financial performance of Harvey Norman

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The report is designed to assess the financial performance of Harvey Norman Holdings Limited, Australia's largest publicly traded international corporation with a wide variety of items, such as appliances, bedding, laptops, electronics and electrical consumer items, etc. This report is based on prospective analysis which is split into four sections in this report. First, we use the estimated data to forecast future financial results and measure its present value by appropriate valuation methods that can be correlated with the current value. In the second section, there are four valuations models used to estimate the value of the equity. Then, there is sensitivity analysis followed by management consultation advice. In the prospective section, to forecast its potential periodic results, we use the perception of Harvey Norman's operations in historical details and then estimate the approximate valuation of this business for potential investors. 

Forecasting future is very common in business world. Similarly, we are analyzing and estimating the forecasting parameters of the chosen company i.e. “Harvey Norman Holdings Limited” in order to check its competitiveness in today’s world. The projection of Harvey Normans is based on the potential growth for coming 5 years, i.e. 2020 to 2024 in terms of revenue growth rate assumption, asset turnover (ATO) and profit margin (PM) is mentioned in this report. In order to assess Harvey Norman's intrinsic worth, multiple predictions were made to predict the company's projected accomplishment and financial position over the five-year forecast horizon and to forecast perpetuity. These assumptions are calculated based on the projected demand with Harvey Norman's approach and is entirely based on historical data with personal understandings and assumption over the forecast period of five years.

1. Forecasting

For the past several years, Harvey Norman Holdings Limited has been running its company and its key strategic advantage is the product's band name and consistency. In a third party franchise arrangement, Harvey Norman Holdings Limited is a holding firm for businesses and trusts. The franchises run stores that offer home appliances and electrical items under the label "Harvey Norman Discounts." The business offers the franchises with advisory and marketing services. All this allows Harvey Norman Holdings Limited to project their long-term market growth by actually investing their revenues, growing their business areas, expanding their product portfolio diversity and purchasing new companies to stabilize their growth.

Initial forecast assumptions 

Sales growth

Owners of companies are often reluctant to estimate sales revenue. Each year is unusual, so businesses need to understand some shifting conditions, such as the present case of COVID 19, that might dramatically impact their revenues. These variables are known as the assumptions of the sales forecast that provides the framework for the forecasting.

The method of predicting what the profits of the firm would be in the future is Sales Forecasting. The prediction period for revenue can be weekly, quarterly , half-yearly, or annually. An important part of market strategy is revenue forecasting. Without a solid understanding of what the potential revenues will be, the inventory or the cash flow or growth plan will not be handled. The aim of sales forecasting is to have details that people can use to take good financial decisions.

Basis for Sales Forecast

A sales forecast is an estimation of the amount of products and services that will probably sell, the expense of the products and services, and the expected benefit over the forecast timeframe.

This is usually carried out by:

  • Having a list of the products and services to be sold
  • Predicting the amount of sales to be made for each item
  • Multiplying the unit price by the amount of products or services to be sold projected
  • Determination of the cost of each product or service
  • Multiplying the cost of each product or service by the volume expected to be sold
  • Subtracting net costs from total revenue

It could be appropriate to compress unit sales /costs into divisions if an organisation has a huge number of items in stock.

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