Introduction of Financial Strategy Assignment Sample

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Introduction of Financial Strategy Assignment

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The whole discussion is made on the analysis of the financial manager to depict the problem that is being faced by the company during the pandemic and how JD group has overcome that problem is also being discussed here. The long-term source of financing and the strategies that are adopted by the company are mentioned here. The other part that is covered here is the company's alternative investment market that helps to explore the financial bid of the company. It also shows that the market does not affect the competent authority and the bid that the financial manager is used in the company.

2. Sources of Long-Term Finance

Demerits and Merits of Equity Capital:

The flow of money between investors that helps in the supply capital and borrowed capital

The capital market helps in the development of liquidity.

The securities in the capital market help to provide interest rates to the investor and offer dividends.

Demerits:

It is risky as it violates the time of the price variation

It crests confusion for the investor and makes it difficult without the personal advice

The cost of the transaction eventually increases which affects the purchasing and the selling of the capital market (Ruggiero and Cupertino, 2018).

Demerits and Merits of Debt Capital:

Merits:

It helps to carry out a systematic investigation before supporting the increase in the creditworthiness of the company.

It provides long term commercial banks

The rate and the interest repayment is convenient and is economical

Demerit

They come under the government criteria so they have to follow the rules and the regulation of the company.

They lay down to the autonomy of the management that clause the loan agreement

They took a huge amount of time to grant the loan and imposed the power of borrowing from the company's financial institution.

Merits

The company has portfolio management that helps the management to increase the efficiency that is being used by JD companies.

The risk is also the factor that is being affected due to the funds that are being raised by the company to purchase the mutual funds that help in the investment growth of the company.

Demerits

The high expenses and the sales charge are also faced by the company to establish its brand in the different sectors of the company.

Poor trade execution can cause huge losses to the company as it suffers through a loss that decreases the value of the product. The poor trade can hamper the growth of the company as it affects the risk factor and the growth.

In the long-run this company acquires finance from both long-term debt and shareholders’ equity. This company generates revenue as well as operating expenses while maintaining these two sources of finance. The financial strategies that are used by the JD companies are debt financing, equity financing, and personal financing. The company has used the equity and the debt financing that helps in the growth of the company (Aureli et al. 2019). The company has a large market share in the UK and it invited that global domination through the natural strategic fit that helps to demonstrate the strategic planning for both the financial and the non-financial aspect of the company with a diversified portfolio (Wang et al. 2020). It has also focused on the brand that helps in creating opportunities and it stands out in the competition. It has also dealt with different materials that are present in the market to verify the use of the material.

3. Discussion on Acquisition Funding by JD Sports

The concept of acquisition funding is a funding process a company uses for acquiring another company. Generally, a company acquires another small company for increasing the resources, operational condition and benefits to manufacturing procedures. 464 million pounds has been raised by JD Sports by issuing new shares (fashionunited, 2021). This financing option is going to help in expanding and gathering capitalization options for creating opportunities regarding acquisition. In order to gather funds for conducting acquisition procedures this giant British sportswear company issued nearly 58.4 million ordinary shares at 795p. Collection of this amount by new shares indicates 6% of its overall share capital. Board of Directors of this company confirms that adding up funds within the capital structure has ensured to open up flexibility with future strategic opportunities. Furthermore, the company has decided to include a non-emptive placing of equity for ensuring acquisition of fund procedure is being done effectively. A total outstanding shares for JD sports at the end of FY2018 was 973.23, in FY2019 the amount was 4866.17; in FY2020 it was 48661.66 and lastly in FY2021 was 48661.66 (jdplc, 2020). Observing the values since 2018 it is easy to predict that the company’s outstanding shares value shows an increasing trend. This indicates the company’s equity position has increased over the years that support the acquisition procedure.

4. Financing options and Strategies adopted by JD Sports Plc

JD Sports try to build up an effective financial strategy to remain an recognized leading sports brand in UK. This company incorporates omnichannel retailing strategy for providing Fashion Sports Apparel to the national and international customers. Internal management diverts capital that focuses on universal culture, fashion and sports. The prime strategy of this company focuses on street consumers for cultivating a product range that is highly appealing to its existing audience.

 Financial Details of JD Sports

(Source: jdplc, 2021)

The above figure has been extracted from annual report of JD Sports for understanding the outstanding shares available within this company for the last five years. This extracted information is being used to calculate gearing ratio for understanding the financial performance.

Gearing Ratio

Particulars

Year

2017

2018

2019

2020

2021

Total Debt

93.3

155

80.5

379.5

380.56

Shareholder Equity (Common Outstanding shares)

973.23

4866.17

48661.7

48661.7

56890.1

Gearing Ratio

0.09587

0.03185

0.00165

0.0078

0.00669

Table 1: Gearing Ratio

(Source: Self-created)

Information reflected in Table 1 indicates gearing ratio of JD Sports for the last five years. This ratio shows the relationship between equity and debt present within a company’s financial performance. JD Sports gearing ratio acts as an indicator for measuring the financial risk associated with the company (Yagafarova et al. 2018). Internal management of this company needs to look over the gearing ratio to estimate the debt level within the capital structure. An enhanced level of debt indicates that this company is facing too much debt compared to equity and financial distress. Observing the gearing ratio for last five years for JD Sports indicates a higher degree of leverage has been incurred since FY2020. Enhanced leverage indicates susceptible downturns within the existing business cycle.

Years

Net Asset Values (£‘000)

2017

1530.5

2018

1626.2

2019

2205.5

2020

4345.9

2021

5161.9

Table 2: Asset Growth

(Source: jdplc, 2021)

Table 2, reflects total assets value present within JD Sports for the last five financial years. The information acquired from company’s annual report indicates an increasing trend towards inclusion of assets within the company’s operative structure. This enhancement reflects that JD Sports divert capital for purchasing assets to remove any disruption rises within the manufacturing operations. JD Sports uses asset leverage strategy for using borrowed capital in a strategic way to generate potential return. More inclusion of assets within the manufacturing procedures ensures that this company is diverting capital towards purchasing assets. Utilization of those assets is going to settle down current obligations present within financial activities. Removing such obligations is going to improve overall financial performance of JD Sports and lower the level of liability.

Years

Total Liabilities Values (£‘000)

2017

855.8

2018

1196.7

2019

2267.3

2020

3126.7

2021

3923.2

Table 3: Liability Growth

(Source: jdplc, 2021)

Table 3, indicates liability position within JD Sports financial reports for the last five years. The acquired data indicates this company has incurred the liability at an increasing level over this time frame. Therefore, more liability within the operation is going to pull up the operational expenses that lower the operational revenue (GEZER and KINGIR, 2020). Moreover, the company has to bear a risky debt which is going to create a problem for the company and lose competitive advantages compared to the existing competitors. However, this company has been able to secure a low liabilities compared to the asset level as a result the business operations are not going to face any financial distress.

5. Review and Recommendations on Financing Model adopted by JD Sports Plc

JD Sports maintains a financial model that relates to Public Limited Company and the shares of this company are listed in the London Stock Exchange. Observing the financial data from company’s annual report it is easy to recommend that this company needs to improve its debt level by decreasing noteworthy liabilities. It is suggested that JD needs to improve its overall EBIT by decreasing the operating expenses. The company earned nearly 6.17 billion pounds in FY2021 which is nearly seven times higher than the FY2011. However, this company has faced difficulty related to international logistics and other challenging issues related to supply chain. In this scenario, the company needs to improve its international logistics mechanism and control activity related to omnichannel framework. This initiative from company's end is going to help in retaining the earnings and increase the level in near future.

The financial model is sustainable and shy of the bankruptcy that is looming in the near future for the growth of the company that helps to solve the problem. It is also observed from the case study that it has expanded its market in the different sectors of the company with a huge market share (Carney 2019). The analysis is made with the help of the share in the year 2018 as it has a retailer of US sports over $558 million, it has increased in the year 2020 with $681 million and it has decreased in the year 2021 with $495 million. This helps to represent a sensible price of the material that is present in the market. This has raised concerns about the company's future to compete in the digital age of e-commerce which has provided a clear report on the organizational aspect of the company.

6. Financing Bid on Footasylum

In April 2019, Footasylum was purchased by JD Sports and the takeover was done by £90 million investigated by CMA. Ownership of Footasylum has been acquired by JD Sports for reducing competition in the area of sports selling business. Oligopoly is the most competitive market and both the firms JD Sports as well as Footasylum both belong within this market. Hence, the financing bid set by acquiring company depends on the existing market condition. Sports brand JD has its Footasylum research postponed its acquisition of the land “Footasylum limited become provisionally prohibited" by the "Competition and Market Authority" or CMA. JD remains connected with the transition goal for better Footasylum's resources, also to differentiate customer products and propositions. This case was remitted by the CMA of the tribunal of competition appeal, which reported the prohibition of the deal. CMD acted as irrational so that it actually had no necessary data related to the conclusion of the possible effects of Covid-19 in the market (Kumar et al. 2018). Tribunal found pivotal falling of CMA, it lacks the inquiry of the competition that increasing the threat such as Adidas' and Nikes', Unique featured market with all retailers of the brand's channel for wholesale, Footasylum and JD rely on these company's brands for the supply of Adidas and Nike products but also compete against their developing status operation. One of the most primary tasks by the CMA is to consider all the impact of the Covid-19 that has over the Adidas' and Nikes' to the consumer strategies.

CMA has reported that a complete acquisition by the company JD's Sports of Foot asylum has resulted or expected in the considerable lessening of the competition in the supply of retail sports-inspired casual footwear (Van Alsenoy et al. 2021). Supply of retail of the sports-inspired apparel sold both in the UK stores, which is online. Competition between all the retailers gets good outcomes in case of better quality, deals, services, and range for continuous improvements. So it is very necessary in businesses which compete with the other retailers. There was also this type of competition in the retail-inspired sports and casual apparel and footwear, there is competition between the various retailers that are depends on the factors, which include all the products that can be in stock (Harry et al. 2020). Reasons are stated here for why CMA has declined the bid of JD.

7. Conclusion and Recommendation

In the following assignment, the relevant brief discussion about the long-term sources of financing has been discussed related to JD's financial market. All the merits and demerits of the JD's bid have also been discussed efficiently. Some specific financial strategies adopted by JD have also been stated in this assignment. This research contains about the financial model employed is sustainable and the bankruptcy, which is looming in the future. JD should improve its financial status by utilizing some better movement in the market not by following others but following their own strategies. First, they have to build some good motivation and strategies and later they should stick to that, this will help them to establish some had better place in the market of footwear.

References

Journal

Aureli, S., Magnaghi, E. and Salvatori, F., 2019. The role of existing regulation and discretion in harmonising non-financial disclosure. Accounting in Europe16(3), pp.290-312.

Burdon, W.M. and Sorour, M.K., 2020. Institutional theory and evolution of ‘a legitimate’compliance culture: the case of the UK financial service sector. Journal of Business Ethics162(1), pp.47-80.

Carney, M., 2019, August. The growing challenges for monetary policy in the current international monetary and financial system. In Remarks at the Jackson Hole Symposium (Vol. 23).

Clarkson, B.G., Culvin, A., Pope, S. and Parry, K.D., 2020. Covid-19: Reflections on threat and uncertainty for the future of elite women’s football in England. Managing Sport and Leisure, pp.1-12.

Elamer, A.A. and Benyazid, I., 2018. The impact of risk committee on financial performance of UK financial institutions. International Journal of Accounting and Finance8(2), pp.161-180.

Elgergeni, S., Khan, N. and Kakabadse, N.K., 2018. Firm ownership structure impact on corporate social responsibility: evidence from austerity UK. International Journal of Sustainable Development & World Ecology25(7), pp.602-618.

fashionunited (2021) JD Sports raises more money to continue acquisition spree, Available at:https://fashionunited.uk/news/business/jd-sports-raises-more-money-to-continue-acquisition-spree/2021020453376 [Accessed on 29Th March 2022]

GEZER, Y. and KINGIR, S., (2020). Expected of debt capital and gearing: Return, risk and impact on the value of the firm's equity. Ayd?n ?ktisat Fakültesi Dergisi5(1), pp.25-33.

Harry, J.R., Eggleston, J.D., Dufek, J.S. and James, C.R., 2020. Single-subject analyses reveal altered performance and muscle activation during vertical jumping. Biomechanics1(1), pp.15-28.

jdplc (2021) Annual Report, Available at https://files.jdplc.com/pdf/reports/annual-report-2021.pdf [Accessed on 29Th March 2022]

Kumar, A. and Mahakalkar, C., 2018. TO EVALUATE THE EFFICACY OF MCR FOOTWEAR IN THE MANAGEMENT OF DIABETIC FOOT ULCER. European Journal of Biomedical5(8), pp.481-493.

Nirino, N., Ferraris, A., Miglietta, N. and Invernizzi, A.C., 2020. Intellectual capital: the missing link in the corporate social responsibility–financial performance relationship. Journal of Intellectual Capital.

Ruggiero, P. and Cupertino, S., 2018. CSR strategic approach, financial resources and corporate social performance: The mediating effect of innovation. Sustainability10(10), p.3611.

Simoni, L., Schaper, S. and Nielsen, C., 2022. Business Model Disclosures, Market Values, and Earnings Persistence: Evidence From the UK. Abacus58(1), pp.142-173.

Van Alsenoy, K., van der Linden, M.L., Girard, O. and Santos, D., 2021. Increased footwear comfort is associated with improved running economy–a systematic review and meta-analysis. European Journal of Sport Science, pp.1-13.

Wang, Z., Akbar, M. and Akbar, A., 2020. The interplay between working capital management and a firm’s financial performance across the corporate life cycle. Sustainability12(4), p.1661.

Yagafarova, K.N., Arslanov, I.G. and Teregulov, R.A., (2018), February. Performance analysis of surface reducing gear of rod driven screw pump with involute gearing and Novikov gearing. In Advances in Engineering Research (AER)(Int. conf.“Actual issues of mechanical engineering”(AIME 2018)) (Vol. 157, pp. 627-30).

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