Wesfarmers Limited Company Analysis - Case Study Example

Wesfarmers Limited Name: Institution: Date: Introduction and Areas of Operation Wesfarmers is large corporation in Australia with an employee capacity of almost 200,000 people. The company started as a farmer’s cooperative in Western Australia and grew to become the country’s most diverse companies and with large retailers. The company has a diverse area of operation and deals with general merchandise, home improvement, office product retailing, coal mining, gas processing and distribution, chemical and fertilizer production, industrial and safety products, insurance, and supermarkets among others. The company does not only focus on the financial performance of the business but also on other sustainability areas such as people, carbon and energy, community support, environment, governance and economic contribution (Wesfarmers Limited group profile, 1996). Laws and regulations There are various laws and regulations that affect the operations at Wesfarmers, most of these policies affect the ability of the company to compete in the market including its relationship with the consumer. One of the regulations affecting the operations at Wesfarmers is forced divestiture, the proposal made in the competition and consumer act that the court should have powers to order a corporation to reduce its market share through divestiture, with these proposed amendments, there will be unpredictable results and there is a risk of leaving target sustainability to be less productive, efficient, profitable or viable which reduces the welfare of the consumers. Prohibition on price discrimination is another regulation which affects the operations at Wesfarmers; this law prohibits a corporation that has a substantial share in the market from discriminating between those who purchase goods of like quality in relation to the prices charged on goods, the discounts and allowances given. This regulation prevents the company from charging different prices to different customers for the same goods or services if it has the purpose of reducing competition in the market. The law on creeping acquisitions and market caps prohibits the company having a substantial share of a market from acquiring an existing retail outlet or the opening of a new outlet in areas there the company already has reasonable number of retail representation if the acquisition of that retail threatens to eliminate or damage a competitor. This regulation which guarantees some businesses a minimum share of the market and prohibits well established companies from building new stores protects other businesses from competition at the expense of the consumers. The reversal of the onus of proof regulation obliges major supermarkets to give proof that acquiring an existing store or a vacant site will not reduce the competition in any given market. The various supermarkets will be mandated to prove that if they acquire these new ventures will not be a hindrance to the entry of other businesses into that market or prevent a business from engaging in competitive conduct in the market. This proposal of reversal of the onus of proof is therefore a market cap since it can never be proven. Price signaling, another regulation affecting Wesfarmers was amended in June 2012 to prohibit price signaling by the banks. This amendment prohibits both the private disclosure of pricing including other relatable information to a given competitor, and the general disclosure of information where the disclosure is aimed at reducing the competition in the market. Such a regulation increases the average fuel price for the price-sensitive motorists and reduces the price of fuel to fuel-card holders (Westbrook, n.d.). Primary competitors Through its operations in the market, Wesfarmers faces several competitors who offer similar goods and services. One of the major competitive threats to Wesfarmers is Amazon which is a US-based retail company that finds its competitive advantage through cheap labour, low tax and highly innovative supply chains. Another major competitor to Wesfarmers is Woolworths which is Australia’s second largest retailers. Other minor competitors of Wesfarmers include Myer and Best & Less who conduct their retail business at a lower level scale as compared to Wesfarmers. SWOT Analysis Wesfarmers has earned various advantages that help the company to compete in the market, these advantages form the strength of the company, and however, there are other disadvantages either internal or external that hinder the progress of the company. Among the strengths the company has is the long period in which it has been in operation which act as a symbol of legacy for the company. The company emphasizes on community development initiatives hence contributing to improving the livelihood of the society thus increasing the goodwill of the company. Throughout its operations, Wesfarmers has focused in the deliverance of convenience and customer service which is appealing to their customers. The company has got large numbers of stores, in-store staff and a strong workforce with over 200,000 members who ensure that service delivery to is customers is not delayed and that there is continuous satisfaction over time. There are special offers and discounts given out by Wesfarmers which attracts customers hence giving the company a competitive advantage, these goods are of various varieties hence suiting the demands of every category of customers. The company has got online formats through which it conducts its activities making it able to reach a wide range of customers. The company is a diversified corporation comprising of Coles, energy, resources and other activities with the aim of investing into new fields in order to experience persistent growth. It is a competitive organization with the goal of bringing more benefits to its shareholders; the organization believes that for it to develop it has to have the support of its shareholders hence attracting more than 400,000 shareholders to purchase its shares ("Hoovers company capsules", 1999). Despite the strengths, the company faces various challenges which represent its weakness; some of these strengths actually work to the disadvantage of the company. The company specializes in energy, resources and may other spheres hence having less competition then companies specializing in one range of products. As a result of being a market leader, the company is always under scrutiny for every crucial decision it makes hence putting it on the limelight with its competitors. As a result of its experience limited to Australia only, the company has got low geographic presence which reduces its influence in the international market. The cost structure of the business may also work to the disadvantage of the business in terms of the amount put into the business and the profit made. Wesfarmers faces many opportunities within its operating environment, in terms of demography, the company has grown and increased its operations reaching a mark of 200,000 employees hence increasing its market concentration thus an advantage over it competitors. The organization does well in taking advantage of opportunities that come along, in November 2007, the company spent 22 billion euros to purchase Coles group retail business and went ahead to becoming the leading Australian retailer. It has go an opportunity to develop its global business due to the increased demand for natural materials in developing countries such as India and South America. The political structure of Australia is a parliamentary democracy in free markets, some changes that were made in the energy sector such as removal of barriers to interstate trade electricity gave Wesfarmers an opportunity to expand in other states. Threats that face Wesfarmers include strong competition from retail, it is has a large market share in Australia’s retail hence becoming the target level for other retail competitors. Due to its huge shareholders and employee capacity, it becomes difficult to control the company and communicate ideas to lower employees effectively. Wesfarmers relies on retail market and local production, the company however ignores the impact of low-cost regions in other areas in the world which may lead to reduced production hence putting the company to the threat of bearing intense price competition in future. Fraudulent financial reporting Wesfarmers being a big organization and transacting on many business operational areas has got various financial statements that are susceptible to misappropriation or fraudulent. Although the financial records at Wesfarmers indicate more satisfactory results, the high inventory turnover day’s statement which is can be susceptible to misappropriation; this may indicate that the company takes long to replenish existing finished stock as a result of either low demand. The debit and equity account indicate highly geared debt ratio and low interest coverage ratio after calculations of the financial statements casts significant doubt about the going concern issues in the previous year, this indications show that the company could not be able to pay off interest costs comfortably. Liquidity accounts indicating poor liquidity position as a result of inadequate working capital means the company takes too long to settle the liabilities it has towards its creditors hence a negative cash conversion cycle. Stock account can be fraudulently reported to indicate different stock values; this can be brought about by the decrease in value of property, plant and equipment hence the need for thorough analysis to check the true stock position of the organization. Control environment reliance There is a likelihood of potential reliance that could be placed on the overall control environment at Wesfarmers. Among these, is the economic factors, the Australian service sector is the fastest growing sector. Highest value service in the industry comprises of finance and insurance, the Wesfarmers insurance apartment is therefore a large potential market having favorable conditions. A political factor in Australia which entails the central government establishes a framework for legislation of mining. Mining companies therefore need to get approval of the state government before conducting their activities, at Wesfarmers, coal mining is an important division of the organization hence the company is concerned about state regulations on mining to which its operations directly rely upon. Australia has got a sound legal system entailing labour laws, natural resources law, and laws that regulate a range of business. Wesfarmers being a large enterprise is abounded by these legal factors which affect the way in which the company operates. Technology contributes to the resource and mining industry in Australia since it combines advanced technology, equipment and services that create a high production efficiency. Among the diverse business operations at Wesfarmers, coal mining is among the major business of the organization including chemical, fertilizers and industrial products, good technology is important in quality production and for guarantee of enterprise development. Sociological factors also contribute to the well-being and operations of Wesfarmers, families are always willing to buy life necessities on a weekly basis hence become more interested in one-stop shopping. This works in favor of Wesfarmers in the management of its supermarkets, departmental stores and home improvement equipment. The issue of environmental protection is of great importance in Australia, this entails the prevention of environmental pollution ranging from natural resources to maintaining ecological regions, Wesfarmers being a leading company in Australia needs to plan the project in order to reduce product packaging and instead increase recycle system. Target effect on Auditing The scandal at Target occurred when suppliers agreed to give Target additional rebates in the exchange of a guarantee of higher prices before the financial year ends. Instead of booking the rebates which were extra against the cost of inventory which is actually according to the accounting standards at Wesfarmers, these rebates were instead taken to profit hence the struggling chain got a temporal boost in terms of earnings. The cash from suppliers was never paid; however, there would be no restatement of the Target first half account since this would be analyzed during the next full year accounts. There will therefore be the need for Wesfarmers to revisit its profit forecast as part of the annual asset valuation process. In each of the 10 percent downward movement in Target’s profitability, there would be a 200million dollar negative impact upon its valuation. The half year results will be worse than those published by the company. In case of a repeat of pattern of trading performance in the second half of the financial period, the write down against the value of Target will be high. As a result of the scandal, the 2017 audit plan will be affected since the accounting statements at Wesfarmers will not be an indication of the true position of the company. The restated profits will not be a reflection of the profits the company had made, this will give a false statement of the income and expenditure the company had incurred, there will therefore be need to review the company data and analyze the financial figures before the restatement was done to evaluate the transactions that had been made. In evaluation of the profits and loss, the auditing team will have to eliminate the altered earning made from the scandal since this may give an exaggerated figure of the difference between the profits and loss made by the organization. References Hoovers company capsules. (1999). Filtration & Separation, 36(7), 184. http://dx.doi.org/10.1016/s0015-1882(99)90447-0 Qfinance. (2009). London. Wesfarmers Limited group profile. (1996). Perth, W.A. Westbrook, I. Strategic financial and investor communication. Read More