Harvey Norman Annual Report Analysis

Company Overview

A large Australian based multi-national retailer, Harvey Norman primarily deals in consumer electrical, computer, furniture and communication related goods. Various stores of Harvey Norman are owned and operated by the parent company Harvey Norman Holdings Limited that is listed under the Australian Stock Exchange. Their operating strategies differ from the competitors as each distinct stores of the company are managed by distinct management. The main purpose of the entity is to become the global leader and getting recognition with regard to the delivery of various retail services in fast growing consumer goods sector and create shareholders value through improving the working environment and inviting the local communities to participate in the business (Harveynormanholdings.com.au 2016).

Harvey Norman deals in various products like wardrobe, kitchen, bathroom, bars, home office and renovations of home theatre, laundry and vacuum appliances, cooling and heating air treatment, gaming products, photo centre, printers, camera, body and hair care, carpet and flooring products, tablets and computers. Further, they provide various services like installation facilities, delivery services, finance options, TV recycling and product care.

This report will represent the details regarding the auditors of the company and their report, the directors of the company and their report. The report will further, look into the financial performance of the company and their analysis. For reporting regarding the above mentioned matters the annual report for the year 2016 will be taken into consideration (Harveynormanholdings.com.au 2016).

The dominant section of the annual report is the financial performance report and the notes related to the financial reports. The financial report of the company includes various reports like statement related to the financial position of the company as on 30^th June 2016, income statement for the closing of the year, comprehensive income statement for the closing of the year, statement of equity changes and cash flow statement for the closing of the year (Harveynormanholdings.com.au 2016).

Unless otherwise stated, all the directors are collectively called as the board and they hold their positions as director over the entire financial period and till the date of publishing the report. The major directors of the company are as follows –

• Christopher Herbert Brown, Non-executive Director – Mr. Brown appointed as the director of the company during 1987 while the company listed as the public company. Further, Mr. Brown is the member of nomination, remuneration and audit committee.
• David Matthew Ackery, Executive Director – He was appointed as the director of the company on 20^thDecember 2005. Further, Mr. Ackery is also responsible for the entire executive responsibility with regard to the relationship among Harvey Norman and the consolidated organization, technology franchisees, home entertainment and strategic partners.
• Michael John Harvey, Non-executive director – Mr. Harvey joined the company during 1987. He is extremely experienced with regard to the company’s franchisee from the year 1989 – 1994. Further, he was appointed as the director of the company during 1993 and appointed as the managing director of the company during July 1994. However, he ceased to be the managing director and executive director on 30^thJune 1998 (Harveynormanholdings.com.au 2016).

Directors and Reports

As per the director’s states that the financial and operating review to the shareholders with the overview of the company’s consolidated report, key strategies, dividends and financial position for the year ended 2016. The report also delivers the summary of the risks associated with the business and the trading outlook for the financial year 2017. As per the report, the segment of franchising operations within Australia is the major contributor for the overall profitability that includes 54% of the net profit before tax. Further, the margin related to franchising operation enhanced to 5.03% during the financial year 2016 as compared to 4.05% of 2015.

During the year 2016, 38 properties from Australia that were valued independently that represents 31.1% of the total investment properties that is owned by consolidated company and 39.6% of total fair values of the investment properties from Australia (Picker et al. 2016). The main objective of the company with regard to its capital management strategy is creating the sustainable worth for the shareholders, raising capital through lowest possible sources of costs; prevent the company from unfavourable outcomes and to maintain the maximum possible level of returns to the stakeholders (Harveynormanholdings.com.au 2016).

During the financial year 2016 the audit of Harvey Norman was carried out by Ernst & Young. As per the director’s report, being the lead auditor of the company no contraventions were found with regard to the independence requirement of the auditor as per the Corporation Act 2001 concerning the audit. Moreover, no contraventions were found with regard to the applicable code for the professional conduct concerning the audit (Schaltegger and Burritt 2013). The auditors audited the associated financial statements of Harvey Norman that includes that stated the financial position of the company as on 30^th June 2016, income statement for the closing of the year, comprehensive income statement for the closing of the year, statement of equity changes and cash flow statement for the closing of the year. As per the auditor’s opinion, the financial report of the company was prepared as per the requirement of Corporation Act 2001 that includes –

• Represents the true and fair view of the consolidated financial position as on 30^thJune 2016 and the performance of the company for the financial year ended on the mentioned date.
• Complies with the Corporation Regulations 2001 and AAS (Australian Accounting standard)  

Further, as per the opinion of the auditor, the remuneration report of the company for the financial year ended 30^th June 2016 is in compliance with the section 300A with regard to the Corporation Act 2001.

Auditors and Reports

The sales revenue of the company for the year ended 30^th June 2016 amounted to $ 17,95,759 thousands as compared to $ 16,17,151 thousands for the year ended 30^th June 2015. Therefore, there was an increase of $ 178,608 thousand with regard to sales revenue as compared to the previous year. Reasons behind the increase in sales were –

• Market share with regard to bedding and furniture market continued to increase despite of the industry slowdown
• Small business cycling with regard to tax break and the weaning the computer sales with regard to the stimulus package.
• Deflation in market of flat panel that caused the softening of the sales with regard to the electrical division.

Operating cash flow is the section under the cash flow statement that states the uses and sources of the cash from the regular business activities of the company for the particular period. Cash generated from the operating activities generally includes the net income from income statement, changes in working capital and adjustment to the net income.

The net cash flow from the operating activities for the year ended 30^th June 2016 was $ 437,691 thousand as compared to $ 340,448 thousand for the year ended 30^th June 2015. Therefore, there was an increase of $ 97,243 thousand in 2016 as compared to 2015 and the increased percentage was 28.56%.  

Retained profits of the company for the year ended 30^th June 2016 was $ 21,25,186 thousands.

During the year ended 30^th June 2016, the company had a interest bearing borrowings and loans amounted to $ 201,042 thousands.

Profitability ratio – this ratio measures the efficiency of the company regarding selling its inventories and generating profit for the company.  If the company has a higher gross margin ratio like 505 to 60% is regarded as efficient to pay off the operating expenses like marketing expenses, finance cost, administrative expenses and salaries of employees (Kent and Zunker 2015). Form the above table it is recognized that the gross profit margin of the company for the financial year was only 31% as compared to 30% of 2015. Therefore, though the gross profit margin during 2016 has increased slightly as compared to 2015, it will still be considered insufficient to pay off their operating expenses. Further, the return on equity of the company was 11% and 13% respectively for 2015 and 2016 which is also not so impressive that can attract a potential investor to invest in the company.

Liquid ratio – the liquid ratio indicates the company’s ability with regard to payment of its short-term obligations. Normally a ratio of more than 1 is considered as healthy sign for the company. From the above calculation it was found that the current ratio of the company for the year 2016 was 1.26 as compared to 1.31 for 2015. Further, the liquid ratio of the company was 1.01 in 2016 as compared to 1.08 for 2015. Both the ratios indicate that though these were decreased in 2016, the liquidity position of the company is impressive and it is able to pay off its current obligation with the available current assets efficiently (Rankin et al. 2012).  

Sales Analysis

Asset turnover ratio – it measures the ability of the company to create sales from the assets through comparison of sales revenue with the total average assets (Zhang and Andrew 2014). From the above calculation it is recognized that the asset turnover ratio of the company for the year ended 30^th June 2016 is 0.21 as compared to 0.19 for the year ended 30^th June 2015. Though the ratio has been slightly improved as compared to the previous year the asset turnover position of the company is not efficient as the company is able to generate only 19 cents of sales for each dollar of the asset.

Leverage ratio – the leverage ratio evaluate the total load of debt on the company as compared to the equity or assets of the company. This indicates how much asset of the company is owned by the shareholders as compared to the creditors. The debt ratio of 0.5 or less than that is considered as less risky (Scott 2012). Looking at the debt ratio of the company, it is recognized that the debt ratio of the company is 0.41 and 0.39 respectively for 2015 and 2016. It indicates that the assets of the company for the years are more than double of its liabilities.  However, the debt to equity ratio of the company is not considered as healthy as the ratio for 2016 was 0.65 as compared to 0.69 of 2015. This indicates that the creditors own 65 cents of each dollar from the company as compared to only 35 cents owned by the investors.

Reference 

Harveynormanholdings.com.au. 2016. Reports. [online] Available at: https://www.wesfarmers.com.au/investor-centre/company-performance-news/reports [Accessed 07 Sept. 2017].

Kent, P. and Zunker, T., 2015. A stakeholder analysis of employee disclosures in annual reports. Accounting & Finance.

Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L., 2016. Applying international financial reporting standards. John Wiley & Sons.

Rankin, M., Stanton, P.A., McGowan, S.C., Ferlauto, K. and Tilling, M., 2012. Contemporary issues in accounting. John Wiley and Sons Australia, Limited.

Schaltegger, S. and Burritt, R., 2013. Contemporary environmental accounting: issues, concepts and practice. Greenleaf Publishing.

Scott, W.R., 2012. Financial accounting theory (Vol. 2, No. 1, p. 12). Upper Saddle River, NJ: Prentice hall.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order