Element Assignment On A Real Company Sample

Introduction : Element Assignment On A Real Company

Important topics influencing the company are included in the report, such as market developments, financial performance, and strategic decision-making. Additionally, it explores topics including profitability ratios, liquidity issues, and efficiency issues, providing a thorough picture of Gymshark Limited's financial situation. The key materials used in this research are financial and accounting records. Foundational sources include statements of operations, annual reports, and other financial paperwork. 

1. Types of Budgeting

1.1 Rolling Budget and Zero-based Budget 

Rolling Budgets

A rolling budget is an accounting strategy that is revised regularly and is usually implemented for a year. Additionally, to provide a continuous planning perspective, one month is tacked on to the end of the financial statement with each passing month (Bhimani et al. 2018). Rolling budgets are adaptable enough to respond to unpredictable circumstances since they may be reviewed and adjusted frequently. Subsequently also promotes continuous planning and analysis, which helps to cultivate a proactive attitude to financial management. Everything might take a lot of time and money to make continuous improvements, and there might be a temptation to just carry over the prior budget without giving it a close look. 

Zero-Based Budgets

With zero-based financial planning, the budget is created from the beginning of each fiscal year, demanding a "zero base" and justifications for each cost. As cited by et al. (2019), each spending must have a justification, guaranteeing that resources are distributed under the organization's objectives. Budget creation from scratch may be a laborious and resource-intensive procedure. Overestimating required costs is a possibility, particularly if past data is ignored.

1.2 Budget recommendation for Gymshark Limited

Gymshark Limited is a part of the retail and fitness sectors, which are constantly changing and prone to sudden shifts in consumer tastes and marketplace dynamics. In light of this, Gymshark could benefit more with a rolling budget. A flexible and constantly updated budget is essential for adjusting to shifting market conditions in the highly competitive and seasonal fitness business (Le et al. 2018). A rolling budget also offers Gymshark the ability to modify plans in reaction to current sales information, marketing efficacy, and other success metrics. This strategy is in line with the lightning-fast industry's requirement for financial management that is aggressive and agile. Furthermore, Gymshark must make certain that the rolling budget procedure doesn't turn into a mundane chore devoid of meaningful analysis. Additionally, to get the most out of a rolling budget strategy, the process should include critical appraisals and regular reviews. 

1.3 Limitations of Budgeting

Usually, budgets are created for a set time frame (usually a fiscal year) and are fixed for that duration. This static quality might cause issues in commercial situations that are unpredictable and change quickly. Budget creation, approval, and management may be labour-intensive processes. This is especially true for organizations that need numerous levels of clearance or for precise budgeting. Spending plans are predicated on forecasts of future events, including sales, costs, and macroeconomic variables. The budget might cease its use as a tool for decisions being made if these presumptions prove to be false or drastically altered (Nguyen et al. 2018). This makes it naturally difficult to forecast future developments in the market, consumer behaviour, and financial circumstances. Unexpected occurrences like natural catastrophes or economic downturns can have a big influence on how accurate budgets are.

Even in cases when unforeseen changes arise, resistance to making modifications to a budget may exist once it has been established. This rigidity might make it more difficult for a company to react swiftly to new possibilities or dangers. Budgets can place a strong emphasis on rapid outcomes, which might cause people to prioritize meeting short-term financial targets above strategic goals for the long term. Managers could be tempted to inflate revenues or add extra costs to their budgets in an attempt to make sure that objectives are fulfilled. The preciseness of financial reporting may be distorted as a result (Aziz and Shah, 2021). Motivation among staff members may result from budget objectives that are set excessively high or low in certain situations. When goals are seen as unreachable, workers may stop caring.

1.4 Arguments and Recommendations

Changes in the season and competition characterize the fitness sector. A rolling budget encourages ongoing planning and observation, which enables Gymshark to continue being proactive in resource management and reacting to new possibilities or difficulties all year long. Gymshark may make well-informed judgments in real-time by using a rolling budget and the most recent performance metrics. In a fast-paced sector where making decisions quickly may provide a competitive edge, this agility is essential. Continuous alignment with strategic objectives is made easier by rolling budgets.

In 2022, financial performance grew, indicating a greater reliance on debt as opposed to equity. This might raise financial risk, so the business has to watch how much debt it takes on. Inventory turnover has increased in 2022, suggesting a more effective inventory management. This development is encouraging for the effectiveness of the business's operations. The rolling budget enables Gymshark to quickly incorporate changes as they occur and sets new goals or strategies, ensuring that financial plans align with the company's overall vision. 

2. Ratio Analysis

2.1 Gross Profit Ratios

Table 1: Gross Profit Ratio

2.2 Liquidity Ratios

Table 2: Liquidity Ratio

2.3 Efficiency Ratios

Table 3: Efficiency Ratio

2.4 Gearing Ratios

Table 4: Gearing Ratio

2.5 Discussion of Ratios

The aforementioned interpretations give an overview of Gymshark Limited's financial situation, but to completely understand the company's performance, it is important to take benchmarks from the industry into account and carry out a more thorough examination. The proportion of revenue left over after subtracting the (COGS) is known as the gross profit margin. Gymshark had a decline in its Gross Profit Margin in 2022, going from 67.19% in 2021 to 53.10%. The Current Ratio analyses how well a business can use its current assets to pay down short-term debt. Gymshark's 2022 Current Ratio of 132.45% was lower than its 2021 value of 147.36%, suggesting a possible decline in liquidity. Inventory Turnover assesses the effectiveness of an organization's inventory management. Gymshark demonstrated enhanced efficacy, as evidenced by the rise in Inventory Turnover from -33.14% in 2021 to -49.57% in 2022.

The gearing ratio evaluates the ratio of debt to equity and shows how dependent the business is on debt funding. The total debt-to-equity ratio of Gymshark rose from 62.85% in 2021. There may be less profitability in 2022 as the gross profit margin is lower than it was in 2021. Although net profit has grown, prospective cost management must keep an eye on the gross profit margin. In 2022, the current ratio shrank, suggesting that short-term liquidity may have declined. Additionally, to keep an advantageous level of liquidity, the corporation may choose to evaluate and manage its present commitments.

2.6 Various aspects of financial position

Gymshark LTD, a manufacturer of exercise gear and extras, and made a gross profit of over 294 million British pounds in the year that concluded on July 31, 2021. Receive an email alert whenever this information is modified. In the last year, the group's sales have climbed by more than 50%, and its revenues have increased from £260 million to over £400 million in its financial year that ends in July. In a financing that positioned the company at over £1 billion, US investment manager General Atlantic gave Gymshark over £200 million last year.

2.7 Problems and limitations of financial ratios

Financial ratio calculations may change depending on the accounting practices used by various businesses. Assessments may be distorted, for example, by differences in revenue recognition, inventory valuation, or depreciation techniques. The past financial statements that financial ratios are based on could not fully represent the present or future economic condition of an organization. Moreover, it's possible that following the last financial statement, company plans and economic conditions have changed. Since ratios vary widely among industries, what is deemed an appropriate ratio in one may not be suitable for another (Valaskova et al. 2018). More realistic comparisons should be made using standards from the industry.

Although ratios offer mathematical statistics, they don't present the whole picture of a business's activities. Qualitative attributes, market circumstances, and external variables are not taken into consideration separately. Over time, inflationary can cause financial measures to lose their meaning, and cost accounting from the past may not fully capture how inflation has affected assets as well as liabilities. Financial ratio computation occurs at a certain moment in time. This might be a drawback when assessing a business's performance, particularly if the company's activities vary seasonally (Bao et al. 2020). The precision and dependability of financial statements have a significant impact on financial ratios. The ratios generated from the financial statements may be deceptive if they contain mistakes or deliberate disinformation.

3. Balance scorecard

3.1 Balanced Scorecard for Gymshark Limited

Table 5: Balance Scorecard

With proper implementation and oversight, the Balanced Scorecard may be a valuable instrument in bolstering Gymshark's future expansion. By prioritizing the sustainability of its finances, superior operations, customer happiness, and organizational development, Gymshark may establish a sound and sturdy basis for long-term growth and prosperity. Gymshark is positioned to handle the shifting environment of the fitness and retail industries while upholding a customer-centric and commercially effective approach thanks to the scorecard's emphasis on innovation and adaptation (Quesado et al. 2018). Despite providing a complete perspective, the Balanced Scorecard may have trouble capturing intangible elements like brand perception and outside market pressures. Accurate data and dedication to the strategic goals are also necessary for effectiveness.

3.2 Evaluate the future growth

In the health and fitness wear market, Gymshark has developed a strong brand that can draw in new clients and increase consumer loyalty. Current consumer trends are aligned with a concentration on e-commerce and having a strong digital presence, which offers the potential for expanding worldwide reach and online sales development. Gymshark can maintain its position at the cutting edge of fitness fashion trends and draw in a varied consumer base by prioritizing experimentation and new product introductions, as demonstrated by the scorecard (Aryani and Setiawan, 2020). Enhancing internal procedures and streamlining the supply chain boosts operational efficiency, which may save expenses and promote long-term expansion? Gymshark has the potential to expand its global reach by entering regions where there is a growing trend of fitness and sportswear consumption.

Expanding one's consumer base and taking advantage of new trends in fashion and fitness may be achieved through consistent creative product development and the launch of new product lines. Establishing tactical alliances with influencers, fitness experts, or other companies helps raise Gymshark's profile and reputation in the fitness industry. In light of the growing emphasis on sustainability, Gymshark has the potential to investigate and disseminate sustainability projects, therefore attracting eco-aware customers. As opined by Syahdan et al. (2018), the market for athletic wear is very cutthroat. Gymshark must continue to lead the industry by continually producing cutting-edge goods and upholding its own brand identity. Consumer expenditure on non-essential goods like sportswear might be impacted by economic downturns or unpredictability’s. Gymshark needs to keep an eye on the economy and adjust as necessary.

4. Performance Management

4.1 Managing Better Performance

Improved Accountability and Efficient Resource Allocation

Specialisation in lines of products, services, or geographical regions is made possible by divisions. By focusing on its market sector, each division may gain a deeper comprehension of the demands as well as tastes of its customers. Lines of accountability are made obvious by divisions. Since each division is in charge of its own indicators, it is simpler to pinpoint its positive and negative characteristics (Nani and Ali, 2020). Additionally, it is possible to manage resources financial and human more effectively. Resources can be distributed to divisions under their unique requirements and room for expansion, maximizing the organization's total distribution.

Flexibility and Responsiveness and Focus on Growth Markets

Organised divisions improve agility and Gymshark can react faster to shifts in particular markets or sectors by dividing up its organization into divisions and modifying its operations and tactics accordingly. Gaining a larger client base and an increased share of the market may require concentrating on growth areas (Alzoubi and Yanamandra, 2020). Gymshark can better prioritize and direct resources towards the most potential markets by establishing divisions.

Performance Measurement and Risk Mitigation

Accurate measurement of performance is facilitated by divisional structures that are well-defined. Key performance indicators (KPIs) offer a more sophisticated view of the overall performance of the organization as they may be adapted to meet the objectives of each division. Divisions can serve as a means of risk mitigation in the face of market or economic volatility Can (Saglam et al. 2021). A certain amount of protection from the effects of unfavourable circumstances in a certain market particular sector can be obtained by divisional diversification. 

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4.2 Key Benefits and Challenges of a Divisional Structure

Specialization and Focus

Specialisation in certain goods, services, or markets is made possible by divisions. The ability of each division to concentrate on its measurement of competence allows for a deeper comprehension of market conditions and client demands (Joseph and Wilson, 2018). Stripes of accountability are made explicit by divisional structures.

Clear Accountability and Efficient Resource Allocation

Subsequently is possible to manage resources financially and more effectively. Resources may be efficiently distributed among divisions by taking into account their unique demands. Organized divisions improve agility. Each division is better equipped to react swiftly to shifts in the market or industry in which it operates, modifying plans and procedures as necessary.

Adaptability and Responsiveness and Risk Mitigation

Particularly to expand into novel markets or product lines with the divisional structure. The ability of each division to function independently makes it simpler to enter a variety of business sectors (Dragoš et al. 2018). Within some fields of specialization, divisions might provide chances for talent development. Workers can focus on a particular area of expertise within their division, which increases their knowledge and abilities.

Benefits

Lines of accountability are made explicit by divisional structures. Since each division is in charge of its operations, it is simpler to gauge and assess each unit's performance. It is possible to manage resources—financial and human—more effectively. Resources may be efficiently distributed among divisions by taking into account their unique demands.

Challenges

Additionally, it might be difficult for divisions and central management to collaborate and communicate effectively. A coherent organizational plan and the avoidance of silos depend on the proper management of information flow. Moreover, it is difficult to strike a balance between local control and central planning. Careful management is needed to make sure that divisions cooperate toward overall organizational goals without becoming isolated.

4.3 Residual Income and Return on Investment

RI

The amount of residual income is a monetary performance statistic that evaluates the profitability of an enterprise unit or investment by comparing its net income to its cost of capital. It is sometimes referred to as economic revenue or economic value added (EVA).

ROI

A profitability ratio called return on investment compares an investment's gain or loss to its cost to assess how well it performed. ROI is a commonly used statistic to evaluate the effectiveness and profitability of an investment and it is stated as a percentage.

4.4 Recommendations for a Suitable One

Consider into consideration applying both measures for a more thorough examination. While ROI gives a brief overview of profitability, remaining revenue offers insights into what economic benefit is delivered. When combined, they can provide a more comprehensive understanding of divisional or investment performance. Evaluate the project's or investment's nature. ROI could be more pertinent if rapid comparisons and immediate profitability are the main concerns.

Conclusion

Based on the above context it can be concluded that the report is organized according to important business concepts, with an emphasis on economic performance metrics of Gymshark Limited that are essential for making decisions. Financial measurements are expressed using terms like net profit, inventory turnover, and gross profit margin of error, current ratio, and total debt-to-equity ratio. Because the language is intended for a business audience, stakeholders may be certain that the examination is pertinent and useful.

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Website

statista.com/statistics, 2023, About us. Available at: https://www.statista.com/statistics/1252984/gross-profit-of-gymshark-ltd/ [Accessed on: 15th November, 2023]