Dick Smith External Analysis

The external and internal influence will affect all businesses. The impact however can be positive or negative depending on the business control over their internal influence. Nevertheless the external influence is uncontrollable and will have impact on Australia business depending on what type of external it is (Competition etc.). This is evident by the internal and external impact on Dick Smith and David Jones in Australia.

First Internal influences that have had impact on Dick Smith is poor management by Woolworths when they own Dick Smith 30 years ago. After Woolworths own Dick Smith for about 3 years, they decided to stock it with low-margin consumer electronic goods and to expand number of stores. This is poor management from the Woolworths because selling a low-margin has higher risk that a decline in sales will erase profits and result in a net loss. Selling a Low margin product also creates more competitions and need a very high standard customer service. This is

Dick Smith is holding on too much unsaleable product and was taking on too much debt. There are many problem with the Profit and Cash flow since Woolworths own Dick Smith, however the main one was Anchorage Capital sucking out all the money from Dick Smith. 12 months after Dick Smith sold to Anchorage at a cost of $98 million, they relaunched Dick Smith Holdings in a float, which offered punters 156 million shares at $2.20 each. As a result Anchorage was able to sell Dick Smith for $520 million. It turned out that Dick Smith has been clearing their inventory to increase the its number, but are unable to refill the empty inventory and is now in a bad shape. Cash flow was negative by $4 million. The used cash was an outflow of $31 million in payments for plant and equipment. Therefore they had to borrow $70 million to fill the gap and pay a $35 million dividend. Clearly another reason for Dick Smith