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HI5002: Finance for Business

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HI5002: Finance for Business

 HI5002: Finance for Business

 

Introduction

It is essential for all investors to conduct a detailed analysis of the financial conditions and performance of a company before investing in its shares. Similarly, it is also necessary to evaluate the movements that have been in its share prices, the risks associated with these shares, the policies that the company uses for providing dividends to shareholders and the returns from the shares. In this report, the investment that an institutional investor is looking forward towards will be evaluated and the viability of the investment will be analyzed. It discusses the viability of investing into the shares of Retail Food Group and Dominos Pizza Enterprises, two listed firms in Australia. The report will also provide a recommendation on which company will be the best investment.

The food industry is a widespread industry in Australia. It is made up of a wide range of food and beverage businesses. The Retail Food Group and Dominos Pizza Enterprises are the two main listed businesses of the Australian food industry. The Retail Food Group is a listed business in Australia based in Southport, Queensland and operates in the New Zealand and Australia with coffee roasting cafes and restaurants in 1150 locations (Rfg.com.au, 2018). The business has successfully owned several companies such as the Donut King, The Coffee Guy, Cafe2U, BB’s Cafe, Gloria Jean’s Coffees and these acquisitions in the history of the company have played a significant role for its strong position.

Dominos Pizza Enterprises is the largest chain of selling pizzas in Australia with 1900 stores in Australasia, Japan and Europe (Dominos.com.au, 2018). It is the first publicly listed companies selling pizza in Australia. The largest network of sales as well as stores of Dominos Pizza Enterprises from capital cities such as Sydney, Adelaide and Melbourne to various rural areas act as its comparative advantage (Dominos.com.au, 2018). On the other hand, the sustainable comparative advantage of Retail Food Group comes from its slogan “strength in brands” in its logo and its economies of scale in technology platforms (Rfg.com.au, 2018).

The graph prepared to compare the financial stability of Retail Food Group and Dominos Pizza Enterprises based on capital structure during 2015, 2016 and 2017

(Source: Created by the learner)

The solvency ratios of a company, which are also known as capital structure ratios, indicate the capability that it has for meeting its long-term obligations along with evaluating the reliance of the company for financing its operations and assets (Rahman, 2017). Through the evaluation of the debt to equity ratios of Retail Food Group and Dominos Pizza Enterprises, it can be evaluated that the equity-based solvency of Retail Food Group is quite good while that of Dominos Pizza Enterprises is extremely poor. This is because it can be analyzed that the Dominos Pizza Enterprises relies more on debt financing than equity financing. The asset-based solvency of the two firms is quite good. However, better solvency can be noticed in Retail Food Group than Dominos Pizza Enterprises as per this financial ratio as well.

Conclusion on the financial performance of Retail Food Group and Dominos Pizza Enterprises based on every financial ratio

From the overall analysis and comparison of the financial performance and financial stability of Retail Food Group and Dominos Pizza Enterprises, one can evaluate that the financial both the companies have good financial performance. However, if the performance of one company can be compared and contrasted with one another, it can be analyzed that Retail Food Group has a much better performance as well as stability than that of Dominos Pizza Enterprises.  

 

Reference list

Baker, H.K. and Weigand, R., 2015. Corporate dividend policy revisited. Managerial Finance41(2), pp.126-144.

Benjamin, S.J., Mohamed, Z.B. and Marathamuthu, M.S., 2018. DuPont analysis and dividend policy: empirical evidence from Malaysia. Pacific Accounting Review30(1), pp.52-72.

Dominos.com.au, 2018. Domino's Pizza | Order Pizza Delivery Online | Food Delivery & Takeaway. [online] Available at: https://www.dominos.com.au/ [Accessed 28 Sep. 2018].

Goldmann, K., 2017. Financial liquidity and profitability management in practice of polish business. In Financial Environment and Business Development (pp. 103-112). Springer, Cham.

Kajola, S.O., Adewumi, A.A. and Oworu, O.O., 2015. Dividend pay-out policy and firm financial performance: Evidence from Nigerian listed non-financial firms. International Journal of Economics, Commerce and Management3(4), pp.1-12.

Midesia, S., Basri, H., Majid, M.S.A. and Shabri, M., 2016. The effects of asset management and profitability on stock returns: a comparative study between conventional and Islamic stock markets in Indonesia. Academic Journal of Economic Studies2(3), pp.44-54.

Rahman, A.A.A.A., 2017. The Relationship between Solvency Ratios and Profitability Ratios: Analytical Study in Food Industrial Companies listed in Amman Bursa. International Journal of Economics and Financial Issues7(2), pp.86-93.

Reuters, 2018. Stock Quotes & Company News | Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks [Accessed 28 Sep. 2018].

Rfg.com.au, 2018. Home - Retail Food Group. [online] Available at: http://www.rfg.com.au/ [Accessed 28 Sep. 2018].



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