November 21, 2024

HI-TECH Group of Australia Financial Analysis

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Corporate Finance, Financial Reporting, Mathematics and Advanced Accounting

HI-TECH GROUP OF AUSTRALIA Financial Analysis

1.0 INTRODUCTION

HiTech Group is an Australian leading specialized ICT firm that provides the Australian and International organizations with talented pool of employees and deliver the IT services in best possible way (HiTech Group of Australia, 2019a). The company aims at giving the clients what they want by matching their needs with candidates’ talent profile. HiTech uses its successful and proven business model for recruiting the top ICT professions within various industries (IBISWorld, 2019).

HiTech Group of Australia has more than 25 years of experience in the consulting and recruitment industry within which it has developed a diverse client database. It was first incorporated in 1993 and listed on Australian Securities Exchange on 17^th April, 2000 with its ASX code of HIT (HiTech Group of Australia, 2019a). The main services provided by HiTech Group of Australia include placement of Information & Communications Technology (ICT), provision of permanent staff, aiding in contracting sales and marketing services and guidance in office support. It also provides its services to Federal and State Government departments with their ICT departments (HiTech Group of Australia, 2019a).

This report is presented to analyze the risks and success factors faced by HiTech Group of Australia along with detailed analysis of its financial statements for the recent year. Furthermore, this report will also evaluate the accounting strategy of HiTech, the industry within which it operates, company’s notes to the financial statement and overall performance of HiTech Group of Industry. The parts below will provide the detailed industry analysis, competitive strategy analysis, nature of financial statements, performance analysis, analysis of the notes to financial statement, evaluation of accounting strategy and recasting of the financial statements.

2.0 RISK AND PROFIT POTENTIAL OF HITECH LTD

This part of the report will be based on industry and competitive strategy analysis. Risk and profit potential of HiTech Group of Australia will be evaluated as well.

2.1 INDUSTRY ANALYSIS

HiTech Group of Australia is currently operating in the ICT recruitment industry. The overall industry will be analyzed using Porters’ Five Forces. The model analyzes the collective strength of the five forces i.e. competitive rivalry, buyers’ power, suppliers’ power, barriers to entry and threat of substitute products (Dobbs, 2014). All the five forces enable the researchers to determine the profit potential of the industry. The model also helps in understanding the strategic implications of the firms within the industry (Dobbs, 2014).

FORCE	LEVEL	DESCRIPTION
Threats of Entry	High	With low barriers to entry in the recruitment and consultancy industry in Australia, the threats of new entry are high. New competitors are easily able to penetrate into the market for competing with the existing firms and capturing market share (Wilson, 2017). The barriers to entry in recruitment industry of Australia can exist as a result of government regulations, high start-up cost and industry regulations (Future People, 2019). Currently there are over 7,462 agencies working in the industry with employment of 165,400 staff and revenue of $15 billion (IBISWorld, 2019).
Bargaining Power of Suppliers	Moderate	The main inputs into recruitment business are the candidates and the staff members. As the staff cannot be restricted to only one firm, so they are free to move to a rival, client or even set up own consultancy firm (Wilson, 2017). Hence, the bargaining power of suppliers is considered to be moderate to high as well in the industry with freedom of staff and candidates to move from one firm to another.
Bargaining Power of Buyers (Clients)	High	Buyers of the industry are the clients who need recruitment or placement services by the HiTech Group of Australia. Upon analysis, it is found that the bargaining power of clients is a significant force in determining the current and future recruitment industry’s structure (KPMG, 2016). The fees paid by clients is set by competition in the open market and are paid directly by the employers who receive the services (KPMG, 2016). Hence, due to presence of several agencies, market setting of fees and lower switching cost, the bargaining power of the clients is high.
Competitive Rivalry	High	The Australian recruitment sector is dominated by several small and medium agencies with only a few large organizations. The four largest recruitment agencies of Australia hold around 14% of the total industry revenue (KPMG, 2016). This indicates that large chunk industry’s revenue comes from the small-medium recruitment agencies. Hence, the competitive rivalry is high in the industry.
Threat of Substitute	Moderate	There are number of substitutes to the traditional recruitment services. The candidates/clients can find jobs through personal contact, word-of-mouth, press advertisements, internal promotions, staff loyalty programs, social media (Facebook, LinkdIn, Twitter) and even through e-commerce consultancy firms (CIMA Global, 2019).

The industry is becoming competitive with lack of barriers to entry and low control of client switching. HiTech is suggested to look at its processes and technology and conduct urgent strategic review of its business. Moreover, the industry is fragmented with less differentiation of services. HiTech is also recommended to find a service for niche market and decide upon differentiating its services.

2.2 COMPETITIVE STRATEGY ANALYSIS

Cost Leadership

HiTech is uses its new business model for ensuring that the operating costs are kept minimum so that the services given to clients are priced low.

Differentiation

HiTech has diversified into non-ICT sector areas of recruitment like office support, sales, accounting, legal and healthcare along with ICT sector. This allows it to offer differentiated services from its rivals.

Cost Focus

HiTech use this strategy for offering services to ICT industry by focusing on cost-minimization through keeping operating costs low.

Differentiation Focus

HiTech’s recruitment business is broadly based in the ICT sector while offering full services including infrastructure support, cloud integration, skill sets and system development.

Source: (Kim, Nam, & Stimpert, 2004)

SOURCES OF COMPETITIVE ADVANTAGE

Differentiation

Cost

3.0 ACCOUNTING ANALYSIS

3.1 NATURE OF FINANCIAL STATEMENTS

HiTech Group of Australia uses all four major financial statements that are discussed below:

Consolidated statement of profit or loss and other comprehensive income: This statement shows the revenue and costs associated with operations with parties that are external to the group of entities. This statement does not include intra group transactions (Penman, 2007). The profits are attributed to non-controlling interest (subsidiary) as well in this statement.
Consolidated statement of financial position: This statement shows all the assets and liabilities of all the subsidiaries owned by HiTech Group Australia Limited (parent entity) as at 30^th June 2018 (Penman, 2007). Under this statement, all the subsidiaries (HiTech Contracting Pty Ltd and eConsulting Australia Pty Ltd) and parent company (HiTech Group of Australia) is considered as a one single consolidated entity (HiTech Group of Australia, 2018).
Consolidated statement of changes in equity: This statement reconciles the beginning and ending balances in a company’s overall equity during a reporting period (Penman, 2007).
Consolidated statement of cash flows: This report shows the cashflows from operating, investing and financing activities of all the subsidiaries and the parent company altogether(Penman, 2007).