand.The reduction in sales in these regions was due to extremely challenging retails trading conditions and neglect of consumer confidence. However, for the purpose of financial report, all the foreign currency is translated in to Australia dollar. Sin ce the derogation in Australia dollar in the last year, sales revenue decreased in some local markets might show an increase in the financial report in Australia dollar. EBIT reported a going of $39. 1m in 2009 compared with 2008 due to an increase in depreciation and amortization and operating expenses, equivalence with 2007, there is an increase of $95. m in 2008. 3. 7 Accounting Analysis passenger vehicles Incentive of Earning Manipulation There are empirical evidence linking the vulcanized fiber of executive compensation with mesh use and fraud. With regard to earnings manipulation, Keith J. (2006) finds that firms with relatively gritty amount of equity incentives to CEOs, in the forms of free stock and immediately exercisable extracts, are more likely to engage in earnings management by insurance coverage small earnings increase, and also by reporting long strings of increasing earnings.In this case, Harvey Normans executive remuneration packages involve a balance mingled with fixed and performance money incentives (PCI) which includes short term such as base salary and long-term payments such as superannuation. Equity found remuneration can also potentially induce manages to manage earnings, by understating earnings prior to excerpt grants to lower the firms authentic share price and exercising option later on. Evidence of Earning Manipulation When managers pass water accounting flexibility, they can use it either to communicate their firms economic situation or to hide true performance.Possible distortion Detail & translation Accelerated perception of revenuesManagers typically deplete best education on the revenue recognition to decide whether or when the cash collection is reasonably likely. And they whitethorn have incentives to accelerate the recognition of revenues. They can adopt new accounting or use managers discretion to alter revenue recognition of, for instance, franchise fees or rent. Underestimated reservesFrom re mark 5, prep for indistinct debt has decreased from 4. 7 m to 4. 3 m from Note 5(a) the agedness analysis of trade debtors, number has increased from 952 k to 1,038 k.Due to the global financial global crisis and its influence to the debtors and consumers, it is not convincingly reasonable to reduce provision for doubtful debt, which thinks to overstate receivables. Understated depreciation on long-term assetFirms are required to accept impairment in values of the long assets when they arise. However, estimates of asset valuation and impairment are highly subjective. As a result, managers intend to delay or reduce write-down, or even not show impairments. This pop is especially crucial or asset-intensive firms in volatile markets. A review of Note 12, the economic situation in Ireland has move to deteriorate and severe recession has impacted all Irish retailers resulting in large trading losses in Ireland during the year, while an impairment loss in go down and equipment ass ets is slightly lower than expected. Capitalized R&D outlays The economic benefits from research and development are highly uncertain. In this case, the company capitalize IT projects, which cannot clearly show us a certain future benefits. Adjustment passAlthough there are reasonably large chances for the managers to manage and manipulate earnings, these managements are not materially enough to make adjustment. PCI may become incentives for managers to manipulate earnings but also can be seen as incentives for managers to work on their best for the company as the higher earning achieved the higher incentives they can be awarded. Therefore, no adjustments have been made on all the accounting numbers, which will be used for analysis afterwards. References Harvey Norman (2010), About Us, Website, http//www. arveynorman. com. au/ rogue/1255509869113/about-us Harvey Norman Holdings Ltd (2010), Company Profile, Website, http//www. harveynormanholdings. com. au/companyprofile. htm Harvey Norman Holdings Ltd (2010), Harvey Norman Holdings Limited one-year Report 2009, Website, http//www. harveynormanholdings. com. au/pdf_files/2009_annual_report_final_for_release_141009. pdf Harvey Norman Holdings Ltd (2010), Harvey Norman Holdings Limited Annual Report 2008, Website, http//www. harveynormanholdings. com. au/pdf_files/2008_Annual_Report_FINAL_30Sept. df Keith J. Crocker, Joel Slemrod, the economics of earnings manipulation and managerial compensation, October 2006, NBER Working Paper No. 12645, JEL No. A12 Richard, D. 2009, Harvey Norman Conducts Major CE Review Up to 10 Stores to Go, viewed 10 April 2010,http//www. smartoffice. com. au/Business/Retail/N9C6R5F6 Palepu, K. G. and P. M. Healy, Business Analysis and Valuation victimisation pecuniary Statements Text and Cases, 4th ed. , South-Western College Publishing, 2007. appendix Appendix A Standardized Financial Statement Appendix B organize AnalysisStrengths As mentioned above, its franchising operation is o ne of the company critical success factors and as well is their strength. In addition, Harvey Norman has a commitment to improve technology and supply chain management systems in response to the market growth, which becomes its business strength. In Australia the company benefits from enormous economies of scale in both purchasing and marketing. Also, the company is one of the biggest media spenders in the country, contributing to a high direct of brand recongition throughout Australia.Another strength is their strong financial position, which is indicated in the financial highlight in the annual report 2008, as a result of their effective integrated retail, franchise and property system, it has reinforced a strong financial position and low gearing that has placed Harvey Norman in an excellent position to provide on any competitor failure in the market place and to take advantage of emerging opportunities. Weakness harmonise to a review by David Richards (2009), David Ackery, th e familiar manager of Electrical at Harvey Norman comments that they are facing the issue of its margin with its vendors and retailers.Although the gross profit margin in 2008 is stable and slightly increased in comparison to 2007 from 25. 9% up to 26. 7% (calculated from the income statement 2008), the vendors and retailers are continuously placing pressures on its margin. Furthermore, the closure of its export and distribution businesses in Singapore and Malaysia has negatively impacted on the profitability in Asia market. Another impuissance is the gaming market that had not performed as well as JB Hi Fi with Ackery (2009) admitting that it was a booming area of the market, where Harvey Norman had not taken much market shares in this area.Opportunities Harvey Norman is being the market leader in the industry and has improved and kept up(p) its market share position in Australia, which makes it difficult for new entrants to enter into the market. Harvey Norman has the opportunit ies to continuously expand its operations into international markets as it has been proven in its successful operations in overseas such as New Zealand. As a result of its strong financial position, Harvey Norman has the capability and ability to invest in expanding its operations in other geographical areas that are potentially profitable as well as extending its product offerings.Threats Global economic recession is a major threat to any industries and companies including Harvey Norman. Also, capital market liquidity crisis, contracting monetary policy, high inflation and petrol prices are negatively impacting on consumer sentiment, which decrease the demand and thus, profitability. Prices on electrical items had been falling due to a rising Australian dollar and the fast obsolescence of many technology products, which lower its profit margin and increases expenses. Appendix C come out and Team Work Source/ nurture Origin and Significance Source and information used for this proj ect would come from Harvey Normans corporate website (which includes corporate profile, investor dealing sections, past annual reports). Also media coverage of the company, its competitors, and market landscape/environment will also be used as reference to allow for ample understanding and analysis of Harvey Norman and its business operations. The Difficulties of Analysis on the Industry and CompanyHarvey Norman has business operations in multiple segments including electrical, computer, furniture, entertainment and bedding goods, with more than 160 stores located in Australia and abroad. Because Harvey Norman is a conglomerate/franchise, which provides products ranging from notebook computers to sofas to beddings, so it is slightly hard to label its business, which consequently leads problem finding fair industry benchmark. It is hard but interesting to analyse this case. nearly other problem may be that the major information are from native statement, and external source are ei ther somewhat trivial or lack of detail. The Contribution of Each Group member The work of this group project is evenly allocated to each group member based on his or her strength and impuissance and each group member contributes a hundred percent to their work. They are able to meet the deadline even though everyone has their own personal commitment. Issues with Team Work and response