Report of Analyzing Business risk - Myassignmenthelp.Com

Question: Discuss about the Report of Analyzing Business risk. Answer: Introduction This report is analyzing business risk assessments for GPT Group Stapled organization that is a leading real estate company of Australia. In this regard, the report is describing several criterias such as understanding business nature, industry, legal environment, external environmental factors, business risks, management and governance that may impact on an organizations profitability and performance. Nature of the entity GPT Group Stapled is a leading real estate company of Australia, which is registered as name of GPT Companyin Australian Stock Exchange (ASX). The business operations of this company are related to investment in commercial, retail, industrial, hotel and office park properties through different segments such as office, retail, logistics, corporate and fund management. GPT Group Stapled Company is standing with $20 billion market capitalization and has substantial investor base more than 35000 investors (GPT, 2017). The financial management platform of the company is focused on Australias office and retail sector to enhance the growth profile and returns of the groups with leveraging the experience and skills of the team members. Companys financial management platform provides an important source of income through property management, fund management and development management charges. The financial management platform of the company comprises GPT Wholesale Office Fund (GWOF) with $6.6 billion and GPT Wholesale Shopping Centre Fund (GWSCF) with $3.8 billion to provide the high quality office assets in Australian real estate market (The GPT Group, 2017). Understanding the Industry The Australian real estate industry is growing with 4.2% annual growth rate with presenting 18% of the GDP. In Australia, the growth of the real estate market is supported by better supply chain in the industry (KPMG, 2017). Supply chain system in Australia is accountable for the real estate companies and procurement to make the effective portfolio strategy, analyzing the purchasing initiatives, monitoring and delivery of the strategic management procurement events on time. In this industry, the competent stakeholder management is demonstrated on the basis of effective customer and supplier engagement, communication, consultation, negotiation and reporting (Delacy, 2015). As well as the legal obligations and administrating policies also pursuant supply chain system to improve the procurement results. Furthermore, it is found that the major real estate players in Australia are Elders Real Estate, LJ Hooker, Harcourts Group, Barry Plant and Richardson Wrench. These players are devoted to provide luxurious services in real estate market of Australia, which are supported by different factors such as population growth, job creation, demographics, infrastructure, lifestyle and amenity (Macro, 2017). In the recent years, the population of Australia has been increased due to attractive business and educational environment. Due to these reasons the demand of houses in Australia has been increased and provided opportunities for the real estate companies in the country. As the Australian real estate market has greater opportunities for the investors, therefore it also attracts new real estate companies for investment. In this concern, there is threat of new competitors in the industry, which may impact on the established real estate companies. Understanding the legal environment The legal environment is a legal framework provided by the local or state authority of Australia in which a firm operates its operational activities. The Australian government encompasses different legislations such as statutory low, common law, company Act, Corporation Act and consumer law that are essential to operate the business activities in Australia (Trade Portal, 2017). Furthermore, the disability discrimination legislation, age discrimination legislation, rise in minimum remuneration and increased requirements for the organizations to recycle have been affected to the organizations operational activities. Furthermore, it is analyzed that the political environment of Australia is stable that is beneficial for the companies because in a stable political environment the organizations can flow the rights through to bottom line. Hence, the legal and political environment of the country has greater opportunities for the businesses. Understanding external environmental factors There are different types of external environmental factors that may impact on an organizations operational and functional activities. In this regard, different external environmental factors are discussed as below: a) PEST analysis PEST analysis is an important external factor, which may influence to an organizations operational activities. It is a process of classifying political, economic, social and technological factors of a specific territory that may impact on an organization. PEST analysis is used to generate better understanding about the external environment in which an industry want to operate its business activities (Kenis et al., 2012). In this concern, the PEST analysis of Australia is analyzed as below: Political factors: In Australia, the political environment is stable that is supportive for the growing industries as well as small enterprises. There are no conflicts and wars within the country that make this nation attractive for the foreign investor. Australia has attractive trading policies for the foreign investors with favorable conditions in their trades (Zalucki et al., 2011). Therefore, the stability of political environment creates opportunities for real estate organizations to expand business with lower risks. Economic factors: In recent years, it is observed that the GDP growth rate and employment growth rate of Australia are decreased that have impacted to Australians lifestyle. Due to decreased economic growth Australia does not seem to be favorable for the businesses. Furthermore, the Tax rates and interest rate in Australia are highly competitive in compare to its major economies. The competitive tax rate seems to be feasible for GPT Group Stapled Company to operate the business activities in a sound work environment (Queensland Government, 2017). In addition, the interest rate in Australia is less than 3%. Therefore, the real estate companies can get finance at lower cost for their daily operational activities. Social factors: As Australia is an educational hub for the international students and attracts to foreign workers, therefore the population of Australia tremendously increased in the recent years. Due to immigrants in Australia from different countries created religious diversity and generated different types of demand in the country. In order to meet housing demand of these customers, the real estate companies obtained opportunities to develop their business in the territory. Furthermore, the education standard of Australia is higher therefore the companies have needed to provide detailed information regarding their products and services because the higher educational environment has higher advantage for an organization in terms of the business operations (Kenis et al., 2012). Therefore, the social factors are favorable for GPT Group Stapled Company in Australia. Technological factors: Australia is a technological advanced economy in the world. Advancement of technology can reduce production cost, improve quality and produce innovative products. There are two government organizations namely CSIRO (Commonwealth Scientific and Industrial Research Organization) and ASTEC (Australian Science and Technology Council) that support to technological development in the country. Furthermore, there the information and communication technology is also on higher stage, which supports to the organizations to communicate easily with its stakeholders as well as customers (Queensland Government, 2017). In this way, it is analyzed that the technological factors are favorable for GPT Group Stapled Company to operate its business activities in the country. b) SWOT analysis SWOT analysis refers to strengths, weakness, opportunities and threats for an organization. In this regard, the SWOT analysis of GPT Group Stapled Company is described in the below table: Strengths Better strategic expansion and development Better operating margin Standard quality of products and Weaknesses The profiles are not too diversified Diminishing rent of offices in malls and supermarkets Opportunities Development of the industry in growing and stable economy Scope of diversification it its profile Threats Strong competition in the market Indecisive microeconomic parameters c) Porters five forces analysis In the revolutionary business world Porters five forces analysis is used as a marketing strategy to analyze the external market. These five forces are discussed as below: Threat of New Entrants: It is analyzed that the Australian real estate market has better opportunities for the investors. Therefore, there are threats of new entrance in property market that may impact on the profitability of GPT Group Stapled Company. Bargaining Power of Suppliers: Generally, the real estate companies buy their raw materials from different suppliers that may impact on margins their margins. In the real estate industry, bargaining power of the suppliers is higher that may impact on profitability of GPT Group Stapled Company (Kenis et al., 2012). Bargaining Power of Buyers: The buyers mostly wan to buy products and services at lower prices with superlative offers. In this regard, it is analyzed that the there are higher bargaining power of the buyers that have impact on the GPT Groups profitability. Threat from Substitute Products: In Australian real estate marker, there are big players who are providing the dwelling facilities same as GPT Group in the industry. The similar products and services may impact on the profitability of GPT Group. There is high range of substitute products and services in the real estate therefore the company should focus on core needs of the customers to compete in the market rather than what the customers are buying. Rivalry among the existing players: GPT Group is operating its operational activities among the existing big players in Australia, which may affect the overall profitability of the group. The competitive rivalry firm may force other organizations to drive down pieces. Hence, the Australian real estate market highly competitive due to existing rivalry firms. d) Other external factor There different external factor such as economic condition, availability of finance, interest rates, currency revaluation and inflation that have impact on real estate industry of the nation. In regard, it is observed that the economic condition of Australia is strong in the world (Trading Economics, 2017). Furthermore, there are various financial institutions and banks, which are providing the finance at the competitive interest rates for the investors. The below table is presenting the Australias competitive interest rate. In addition, the inflation rate of Australia has increased in the present year which have depreciated the currency and increased the cost of dwelling for the customers (Trading Economics, 2017). Due to increasing inflation rate the operational activities of real estate organizations have been affected in great manner. Understand objectives, strategies and Assessing Business Risks a) Industry development: The real estate industry is rapidly growing industry in the world with having the contribution 18% in the countrys GDP (KPMG, 2017). But, the industry is facing lack of expert labour in construction industries, which may impact on the organizations performance. b) New products and services: GPT Group introduces new and attractive for the customers but it also increase the liability of safe and eco friendly services in the market. c) Expansion of the business: In Australia, GPT Company is expanding its business activities but it also has some business risks. In this concern, it is identified that due to increasing population of migrants it become difficult to estimate the actual demand of property. In addition, the inflation rate and fluctuated exchange rate also generate the risks in expansion of the business operations. d) New accounting requirements: The technological development also changed the accounting requirements for the organizations. In this concern, the real estate organizations are facing improper accounting implementation and increasing costs in their accounting processes. e) Regulatory requirements: There are strict and standard rules and regulations for the real estate organizations to regulate their business activities. As well as, the increased legal exposures are also generating the problems in front of the real estate organizations. f) Current and prospective financing requirements: It is analyzed that the financial requirements of GPT Group has increased due to business expansion in recent years. As well as, the liabilities of the company also increased that would be risky for the company in making better financial performance in future. g) Use of IT: Protection of data and information is an essential technical tool for the organization. Due to developing IT the real estate organizations are facing incompatible processes and systems that may result of loss of relevant data. h) Effects of implementing a strategy: In an organization, the implementation of a new strategy has need of expertise for successful results. If, the strategy is implemented in improper way than there may be risk of business failure. Performing Analytical Procedures to understand Entitys Performance GPT Group Stapled: Calculation of Ratio Ratio 2014 2015 2016 Net Profit margin % 99.32 122.1 153.16 Return On Assets % 6.59 8.2 10.1 Return on Equity % 9.46 12.01 14.58 Assets Turnover (Average) 0.07 0.07 0.07 (Sources: GPT Group, 2017) L J Hooker: Calculation of Ratio Ratio 2014 2015 2016 Net Profit Margin % 3.47 5.15 6.53 Return on Assets % 5.09 7.71 9.16 Return on Equity % 5.97 9.06 10.79 Assets Turnover (Average) 1.47 1.49 1.4 (Sources: LJ Hooker, 2017) Interpretation: As per the given ratio, it can be concluded that the profitability ratio of the company in terms of net profit margin ration in 2016 is 153.16 as compared to both years. Company has earned more profit in the year of 2016. At the same, return on assets in 2014is 6.59 to 2016 is 10.1. It is favorable for the company. In addition to this, the return on equity ratio in 2015 is 12.01 an in the year 2016, it is 14.58. It shows that the company has doing its business effectively. The Company earns good profit in 2016. On the other hand, compared with the competitive firm, the GPT group has earned more profit as compare with LJ Hooker. Understand management and Governance Communication and enforcement of integrity and ethical values: GPT Group increases the robust framework in its business operations that clearly indicate the code of internal and ethics communication policies, which helps the management in taking effective decision (Thomas and Sassi, 2011). The bank is effectively designed, implemented and increased an integrated compliance framework, which set by the compliance policy and supported by compliance process, assurance and plans. Likewise, the board offers a strong compliance culture, which has disseminated at all hierarchical levels as well as has based on the sound regulations, best practices and sound law. Participation by those charged with governance: Experience and Stature of Board members: In present, there are 9 board members with having more than 30 years experience in their duties. One is group chief executive and chairperson and 7 members is non- executive director (Woods, et al., 2012). Interactions with external and internal auditors: The board of director has appropriately evaluated the reports previously represented to the external auditors (Mihret and Admassu, 2011). The board of directs have evaluated and admired the whole report before representing to the auditors and yield appropriate response in any issue. The extent of involvement: The association of the board has to present the stakeholder and serve the interest of the business with analyzing its strategies, performance and policies. Besides, the companys performance has monitored by the board and makes sustainable value for stakeholder during agreement with duties and responsibility by the board of company and law (?enda? et al., 2012). Independence from management: The directors independence level has based on the conditions. Following the some condition as per below: The company within the previous five years associates with the director. The companys director has established several compensation and fees during the type of share and cash as well as whether or not the director contributions during the companys executive shared the option performance pays schemes (Ben-Amar and Zeghal, 2011). The director has significant investment in the business and if he/she present and signify the significant investor of the business. rganizational structure: Criteria of taking and management of business risk: An important part of business is comprises of management of business risk. It exists in the form of two categories. Initial risk is associated with finance, which is effectively managed by the finance team (Bromiley, et al., 2015). This may happened due to inefficient management of cash flow to operations. Another risk is associated with the fall in sale and profitability. Action and attitude for financial reporting: Fairness, consistency and transparency are some of the attributes provided by financial reporting standards. Subjective judgment of management faces several types of issues like valuating profits and measures of deprecation. Financial issue profits an understanding on various issues and behavior to the auditor (Lou and Wang 2011). Attitude towards information processing and accounting functions and personnel: Optimum qualified staff equipped with full finance and information technology is very essential connections with third parties, control and administrative systems aids in taking strategic decisions to the managers (Egan and Mullin, 2012). Structure of organization: An ISA 315 standard provides structure to bank. It means that framework of banking activities provides help in achieving its objectives (Ong, et al., 2014). In the documents of the company GPT has situates in different countries and it has operating its business in different countries. Human Resource policies and practices: In order with ISA 315, human resource has a key matter into the business, which concerned the standards of control. In the IAS 315, the plans and necessities have structured by this manner that make sure which only competent individuals by integrity that has employed with the company. The company member has allotted the task and compare with the performance according to the standers (Alfes, et al., 2013). The company has accomplished the induction program for the new workers. On the other hand, the company has provided the suitable training to the workers according to their position and role. Assignment of authority and responsibility: The Companys procedures have spread in the different countries. The workforce size has the large that shows the larger amount of the assignment of the responsibility and authority (Dafflon, 2015). The clear authority and responsibility has construction, which specify points the objectives, responsibility and action of the entities, which helped the decision-making. Conclusion From the above discussion it can be concluded that the external factor have impacted to an organization in great manner. It is analyzed that the Australian real estate market is highly competitive in the world therefore the related organizations must evaluate the industry with analyzing different external factors for better business results. 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