1.0 Executive summary
This report is to choose two company to do the analysis by using different tools to better know that financial contents. We choose Chorus and Enable two companies as our group project topic. We are using balanced scorecard tools to analysis four different parts, which are financial, customer, internal process and learning &growth perspective. Through this part, we can evaluate the overall performance of the chosen organization and to determine about the management of the company has been successful in accomplishing the strategic goals of the organisation or not. Also we use SWOT environment analysis strategic to talk about what kind of situation of Chorus company have in the past and what potential problems they will face in the future by analysis financial statements. We will give more detail in the following pages.
The Chorus was divided from the spark in 2011 and the chorus company cannot sell them products directly to the customers. It has been chosen wholesale services to the retailers (Chorus,2017). Chorus is a largest telecommunication infrastructure building in company in New Zealand . The company are also doing the fixed telecommunications network. The goal of Chorus company is trying to ensure New Zealand people have better broadband experience. The significant characteristics of Chorus company is providing good using experience for the consumers (Who is Chorus,2017). This group project will concentrate on financial analysis . For example , current ration talk about Chorus had increasing assets in 2017 compare with 2016 and 2015. Also ,we use accounts receivable to working capital ratio, percent profit margin to sales etc. we use SWOT analysis tool to discuss how Chorus company through strengths and weaknesses , and for identifying both the opportunities open to Chorus and the threats Chorus face. For instance, Chorus can develop new customer groups and keep providing good services. Regulatory environment of Chorus is a potential threats for them to figure out in the future. In the end of repot , we discussed finding from the ratio and give company of Chorus recommendation about which area have to improve in the future and which part have to keep doing that.
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3.1 Balanced scorecard
3937000Business objectives and strategy map
0Business objectives and strategy map
3827780302260Decrease operating costs
00Decrease operating costs
34804352159002337435215900142303534290025628605080Increase net profit
0Increase net profit
3817620230505Doing survey for using experience
00Doing survey for using experience
2222500276225Improve market percentage
00Improve market percentage
2794635540385004509135540385176593554038585090075565Improve consumer’s satisfaction
00Improve consumer’s satisfaction
3822700204470Doing frequency of surveying and getting feedback as soon as possible
0Doing frequency of surveying and getting feedback as soon as possible
2339340186690Advertising on social media or website
0Advertising on social media or website
965835186690Provide variety options for customers
00Provide variety options for customers
4166235186690High quality connection with consumers
High quality connection with consumers
1541780186690Network investment and improve skills
0Network investment and improve skills
2572385180975Improve fibre installation experience
0Improve fibre installation experience
-520700135890Learning &growth perspective
00Learning &growth perspective
Balanced scorecard is an important tool for the company to keep business and organisation on the right way. Balanced scorecard more focus on the goal of the company rather than to concentrate on how many scores company achieved (Kaplan, R. S., & Norton, D. P,2001). Through the analysis the chorus, we can better know that the chorus company how to run the business and what kind of drawbacks they exist. Above the diagram is showing that how the company using balanced scorecard to achieve their objectives. And balanced scorecard divides into four parts which are financial, customer, internal processes and learning growth perspectives. The diagram starts from bottom up to top. For the learning & growth perspective are mainly focus on increasing network investment, high quality connection for customers and fibre installation experience. To concentrate on good quality connection with customers is first goal of building next two following steps which are internal process and customer. In learning & growth steps also have a lot of measures to help the Chorus company. For example, concern about employee health and safety and socio-economic benefits of broadband and be aware of fixed wireless completion from other company. The reason why is that most of new business and new entrants could be disrupting the New Zealand market. For the internal process, it is more likely how the chorus run the business. In this step, the strategy will be providing more new selection for the customers and end user experience score. Using advertise to attract people’s eyes, let more people join to the Chorus to buy the products. Then, the company should create improved offering selection process and training programme for new offering and user interfaces. In the third step, people should take action on clearly communication with customers and provide customers enquiry lines with technicians turning up when the customers expected. The last balanced scorecard is relating to net profit and shareholder’s revenue.
So, the Chorus can implement new financial accounting system and check how much money we will spend in the next year, then it can be avoid waste money. This is why we should use balance scorecard to solve the problem.
3.2 Swot Analysis
SWOT analysis is an examination of an organization’s internal strengths and weaknesses, its opportunities for growth and improvement, and the threats the external environment presents to its survival. The main or primary aim of strategic planning is to bring an organisation to a balance that could be helpful to survive with the external environment and to maintain the balance over time. Organisations always aim to maintain this balance by evaluating new programs and services with the intent of maximising organisational performance. SWOT analysis the preliminary decision making tool. CITATION Ber18 l 5129 (Berry, 2018)There are some steps involved in SWOT analysis such as:
STEP 1: This step involves the collection and evaluation of key data. Depending on the company/organisation, these data might include population demographics, new technologies available and some more. After collection and analysation of data, the organisations capabilities in these areas are assessed.
STEP 2: In this step, the data collected by the organisation will be sorted into four categories: Strength, Weakness, Opportunities and Threats. The first two i.e. Strength and weakness generally stem from factors within the organisation, whereas opportunities and threats usually arise from external factors
STEP 3: This step involves the development of SWOT matrix for each business alternative under consideration.
STEP 4: This step helps in incorporating the SWOT analysis into decision making process to determine which business alternative best meet the organisation’s overall strategic plan.
4.0 ANALYSIS AND INTERPRETATION
1. SWOT analysis
Swot analysis is a process where the management team identifies the internal and external factors that will affect the company’s future performance. The question here arises is why do we do SWOT analysis?
Using Resources Efficiently
Evaluation of company’s strength helps it determine how to allocate the resources in a manner that will result in the highest possible potential for revenue growth and profitability of the organisation. The company often find out that it has competitive strengths that have not been fully utilised in the past.
Weaknesses are not permanent; they are just temporary and can be rectified. When the management comes across weaknesses, it is not to assign blame for past shortfalls in the company and its working. For an effective operation, it is always important for a company to do a realistic assessment of weaknesses, which can also help in prevention of strategic blunders. Current weaknesses can-and must-be turned into future strengths. Continuous improvement in all areas of a company’s operations is an important aspect of staying ahead of competitors.
© Discovering Opportunities
In SWOT analysis it is very essential for the management team to identify emerging opportunities so that it would be easy for them to take advantages of them right now and tries to forecast longer term opportunities so advance planning can be made. Potential growth in business requires seeking out new opportunities, including new customer groups, broader product distribution, developing new categories of product and services and geographical expansion. Chorus covers majority or maximum areas of NZ to provide broadband facilities. Chorus covers Ashburton, Auckland (including Pukekohe, Waiuku, Waiheke), Blenheim, Dunedin, Fielding, Gisborne, Greymouth, Invercargill, Kapiti (including Paekakariki, Raumati, Paraparaumu,Waikanae), Levin, Masterton, Napier ; Hastings, Nelson, Oamaru, Palmerston North, Queenstown, Rotorua, Taupo, Timaru, Wellington (including Hutt City, Upper Hutt and Porirua) or Whakatane.
DEALING WITH THE RISKS
Companies faced many threats, which are even beyond their control. These do not come from the direct competitors but these could have a negative impact on performance. Changes in regulatory environment can have an adverse impact on performance .SWOT analysis helps a company to be better prepared for whatever it will encounter in the external environment. The Telecommunications (New Regulatory Framework) Amendment Bill recently covers the establishment of a new regulatory framework for fibre services. It made an involvement of government and Commerce Commission in regulating activity and prices.
Chorus is also concerned about the business line restrictions. As Chorus has a tie up with the government of NZ, they will work with them during the remaining stages of Bill’s passage to help ensure that the final framework does not stop innovation and does not even affect their partnership with them.
2017 2016 2015
Liquidity ratios Current ratio 0.77 0.69 0.71 Account receivable to working capital ratio -411 -387 -351 Sales to working capital -408 -384 -348 Profitability Ratios Sales to asset 0.23 0.25 0.26 Accounts Receivable turnover 7.5 6.4 6.10 Percentage profit margin on Sales 0.15 0.13 0.13 Coverage Ratios Debt to Total Assets 0.79 0.79 0.79 Debt to Equity 3.70 3.70 3.69 Times Interest earned 1.91 1.82 1.75 Expense to Sales Ratio Percent Depreciation to sales 26.35 26.09 25.75 Equity Muliplier 4.70 4.70 4.7 ENABLE
2017 2016 2015
Liquidity Ratios Current Ratio 1.17 2.23 8.34
Account Receivable to Working Capital 1.73 0.73 0.53
Sales to working capital 0.06 0.18 0.02
Activity Ratios Accounts receivable turnover 0.05 0.16 1.5
Sales to Total Assets 0.0 0.010 0.010
Percent profit margin to sales -64.9 38.8 -740.6
Profitability Ratios Percent Rate of return on Assets 0.016 2.44 -3.41
Percent Rate of Return on Equity 0.048 8.30 -48.04
Debt to Total Assets 0.67 0.71 0.93
Equity Multiplier 3.1 3.40 14.1
Debt to Equity 2.06 2.40 13.09
Financial Analysis and Interpretation
Current ratio (Current Assets/ Current Liabilities)
Current ratio reflects the number of times short-term assets cover short-term liabilities. It gives a fair indication of company’s ability to service its current obligations. High ratio is always preferable as it indicates a strong ability to service short-term obligations. Composition of current assets is a key factor in the evolution of this ratio.
Current ratio of chorus limited is satisfactory as it increases from 0.69 in 2016 to 0.77 in 2017. In 2016, it dropped a bit as compared to 2015 but now it is on the track that is good for the company.
Current ratio for Enable is going down from last 3 years. From 8.34 in 2015 it comes to 1.17 in 2017. This sharp decline in not favourable for Enable. This shows that company’s ability to convert raw materials and inventory into finished products is low.
Accounts receivable to working capital ratio
Trade accounts receivable/ (Current assets-Current liabilities)
This ratio gives clear number of dependency of working capital on the collection of receivables. Lower number for this ratio is always preferable.
The account receivable to working capital ratio for Chorus comes to -411 in 2017 from -387 in 2016. In 2015, it was the highest in three years at -351. It shows shat company’s performance is improving from previous years.
The accounts receivable to working capital ratio is not giving a good indication for enable as it increases from 0.53 in 2015 to 0.73 in 2016 to 1.73 last year.
Sales to working capital ratio
Sales/ (Current assets-current liabilities)
It is another ratio to measure liquidity and the ability to cover short-term obligations. This ratio relates the ability of a company to generate sales using its working capital to determine how efficiently working capital is been used. Lower number is preferred as it indicates company’s satisfactory level of working capital.
Sales to working capital declines in last three years from -348 in 2015 to -408 in year 2017. It reveals that company’s working capital level is strong but company has to make some special efforts to generate additional sales using working capital.
Enable’s working capital ratio was best in 2015 at 0.02 that increases to 0.18 in 2016. In 2017, it declines to 0.06. It indicates that company is in satisfactory level as compared to the last year.
Sales to total Assets ratio
High number of this ratio indicates that company is successful in generating sales by using its assets. This ratio measures company’s ability to produce sales using assets efficiently.
Sales to total assets ratio is declining from last three years for Chorus. In 2015 it was 0.26 which comes down to 0.25 in 2016 which declines to 0.23 in 2017. This is alarming for Chorus as it shows that company is not able to generate sales by using its assets.
Sales to assets ratio is almost the same in 2015 and 2016 but it decrease to 0 in 2017 which indicates that company has to take some actions to increase their sales.
Account Receivable ratio
Sales/Trade Accounts Receivable
This shows that how successful a company is in collecting its outstanding receivables. It measures the number of times receivables turnover in a year. Higher number is always preferable.
Accounts Receivable ratio is best in 2017 with 7.5 in three years. It was lowest in 2016. Increase in 2017 shows that company is efficient in achieving its objectives.
Accounts receivable for enable is declining every year from 2015(1.5) to 0.16 in 2016, it comes to 0.05 in 2017, which is surely not in favour of the company. This could even lead the company to be in high Debts. High debt rate could result in low investment and finally in low revenue.
Debt to Total Assets
Total Liabilities/Total Assets
Debt to Total Assets ratio shows the proportion of company’s assets which are financed through debts. If ratio comes out to be less than 0.5 then it shows that company’s assets are financed through equity. If ratio is more than 0.5 then most of company’s assets are financed through debts. This ratio is an indicator of financial leverage. Higher percentage indicates more leverage and more risk.
Debt to total assets ratio remains the same for Chorus in all three (2015, 2016, 2017) years. As I mentioned above, chorus is financing assets through debts.
Debt to total assets ratio for enable declines from last three years. In 0.93 in 2015 to 0.71 to 2016 it falls to 0.67 in 2017.
Debt to Equity Ratio
Total Liabilities/ Total equity
This Financial ratio indicates the relative proportion of shareholder’s equity and debt used to fiancé company’s assets. This ratio is also known as risk. High ratio generally means that a company has been aggressive in financing its growth with debt.
Debt to equity ratio for Chorus increased from 3.69 in 2015 to 3.70 in 2016 and 2017. It is in favour of company, as it does not increase much in last three years, which indicates that there is not too much risk for Creditors and short, long term, financial security for a company.
Debt to equity ratio for enable has decreased from 13.09 in 2015 to 2.40 in 2016. Enable experiences further decline in 2017 to 2.06. It indicates a solid performance in this area for the company.
Percent Profit margin to sales
This ratio gives us a clear picture of how much profit a company makes on each dollar received. It also indicates how well a company could potentially deal with higher costs or lower sales in the future.
Percent profit margin on sales for chorus increase to 0.15 in 2017 as compared to the baseline 0.13 in 2016 and same in 2015 with 0.13. This shows that sales may be contributing enough to the company’s bottom line.
Percent profit margin to sales for enable decreases in 2017 and reached in negative. It reached to low as -64.9 in 2017. In 2016, it was positive with 38.8. It indicates that company was in good condition last year in comparison to current year.
Equity Multiplier Ratio
Total Asset/Total Equity
This ratio measures company’s financial leverage. Use of more debts than equity to finance company’s assets purchase results in high equity multiplier ratio. This ratio is a variation of debt ratio.
Equity multiplier ratio for chorus remains almost same for last three years, which indicates that. It shows that company owned most of its assets rather than financing it. This is favourable for Chorus.
Equity multiplier ratio was highest for Enable in 2015 with 14.1, which decreased to 3.40 in 2016. Company’s performance is improving from year by year, as it comes down to 3.10 in 2017, which shows that more of company’s assets are now owned than financed.
Set criteria for chorus mentioned below – the most important criteria for chorus are to mainly dominate the market. New Zealand is not the big country that means only one company can rule the market if they want to establish themselves in the dynamic environment. In 2018 also chorus is still the major fibre supplier in the market in New Zealand
Reasonable range of possible solutions for chorus to increase their market share mentioned below –
1) Aggressive marketing – the kind of marketing strategy that chorus practice is very protective and dull they should follow aggressive approach which will be helpful for them to increase their market share of fibre.
2) Providing more services to their suppliers – chorus can provide more services to their suppliers which will be helpful to increase their market capital. Currently chorus is one of the largest suppliers of optic fibre in the market, but in the last 5 years the level of competition in the market.
3) Increased efficiency and effectiveness – chorus can increase their efficiency and effectiveness which means they make best use of the resources without any further wastage within specific period of time. The operation cost is getting expensive nowadays this approach will save their as the result they will see increased revenue in the company.
4) Market development – chorus can develop their market or say extent their market by adding more services to their suppliers. Right now chorus only deals with optic fibre but there are various opportunities where the company has immense potential to grow its parts and succeed.
5) Improved current services fast and forward – at the moment the internet speed provided by all the suppliers in New Zealand in not that fast and effective as compared to countries like United States. In these countries are already using 5g network, which allows them to access fast internet services at cheap price as the result more people uses the internet.
6) Cheap plans –Chorus is one of the biggest fibre suppliers in new Zealand , but the price at which they deal with other companies to provide them fibre is very high as the result after all the commission from supplier to dealer the customer gets very expensive plans, which makes it accessible to only few section of society as new Zealand is a small country if chorus wants to earn more revenue them they should make cheap plans so that every citizen can use their plans. No company is New Zealand offers less than 20 dollar plans which makes it even harder for the weaker section of population to afford to buy it.
Best solution chosen on the basis of set criteria is aggressive marketing strategies – chorus should choose aggressive marketing as their best solutions to their strategy in order to help them grow them in the market. The kind of competition in the market this marketing strategy will help to them with a boost to increase their market share and generate more revenue. Since the formation of chorus their marketing and advertisement is very dull and out-dated. The fact that new Zealand is the growing market and it is one of the youngest country all over the world do the need of internet will be their always. The amount of opportunities available in New Zealand in immense. It is about which every company will do their marketing effective they will be able to achieve its desired results. Chorus has the highest amount of potential because of its reliability and level of goodwill it has created in the eyes of the customers. This goodwill is a very useful asset for them but they need to be aware about the increase the level of competition in last few years. The competition is getting very immense only the best one will survive and remaining companies will have to suffer the consequences. Chorus has still got lot of time left to think about their marketing policies and plans. Marketing strategy plays a very crucial role as it generally shapes the company structure. In this dynamic environment here future is very uncertain for companies to survive attack is the best form of defence. Aggressive marketing will give them the boost that they want with their functioning. It will help them to establish themselves even more and fight with their competitors even more strongly. Chorus has Establish themselves in the market now what they want is to take this initiate move forward as set next level of market for them. there is no doubt that chorus has huge potential to rule the market not even in new Zealand if they do well they can expand their business in neighbouring countries like Australia and even big countries like – India, china and United states of America. Aggressive marketing will make their buyers and suppliers even more aware of the brand it will create that amount of goodwill in between the society that chorus can achieve its high standards.
Conclusions – there is no doubt that the chorus company has huge potential to rule the market but it has their own limitations too. The amount of competition is increasing very immensely. Now that the market is expanding themselves other companies like spark, Vodafone, enable are also very aware of that and on the basis of that they had formed their strategy too. During 2014, chorus used to earn huge profit from their business, but now time has changed. The chorus share price has shown positive amount of progress since 2014 as in 2015 their share price went down but they recovered very fast from it. The technology is changing day by day it not easy for any company to keep on evolving themselves day by day in order to sustain themselves in the market. There is always scope and room for improved the quality for the company every successful companies in the market had evolved their services and product line which makes them superior from other. Chorus needs to change their strategy to more of attacking form of marketing and advertisement. Since chorus started they had shown impressive amount of growth in its sector.
Challenges identified mentioned below for chorus –
More intense market competition –
Competitor awareness –
Changing government policies –
Expensive manufacturing price –
Less skilled staff –
Not easy to deal with customer taste and preferences –
Chorus (2017). Financial annual reports. Retrieved May 26 , 2018 from https://company.chorus.co.nz/reports
Who is Chorus ((2017). Who is Chorus Retrieved May26, 2018 from https://www.chorus.co.nz/who-is-chorus
Kaplan, R. S., ; Norton, D. P. (2001). The strategy-focused organization: How balanced scorecard companies thrive in the new business environment. Harvard Business Press.