Financial Performance Analysis And Business Analytics Practices Of The Reject Shop Company Essay.

For this assignment you are required to study the business analytics practices of a real company or organisation.

You need to show the impact of your analysis and explain new insights/ recommendations that are based on your analysis. Your final report must explain how your analysis improve the decision making and performance of the company. You need to include recommendations and new insight based on your analyses in your report.

In this report, The Reject Shop Company has been taken to evaluate whether the business undertaken will add value to the effective business functioning or not. This report will reflect the present and proposed busienss practices which will be undertaken by the Reject Shop Company.

This is an Australian discount stores accompanied with the various goods offered and incorporated in 198. This company is running its business on international level. Company is having 340 stores Australia-wide stores to sell its goods and services around the globe.

The main mission of company is to enhance its market share in Australian by providing the best quality of goods and services.

The Vision of Company is to add value to the satisfaction level of clients by creating core competency in the product differentiation and cost leadership strategy.

It is Australian discount variety stores chain which was incorporated in 1981 and operates its busienss on international level.

This company is listed on the Australia Stock exchange and having around 149 billion market capitalization which is 20% higher as compared to last year data.

Benefit of analysis

This analysis will be useful for the key managerial persons of the Reject Shop and investors who want to manage the Reject shop Company. Investors could also use this report to determine the investment decisions to create value on the investment. Investors could use financial analysis tools and model shown in this report to evaluate the financial performance of company to make investment.

The main problem in this analysis is to identify whether the financial business performance of company and how well company has created value on its investment. All the data have been collected from the annual report and yahoo finance. The main assumption is that the future performance of company will be based on the last year data. There are several investors who have faced the issue in determining the decision to invest capital in particular company. The investment decision could be secured when investors make their investment decisions on the basis of past financial performance of Company. Investors need to analysis whether investing in particular company would add value to their investment capital or not. The main problem arises when investors have zero knowledge about the finance and find issues to determine whether they should invest their capital in particular company or not. It increases the complexity of the investment decisions to determine whether the investment decisions should be made or not in the particular company.

Benefits of Analysis

The main aim or focus area of this research is to evaluate the financial performance of the Reject Shop Company.  This financial analysis of company is required to determine the existing and future financial performance of company. It will assist investors to take their financial investment decisions.

In addition to this, another issue arises related to the complexity of the business which company would face in the business due to failure of the busienss operations. The matrix operation project could be undertaken by company to implement the strategic business decisions.

With the changes in the economic changes and complex busienss structure, there are several financial analysis tools and models which are used to evaluate the financial performance of company. The ratio analysis, du point analysis, top down analysis, bottom up analysis and capital budgeting tools have been taken into consideration. Ratio analysis is used to establish the relation between the two financial factors of the business. This ratio is used to determine whether the existing financial performance of company by using the liquidity ratio, debt to capital ratio, efficiency ratio, profitability ratio and market ratio. As stated by Delen, Kuzey, and Uyar, 2013 it is reflected that these all ratios assist in evaluating the financial performance of company and determine the future trend of the business. The business models are also adjusted by evaluating the financial performance of company. For instance, if company is having the particular project which could be used in the business to create value on the investment then it will add value to the business functioning. As per the views of Bahreini, and Adaoglu (2018) there are several business models such as matrix business model, project management business models and top down business model which could be used by the Reject Shop company to add value to its business functioning. However, financial analysis of the reject Shop Company has been selected as analysis topic to evaluate the current financial performance and predicting the future performance of company. It is analyzed that the current status of company is showing the good amount of growth in its business since last five year. The liquidity position, debt to capital ratio and other parts of the company has been showing the positive results. Company has increased its return on earning but the return on equity of company has decreased to 8.89% in 2017 which is 4 % lower as compared to last year data (The Reject Shop, 2016). The return on assets of company has also increased to 5.47% which is 1.1% higher since last one year.  The solvency ratio of company also reflects the company’s ability to manage its debt funding in its business. It is analyzed that company has higher debt portion in its business which may result to increased financial leverage if company lower down its profitability. The efficiency ratio of company also reflects how well company has managed its capital in its business to create value on the investment. As stated by Edwards, (2014) it is considered that if company had lower down the debtor turnover ratio by 12% since last one year which would lower down the cost of capital of business. Inventory turnover ratio of company has also increased by 20% as compared to last five year data. It divulges that company could lower down the cost of business by reducing the inventory blockage in its business. This analysis reflects that company has been facing high decrease in its profitability earning capacity since last three years. It has been observed that company should focuses on increasing the overall turnover. As compared to last year data, company needs to strengthen its business performance and efficiency of the business. It is analyzed that as current business practice of The Reject Shop has been reflecting the positive amount of increment in the business output. However, high financial leverage may reduce company’s long term sustainability. Nonetheless, the future performance of The Reject Shop is based on the invested capital which would easily add value to the performance of company. It is analyzed that company needs to undertake the future business performance.  This increased solvency ratio and lower profitability are required to be managed by company to increase the overall efficiency of business.

Financial Performance Analysis

ABC model could also be used by The Reject Shop to bifurcate costing of the business in the different work department also add value to clients need and demand. As per the views of Box, et al, 2015 it is divulged that it is analyzed that company needs to focuses on creating value on the investment. However, the main source of increasing the current business practice output is based on the using the ABC costing model and life costing methods in its value chain activities. In addition to this, the future business performance could also be increased by undertaking more profitable project in the business. The capital assets pricing model is used to determine which of the project will offer higher benefits to organization. These projects will be assessed on the basis of the net present value, pay-back period and other benefits program to company from the given projects. The capital assets pricing model du Pont analysis assists in evaluating whether the accepted project would create value of the investment made by the Reject Capital The net present value is the amount of benefit which arise after deducting the cash outflow from the available cash inflow of the business. As stated by Athanasopoulos, 2017, it is revealed that the top down analysis could also be used to analysis the current business practice and financial performance of company. It is analyzed that the Reject Shop Company has increased its investment in its research and development department and also expanded its business by adding more value to its business. As There are several other business models which could be used by the manager and accountants to strengthen the business functioning. However, the Reject Shop Company should adopt the matrix flow chart model in which key managerial persons will take strategic decisions and operational decisions will be taken by the line managerial to increase the value on the investment.  Therefore, after analyzing all the details and financial information of company, it could be inferred that company has good future outlook in its business which shows that company could easily add value of its investment. It is considered that company should increase the overall turnover if it wants to create value on the investment. Nonetheless, the main focus of company should be to lower down the cost of capital to create value on the investment (The Reject Shop, 2016).   

There are several methods and process system which could be used to collect the data from the several sources. It is analyzed that annual report is used to evaluate the financial performance and business practice of company (Box, et al. 2015). In addition to this, data regarding the financial performance of company could also be collected by using the yahoo finance, morning star and other online websites. After collecting data from various sources, following information has been drawn from the various sources.  These data collection methods provide the qualitative and quantitative data which could be further used to increase the value of the business (Athanasopoulos, 2017). 

Business Analytics Practices

The Reject Shop company has decreased is current ratio to 1.49 in 2016 after that the same increased to 1.63 points with the increase in the current assets (Grant, 2016).

The quick ratio of company has gone down by .09 points which shows that company has decreased its investment in its inventories (The Reject Shop, 2017).

Net profit margin 

Company has decreased its net profit margin by .85 %. It shows that company has increased its operating expenses (Edwards, 2014)

The return on equity of company has decreased to 8.89% in 2017 which is 4% lower as compared to last year data (The Reject Shop, 2016).

The return on assets has decreased to 5.48% in 2017 which is 2% lower as compared to last year data (Arjaliès, and Bansal, 2018).

The debt solvency of company is way too high. The debt to equity has decreased to 62% in 2017 which is 8% low as compared to last year data.

The efficiency ratio has increased throughout the time which reflects that company has created value on the investment. The creditor’s turnover ratio has increased to 23.26 points in 2017 which is 8 points lower since last one year (Vogel, 2014).

This ratio has also gone down to 23.26 points in 2017 which add value to its business (The Reject Shop, 2016). In future, company will save good amount of cost of capital (Hababou, Amrouche, and Jedidi, 2016).

This ratio has increased by 6 times which will add value to the business functioning of clients.

Currently, the Reject Shop has good value creation on the market share price of company and also added good value on the investment.

THE market price of shares is AUD $ 6 which has increased 20% higher as compared to last year data in addition to this, it will add value in the future and provide good amount of return to investor in future. The dividend payout has also increased to 10% in 2017 (Bahreini, and Adaoglu, 2018).

This collected data reflects that company could easily add value to the client’s needs which would add value to the return on investment of the company. However, the new busienss model which The Reject Shop Company needs to undertake is related to matrix model which shows that company could add value to its business if proper bifurcation in the work process system is undertaken (Delen, Kuzey, and Uyar, 2013).

Qualitative and quantitative aspects of financial analysis of The Reject Shop Company.

• Increased finance leverage of the Reject Shop Company adds value to the business and lower down the cost of capital (Ehiedu, 2014).
• Dividend payment of company has increased to 10% which will attract more investors to invest in the business of the reject shop.
• The decrease in the profitability may be negative indicator for the future growth of the Reject shop company.
• Cost of capital has increased due to the increased investment of company in the research and development department.
• The general investment proposal made by company is related to increased value creation and investing capital in hiring more experts employees in the business.
• The existing employee turnover of company is 12% which might destruct the business functioning of the Reject Shop Company in long run.
• The increased business output will add value to the client’s needs and future output in determined approach (Mwangi, and Murigu, 2015).

After analyzing all the details and problem statement faced by company, it is assessed that the Reject Shop Company has to increase the value of its investment by undertaking the more beneficial projects in its busienss. By using the capital assets pricing model and du Pont analysis, company could easily evaluate whether company should re-structure its business structure or not. Now in the end, it could be inferred that company should adopt matrix busienss model and financial analysis process to increase the overall value of the business. There are several financial analysis tools which could assists investors to create value on the investment.

References

Arjaliès, D.L. and Bansal, P., 2018. Beyond numbers: How investment managers accommodate societal issues in financial decisions. Organization Studies, p.01708

Athanasopoulos, P., 2017. Financial analysis of the companies in the tobacco industry (Cigarettes) in Greece during the period of the economic crisis: Perspectives and profit, investment and growth opportunities.

Bahreini, M. and Adaoglu, C., 2018. Dividend payouts of travel and leisure companies in Western Europe: An analysis of the determinants. Tourism Economics, p.1354816618780867.

Box, G.E., Jenkins, G.M., Reinsel, G.C. and Ljung, G.M., 2015. Time series analysis: forecasting and control. John Wiley & Sons.

Delen, D., Kuzey, C. and  Uyar, A., 2013. Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.

Edwards, D., 2014. The Link Between Company Environmental and Financial Performance (Routledge Revivals). Routledge.

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

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

Hababou, M., Amrouche, N. and Jedidi, K., 2016. Measuring economic efficiency in the motion picture industry: a data envelopment analysis approach. Customer Needs and Solutions, 3(3-4), pp.144-158.

Mwangi, M.and Murigu, J.W., 2015. The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).

The Reject Shop, 2015, Annual report, Available at https://www.rejectshop.com.au/aboutus/investorinformation/financialreport., Accessed on 2^nd June, 2018,

The Reject Shop, 2016, Annual report, Available at https://www.rejectshop.com.au/aboutus/investorinformation/financialreport., Accessed on 2^nd June, 2018,

Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.