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SWOT Analysis of the company

Discuss about the Management Processes For Sustainability And Corporate Social.

Rolls Royce Holdings plc is a leading automobile company from Britain formed back in 1904. The company designs, manufactures and distributes different systems for international companies and aviation industries. The Rolls Royce is the second largest maker of air craft engines in the glove (Williams 2014). The company is listen in the London Stock Exchange and is a constituent of the FTSE 100 Index. The market capitalization of $30 billion roughly and is headquartered in London.

The strengths of the company have been given as follows:

  • Brand Image- As the company has been in business since a long period of time, the brand image of Rolls Royce is very strong and comparatively very re- owned as and when compared to the other companies in the similar industry.
  • Quality- Rolls Royce is famous for proving quality products. Whether in the domain of energy or in the domain of automobiles, Rolls Royce is quite famous for its quality offerings.
  • Suspension System- The suspension system used in various products of Rolls Royce is very strong.
  • Heritage- Rolls Royce has a rich cultural and a noteworthy heritage.
  • Not a high turnover- The primary weakness of the company is that it has not been able to engage in high turnovers. This is specially related to the automobile sector where the income has been restricted since the last few years.

The opportunities available to the company are as follows:

  • Aircraft engines- The Company can expand more into the aviation industry and start a full time operations and productions of the aircraft engines (Harrison and John 2013).
  • Limited editions- It can start exploring more into the limited edition products as they assist in creating sustained demand in the country.
  • China as a country- The Company can look out for ample opportunities in the country of China. The economy is a developing one.
  • Economic crisis- The global economy has not been doing that well and due to this reason, the comp any might face problems during its growth phase (Weil, Schipper and Francis 2013).
  • Emissions- The emission reduction and other policies act as a barrier.

The given report will be discussing the strategic positioning of the company using various industry analysis tolls like Pestle analysis and Five Forces analysis. The financial statements of the company will also be reviewed and the certain pricing strategies shall be provided.

In order to analyze the industrial environment of Rolls Royce, the first tool to be used is the Michael Porters five forces.  The given tool assist in the understanding of the extent of competition present in the industry and assist the company from making long term plans. The different components in this tool are as follows:

  • potential entrants and the threat of entrants
  • power of buyers
  • power of suppliers
  • threat of substitutes
  • Competitive Rivalry

The industry to which Rolls Royce belongs to is highly capital incentive and there exists constant investment in advanced technology along with research and development in the given industry. Hence, there does not exists a single manufacturer and the rivalry is thus moderate. The competition which exists in the primary market in relation to aero engines increases considerably as it is linked to the secondary market for the sales and services.  As each company has been trying to improve their market share, the competition is intensified in that segment. Furthermore, the competition in the turbine engine gives rise to rivalry. The main competitors of the company are

The buyers of the aircrafts provided by the company are comparatively quite low and thus act as he price makers whereby they set the engine price. As certain carriers have become global carriers thus has considerably changed. Furthermore, in the car sector, as the company concentrates on producing limited editions, the bargaining power of the buyers is high.

The suppliers belonging to the aero engine manufacturer have a limited power. This is because of the number of suppliers being unlimited in number and they tend to supply all varieties of products leading to which all suppliers are in authority. It can be observed that the power of the smaller companies have reduced and these suppliers who are powerful in nature belong to the electronic equipment industry (Wheelen et al. 2017).

Industry Analysis

The entrance into the customized and limited edition car industry along with the aero engine industry is very difficult. The companies generally require advanced design components and the costs of research and developments are also comparatively very high. Furthermore, the customers have already placed their trust on the old companies and for this reason the new companies might find it difficult to adjust.

There does not exist any substitute for the aero engine provided by Rolls Royce and even the substitutes for other air transport products are minor in nature (Pervan and Kuvek 2013). Although factors like video conferencing might reduce airline sales, however despite this air travel is on a rise.

Hence, from the analysis it could be stated that the given industry is highly competitive where the buyers exert great power (Vogel and Güttel 2013). However, there are particularly high barriers to entry and the threat of substitutes is low and this reflects that the competitors do not share their business.

The PESTLE analysis is a strategic management tool examining the external environment of a business from various perspectives like Political, economic, socio cultural, technological, legal and environmental. The PESTLE Analysis for the Rolls Royce Company has been done as follows:

The political factors can be defined as those factors which tend to function the normal course of a business enterprise through government intervention. The government has a major role to play in the functioning of a business and hence, these factors need to be considered wisely. The major political factors as faced by the company are the factors like the uncertainty caused by Brexit (Rolls-royce.com. 2018). The uncertainty caused by work place incidents and their impact on the safety aspects of an organization also tend to have an impact on the long term success of the organization.

The economic factors impacting the success of the Rolls Royce largely depends on the foreign exchange rates fluctuation which takes place in the international business market. It also comprises of the increase in the air travel which positively affects the firm.

The socio cultural actors can be defined as factors which tend to have an impact on the buying behavior of the consumers which directly impacts the firm. Hence, the socio-cultural factors affecting the business of Rolls Royce are the globalization and emerging economies. Secondly, the seasonal based business operations also have an impact on the company.

It is important for an organization to understand the technological factors impacting a business and keep up with the rate of change of the technology. The primary technological factors affecting the business of Rolls Royce are the adaptation of ecofriendly technology and the advancement in nuclear, energy and manufacturing technology.

Pestle Analysis

The legal factors relate to the legislations being imposed by the government on the different companies. In order to be successful a company needs to consider its legal environment as well. The legal environment which Rolls Royce has to abide by is the Registration, Authorization, Evaluation and restriction of Chemical (Reach) norms, bribery allegations and the safety rules.

The environmental factors having an impact on the business of Rolls Royce comprise of factors like the zero waste target set, minimum emissions and adoption of renewable energy like sunshine (Hill, Jones and Schilling 2014).

Hence, if the business wants to be successful in the long run, it would be required to abide by the factors as this will ensure, considerable success for the firm.

The industry in which Rolls Royce operates in is a very crucial industry and Rolls Royce has a considerable upper hand in the European domain. The sector in which it operates which is the auto mobile, aero engine and the energy industry provides jobs to 15 million people. The Unites States is the highest producer of vehicles and energy products and invests largely into the research and development sector. The European government understands that in order to remain successful it needs to strengthen its competitiveness and invest largely into the research and development sector thereby improving its global leadership.

The market outlook of Rolls Royce for the next coming years has stated that there will be a demand of 43500 engines being installed which is worth a whooping amount of $280 billion. The company estimates to have 56% of the engine deliveries and is clearly a leader. The industry and performance forecast has been based on the growth rate of the industry which is 5.1% in the passenger domain and 6.5% in the cargo domain.

The given section will be discussing the relevant changes that were incorporated in the Balance Sheet. The section will be discussing various items in the balance sheet and how they have improved or suffered will be analyzed.

Cash and cash equivalents

2013-12

2014-12

2015-12

2016-12

2017-12

3990

2862

3176

2185

1404


As it can be observed from the given statements, the cash and cash equivalents have been changing over the past few years. If the data of the year is observed the cash and cash equivalent was 3990 GBP millions. However, over the years, there were drastic changes in the given years and the figure ultimately came down to 1404 million GBP. It can be stated that, the company needs to take care of its finances and it has been losing out on the cash and cash equivalents.

2013-12

2014-12

2015-12

2016-12

2017-12

3278

3798

4494

5442

5319

Market specifications


As observed, the current assets which the organization has purchased has also increased considerably. Back in the year 2013, the amount was 3278 GBP Million, and over the years it has increased to 5319 GBP Million. Hence, the assets of the organization have increased considerably. This could be explained by the fact why the cash and cash equivalents have decreased in order to purchase the assets (Zott and Amit 2013).

Non-current assets

2013-12

2014-12

2015-12

2016-12

2017-12

5811

6050

6316

7522

8337


The non-current assets of the organization have been going through an increase. This can be said to be considerably well for the organization. In the year 2013, the amount was 5811GBP Million but over the years, this figure improved considerably (Hahn 2013). The amount increased and turned to 8337 GBP Million during the last year.  Hence, the firm is looking out for expansion and has been increasing its basic operations and this might be the reason why the amount has been increasing.

2013-12

2014-12

2015-12

2016-12

2017-12

1820

1348

1397

1981

2458


The accounts payable account of the firm is a huge determinant of the financial position of the organization (Moutinho and Vargas-Sanchez 2018). The accounts payable of the firm should always be at the minimum level. This is because it reflects the amount the company owns to the other parties. From a mere figure 1348 GPB Million the amount has increased to 2458 GPB million. This is not a good indication on the firm`s side.

Other current liabilities

2013-12

2014-12

2015-12

2016-12

2017-12

6078

5976

6103

7077

8051


The non-current liabilities of the organization are an indication of what the business owes to other suppliers and parties in a firm apart from the accounts payable. As observed from the financial statements of the organization, if this amount has increased considerably. The figure in 2017 stands at 8051 GBP millions.

Total liabilities

2013-12

2014-12

2015-12

2016-12

2017-12

17458

15842

17310

23676

23835


As these figures have increased considerably, the total liabilities of the firm has increased as well. In the year 2013, the figure was 17458 GPB millions but at the end of the five years back in 2017, the amount was a considerable high of 23835 GPB millions.

Revenue

2013-12

2014-12

2015-12

2016-12

2017-12

12197

10533

10459

11907

13134


As observed from the analysis of the components in the Revenue from the Income statements, it could be observed, that although the other firms have not been on the company`s favor, the revenue of the firm has been increasing considerably. The amount has increased from 12197 GPB million and took a toll in 2014, 2015 and 2016 but increased again in the last financial year.

2013-12

2014-12

2015-12

2016-12

2017-12

3316

3203

3266

3048

3173


The Gross profit of the organization has been stable throughout the last five years. In 2013, the amount was 3316 GPB million  and the amount has remain stable over the years and in the last year it has been 3173 GPB million which can be labelled as quite a fair amount (Grant 2016).

Operating income

2013-12

2014-12

2015-12

2016-12

2017-12

1375

1296

1399

1399

-71

1156


The operating income of the organization has also been stable and remained the same figure as it was five years back. In the year 2013, the amount was 1375 GPB million but the amount suffered a troll in the year 2016 where the figure was negative. Lastly, in the year 2017 the amount is 1156 Gpb million.

Interest Expenses

2013-12

2014-12

2015-12

2016-12

2017-12

58

92

71

77

67


The interest expenses of the organization have increased considerably. The amount was 58 GBP back in the year 2013 but now the amount has turned out to be to be 67 GPB in the present year of 2017.

Net income

2013-12

2014-12

2015-12

2016-12

2017-12

1367

69

83

-4032

4207


The net income of the organization has increased considerably. In the year 2013, the amount was 1367 GBP in the year 2013 but the amount increased to 2017 in 4207 GPB in 2017, after going through a toll in the years in between. The company needs to ensure that the figures are stable throughout.

Cash flow from operating activities

2013-12

2014-12

2015-12

2016-12

2017-12

2040

1301

1094

1411

1810


The cash flow from operating activities have been varying since the last few years. The given figure was last observed to be 1810 GPB million (Frynas and Mellahi 2015). Although the company has done considerably well since the last few years, it does possess scope for considerable improvement (Morschett, Schramm-Klein and Zentes 2015).

Cash flow from financing activities

2013-12

2014-12

2015-12

2016-12

2017-12

136

-468

221

-739

-70


The cash used for financial activities has not been doing comparatively well and the figures have gone through a toll/ The Company needs to ensure that it undertakes sound investments in order to ensure that it does well in the long run.

Cash outflow from Interest Activities

2013-12

2014-12

2015-12

2016-12

2017-12

-740

-1966

-995

-1363

-1509

-1363


The amount has been in negative and show the disoperations of the enterprise.

Gross margin

2013-12

2014-12

2015-12

2016-12

2017-12

21.38

23.32

23.80

20.38

19.46


It can be observed that the Gross margin of the company has been decreasing since the last five years. The ratio was 21.38 in year 2013-12 but in the year 2017, the figure turned out to be 19.5 which is comparatively quite low (Financials.morningstar.com. 2018).

Return on equity

2013-12

2014-12

2015-12

2016-12

2017-12

8.81

0.5

0.6

-26.96

15.15


The return on equity has been varying in the different years. It as a negative figure in 2016 but increased quite well in the year 2017.

Interest Coverage

2013-12

2014-12

2015-12

2016-12

2017-12

45.12

9.79

14.66

-45.52

87.22


The interest coverage ratio has again increased considerably in the past few years. It was negative back in 2016, but now in the year 2017, it was 87.22

Net Margin

2013-12

2014-12

2015-12

2016-12

2017-12

8.81

0.5

0.6

-26.96

25.8


The net margin of the company has been doing well in 2017 and it is whooping figure of 25.8.  This has considerably increased in the past few years.

Asset turnover

2013-12

2014-12

2015-12

2016-12

2017-12

0.67

0.62

0.61

0.59

0.54


The asset turnover rate has decreased and the company needs to improve in this aspect.

The Rolls Royce is involved in two different types of businesses. The first is the energy and aerospace engine and second is the automobile industry. Hence the pricing strategy which has been suggested for them has been given as follows:

For the engines and other goods it offers for the airline, Rolls Royce can look out for adopting the premium pricing strategy (Eden and Ackermann 2013). In the premium pricing strategy, the company prices its products quite high and offers goods more expensive than its competitors. This leads to a sustained demand on the side of the different customers and they are already lured by the premium quality goods being provided by the company. Hence, they agree to pay a high amount for the goods and services.

For the motor segment, the company can offer a Competitive Pricing Strategy. The competitive pricing strategy aims to secure the market by offering goods at a lower price than that of its competitors. For such a reason the company looks out for opportunities where they can attract a large market share.

Conclusion

Therefore, from the given analysis it can be stated that the company has a long way to go and improve its operations considerably. The given company has been in business for over a decade and for this reason it has a competitive advantage in the various domains.

However, it can be stated that the accounting and financial information about a business is not always a correct approach to a business enterprise and the business functions on various underlying factors other than the financial information. The accounting policies and frameworks of different countries are different which makes it difficult for the business in order to make comparison. Furthermore, the accounting estimates are often based on the ad hoc basis which makes analysis and decision making very difficult.  The information and analysis is made on a personal judgement which can be biased and lastly, they can be subject to faulty information which makes calculation wrong.

References

Eden, C. and Ackermann, F., 2013. Making strategy: The journey of strategic management. Sage.

Financials.morningstar.com. ,2018. Welcome to financials.morningstar.com. [online] Available at: https://financials.morningstar.com/ [Accessed 29 May 2018].

Frynas, J.G. and Mellahi, K., 2015. Global strategic management. Oxford University Press, USA.

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Hahn, R., 2013. ISO 26000 and the standardization of strategic management processes for sustainability and corporate social responsibility. Business Strategy and the Environment, 22(7), pp.442-455.

Harrison, J.S. and John, C.H.S., 2013. Foundations in strategic management. Cengage Learning.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international management (pp. 978-3658078836). Springer.

Moutinho, L. and Vargas-Sanchez, A. eds., 2018. Strategic Management in Tourism, CABI Tourism Texts. Cabi.

Pervan, I. and Kuvek, T., 2013. The relative importance of financial ratios and nonfinancial variables in predicting of insolvency. Croatian Operational research review, 4(1), pp.187-197.

Rolls-royce.com. ,2018. Home. [online] Available at: https://www.rolls-royce.com/ [Accessed 29 May 2018].

Vogel, R. and Güttel, W.H., 2013. The dynamic capability view in strategic management: A bibliometric review. International Journal of Management Reviews, 15(4), pp.426-446.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.

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Zott, C. and Amit, R., 2013. The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), pp.403-411.

Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia.

Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.

Lasserre, P., 2017. Global strategic management. Palgrave.

Merat, A. and Bo, D., 2013. Strategic analysis of knowledge firms: The links between knowledge management and leadership. Journal of Knowledge Management, 17(1), pp.3-15.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Slack, N., 2015. Operations strategy. John Wiley & Sons, Ltd.

Speklé, R.F. and Verbeeten, F.H., 2014. The use of performance measurement systems in the public sector: Effects on performance. Management Accounting Research, 25(2), pp.131-146.

Stead, J.G. and Stead, W.E., 2013. Sustainable strategic management. ME Sharpe.

Team, F.M.E., 2013. PESTLE Analysis. Strategy Skills. Free management ebooks, p.15.

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014. Corporate finance: theory and practice. John Wiley & Sons.

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