Business Risk Analysis Of Computer Share Limited Industry - Samples

Question: Discuss about the Business Risk Analysis Of Computer Share Limited Industry. Answer: Introduction Business is the term given to an activity in which persons which is carrying on that activity earns his or her livelihood. The activity so carried on will always assumes some kind of uncertainty which can be predicted in imaginary terms not in actual terms. The kind of uncertainty that the company assumes is called the risk. The risk is the inbuilt characteristic of the business. The main aim of this report is to assess all kinds of the business risks associated with the business of the Computer Share Limited which is an Australian based company and listed in that stock exchange only. In the first section, the nature of the business of the company has been discussed. Second section contains the understanding of the industry happenings within which the selected company is working. In the third and the fourth section the internal and external environmental factors has been detailed as to how the same have affected the business of the entity. In the fifth section, the objectives of the company along with the strategies adopted by the firm have been discussed and the related risks has been identified and discussed. In the sixth section, the analytical procedures have been adopted and the performance of the entity has been judged. In the seventh section, the operation of the management of the company has been discussed along with the workings of the people those are charged with the governance. At the end the study has been concluded with the appropriate paragraph. Nature Of The Entity The company selected for the purpose of the business risk analysis project is the Computer Share limited. The company has been incorporated in the year of nineteen hundred and seventy eight in the country of Australia. The company has further listed on the recognized stock exchange of Australia in the year of nineteen hundred and ninety four. In the few year of its incorporation the company is engaged in the business of providing the services relating to the computers. In the starting is provided only to those businesses which require automating the manual process in order to save the time and effort. With the passage of time, the company has been entered into the service of providing the computer based services to the share registrars. With this the market of the computer bases services have been increased and thereby the company has extended his step into the business of the share registry by entering into the various areas which includes the equity plans for the employees, the wor king of the corporate governance, administration of the suits filed by the stakeholders and administering the action suits if any filed by the stakeholders of the company and so on. The major investment activity of the company is the purchase or acquisition of the companies and entities including the goodwill amounting to $167848 thousand and the purchase of the Property plant and equipment amounting to $25317 thousand. The main deviation in the finance activities has been encountered due to the high amount involved in the purchase of the entities which are under the direct control of the company and the other like businesses. The cash flows from the financing activities have been greatly hampered. It means that for the last financial year ending tow thousand and fifteen has encountered the decrease in the net cash flows from the financial as $19691 thousands and for the year two thousand and sixteen the decrease in the net cash inflows due to the financing activities has gone up to $125581 thousands. The company has been following the generally accepted accounting principles along with the Australian accounting standards which has be issued by the Australian Accounting Standard board in the true spirit. Neither any wrong remark has been made by the auditors of the company in their independent auditors report rather any deviation in the terms and the provisions of the accounting standards and related concepts has been mentioned and observed nor thus, is the reporting practice okay. Therefore, the reporting practice that the company has adopting and is pursuing is true and correct in accordance with the nature and size of the business and also in accordance with the prevailing market condition. Understanding The Industry The industry is the term which denotes the detail about the major head within which the company is operating. The industry to which the company belongs is Information Technology. The term information technology denotes the area related to the computer and in which the new and innovative technologies are used and developed on the timely basis. Following are the recent facts and figures of each of the criteria for assessing the industry of information technology of Australia: Industry Size The industry of the information technology of Australia is regarded as the fourteenth largest market the information technology in Australia. It is also regarded as the fifth largest company in the information technology market across the region of the Asia Pacific which means after the countries of India, Korea, Japan and China. The net worth of the information technology industry sector amounts to Australian dollar one hundred and twenty. Industry Growth The country of Australia has developed itself in the very decent breaking the World records over the period of time. Since its incorporation the company has been striving to have the world and the country records. With the passage of time, the companys worth has been increased and thus have thereby increased the worth of the company and have been able to increase the growth rate of the industry in Australia rating to approximately to 11.56% and has left five major countries from Korea, Taiwan, Singapore, Hong Kong and Japan. Industry Supply Chain In the country of Australia, manufacturing has not been promoted for years after years rather the trading has been promoted. But in the information technology sector, many innovative processes have been done, research and development centre have been made and similar other scenarios are there. The supply chain has been from the country where the companies are making the purchase and the supply chain is very progressive in this sector. Major Players The major players are regarded as the companies who are having the key position in the business line of the Information Technology are Acer Computers Australia, APCS Information Technology, Cannon, Data com, Hewlett Packard, IBM, Infosys, West Net, Alcatel Australia, APCS Information technology, CSC, EDS, EMC and Techex Communications, Market shares of the Industry Players represents that how much market has been captured by these players. The major player is the Canon which approximately holds the 30percent market share of Australia in the Information technology industry. All other players hold 10percent to 20percent frame. Critical Success factors The critical success factor that has observed in the industry is that the proper and adequate investment shall be done in the sector of the information technology because Australia has been recognized as the best platform for undertaking the testing work. The innovative environment with new software and technologies has led many companies to develop their own software like IBM, Google, Canon, etc. Major threats - The first and foremost threat is that due to new updates every day and as and when the update cones then the company is required to perform the same. And thus major threat is the up dation of new facility in time which will reduce the time, effort and recovery of cost. Understanding The Legal Environment The legal environment plays the very importance role in the success of the business. The legal environment is defined as the environment which contains only the law matters which are required to be complied by the companies operating within the same industry. In the case of the companies, various legal factors will occur and it will includes the laws relating to the accounting for the transactions of the company in accordance with the accounting standards of the company, how the accounting data shall be presented on the defined format and what matters are required to be reported while preparing the financial statements of the company and for whos interest the financial statements of the company is prepared and presented, etc. In the given case study of Computers Shares Limited, the financial reporting framework is required to be discussed under the legal environment and whether the same is being followed by the company or not. This framework is commonly known as the Conceptual framework of accounting. The conceptual framework of accounting means the structure that has been developed from the accounting concepts and accounting data has been placed accordingly. Conceptual framework of accounting consists of three features namely faithful representation, relevancy and consistency. The term faithful representation has been further explained that the financial statements shall be error free or neutral. The term relevancy means that the financial statements shall be relevant for the users of the financial statements so as to make them able to take the effective and efficient decision. The term consistency is that the financial statements of the company so shared has been prepared and presented in the manner tha t has been followed in the earlier years like the accounting method for calculation of the depreciation, valuation of the assets, etc. The annual report of the company for the year ending 2016 does not have any indication that the financial statements does not contain any information which has not been presented with the faithful facts and has presented the financial statements in the untrue and unfair manner (Ullah, 2010). Therefore, in this way the company has foll0wed the legal framework as defined by the conceptual framework of accounting. Understanding Of External Environmental Factors After having the legal environment informing about the various laws that the company is required to complied with and how the same have been applied, it is now very necessary to get the information about the environmental factors which can hamper the financial position and the financial performance of the company. The external environmental factors have been discussed in the following manner: PEST Analysis As in the case of the financial accounting and reporting, conceptual framework of accounting provides the platform for preparation and the presentation of the financial statements, likewise, pest analysis provides the framework which is used in the scanning of the environmental factors belonging to the operation of the company. Following diagram presents the PEST analysis with headings of the main concern areas. Political factor will consider the legislation that is operating previously and now currently, the policies of the government that might come during the course of time change in the government and funding of the government subsidies, etc. Economic factor considers the trend analysis and the growth of economy (Ha Coghill, 2008). Social factor consists of the change in the trends of the consumer pattern, differences in the gender and many more. Last technological factor consists of the new innovative technologies, incurring of the expenditure on research and dev elopment, etc SWOT Analysis - There are many observations which are considered as necessary to be reported to the management of the company. The analysis describes as to what are the strengths that is being possessed by the company, what are the weaknesses that the company is facing, what are the opportunities that is available for the company but the company is not interested in materializing it and the threat analysis describes as to how the company have threat of doing something or not doing something (Ullah, 2014; Helms and Nixon, 2010). Porters five forces analysis This tool help the company to analyze how much competition the company is facing. According to this force, five factors are Threat of having the new entrants in the business. This has been overcome as the company has secured the highest position in the market. The company can have the great threat of having the substitutes but again the company has overcome as the company has inbuilt software and other capacities. There might be chances of having the threat of bargaining from the side of creditors. There might be chances of having the threat of bargaining from the side of buyers. And last one the rivalry that has been started or prevailing with industry. Other External Factors Other factors includes the environment and occupational hazardous. Assessing Business Risks The one of the major risk that has been observed and will soon affects the financial terms is the expansion of business that the company is doing continuously year on year basis. This is being done by the company irrespective of the disclosure of the said statements in the annual report of the company. The company has been in the phase of worst expansion which has led to decrease in the sales revenue from the year of 2015 to the year of 2016. The basic reason is the loss of control of the management of the company over the operations of the company including the finance department function. The second major business is the oversight over the cash flows of the company leading to the liquidity risk. The company had during the year spent an amount on the expansion of the business irrespective of the fact that whether the assets so acquired will be able to generate the equivalent profits or not (AASB, 2013). The above two major business risks are the exhaustive one. Analytical Procedures The analytical procedures are conducted by calculating the accounting ratios for the last three years keeping the last year as base (Company Official Website, 2017; Company Official Website,2016;, Company Official Website2015; Delen, 2013, PCAOB, 2017). These are as follows: STATEMENT SHOWING THE RATIO ANALYSIS S. No. PARTICULARS 2017 2016 2015 1 Liquidity Ratios A Current Assets 1315186 1227837 1117541 Less Current Liabilities 796337 723695 834582 Working Capital 518849 504142 282959 b Current Ratio 1.65 1.70 1.34 c Debtors 425343 361185 374445 Revenue 1957860 1966192 2011416 Debtors Turnover Ratio 4.60 5.44 5.37 2 Profitability Ratios a EBIT 245009 243171 325628 Revenue 1957860 1966192 2011416 Net Profit Magin 12.51 12.37 16.19 3 Long Term Solvency Ratios a Debt 178611 2623814 2540988 Equity 1108733 1177641 1267212 Debt to Equity 16.11 222.80 200.52 4 Market Strength Ratios a Earnings Per Share 28.51 27.61 45.2 The above ratios are deteriorating as compared to the figures over the last three years. In comparison to the industry the ratios of the company is deteriorating against GDP of 4.6% and the same is happening with the main competitor Canon (Drake, 2010, Delen, 2013). Understanding Of Management And Governance In this section, seven things will be discussed as to whether the management of the company and the governance of the company working effectively or not. First is the presence of the integrity of the information and the ethical value. It suggests that the company shall have the system where these two things can be built. Second section is that whenever any new appointment of the employee is required to be made then the company shall enquire the requisite skills and experience which is required for the particular job. In the third section the importance of the role of the people charged with governance and the same will be followed. In the fourth section, managements approach towards the risks, financial reporting and processing of the information pertaining to accounting and reporting. In the fifth section, the structure of the company shall be formed and communicated so as to avoid any type of confusion in the future among the employees. In the sixth section, the authorities and the responsibility shall be delegated and assigned and the reporting shall be obtained in the form of management information system. In the last section, the company shall maintain the policies for recruiting any person. All the seven sections are present in the annual report and thus the companys management and the corporate governance is beneficial and best for the organization. Conclusion The analysis of the business risk has been evolved throughout the study with the different spheres at each point of time whether it is at the time of understanding the nature of the business of the entity or at the time of conducting the analytical procedures to determine the changes in the figures reported in the earlier financial year. At each stage risk have been analysed and interpreted in different forms. The study has majorly conducted the understanding of the working of the operations of the company and the management of the company especially of those who were charged with the governance of the company. In order to conclude, the report has been able to define the various risk and its factors that describes the current working and operations of the company. Thus it is advised that every company shall assess the risk on the periodical basis and shall report to the management of the company for early and suitable action. References AASB, (2013), ASA 315 Identifying and Assessing the Material Misstatements through understanding the entity and its Environment available at https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standar d_ASA_315.pdfaccessed on 18/09/2017. Company Official Website, (2015), Annual Report 2015, available at https://www.computershare.com/au accessed on 18/09/2017. Company Official Website, (2016), Annual Report 2016, available at https://www.computershare.com/au accessed on 14/09/2017. Company Official Website, (2017), Annual Report 2017, available at https://www.computershare.com/au accessed on 14/09/2017. Delen, D., (2013), Measuring firm performance using financial ratios: A decision tree approach.Expert Systems with Applications,40(10), pp.3970-3983. Ha, H., Coghill, K. (2008). E-Government in Singapore-A Swot and Pest Analysis.Asia -Pacific Social Science Review,6(2), 103-130. Helms, M. M., Nixon, J. (2010). Exploring SWOT analysiswhere are we now? A review of academic research from the last decade.Journal of strategy and management,3(3), 215 -251. PCAOB, (2017), Analytical Procedures available at https://pcaobus.org/Standards/Archived/Pages/AU329A.aspx accessed on 17/09/2017. Technavio, (2015), Top companies in the Australian IT Market available athttps://www.technavio.com/blog/top-companies-australian-it-market accessed on 18/09/2017. Ullah A, (2014), Planning and Audit of Financial Statements available on https://leaccountant.com/2014/12/08/asa-300-summary-planning-an-audit-of-financial -statements/ accessed on 18/09/2017