Date: 17 October 2009,
TO: CEO
Country Road Ltd.
Fax: 000- 0000 -000
FROM: PQR 1
Management Consultant
Country Road Ltd.
RE: Management Report
Terms of Reference: The management consultant of the company has presented this accounting, financial & prospective analysis to update the management about the outcomes of recent operations and financial performance. This report will help the management to take into account measures and further decision making.
Introduction
In a dynamic and competitive business environment, every business entity has to ensure its effective emergence over its targeted market segment. Every organization has some potentialities and risks and considering these, the strategies have to be designed. A company like Country Road Limited has some key threats as well as opportunities in this present economic downturn. Accounting, financial, and prospective analysis has been used for the present performance measurement technique, which is being connected by the industry and strategy analysis to get the appropriate picture. Finally, this report has presented some recommendations for management.
Industry Analysis of Country Road Limited
In 1974, CRL2 started its business as a supplier of niche women’s shirting. It has been offering stylish and high-quality apparel. In the 1980s and 1990s, it experienced rapid growth in both Australia as well as global markets, which was in the United States and Asian markets. It innovates the apparel superstore concept firstly in Australia (Ahern 2004, p.12). It became an uncompetitive brand though it experienced a profitability decline in the US. It completely concentrates on the Australian market and designs fashionable apparel at low prices. In 2004, it has expanded its business in child wear and babywear which completed the lifestyle range of the company. It has now its business within Australia and New Zealand (CountryRoad.com 2009).
Concerning the consumption pattern of apparel and clothing, Australia is a mature market. It has been positioned in 28th place within the world considering the value added by the textile and manufacturing industry. There are no large players in the industry rather there are some small and medium scaled players. Australian industry is now facing competition from the low-cost products of China and thus the local manufacturers are losing market share.
It has more imports than exports and the present global recessionary condition has affected negatively. There is moderate competition in the industry, which has figured by the top quality and competitive price. The local brands are competing successfully with the international brands and are always up to date with the trend changes in the global and local market.
Strategy Analysis of Country Road Limited
When CRL has started that, its business the market has driven by high cost and low-quality products. CRL envisaged an occasion in this niche sector of retailing by introducing high-quality women’s shirts. It has expanded its business over other apparel products like women’s wear, menswear, accessories, homewares, and baby wears. In addition, the company experienced huge success in this entire sector.
All these successes were a factor of appropriate strategy selection. At first, it took an expansionary strategy to extend its business to the US, New Zealand, and Asian markets. Again, when the market outcome started to fall, the company started to exit from the US and Asian markets, which was also a good strategic move. Thomson (2009) argued that the effect of the strategic success of this entire sector has reflected by its revenue and profit growth. Nevertheless, the economic downturn is pushing the company to take another strategic move. As a result, the country road has introduced several growth strategies. Opening new stores and merging with other successful companies are two of the strategies.
CRL has some key success factor that has to be discuses to analyze its business strategy. These are offering a high quality of products with the lowest price, knowing its customers very well, conservative brand image, and ability to forecast or predict the negative aspects. Though CRL is taking these strategies, it has some risks also. These are the declining growth rate in the Australian apparel industry with high competition from foreign companies and the present economic downturn.
Strong cash flow, lean inventory level, and significant and planned expansion of capital are the key features of the company, which are helping this company to sustain itself. Therefore, it has expected that CRL will overcome these risk factors as it did before.
Accounting, Financial, & Prospective Analysis of Country Road Limited
Country Road has evaluated and analyzed accounting, financial, and prospective analysis. Accounting analysis is measuring financial information according to profitability, efficiency, liquidity, stability, and return on investments. Some major discussed accounting policies, like sales revenue, plant and equipment, leases, financial expenses, intangible assets, and derivative financial statements by maintaining quality, flexibility, and accounting policies.
Financial analysis has been measured in terms of ratio and cash flow analysis and compared with two recent financial years. The liquidity analysis ratio is equivalent to standards except for the quick ratio is 2008. Profitability analysis ratios have shown effective results in two years. However, activity analysis ratios are not appropriate according to standards and organizational policies. In the recent period, the debt-equity ratio is in the worst position of CRL. Lastly, the capital analysis ratio could measure only for 2008, as a dividend has been paid only this year, which is under controllable.
On the other hand, cash flow analysis has shown the differences between cash flow terms in 2008 and 2007, which indicates that, in 2008, cash and cash equivalents has increased to use in investments and other resource management.
In prospective analysis, forecasting has measured the CRL’s income statement and balance sheet of 2008 by revenue growth rate and asset growth rate. The growth rate of the income statement has shown a 3.33% rate in net profit of CRL and balance sheet by 64.50% in net assets of Country Road (Wotnews 2009).
In valuation, four different models have been used to calculate dividend discount, discounted abnormal earnings, discounted operating abnormal earnings, and discounted cash flows. By comparing these models with the market value of stocks, which is not efficient to pay abilities of future forecasts of the market of CRL.
Conclusion
Country Road Limited is experiencing a downturn in its profitability. Its accounting and financial analysis shows an overall downturn trend to generate revenue and asset-debt management. These are the effect of the present economic downturn. In this report, some strategies have been recommended. The most effective strategy is to anticipate future outcomes. In this report, there are some methods proposed to achieve the expectations. If the company strictly follows these, it has expected to overcome this situation.
References List
Ahern, A. 2004. Apparel in Australia. Web.
Besley, S. & Brigham, F. E., 2007. Essentials of Managerial Finance. 13th ed. Thomson South- Western.
CountryRoad. 2009. Our History. Web.
Country Road. 2008. Annual Report of Country Road Ltd. Web.
Thomson, J. 2009. What can You Learn from Country Road’s Downturn-beating Growth Strategies? Web.
Wotnews. 2009. Country Road Company Reports – Half Yearly. Web.
Footnotes
- Insert your name.
- Country Road Limited.