An analysis of macroeconomic and industry conditions of woolworths - Essay Example

An Analysis of the Macroeconomic and Industry Conditions of Woolworths An Analysis of the Macroeconomic and Industry Conditions ofWoolworthsMacroeconomic conditions refer to the economic factors that affect the state of the whole economy. These factors include things such as: changes in employment levels, gross national product and prices. Industry conditions are the characteristics of a market into which a firm or a new product will be introduced. Examples of these are: number of competitors, intensity of competitiveness, and market growth rate.

An equity research, on the other hand, is a report written and submitted by a securities firm for its clients. It seeks to aid them in making better choices regarding the stocks to pick for profitable investment (Mankiw, 2003). ASX reveals the details of Woolworths and Wesfarmers in the competitive market. It is a financial market exchange that offers services such as listings clearing, settlement, and trading across a wide range of asset classes. Woolworths is a retail chain store that deals with food merchandise.

On the other hand, Wesfarmers is a company that deals with retail operations covering food merchandise, supermarkets, specialty department stores, liquor and fuel outlets, office and home supplies etc (Mankiw, 2003).A set of factors largely influence how companies, for instance Woolworths and Wesfarmers, will operate. These factors determine whether or not a particular company will meet its mission as well as realise its vision. The Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) is a pact that combines Australia and New Zealand.

Woolworths strives to meet the needs of its large market of customers in both countries. This is made simpler due to the fact that political stability is experienced in both countries. Political stability is a crucial factor in development. Economic factors are quite advantageous to Woolworths considering that Australia and New Zealand show economic stability. Based on gross domestic product, Australia and New Zealand are ranked 10th and 30th respectively the by International Monetary Fund (Mankiw, 2003).

Customers are loyal to companies that meet their individual desires. These desires include preference for organic products over inorganic ones. These socio-cultural factors influence the companies’ strategies as they also desire to fully tap into the market. The purchasing power of the customers is good due to the economic stability that fuels the high standard of living. In addition, legal and regulatory factors such as policies favour the retail industry in Australia. It is these factors that make Woolworths a huge beneficiary.

However, Woolworths faces competition from its archrival Wesfarmers, which purchased the Coles Group retail business in 2007. This challenge benefits the customers though (Mankiw, 2003). Woolworths offers better services in order to safeguard its market domination and customer loyalty. It is precisely because of this that technological factors have been exploited to enhance the efficiency of the services offered. This has seen the introduction of the self-checkout machines in all stores and Service Oriented Architecture software.

Transactions have been diversified via cash, debit cards, credit cards and through internet-based applications. These technological factors help in reducing the company’s cost of production. Environmental factors are also considered by Woolworths as it strives to produce goods that are organic (Mankiw, 2003). Maintaining proper relations with suppliers is crucial to the success of Woolworths. This is so because the company highly depends on its timely deliveries. Investors play a huge role in the business, too, as financing agents.

Transparency in general meetings is maintained and results are mirrored in the annual income (Mankiw, 2003). Employees are also a key factor because they are the main workforce. Woolworths indulges them in training programmes and administers employee assessments under employee portfolios in a bid to better their output. The capital asset pricing model (CAPM) can be used to calculate the required rate of return of Woolworths assets. This information helps the investor to decide what should be paid for a particular stock.

Woolworths’ retail product portfolio includes: grocery, fresh food products, liquor, general merchandise and electronics as well as interests in other sectors of the economy. The investor can determine which stocks are riskier than others to assist in his or her overall decision of which stocks to buy, sell or hold. An equity valuation model such as discounted cash flow (DCF) could be used to calculate theoretical values of the company’s stock. This model points out the undervalued stocks that are expected to, on the whole, rise in value (Mankiw, 2003).

Financial ratios help to determine many aspects of a company and its overall financial condition. These ratios include: liquidity ratios, activity ratios, debt ratios, profitability ratios and market ratios. Woolworths has commendable financial ratios including a profitability gross margin of 26.86, a return on equity of 26.13 and a price to cash flow ratio of 14.95. This suggests it is doing relatively well. Putting all these factors into perspective, I would recommend the investors to hold their equity in Woolworths.

ReferencesMankiw, N.G. (2003) Macroeconomics. New York: Worth Publishers.