Financial Assignment : A Case Study On Harvey Norman Holdings Limited

Share

Introduction

Investment in a company requires some prerequisite knowledge of the market and Financial Report Writing of the company to invest in. (Modigliani & Miller, 2010). Apart from the profit part, some investors may have biased towards any particular company or sector. financial Report of the board of directors may be very helpful to analyse the situation of the company. It helps in understanding the company’s future prospect. The annual financial Report Writing help in adjudging the past performance of the company (Bodie & Merton, 2010).

Financial Report Writing

A. Description of the core business of Harvey Norman Holdings Limited

Harvey Norman Holdings Limited is a one stop customer solution for electronic appliances, plumbing goods etc. It has a large customer base because of its diversified product range.

Gerry Harvey is the chairman and co-founder of the company. According to Forbes magazine it generated total revenue of A$ 7.76 billion. It has an operating income of A$ 417 million. It generated a net income of A$ 252 million in the year 2013 (Brealey & Myers, 2011).

Apart from the selling part, Harvey Norman Holdings Limited also provides services like home delivery, renovation etc. Harvey Norman Holdings Limited provides installation facility of electronic appliances, plumbing goods feting etc. which is a competitive advantage for the company.

It has ties with Flexirent since 1995. Harvey Norman Holdings Limited promotes itself on Australian Television. As a part of their strategy Harvey Norman Holdings Limited has direct suppliers like IBM, Compaq etc. It reduces the holding and transportation cost by 15.23% (Comfort & Brieger, 2012)

B. Discussion on Chairman’s report of Harvey Norman Holdings Limited

In spite of the competitive trading market in Australia, Harvey Norman Holdings Limited did well in terms of their revenue and sales figures. It has generated A$ 233 million before paying taxes and interests in the year 2013 (Bollerslev et al. 2012).  The net profit before tax was A$ 187.95 million, compared to the A$ 227.41 million of the previous year. Its franchising operations margin has been increased to 2.63% compared to 2.40% of previous year (Gitman, 2010).

Harvey Norman Holdings Limited follows Omni Channel Strategy. It invests in product and service quality improvement. It increases the satisfaction level of the customer (King & Levine, 2011). Harvey Norman Holdings Limited has integrated the physical stores, online stores and distribution channel. It gives the company a competitive advantage over its competitors in Financial Report Writing. It has made its operating model flexible. It has help Harvey Norman Holdings Limited to increase their asset level to A$ 4.07 billion (Jean, 2010).

The tax paid by Harvey Norman Holdings Limited was lower by $ A7.63 million for the year 2013 in respect of the previous year. Its franchise sales have been increased by 2% in this year. Harvey Norman Holdings Limited always tries to motivate its employees to generate more sales (King & Levine, 2011). One of the major issues that has been identified in the company is related to the sales reflect this. Franchising operation has generated A$ 113.43 million with respect to A$ 126.98 million and A$ 254.59 million of the presiding years (Paine, 1796). So, Harvey Norman Holdings Limited has not done well in terms of franchise operations. Harvey Norman Holdings Limited occupies 96.9% of the property portfolio (Mayer, 2010).

Harvey Norman Holdings Limited continues to assess viability of its stores and online platforms. It has generated NZ$ 43.59 million which is an 8% rise from sales in New Zealand (Sweeney, 2012). Harvey Norman Holdings Limited has generated €137.48 million in the year 2013 from Ireland which is a 1.9% increase from the previous year (King & Levine, 2011).

C. Discussion on Director’s report of Harvey Norman Holdings Limited

There are 5,784,000 unissued ordinary shares of Harvey Norman Holdings Limited in the year end of 2013 with respect to their previous year’s figures of 5,034,000 of 2012 (Jensen, 2011). Therefore, the company generated issues related to its unsold shares in the market place that has resulted to no utilize its assets properly.

ORDER This Financial Report Writing Assignment NOW And Get Instant Discount

Order Your Assignment
In the year 2013 the Harvey Norman Holdings Limited could not do that well because several macroeconomic factors were changed in the year 2012-2013 (Bollerslev et al. 2012). All the international trade gets affected by interest rates, exchange rates, and export duties. Harvey Norman Holdings Limited provides too much of discounts and offers to its franchisers. So, it loses its revenue. If it may invest that capital in technical and quality improvement, it could have shown better figures (Jensen, 2011). Many of the countries where Harvey Norman Holdings Limited does operate, is suffering from price deflation. Harvey Norman Holdings Limited has a property portfolio of A$ 2.21 billion which makes it more prone towards the asset value deflation (Musgrave, 2011).

Harvey Norman Holdings Limited always follows Omni strategy. It gives a competitive advantage from its competitors. It takes the old electronic devices and exchanges it with new goods (Mayer, 2010). Thus, it increases the interest towards Harvey Norman Holdings Limited.

To reduce the attrition rates of its employees it Harvey Norman Holdings Limited follows fixed salary rates. It also provides performance based incentives to its employees to motivate them and encourage them. In terms of employee stability, financial Report Writing is good.

D. Discussion on Corporate Governance Statement of Harvey Norman Holdings Limited

According to the Harvey Norman Holdings Limited’s corporate statement, the company establishes a proper functional guidance for its senior executives. The evaluating process of their performance is disclosed to them (Mayer, 2010). Harvey Norman Holdings Limited follows a proper structure of the management, so that, the function of the director and chief executive officer do not intersect with each other. The code of conduct is communicated to every board members and employees (King & Levine, 2011). This helps in making integrity in the company and reduces conflictions and legal obligations. Harvey Norman Holdings Limited maintains a good ratio of women employees and board of directors.

As discussed by King & Levine (2011), the audit committee of Harvey Norman Holdings Limited is formed by non-executive and independent directors. It maintains a minimum number of three members in the committee. Harvey Norman Holdings Limited maintains a compliance removal system for its directors (Bollerslev et al. 2012). In financial Report Writing, It discloses the policy to handle their shareholders. Harvey Norman Holdings Limited also makes some policies to manage risk. The policies help them to design and implement the risk management strategies. It also provides guidelines to review the strategies implementation (Jensen, 2011)

Harvey Norman Holdings Limited forms a remuneration committee to resolve the remuneration issues. All the boards and committees are responsible for the identification of their shareholder’s expectations (Jensen, 2011). It is also responsible for the selecting the qualified and appropriate members to the committee. Boards align the objectives and activities with their shareholders’ expectations. They need to allocate proper budgets for implementing new strategies and continuing past operations. The review system follows both qualitative and quantitative analysis (www.harveynormanholdings.com.au, 2014).

Harvey Norman Holdings Limited’s executives or directors cannot hold company’s share, as they are aware of the unpublished information of the company. Company provides information to their shareholders about their share values in a regular interval (Bollerslev et al. 2012). The latest annual report and other relevant information are always available in website of Harvey Norman Holdings Limited. The company always takes policies to diversify its operation (www.harveynormanholdings.com.au, 2014).

E. Calculation of the key financial ratios for 2013 of Harvey Norman Holdings Limited

Key ratios of Harvey Normal Holdings limited in 2013                            

Ratio Analysis Figures (in the year 2013)
Liquidity Ratio  
Current Ratio 1.84
Industry Average ratio 1.51
Investment ratio  
Return on Capital Invested 0.06
Return on equity 0.6
Profitability Ratio  
Gross Profit margin 29%
Net Profit Margin 11


Table 1: Key ratios of Harvey Normal Holdings limited in 2013

Source: (Source: www.harveynormanholdings.com.au, 2014)

ORDER This Financial Report Writing Assignment NOW And Get Instant Discount

Order Your Assignment
Ratio Analysis

Liquidity Ratio:

Current Ratio

Current ratio shows the liquidity condition of the company. If the current ratio increases with proportion to the current liabilities, the current ratio number increases. With respect to the figure of 1.63 in 2012, it has a better number of 1.84 in 2013 (Bollerslev et al. 2012). It depicts that the liquid holdings of the company has been increased. Therefore, Harvey Norman Holdings Limited has been able to reduce its current liabilities, whereas increased the current assets (www.accountingedu.org, 2014).

Investment Ratio:

Return on Capital investment of Financial Report Writing

It is the ratio of the gross profit or the earnings before taxes and interest to the capital employed to generate that. Higher the ratio, more profitable it is (Sweeney, 2012). With respect to the figure of 7 % in 2012, Harvey Norman Holdings Limited has given a better figure of 6 % in 2013. Therefore the return has been reduced in the year.

Return on Equity

It is the ratio of the Earnings before Interests and Taxes to the Capital employed. A better figure shows a better profitability (Bodie & Merton, 2010). Harvey Norman Holdings Limited has reduced the figured to 6 % in 2013 with respect to the 8 % figure of its previous year. It means the company could not perform as good as the previous year.

Profitability Ratio

Gross Profit Margin

The figure has increased to 29 % in 2013 with respect to 27 % of 2012. It depicts that the company has been able to generate more sales compared to the sales cost (Jean, 2010).

Net Profit Margin

The figure has reduced to 11 % in 2013 with respect to 13 % of 2012. It depicts that the company has increased administrative costs compared to sales revenue (Musgrave, 2011).

Horizontal Analysis for 2013 (percentage comparison)

Ratios 2013 2012
Current Ratio 1.84 1.63
Return on Capital Employed 6 7
Return on Equity 6 8
Gross profit margin  29 27
Net profit margin 11 13
Industry Average Ratio 1.51 1.34

          Table 3: Ratio analysis comparison of Harvey Norman Holdings Limited

ORDER This Financial Report Writing Assignment NOW And Get Instant Discount

Order Your Assignment
As per the appendix the vertical analysis of Harvey Norman Holdings limited provide information on the financial statement such as Income statement and balance Sheet to enhance more specific information on financial positioning of the company in the market place.

F. Evaluation and Comparison of Harvey Norman Holdings Limited and Myer Holding Limited

Harvey Norman Holdings Limited revenue gyration in the year of 2013 has been valued to $ 2045533 that been declined from the previous year whereas revenue generation of its competitor company holdings limited generated $3100100   (www.harveynormanholdings.com.au, 2014).

Therefore it has already captured a large market share. In spite of the market situations it has been able to generate this amount of revenue (Musgrave, 2011). It states that the brand value of Harvey is declining in the market places constantly. The operational profit grenades by Harvey Limited is been valued $ 104485 that has also stated less in comparison to Myer Holdings that is been valued $1277241. It that states the company operational activities has also been reduced in the market place that impacted performance of Harvey Holdings (Bollerslev et al. 2012).

In relation to Balance Sheet, the cash reserve of Harvey Limited is been valued $1476441 whereas Myer Holdings Limited valued to $6955. It states that Harvey still has cash reserve to make the investment and increase profit and positioning of the company mentioned in Financial Report Writing. The total assets of Harvey been evaluated in the year of 2013 $37125928 that is more in comparison to Myer total assets that is been valued to $ 1917586. It has stated that Harvey has still strong liquidity in the market to reduce its creditability (Investor.myer.com.au, 2014).

The total liability of Harvey Holdings limited valued $ 1583398 that is more than that of Myer Holdings limited in the current year valued $ 1022508. It states that company Harvey Limited is in risk positioning as creditability has increased in the market place.  Total equity of Myer limited valued to $895078 that is more than Harvey holdings valued $212825.029 stated the fact that company can still increase more funding from the share market as equity proportion is less in comparison to its competitor (Investor.myer.com.au, 2014).

G. Recommendation on investing in Harvey Norman Holdings Limited

Harvey Norman Holdings Limited could not perform well in terms of ‘Return on Capital Employed’ and ‘Return on Equities’ figures, which have declined by 1 % and 2 % respectively. It can happen because of the capital investment in China and Europe (Jensen, 2011). The company has declared project expansion to the developing countries like India and China etc. Harvey Norman Holdings Limited has maintained a good current ratio of 1.84 in the year 2013. It shows a strong liquidity position. It can do well in the near future when the investment outcomes will start to come (Mayer, 2010). The Gross Profit Margin is also showing positive figures. The developing countries have youth as much as 15 %, which is a huge market for the company. Harvey Norman Holdings Limited has also decided to diversify the electronics product range of it (Sweeney, 2012). If the investment plans can be properly executed by the administration, Harvey Norman Holdings Limited can do very well in upcoming market. Therefore, the investors can invest in the company through systematic investment plan (financialaffairs.ua.edu, 2014).

Conclusion

Harvey Norman Holdings Limited is a renowned electronics manufacturing company. The diversified and spread market of the company is a big asset of the company. Good current ratio always shows the internal financial strength of the company. It can help in holding stock and technical up gradation of the company. As the net profit margin ratio is not that good, the company needs to be careful about expanding and the costs required for it. The company is also trying to diversifying their products and services. The investment decision in developing market may help to prosper in future. If Harvey Norman Holdings Limited can minimize the costs and utilize their resources properly, they will definitely perform well.