Financial Management Of Wesfarmers Essay

Question:

Discuss about the Financial Management of Wesfarmers.

Answer:

Introduction

The main aim of this report is to analyze and evacuate different factors related to the industry of Wesfarmers. The report also aims to analyze and value different kinds of strategies of Wesfarmers. Wesfarmers is one of the major conglomerates of Australia and the company operates in the retail industry of Australia (wesfarmers.com.au 2018). This report analyzes the major strategies of Wesfarners.

Industry Overview

The Australian retain industry is one of the largest industries contributing largely towards the development of Australian economy. Economic and social development of Australia is well supporting the continuous growth of the Australian retain industry. Apart from this, rising population and increased purchasing power of the customers is also providing boost to the Australian retain industry. In the recent year, the Australian retail industry registered $169 billion as a total revenue; and the annual growth of this industry from 2013 to 2018 is 0.7% (abs.gov.au 2018). Australian retail industry is a major source of employment in this country as 705,302 numbers of Australians are currently employed in this industry.

Economic Environment

Some major economic factors have major negative influence on the business growth of Wesfarmers; they are rate of interest, exchange rate, rate of inflation and others. In addition, the slow growth rate of this industry is another major hindrance for the growth of Wesfarmers. Apart from this, different government policies like Competition and Consumer Act 2010, Australian Consumer Law, Commerce (Trade Description) Legislation and others have influence on the business operations of Wesfarmers (business.gov.au 2018). Moreover, the wage rate of Australian retain market is higher when compared to the global market and it negatively affects the business of Wesfarmers.

Competitive Environment

It needs to be mentioned that Wesfarmers operates in a very competitive industry where there is the exeiancer of some major competitors of the company; they are Woolworths. Metcash Limited, Cantex Australia Limited, ALDI and others. In the presence of this intense competition, Wes fames become forced to lower the price of their products and this aspect affects the profitability of the company. Moreover, the long-term growth and long-term profitability of Wesfarmers gets affected in the presence of this intense competition (Kotler 2015).

Influence of Industry Structure on Financial Management

It needs to be mentioned that the industry structure of Wesfarmers has influence on the financial management of Wesfarmers. The business organizations under retain industry structure of Australia have to incur huge amount of expenses and there is an increasing trend in this expenses. For this reason, Wesfarmers needs to employee effective financial strategies for the management of expenses. Apart from this, Wesfarmers has to incur different kinds of costs for their business like direct cost, administrative cost and others. Thus, the adoption of correct cost cutting system is required to be implemented as a part of financial management. Apart from this, the industry structure has also influence on other aspects of financial management (Brigham and Ehrhardt 2013).

Threat and Opportunities

The presence of some major opportunities can be seen for the business of Wesfarmers. Considering the worldwide growth of retail market, Wesfarmers has the opportunity expand their business outside Australia. In addition, there is a large opportunity for Wesfarmers to register effective growth in the online segment. Moreover, the company can diversify their business into new segments and products. In this case, excessive competition from the existing competitors is creating major a major threat for the company. Another major threat is the effect of world economic downturn that leads to the decreased confidence and purchasing power of the customers. The offering of specialized products by the competitors is also posing threat for the business of Wesfarmers (Yuan 2013).

Drivers of Income, Cost and Profit

There are some major drivers of income, cost and profit in Wesfarmers and they are called as Growth Enablers. The first driver is the presence of outstanding people as the company always involves in attracting and utilizing outstanding people for the growth of the company. The implementation of strong financial discipline in the financial decision making process is another driver. As per Wesfarmers, an empowering culture can lead the company towards financial excellence and thus, it is another driver. Innovation is considered as the next driver for the financial success of Wesfarmers as innovative culture helps in fostering financial stability. Wesfarmers always try to maintain a strong balance sheet that is a major driver for financial success (wesfarmers.com.au 2018).

Key Risks

At the time of conducting the business operations, Wesfarmers has to face with some major financial risks. The key risks of Wesfarmers are liquidity risk, market risk and credit risk. Wesfarmers has divided market risk in three major parts; they are foreign currency risk, interest rate risk and commodity price risk. As all of these risks are key risks, the management of Wesfarmers is required to develop strategies for minimizing them (wesfarmers.com.au 2018).

Financial Management Strategy for Risk Mitigation

It can be observed that Wesfarmers has developed a major framework for the mitigation of the above-mentioned risks. The management of Wesfarmers has established divisional structure, reporting line, appropriate authorities and responsibilities for the guidelines and limits on business expenditures, capital expenditures, investment and others. There has been development of operating cycle and divisional reporting requirements. Wesfarmers has also developed the strategy of annual budgeting and monthly reporting system for the purse of performance monitoring. There has been an implementation of appropriate due diligence for acquisition and divestments. Most importantly, Wesfarmers has also implemented the strategy of crisis management for their key businesses. There has been also implementation of internal assurance programs (sustainability.wesfarmers.com.au 2018).

Conclusion

From the above discussion, it can be seen that he major economic factors have major impact on the business of Wesfarmers like interest rate, inflation rate and others. The retail industry of Australia provides opportunities as well as threats to Wesfarmers. From the above discussion, it can be seen that Wesfarmers has developed a major risk management framework for mitigating the major risks like interest risk, market risk, currency risk and others.

References

Abs.gov.au. (2018). 8501.0 - Retail Trade, Australia, Feb 2018. [online] Available at: [Accessed 8 Apr. 2018].

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Business.gov.au. (2017). Retail & wholesale trade industry fact sheet. [online] Available at: [Accessed 8 Apr. 2018].

Group, D. (2018). The Wesfarmers Way . [online] Wesfarmers.com.au. Available at: [Accessed 8 Apr. 2018].

Group, D. (2018). Who we are . [online] Wesfarmers.com.au. Available at: [Accessed 8 Apr. 2018].

Kotler, P., 2015. Framework for marketing management. Pearson Education India.

Sustainability.wesfarmers.com.au. (2018). Risk management framework. [online] Available at: [Accessed 8 Apr. 2018].

Wesfarmers.com.au. (2018). 2017 Annual Report. [online] Available at: [Accessed 8 Apr. 2018].

Yuan, H., 2013. A SWOT analysis of successful construction waste management. Journal of Cleaner Production, 39, pp.1-8.

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