Mr. Price Group Ltd: Exploring Capital Structure Strategies - Essay Sample

Introduction

The determination of a company's capital structure most often is described as a multi-faceted problem that has challenged while at the same time, fascinating academics and practitioners in companies for ages. This report seeks to investigate the capital structures applied at Mr. Price Group Limited and to explore the various strategies employed in the financial organization to help in the organization of financial stability. In most cases, the trade-off model, incorporation of taxes and costs from financial distress, are practical to determine of the optimal capital structure of the company and its subsidiaries. The primary assumption drawn from the results from the assessment is that great care needs to be taken to make sure that the data applied in the model assessment of the value is reasonable. Additionally, a substantial amount can be revealed to aid in making forward progress towards the optimal level of attaining stability. When such an assessment is used some may desire to try to function at precise intervals that are satisfactory other than working to complete finest financial structures (Wet 2010).

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The Capital Structure at Mr. Price Group Limited

Mr Price Group Limited adopts a levered/ unlevered Beta where beta is described as statistical term comprising of the stocks and the broader market volatility that is measured using a marked index from references. The explanation of beta is that when the stock is greater than value of 1, then stocks are anticipated to increase more in the high market and decrease more in the lower markets. Where the stocks have a beta less than 1, the rise in the market is less and when the market goes up and reduces when the market goes down. At times a stock may have negative beta that means that stock goes the opposite direction from the market. From the information provided, Mr Price Company is at 1.11 therefore its volatility is higher than that of the market (Infront Analytics, 2019).

Investment Decisions

The foundation is greatness in terms of value, quality, and innovation with diverse designs influenced by different choices (Ince connect, 2019). Mr Price concentrates on dealing with fashion and offering the services at fair prices. The company has chosen to engage with their clients actively including the use of social media to communicate with their customers, testing the products before they go to the market and clearing the delayed merchandise to give way for new stock. The value of the products is most important for the company therefore operates on lower markups and high volumes for excellent value. There are large order quantities that have been used to maintain high sales and minimize input prices. The predominance on their own branded stock has also helped Mr Price group greatly (Fast Moving, 2019).

Operating using a seven year investment plan, Mr Price Group has managed to remain cash driven with the debts on the lower side and maintaining a perfect balance sheet even as the company continues to develop. The future plan of the group is to be guided by; perfect position for trade of their merchandise, exiting non-profitable space and expansion of the high density sales, making their business grow internationally and engaging their customers through communication (Fast Moving, 2019).

Mr Price Company knows that sustainability is an important especially in long term plans for a company. The company has managed to prosper with the environmental pressure and develop capacities. The company has been able to know the levels that it is supposed to work through sustainability. The company has been able to now the environment which is important to maintain sustainability. The investment of resources has helped the company build and maintain a stable foundation for itself and the shareholders. Through strategic planning, there are various factors that have been identified to help focus on the long term goals and achieve them through plans and investments (Fast Moving, 2019).

Financial Statements and Analysis of Performance

Looking at the performance levels from the information provided, Mr Price Group has managed to adopt an upward trend over the previous ten years. The Return on Capital Employed (ROCE) is at 54.2%. The Total Shareholder Return is 25.7% with total units sold at 220 million and debtors at 1.4 million. Looking at the analysis graph of Mr Price Group, there has been an upward trend since 2009. The debts are manageable due to financial organization making Mr Price at good position to maintain stability in finances (Mr Price Group Limited, 2019). Therefore Mr Price group is able to adequately manage the finances looking at the rate of debtors to that of the sales. A successful company is identified with the debts compared to the profits.

The company is in the process of adopting the various types of plans like; merchandise financial plan, assortment plan, plans on inventories, demand plans, and lastly the plans on replenishment and allocation solutions. The projects will play a significant role that will be to provide the merchant team with a consolidated view of the entire business. The plan following the example from the company conforms to the business model at Mr Price because the merchandise planners manage all aspects of the assortment sine all things are integrated fully. Therefore, if an item in a collection plan changes, it will then reflect how sales change as an effect to the prior action. As one of the momentous growing sellers based in South Africa, Mr Price has several varieties transversely all the retail shops, with about1,000 stores and an online name at an international level (Fiorletta, 2013).

In terms of performance, Mr Price has continued to adopt an upward trend with the total assets revealing an upward trend from the annual assessments. The net income at the since 2017 has revealed a stable trend because at March and September the figures are almost at similar levels. The earnings per share is positive the tangible book value is at 31 while the working capital is at 24. The company has managed to maintain long term liabilities at about 1.1 and Capital Expenditure at 1.60.

Assessment of Debt, Equity and Ratios

According to Baron (2019 in the cases where a public company is involved in a competition, there is always a process where the company sheds of being its assets or shares. Bearing this fact in mind, one can prepare to make their status better by increasing cash and reducing debt. In the case of competition with family businesses, one has to concentrate on the transitional change in the market. With a Gross Margin of about 43, a return on assets at about 28, a return on capital at 42, and return on invested capital at 36, Mr Price Group can be described to have financial stability (Jones, 2019).

The total debt to total equity as at 2018 is at 4.01, total debt to capital is 3.85, and the debt to assets is at 3.12. As for liquidity, the current ratio is at 3.90, quick ratio is at 2.66 and the cash ratio is at 1.51 (Jones, 2019). Mr Price Group Company, through fashion services, has the financial segment that is responsible for the management of the receivables and other business services, including the products that are termed as mobile products. The central team is responsible for information technology, internal audit, and the human resources management of the company to ensure that high the set standards are achieved and also ensures that services are provided efficiently so that the company's activities run smoothly (Market Screener, 2019).

Financial Performance and Management of Stakeholders Expectation at Mr Price Group Limited

Mr Price Group Limited aims to promote growth both for the stakeholders and adding value for their customers. The target is mainly for the youths that are versatile when it comes to their love for fashion. Various strategic plans will aid in the growth, build high performing brands and aid in the operations that will help in connection to the growth and finally sustainability of the standards and the practices common to the business. Through various engagements, the stakeholders get to be identified, and in turn, the company can meet the needs of the stakeholders, therefore, ensuring that there is cooperation among the stakeholders that helps in further development (Mr Price Group Limited, 2019).

The first step is to identify who the stakeholders are. The stakeholders can be described as persons who care about a company or have invested in the project. The stakeholders have to be actively involved in the project at hand. The management is responsible for all the tasks that help in the proper administration of the resources in the organization; therefore, all the transactions are managed by him. The chain of command from the top most managers who include; the president and the vice, managers from other divisions and then follow the committee among other managers. The senior management comprises of the best-selected team that is deemed competent for the tasks ahead (Watt, 2019).

There are various categories that the stakeholders can be divided. The Interest-Low and Influence low stakeholders- where the manager is required to give objective, balanced information through briefs, magazines, and other publications. Interest-high and influence-low- the stakeholders from this category are always needed to be informed on the various decisions of the project. The interest-low and influence-high- the project manager has to ensure that stakeholders are satisfied until the project ends. Interest-high and influence-high- the stakeholders need to be monitored in every action that they do. There has to be an approach to help in deciding the final project (Deshmukh, 2019).

There are various strategies applied when it comes to the management of stakeholders in a company. The stakeholders have to be fully engaged in the organization in multiple ways. The first is there has to be communication that is influential because they have to be aware of various things happening in the organization. There have to be consultations before decisions are made. The stakeholders have to be treated like all other people because they are also part of the organization. There has to be a plan regarding the next step of the organization, relationships that build communication and progress, and lastly, stakeholders should be treated as part of the managing risk. There has to compromise regarding the management of the organization to make progress (Association for progress management, 2019).

Stakeholders must be managed adequately that helps them to identify their roles in the management of the project. During the project, stakeholders should be managed appropriately since they play a crucial role in development of company projects. The reason is that stakeholders have the power to either let the project run smoothly or hindering it from continuity. The same case applies to a business where a lawyer is involved such that the owner and the employees are mostly concerned other than the public. The stakeholders should be treated as part of the company that will help to draw positive energy to move forward and pursue the intended project (EduCba, 2019).

According to the Mosaic Projects White Paper (2019), the cycle is as evidenced in the diagram below.

Improvements and Recommendations

Taking into account the measures that have been discussed at length at section B, mostly with the issue of stakeholders that play huge roles of project development helps the company to organize the finances. As a result of the success rates assessed from the financial statements, the profits compared to debts are managed adequately in most of the chains. Unlike in Australia, where the companies were close...