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Company Overview

Discuss about the Business Evaluation.

The report provides detailed evaluation of ‘Wesfarmers’ business strategies and operations. It aims to provide a deep-insight into the business evaluation of the organisation. It discusses about the various tools, which are helpful in making effective analysis of Wesfarmers sustainable competitive position in the Australian market. In addition to this, Human resource policies are also discussed to get a glimpse of company’s corporate governance framework. Furthermore, this report also describes the capital structure of the company. Financial ratios are used for assessing company’s liquidity position and financial health.

Wesfarmers had made its humble beginning in 1914. It is a leading cooperative institution for the farmers, in Western Australia. In 1984, it was listed on American Stock Exchange (Bach, and Krecek, 2012). The company’s main objective is to provide services and rural commodities to Western Australia’s agricultural population. The company is composed of nine business divisions, which perform different functions (Lee, 2010). These functions include home improvement products, insurance, building materials, gases, coal, mining and production, industrial and safety products (McCauley et al., 2013). It had moved towards diversification in 1950 by becoming pioneer in distributing liquefied petroleum gas. The company has mainly developed and shaped its position through acquisition and disinvestment. It has been placed among the top Australian companies based on total shareholder return.

Wesfarmers designs its own business strategies in order to win competitive advantage in the marketplace. One of these business strategies is the conduction of business by the business leaders. There exists integrity in the actions of business leaders. Moreover, strong commitment of the management to promote the company’s values, lead it towards success (Roberts et al., 2015). The management takes every decision by giving due consideration to the effect on business and stakeholders. Wesfarmers corporate strategy also includes focus on importance of both existing and potential customers to ensure customer loyalty towards its products and services. It also motivates guides, inspire and support company’s members in accomplishing Wesfarmers goals (Adams, 2016). Furthermore, company’s ability to recognize and appreciate contributors’ efforts is another factor which sustains its competitive advantage.

Strengths

·         Providing  special offers and discounts

·         Offering of reasonable price for its products and services

·         Brand Legacy

Weakness

·         Low geographic presence

·         Low profitability

Opportunities

·         New untapped market

·         Initiatives in maintaining employee and customer loyalty

Threats

·         Growing competition

·         Government regulations

·         External business risk

It is considered as one of the important strengths of Wesfarmers Ltd because it believes in providing special offers and discounts to its customers, which helps company to attract and retains its customers effectively (Kenny, 2013).

Wesfarmers Ltd offer reasonable price for its products and services which is effectively helpful in meeting the price requirements of customers. This helps company to maintain loyalty of its customers effectively.

Corporate Strategy of Wesfarmers

Wesfarmers Ltd is established since 1914, which shows its effective brand legacy and it is considered as most important strength to maintain and retain its employees and customers.

Wesfarmers Ltd is having its stable venture in Australia and believes in serving mainly domestic market, which is considered as its weakness (Keys, 2013). Because it increases its business risk for surviving in the global market and creates difficulty to maintain its effective position among its competitors which includes Woolworths and Myer etc.

Wesfarmers Ltd is having low profit potential, which creates difficulty for Company to retain its effective shareholders and investors because of inadequacy of returns.

Opportunities:

It means covering of untapped areas by the company, which helps Company to improve its competitive position. It also helps to increase profitability of business through increasing its customer base.

Initiatives in maintaining employee and customer loyalty:
Providing of effective pays, benefits and healthy working environment help Wesfarmers to retain it productive employees and also helps to maintain their loyalty (Hartel and Fujimoto, 2014). Moreover, providing of products and services including special offers and benefits also help company to maintain loyalty of customers.

Growing Competition:

Wesfarmers is having strong competition from Woolworths and Myer, which affects the profitability of the company adversely.

Regulations of Government are considerable threat for every business. Change in tax policies or other law affecting business of Company has high effect on company’s stability (Chauvenet, et al., 2013).

It includes risk that arises to business due to negative impact of natural factors, change in economic factors and negative impact of political conditions and factors affecting business.

Wesfarmers Ltd is maintaining an efficient capital structure. Its capital structure consists of greater proportion of variable security i.e. Equity, which is effectively helpful for maintaining credit worthiness of Company in the market (Pearce and Pinto, 2015). Furthermore, this Company believes in making efficient use of internal sources rather than external funding for meeting its funding requirements to run its business operations effectively.  Company is having debt- equity ratio 63% in 2015, which indicates the effective capital structure of company, that helps company to meet its funding requirements easily (Brigham and Daves, 2014). It helps in maintaining financial flexibility of business. In addition to this, effective capital structure of Wesfarmers helps in providing adequate returns to its shareholders. Providing of adequate returns helps company to retain its investors and also increases their loyalty towards the company (Nobes and Stadler 2015). Furthermore, having variable fund in higher volume indicates low burden on company to pay interest on fixed bearing funds and also helps company to pay off its liabilities easily.

SWOT Analysis of Wesfarmers LTD

(a) ROE (return on Equity):

It is considered as most popular measure of financial performance of any Company.  It describes that how much profit, the company is generating from the money invested by shareholders in the company (Needles, et al., 2010).  It is also considered as a profitability ratio from the point of view of investors because higher ROE helps in providing greater returns to shareholders.

ROE= Net Income/ Shareholders Equity

ROE of Wesfarmers:

ROE for 2014= 2689/25987(Amount in $m)

ROE for 2014 = 10.34%

ROE for 2015= 2440/24781

ROE 2015 = 9.8%

ROE of Wesfarmers Ltd in 2014 is 10.34% and 9.8% in 2015, which shows that company is providing effective and adequate returns to its shareholders (Park and Heaton, 2014). This is effectively helpful in maintaining its credit worthiness and also helps in retaining and attracting its existing and potential investors.

(b) Current Ratio:

The most common measure of liquidity position of Company is current ratio. It indicates the Company’s ability to pay-off its current liabilities/ debts effectively (Gibson, 2012).

Current ratio = Current Assets/Current liabilities

Current ratio for Wesfarmers Company= 9093/9726= 0.93

Current ratio of Company is 0.93, which indicates that short term liquidity position of Company is not good to pay-off its short-term liabilities effectively. It is advisable to company to maintain its sale into cash instead of credit, which helps Company in getting easily availability of cash for meeting its short-term funding requirements.

Wesfarmers is one of the top companies of Australia. To maintain its position, Wesfarmers continually keeps improving sustainability of the business. It attempts to enhance the benefits for all the stakeholders and at same time, tries to implement a sound governance framework to fulfil its corporate governance obligations (McGraw and Dabski, 2010). The company members possess superior interpersonal skills and a passion for delivering good results. Wesfarmers provides a safe, ethical and stimulating working environment for its employees and also provides opportunities for their personal and professional advancement. The company’s operations are energy efficient, thereby contributing to a new carbon economy.

Ansoff matrix is a useful marketing planning tool which aids business managers to devise strategies for their product and market growth (Michalena and Frantzeskaki, 2013). It provides strategic choices and direction for the business firms that will be used to analyse the Wesfarmers marketing strategies.

Market penetration: Under this strategy, a business firm focuses on expanding sales of its existing product in the existing market. A firm can occupy greater market share by driving out its competitors, creating pricing strategies and sales promotion (Kenny, 2013). Wesfarmers also executes initiatives to increase its customer base within a certain market place. The company has expanded its products and services offerings (Kenny, 2013). In order to create value for long-term, Wesfarmers is proactively managing its existing products. For example, Coles has gained more sales and market share. Food and liquor sales have also been pushed up during 2016.

Capital Structure of Wesfarmers Ltd

Market development:  It is a growth strategy under which, business firms attempt to sell their existing products in the new market (Layton, 2012). Wesfarmers seek to promote its existing products and services in the new market segment. The company has shown its interest in many other subsidiaries across Australia, New Zealand, Singapore, UK, China and Indonesia (Klettner et al., 2014). It has also planned to expand its convenience stores and fuel offer across all categories. Wesfarmers has also evaluated opportunities for value adding transactions and has also experienced increase in revenue through growth of Burnings.

Product development:  Under product development, business firms introduce new products into existing markets. It requires investment in research and development activities in order to come up with new range of products or services (Stokes et al., 2010). Wesfarmers has gained competitive advantage by focusing on innovation to differentiate its products. Also, there are additional businesses to Wesfarmers existing business. These include acquisition of hardware retailer, Coles, burnings and many more.

Diversification: This strategy refers to the growth of a business firm by diversifying into new businesses. Under this strategy, new products are developed for new markets. It is comparatively more risky strategy as the business is entering into new unknown markets (Layton, 2012). Wesfarmers business is currently divided into two main segments. First is retail segment which consists of four divisions and the other is industrial segment which comprise of five segments (Rao, 2016). This retail segment has brought highest profits to the company. Since Wesfarmers is a listed company with the portfolio of diversified business, it emphasize on investing in all potential activities in which it functions.

Conclusion

From the above discussion, it can be concluded that Wesfarmers has been successful in making its good position in the Western Australian marketplace. It has realized and improved the factors which affect the overall performance of its business. The above analysis shows that the company is having an efficient capital structure which enables it to maintain its credit worthiness. Moreover, Wesfarmers has the ability to attract and retain its stakeholders for a long time. However, the company needs to bring changes in its strategies from time-to-time, in order to adjust according to the market needs.

References

Adams, M.A., (2016) Contemporary case studies in corporate governance failures. Governance Directions, 68(6), p.335.

Bach, M. and Krecek, J. (2012) Environmental Reconstruction in Headwater Areas. Germany: Springer Science & Business Media.

Brigham, E. and Daves, P. (2014) Intermediate Financial Management. 12thedn. US: Cengage Learning.

Chauvenet, A.L., Ewen, J.G., Armstrong, D. and Pettorelli, N. (2013) ‘EDITOR'S CHOICE: Saving the hihi under climate change: a case for assisted colonization’, Journal of Applied Ecology, 50(6), pp.1330-1340.

Gibson, C. (2012) Financial Reporting and Analysis. 13thedn. US: Cengage Learning.

Hartel, C. and Fujimoto, Y. (2014) Human Resource Management. Pearson: Australia.

Kenny, G. (2013) The stakeholder or the firm? Balancing the strategic framework, Journal of Business Strategy, 34(3), pp.33-40.

Keys, T. (2013) Supermarket wine sales: Sinner or saintly saviour, Wine & Viticulture Journal, 28(3), p.13.

Klettner, A., Clarke, T. and Boersma, M., (2014) The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics,122(1), pp.145-165.

Layton, R., (2012) Marketing–As it once was, and, perhaps, might one day be!.Australasian Marketing Journal (AMJ), 20(3), pp.207-210.

Lee, K.F., (2010) Retail minority shareholders and corporate reputation as determinant of dividend policy in Australia. Pacific-Basin Finance Journal, 18(4), pp.351-368.

McCauley, C. and Derue, S. and Yost, P and Taylor, S. (2013) Experience-Driven Leader Development: Models, Tools, Best Practices, and Advice for On-the-Job Development. US: John Wiley & Sons.

McGraw, P. and Dabski, S., (2010) Corporate Social Responsibility Reporting in Australia's Largest Companies. Labour & Industry: a journal of the social and economic relations of work, 21(1), pp.390-409.

Michalena, E. and Frantzeskaki, N., (2013) Moving forward or slowing-down? Exploring what impedes the Hellenic energy transition to a sustainable future.Technological Forecasting and Social Change, 80(5), pp.977-991.

Needles, B., Power, M. and Crosson, S. (2010) Financial and Managerial Accounting. 9thedn: Cengage Learning.

Nobes, C.W. and Stadler, C., (2015) The qualitative characteristics of financial information, and managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business Research, 45(5), pp.572-601.

Park, J.S. and Heaton, C., (2014) Technical trading rules in Australian financial markets. International Journal of Economics and Finance, 6(10), p.67.

Pearce, P. and Pinto, D., (2015) An evaluation of the case for a congestion tax in Australia. Tax Specialist, 18(4), p.146.

Rao, R., (2016) Review of applications of TLBO algorithm and a tutorial for beginners to solve the unconstrained and constrained optimization problems.Decision Science Letters, 5(1), pp.1-30.

Roberts, K., Roberts, J.H., Danaher, P.J. and Raghavan, R., (2015) Practice Prize Paper—Incorporating Emotions into Evaluation and Choice Models: Application to Kmart Australia. Marketing Science, 34(6), pp.815-824.

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