Dulux Group Limited is considered as one of the leading manufacturer and marketer of the products pertaining to enhance, protect and maintain the interest of the common people. The products are used to transform the household rooms with the use of latest designer colours, industrial coatings to protect the landmark infrastructure like bridges and using construction chemicals to reinforce the same. Dulux Group Limited has employed more than 4000 employees across “Australia, New Zealand, Papua New Guinea, South-East Asia and China” (Chen et al., 2016).
Some of the various types of the operating segments of the company are discerned with Paints and Coatings, Garage Doors & Openers and Lincoln Sentry. The important discussion of the report includes inherent risks and the control measures. The latter apart of the report has further evaluated the risks and control environment and Comparison of the financial ratios with “Fortescue Metals Group” (Contessotto & Moroney, 2014).
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Inherent Risk |
Control Measures |
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Risk factors associated to growth of the company- This factor is depicted in terms of sustainable growth opportunities and pursuing the other risk factors which may have an impact on the long-term profitability. |
The different types of the “internal growth” issues and the “M&A capability” is supported by the involvement of the external audit advise. The board is able to oversight the various types of the growth activities (Miran, 2017). |
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Key customer relationships- Dulux group is considered as the largest form of the retail customer to depict a substantial share of the total revenue. Any form of loss of income from the key customers may adversely impact on the profitability of the company. |
Dulux Group Limited’s ongoing investment is considered with the iconic brands to drive the consumer activity along with the important retail channels to assist the customers for succeeding. The main customer relationship is further depicted with key retail channels for assisting the customer’s success. This is further seen with the emphasizing in providing superior service to the customers. The company has also maintained the broad base of retail and trade activities maintained with the customers (Yoon, Hoogduin & Zhang, 2015). |
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Continuity of business and catastrophic event of hazards in the manufacturing and IT systems- The group’s operations may get impacted with accidents, natural disaster, failure critical to the IT systems and other catastrophic event which may hamper the materiality aspect or disrupt the operations. |
The disaster recovery plan is in the appropriate compliance with the major sites and critical IT systems. The company has given an augmented in addressing the cyber security threats. The rigorous safety and hazards are identified with the audit prevention system at key sites with significant ongoing investment. Dulux has introduced relevant insurance policies which includes the necessary provision for interruption cover (Lang & Soled, 2017). |
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Competitive threat and market disruption- The risk associated to the Dulux Group’s transnational competitors or new disruptive Entrants may introduce the innovations along with the lesser cost to the Australian Market. The threatening of the market share of Dulux Group’s market share and operating margins. |
Dulux has been able to establish the brands supported with ongoing marketing investment. The important investment activities are discerned with local innovation and product formulation to make sure that the amenities are well suited with the markets. The use of multinational suppliers for the decorative paint raw materials is able to reduce the potential exposure to the technology. Moreover, it is also with the international product benchmarking (Visvanathan, 2017). |
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Erosion of brand equity- The iconic brand has been able to rely on the excellence and premium performance. The important loss of the brand equity may have an adversative effect on the “revenue and profit”. |
The plans to initiate active stewardship is able to be depicted with stewardship focus. The regular superiority guarantee and testing process is also evident with erosion of brand equity (Wainman et al., 2017). |
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Product litigation and liability- The litigation factors are related to the “product liability, product recall, regulatory controls or environmental practices”. The loss of the any of the aforementioned aspect may lead to adverse financial impact. |
The company is able to take appropriate initiative for the quality assurance aspect and governance practices. The well-developed complaints with appropriate responses is seen as the mitigation initiative. The insurance policy is also seen as the main factor to avert the risk of product liability (Garnett et al., 2015). |
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Key Input Volatility- The risk of supply disruption is seen with the non-availability of the key input associated to the materials which may influence revenue or the value volatility including effect on foreign exchange. |
The company is able to utilise the range of suppliers and robust selection of the suppliers. Dulux has shown robust supplier selection processes. It has also been able to make the necessary arrangement for the contingency supply arrangements. The insurance policy measures include business interruptions. Some of the different types of the other aspects are seen with the foreign exchange hedging program (Rakhmanova, Nagumanova & Naumova, 2016). |
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Regulatory Safety- The regulatory safety aspect is considered with the aversion of the damage in the workplace concerning devastating results for the employees and their families. |
The company is able to put an augmented focus on the prevention of fatality and personal safety. There is a important investment made for the safety, training and audit (Demartini & Trucco, 2016). |
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Industrial Relations- The product supply and materiality may be impacted in terms of the extended industrial disputes associated to the renegotiation of the shared contracts. |
The company has implemented multiple manufacturing and distributed sites. This growth is brought with the continuing development of the industrial relations capability. Continuous focus on the site based productivity has been able to depict positive employee relations (Wang, 2015). |
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Project execution risk – This particular materiality risk is considered to have a significant effect with the limited capital availability having on the cost overrun of the project. |
The Rocklea manufacturing facility of the company has continued to creation of water based paint so that in case of a delay there is no hazard to the client supply. The knowledgeable project management team is supported with a good project governance initiative. |
The risk factors are seen to be taken into account with the Risk factors associated to “growth of the company, Key customer relationships, Continuity of business and catastrophic event of hazards in the manufacturing and IT systems, Competitive threat and market disruption, Erosion of brand equity, Key Input Volatility, Industrial Relations, Product litigation and liability”. The addressing of the risk factors is able to state on the active stewardship which is depicted with stewardship focus. The orderly quality declaration and testing process is also evident with erosion of brand equity. The disaster recovery plan is seen to be conducive for addressing the relevant risk pertaining to IT (Pandit et al., 2014).
Profitability Ratio Analysis
As per the recent performance of Dulux Group Limited the net profit of Fortescue Metals Group is slightly higher. Similarly, in terms of Return on Equity the recent performance of the competitor company is better than Dulux Group Limited.
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Profitability Ratio Analysis: – |
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Dulux Group Limited |
Fortescue Metals Group |
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Particulars |
2016 |
2015 |
2014 |
2016 |
2015 |
2014 |
|
Revenue (A) |
1716.259 |
1687.834 |
1611.5 |
7083 |
8574 |
11753 |
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Net Profit/Loss (D) |
130.4 |
112.8 |
104.5 |
985 |
316 |
2740 |
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Common Stock(H) |
365.293 |
351.245 |
291.661 |
984 |
7524 |
7569 |
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Net Profit Margin (D/A) |
7.60% |
6.68% |
6.48% |
13.91% |
3.69% |
23.31% |
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Return on Equity (A/H)) |
35.697% |
32.114% |
35.83% |
100% |
4% |
36% |
The current ratio of Dulux Group Limited is slightly better which shows that the company has a lower risk of paying the short term liabilities with the current assets in hand.
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c) Short-Term Liquidity Ratio Analysis: – |
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Dulux Group Limited |
Fortescue Metals Group |
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2016 |
2015 |
2014 |
2016 |
2015 |
2014 |
|
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Total Current Assets (A) |
522705 |
532452 |
479602 |
2423 |
3529 |
4477 |
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Total Current Liabilities (F) |
322717 |
336263 |
304833 |
1634 |
1688 |
3270 |
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Current Ratio (A/F) |
1.62 |
1.58 |
1.57 |
1.48 |
2.09 |
1.37 |
This aspect clearly depicts that Dulux Group Limited is in a better position in compared to Fortescue Metals Group.
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Interest Coverage Ratio Analysis: – |
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Dulux Group Limited |
Fortescue Metals Group |
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2016 |
2015 |
2014 |
2016 |
2015 |
2014 |
|
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EBIT |
201 |
175 |
175 |
3,195 |
2,506 |
5,636 |
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Interest Expenses |
15.5 |
16.9 |
25.3 |
621 |
590 |
747 |
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Interest Coverage Ratio |
12.97 |
10.37 |
6.92 |
5.14 |
4.25 |
7.54 |
The efficiency ratio interpretation has been able to depict that Dulux Group Limited is clearly in a better position in compare to the competitor.
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Efficiency Ratio Analysis: – |
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Dulux Group Limited |
Fortescue Metals Group |
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2016 |
2015 |
2014 |
2016 |
2015 |
2014 |
|
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Revenue |
1,716 |
1,688 |
1,612 |
7,083 |
8,574 |
11,753 |
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Expenses |
1517.876 |
1517.22 |
1442.571 |
675 |
644 |
741 |
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Efficiency Ratio |
88.44% |
89.89% |
89.52% |
9.53% |
7.51% |
6.30% |
In term of EPS depiction Dulux Group is having an EPS of 34 cents in 2016 which is higher than Fortescue Metals Group.
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Earnings per share Analysis: – |
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Duluxgroup Limited |
Fortescue Metals Group |
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2016 |
2015 |
2014 |
2016 |
2015 |
2014 |
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Basic EPS |
34 |
30 |
28 |
32 |
10 |
88 |
As per the debt equity ratio interpretations Dulux Group has been able to keep this ratio significantly low thereby depicting a lower risk profile.
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Solvency Ratio Analysis: – |
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Dulux Group Limited |
Fortescue Metals Group |
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2016 |
2015 |
2014 |
2016 |
2015 |
2014 |
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Long Term Debt |
363 |
350 |
346 |
5,188 |
7,188 |
7,159 |
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Equity |
365.238 |
351.245 |
291.661 |
8,406 |
7,537 |
7,583 |
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Debt Equity Ratio |
1.01 |
1.00 |
0.84 |
1.62 |
1.05 |
1.06 |
Conclusion
Based on the significant interpretation made in the study the primary risks are associated to “growth of the company, Key customer relationships, Continuity of business and catastrophic event of hazards in the manufacturing and IT systems, Competitive threat and market disruption, Erosion of brand equity, Key Input Volatility, Industrial Relations, Product litigation and liability”. The ratio analysis has depicted that the overall risk profile of Dulux Group Limited is lower than its contemporaries such as Fortescue Metals Group.
References
Chen, L. H., Chung, H. H., Peters, G. F., & Wynn, J. P. (2016). Does Incentive-Based Compensation for Chief Internal Auditors Impact Objectivity? An External Audit Risk Perspective. Auditing: A Journal of Practice & Theory, 36(2), 21-43.
Contessotto, C., & Moroney, R. (2014). The association between audit committee effectiveness and audit risk. Accounting & Finance, 54(2), 393-418.
Demartini, C., & Trucco, S. (2016). Audit risk and corporate governance: Italian auditors’ perception after the global financial crisis. African Journal of Business Management, 10(13), 328.
Garnett, C., Crane, D., West, R., Michie, S., Brown, J., & Winstock, A. (2015). Normative misperceptions about alcohol use in the general population of drinkers: a cross-sectional survey. Addictive behaviors, 42, 203-206.
Lang, M. B., & Soled, J. A. (2017). Disclosing Audit Risk to Taxpayers. Va. Tax Rev., 36, 423.
Miran, M. (2017). THE INFLUENCES OF ETHICAL COMPETENCY, AND AUDIT RISK TOWARDS THE SKEPTISISME AUDITOR PROFESIONAL (The Empirical Study at Public Accountant in Jakarta). Jurnal Manajemen dan Bisnis, 1(2).
Pandit, J. J., Andrade, J., Bogod, D. G., Hitchman, J. M., Jonker, W. R., Lucas, N., … & Paul, R. G. (2014). 5th National Audit Project (NAP5) on accidental awareness during general anaesthesia: summary of main findings and risk factors. British journal of anaesthesia, 113(4), 549-559.
Rakhmanova, I. I., Nagumanova, R. V., & Naumova, N. A. (2016). Application of Fuzzy Sets Theory to Assessment of Audit Risk in a Tax Audit. International Business Management, 10(27), 6149-6152.
Visvanathan, G. (2017). Intangible assets on the balance sheet and audit fees. International Journal of Disclosure and Governance, 14(3), 241-250.
Wainman, D., Hughes, S., Rose, C., Hefkey, J., & De Waard, J. (2017). U.S. Patent Application No. 14/800,428.
Wang, L. (2015). The Research of Initial Public Offering Audit Risk Management. Open Journal of Business and Management, 3(04), 471.
Yoon, K., Hoogduin, L., & Zhang, L. (2015). Big data as complementary audit evidence. Accounting Horizons, 29(2), 431-438.
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