Year 12 IB Extended Essays 2017

Analysis and Discussion

Dick Smith’s profit and loss sheet shows an obvious increase in revenues from the years 2013

to 2015 with a growth of circa $92m from the FY2014 to FY2015 (McGrathNicol). This shows

that Dick Smith was growing at a rate of 7.5%, far exceeding the average inflation rate seen

during these years of circa 1.5% and the average property rental rate of 4% per year. Thus,

showing great revenue growth which would prove beneficial in order to increase share prices

and allow them to invest in the expansion program the group was preparing for through the

years 2013-2015. However, the problematic rate of increase in occupancy and rental expenses

increased by $47m from FY13 to FY15 which is due to the massive increase in store numbers

(News.com.au, 2016). The introduction of new stores is a direct factor to the increase in

marketing that can be seen in FY14 (McGrathNicol) which was needed to create interest in the

new stores.

Furthermore, administration costs increased due to the number of stores thus leading to a lower

net profit which dove down to a mere $19.8m. “DSG’s management accounts to December

2015 indicate considerable losses for the six months to 31 December 2015 of $116.7 million”

(McGrathNicol). It can be noted that due to the extravagant increase in foundation of new

stores around Australia the Dick Smith Group suffered a large loss of cash available which

reduced their ability to stay financially viable. This suggests that the increased acquisition of

store locations led to Dick Smiths incompetence to continue trade due to its inability to

successfully fund the large increases in expenses caused by store increases.

Furthermore, the Balance Sheet outlined by the Dick Smith Group saw an increase of $55.2

million in total liabilities which relates back to the increased number of stores due to the need

to acquire extra stock to keep up with orders (Figure 2). For example, the inventories rose from

$170.8 million in June 2013 to $293 million in June of 2015 which is an immediate suggestion

that the increase in store locations had a direct effect on the financial stability of the Dick Smith

Group leading to its eventual collapse. Trade and other payables also increased by around $75.1

million from FY13 as stated in the findings as higher credit was needed from suppliers to pay

for the rapidly increasing inventory needed to supply the extra stores.

The risk of finance issues due to location is immediate as increased borrowing was needed in

order to cater for the capital costs of new stores around the country including the new increase

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