Discuss about the Decision To Outsource Risk Management Services.
In this report, Domino’s Pizza Enterprises Limited (Dmp) is selected to be the company that is a leading multinational fast food chain listed in Australian Stock Exchange and is situated majorly in Australia. The company is observed to be involved in retail food outlets operation along with the franchise services operation. The organisation’s business segments encompass Europe, Australia, New Zealand and Japan. The organization is positioned as franchise of Dominos Pizza Brand all through the world (Limited 2018).
The report also deals with the different implications of ASX corporate governance principles in consideration to Domino’s Pizza Enterprises Limited (Dmp). The major objective of this discussion has taken into account the company’s audit risks along with likely risks which can be implemented in order to decrease these concerns. Finally, this report will also focus on evaluating the company’s income statement along with ratios of balance sheet statements.
It has been recognised that enough significance is offered to the corporate governance on the behalf of the Domino’s Pizza Enterprises Limited (Dmp). This in addition has a high contribution in order to make sure of the shareholders long term value. The management has made sure that the company abides with all the recommendations along with principles of the ASX corporate governance council (Halim et al. 2017). The board is accountable to present as well as serve the interest of the shareholders. Moreover, it also has an added responsibility for setting the strategic direction I order to increase the shareholders wealth. The strategy which is approved by the board is being approved that is delegated to the management by means of formal authority delegation focussed on the CEO. In addition, the board of Domino’s Pizza Enterprises Limited (Dmp) is responsible for conducing the following functions:
The review of board performance was indicated through the support of review outcomes with the external facilitator (Honey 2017). After attaining such feedback, the chairperson of Domino’s Pizza Enterprises Limited (Dmp) is associated with the discussion with all the individual directors. Such contract includes relevant policies along with terms at the time of appointment which takes into consideration the remuneration entitlements along with the performance needs. It has also been recognised that the relationship importance of between analysis of management along with remuneration performance. This is clearly indicated at the time of evaluating the management’s performance.
In consideration to the reporting period of 2017, the performance review is considered on the behalf of the remuneration of the executive committee members along with board, the “individual performance committee reviews”, group executive along with the CEO is sanctioned (Hutchinson, Seamer and Chapple 2015). In addition, the directors, does not take any decision which can result in the conflict of the interest along with material personal interest. In case any such incidents are recognised, they require to be reported instantly to the company. For this reason, the individual directors along with Domino’s Pizza Enterprises Limited (Dmp) Company’s board committees can use their power and accountability in consideration to the reserved matters of the board. The review associated with the board charters and committee is conducted within the reporting year that is published within its website.
Domino’s Pizza Enterprises Limited (Dmp) has complicated the operations of the business because of a wide array of strategic, financial, operational along with compliance uncertainties. These issues are also present in retail along with online business including food, liquor, petrol, bar, accommodation along with gaming operations. For managing materials uncertainties in order to carry out the business operations, the governance structure along with the enterprise risk framework management that is developed in order to offer considerable support (Jizi et al. 2014). In addition, the above structure of the enterprise risk management of Domino’s Pizza Enterprises Limited (Dmp). This is adhered in consideration to “principles and recommendations of ASX Corporate Governance” along with “New Zealand and Australian Standard of AS/NZS ISO 31000:2009 Risk Management- Principles and Guidelines”.
The risk management policy of the company indicates the overall philosophy of such approach in the direction of risk management as well as maintaining considerable responsibilities and roles. Along with the help of such processes associated with the business risk management, it is likely to monitor, detect along with report the risks having impact on the success associated with the operational plans along with strategic objectives. It has been recognised that Domino’s Pizza Enterprises Limited (Dmp) has implemented several recognised opportunities regularly in order to improve the overall risk management framework that ARMCC has been reviewed at the end of the accounting year. There are some materials business uncertainties for the company that encompass economic, environmental along with risks associated with the social sustainability. In the surrounding of retail trading, certain strategic risks are taken into consideration with the competition. In such scenario, it has been gathered that disruptions in technologies, new players of entry along with different consumer expectations coupled with internal along with external integral risk factors that results in increased competition. In such aspects are not analysed in a better manner, this might have drastic impact on the overall business performance and market share.
There are certain financial risks along with the relation to the funding availability along with capital management as well as liquidity required for the business operations along with the growth of the company (Tricker and Tricker 2015). It is also being gathered that Domino’s Pizza Enterprises Limited (Dmp) has not attained success for turning the general merchandise in the previous financial year that have negative affect on the company’s profitability. In consideration to the policy of the company, the operating events are exposed within several risk factors including the safety standards associated with the data breaches, product, business disruptions and information technology due to the cyber attacks along with security asset. In case of Domino’s Pizza Enterprises Limited (Dmp), it is gathered that operational risks encompass incapability to address the standards related to product safety, security asset, business disruptions along with unpredictable weather situations in future (Lyall 2017). Along with the same, there might be industrial disputes due to the disruptions within the supply chain along with technology failure. The compliance concerns are related with applicable laws, regulations along with contractual agreements that are considered to be exposed to drastic legislation along with regulatory changes. The violations along with the opposing differences might result in negative impact on the brand image along with profit level of the company including significant fines along with other negative consequences.
After evaluating the income statement of Domino’s Pizza Enterprises Limited (Dmp) in 2017, it can be observed that the profit along ith the revenues that have increased in comparison to the prior year. This might be validated through indicating the fact which the overall revenues of the company that has increased in the year 2017 (Gutman, Juchau and Flanagan 2015). In addition, certain improvements might be observed within the profit levels in 2017 in comparison to the 2016.
|
Comparison of Consolidated Income Statements |
|||
|
Particulars |
Woolworths Group 2017 |
Woolworths Group 2016 |
Percentage of the total income |
|
Revenues |
55475 |
53473 |
104% |
|
Profit for the Period |
1422.1 |
726.3 |
196% |
|
Comparison of Statement of Financial Position |
|||
|
Particulars |
Newcrest Mining 2017 |
Newcrest Mining 2016 |
Percentage of the total income |
|
Total Assets |
22915.8 |
23502.2 |
98% |
|
Capital Expenditure |
1840.5 |
1797.5 |
102% |
It might also be recognised that the net margin of Domino’s Pizza Enterprises Limited (Dmp) in the year 2017 in comparison to 2016. On the other hand, the return on equity have been highly negative in the year 2016 that has increased positively in the year 2017. In addition, to same, positive increase in the return related with the assets that has increased in 2017 in comparison to the previous year 2016 (Griffiths 2016).
|
Profitability Ratio Analysis: – |
||
|
Dominos |
||
|
Particulars |
2017 |
2016 |
|
Revenue (A) |
2,788.00 |
2,216.50 |
|
Net Profit/Loss after Tax (D) |
277.9 |
192.8 |
|
Ordinary Equity(H) |
1533.5 |
-1234.8 |
|
Total Assets (G) |
836.8 |
799.8 |
|
Net Profit Margin (D/A) |
9.97% |
8.70% |
|
Return on Equity (A/H)) |
18.12% |
-15.61% |
|
Return on Assets (G/D) |
33.21% |
24.11% |
The stock clearing efficiency has enhanced significantly from the previous year that is present with an enhanced inventory turnover ratio. In contrast to that the asset turnover ratio of the company that has increased in the year 2017. In addition to that, the turnover ratio in the year 2017 in comparison to year 2016.
|
Particulars |
2017 |
2016 |
|
Cost of Goods Sold(A) |
1,922.00 |
1,533.40 |
|
Inventory (H) |
4080.4 |
4558.5 |
|
Revenue (A) |
2,788.00 |
2,216.50 |
|
Total Assets (G) |
836.8 |
799.8 |
|
Inventory Turnover Ratio (A/H)) |
0.47 |
0.34 |
|
Total Asset Turnover Ratio (A/G) |
3.33 |
2.77 |
As per the evaluation According to the analysis of the liquidity position of the organisation with the help of current ratio and quick ratio, the current ratio of the organisation has declined slightly to 0.79 in 2017 from 0.83 in 2016. Such declining trend of the current ratio states that the organisation has not maintained adequate working capital in order to manage its daily business operations and activities (Klettner, Clarke and Boersma 2014).
|
Short-Term Liquidity Ratio Analysis: – |
||
|
Dominos Group |
||
|
2017 |
2016 |
|
|
Total Current Assets (A) |
836,753 |
716,295 |
|
Receivables (D) |
173,677 |
150,369 |
|
Cash and equivalents (B) |
909.4 |
948.1 |
|
Total Current Liabilities (F) |
3,572,137 |
2,599,438 |
|
Current Ratio (A/F) |
0.23 |
0.28 |
|
Quick Ratio [(B+D)/F) |
0.05 |
0.06 |
The considerable representation of the debt ratio indicates that Domino’s Pizza Enterprises Limited (Dmp) has been capable to decrease overall debt obligations in the year 2017 to 2016. This is due to the reason that debt to assets ratio of the company has decreased in the year 2017 in comparison to year 2016. Conversely, the equity base of the company is considerable decreased that indicates that Domino’s Pizza Enterprises Limited (Dmp) funds all its operations and projects because of the debt financing.
|
Debt Equity Ratio |
||
|
Dominos |
||
|
2017 |
2016 |
|
|
Total Liabilities (A) |
3,572,137 |
2,599,438 |
|
Total Assets (B) |
22915.8 |
23502.2 |
|
Total Equity (C ) |
1533.5 |
-1234.8 |
|
Debt-to-total Assets Ratio (A/B) |
155.88 |
110.60 |
|
Debt to Equity Ratio (A/C) |
2329.40 |
-2105.15 |
The anticipated steps that Domino’s Pizza Enterprises Limited (Dmp) undertakes in order to decrease strategic risk is indicated with the board approval for attaining consumer-based culture along with enablers of investment growth (Balachandran and Faff 2015). This encompasses technologies, store network, along with digital channels. Moreover, it also intends to develop delivery offices for increasing the transformation initiatives. Recently, Domino’s Pizza Enterprises Limited (Dmp) is renowned in associating the loyalty, digital along with data businesses within the company. This is focussed on offering interlinked consumer strategy. The short term along with the long-term incentive plans are aligned with the internal strategy of the consumers. In addition, the CSR strategies has identified the objectives of improving the overall environmental impact along with sustainability associated with the business operations.
The board is accountable for decreasing the risks associated with financial factors once it approves the treasury policies for governing the financial risk management associated with the group (Christensen and Kent 2016). Certain primary steps within such type of mitigation might be identified from the financial uncertainties such as interest rate, foreign currency as well as liquidity risks. A turnaround plan is present in the company that is important to the general merchandise which is also regularly monitored for anticipating the realised petrol business sale in order to improve the capital situation. Domino’s Pizza Enterprises Limited (Dmp) is constantly involved in developing training, standards along ith policies for improving the business operations for making sure that wellbeing and safety of all its associated shareholders. Certain major investments can be observed within the fields associated with operating capability, cyber security, processes along with technology. Numerous steps were taken for improving the framework of business resilience for dealing with the response of vital business disruptions along with operating occasions (Contessotto and Moroney 2014). The framework associated with the compliance of Domino’s Pizza Enterprises Limited (Dmp) includes distinct policies that are developed for enhancing legal, authority along with distinct bodies in alignment with internal policy.
In order to get rid of audit risks, the company’s external auditor is “Deloitte Touche Tohmatsu”. Moreover, certain vital recommendations are made on the behalf of ARMCC in consideration to the selection, appointment, re-appointment along with replacement of the external auditor. The services associated with internal auditing are the responsibility of independent function of internal audit dealt on the behalf of the assurance team and group risk (Dale et al. 2016). Such bodies make sure of the objective along with independent assurance services for the board along with management in consideration to internal control, risk management framework as well as the company’s corporate governance. The functions are associated with the internal audit conducted in compliance with the internal audit plan that is generated by a risk-based approach annually on the behalf of the ARMCC.
Conclusion:
In this report, Domino’s Pizza Enterprises Limited (Dmp) was selected to be the company that is a leading multinational fast food chain listed in Australian Stock Exchange and is situated majorly in Australia. The report also dealt with the different implications of ASX corporate governance principles in consideration to Domino’s Pizza Enterprises Limited (Dmp). The major objective of this discussion has taken into account the company’s audit risks along with likely risks which can be implemented in order to decrease these concerns. It has been gathered from the paper that the risk management policy of the company indicates the overall philosophy of such approach in the direction of risk management as well as maintaining considerable responsibilities and roles. Along with the help of such processes associated with the business risk management, it is likely to monitor, detect along with report the risks having impact on the success associated with the operational plans along with strategic objectives.
References and Bibliography:
Balachandran, B. and Faff, R., 2015. Corporate governance, firm value and risk: Past, present, and future. Pacific-Basin Finance Journal, 35, pp.1-12.
Christensen, J. and Kent, P., 2016. The decision to outsource risk management services. Accounting & Finance, 56(4), pp.985-1015.
Contessotto, C. and Moroney, R., 2014. The association between audit committee effectiveness and audit risk. Accounting & Finance, 54(2), pp.393-418.
Dale, A.P., Vella, K., Pressey, R.L., Brodie, J., Gooch, M., Potts, R. and Eberhard, R., 2016. Risk analysis of the governance system affecting outcomes in the Great Barrier Reef. Journal of environmental management, 183, pp.712-721.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Halim, E.H., Mustika, G., Sari, R.N., Anugerah, R. and Mohd-Sanusi, Z., 2017. Corporate governance practices and financial performance: The mediating effect of risk management committee at manufacturing firms. Studies, 10(4), pp.272-289.
Honey, G., 2017. A short guide to reputation risk. Routledge.
Hutchinson, M., Seamer, M. and Chapple, L.E., 2015. Institutional investors, risk/performance and corporate governance. The International Journal of Accounting, 50(1), pp.31-52.
Jizi, M.I., Salama, A., Dixon, R. and Stratling, R., 2014. Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), pp.601-615.
Limited, D. 2018. Domino’s Pizza – 2017 Annual Report. [online] Available at: https://www.asx.com.au/asxpdf/20170929/pdf/43msc08vrrp76l.pdf [Accessed 29 Apr. 2018].
Lyall, C., 2017. New modes of governance: developing an integrated policy approach to science, technology, risk and the environment. Routledge.
Lyman, G. and Bourgeois, F., 2017. Sampling, corporate governance and risk analysis.
Maruhun, E.N.S., Abdullah, W.R.W., Atan, R. and Yusuf, S.N.S., 2018. The Effects of Corporate Governance on Enterprise Risk Management: Evidence from Malaysian Shariah-Compliant Firms.
Salvioni, D. and Astori, R., 2015. Sustainable development and global responsibility in corporate governance.
Schäfer, H., 2016. 26 Corporate Social Responsibility Rating. A Handbook of Corporate Governance and Social Responsibility, p.449.
Schwarcz, S.L., 2016. Keynote Address, Regulating Corporate Governance in the Public Interest: The Case of Systemic Risk.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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