Business Performance: Wesfarmers Limited - Assignment Example

Wesfarmers Limited Number: Wesfarmers Limited Purpose of the essay The main purpose of the essay is to highlight on communication theory and describe it in corporate perspective. After establishing relevance of effective communication between company and stakeholders, a review on major announcements and key messages of Wesfarmers Limited is executed. Hence, the essay aims at deciphering whether the company has successfully communicated with its stakeholder or there are any changes in the performance of the stock price and returns before and after the announcements by the company. Communication theory Information plays an important part of individual’s life. It provides an in-depth knowledge regarding an entity or an issue or an event to the individuals, which helps them to build conception regarding the same. A company listed under stock exchange has to provide information to its stakeholders so as to keep them updated regarding the performance. This company has to maintain flow of information to its stakeholders as they have to comply with the rules and regulations that are formulated by the higher authorities of stock exchange (Westbrook 7). This information is a medium of communication of the stakeholders with the company. This helps in changing the view point of the stakeholders towards the company. Here, stakeholders refer to customers, employees, shareholders, media, investment community and the bankers. For the companies, which are registered under stock exchanges, information is described as the disclosure as it has direct or indirect impact on its stock price. Information has many forms from announcements to accounting numbers, which depicts achievements of the company, its descriptive activities and different corporate functions that are essential for its operation (Westbrook 7). Communication theory was first established by the famous Greek Philosophers Aristotle and Plato. They had discovered three components as the art of disclosure such as grammar, logic and rhetoric. In the context of corporate communication, rhetoric aims at establishing a relationship between the information that are shared by the company and the way they are communicated to the general public. Presently, the information age had influenced the traditional media and it is challenged by the online source of information. The stock exchanges release data and information regarding company stock performance, which comply with the rules and regulations (Westbrook 7-9) in their website. This information assists the stakeholders to make appropriate decisions regarding any investment. The stakeholders belong to two categories i.e. wholesale and retail, which requires different forms of engagement. Apart from that there are journalists, analysts and market commentators, who represent the interest of the stakeholders differently. It is observed that management strategy has evolved as discipline along with communication. This communication process is significant for companies as this helps in connecting with the stakeholders. The communication also helps in understanding the needs and demands of the stakeholders. The value of communication can be appreciated with the assistance of three components such as content, style, terms and reputation. In corporate context, theses components plays a significant role in determining whether the communication process with the stakeholders are credible on receiving end (Westbrook 3). However, if the communication is associated with deceitful persuasion, then the company is bound to encounters corporate failure. This discontinues an effective communication that exists between the company and stakeholders. For gaining the trust and confidence of the stakeholders, the companies audit the financial reports by renowned audit firms. These reports are significant for the stakeholders for making any investment decisions. The activity of the Chief Financial officer is judged through the reports and it helps in reflecting the integrity of the company. Hence, integrity is a key factor for building effective corporate reputation, which assists the investors to take investment decision without much difficulty (Westbrook 10-14). The capability of the CEO is judged, whether he/she is successful in gaining the trust of the investors and able to fulfill the promises that are dome during the beginning of a financial year (Westbrook 10-14). The communication theory also helps in developing good public relation. It is observed that if the communication medium and process are effective enough to draw the attention of the stakeholders and make them content with the information, then it improve relation with the stakeholders and the public as a whole. If the stakeholders are satisfied with the quality of information that is offered by the companies then it also helps in improving the stock market performance. The performance of stock market is affected by the demand of the investors and other economic factors. Hence, if the stakeholders are content with the financial performance of the company then they are ready to invest in the stock, which increases its market capitalization. This improves the status of the overall stock market when the market capitalization increases in a particular industry. Thus, there is a direct connection between the stock market performance and communication with the stakeholders. Wesfarmers Limited Wesfarmers Limited is regarded as one of the largest public limited company in the world; also the largest retailer in Australia. The company is the largest employer in the country, which employs more than 2 lakh employees (“About Wesfarmers”). Since its inception during 1914, it had undertaken efforts for becoming the largest listed company in Australia. It has diversified business operations such as departmental stores, supermarket, coal production, home improvement and office supplies, export, energy, chemicals, fertilizers and safety products for the industries. It has shareholders over 500,000 and aims at satisfying them by offering higher returns on their investments. In order to stay competitive, the company measures its performance by comparing the total shareholder returns (TSR) with that of ASX 50 Index (“About Wesfarmers”). In order to satisfy the shareholders, Wesfarmers had devised apporpriate strategies. It strengthens the business by achieving operating excellence and satisfies the needs of the customers, which helps in improving the sales revenue. It undertakes entrepreneurial initiatives for ensuring growth opportunities. The best method of renewing portfolio is through value-adding transactions. It also ensures sustainability with the help of long term management (“About Wesfarmers”). The main divisions of the company are Coles, Home Improvements and Office Supplies, Kmart, target, Insurance, Resources, Chemical, energy and fertilizers and Industrial and safety. Evaluation of information provided by Wesfarmers Limited The main objective of Wesfarmers Limited is provide value to the shareholder by offering satisfying returns and also fulfills the needs of the customers. In order to communicate with the shareholders the company maintains a proper website where news related to any event or performance is updated at regular basis. The half yearly and yearly announcements of the financial results are significant for the shareholders as they need to understand the financial health of the company before investing in the shares. The news and announcements of the company helps the shareholders as well as general public to depict its overall performance. The website includes a section “Investors”, which provides all the information regarding the performance of the company with respect to sales, profit and share price. The historical share price details of the company are given in the section. Dividend information is also provided so as to make sure that the shareholders are aware of the changes in the value that has taken place over the period of time. Apart from this, the most important part of the announcement of the company information is provided in the reports and presentation that are prepared and uploaded in the website of the company at a regular interval. Hence, it can be stated that Wesfarmers has taken many initiatives for communicating the financial results of the company to the stakeholders through a number of announcements at a regular basis. This announcements and message are reviewed in order to understand whether it has effectively communicated to the stakeholders and how this news and results have influenced them to take investment decisions. Yearly and half yearly reports of Wesfarmers Limited The annual or half yearly financial data are published in the website of Wesfarmers Limited very clearly. The new and announcements includes several events that are undertaken by the company during the course of business and also the financial changes that are taking place due to increase or decrease of the sales revenue. The financial statement of Wesfarmers Limited highlights the balance sheet, income statement and cash flow statement that are period annually. The elements of the financial statements help in determining the financial status of the company in particular years. As for example, the financial statement of Wesfarmers Limited is given below along with their relevance to the stakeholders. The financial results are announced by the company at the end of each year, which ends on March of every year. Figure 1: Income statement of Wesfarmers Limited (2013-2014) (yearly) (Source: “Business Performance”) The information pertaining to revenue and profit plays a significant role in decision making process of shareholders. The total expense helps in determining whether the company has increased or decreased its expenditure in that particular year. From the above table it is evident that Wesfarmers Limited is successful in increasing the profit over the years from 2013 to 2014 by concentrating on improving the sales revenue even though there has been increase in expense. According to media releases, the earnings of Wesfarmers limited have increased by 6% during 2013 as compared to previous years and whereas the revenue has improved by 3%. The increase was due to the increase in sales revenue of Kmart and Coles (“Wesfarmers posts 6 per cent increase to annual profit”). During 2014, the outstanding performance of Coles has helped the company to increase its overall revenue compared to 2013 (“Wesfarmers raises retail sales through Coles.”). Figure 2: Share price performance of Wesfarmers Limited (2013-2014) (Source: Author’s creation) The figure highlights that Wesfarmers has encountered severe fluctuation during the period 2013 to 2014 because of the increase and decrease in demand for company shares. The half yearly data of Wesfarmers Limited is depicted below: Figure 3: Divisional EBIT (Source: “Results riding high”) The half yearly results of the company during 2013-2014 depicts that the EBIT of Coles is the highest among all the division of Wesfarmers Limited. Moreover, it is also observed that EBIT of Coles was high during the first quarter of 2015 followed by Home Improvement division of the company. This indicated towards the fact that Coles has performed excellently over years from 2013 to first quarter of 2015. Moreover, Wesfarmers Limited half yearly reports depicts that the changes that are taking place in the company financials over the years. The Shareholder’s Quick Guide of Wesfarmers highlights the information, which is significant for the shareholders for determining its financial status and whether it can offer increased return. The net profit after tax, earnings per share, return on equity and the interim dividend during the first quarter of 2015 indicates that the shareholders can invest in the shares because of the increase in overall performance of the company. The figures highlight the fact that despite of hard economic condition, the company has succeeded to perform exceptionally through its most profitable division, Coles (“Results riding high”). The retail portfolio had outperformed the earnings of other divisions due to the improvement in productivity and efficiency, which helped in decreasing the price of the products that are sold by the supermarket. Figure 4: Share price movement (2014-2015) (Source: “Share price details & calculator”) The graph depicts the half yearly share price performance of Wesfarmers Limited. It highlights that the share price has escalated to a great extent during the period from February to March 2015 majorly due to the increase in sales revenue over the period. The Quick Guide provides an overall view of the company during a period. In this case, it highlighted the optimistic outlook of Wesfarmers Limited during the first quarter of 2015. The retail business is expected to grow during 2015 as the industry is looking forward to offer innovating merchandise to the customers; hence, it is expected that Coles and Kmart can generate higher revenue as compared to the first quarter (“Share price details & calculator”). The consumers are predicted to manage their household income tactfully, which implies that there can be increase in sales of retail sector if the companies offer diversified product with lower prices. Hence, the increase in sales revenue during the second quarter of 2015 will automatically improve its profit position and as a result the shareholders can invest in the shares in the hope of getting higher return. The information depicted above is not only important for the shareholders but are significant for the customers and financial institutions. The financial institutions providing debt to the company have the right to know its financial position so as to understand whether the company has the capability it pay back the principle amount and principle after a stipulated period of time (“Shareholder Quick Guide”; “Half-Yearly report 2014”). Therefore, it can be stated that the quarterly and half yearly reports of Wesfarmers Limited has provided all the necessary information, which are required by the stakeholders for taking any investment decision. The Shareholder’s Quick Guide have also given valuable information regarding the half yearly changes during the years. The following figure indicates the same. Figure 5: Half-yearly performance of Wesfarmers Limited during 2014 and 2015 (Source: “Shareholder Quick Guide”) The figure highlights the difference in revenue, EBIT and net profit performance during half yearly of 2014 and 2015. Apart from this information the guide also provides the financial details of different divisions of Wesfarmers Limited. Views of Stock Broker analyst Stock Focus has given emphasis on the details of share price performance of Wesfarmers Limited. It indicates whether the shareholders are recommended to purchase the stock of Wesfarmers Limited. According to the financial data of the first quarter of 2015, Stock Focus has recommended that the share price is neutral and the market capitalisation is stable. The tsock broker analyst had identified that the main drivers of Wesfarmer’s, Bunnings, Coles and Kmart has performed really well and had given head start competition in the industry. The analyst had also predicted that will considerable increase in sales revenue, profit and EPS of Wesfarmers during the next three years and above all the ROE is also expected to grow. This indicates that the shareholders are likely to receive higher return on their investments. Stock Focus and J P Morgan has carried out valuation of the company to ensure the value of the share in the market so as to ensure the shareholders that they are taking a right decision. Both the analyst has consider a weighted cost of capital of 9% (“Wesfarmers Limited”; “Results riding high”). However, the valuation of the company per share is different for both the analyst. According to J P Morgan, the share price target of Wesfarmers Limited during 31st December 2015 will be $43.52 per share (“Wesfarmers Limited”); the same in case of Stock Focus is $45.59 per share (“Results riding high”). The analyst has used discounted cash flow valuation method for creating the price target for Wesfarmers Limited for the year 2015. Therefore, it can be concluded that Wesfarmers Limited had provided adequate information in their annual, half yearly reports and shareholder’s guide, which highlights the fact that it has followed the communication theory. Works Cited “About Wesfarmers.” Wesfarmers Limited. Wesfarmers Limited, 2015. Web. 3 June 2015. “Business Performance.” Wesfarmers Limited. Wesfarmers Limited, 2015. Web. 3 June 2015. “Half-Yearly report 2014.” Wesfarmers Limited. Wesfarmers Limited, 2015. Web. 3 June 2015. “Results riding high.” Stock Focus. Stock Focus, 2013. Web. 3 June 2015. “Share price details & calculator.” Wesfarmers Limited. Wesfarmers Limited, 2015. Web. 3 June 2015. “Shareholder Quick Guide.” Wesfarmers Limited. Wesfarmers Limited, 2015. Web. 3 June 2015. “Wesfarmers Limited.” J P Morgan. J P Morgan, 2015. Web. 3 June 2015. “Wesfarmers posts 6 per cent increase to annual profit.” News. ABC, 2015. Web. 3 June 2015. “Wesfarmers raises retail sales through Coles.” News. ABC, 2015. Web. 3 June 2015. Westbrook, Ian. Strategic Financial and Investor Communication. London: Routledge. 2014. Print. Read More