`The Super Retail Group is recognized as one of the top-most retailer company of Australia listed on ASC (Australian Stock Exchange). The company carried out its business operations mainly in Australia, New Zealand and China. The company was established in the year 2004 and is presently believed to have about 600 stores with an annual turnover of about $2billion. The company has achieved a good brand image in the customer minds through providing them innovative products and developing an integrated multi-channel customer offer. The company owns various brands such as Amart Sports, BCF, and Goldcross cycles, Rays, Rebel and Supercheap Auto. The main products offered by the different brands of the company are automotive parts, batteries, car care products, lighting and electrical products, seat covers, paints, oils, additives and many others. The company has achieved a distinctive image in the highly competitive retail sector of Australia through developing new and unique products and service for its customers. The company aims to develop an adequate understanding of the needs and demands of customers for meeting their expectations properly. The SUL is also presently emphasizing on expanding its business operations on a global platform for achieving an international growth and presence. The development of an integrated supply chain system is enabling the company to develop best products in retail sector that possess characteristics as per customer demands (Company Overview of Super Retail Group Limited, 2017).
The Australian retail industry is presently in a phase of positive growth with increase in the industry turnover over the past few years. The retail sector has recorded a growth of about 3% in the year 2016 as compared to the previous year turnover. The positive growth realized by the sector is mainly due to introduction of online retailing platform that is helping the companies to meet customer expectations in short span of time. This is encouraging the retailers to increase the investment in multichannel stores such as digital presence for improving their profits. As such, the retails sector in Australia is expected to record an increase of CAGR of 3% in the coming period of time driven by the growth in internet retailing. In addition to this, the reduction in interest rates and increase in purchasing power of consumers are further supporting the growth of the retail industry of country (Zhang, 2013).
The retail industry of Australia is also highly competitive and thus Super retail group faces stiff competition from other dominant players in the market such as JB Hi-Fi and Myer. JB Hi-Fi is a recognized retail player of Australia specialized in providing home appliance, video games, DVDs and other electrical products to the country’s population. The company ahs presently recorded an increase in its sales of about 23.6 and rise in profit by 31.7 per cent and thus providing a stiff competition to other players such as SUL. The steady growth approach and good customers service of JB Hi-Fi is helping it to achieve superior results than its competitors (The Australian, 2017). On the other hand, Myer Holdings Limited is also recognized as one of leading department stores in Australia. The development of Omni-channel capabilities and incorporating a flexible in-store labor structure is helping Myer to boost its sales and productivity. The Myer has planned to raise about $221 million from the capital markets in order to support its growth plan and thus achieving the customer satisfaction by providing those innovative products and services (New Myer’ strategy revealed, 2015).
In this part, the chosen company has been evaluated on various grounds that help to evaluate the capital structure of the company.
Profitability means earning capabilities of the company through using their capital resources. There are many ways to look for the profitability position of any company but best way is to calculate the profitability ratios and have detailed analysis of such ratios. Some of the important profitability ratios of the Super Retail Group are as under:
|
Net Profit Ratio |
||
|
Formula |
Net Profit/Net Revenue |
|
|
|
In million AUD$ |
|
|
Financial Data |
2016 |
2015 |
|
Net Profit |
$ 58.00 |
$ 76.90 |
|
Net Revenue |
$ 2,422.20 |
$ 2,238.70 |
|
Net Profit Ratio |
2.39% |
3.44% |
(Super Retail Group, 2014)
|
Return on Assets |
||
|
Formula |
Net Profit/Total Assets |
|
|
|
In million AUD$ |
|
|
Financial Data |
2016 |
2015 |
|
Net Profit |
$ 58.00 |
$ 76.90 |
|
Total Assets |
$ 1,569.50 |
$ 1,583.10 |
|
Return on Assets Ratio |
3.70% |
4.86% |
|
Return on Equity |
||
|
Formula |
Net Profit/Shareholder’s Equity |
|
|
|
In million AUD$ |
|
|
Financial Data |
2016 |
2015 |
|
Net Profit |
$ 58.00 |
$ 76.90 |
|
Shareholder’s Equity |
$ 734.00 |
$ 765.30 |
|
Return on Equity Ratio |
7.90% |
10.05% |
In the economic market which is adversely impacted by different factors of the economics it is very hard to have optimal earnings throughout the period. There always a risk factor that changes the position of operating income and it mainly depends upon the beta factor and market conditions. In Australia, retail market is not growing at the expected growth rate and there is high risk of uncertainty of operating income earned by the company (Brusov, 2015).
The beta of the company is 1.46 that shows that company is highly volatile to the market conditions. Volatile means there will change in operating income as the market changes the position. So there will be financial distress and high market risk position in case of Super Retail Group (Reuters, 2017).
Growth totally depends on the earnings capacity and market volatile conditions. Price earnings ratio is the best factor to measure growth of the company. Price earnings average of the company in last 5 years is 20.30 %. That indicates that company has good price to earnings ratio but there is need to check the past year average of growth in revenue and profits of the company, so that proper analysis can be made.
Price Earnings ratio of the Super Retail Company
(Source: https://financials.morningstar.com/valuation/price-ratio.html?t=SUL®ion=aus&culture=en-US )
Average Growth in Revenue and profits
(Source: https://financials.morningstar.com/ratios/r.html?t=SUL®ion=aus&culture=en-US )
Through looking at the company highest PE ratio was in year 2016 which is 32.8 that indicates that company is on the path of growth and it can also be seen from the average 10 year revenue growth which is 16.50 in year 2016 (Super Retail Group, 2014).
Retail companies mainly posses more current assets as compare to the fixed assets. But as the value of fixed assets much higher than the value of inventory and other such items, it outrights the value of current assets. In non-current assets company can have tangible fixed assets and intangible assets. Tangible assets can differentiated as property, plant and equipments and intangible assets can be categories as goodwill, patents right etc (Constantinide, Harris, and Stulz, 2003).
In order to determine the type of each asset category PPE to non-current asset is calculated.
|
Years |
Current Assets |
PPE |
Intangible assets |
Total Assets |
|
2013 |
$ 517.00 |
$ 193.00 |
$ 770.00 |
$ 1,480.00 |
|
2014 |
$ 555.00 |
$ 198.00 |
$ 822.00 |
$ 1,575.00 |
|
2015 |
$ 558.00 |
$ 224.00 |
$ 801.00 |
$ 1,583.00 |
|
2016 |
$ 560.00 |
$ 237.00 |
$ 773.00 |
$ 1,570.00 |
|
2017 |
$ 544.00 |
$ 265.00 |
$ 750.00 |
$ 1,559.00 |
(Super Retail Group, 2014)
|
Years |
Current Assets |
PPE |
Intangible assets |
|
2013 |
34.93% |
13.04% |
52.03% |
|
2014 |
35.24% |
12.57% |
52.19% |
|
2015 |
35.25% |
14.15% |
50.60% |
|
2016 |
35.67% |
15.10% |
49.24% |
|
2017 |
34.89% |
17.00% |
48.11% |
(Morning Star, 2017)
It can be said that company have maximum amount of intangible assets as compare to other types of assets. The level of PPE assets is very low in very year in percentage to total assets.
Every company depends upon the directors and management to run the business more effectively. These persons are regarded as the agents of the company as they work for the owners. Owners of the company are the stakeholders and they appoint such directors and other management personal to have better profitability of the company (Brigham and Ehrhardt, 2007). The relationship between the principal (Shareholders) and agent (Managers) must be in align to the business interest in order to have better growth of the company and to keep the capital position strong. It can be seen from the annual report of the company of year 2016 that as the remuneration of the management increases the EPS of the company increases till year 2013 but after that there is decrease in EPS but remuneration remains the same (Morning Star, 2017).
(Source: https://media.supercheapauto.com.au/corp/files/documents/SRG_AnnualReport20.pdf )
According to this theory there is must be optimal interest of the stakeholders of the company and their values and beliefs must be kept on priority. Stakeholders can be customers, suppliers, creditors, employees, government and society. All these sections bear some sort of risk while they are connected with the company. So it is important to minimize their risk to minimum level.
There is increase in revenue from year 2013 to 2016 that indicates that their increase in earning capacity of the company. Cash flows to suppliers are going perfectly and on time that shows suppliers have very less risk. EPS is increasing that shows shareholders are getting proper return of their investments (Marks, 2005).
Recommendations and Conclusion
It is suggested to the management of the company that they should expand the company business and should source the capital through debt finance in order to have tax shields and to get have rapid growth in business.
References
Brigham, E. and Ehrhardt, M. 2007. Financial Management: Theory & Practice. Cengage Learning.
Brusov, P. et al. 2015. Modern Corporate Finance, Investments and Taxation. Springer.
Company Overview of Super Retail Group Limited. 2017. [Online]. Available at:
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=5647527 [Accessed on: 6 October 2017].
Constantinides, G.M.., Harris, M and Stulz, R.M. 2003. Handbook of the Economics of Finance: Corporate Finance. Elsevier.
Marks, K.H. 2005. The Handbook of Financing Growth: Strategies and Capital Structure. John Wiley & Sons.
Morning Star. 2017. Super Retail Group Ltd SUL. [Online]. Available on:
https://financials.morningstar.com/income-statement/is.html?t=SUL®ion=aus&culture=en-US [Accessed on: 7 October, 2017].
New Myer’ strategy revealed. 2015. [Online]. Available at:
https://www.insideretail.com.au/blog/2015/09/01/new-myer-strategy-revealed/ [Accessed on: 6 October 2017].
Reuters. 2017. Super Retail Group Ltd (SUL.AX). [Online]. Available on: https://www.reuters.com/finance/stocks/overview/SUL.AX [Accessed on: 7 October, 2017].
Super Retail Group. 2014. Annual Report. . [Online]. Available at:
https://www.annualreports.com/HostedData/AnnualReportArchive/S/ASX_SUL_2014.pdf [Accessed on: 6 October 2017].
The Australian. 2017. JB Hi-Fi keeps bucking retail trends with outstanding results. [Online]. Available at:
https://www.theaustralian.com.au/business/opinion/stephen-bartholomeusz/jb-hifi-keeps-bucking-retail-trends-with-outstanding-results/news-story/1c457bd2fe94fafd4b60e862ee5c21bb [Accessed on: 6 October 2017].
Zhang, Z. 2013. Finance – Fundamental Problems and Solutions. Springer Science & Business Media.
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