Business Management Planning Essay Example
Business Management Planning
6. Financial Data Analysis
The following is a detailed analysis of the financial performance of WRSX as compared to the industry averages and strategies that the company can use to meet its objective of delivering value to its shareholders by achieving sustainable growth. The ratio of PBIT margin (profit before interest and taxes) to revenue is 16.5%, which is slightly above the industry average of 19% (WRSX 2015, p. 21). Also, the staff costs ratio, which is calculated by dividing the total expenses related to staff activities by the revenue of the company, is 63% while the industry average is 58% (WRSX 2015, p. 21). These ratios indicate that the company is performing well regarding the amount of profit that it makes before it pays statutory tax. Also, the ratios indicate that the company is spending much less money on its employees than what many companies in the industry do. Therefore, no action is needed from the management regarding these two aspects of the financial performance of the company.
However, the management needs to address the issues related to the following two financial ratios: return on capital employed (ROCE) and gearing ratio. The ROCE of the company is 12.9% while the industry average is 15% (WRSX 2015, p. 21). Similarly, the company has a gearing ratio of 45.5% while the industry average is 42% (WRSX 2015, p. 21). A high gearing ratio means that the company has a high level of current liabilities. A high level of current liabilities may jeopardise the short-term liquidity plans of the company. Therefore, the management should address the issue of short-term liabilities of the company to reduce its gearing ratio to match the industry standard. In the same vein, the low ROCE ratio of the company shows that the company is using its capital less efficiently than what the average company in the industry is doing. Therefore, the management team needs to address the issue by, for example, reducing the amount of short-term liabilities that the company is currently facing.
Apart from the financial ratios, other important indicators of the financial performance of the company are the performance of share price and changes in its market capitalisation. The data indicates that the share price of the company rose steadily during the first four quarters to reach a peak of £3.71 at the end of the fourth quarter (WRSX 2015, p. 22). However, the share price has been falling steadily and it is currently at £2.28 (WRSX 2015, p. 22). The market capitalisation of the company stands at £285 million (WRSX 2015, p. 22). Given that the performance of the share price is normally a reflection of issues related to corporate governance and other areas, there is a need for the management of the company to address any corporate governance issues that may be harming the organisation’s share price.
7. Summary of Critical Business Management Issues
One of the most important business management issues that WRSX needs to address relates to risk. There is a need for the management of the company to revise its overall approach to managing risk and the specific strategies that it uses to manage financial, reputational, operational and other forms of risk that the company faces. For example, it has been noted that a corruption case involving part of the company has significantly damaged the reputation of the entire firm (WRSX 2015, p. 29). When the reputation of the company is damaged, the company runs the risk of experiencing a further decline in its share price. Therefore, it is necessary to investigate the corruption allegations and take the legal steps that are necessary to resolve it. Moreover, the company should put in place measures to prevent a similar case from occurring in the future.
Another issue of concern is how the company is managing its acquisitions. It is pointed out that some of the recent acquisitions of the company have higher levels of financial risk (WRSX 2015, p. 29). If some of these acquisitions underperform, the company may fail to reach its financial targets in the short- and even long-term. However, it is not practical for the management team of the company to change the capital investment decisions regarding mergers and acquisitions that have already been implemented.
Another important issue relates to the management structure that the company uses. Having acquired many well-established businesses, WRSX is now a relatively large company with several distinct business units that are in different areas and provide unique services. It is because of the large size and nature of the company that the board has little control over what the management teams of the various units of the company do (WRSX 2015, p. 29). However, this approach to governance exposes the company to various risks, the most important one being operational risk. Moreover, given the complex size and nature of operations of the company, it is difficult for the board to establish and maintain a form of corporate culture throughout the company.
Additionally, the perception that the board of the company does not have control over the management and the big size of the company is undermining the way the company is managed as well as the feelings of the public regarding the issue. It is indicated that the company has a relatively low score in relation to corporate governance (WRSX 2015, p. 29). Therefore, it is important for the company to address the issue of corporate governance because it directly determines the performance of company’s share price as well as its public reputation.
WRSX 2015, ‘Company profile and report.’
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