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Business Analysis of Dicksmith Holdings Ltd

Question :

A business report is the basic evaluation of the problem or issues of the company's which relate to its performance. The company DickSmith Holdings Limited was shut down after its acquisition by the Anchorage Capital Partners. There are many reasons for its failure which will be discussed in the article. Moreover, the strategies are also illustrated which may be adopted by the company to save itself from the closure.

  • What are the reasons which collapsed DickSmith Holdings Limited?
  • What is the situational analysis of the company DickSmith Holdings Limited?
  • What development strategy may be adopted by the company in order to save its from closure?
Answer :
Organization Selected : Dicksmith Holdings Ltd

Business Report- Concept and Purpose

It is the evaluation of the particular set of circumstances, issues or the financial operation which relates to the performance of the business. The main aim of this is to communicate relevant information efficiently and succinctly. The main importance of it is that it provides useful insight for the management like information on the profit, expenses and growth. It works as a guide for making important decisions relating to the growth and success of the company.

As per the purpose of the business report, the theories are applied in it so that better insight is taken about the scenario so that purpose of the business report is accomplished. It puts the positive impact on the companies as they get to know their strength and actual position which will help in achieving the purpose.

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Business Report on Dicksmith Holdings Limited

Dicksmith Holdings Limited was the Australian chain of the retail store which sells consumer electronic goods, electronic project kits and hobbyist electronic components. The company is found in Sydney in the year 1968 by Dick Smith and was owned by the wife until 60% of its share was sold to Woolworths Limited in 1980 and then the remaining 40% share was sold after two years. The company shut down its operation in the year 2012 after the acquisition by Anchorage Capital Partners which took place fours year ago when the company closed its operations.

This business report is aimed to identify the reasons of failure of the company which led to its closure. Moreover, this report is designed to provide strategies to the company which may be adopted by it, if it was not failed or which may help the company to prevent its closure.

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Reason for its collapse

Strategic or technical error-

  • As the there is high competition in the consumer electronics, the company Dicksmith never understand the change in demand of the consumers and continuously neglected the requirement to analyse the demand of market.
  • The management adopted unfair means to earn more profits. It stated to invest in inventories without making any proper research on the market demand. This resulted in the fact that most of the inventory become obsolete and the company failed to realise minimum amount in order to cover losses which incurred due to purchase of inferior products. The debt was of around 390 million to which company failed to repay.

Accounting practice

  • The company used unrealised accounting policy which led to downfall of company. The company started to manipulate the inventory position and sales figure. In order to get loans, it started to over estimate the value of inventories and confused the lenders for the real position of the company.
  • The company Dicksmith have an accounting policy for the investment in the private equity which was never followed by it in a transparent way. The company used the private equity for fulfilment of its own interest and not for the improvement of the company.

Situational analysis- PESTLE analysis

It is a widely and significant used framework or tool which is intended to consider market environment. It is mainly the analysis of the macro factors which affect the working of the companies. In context to Dicksmith Holdings Limited, PESTLE analysis is discussed below-

  • Political- It includes the laws, policies, tariffs, trade restrictions, etc. The company failed to effectively comply with the national policies and law which resulted in its collapse. It used unrealised accounting policy and failed to comply with national policy.
  • Economic- It involves inflation rate, fluctuation in foreign exchange and many other factors. The company have inevitable and greater impact on the company as it failed to take a note of interest and inflation rate and started to stock the inventory which later became obsolete.
  • Social- It involves the social or culture influence in the business. The company did not take into account the change in demand of the customers which resulted in high losses for the company and high debts.
  • Technological- It includes the compliance with the technological advancement. The company Dicksmith was a competitive company in the high competitive market arena. The company did not stock new technological products and was busy in keeping the inventory which later on turned obsolete and resulted in its closure.
  • Legal- it involves compliance with laws and regulations. The company used unfair means of accounting and prevented transparency which resulted in its collapse. It tried to manipulate the lenders by showing wrong sales figure and inventory position.
  • Environmental- It includes such factors which impact the surrounding environment. The company Dicksmith failed to identify the environmental changes which could have adverse effects on its business at initial stage.

Development Strategy

As the company failed to effectively manage its inventory which resulted in its closure. The company undoubtedly invested in the inventory which resulted in its collapse. The company may adopt the inventory control model so that it can effectively manage its inventory and make right investment in order to prohibit any loss or debt.

The company may opt the ABC analysis which is also known as selective inventory control. It is based on logic that usually in large number, there are significant many and significant few. According to it, a firm which have many types of inventories is in no need to exercise same degree of the control on all its items. The organisation Dicksmith Holdings Limited may adopt the selective approach in order to control the investment in many types of inventories. This selective approach is called the ABC analysis.

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The items which are of highest value are classified in 'A item', the item which have relatively low value are classified in 'B item' and the item which are of low value are classified in 'C items'. As this model focuses on the important items, it is called the 'Control by Importance and Exception'. In case of the ABC analysis, a stringent control is to be imposed on 'A items' which maintain the necessary level of the inventories of these. Whereas 'B items' shall be kept under the reasonable control and 'C items' shall be under the simple control.

So the company, if it was operating or wanted to prevent its closure, it may opt the ABC analysis model so that it can invest in the inventory according to the priority and by having a selective approach. This may help the company to keep the inventory accordingly and invest only where required.

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