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ORIGINALITY REPORT

PRIMARY SOURCES

www.canadaessays.com
Internet Source

Carlo Alberto Magni. “Investment Decisions and
the Logic of Valuation”, Springer Science and
Business Media LLC, 2020
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FINAL GRADE

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GRADEMARK REPORT

GENERAL COMMENTS

Instructor

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by Loo Pooo
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ORIGINALITY REPORT
PRIMARY SOURCES
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GRADEMARK REPORT
FINAL GRADE
GENERAL COMMENTS
Instructor

Runninghead: NORDSTROM AND CAPITAL BUDGETING

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NORDSTROM AND CAPITAL BUDGETING 10

Nordstrom and capital budgeting

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Introduction

Nordstrom is a company situated in Seattle in the US

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The company initially started as a retail business, which dealt with retailing shoes .by 1946, the company was among the top in shoe selling in the US, and the company is driven by the motive of becoming the leading in the digital world as the best fashion retailer. It aims at relation g with clients via what it sees as the trio of strategic pillars that include product provision, better delivery, and dealing with the company strengths via the branding of Nordstrom. That company offers diversified products of high quality, private, and name. They deal with cosmetics, shoes, and accessories. Nordstrom aims at delivering the best services to the clients, and the need to expand their business to be in line with the demand and the client’s need is what poses risks to the company. Via capital budgeting, the company is likely to face several threats, both internal and external, which may endanger the company’s existence. Capital budgeting is used about the whole process in which it involves decision making in investments at decision making long term decisions. For income production and purchase of an organization’s assets, it uses the capital budget in those activities. There is another relevant term that is frequently used in budgeting and is the operating cost. Operating cost refers to a combination of various costs and expenses like the expected cost for the future, and the predicted income for 12 months (Damodaran,2008). The essentiality of the operational budget is that it is used in daily operations and meets the daily organization’s expenses like the wages, bills, and rents of the floor space. The reason why the operating budget is usually estimated is that the budget is compiled long before the accounting process. Capital budgeting is one of the challenges that need to be analyzed by the Nordstrom company to remain competitive on the market.

Internal risks

Risks due to strategic and operational factors

The risks in this section are those that are likely to cause the organization not to meet its intended target. The risks could be from the changes in the operating system and other strategic plans undertaken by the organization. Under this task factor, there are many reasons or forms in which there can be likely failure. They include: Inability to execute the clients’ strategies and can cause a negative impact. Clients or customers are an important component of a business and its daily operation since they are the ones who buy the output, and they give the organization a reliable source of revenue. Without clients who purchase from the organization, the company or the organization’s future is at risk. The client’s strategies need to be liked at keenly, and their strategy adequately executed to avoid the demerits that are associated with their exits or lack of involvement in the organization’s processes. Currently, customers are shopping via the use of the internet via computers and mobile phones. If an organization will not take into account the issue of online shoppers, it is likely not going to have them as part of the company business community. Electronic devices help clients transact and browse on the commodity from anywhere, saving them transport costs and time spent in exploring the market. With the proper utilization of the technologies, the organization like Nordstrom can offer seamless and differentiated products as they meet clients’ needs and demands.

Inability to react to competitiveness in the market: Competitiveness in the market is likely to drive the customers to change in their way of conducting themselves in what is called customer behavior. The organization or a company needs to compete effectively across all levels, internationally and locally, to be competitive. It is important to note that there is a likelihood of the products in the market to be similar or have some commonalities making it essential for an organization to react by adapting ways to achieve a competitive advantage over the rival s in the local and international al market (Peterson & Fabossi,2004). Customer behaviors are forced by the changes in the market and technology in which marketing they have gone to the use of digital means and digital channels used have an effect of facilitating shopping and making the competition more advanced or more competitive. Inability to positively react to competitiveness in the market and the behavioral changes of the clients, the organization is likely to lose its market share, which a significant and essential risk. The company or the organization should curb these risks by being dynamic and competent, failing to anticipate the dynamics in the market adequately, and the client’s behavior can [predict a doom to the organization. The organization can ensure excellent response and reaction to the changes aiming at remaining competitive is dynamic and effectively reacting to the changes. Lack of response can lead to low sales, and revenue collection hence decreases in profitability (Peterson & Fabossi,2004. the risk can be solved by the proper and efficient reaction in which customer’s behaviors can be taken into account. Effective a deficient capital allocation which will enable the organization to research and be able to invest in the needed technology. Stores and adaption to the digital channels should be enabled to effectively and efficiently compete.

Failure to respond to the customer’s preferences: Lack of response to the client’s preference or even delays in the response can put the competing companies or organizations or rivals at a competitive edge over the organization. The organization must fast act on the client’s preferences and fashions since if they fail, there is a chance of experiencing a negative impact, especially in the relationship with clients (Baker & English,2011). the organization, when countering this risk, must have an ability to respond to react and predict the current and future trends, especially to the trend that keeps on changing. A good reaction or a positive response will have a positive impact, especially in the sales and the operations procedures and results (Baker & English,2011). delays or lack of reaction is a risk to the organization in capital budgeting because it will not be in a position to attract new clients or even retain the existing clients and will move to the organization that caters to the trends and fashions that match that client’s needs.

System and network failure is an inherent risk: There must be an efficient, effective, and reliable network that will enable operations and better serve the clients’ needs. All the information systems and networks should be in a proper and working condition if they want to manage and keep information more secure across all the organization’s aspects. There is a higher risk if there is a failure in the network, or the whole system fails since information can be stolen, compromised, or be inaccessible (Damodaran,2008). the risk is what makes it necessary to have a well-conditioned and reliable network that is secure and more reliable since it is useful. System and network modification lead to an inherent risk in capital budgeting in which change of the system and replacing the system can lead to information leaking out, be in accessed, or even be made unavailable. An efficient system and reliable network can lead to the system need to test and check on vulnerabilities that are likely to be exploited by attackers who may want to intrude into the system.

External factors

Risks of economic and external factors: Some chances are likely to affect the organization, which are from the external factors and the economy. The risk is there to the capital budgeting since they are cyclic economic cycle has its characteristics like economy stagnating, or being in stagnation with economic activities are not agile. When planning for capital budgeting without a check on the economic cycle, the organization is likely to fail since there can be a cost that is not likely going to be recouped. A downturn in the financial state is expected to down the stock prices hence leading to massive losses (Borgonovo,2017). no organization wants to operate in loss-making activities, and they strive to maximize on there they are likely to make profits (Damodaran,2008). External events that are likely to drop the process of the dock in the market are risks to the organization. Another external change is the lack of clients, especially in the CBD. The organization that has its headquarters in the central business district is likely to make its clients or customers not access them due to traffic congestions. The organization can react by relocating to the outskirts or in a less-populated area but also can risk losing clients who may not be aware of the new location. Another external risk that affected the capital budgeting is the reliance on the 3rd parties in the production, and distribution of the goods and services. The 3rd parties can make the firm increase the cost of production that directly affects the prices to the output. Increased prices can make clients move or shift to where the goods are offered at a lower price. The organization can react to this by eliminating 3rd parties and have direct contact with the clients.

The risk of microeconomics

Nordstrom is an established company in the US and is known to supply fashion shoes, and it retails them to the consumers.IT faces microeconomic risks, which must also be dealt with accordingly for it to remain competitive in the market, especially when it wants to expand to other markets or overseas. Nordstrom is likely to face stiff competition from other established companies like Adidas, Nike, and Fila. These are company’s eth also supply shoe products to the customers in the market globally. They have a well-organized structure of the supply chain are very efficient middlemen and partners (Whitehead, 2010). These rival companies are likely to force Nordstrom out of the market by selling at a discount rate since they are already established and have created an excellent and reliable customer loyalty. There are also established companies in overseas countries that supply shoes to the locals hence could make it more robust for Nordstrom to enter. Even some countries may do their level best to protect their infant companies and organization against the stiff competition by established multinational companies. Nordstrom can react by engaging in partnership with those big companies or even acquire the infant companies that are being protected by their governments. Nordstrom can also respond to the price elasticity by being dynamic and going as per the economic and market demand to avoid operating at a loss or even scaring away customers (Whitehead, 2010). The macro-financial risks can easily make the organization unable to compete in the stiff market, and the losses accrued are too significant with unproductive exchange due to the stiff competition that can lead to the organization either shutting down or retreating to its original base. Nordstrom company has done its level best in countering those effects by diversifying its products in the market. The company also supplies cosmetics, which would substitute a lack of sales of shoes and other fashion components. When dealing with price elasticity, the company can act to counter the rival’s effect by since they have a strong market base in Seattle where they are established, and they can make a name by selling are discount rate as a promotion strategies hence creating customer loyalty.

Alternative finance: It is a requirement by every organization or company to have a stable finance base that will allow them to operate well without chances of being dealt with blows or facing hurdles in their daily operations. When calculating on the profitability, the organization like the Nordstrom relies on estimates in which they project based on the market trend and the customers or client’s response. the sensitivity of matters concerning finance is significant since without right reaction they organization will be operating at a loss, and the company need to make profits in order not to have to incorporate other financial sources. The financial projection is very important, and there is a need to integrate various risk assessment tools like sensitivity analysis, decision tree, and scenario analysis. The three are likely to give different outcomes, and their applicability also differs depending on the conditions and the industry. A good accountant of an organization’s finance officer must be able to use and be comfortable with the application of the three. If the sales drop by 20 %, there is a likelihood of the organization not meeting the set target. My projected financial performance would fall short and maybe invalid or make the organization not meet its intended purpose. Nordstrom would react by checking reasons for the brief as the company relies on financial projections and will do its level best in rectifying the situation. The company can decide to look for finances from other partners, loans, and rents from their floor spaces. The company can also sell part of its assets to offset the debts and the shortage of finances. If the projected financial performance is exceeded by 20 %, it will imply that there was an under projection, or the company did very well exceeding the expectation (Besley & Brigham,2008). the organization can react by acting, making the project more durable, and also dealing with the weaknesses that might bring in losses or a drop.it also shows the company is in a better position to continue making profits. When the set projection is exceeded, it implies that the organization is efficient, effective, and working better in meeting consumers’ needs. If they fall short of the forecast, it will mean that the operations are inefficient are not of the required standards; hence there is a need to counter deficiencies to remain competitive in the market. It is essential to note that the issue of capital budgeting is very important to an organization or company. It is obviously and mainly used determination of projects value addition .it is always aimed at increasing and improving profitability; hence shareholders enjoying their value of money. During the analysis of the capital budgeting matters revolving payback, internal rate of return, and net present costs come into play. Their payback period refers to the duration needed by the organization to recoup the initial investment in terms of the cash flows. The shorter the payback period, the better for the organization, and Nordstrom would look for ways to shorten the payback period. IRR refers to the expected return on a project. For a viable plan, IRR must always exceed the cost of capital to ensure that the project is efficient. Nordstrom takes into account the effects of IRR, and if the cost exceeds IRR, it proves that it is not viable (Besley & Brigham,2008). Net present value (NPV), on the other hand, shows how the project is profitable, and NPV is the most appropriate manner or method that is used in checking on the profitability of a project.

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References

Baker, H. K., & English, P. (2011). Capital Budgeting Valuation: Financial Analysis for Today’s Investment Projects. Hoboken, NJ: John Wiley & Sons.

Besley, S., & Brigham, E. (2008). Principles of Finance. Boston, MA: Cengage Learning.

Borgonovo, E. (2017). Sensitivity Analysis: An Introduction for the Management Scientist. Basingstoke, NJ: Springer.

Damodaran, A. (2008). Strategic Risk Taking: A Framework for Risk Management. Upper Saddle River, NJ: Pearson Prentice Hall.

Peterson, P. P., & Fabozzi, F. J. (2004). Capital Budgeting: Theory and Practice. Hoboken, NJ: John Wiley & Sons.

Whitehead, J. A. (2010). Microeconomics: A Global Text. MA.

Running head:
NORDSTROM AND CAPITAL BUDGETING

1

Nordstrom and capital budgeting

Students name:

Professor:

Date:

Running head: NORDSTROM AND CAPITAL BUDGETING
1

Nordstrom and capital budgeting
Students name:
Professor:
Date: