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FINANCIAL ANALYSIS

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FINANCIAL ANALYSIS

 FINANCIAL ANALYSIS

 

Introduction

Financial statement analysis facilitates the financial managers to make the decision regarding investment and therefore financial statement analysis is to be found as one of the most crucial of financial management. In this context, it is to mention that the financial statement analysis considers the ratios to identify the trends of the financial positions of a company . Therefore, the researcher shall consider ratio analysis for identifying the trend of the performance of the company. In the initial part of the study, the researcher shall consider the business and strategic analysis of IRESS limited- Melbourne. In this part, the researcher shall consider the industry analysis, economic analysis and the analysis of the performance of the competitors of the company. After this part, the researcher shall analyze the accounting analysis and the financial analysis to identify the trends of the ratios and the reasons for changes in the performance of the company. In the next part of the study, the researcher shall make discussion on the sales growth rate and the asset quality of the company to make the comparison with the competitive firms. In addition to that, the researcher shall make the recommendation on the basis of the strategic analysis, financial analysis, and the prospective analysis.

1. Business and Strategic Analysis

1.1 Analysis of the economy

In Australia, the software industry is to be considered as one of the most emerging industries and this industry creates the most employment in the country after the banking industry . As this industry enhances the employability in the country, the government encourages the industry owners by providing the subsidy to the companies of this industry. Therefore, the company could avail the subsidy from the government in future. On the other hand, the researcher is to mention that thesof tware industry in Australia earns foreign income and therefore this industry contributes 21% of the total GDP of the country .

On the other hand, the researcher is to mention that the intellectual property in Australia is generated by the engineering universities in the country (). As the country has an immense source of intellectual properties from the internal and external sources, the company could get the advantage of skilled employees for the business operation. The software industry relies on the advancement of the technologies and Australia is to be considered as technologically advanced as per as the software technology is concerned . In this context, it is to mention that students from all around the globe come to Australia for the job opportunity and therefore the company could get the internationally approved technological support.

1.2 Industry analysis

Identification of the industry

IRESS limited involved in selling the software services in the internal market as well as in the external market. Therefore, the researcher is to mention that the company is in the software industry in Australia. In this context, the researcher is to mention that the company has earned the highest revenue in 2015 and 2016 among the Australian software companies. In this context, the researcher is to mention that the market share of the company in the stock market is the second highest after XERO. As per as the international business is concerned, the researcher is to mention that the company has made third highest foreign revenue among the software companies in the country.

Competitors of the company

While making discussion on the competitors of IRESS limited, the researcher is mention that MYOB holding limited has earned the highest operating revenue in the industry since 2011, and therefore this company is required to be considered as the most impactful competitor of IRESS limited.  

Competitive positioning analysis through Porter’s five forces model:

Bargaining power of supplier:

The company purchases software related products from foreign countries, which includes China, Japan, the United States, and India. Moreover, it is also to mention that the competitors of the company including MYOB holding limited purchases raw materials from the USA and China. Bargaining in the international business relies upon the treaties that a company makes with other companies, and therefore, the issue of bargaining with the suppliers is a macroeconomic issue. Therefore, this factor could not affect the strategic decision making of the company.

Bargaining power of the customers:

MYOB holding limited sells its software to the domestic customers as well as to the foreign clients. As this company has initiated the foreign trading in 2012, the bargaining power of the foreign customers is to be considered as high. Therefore, the researcher is to mention that the high degree of the bargaining power of the customers affects the strategic and comparative decision making of the company.

The threat of new entrants:

The software industry is to be considered as a capital intensive industry and therefore the new firms could not enter into the industry due to lack of capital. On the other hand, the researcher is to mention that the company does not face any problem regarding the threat of new entrants.

The threat of substitutes:

As the software industry relies upon the advancement of the technology, the industry offers a high number of substitutes to the customers. In this regard, it is to mention that the competitors of the company offer customized products to the clients, which could enhance the threat of substitutes for the company.

Rivalry among the existing competitors:

Large software firms form the cartel in Australia to set a price of the software services in the domestic market. In this context, the researcher is to mention that as the company is involved in international business and therefore it faces strong competition in the global stage. In this context, the researcher is to mention that the company does not face such competition as its face in the international platform.

From the above discussions, the researcher is to mention that the company faces competition in terms of the threat of substitutes. This force could result in the decrease in the profitability of the companies in the industry. On the other hand, the researcher is to mention that the advancement of the technology could facilitate the industry to enhance the profitability level.

Growth potential of the software industry

Companies in Australia consider the advancement in the software as the most impactful factor for achieving the organizational goal. In this context, the researcher is to mention that the software industry is required to be considered as the most emerging industry as this industry has reflected the most steady growth as compared to the other service-providing industries (). Therefore, the researcher is to mention that the industry is required to make the large investment in order to enhance the innovation that would facilitate the companies to enhance the return on investment in future.  

1.3 Company’s competitive and corporate strategy

The company’s competitive strategy

IRESS limited has a separate team for serving the post sales services to the foreign clients . On the other hand, the researcher is to mention that the company appoints employees from internal sources along from the foreign countries. Therefore, the base of knowledge within the company is required to be considered as one of the most crucial core competencies as the company involves in an industry that is affected by the advancement in the technology. Therefore, the knowledge base and the post-sale services are required to be considered as the core competencies of the company. Along with the core competencies, the company has risk drivers, which creates constraints to the company. This includes a risk of duplication of products and the piracy of the company outputs. Therefore, the researcher is to mention that the post sales service and the prevention of the piracy and duplicity of products could enhance the profitability of the company.

The corporate strategy of the company

The company has adopted cost leadership strategy as the primary base of corporate strategy. In this context, the researcher is to mention that the high level of competition in the software industry is to be considered as the main reason that it has adopted the strategy of cost minimization and minimization of a price of the products.



[i] Healy, P.M. and Palepu, K.G., (2012). Business analysis valuation: Using financial statements. Cengage Learning.

 

[ii] O'Boyle, E.H., Pollack, J.M. and Rutherford, M.W., (2012). Exploring the relation between family involvement and firms' financial performance: A meta-analysis of main and moderator effects. Journal of Business Venturing27(1), pp.1-18.

 

[iii] Butler, J.R., Wong, G.Y., Metcalfe, D.J., Honzák, M., Pert, P.L., Rao, N., van Grieken, M.E., Lawson, T., Bruce, C., Kroon, F.J. and Brodie, J.E., (2013). An analysis of trade-offs between multiple ecosystem services and stakeholders linked to land use and water quality management in the Great Barrier Reef, Australia. Agriculture, Ecosystems & Environment180, pp.176-191.

 

[iv] Shahbaz, M., Khan, S. and Tahir, M.I., (2013). The dynamic links between energy consumption, economic growth, financial development and trade in China: fresh evidence from multivariate framework analysis. Energy economics40, pp.8-21.

 

[v] Post, C. and Byron, K., (2015). Women on boards and firm financial performance: A meta-analysis. Academy of Management Journal58(5), pp.1546-1571.

 

[vi] Vogel, H.L., (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.



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