Woolworth Viability and Opportunities for Business Expansion - Case Study Example

What happened to change in ratio? From the ration analysis undertaken for Woolworth, it is evident that there is change in ratio. This is because, the sales growth rate is anticipated at an assumed average growth which depicts major change in the financial statement. The effect of ATO on sales forecast will an impact on the ratios since, differed tax will be incurred in the reformatted balance sheet also’ Assumption of the forecast Our forecast will be based on the following assumption’ The sales growth rte will steady each financial period The growth rate will grow at a constant growth rate in perpetuity The effect of inflation will not have a big effect on the forecast The competition in the market will not have major effect on the sales forecast Reasons for optimistic and pessimistic outcomes The reasons for our worst and good outcome form our sensitivity analysis will be based on the extent to which the external risk factors will depict an impact on our forecast., since the forecast is based on a five year analysis, it is evident that our forecast will experience some external risk factors such as the effect of inflation and fierce competition which may have negative effect on our forecast. As a result, we worked out our pessimistic and optimistic outcome in order to provide an understanding of the worst and best case scenario from our evaluation. This is ideal since, it minimizes the investment and forecast from adverse risk. Woolworth entertainment Analysis The sensitivity analysis for Woolworth is undertaken in order to provide an understanding on the company’s viability and opportunities for business expansion. This is undertaking by evaluating what is most sensitivity among the sales growth, ATO and PM. From our sensitivity analysis in excel, it is apparent that the sales growth is very sensitivity which implies that change in external and internal factors will have a big impact on sales increase or decrease. As a result, we undertake analysis of the factors that case the sales growth in terms of opportunities and challenge that might be experienced by Woolworth in ensuring that the sales growth and business expansion is attained within the shortest time possible at low cost on capital funding. Table of sensitivity Analysis Base price $6.13 Trading price $2.54 Assumption Optimistic Optimistic price Pessimistic Pessimistic price Sales growth 9% $13.20 7% $2.97 PM 12.21% $5.79 5.38% $5.58 ATO 4 $4.33 4.17 $5.90 Div 86% $4.13 71% $6.13 Eiat 6% $4.13 4% $6.13 Rf 9% $15.62 14% $3.84 From the above table of sensitivity analysis, it can be observed that sales growth is very sensitive. Which act as a basis for evaluating the performance of the company in terms of viability. The sensitivity analysis is depicted in the graph as below. The graph of sensitivity analysis for Wolworth Possible opportunities for improvement for Woolworth The possible opportunity to improve business expansion is to increase the sales. This is attainable by ensuring that there is improved efficiency in terms of production and improved advertisement on company product in order to improve product awareness. Variable cost depicts an impact on attainability of business expansion in terms of sales growth it is the cost that increases with an increase in sales level. To cut on unnecessary coast, the company needs to incur only relevant variable cost in order to ensure that the sales and net profit is not reduced by the unproportionate increase in variable cost. Improve the customer loyalty The evaluation of Woolworth core business comprise of appraisal of the company net profit based on the customer loyalty. Customer loyalty comprise of development of superior impact to the customers sub division. This is important since it is an initial step to identification of the underserved customer and possibility for business expansion. The component comprise of sub division of customers in the group based on the current research, the trend in their purchase and effect in business expansion. Potential challenges for the company Cost of capital The sales growth rate would mean an increase in the production capacity and the need to market the company’s product to growth the awareness. As a result, there is need for extra cost of finance to fund the business expansion. Cost of capital is the biggest challenge for growing business. Capital in adequacy is one of the biggest challenge that impact many business growth and as a results, to get rid of capital insufficiency, there is need to ensure that source of capital is cheap and attainable. Profit Retention Whilst the debt might increase pressure on the company current operations due to interest payments, it aids in retaining the profits within the company unlike the equity which commands the share of interest from profits. With the use of equity capital, the more the profits, the more the shares to equity holders. The competition To be a price leader in a competitive market, there is need to ensure that there is customer loc in. this is the biggest change since, maintaining customer loyalty and improving product awareness and demand among fierce competition in the market commands constant revisiting of the company current and past strategy. When company improves in terms of sales and business expansion, then the level of competition will grow. There is need to comprehend the product positioning since it is important in device an alternative to taking advantage of the profitability in the fierce market while venturing in an innovative product in order to create a stream of new products in market. Bibliography Evans, M. (2002) Practical Business Forecasting - Page 291, London. Fabozzi, P.P.&.‎. (2014) Capital Budgeting: Theory and Practice, London: Springer. King, A.M. (2012) Executive's Guide to Fair Value: Profiting from the New Valuation Rules, New York. Palepu, K. (2007) Business Analysis and Valuation: Ifrs Edition - Text Only - Page 11, New York. Parameswaran, S. (2007) Bond Valuation, Yield Measures and the Term Structure, New York: John Wiley & Son's. Shim, J. (2009) Strategic Business Forecasting: Including Business Forecasting Tools, London. Swain, M. (2015) Budgeting for Public Managers, New York: Cingage Learning. Ulrici, V. (2007) Bond Valuation in Emerging Markets - Page 145, New York. Read More