Financial Management
Write a 2000-word report based on the provided context scenario, financial information and ratios. Conduct a peer analysis of a competitor company of your choosing and the given case study company. Consider all relevant financial principles, concepts and theories.
Conduct the necessary financial analysis using appropriate techniques, tools and frameworks. Make decisions and recommendations based on the analysis and consider ethical implications and limitations
You are part of the management team of Amazing Lounge Pty Ltd (AL Pty Ltd). AL Pty Ltd is a private company specialising in the retailing of high-end home furniture. During the annual strategic review for 2021, a key focus is on analysing the financial performance of the company and mapping its growth pathway for the next 5 years. Financial information and ratios for the past 5 years have been calculated and provided to the management team.
The company has been investing substantially in capital projects and building its stock in the last few years. The Vice President (VP) of Operations is very keen to keep increasing the stock level as it provides a wide range of goods available for sale, and to continue spending on capital by opening new stores (the company has limited online presence to-date).
Write a report for the management team that addresses points 1 to 5 below:
Comment on the performance trends for current ratio and return on total assets of AL Pty Ltd using the ratios provided and noting 2020 was impacted by COVID-19 lock-downs. AL Pty Ltd operates in the furniture retail industry.
Choose another company in the same industry, preferably a publicly listed company with easy access to the required relevant financial information.
Using the DuPont Method, provide a critical analysis of AL Pty Ltd’s Return on Equity performance for the last 5 years relative to the competitor you have chosen. Please complete the analysis using publicly available data for the competitor (e.g. IBISWorld and/or annual reports).
Comment on the view taken by the VP of Operations that the company should be increasing stock level and opening new stores. Take into account all key finance principles, concepts and theories which are relevant. Also, 2020 was not a good year for AL Pty Ltd and 2021 started quite slow with the business seeing a large number of returns of furniture (refunds).
The VP of Operations has proposed that these refunds be posted in the 2022 results to give some breathing space for 2021. Discuss the ethical implications of this proposal from the VP of Operations.
One of the suggestions from the CEO is to consider floating the company to raise capital. Evaluate the pros and cons of listing the company and becoming public.
Identify and discuss the limitations of your analysis.
Based on your analysis and discussion, make recommendations as to whether AL Pty Ltd should continue on the same trajectory and whether listing the company would be beneficial. Suggest other alternative growth options for the company as well.
