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FINANCIAL RISK MANAGEMENT

[Student ID]

[Name of the Institute]

[Date of Submission]
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Executive summary

Ocado group is one of the biggest online retailer shops having a membership of the London stock
exchange in July 2010 as well as the FTSE 100 index. The company does not have any chain
store but rather than a chain store the delivery of shopping and other groceries items is to be
made directly from the warehouse of the company and it is the unique thing that, made it
competitive among so many of its competitors. The company has been founded in April 2000 in
the UK and for the last 21 years operating effectively. Even though there have been some crises
and downfalls that led the company to drop its sales revenue and net income but after all, it
managed to carry on its operational activities. There has been an overwhelming number of
factors that have impacted the profit margin of the company and an investor to deeply analyze all
of them before making a decision with regards to the investment in the company.

Introduction
Since it has been a well-known fact that business activity is always associated with numerous
types of risks and hence the decision with regards to the investment in any of the business
enterprises is also based on risk along with a lot of uncertainties. The investor always wants to
invest in such a business entity where the chances of failure are too lower and hence there could
be a likelihood of a higher dividend income. So in order to maximize the chances of a higher
dividend income, an investor has to ensure the financial health of the business along with the
consideration of several other factors that could impact the profitability of the entity.
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Main body

Identification of appropriate risks

After the financial statement and other reports of the company has been elaborated and
considered carefully a few of the risks has been identified that needs to bring into the kind
knowledge of the investor that could play a vital role in facilitating him/her to take a suitable a
better decision with regards to the investment in the company. It has been revealed that
numerous insiders of the company own around 36.55% of the total outstanding shares of the
Ocado group (Retter, et al,2021). Moreover, a loss of 17.5 per share has also been recorded in the
financial statement of the company as a result of what the shareholders of the company have, not
been issued the dividend income in the year 2020 (Janssen, et al,2021).
The company couldn’t manage to control all of its costs related to the operations and the
strategies regarding the current pricing have not been executed properly due to the profit margin
that has been recorded as 5.4%. the situation could be below average after it has been
demonstrated that the operating margin is around 3.15% that indicating the company is suffering
a loss of -0.03 on the sales of each one hundred dollars (BENADA and Megahed, 2021). The
company has made a revenue of around 2.56 billion dollars along with a net loss of more than
146.46 million dollars excluding the expenses incurred in the payroll, taxes, and other overheads.
An amount of 813.99 million has been paid in interest by the company (Golding, et al, 2021).
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Interpretation of results

Despite the fact that there is a plan to invest around 30 million pounds so that the investment in
technology could be accelerated in the future as compared to 2020 but according to a few of the
financial research analysts, the group performance of the organization would be affected due to
the drastic impact of covid like a lot of other companies and business ventures in all over the
world (Moss, 2021). The return on asset and return on equities has been recorded as 1.41% and
4.28% respectively demonstrating that there has been a significant loss in the investment made
by all of its shareholders (Höhler, and Lansink,2021).
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Here is a brief review of the stock valuation of Ocado group in the previous year of 2020 as
mentioned in the above figure. Furthermore, there is an increase in the gross and another source
of revenue of the company but due to the rising expense of interest and other costs with regards
to the administration, the loss before the payment of tax has been reported of 23.6 million dollars
(Chang and Meyerhoefer,2021). But eventually, the net income has been suddenly increased by
38.4% which was not expected at all as a result of increasing orders. The company’s operational
cost is significantly high 58.5 million pounds but on the other hand, the sales volume suddenly
changed the revenue of the company from net loss to net income (Bierganz,2021).

Recommendation and Conclusion

In the previous year, the company could not pay the dividend income to all of its shareholders
due to some financial issues but as has been already mentioned in the above paragraph that there
is a likelihood of investing 300 million pounds in the technology so that the sales volume could
be boost due to the improvement in their operations as compared to 2020. Moreover, a few other
risk factors exist, but overall the financial performance of the company indicates that if the
expenses of the company could be minimized to a few extents only then the net profit of the
company would be expected to increase in the future due to increased sales volume as the
investment would be beneficial to improve its services as a result of technological advancement
in the future.
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References

BENADA, L. and Megahed, M.,2021 APPLICATION OF PORTFOLIO THEORY ON

SELECTED MARKETS.
Bierganz, M., 2021. Delivering virtual value: the role of virtual value creation in e-grocery
business models and resulting implications for today’s grocery retail firms (Doctoral
dissertation).
Chang, H.H. and Meyerhoefer, C.D., 2021. COVID‐19 and the demand for online food shopping
services: Empirical Evidence from Taiwan. American Journal of Agricultural
Economics, 103(2), pp.448-465.
Golding, S.E., Bondaronek, P., Bunten, A.K., Porter, L., Maynard, V., Rennie, D., Durlik, C.,
Sallis, A. and Chadborn, T., 2021. Interventions to change purchasing behaviour in
supermarkets: a systematic review and intervention content analysis. Health Psychology
Review, pp.1-41.
Höhler, J. and Lansink, A.O., 2021. Measuring the impact of COVID‐19 on stock prices and
profits in the food supply chain. Agribusiness, 37(1), pp.171-186.
Janssen, M., Chang, B.P., Hristov, H., Pravst, I., Profeta, A. and Millard, J., 2021. Changes in
food consumption during the COVID-19 pandemic: analysis of consumer survey data
from the first lockdown period in Denmark, Germany, and Slovenia. Frontiers in
nutrition, 8, p.60.
Moss, A., 2021. How Ocado Technology Automated Covid Test Scheduling. Impact, 2021(1),
pp.7-9.
Retter, L., Hernandez, Z., Caves, B., Hughes, M. and Knack, A., 2021. Global Mobility.