The purpose of this report is to evaluate the impact of inflation rate on the gross revenue of the companies Australia. The performance of an economy is dependent of different factors such as national reserve, output, per capita income, investment, exchange rate, interest rate and price stability. Price stability or in other terms inflation rate is among top priorities for both developed and developing nations. The knowledge gained in this study are essential for understanding the market economies in developed countries like Australia. Price stability has a profound impact of the operations of the companies as it increases the cost of raw materials and other necessary costs.
The theoretical aspect of the relationship between Gross Domestic product and inflation rate is negative where the increase in inflation rate means that there will be decrease in the consumption. In theoretical terms, GDP= Consumption + Investment + Government Expenditure + Net Exports (Exports – Imports) where if there is increase in inflation rate, price stability decreases due to the increase in the prices of the consumer goods (Gay, 2016). This means that there will be significant decrease in the consumption due to the increase in the prices. This means that the gross revenue of the companies in Australia will be highly affected due to the decrease in consumption of the goods. This implies that a higher GDP signifies higher revenue generation from the companies in Australia as they directly contribute to the GDP.
In practical scenarios and economies experience high inflation rate when there is growth or increase in the Gross Domestic product. Australia has a steady low inflation rate in the past decade and the economist are concerned about the low inflation rate. The increase in growth of an economy increases the consumption rate of the population which increases the inflation rate. This means that with increase in the cost of the living, there is significant increase in the gross domestic product in countries like Australia (Hutchens, 2018). This is the reason for the low inflation for a country like Australia but this is contradictory to the theoretical approach as gross revenue and GDP are expected to reduce due to the increase in inflation. Similarly, if the inflation rate is low, is it expected that the GDP and Gross revenue of the companies will increase (Letts, 2018). The study will examine these factors to identify the relationship between inflation rate and gross revenue of different organizations in Australia.
The aim of the study is to evaluate the relationship between Gross revenue generated by companies and inflation rate by taking Australia as an example where empirical analysis has been conducted. The objectives of the study are as follows:
Primary Question: What is the relationship between inflation rate and Gross revenue generation in Australia?
Secondary Question: What is the implications of low inflation rate in Australia?
1.4 Research Hypothesis
H0: There is negative between inflation rate and gross revenue generation for the companies in Australia
H1: There is positive relationship between inflation rate and gross revenue generation for the companies in Australia
Akhmetshin and Osadchy, (2015) revealed that inflation can be explained as a considerable increase in the price level of goods and services within an economy over a specific time period. A major measure of the price inflation is observed to be the inflation rate, the yearly percentage change within the general price index that is basically the customer price index. Egger and Wamser, (2015) added that with increasing inflation rates it is observed that inflation is increasing with time because of which the spending within the economic needs requires being tempered in order to offer stability that is highly beneficial to companies in making profits. It has been observed that with increasing prices of commodities, food and energy along with several other services and goods the overall economy is observed to be impacted. Hebous and Ruf, (2017) also elaborated that controlled inflation can serve as a healthy sign for the overall economy as larger organizations are generally positioned better in dealing with adverse impacts of inflation as it can be addressed by savings gathered from economies of scale. Moreover, researchers namely, Hoffmann and Schnabl, (2016) that revenue serves as the form of income which is attained by companies through sale of its services or goods. Moreover, gross revenue is also explained as the revenue that is attained by companies through subtracting expenses associated with attaining revenue like wages, overhead, production costs, taxes and commission.
According to Tanzi, (2014) indicated that almost all companies prefer inflation rate to be stable or decreased. For instance, in case inflation increases by 3% to 4% companies might observe an increase in expenses along with certain related uncertainty. These researchers also elaborated that inflation can also impact the gross revenue of the companies drastically through resulting in issues such as decreasing limitability, increasing costs along with decrease in international competitiveness. Egger and Wamser, (2015) also indicated that inflation is not necessarily damaging for the organizations particularly they might increase prices to the customers more than the related production increase costs. Certain effective viewpoints have also been offered by these researchers through elaborating that inflation results in decrease in the purchasing power of currency because of increase in prices all through the economy is also deemed to affect business profitability. Akhmetshin and Osadchy, (2015) also revealed that in Australia the inflation rate is observed to be high and it further increased to 2.1% year after year in the second quarter of the 2018 which indicates that the general level of goods and services prices are increasing. Along with that, the currency purchasing power is also observed to be falling within Australian retail companies that can drastically affect their gross revenue position. Gross revenue is deemed important for organizations as it can facilitate in analyzing the sales and business as it indicates whether the organization has lost or made money after selling its goods and services. This therefore serves as an important aspect in analyzing whether an organization is succeeding in the industry through making profit.
Haider, (2018) states that inflation rate has both positive and negative impacts for not only consumers and businesses. Firms and organizations want the inflation rate to be as low as possible as high inflation rate increases the cost and poses uncertainty for the companies. It will also cause the profitability to decrease due to rising cost and causes decline in market competitiveness in the international market. As stated by Basnet and Upadhyaya, (2015), inflation affects the internal cost of organizations at varying levels such menu costs, wage inflation, confusion, uncertainty and international competitiveness. This means that with rise in inflation, the organizations will be forced to make regular changes to the prices of the products which will make it difficult for them to sell their products at competitive pricing (Bhargava & Khanna, 2017). The increase in inflation means wages of the employees will also increase and similarly, the companies will lose their competitiveness in the market. On the contrary, Tiwari et al., (2016) states that inflation has been positively used by many countries to gain competitive advantage. The increase in inflation reduces the value of the debt of the old loans which means that debt can be paid off easily. According to Bachmann, Berg and Sims, (2015), moderate inflation suggests that a country is experience growth in their economy which means that this will increase the profitability and gross revenue of the organization. This also means that it makes the economy flexible and easier for the companies to make changes to relative wages and prices. This shows that it is preferable to keep the inflation rate moderate as it facilitates in growth of the economy and increases the revenue generation of the companies due to the increase in investment.
Research methodology is the foundation of the research and illustrates the research designs, approaches and methods based on the requirement of the study. The goal of the study will determine the particular methodology to be used and in this study, the main purpose is to examine the cause and effect relationship between inflation rate and gross revenue generation. Experimental method has been used to describe the phenomenon and examine the cause and effect relationship. The explanation method will also facilitate in developing a reliable prediction from one variable to other variable (Taylor, Bogdan & DeVault, 2015).
Research philosophy is concerned with the beliefs and assumption of developing based on the source and nature of the information gathered. The four different types of research philosophy used in business research are realism, pragmatism, interpretivism and positivism (Hughes & Sharrock, 2016). In this current study, positivism has been chosen as the research philosophy as it will facilitate in observing the phenomenon and conduct quantitative analysis of data. Positivism also facilitates in highly structured study which leads to observations that are easily quantifiable and easily analysed. This shows that positivism is more focused on facts and has no provision for human interest in the study (Quinlan et al., 2019).
There are three types of approaches to research and they are deductive, inductive and abductive (Sekaran & Bougie, 2016). The inductive approach is used to develop new theories and paradigms which is more applicable in phenomenology where a phenomenon is explored. In deductive approach, specific results are generated from general findings and facilitates testing of hypothesis. Abductive approach is used to address the shortcomings of the two other approaches and generally used in mixed method analysis. In this current study, deductive approach has been chosen as it has facilitated in conducting the hypothesis testing and establishing the relationship between inflation rate and gross revenue of companies.
There are two types of research design, one is exploratory and the other is conclusive. The exploratory research design will develop general insights about a situation where the data set is vague. The inferences that are generated from this types of design are tentative. On the contrary, conclusive research design uses a set structure and the data sets are properly defined (Kratochwill, 2015). Conclusive research can be divided into two designs, one is causal and other is descriptive. In this current study, causal research design has been used to explain the relationship between inflation rate and gross revenue for various companies in Australia.
There are two types of data collection methods, one is primary and another is secondary. The secondary data collection method has been used in this study where the data has been collected from the website of reserve bank of Australia, annual reports of different companies and other web articles (Lu & Wang, 2017). The study has used SPSS (Statistical Package for the Social Sciences) as the statistical software to conduct the inferential statistical analysis. The study had developed the correlation using both parametric and non-parametric correlation method to identify the nature of relationship between the variables. Similarly, regression analysis has been conducted to develop a model that will establish the type relationship between inflation rate and gross revenue.
Sampling is the method of reducing the sample population to ease the calculation and reduce the cost of conducting the research. The target population in the study are the companies in Australia and the sample frame will consider all the companies affected by the economy of the country (Palinkas et al., 2015). The different types of sampling methods are probabilistic and non-probabilistic sampling method. This study has used non probabilistic sampling method to select the data sets from the government websites and probabilistic sampling has been used to select 10 companies randomly in Australia.
Reliability is the ability of the study to replicate the results by using different data sets. The reproducibility of the research design has been evaluated using test rated reliability has been used to check whether similar results are obtained or not (Csikszentmihalyi & Larson, 2014). However, validity of the research question is much more important in such studies as the data be reliable but it has to valid to have any significant impact on the research. In order to check the validity of the data, convenience validity has been used to check the validity of the data sets. In this current study, reliability and validity of the used data is high so developing significant result is guaranteed.
In this study, data has been collected from authentic government websites and the result obtained has not been manipulated by any means (Dingwall et al., 2017). The data sets used in the study are taken from public websites where no authorization is required so that no individuals are subjected to harm due to the study. The study has not used languages that may be offensive to any race or community and the data sources have been cited properly.
This chapter has identified the relationship between gross revenue and the inflation rate in Australian companies. The study has selected 10 companies from different sectors so as to identify the impact of inflation on the companies based on the industry they belong to. Pearson correlation has been used to check the correlation between the companies and inflation rate in the past five years.
|
Descriptive Statistics |
|||
|
Mean |
Std. Deviation |
N |
|
|
Woolworths |
8461.60 |
265.353 |
5 |
|
Coles |
63773.20 |
2732.666 |
5 |
|
Commonwealth bank |
34073.40 |
596.352 |
5 |
|
Anz bank |
26241.60 |
13781.826 |
5 |
|
Westpac |
32.60 |
4.722 |
5 |
|
Telstra |
25711.00 |
354.105 |
5 |
|
SingTel |
17.20 |
.447 |
5 |
|
BHP Billiton |
52.40 |
7.668 |
5 |
|
Rio Tinto |
49.80 |
3.962 |
5 |
|
Qantas |
15935.20 |
492.328 |
5 |
|
inflation rate |
1.835000 |
.4665699 |
5 |
In the appendix section, it has already been identified that relationship between gross domestic product and inflation is rate is negative in nature even though it seems that there has been increases in inflation rate is essential for the development of the economy. However, this result does not reflect the picture of the economic growth and revenue generation of the companies in the past two decades. The inflation rate and CPI index show that consumers are enjoying low prices of the products and low growth of the wages. However, there are certain products and industries having high inflation rate. The findings of the study that inflation rate has affected different companies differently and in case of Woolworths, gross revenue has decreased significantly. This means that due to the low inflation rate, consumers can buy retail products at cheaper prices but the market competition have increased so the revenue has gone down significantly in the past 5 years. However, being in the same industry, Coles have been positively affected due to the inflation rate as there is a negative relationship which suggest the decrease in the inflation rate have increased their gross revenue. This is may be due to their superior strategic management.
While analyzing the banks, it has been seen that Westpac and Commonwealth bank are having a negative impact and their revenue have decreased. On the contrary, it has been seen the ANZ bank have generated more revenue in the past five years where inflation, competitiveness and other internal factors may be reason. In the telecommunication industry, it has been seen that Telstra have faced increase in revenue and their competitor SingTel have decreased their gross revenue. This may be due to the reason that SingTel being a foreign company has not been able to reduce their cost significantly due to the low inflation rate but on the other hand, Telstra has been in Australia for beginning of the telecommuting industry and have not lost their share to other companies which has increased their market share and gross revenue significantly. BHP Billiton and Rio Tinto are the two of the largest companies in Australia and leaders in the mining industry have decreased their revenue significantly due to the low inflation rate. This is because of the fact that due to low inflation rate, there has not been any growth in employment wages but there has not been any growth in the mining industry at the same time. Qantas has also generated less revenue in the past 5 years due to the low inflation rate as the prices of the air tickets have decreased significantly and consumers enjoy high disposable income but they have more options to choose from. However, the current relationship between inflation rate and gross revenue does not clearly show the future prospects. The relationship shows that majority of the companies share a positive correlation which means that their gross revenue will increase with the increase in the inflation rate. However, the inflation rate in Australia has been steady and low which means that the companies are not experiencing any growth in the market.
Conclusion
The conclusion has linked the objective of the study with the findings to derive significant conclusions. The findings suggested that the majority of the companies are experiencing negative relationship between gross revenue and inflation rate.
Objective 1: To investigate the impact of inflation rate on Gross revenue generation of different companies in Australia
The findings of the study shows that there has been negative relationship between inflation rate and gross revenue where majority of the companies are unable to grow due to the low inflation rate. This means that businesses are unable to make quick recovery due to the slow inflation rate which is hampering the economic growth of the country and the companies with the given environment.
Objective 2: To investigate the implications of inflation in Australia
Australia has been experiencing low inflation which implies that market is becoming saturated with minimum growth opportunities in all the sectors which is affecting the yearly wage growth.
Objective 3: To provide recommendations based on the implications
The reserve bank of Australia should increase the interest rate to make sure that the inflation rate increases. The reserve bank should develop new monetary policies to keep the Australian Dollar strong in the global market. The companies will also have to focus on factors like inventory cost, consumer pricing, borrowings, employee wages, investments and foreign exchange to develop optimum strategic management policies.
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