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).

3.2             PERFORMANCE ANALYSIS

HiTech Group of Australia
Years	Net Income	Net Sales	Net Profit Margin
2018	2,569,497	26,356,197	9.75%
2017	2,309,921	23,322,238	9.90%

Source:  (HiTech Group of Australia, 2018)

HiTech Group of Australia
Years	Net Income	Average Total Equity	ROE
2018	2,569,497	7,038,335	36.51%
2017	2,309,921	6,309,260	36.61%

Source:  (HiTech Group of Australia, 2018)

HiTech Group of Australia
Years	Net Income	Shareholders’ Equity	ROA
2018	2,569,497	7,411,833	34.7%
2017	2,309,921	6,664,836	34.7%

Source:  (HiTech Group of Australia, 2018)

HiTech Group of Australia
Years	Total Liabilities	Total Shareholders' Equity	Debt to Equity
2018	2,111,299	7,411,833	0.28
2017	1,678,970	6,664,836	0.25

Source:  (HiTech Group of Australia, 2018)

HiTech Group of Australia
Years	Current Assets	Current Liabilities	Current Ratio
2018	8,507,149	1,986,329	4.28
2017	8,046,565	1,576,016	5.11

Source:  (HiTech Group of Australia, 2018)

 Commentary:

- The net profit margin has reduced from 9.90% (2017) to 9.75% (2018). This shows that HiTech Group of Australia is now able to convert 9.75% of its sales into profits as compared to 9.90% in 2017. The decline is not significant and the NPM can be considered to be a healthy one.

- The ROA has remained same for both years at 34.7% with no change in it.

- The debt to equity ratio has increased from 0.25 to 0.28 in 2018. It shows that now company is using 0.28 times more debts to run its business as compared to its equity. The increase in leverage means more risk.

- The current ratio has declined from 5.11 times in 2017 to 4.28 times in 2018. Despite of falling, the current ratio is very high. A ratio higher than 2 means the company is keeping a lot of cash and is not utilizing its current assets at its full potential.

3.3       ANALYSIS OF NOTES TO FINANCIAL STATEMENT

The financial statements of HiTech Group of Australia were prepared in accordance with the AASB standards, Accounting Interpretations of Australia and the Corporations Act 2001. The consolidated statements also complied with the International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB)  (HiTech Group of Australia, 2018). Furthermore, the financial statements used historical convention of costing that was modified wherever needed using fair value measurement of selected financial assets and financial liabilities.

The going concern basis and accrual accounting concepts were used for preparing the financial statements. Revenues were also measured at the fair value of the consideration to be received or have been received  (HiTech Group of Australia, 2018). The revenue was derived at by deducting trade allowances, amounts collected on account of others and rebates. Tax was charged at the rate set at the end of reporting period and deferred income tax was also calculated using liability method  (HiTech Group of Australia, 2018). Goodwill and intangible assets were amortized and tested for impairment every year. Trade receivables were also calculated using fair value and amortized cost using effective interest methods. The trade receivable settlement time was settled at 30 days based on ongoing method.

In the notes to financial statement, HiTech Group Australia Ltd. indicated following new accounting standards to be used in future; AASB 9, AASB 15 and AASB 16  (HiTech Group of Australia, 2018). Various risks were also identified in notes to financial statement i.e. credit risk, market risk and liquidity risk.

4.0           ACCOUNTING STRATEGY EVALUATION

In order to stay in the industry and reap potential profits, the company is required to diversify its product portfolio furthermore by focusing on differentiation. Although HiTech Group of Australia has diversified into non-ICT sector as well by expanding its services by including office support, sales, accounting, legal and healthcare support, infrastructure support, cloud integration, skill sets and system development (HiTech Group of Australia, 2018).

The accounting report of the company shows the profitability and financial health of the company effectively. The accounting annual report is prepared in accordance with AASB and IFRS along with an audit report (HiTech Group of Australia, 2018). The annual report also shows key audit matters and how those are addressed by the auditor. Hence, the accounting quality of the company is considered to be high. 

5.0           RECASTING OF FINANCIAL STATEMENTS

Standard Accounts	Income Statement	FY 2018
Revenue	Revenue	100.00%
Cost of revenue	Cost of revenue	79.97%
Gross profit	Gross profit	20.03%
Operating expenses	Operating expenses
Operating expenses	Sales, General and administrative	6.16%
Operating expenses	Other operating expenses	0.88%
Operating expenses	Total operating expenses	7.04%
Operating income	Operating income	12.99%
Interest Expense	Interest Expense
	Other income (expense)	1.02%
Income before taxes	Income before taxes	14.01%
	Provision for income taxes	4.26%
	Net income from continuing operations	9.75%
Net income	Net income	9.75%
	Net income available to common shareholders	9.75%

 

Standard Accounts	Balance Sheet	FY 2018
Assets	Assets
Assets	Current assets
Assets	Cash
Assets	Cash and cash equivalents	61.57%
Assets	Short-term investments
Assets	Total cash	61.57%
Assets	Receivables	27.45%
Assets	Prepaid expenses	0.32%
Assets	Other current assets
Assets	Total current assets	89.33%
Assets	Non-current assets
Assets	Property, plant and equipment
Assets	Gross property, plant and equipment	6.14%
Assets	Accumulated Depreciation	-3.56%
Assets	Net property, plant and equipment	2.59%
Assets	Equity and other investments
Assets	Intangible assets	0.04%
Assets	Deferred income taxes	0.86%
Assets	Other long-term assets	7.18%
Assets	Total non-current assets	10.67%
Assets	Total assets	100.00%
Liabilities	Liabilities and stockholders' equity
Liabilities	Liabilities
Liabilities	Current liabilities
Liabilities	Short-term debt
Liabilities	Accounts payable	2.68%
Liabilities	Deferred income taxes	5.19%
Liabilities	Deferred revenues
Liabilities	Other current liabilities	12.99%
Liabilities	Total current liabilities	20.86%
Liabilities	Non-current liabilities
Liabilities	Deferred taxes liabilities
Liabilities	Pensions and other benefits	1.31%
Liabilities	Total non-current liabilities	1.31%
Liabilities	Total liabilities	22.17%
Equity	Stockholders' equity
Equity	Common stock	39.25%
Equity	Other Equity	1.95%
Equity	Retained earnings	36.63%
Equity	Total stockholders' equity	77.83%
	Total liabilities and stockholders' equity	100.00%
Equity	Common stock	49.94%
Equity	Other Equity	0.49%
Equity	Retained earnings	-4.54%
Equity	Total stockholders' equity	45.88%
Equity	Total liabilities and stockholders' equity	100.00%

6.0           CONCLUSION

The overall picture of HiTech Group of Australia is promising. With higher current ratio and net profit margin, the company has full potential to grow in future. However, with lower barriers to entry, higher bargaining power of buyers, moderate power of substitutes and higher rivalry amongst competitors, the industry has lower profitability potential and higher risk.

7.0    REFERENCES

CIMA Global. (2019). OnLine Case Study resource. Retrieved April 13, 2019, from http://www.cimaglobal.com/documents/importeddocuments/sugg_solution_2.pdf

Dobbs, M. E. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Future People. (2019). Recruitment Trends Report 2017/2018. Retrieved April 13, 2019, from https://futurepeople.com.au/recruitment-trends-report-20172018/

HiTech Group of Australia. (2018). Annual Report. Retrieved April 13, 2019, from http://hitechaust.com/uploads/pdf_file/15377744722018HiTechAnnualReportFinal.pdf

HiTech Group of Australia. (2019a). About Us. Retrieved April 13, 2019, from http://hitechaust.com/index/view/about_us

IBISWorld. (2019, January). Employment Placement and Recruitment Services - Australia Market Research Report. Retrieved April 13, 2019, from https://www.ibisworld.com.au/industry-trends/market-research-reports/administrative-support-services/employment-placement-recruitment-services.html

Kim, E., Nam, D.-i., & Stimpert, J. L. (2004). The applicability of Porter’s generic strategies in the digital age: assumptions, conjectures, and suggestions. Journal of management, 30(5), 569-589.

KPMG. (2016, August). The Australian Recruitment Industry. Retrieved April 13, 2019, from https://docs.jobs.gov.au/system/files/doc/other/the_australian_recruitment_industry_accessible_version_august_2016_final.pdf

Penman, S. H. (2007). Financial statement analysis and security valuation (Vol. 3). New York: McGraw-Hill.

Wilson, R. (2017, March 22). 85% of Australian recruitment professionals expect revenue growth in 2017. Retrieved April 13, 2019, from https://www.recruitment-international.com.au/blog/2017/03/85-percent-of-australian-recruitment-professionals-expect-revenue-growth-in-2017