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AN ANALYSIS OF CONCEPTUAL FRAMEWORK: A CASE STUDY OF WEBSTER

Executive Summary

One of the main features of financial accounting is corporate reporting because the way of this kind of reporting is complicated and elucidating to achieve success in business. The Conceptual Framework supplies the total instruction on the purposes behind this type of reporting done by the organizations. The immediate report provides a descriptive explanation on the review of this idea in the position of a reality-based organization, Webster of their yearly report 30 June 2018. The introduction of the study provides the common idea about the notions along with the business. Afterward, the implementation of this system and the need to follow the framework based on the organization’s corporate reporting procedure is assessed by the researcher. The study also confers about the restrictions of the conceptual framework and the importance of common purpose financial reporting. Lastly, the researcher tries to create a summary of the overview by suggesting and ends the discussion with a concluding note.

1.0 Introduction

Accounting is known as the language of the business as the matter involves considering the stakes of various shareholders connected to the business. A systematic financial reporting is the solution to the corporate responsibility towards bigger shareholders and the total society. Thus, the fact that the reporting should consider an ideal and benchmark protocol for the organization is expected. A conceptual framework has been created by the ideal setters to develop a general review on the capability of the standards and the opportunity along with the purpose of financial reporting for the company.

2.0 Conceptual Framework: An Overview

The conceptual framework is provided by the International Accounting Standards Board (Later may be written as “IASB”) might be interpreted based on corporate reporting by the process of handing over the standard instructions as to the action, demonstration and announcement of different economic affairs and negotiations. Briefly, it presents the complete framework of financial reporting for a company (Bregg, 2018). As the financial data and information may be systematic, the factors that regulate have decided specific instructions as to the comparison of features based on the quality of the economic statements in accordance with applicability, sustainability, comparability and schedules that together aid management to create financial reporting more efficient to the users(Chris, 2018). The conceptual framework guarantees a comprehensive perspective such as the way of conduction such constructions and makes the reporting productive to the shareholders.

3.0 Organisational Overview

Webster annual report state that their year-end profit after calculating tax on the 12 month period is only $27.1 million which is very low compare to the 2017 net income after the tax period. But it is totally unexpected that the company earned more in the current year that means in 2018 than 2017 net profit before tax amount (Fellizzie, 2016). The director and organizational management is the most important part of an organization who reassess the current business strategy to create a new direction for the betterment of the organization and another reason is for rebalancing the portfolio of the asset. The core business strategy of Webster is continuing the entitlement of water and making the annual allocation of the water for both reasons may be for permanent or temporary for the reason of irrigated crops. Westar management and director beliefs that their conversion in horticultural and other products will increase sales because of allocating water in different parts which will be helpful for increasing the return highly from the medium fund to long term fund.

4.0 Analysis of Organisational Conceptual Framework

4.1 Compliance Requirements for Conceptual Framework

In this framework, there are some compliance requirements that the management must follow to make corporate reporting effective. This sort of requirements has a chance to be separated in a few several kinds. The first kind of requirements consists of the features based on the quality of the financial records that involve the reliability, applicability, capability to understand, trustworthy demonstration, ability to compare of the financial data as included in the financial records (Jhon, 2017). Put differently, the financial statements must be created in such a way that the utilizer can make their individual decisions according to the financial data provided. The second kind of compliance requirements works by making sure that the identification and calculation standard of the financial records are obedient with the ideals set for them and conforming with the commonly received accounting rules (GAAP) and guidelines and principles applicable for the time being(Langdon, 2018). Besides that, utilizing current value consideration in the financial information is also another significant element which the conceptual framework suggests to implicate (Langdon, 2018). Regarding the company that is mentioned, it is noteworthy that the organization creates its financial statements based on the accurate process of accounting, according to the Australian Accounting Standards (AASs) and the Corporations Act 2001. So, it can be claimed that the firm could fulfill the general compliance requirements in terms of the basis for financial record preparation. 

While talking about the company, it has been perceived that the managers took up AASB-9: Financial Instruments for classifying, measuring and de-identifying financial properties and financial accountabilities. The latest impairment model, as advocated by provided AASB has also been implemented to evaluate the properties. Nevertheless, it is expected by the management that the latest announcement will not put material effect impact on the business outcome since it leaves a reduced chance for change while valuing financial credibilities. AASB-16; contracts that will be used instead of current AASB-17: contracts will oppositely put a remarkable effect on the blares of company accounts since there has been a significant quantity of contracts and agreements of the firm. Nonetheless, it has been stated that every leased property have been appropriately evaluated and identified in the booms in relation to the standards applied. In relevance to this, it can be claimed that the qualitative aspects such as materiality have been content in the provided framework since the management has already executed an effect evaluation of accepting the latest accounting standards.

4.2 Compliance and Enhancement of Qualitative Characteristics of Conceptual Framework

The aspects based on the quality which has been stated before, are significant parts of the process of preparing financial statements. Concerning aptness and reliability, it can be seen that the audit report is unchartered with an exceptional remark about the main audit issues. To put in other words, the financial record was stated to be dependable by the individualistic patrons. In addition to that, the same was in accordance with the International Financial Reporting Standards (IFRSs) and thus, the same is known to have comparability. Another major point is faithful demonstrations that can be confirmed by the fact of reliability of the books by the manner of pointing out unlicensed audit opinion given by the auditor. In addition, the records of the accounts show that the fixed properties like plant and instruments have been measured according to the historical cost process, less devaluation that is in a queue with the particularly applicable standards. In case of complicated accounting presumptions like the evaluation and identification of properties profits the employees, the company has followed AASB 137: Provisions, Contingent Properties and Contingent Assets which verifies the issue that the business has been in accordance to the relevant accounting criteria and thus thereby implementing the provided framework.

4.3 Usefulness of Financial Statements to the Users

According to AASB framework in 2004, the way to define the key components of financial records like properties, credibilities, earnings, expenditure, and equities are given based on their economic profit afterward (Megan, 2015). To say it in other words, the way business may find profit in future by utilizing these components or take up them into the activities determines the measurement for them to be picked under certain terminology (Megan, 2015). To talk about the current case study, the yearly report claims that the records of the financial statements include a descriptive discussion and abiding by connected announcements regarding AASB declaration on different issues like financial components and earning from agreements and bond with those ordinances. 

4.4 Limitations of Conceptual Framework: Stakeholders’ Perspective

Primarily, the researchers ask how applicable the conceptual framework is in the given situation, specifically when the definitions of the key components of financial records depend on unstated principles and standards (Pilot, 2017). Along with that, some concerns related to the clearance on the descriptions given for issues like deferred tax credits or existing value accounting (Pret, 2018). From the perspective of Webster, no mention of existing value accounting can be found as long as the investment valuation in certainty according to equity process is related.

4.5 Compliance of General Purpose Financial Reporting

According to the Annual Report 2018, the preparation of business for its notes of accounts based on the AASs and Corporations Act 2001 and whereas executes compliance in the line with the rules and regulations (Tandau, 2017). It is claimed by the yearly report perusal that the Board has always controlled the situation to ensure larger returns to the shareholders as a dividend. The given situation represents how adequate the regulation over resource and powerful economic position the company is in. Along with that, the statement of money flow demonstrates various operations for sponsoring and investing descriptively, which is helpful for the shareholders to assess the financial situation in the business based on a holistic approach in accordance with cash flow from executing different operations. Apart from that, the managerial point of view about future business enhancement plan on the basis of effective use of financial resource and the situation of the company can also be seen from the report. Thus, it can be stated that the accountability to the common stockholders not holding the power to regulate the preparation of the financial records is on the management. They have been adopted to their separate requirements regarding compliance and clear reporting (Webster, 2017).

5.0 Recommendation

The current trend in market and evaluation of equity value controlled by the existing value accounting process should be considered by the management. Besides, it is necessary to display the social side of the business in corporate reporting to make it comprehensive. Last but not least, the announcement on non-accounting regulatory compliance in the report should also be appraised by the managers so that the shareholders can inspect this kind of overview with legality and rules during the assessment. 

6.0 Conclusion

A holistic approach is provided by the conceptual framework as to the complete process of financial statements preparation. Every kind of attempt must be made by the management of the firm to make financial records of the organization in such a manner so that it is effective and useful to the users. Lastly, the conclusion will say that a systematic approach for preparing financial statements with the consideration of the conceptual framework and related guidelines and directives as demonstrated by regulated and standard setters will remarkably help to enhance the functionality of the financial statements. Ultimately, it will aid the business to achieve its purposes and target by obtaining sustainability (Rihanna and Dr.B.Mahadevappa, 2011)

References

Bregg. (2018). Conceptual Framework – IAS Plus. Retrieved from https://www.iasplus.com/en/meeting-notes/iasb/2005/agenda_0507/agenda575

Chris. (2018). Corporate Reports | Johnson & Johnson. Retrieved from https://www.jnj.com/about-jnj/annual-reports

Fellizzie. (2016). Dictionary by Merriam-Webster: America’s most-trusted … Retrieved from https://www.merriam-webster.com/

Jhon. (2017). Webster, Texas – Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Webster,_Texas

Langdon. (2018). Webster, SD – A Place for All Seasons. Retrieved from http://webstersd.com/

Megan. (2015). Conceptual Framework Phase A – Objective and qualitative … Retrieved from https://www.iasplus.com/en/projects/completed/framework/framework-a

Pilot. (2017). Conceptual Framework for Financial Reporting – IFRS. Retrieved from https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/

Pret. (2018). Annual Report 2015 – ASX. Retrieved from http://www.asx.com.au/documents/investor-relations/2015AnnualReport.pdf

Tandau. (2017). Toshiba Investor Relations : IR News. Retrieved from http://www.toshiba.co.jp/about/ir/en/news/2017.htm

Webster. (2017). What is financial reporting? | AccountingCoach. Retrieved from https://www.accountingcoach.com/blog/what-is-financial-reporting

Appendices:

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Process Financial Transactions and Extract Interim Reports

Answer 1

The imprest system is the common form of accounting. There are different systems are in imprest system but the most common imprest system is petty cash system. In imprest system, a fixed amount is reserved and it remains dormant. The amount reserved for a certain time was spent in that time. For example, if the petty cash custodian is entrusted with a locking bag containing $100 of currency and coins, then the Petty Cash account will always report a debit balance of $100. This $100 is the imprest balance. As long as $100 is adequate for the organization’s small disbursements, then the general ledger account Petty Cash will never have an entry again (Deegan, 2013).

Answer 2

Accrual method of accounting is the method of accounting where the income and expenses are recorded in the books of accounts when they occur whether the cash is received or not. The main benefit of this method it shows all the expenses and revenues in the period it occurs. When the money is received then cash transactions is recorded and accrual entries are reversed. In accrual accounting, adjusting entries are made at the end of accounting period. The actual profitability of the business is reflected from the accrual method of accounting (Scott, 2015).  The correct profit or loss of that period is shown in the financial statements and it presents a correct picture of the business. Some of the examples of accrual are accrued interest, outstanding wages, and unearned income. 

Answer 3

Cash accounting is the method of accounting in which receipts are recorded in which they are received and payments are recorded when they are actually paid. In other words, it can be said that the income and expenses are recorded when they are received and paid. The use of cash accounting is mainly seen in the small business as no adjusting entry is made at the end of accounting period. This method is simple to use and it is more straightforward. The benefit of this method is it gives a clear view of how the cash of the company is spent.For example, a company receives $10000 from the sale of computers then the transaction will be recorded when the cash is received. It is not affected from whether they the expense is incurred or not. The main disadvantage of this method is it fails to provide a clear and accurate picture of the business. The profit or loss calculated in this method is not correct. This method can change the position of the business.

Answer 4

Accrual method of accounting has more advantages than cash based accounting. The accrual method of accounting took incomes and expenses into account when it is occurred not when the money is paid or received. The main difference between cash and accrual method of accounting is the timing of recording of transactions. In cash method, the transactions are recorded when they are received or paid. Most of the companies adopt for the accrual method of accounting as it has more benefits then cash accounting. The accrual method of accounting provides a clear picture of the profitability of the business (Schaltegger and Burritt, 2017). The cash basis of accounting fails to provide the clear picture of the profitability of the business.The position of the business in sometimes be understated or overstated in cash basis accounting. Adjusting entries are made at the end of accounting period which is not made in the cash basis of accounting (Weil, et. al., 2013).

Answer 5

A purchase is considered an asset if it provides future economic benefit to the company, while expenses only relate to the current period.An asset is an item which is owned by the company. The assets are mainly classified into three group’s i.e current assets, intangible asset, and capital asset. The asset is held for the long term and it has future economic benefits. While in case of expense, there is no future benefit as they give benefit for the current period. Expenses are subtracted from the incomes of the company to determine the profitability of the company. The major expenses in a business are cost of goods sold, selling and administration expenses, etc. The other difference between the asset and an expense is that the asset is shown in the balance sheet of the company and the expenses are shown in the profit and loss statement of the company.

Answer 6

It is an online transaction handling system which is commonly used by retailers for making the payment and receiving the payment. In this system, the buyer uses his bank card for making a payment to the seller by using a personal identification number (PIN). The amount of the purchase made by the buyer is transferred in the account of seller through electronic transfer. It is a safer method of transferring the fund and the faster payment can be made by using this system. The system is first used in the United States in 1980 and after that it becomes popular in other countries also. There were many different EFTPOS were developed in late 90s but they faced compatibility issues and failed in continuing their setup. 

Answer 7

In the bank, different deposits are made by the persons and proof of lodgment requires in order ensuring that the order can be traced after the deposit. The different deposits that can be made in the bank are as follows:

  • Money Orders: There are not much difference between a cheque and a money order. A certain amount is represented by the both money order and a cheque. The time period required for the clearance of the cheque is 3 days. It is traditional form of the banking instrument (Schroeder, et. al., 2011). 
  • Bank Drafts: In the case of bank drafts, the banks give the guarantee for the payment. Clearance period also comes with this deposit. Certain security measures are enhanced on the bank drafts like security thread, watermarks, etc. to prevent from the fraud.
  • Electronic Fund Transfer: This method is very popular in many countries as this method is fast and cost effective. The information required for making the transfer is the account details of the person whom the transfer is made. 

The deposit slip is the proof of lodgment when the normal deposit is made and in electronic transfer, the bank statement can be used as a proof of lodgment.

Answer 8

Everyone uses the banking for continuing their business. The security is the main concern whenever the banking system is used. The main things come into the cheque is the name of the person whom the payment will be made. The amount column shows that how much payment should be made. A small padlock icon indicates that cheque is designed in a way that it is protected from any fraud. If you want more security for the protection of the cheque then you can use the hologram security measure. Hologram provides a high level of security and it is more secure than the normal cheque. Automated cash management system also helps in providing the safety the company seeks for their cheque. This is done to reduce the overall vulnerability of the accounting and finance risk to maximum acceptable business appetite. 

Answer 9

The three examples of errors that can be made when processing financial transactions are as follows:

  • Error of Omission
  • Error of Commission
  • Error of Principle

Auditors job is to identify these particular errors and get them reported in its audited report as forming part of the annual report of the organsiation. 

Answer 10

The fundamental principles of the code of ethics for professional accountants are as follows:

  • Integrity: The professional accountant has to remain honest with his client at all times and remain straightforward for his business relationships with the clients. It is one of the key relevant trait in which ethical guidelines, overall standards and trustworthiness are taken into relevant consideration. 
  • Objectivity: The decisions of a professional accountant never are affected by the actions of the others. He never takes those decisions which lead towards the conflict of interest between the parties. The decisions of the professional accountant will always remain unbiased.
  • Professional Competence and Due Care: The professional accountant needs to use his professional knowledge and skills to ensure that the services provided by him will never affects the business of the client in an adverse manner. He needs to work with due care in his accounting approach. He needs to work diligently in order to conduct his accounting work on time. He needs to have a good amount of knowledge of the professional standards and conduct his duties with the code of ethics (Weil, et. al., 2013). 
  • Confidentiality: Confidentiality is one of the important principles of the code of ethics. The accountant has to remain confidential about the details of the client work. He should not disclose the important information of the client to the others. It’s his professional duty to maintain the client’s information as it will affect the business of the client. The only time he can disclose the confidential information of the client when it is required by the law. It will be unethical if the personal information of the work related to the client is been disclosed. 
  • Professional Behavior: The professional accountant has to comply with the rules and regulations and has to maintain the professional behaviour at the time of the accounting. The professional behaviour of the professional accountant gives credibility to the client about the character of the professional accountant. The accounting standards and laws are needed to be followed by the professional accountant in his approach towards the accounting work.

Answer 11

Tax agent services act was applicable in 2009. The act gives rules and regulations for the tax agents. The services provided by the tax agents are need to be provided by using the rules and regulations of the act. The main objective of this act is to ensure that the tax agent services provided to the public by the agents are in an appropriate manner and in agreement with applicable standards of professional and ethical conduct. The purposes that are set up in this act are as follows:

  • The first motive of this act is to establish a board where the registration of tax agents can be made along with BAS agent, and financial advisors.
  • Establish a professional code of conduct that needs to be followed by every registered tax agent, BAS agent, and financial advisors.
  • Disciplinary guidelines should be set which needs to be applicable on the registered tax agent, BAS agent, and financial advisors.

Registered BAS agent is that agent who has qualification certificate in IV financial services in bookkeeping and accounting. The BAS agent has to complete the board approved a course in order to become a registered tax agent. All the qualification requirements are stated in the tax agent services act and because of that, it becomes so much important for the BAS agents.

Answer 12

Fair work act was applicable in 2009. The act gives many guidelines about the employee/employer relationship in Australia. The act provides safety entitlements for the workers. The act also provides flexible working arrangements and it also prevents any discrimination at the workplace. In this act, the rules and obligations for employees and employers are described. This act is the foundation for all the standards set for the safety of the employees. The purpose of the act is to provide complete guidelines about the working conditions of employment. The rights and duties of the employees are described in this act. It also provides for the compliance of the guidelines of the act. 

The compliance of this act is mandatory for the employers and they have to comply with rules and regulations set in the act. The employer of the organization has to maintain the records which give the complete information about the employment status of the employees. The accounts recorded in bookkeeping gives an assurance that the fair conditions are provided by the employer to his employer.

Answer 13

The main motive of the privacy act is to how the personal information of a person and the entity is handled. The three examples that should be taken to meet out the requirements of the privacy act, 1988 are as follows:

  • Manner & purpose of collection of personal information
  • Solicitation of personal information from individual concerned (Weil, et. al., 2013)
  • Solicitation of personal information generally

Answer 14

Four security measures that should be implemented when transporting cash are as follows:

  • Proper training should be provided to the employees when there is a transportation of cash. A separate manual program is needed to be set up to transfer complete knowledge to the employees regarding the procedures. 
  • Insurance of the transported cash should be made before transporting the cash.
  • The transportation of the cash should be made from a safe route (Devos, 2012).
  • Strong cash box should be used and extra workers should remain on duty for the protection of the cash.
  • Safety norms as defined by the banking guidelines should be strictly followed and adhered to. 

Answer 15

A chart of accounts is a financial organizational tool which gives complete information about every account in an accounting system. Every account has its own record of the asset, liability, equity, revenue, and expenses. Three important features of the chart of the accounts are as follows:

  • Consistency: The chart of accounts provides consistency in the accounting system and the financial statements of the company remain consistent. The chart of accounts remains same for a longer period and it is used for the comparisons. It is not a one time job regularity of work at a consistent level is essential. 
  • Lock Down: The subsidiaries cannot make changes in the chart of accounts. Manner and format of accounting procedure should be similar to that which is been followed by the holding company. 
  • Size Reduction: Chart of account system also review the list of accounts periodically to find any immaterial amount. If those accounts are not used for any special purpose then it shut down and the information of these accounts should be transferred to a larger account (Panthaki, et. al., 2010).

The five categories of all the accounts remain organized are as follows:

  • Savings account
  • Accounts receivable
  • Prepaid insurance
  • Inventory assets
  • Vehicles

References

Deegan, C., 2013. Financial accounting theory.McGraw-Hill Education Australia.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0).Prentice Hall.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education25(4), pp.792-793.

Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2011. Financial accounting theory and analysis: text and cases. John Wiley and Sons.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Allen-Rouman, T., Mascavage III, J.J. and Weichert, M.M., Western Union Co, 2013. Online funds transfer method. U.S. Patent 8,412,627.

Panthaki, B., Sokolic, J.N., Papademetriou, D. and Sunderji, A., CashedgeInc, 2010. Real-Time Settlement of Financial Transactions Using Electronic Fund Transfer Networks. U.S. Patent Application 12/357,308.

National Society of Genetic Counselors, 2018.National Society of Genetic Counselors code of ethics. Journal of genetic counseling27(1), pp.6-8.

Devos, K., 2012. The impact of tax professionals upon the compliance behaviour of Australian individual taxpayers. Revenue Law Journal22(1), p.31.

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References

AOL is now a part of Oath. (2019). Retrieved 18 August 2019, from https://www.aol.com/finance/

[CRB]. (1964). Finance information. [Kew, Vic.].

The Office. (1997). Financial management. Washington, D.C. (P.O. Box 37050, Washington, D.C. 20013).

Jarrow, R., Maksimovic, V., & Ziemba, W. (2006). Finance. Amsterdam: Elsevier.

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Financial Report Assignment Help by AssignmentHero

  1. Introduction

The assignment has been prepared to focus on the consistency of financial statements of Alacer Gold Corp with the guidelines providing by GAAP or IFRS. Recording methods of non-current assets, intangible assets, revenue recognition method, leasing procedures, its classifications and presentations, the disclosure of provisions and contingencies etc. are focused here. The selected company’s main operation is to sell golds. The company has used guidelines given by International Accounting Standards (IAS) in recording and preparing each and every item of the income statement, statement of financial position, cash flow statement, statement of retained earnings and notes to the financial statement. 

  1. Non-current assets
  2. Selecting a non-current asset from the financial statements of the company and providing details of this item (including identification of the valuation method used for this item).

There are 3 items in the balance sheet of Alacer Gold Corp. as non-current assets. These are Mineral properties and equipment, deferred tax and other assets. Among these items, mineral properties and equipment has been selected for this section. Mineral properties and equipment are fixed assets for this company as these properties serve for the organization for a long time period. These assets include mine or mineral resources and other machines and plants to collect or preserve them. As per AASB 116 Property, Plant and Equipment, this item has been recorded at cost less accumulated depreciation over the years this item has been used. Additions, transfers, and disposals of property, that is, any change has been adjusted with the item. Depreciation on these properties has been charged using UOP (Universal Oil Products) method (Adam, Mussari & Jones, 2011).

Figure: 01

It is the balance sheet of Alacer Group Corp. From the non –current assets, mineral properties, and euipment, the net has been selected. This information is available on page no. 05 of consolidated financial statements of Alacer Group Corp. and the calculation along with other adjustmnets have been described in a note to the financial statements ( note no. 09). And at note no. 03-i (i), ith has been stated that the NCA has been recorded at historical cost less accumulated depreciation. 

  1. With reference to qualitative characteristics, providing an argument for using an alternative valuation method for Mineral properties and equipment.

Accounting standards AASB 116 Property, Plant and Equipment have been adopted under section 334 of the Corporations Act, 2001. It is contingent on IAS 16. As per the standards, property, plant, and equipment can be recorded either using the cost model (as per section 30) or using the revaluation model. So instead of the cost model, this item can be revalued and then the fair value can be recorded in the balance sheet. It would represent the true and fair view of the financial statements. However, the company needs to revalue its properties within a regular interval (Irvine, Cooper & Moerman, 2011). 

  1. Intangible assets
  2. Providing details of the intangible assets reported by Alacer Gold Corp.

The intangible assets of the company have been recorded in the value of cost less amortization. However, in the case of intangible assets, Alacer Gold Corp has considered impairment whenever required. If the carrying amount is higher than the recoverable amount, the asset is said to be impaired in value. Impairment of an asset decreases its value (Cohen, 2011). 

Figure: 02

Figure: 03

About intangible assets, note no. 03-i (i) has discussed.

b) Evaluating how the company fulfilled its disclosure requirements in relation to intangible assets. 

Impairment is one example of an intangible asset which the company has recorded in a value which is the difference between recoverable amount and current amount. However, in the case of consolidating with subsidiary companies, the intangible asset will be the goodwill which is the difference between the acquisition cost and the actual cost of the entity (GU & Lev, 2011).

  1. Provision and contingencies

a) Providing details of the provisions and contingencies recorded or disclosed by your company.

Provisions and contingencies of the company have been recorded according to the standards given by IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets. Provisions are the amount which is taken from net income to meet any present or past obligation. For Alacer Gold Corp. provision on asset retirement obligation has been recorded as well as any change in provisions due to changes in expected future cost, inflation, the perception of risk or risk assumed has been adjusted under the account “Other (Gain) Loss in the Consolidated Statements of Profit”. Contingent liabilities though don’t have any direct impact on the financial condition of the company, it is the future or probable liabilities of the company and which needs to be mentioned in the note to the financial statements as this type of information is sensitive or closely related while stakeholders will take any decision. Alacer Gold Corp. has mentioned its contingent liabilities as per the standards (Ballas & Tzovas, 2010). 

b) With reference to one specific contingency recorded or disclosed by the company, providing an argument for and against the inclusion of the contingency in the financial report.

Alacer Gold Corp. has mentioned the expected or future liability to pay for legal obligations in the notes to the financial statement. It is required to express by law as financial statements should give a true and fair view of the financial performance and financial condition of the company. But they include only quantitative and factual data. There is some qualitative information which contributes more to the decision-making process of shareholders and other stakeholders. So to make financial statements repetitive and according to conservative principle contingent liabilities should be mentioned. On the other hand, sometimes a company may oversee a problem which is quite impossible in nature but shows it in the notes to the financial statements. It makes the perceived risk about the company higher. 

  1. Lease

a) Providing details of leased items that are recorded or disclosed by Alacer Gold Corp.

Leasing as a source of financing can be of two types. For operating lease risks and rewards of the asset don’t transfer to the lessee but for financial lease risk and returns associated with the assets transfers from lesser to the lessee and this asset can be acquired at the end of the leasing agreement. However, the company has no financial lease now and operational lease arrangement has been adjusted in income statements under the account-operational activities. 

Figure: 04

This information about a lease is available on page no. 14 of consolidated financial statements of Alacer Group Corp and at note no. 03-i (iii). According to the notes, currently, the company has no financial lease. 

b) The classification and presentation requirements relevant to leased items, and an explanation for how the leased items of your company have been presented on the financial statements.

As per the standard IAS 17 – Lease, the lease can be classified into operating lease and finance lease. Operating lease is a regular cost for the company for which it is recorded in the income statement. On the while, financial lease at the end of the lease agreement tends to be the asset of the lease if he wants to buy it. So it is recorded in the financial position of the company. Alacer Gold Corp. has no financial lease for this current period (Hales, Venkataraman & Wilks, 2011). 

  1. Revenue recognition

a) Providing details of the revenue disclosed in the annual report of the company.

The company recognized revenue when the ownership of the good and the control of the good have been transferred in exchange for an economic benefit received by the company. However, in this respect, the company has been ensured by the measurability and factuality of the transaction. If possession of good or service or control over good doesn’t transfer from seller to buyer, the company can’t consider any inflow of cash as revenue (Jin-feng, 2010). 

Figure: 05

Accounting policies regarding revenue recognition are available on page no. 18 of consolidated financial statements of Alacer Group Corp and at note no. 03-q. According to the notes, revenue is recognized when it is realized.

b) Justification of the revenue recognition criteria for a specific (major) revenue of the company.

As per IAS 18 revenue is recognized when they are realized or the possession of goods has been transferred or the service has been rendered irrespective of cash inflow at the time of exchange. Alacer Gold Corp.’s main source of revenue is gold sales where both the cash receipt and accounts receivables have been included against sales of gold. That is the company counted it as revenue when they have entered into a legal contract and transferred the gold and its risks and rights to another party. However, this is based on the accrual principle of accounting. Under this basis, income or revenue is recognized when they are realized and the cost is recognized when they are incurred. 

  1. Conclusion

Financial statements are prepared for shareholders and other stakeholders to give them true and fair view about the condition of the company. To prevent management from window-dressing these statements, international standards have been built following of which is a must for every public and private limited company. These standards and guidelines are imposed for the greater interest of the stakeholders. It is because shareholders or prospective investors can’t get insider information about the company before investing. But they want to evaluate their investment opportunities. And financial statements following international standards work as a reliable source of information based on which rational decision can be taken. 

References

Adam, B., Mussari, R. and Jones, R. (2011), the diversity of accrual policies in local government financial reporting: an examination of infrastructure, art and heritage assets in Germany, Italy, and the UK. Financial Accountability & Management, 27(2), pp.107-133.

Irvine, H., Cooper, K., and Moerman, L. (2011), an epistemic community as an influencer and implemented in local government accounting in Australia. Financial Accountability & Management, 27(3), pp.249-271.

Cohen, J.A. (2011), Intangible assets: valuation and economic benefit (Vol. 273). John Wiley & Sons.

GU, F. and Lev, B. (2011), Intangible assets: Measurement, drivers, and usefulness. Managing knowledge assets and business value creation in organizations: Measures and dynamics (pp. 110-124). IGI Global.

Ballas, A.A., and Thomas, C. (2010), an empirical investigation of Greek firms’ compliance with IFRS disclosure requirements. International Journal of Managerial and Financial Accounting, 2(1), pp.40-62.

Hales, J.W., Venkataraman, S. and Wilks, T.J. (2011), Accounting for lease renewal options: The informational effects of a unit of account choices. The Accounting Review, 87(1), pp.173-197.

Jin-feng, L. (2010), November. Management of Financial Risks in Mergers and Acquisitions of Listed Companies. In Information Management, Innovation Management and Industrial Engineering (ICIII), 2010 International Conference on (Vol. 3, pp. 24-27). IEEE.

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Purpose of future markets in terms of investments of JF group

Companies may use futures contracts to hedge their exposure to certain types of risk. For example, an oil production company may use futures to manage risk associated with fluctuations in the price of crude oil. A futures contract is an agreement to buy or sell an asset at a future date at an agreed-upon price. … Futures contracts are standardized agreements that typically trade on an exchange. One party to the contract agrees to buy a given quantity of securities or a commodity, and take delivery on a certain date.

JF group of companies need to evaluate the future markets in order to hedge themselves against the fluctuating exchange rate and to cover their cost of capital.

International cash management

Cash management is concerned with management of cash in such a way as to achieve the generally accepted objectives of the firm- maximum profitability with maximum liquidity of the firm. It is the management’s ability to recognize cash problems before they arise, to solve them when they arise and having made solution available to delegate someone carries them out. Managing cash flow is the most important job of business managers. If at any time a company fails to pay an obligation when it is due because of the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a dire consequence should compel companies to manage their cash with care. Moreover, efficient cash management means more than just preventing bankruptcy. It improves the profitability and reduces the risk to which the firm is exposed.

JF group has to manage its cash internationally in order to get profitable investments. As it has its operations world-wide, in different currencies, and exchange rates. So it has to manage its cash strategically to maintain its profitability and liquidity position.

Use of the international financial market

A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees, and market forces determining the prices of securities that trade.
Investors have access to a large number of financial markets and exchanges representing a vast array of financial products. Some of these markets have always been open to private investors; others remained the exclusive domain of major international banks and financial professionals until the very end of the twentieth century.

Capital Markets
a capital market is one in which individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.

Money Market
The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit(CDs), banker’s acceptances, U.S. Treasury bills, commercial paper, municipal notes, eurodollars, federal funds and repurchase agreements (repos). 

Cash or Spot Market
investing in the cash or “spot” market is highly sophisticated, with opportunities for both big losses and big gains. In the cash market, goods are sold for cash and are delivered immediately. By the same token, contracts bought and sold on the spot market are immediately effective. Prices are settled in cash “on the spot” at current market prices. This is notably different from other markets, in which trades are determined at forward prices




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Advanced Financial Reporting: Case Study Solution

Advanced Financial Reporting: Case Study   

Name

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Date

Part A

a)      Group structure

Type Mil HKD %
Equity 8266.2 10%
Debt 74623.1 90%
   
Total 82889.3 1.00

Source: (morningstar, 2017)

Type Mil HKD %
Institutions 1234.11 50%
Mutual Funds 1255.18 50%
Total 2489.29 1.00

Source: (morningstar, 2017)

b) i) Recognition and disclosure of trade receivable in the consolidated financial statements of MMG

It does not seem MMG has fully complied with provisions of AASB. Below is the section 20 of AASB 124 Related Party Disclosure which states that the amounts receivable from related parties should be in separate categories.

The above is extension of AASB 101 Presentation of Financial Statements where section 78 (b) of AASB 101 states that the amounts receivable from related parties should be disaggregated whereas MMG did not followed fully AASB standards in Note 19 however, they followed the standard partially by disclosing the amount receivable from related parties under Note 29.

b) ii) Effects of MMG transactions on allocated profit and equity

The transactions with CMN cannot affect allocated profit and equity balances in the MMG group as AASB does not requires any separate accounting treatment of transactions with related parties. The AASB standards only requires reporting the transactions with related parties under separate subheading either in statements of financial position or in Notes to the Financial Statements like; section 20 of AASB 124 Related Party Disclosure only requires to disclose the transactions or amounts receivable from related parties under separate subheadings. Even though MMG group did not made disclosure of transactions with related parties in the relevant subheading however, they disclosed all the transactions with the relevant parties under Note 29. So, the transactions with CMN can’t affect allocated profit and equity balances in the MMG group.

Part B

a)      Reporting requirements for non-controlling interest in AASB 12, AASB 10, and AASB 101

Non-controlling interest is the amount of equity in a subsidiary which can’t be indirectly or directly attributable to the parent.

AASB 10

According to section B94, each component of comprehensive income as well as profit loss should be attributed to parent’s owner and non-controlling interest. Even though there could be a negative balance in non-controlling interest by attributing total comprehensive income to the parent’s owner and the non-controlling interest, still it should be done.

According to B95 if there are cumulative preference shares outstanding in a subsidiary and the shares are held by non-controlling interest and are classified as equity then share of profit and loss shall be computed for the shareholders however after adjustment of dividends without considering the dividends are declared or not.

AASB 12

According to section 12 an entity should disclose specific information about a particular subsidiary which have material non-controlling interest and are material to reporting. The specific information includes but not limited to name, proportion of ownership interests held by non-controlling interest, etc.

AASB 101

According to section 54 (q) non-controlling interests should be presented within equity section of Statement of Financial Position. In Statement of Profit or Loss or Statement of Comprehensive Income profit or loss for the period attributable should also be attributed to non-controllable interests as stated in section 81B (a) (i).

b)     Significance and materiality of non-controlling interest in consolidated financial statements of MMG

It has not been long since it has been made compulsory to include disclosure about non-controlling interests. However, it is important to understand that there is huge significance and materiality of non-controlling interest in consolidated financial statements of MMG.

The transactions with the non-controlling interest or non-controlling shareholders is important as on p.27 of the financial statements of 2016 is given that the amount of capital contribution from non-controlling shareholders was about 500 million dollars which is not a small amount. According to the note. 16 total non-controlling interest amounts to about 1600 million dollars which again is material and significant to the financial statements of MMG.

c) Effect of non-controlling interest on profitability ratio and earnings per share

When there are significant and material non-controlling interests in entity such as MMG then financial condition of the entity is heavily eroded. This is because share of non-controlling interests is in each item of balance sheet and profit and loss statement. However, the share is only disclosed in total shareholder’s equity and net earnings (Welc, 2017). Therefore, we can’t tell how much effect non-controlling interest has on profitability. However, from the information it can be analysed how much it has effected earnings per share ratio. According to profit loss statements of year 2016 there is net loss of 152.7 million dollars for equity holders of the company while there is net profit of 54 million for non-controlling interests. If net profit of non-controlling interests is excluded then MMG would have net loss of 152.7 million instead of 98.7 million. This situation clearly tells that non-controlling interest has positive effect on earnings per share ratio as the amount of net loss has decreased.

If discuss about effect of non-controlling interests on one other profitability ratio then again the net profit ratio loses its usefulness because there is no mention of contribution of non-controlling interest in MMG therefore, we don’t know what are the exact amount of revenues from non-controlling interests and the others. However, if net profit ratio is calculated by taking net loss on 98.7 million then the ratio would be about 4% however, if contribution of non-controlling interest is excluded from the net loss then the net loss would be 152.7 million and the net loss ratio would be increased to 6%.

d) Whether the disclosure have value for users of the financial statements of MMG

Even though the MMG has included disclosure about non-controlling interest however, they have not described the criteria why certain controlling interests in the group. So, when there are not clear guidelines why certain non-controlling interest are important and  have been disclosed therefore, it can create problem to have difference while interpreting and making comparison with other entities which have or not disclosed non-controlling interests (Gluzova, 2016). Even though MMG has included the disclosure about non-controlling interest which would give the company high disclosure index however it would not be much useful for the users of the financial statements of MMG as it would not be helpful in comparing performance of the MMG with other entities this is because principles to assess materiality of non-controlling interests and the detail for evaluation of disclosures varies to a certain extent (Gluzova, 2016). As long it is not made compulsory to make disclosure about the accounting policies by MMG for assessment of materiality of non-controlling interest, till then the disclosures have not much value for the users of the financial statements of MMG as they find it difficult to compare on merit with other entities. However, if MMG had included definition or illustrative examples then the users of the financial statements who are not much aware about working and importance of non-controlling interests then they could have used the financial statements of MMG (Gluzova, 2016). However, still inclusion of non-controlling interests in the financial statements is valuable for those users which are well informed about difficult accounting terms and accounting principles such as banks which can take the information into account while making decisions about lending.

References

AASB. (2011, 08). Consolidated Financial Statements. Retrieved from www.aasb.gov.au: http://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf

AASB. (2011, 08). Disclosure of Interests in Other Entities. Retrieved from www.aasb.gov.au: http://www.aasb.gov.au/admin/file/content105/c9/AASB12_08-11.pdf

AASB. (2012, 06 20). Presentation of Financial. Retrieved from www.aasb.gov.au: http://www.aasb.gov.au/admin/file/content105/c9/AASB101_09-07_COMPsep11_07-12.pdf

AASB. (2015, 07). Related Party Disclosures. Retrieved from www.aasb.gov.au: http://www.aasb.gov.au/admin/file/content105/c9/AASB124_07-15.pdf

Gluzova, T. (2016). Disclosure of Subsidiaries with Non-controlling Interest in Accordance with IFRS 12: Case of Materiality. Retrieved from www.researchgate.net: https://www.researchgate.net/publication/296474176_Disclosure_of_Subsidiaries_with_Non-controlling_Interest_in_Accordance_with_IFRS_12_Case_of_Materiality

MMG. (2017). Annual Report 2016. Retrieved from www.mmg.com: http://www.mmg.com/en/Investors-and-Media/Reports-and-Presentations/~/media/Files/Exchange%20Announcements/Investors%20and%20Media/News/2017/04/20/MMG_Annual-Report2016.pdf

morningstar. (2017). MMG Ltd. Retrieved from morningstar.com: http://investors.morningstar.com/ownership/shareholders-overview.html?t=01208&region=hkg&culture=en-US&ownerCountry=USA

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FINANCE AND MORTGAGE BROKING ASSIGNMENT HELP

 
FINANCE AND MORTGAGE BROKING    

Contents

Identification and Interpretation of Compliance requirements. 3

Delivering and monitoring services to the customers. 3

Contribution of OHS hazards and identification of Risks. 4

Managing personal priorities of work and professional development 5

Development of relationships with respective clients as well as other professionals. 6

Promotion of use of credit 7

Application of Loan on behalf of mortgage broking clients. 8

Steps taken for credit provider 8

References. 9

 

Identification and Interpretation of Compliance requirements

It has been understood that the compliance requirements are highly necessary to adhere the lending provisions in order to justify the significance of making mortgage broking facilities. Therefore, it is quite important for the time being to adjust the significance regarding the suitability test that has adhered the perception of upholding the rules of different laws. These perspectives have intended the following issues, which determine the aspects that act with respective integrity. It has been generated from the derivatives regarding the assessment considering the purpose of maintaining the trusts. It is quite important to adjust the financial situation, as it is subjective to endeavour the significance regarding the assessment following all the different activities that have enabled the situation for underpinning the perspectives. Thus in order to synthesize the operations, the client has undergone the respective requirements so as to pertain efficient principles in order to delineate the judgment considering the factors upheld through considering the factors that can generate the feasibility of starting the business. Moreover, the timeframe has considered the judgment regulating all the judgment that has coincided the factors through which the different perspectives have been condoled in accordance with the respective performance continued through the operations sustained within the individuals. Thus, the compliance has adjusted the significance in determining the effects considered within the organization in monitoring the financial objectives inculcating all the process through integrated auditing system.

Delivering and monitoring services to the customers

Delivering efficient services to the respective customers are highly necessary for the organization. Thus, the perspectives of understanding the empathy are highly necessary. Empathy can be determined as the ability for understanding and sharing the feelings of another influence.  Thus from the perspectives of mortgage broking, it can be said that the attempt made for maintaining the over service aspects within the clients, it is quite natural to perceive the factors of identifying what will be the outcomes after achieving the services. It is important for analyzing the factors that determine the effect of understanding all the viability required through the aspects considering the judgment regarding overall performance. Due to the perspectives of consolidating the application, it is important to determine the feasibility through which the mortgage broking has been initiated. Thus providing services for making understand about the attempts that can be favourable for the clients are immensely important. Thus, it is highly important for maintaining the relationship with the clients in order to understand the specific intentions generated upon the provocation of over-service within the customers. Apart from this the over service has intended the customary ideas that can easily reflect the opportunities in sustaining the factors deliberating the successive intentions of the respective sources.

Contribution of OHS hazards and identification of Risks

The consequences attained from the perspectives of job demand have intended the factors through which the demand for the respective job has been synthesized. Moreover, the job resources have intended the aspects associated with the interventions of concluding the factors that are regulated the job orientation in cumulating all the feasibility through enabling the purpose of identifying the culture of jobs. The risk associated with both the consequences is justifying the perspectives of deliberating the significance through which the jobs not attended by the individuals that are permissible with the identification made in the respective instances that have regulated the job demand and its resources. The respective job demand and its risk factors have intended the aspects of unpleasant atmosphere, which will lead to underpin the conditions like crowding and also noise pollution through deliberating the ergonomic instances. Moreover, different problems regarding the reliability as well as availability considering the adjustments have been identified through which maintenance and repair can be easily avoided. Apart from this, lacking different short cycles has intervened the aspects inculcating the designing of tasks has been determined with the interferences generated through the considerable justifications. The workload pace has considered the feasibilities that can be determined with the impact personifying the substances that are easily conveyed upon the determinants of the workplace regulating the demand. Issues regulating the equipments and also maintenance of proper demands and culture has to be sustained in order to generate efficiency within the considerable aspects reflected within the firm. It will be ascertained through the considerable perspectives by identifying the normal perception generated through determining the business solutions affected the performance of the job demand embedded within the workplace. Considering the aspects of reserve bank of Australia, it has been understood that the regulation upon determining a sustainable environment plan has influenced the working operations through embedding the measurement associated with the respective system that has facilitated the economy in deriving much more financial reserves through imposing variable undertakings. Protection of benefits are highly managed through particular assistance within the business organization. It has been understood that the protection has been made in order to adhere sustainability within the organization and in order to cumulate these factors, it will highly considerate the performance applying the significant constraints that will help to understand all the projects significantly.

It is quite important for determining the characteristics regarding the role possessed by sharing culture and relationship within the firm with the respective information possessed by the members. Thus, it is important to undertake these possibilities of underpinning the meetings so as to organize the perception of continuing the operations successfully.

Leadership is much more important in pertaining risk management because leadership will help in identifying the gaps associated with risks. Proper experiences can provide or channelize the downturn situation with proper determents and feedbacks in order to curb the risky situations. Thus, proper avoidance can take place through identifying those instances that can encounter higher risks within the esteemed organization. Moreover, leadership helps in leading from the way where the attainment of risks does not arise. In this situation selecting the applicable and easier ways are highly important in determining the optimistic working cultures within the organization so as to sustain much more profitability in the long run. Thus, leadership is important in risk management. 

Managing personal priorities of work and professional development

As per the assumptions of Stephen Corvey, the personal priorities have been delineated within the priorities in order to achieve the significance consolidating the ineffective people. Therefore, it is quite important for determining the activities through which all the perception considering the responsibility has been averted within specific goals considering the life of the people. The considerations are vividly encapsulated in order to execute the formulation regarding the victimized aspects regarding the circumstances achieved from the perspectives of the product development. Therefore, the creative force has made the reactive recreation procedure in order to avert the significant characteristics in determining the personified instances.

In accordance to the efficient skills which I have measured through competencies, I can see myself as an efficient manager who is capable of managing the circumstances that have deliberately enhanced the factors that can regulate the operation successively. Moreover, the affirmed upon the workflow has also measured the instances of understanding the working priorities that have been achieved so as to endeavour the proper justification in nurturing the segregated responses within the firm so as to endeavour common perspectives of leading the overall workflow within the organization.  As per the significance of generating the primary goals, it is consolidated from the overall fact that understanding the purpose of mortgage broker has always derived the factors of underpinning the solution to the each and every client possessing the relationship within justifying the techniques achieved from the respective operations.

Development of relationships with respective clients as well as other professionals

In accordance with the competencies achieved by one individual, it is quite important to fetch important relationship in accommodating the feasibility applied within the clients. It is always important for determining the aspects that have regulated the significant decision propounding upon the factors that have deliberately ensured the relationship among the clients so as to convey measurements regarding all the allocated works revived within the normal perspectives through which different behavioural characteristics has been achieved within the firms appointing working considerations.

In order to measure the mortgage banking perspectives, it is quite significant for maintaining the decision considering the application regarding the achievement that has justified the normal propagation delivering the issues inculcating the aspects of mortgage broking has been beneficially maintained. 

The code of ethics is highly necessary for pursuing each and every performance in delivering the workflow. Thus the persistent characteristics have enabled the factors through which the different circumstances have been achieved in order to reform the circumstances that can be propounded upon the respective scenario possessing the factors that have simultaneously generated the criteria for enabling the primary considerations of the working principles. Therefore it is necessary to maintain the ethics in order to generate the primary consequences relating to the acquiring characteristics delivered upon respective feasibility that are highly important and valued on behalf of the firm.

Culture differences may deliver the significant decision inculcating the perception upon delivering the attitudes that have systematically enrolled the perception of identifying the business activities. It is quite important that the culture reflects the languages uttered by the respective individuals. Thus it plays a significant role in identifying the normal experience with the respective colleagues through which the determination of the culture has adhered in order to which the usage of different cultures can be strengthened.

The professionals like the team leaders and senior relationship officer have propounded the instances of managing the relationship with the clients deliberately in order to pertain and manage efficient relationship within the benefits achieved in authorizing the clients’ needs.

Importance in developing the relationship is highly sustained in order to abduct common perspectives in maintaining the solution from the overall responses. Determination of workflow has adhered so as to generate the perception in order to which the normal characteristics will be identified upon the scenario presented within them. Common perspectives have achieved the consequences through which different aspects have been regulated towards the implementation process of understanding the viabilities adhering the formulation have been enabled (Coletti, et al., 2016).

The centre for influences has enabled the primary constraints that can be easily derived through the consequences regarding the determination consolidating the perspectives of the different aspects that have regulated the primary objectives of the scenario. The activities have enabled the influences that can be enabled through the instances through which the engagement has been determined with the perception considering the betterment of the respective progress.

Promotion of use of credit

Yes, the decision taken is significantly considered so as to ensure the factors that help in financing for the respective instances. The main feature that has been generated through the consequences has inherited the performances that can be managed from the financial decision that has been determined with the effect of understanding the business perspectives. Certain characteristics regarding the failure of payment can be observed. This has inculcated the aspects of deformation, as well as different instances that can deregulate the financial options.

The payment has been made through making the proofreading the payment options consolidating the options needed for determining the factors.

Application of Loan on behalf of mortgage broking clients

It can be said that the perception considering the management techniques has intended the consequences through which the determination have taken place through adjusting the variance of the repayment as well as payment of interest consolidated significantly.

Repayments   Interest Paid
Monthly $3,215.25   $414,575.00
Weekly $741.38   $413,794.00
Fortnightly $1,483.13   $414,034.50
Half monthly paid fortnightly $1,606.78   $414,068.00

Steps taken for credit provider

In accordance with the NCCP act, it has been formulated to adhere the betterment of consolidating the factors otherwise the scenario can be judged through the normal perception deriving the aspects regulating the significance in adhering all the consequences regarding the attainment of performing the specification (Berndt, et al., 2014). Thus the determination has regulated the instances by accommodating the instances that have supported the broking facilities in order to cumulate the factors delivering the attitudes derived from the respective instances.

References

Berndt, A., Hollifield, B., & Sandås, P. (2014). What broker charges reveal about mortgage credit risk.

Coletti, D., Gosselin, M. A., & MacDonald, C. (2016). the Rise of mortgage Finance Companies in Canada: benefits and Vulnerabilities. Bank of Canada Financial System Review, 39-52.

Fantacci, L. (2017). Resocialising Finance to Exit the Crisis. In The Crisis Conundrum (pp. 111-129). Springer International Publishing.

Aalbers, M. B. (2016). Housing finance as harm. Crime, Law and Social Change66(2), 115-129.

de Silva, A. J., Boymal, J., Potts, J., & Thomas, S. (2015). Does innovation in residential mortgage products explain rising house prices? No.

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Principles of Financial Markets Group Assignment

Principles of Financial Markets Group Assignment  

Name

Course

Tutor

University

City/State

Date

1. Executive Summary

The report concludes two companies i.e. Beega Cheese Limited and Blackmores Limited linked to the Consumer Staples Industry. Both companies are listed on Austalian Stock Exchange ASX. The report contains the brief introduction of all mentioned concepts with historical detail of both companies and financial overview of Consumer Staples Industry.

Report demonstrates the list of micro and macro factors that affect the share price of company. Along with this, report absorbs the discussion that how the changing forecasted economic factors affect the performance of businesses. And the key financial measures and financial ratios affecting the business performance is also included in the report. 

Table of Contents

1. Executive Summary. 2

2. Introduction. 4

4. Change in Forecasting of Economic Factors and it’s Affects on Companies Performance (Top Down Analysis) 5

5. Financial Analysis of Companies (Bottom Up Analysis) 8

6. Conclusion and Recommendations. 13

7. References. 14

2. Introduction

– Industry and Companies Targetted

– Industry Targetted

Consumer staples industry is being targetted to perform fundamental financial analysis. Consumer Staples Industry has been selected considering it a better choice for analysis as it is related to crucial needs of humans.

* Consumer Staples Industry

Consumer staples are those necessity goods that are crucial to cut down from the list of consumers beyond their financial condition. The goods related to this sector is always in demand. It absorbs food, beverages, tobacco and other household products.

Consumer staples industry is group of industries and busnisses that deal with necessity goods. All the producers and distributors of food, drugs, beverages, tobacco and non durable household goods and personal products along with retailers companies have been assembled under this sector.

* Overview of Financial Situation of Consumer Staples Industry

Price earning ratio             24.00

Enterprise value                $146.47

EPS                                   $3.47

Growth of EPS                  22.21%

Growth in Revenue           7.30%

Return on Equity               27.96%

Return on Investment        14.65%

Debt/Equity                       141.79

Dividend Yield                  2.71%

Market Capitalization        3.87 Trillion

Market Weight                   8.72%

– Companies Targetted

COMPANY                  INDUSTRY             MRKT CAPT.             WEIGHT

– Bega Cheese Limited           Consumer Staples       1,275,030,000             0.08

– Blackmores Limited             Consumer Staples       1,946,430,000             0.12

The companies are selected on the base of market value of shares of companies and their weightage on the Australian Stock Exchange ASX.

– Company Introduction

1. Bega Cheese Limited

Bega Cheese Limited Company is an Australian based dairy company located in town of Bega. It was founded as an agricultural cooperative. It became public in 2011 after being listed on ASX.

* History

Founded in 1850’s, and later became a cooperative company in 1899. Original factory opened in 1900. Bega cheese built processing and packaging facility in 1997 that serve as a value addes in cheese in Australia . After that in 2007,  company acquired 70% interest in Tatura Milk which is used to produce dairy products. With this, Bega cheese broadened their product range with cream cheesw, mikk powder and infant formula.

2. Blackmores Limited

An Australian based company founded in 1930s by Naturopath Maurice Blackmore, which provides with health supplements. Company first started with health store and now the operations of company have been spread over 250 product lines of vitamin, mineral and herbal supplements. Having 843 employees, company is selling it’s products across 17 different markets of world.

* History

Company made it’s initial activities in 1930 anf followed the opening of health food store in 1938. After that in 1960, initiated the laboratory business used to develop celloid therapy through help of naturopathic clinics. Became a private company in 1962, start following the code of production in 1972, achieved sales volume of $1 million in 1976 along with spreading the business activities in Malaysia and Singapore, accquired Vita Glow pvt. ltd in 1982, became a public company with new name in 1985 with being listed on ASX and initiated employee share plan in 1987.

* Mission Statement

Determined to deliver natural healthcare products and services with highest quality standards and according to the expectations of customers.

3. Change in Forecasting of Economic Factors and it’s Affects on Companies Performance (Top down Analysis)

– Economic Forecasting

Economic forecasting is a procedure to make predictions and anticipations about the economic condition of country. Economic factors include in the process of forecasting are GDP, inflation, unemployment, fiscal deficit and frim specific factors.

– Purpose of Economic Forecasting

Governments and business firms approach the economic forecast process for developing the strategies, budgets and plans for future. Stock Market forecasting is to determine the future value of company and it’s stock.

– Economic Forecast change and Business Performance

Forecast change in Economic factors affect the performance of the Companies in following manner.

* Confidence of Consumer

Consumers who are confident tend to buy the products more than the consumers who always lack confidence about the products of business. Buying and selling of consumers give business and opportunities to Bega Co. and Blackmore Co. towards growth and ultimately it affects the economy. Any change in this factor forecasting will impose  the impacts accordingly.

* Employment

One of the most crucial factor of economy is employment. With employment, purchasing power of people grow and Bega Co. and Blackmore Co. can earn more profits but it’s not possible in the time of recession of business where employee layoff is done. Any forecast change in employment will directly affect the profits of business. Due to low inflation of 1.5% in Australia, unemployment fall down by 20% in 15 months.

* Interest Rates

Interest rate on loans and borrowing is important part of almost all the businesses. Any forecast change in this respect will affect the profits of Bega Co. and Blackmore Co.  and even can force  the organization to liquidate. It also affects the purchasing power of person and thus demand of products. Interest rate impose bad effects on the share price of company and ultimately affect the profits of business badly (Al-Qenae, 2002).

* Inflation

Inflation is the rate at which the prices of goods and services of an economy is charged. Any increase in the inflation will decrease the profits of Bega Co. and Blackmore Co. business and decrease in profits will affect the share price also. Demand of goods decrease as people can’t buy them so it affects the profits of busienss ultimately. Large business respond fast to information related to inflation increase or decrease (Wang, 2009).

Australia has a problem with falling inflation and it has impacts on all from workers,  who cannot get a good pay to businesses, who cannot charge high prices for goods,  so rely on low profits. Australian economy’s monetary policy was calibrated for higher rates, because inflation was higher, will likely be cheering at a 2% cash rate.

* Economic outlook

If it is forecasted that economy will expand, then it will put good influence on the profits of Bega Co. and Blackmore Co. business and share price also. Increase in share price will also result in high profits of company.

* Deflation

Deflation in an economy is always dangerous and upsetting. Fall in prices will result in lower profits, low stock price, reduction in purchasing power of people, decresae  in investment and reduction in opportunities to expand for Bega Co. and Blackmore Co. .

* Political Issues

Political issues mostly worsen the economic condition of country and thus affect the business activities of country badly. It reduces the profits, investments, share price, opportunities to grow and many more for Bega Co. and Blackmore Co. and It is somewhat unforecasted but can be anticipated at a level.

* Gross Domestic Production

GDP is an economic measure to analyze the situation of the economy. Change in GDP  

has woderful impacts on the economy. And effects on economy always pass on the business of Bega Co. and Blackmore Co.and  Impcts can be good or bad according to change in GDP. Australian GDP fall dwon to AUD 1400 from AUD 1500 in 2015 and had bad impacts on economy like cut in jobs, low wages payout and firm hesitate to invest.

* Economic shock

Changes in any corner of the world has impacts on the economy of all the countries. It can be forecasted at some level as it can impose hilarious impacts on the economy and Bega Co. and Blackmore Co. businesses of country. Like rise in oil prices in Saudi Arabia will effect all the countries and will shake their economies and economies shake the businesses. The developed economies are more efficient and have more power to affect the other emerging economies that are less efficient and not capable to refrain the effects of developed economies change (Rahman, 2006).

The fall in prices of houses by 10% in year 2015 that cause the biggest recession in Australia since 1930s was one of the most important economic shock of Australia. The impact of recession on Australia were low growth, low inflation and negative environment for next many years.

* Economic Policy change

Sudden change in the economic policies always have hilarious affects on the Bega Co. and Blackmore Co. businesses of country. It mostly happens due to change in the political governing body. And these changes can be forecasted before upto a level. It is crucial to forecast as change in policy affect the local business as well as foreign direct investments in the country.

* Exchange rate

Businesses who mostly deal with imports and exports are highly influenced by the change in the exchange rates. Bega Co. and Blackmore Co. already consider this as a burden and any change specially increase in the exchange rates tend to increase the costs of businesses and low down their profits. National Australian Bank anticipated a fall of 20% in AUD in year 2015. The weakness in the AUD implied following impacts:

– the weakness in Australian economy and its major trading partner (China)

– the differential outlook for interest rates between the US (raising rates) and Australia (falling rates)

– lower commodity prices.

* Recession

Economic recession affect the purchasing power of people, demand of goods and profits of business. With decrease in the purchasing power of people, the demand of goods decrease and thus the profits ofBega Co. and Blackmore Co. also decrease. The prices of houses fell by 10% in year 2015 that cause the biggest recession in Australia since 1930s. The impact of recession on Australia were low growth, low inflation and negative environment for next many years.

4. Financial Analysis of Companies (Bottom Up Analysis)

Financial analysis of companies will be done by considering financial ratios and key financial measures of companies.

– Performance Measures and Accounting Ratios

Financial Ratio analysis and Performance measures are used to evaluate the relationship of Financial Statement items. Financial Statement Ratio Analysis absorbs three points  of business:

* Liquidity

Liquidity ratio describes the relationship of organization’s liquid assets and liabilities.

Current Ratio: The current ratio is a liquidity ratio that is used to measure  the company’s ability to pay short-term and long-term obligations. To measure this ratio, the current ratio considers the current total assets of a company relative to that company’s current total liabilities. Acceptable current ratio is between 1.5% and 3% for healthy business for both companies.

1. Bega Co. current ratio is decreasing from 2015 to 2016 due to burden of more short term liabilities in 2016.

2. Blackmore Co. current ratio is also decreasing from 2015 to 2016 due to burden of more short term liabilities in 2016.

3. Bega Co. and Blackmore Co. current ratio comparison with industry average ratio shows higher result than industry average in both years and that is good for boyh companies individually.

Quick Ratio: The quick ratio is a measure to know how well a company can meet its short-term financial liabilities. It is also known as the acid-test ratio. It can be calculated as follows: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities.Quick ratio of 1.o show that a company is able to settle down all of  its current liabilities.

1. Bega Co. quick ratio remain same in both years due to no significant change in the liquid assets and liquid liabilities of company. Company ratio in both years is below 1 that shows unhealthy settling down of current liabilities.

2. Bkackmore Co. quick ratio is decreasing in 2016 from last year that show increase in liquid liabilities of company in 2016. Company ratio in  year 2016 is below 1 that shows unhealthy settling down of current liabilities.

3. Industry average of liquid ratio in comparison with both companies show that it’s higher in year 2015 but lower in year 2016 from the companies. But still itself it’s lower in both years from 1 that show bad situation of industry in terms of settling down the current liabilities.

* Profitability

Profitability ratio describes the ability of business to generate earnings in comparison with the expenses and other costs occured within a specofic time period.

Gross Profit Ratio: Gross profit margin is a financial measure to calculate the company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). Higher Gross profit margin is suitable for business.

1. Gross profit ratio of Bega co. is increasing in 2016 showing more profits with less expenses.

2. Gross profit ratio of Bkackmore Co. is also increasing in 2016 showing more profits and earnings with less expenses.

3. Industry average of gross profit ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both. But overall a good industry ratio show their favourable situation.

Operating Profit Ratio: The operating profit margin ratio measures profit a company makes after paying off variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations.Operating profit margin of approximately 25% or higher is considered that company is managing it’s cost properly.

1. Operating profit ratio of Bega co. is increasing in 2016 showing more revenues with less operating expenses.

2. Operating profit ratio of Bkackmore Co. is also increasing in 2016 showing more operating earnings with less expenses.

3. Industry average of operating profit ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both. But overall a good industry ratio show their favourable situation of profits.

Return on Assets: Return on assets (ROA) shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. Net income is derived from the income statement of the company and is the profit after taxes. Higher ROA is a sign of solid financial and operational performance of company.

1.Return on assets ratio of Bega co. is increasing in 2016 showing more revenues being earned through assets used in business.

2. Return on assets ratio of Bkackmore Co. is also increasing in 2016 showing more earnings with busness assets.

3. Industry average of return on assets ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 but in 2016, less than  Bega co. and higher than Bkackmore co. But overall a good industry ratio show their favourable situation of earnings from assets.

Retrun on Equity: Return on equity (ROE) is used to  calculate how many dollars of profit a company generates with each dollar of shareholders’ equity. ROE = Net Income/Shareholders’ Equity. A return on equity of 17% or 18% is considered very good and shows that company is using shareholders’ money efficiently.

1.Return on equity ratio of Bega co. is increasing in 2016 showing more revenues being earned through capital accquired by the shareholders.

2. Return on equity ratio of Bkackmore Co. is also increasing in 2016 showing more  returns being earned through capital accquired by the shareholders.

3. Industry average of return on equity ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both, showing efficient use of capital accquired by the shareholders is being done. But overall a good industry ratio show their favourable situation of earnings through capital injection in the industry.

* Solvency

Solvency Ratios are measure to describe the company’s ability to payoff it’s long term expenses.

Debt Ratio:A financial ratio that measures the company’s debt. The debt ratio is absorbs all the debts of company. It is interpreted as the proportion of a company’s assets that are financed by debt. Ratio of 15% or lower is healthy for business.

1. Debt ratio of Bega co. is decreasing in 2016 showing less debt being accquired by the company in 2016 that is quite favourable for the company.

2. Debt ratio of Blackmore Co. is also decreasing in 2016 showing less debt being accquired by the company in 2016 that is quite favourable for the company.

3. Industry average of debt ratio in compariosn with both companies is quite lower than Bega co. but higher than Blackmore co. in 2015 and higher than both companies in 2016 showing the level of debt being circulatee in the industry. But overall a good industry ratio show their favourable situation of businesses of industry as  low level of debt is accquired by the industry.  

Debt to equity Ratio: Debt/Equity Ratio is calculated by dividing a company’s total liabilities by its stockholders’ equity. The D/E ratio indicates how much debt a company is using to finance its assets in relation to the amount of value represented in shareholders’ equity. Lower debt ratio i.e. 0.4 or lower is considered healthy for business.

1. Debt to equity ratio of Bega co. is decreasing in 2016 showing minimization in  the volume of debt accquired in relation to equity of company. Minimizing the debt to equity ratio is quite favourable for the company.

2. Debt to equity ratio of Blackmore Co. is also decreasing in 2016 showing minimization in  the volume of debt accquired in relation to equity of company. Minimizing the debt to equity ratio is quite favourable for the company.

3. Industry average of debt to equity ratio in compariosn with both companies is quite higher than Bega co. and Blackmore co. in 2015 and in 2016, it’s higher than Bega co. but lower than Blackmore Co. showing the level of debt being circulated in the industry in relation to equity accquired. But overall a good industry ratio show their favourable situation of businesses of industry as low level of debt is accquired by the industry.  

Time Interest Earned Ratio:Times interest earned ratio or interest coverage ratio is a measure of a company’s ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest payable. A higher times interest earned ratio is favorable for business. It means that company is managing to pay off   debts efficiently. But ratio that is far above the industry average shows the misappropriation of earnings by the companies.

1. Time interest earned ratio of Bega co. is increasing with quite good figure in 2016 showing maximization in the capacity of company to pay off it’s debts. Maximization in the ratio is quite favourable for the company as it increase the capability to pay off.

2. Time earned intetest ratio of Blackmore Co. is also increasing immensely in 2016 showing showing maximization in the capacity of company to pay off it’s debts. Maximization in the ratio is quite favourable for the company as it increase the capability to pay off.

3. Industry average ratio of time interest earned ratio in compariosn with both companies is quite higher than Bega co. but lower than Blackmore co. in 2015 as well  as in 2016 showing the industry’s capability to pay off the debts efficiently. But overall a good industry ratio show their favourable situation of businesses of industry with good capacity to pay off debts effectively.   

5. Conclusion and Recommendations

The report concludes two companies i.e. Beega Cheese Limited and Blackmores Limited linked to the Consumer Staples Industry. Both companies are listed on Austalian Stock Exchange ASX. The report contains the brief introduction of all mentioned concepts with historical detail of both companies and financial overview of Consumer Staples Industry. Report demonstrates the list of micro and macro factors that affect the share price of company. Along with this, report absorbs the discussion that how the changing forecasted economic factors affect the performance of businesses. And the key financial measures and financial ratios affecting the business performance is also included in the report.  Bega Cheese Limited Company is performing quite well in terms of financial position and other relevant operations. Company is expanding the operations widely along maintenance of quality. Having good financial position and growing well. But company need to decrease the debt ratio in order to obtain more profits and  increase the acid test ratio as it is very low , it must be minimum 1.  The ROA and ROE of company is also not too much high along with time interest earned ratio. These ratios also need to be increased. Bkackmores Limited company is also a widespread company having it’s operations in many geographical areas with maintained quality. Company is enjoying good financial health along with satisfaction of shareholders and refine corporate social responsibility towards society. Company needs to increse it’s acid test ratio upto 1 and maintain the working capital wiyh high figures. Company need to increase the return on assets as it is a source of earning of company.

6. References

Kurihara, U. (2006). The Relationship between Exchange Rate and Stock Prices during the Quantitative Easing Policy in Japan. International Journal of Business ,  11(4), 375-386.

Docking, S. (2005). Sensitivity of Investor Reaction to Market Direction and Volatility: Dividend Change Announcements. Journal of Financial Research, 28 (1), 21-41.

Al-Qenae, (2002).The Information Co Earnings on Stock Prices: The Kuwait Stock Exchange. Multinational Finance Journal , 6(3&4),197-221.

Ilyas, S. (2014). Macroeconomic factors do influencing stock price: A case study on Karachi Stock Exchange . Journal of Economics and Sustainable Development , 5(7).

http://www.asx.com.au/listings/listing-with-asx/listing-requirements.html
https://www.asx200list.com
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml?tab=investments&sector=30
https://www.begacheese.com.au/investors/
https://www.blackmores.com.au/about-us/company-information/about-blackmores
http://yourbusiness.azcentral.com/economic-factors-affecting-businesses-4557.html
http://www.theaustralian.com.au/business/economics/house-borrowing-splurge-to-fuel-economic-shock/news-story/74b050768de079d8c000bf23ba6daab5
http://www.smh.com.au/business/markets/currencies/australian-dollar-explainer-why-is-it-falling-20150708-gi7ida.html
https://www.businessinsider.com.au/australia-low-inflation-2015-12
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AUSTRALIAN AGRICULTURAL COMPANY LIMITED (AACO)-Answer

HI5001 – AUSTRALIAN AGRICULTURAL COMPANY LIMITED (AACO) Name Course Tutor University City/State EXECUTIVE SUMMARY Australian Agricultural Company Limited (AACo) is world leader in production of agricultural products and beef. The company is also the largest beef producer of Australia. Financial statements analysis has revealed that AAC has excessive liquidity. Increase in non-current assets could be taken a plus point and sign of growth which will attract more investors towards AACo. There were not any changes in contributed equity which implies that there was not any new issue of contributed equity. Increase in retained earnings is equal to increase in net profit for the year which tells that the company did not distributed any dividends. Increase in total operating revenues for AACo shows that the company is focusing more on sales of meat or the company has better sales and marketing management of meat in comparison to live cattle sales. The reason behind the increase in net increase in cash during the year 2016 is that the increase in net cash flow from operating activities was greater than the decrease in financing and investment activities due to improvement in cash management in relation to operating activities and less focus on expansion and growth. It is recommended that the company should do proper and effective liquidity management so that it could invest the spare funds in useful schemes and would earn profits rather than just total wasting. AACo must increase its focus on sales of cattle and controlling of labour and material costs for cattle. TABLE OF CONTENTS
  1. Statement of Financial Position. 5
  2. Stockholders’ Equity. 6
  3. Statement of Profit & Loss. 7
  4. Statement of Cash Flow.. 8
CONCLUSION.. 11 RECOMMENDATIONS.. 13 REFERENCES.. 14 INTRODUCTION Australian Agricultural Company Limited (AACo) is world leader in production of agricultural products and beef. The company is also the largest beef producer of Australia. It was established in 1824. (aaco.com.au, 2016) Initially the company was established in Colony of New South Wales as land Development Company with the help of British Parliament’s Crown Grant. In 1831, the company imported shorthorn bulls from England. Despites depressions and droughts n the region, its cattle stock increased continuously. Throughout the World War I, due to shortage of labour for wool production, the company shifted its focus from sheep to cattle production and gradually moved towards Queensland and Northern Territory till 1921. (aaco.com.au, 2016) AACo became a specialized cattle company till the end of World War II. To upgrade the Shorthorn herds, the company introduced Santa Gertrudis cattle during the 1950s. The company spread its business to the Gulf region where it introduced Braham cattle during 1980s. In Queensland, the company formed and developed Goonoo in 1990. (aaco.com.au, 2016) The company also established feedlot having a capacity of 17,500 in 1994. In order to ensure higher growth rates, in the same year the company purchased another breeding station located in Austral Downs, Northern Territory which resulted in specialization in cattle production. Further to ensure the higher growth, the company made purchase of Westholme herd which is considered as a significant move towards Wagyu breed. Livingstone Beef processing plant was commissioned by the company in 2014 which is considered as essential part of supply chain of the company and to export markets it has close proximity. (aaco.com.au, 2016) To satisfy the demands of domestic and foreign markets, the company is currently focusing on premium beef production. According to an estimate, the company is feeding about one million people daily. The company is continuously diversifying its operations into integrated agribusiness vertically. (aaco.com.au, 2016) This report is divided into three main sections; financial statement analysis, conclusion, and recommendations.

A. Statement of Financial Position

Particulars20162015%
$000$000
Total current assets             309,901         280,58610%
Total non-current assets         1,073,218         933,50515%
Total current liabilities               49,558           57,632-14%
Total non-current liabilities             447,425         394,16114%
Total shareholders’ equity             886,136         762,29816%
Source: (aaco.com.au, 2016) If compare the total current assets of AACo, there is an increase of 10% in year 2016 in comparison to previous year. Increase in current assets results in better liquidity situation for the company. (Brealey, 2012) In this case the increase in current assets will result in improvement for liquidity situation for AACo. Sufficient liquidity is necessary for smooth running of daily business operations. However, too much increase in liquidity or having extra liquidity can cause spare funds to be tied into spare current assets which is waste of spare assets and cause opportunity costs for the company. (Brealey, 2012) Above table shows that there was 14% decrease in current liabilities. Decrease in current liabilities requires fewer current assets in order to maintain sufficient liquidity. However, AACo’s liquidity position has improved excessively which is total waste of extra money and cause opportunity cost for AACo. (Brealey, 2012) The company witnessed an increase of 15% in the current year. Non-current assets produce revenues for a company especially for production companies. Investment in non-current assets is considered as a positive sign for production companies therefore, increase in non-current assets could be taken a plus point and sign of growth which will attract more investors to the company. (Ross, 2008) Same as the non-current liabilities, the company also witnessed an increase in its non-current liabilities. Increase in non-current liabilities for AACo is an indication that the company invested in its non-current assets. This increase is most likely due to increase in long-term debts.  (Ross, 2008) Increase in non-current liabilities or debts increase in cost of capital or increase in interest expenses. Increase in interest expenses has two different implications. One is that it will decrease in profits and the decrease in profits available for distribution as dividend to shareholders. Decrease in profits could discourage prospect investors.  (Ross, 2008) The other implication is that there will be decreased profits which will decrease tax expenses for the company. Second implication is beneficial for those companies which are looking to pay taxes and tend to retain profits in the business instead of distributing to shareholders. However, increase in interest expenses for AACo is not a positive sign.  (Ross, 2008) In terms of shareholder’s equity, the company witnessed an increase of 16%. During the year ended March 31st 2016, the company witnessed increase in its non-current liabilities by 14% and 16% in shareholders equity which shows that the company is growing and needed funds.  (Ross, 2008) Moreover, the company is almost equally relying on debt and equity to fulfill its financing needs. However, if compare the total amount of equity with total amount of non-current liabilities, AACo is depending lot more on equity. There is no ideal capital structure, however, 50:50 debt and equity ratio is considered as a good capital structure. (Brealey, 2012) But, AACo is depending lot more on equity. Depending more on equity has two implications for AACo. First, it will result in less interest expenses which have again two implications vice versa to the situation discussed above.  (Ross, 2008) The second implication is that AACo will have to pay extra dividends which will be not beneficial if AACo follows dividend payment policy on continuous basis. (Van & Wachowicz, 2004)

B. Stockholders’ Equity

Particulars20162015%
$000$000
Contributed equity             461,213         461,2130%
Reserves             366,085         310,05418%
Retained earnings               58,838           (8,969)756%
Source: (aaco.com.au, 2016) It is evident from the above table that there were not any changes in contributed equity which implies that there was not any new issue of contributed equity.  (Ross, 2008) However, there was increase in reserves and retained earnings. Increase in retained earnings is equal to increase in net profit for the year which tells that the company did not distributed any dividends. (Warren, 2013) Payment of dividends improves reputation of a company and attract investors especially the one who look for regular dividend payments. (Brealey, 2012) However, the other side of the picture is that if the company did not pay the dividend and retained the profits within business, it will help a business achieving growth. (Van & Wachowicz, 2004) Overall, increase in retained earnings has two implications for AACo; it will help in achieving growth but will discourage those investors who look for dividend payments.

C. Statement of Profit & Loss

Particulars 20162015%
$000$000
Total (operating) revenues             763,934         548,06839%
Cost of Goods Sold             524,843         407,76129%
Total expenses (before income taxes)             152,190         140,7118%
Earnings per common share (Basic)                    12.7                  1.8606%
Source: (aaco.com.au, 2016) According to above table, AACo witnessed an increase of 39% in total operating revenues which is a healthy sign. (Brealey, 2012) This increase is due to increase in meat sales. Even though there was decrease in live cattle sales but the decrease was less than the increase in meat sales. (aaco.com.au, 2016) This shows that the company is focusing more on sales of meat or the company has better sales and marketing management of meat in comparison to live cattle sales. (Brealey, 2012) The other component which is given in the above table is cost of goods sold or CGS. Like the total operating revenues, the company witnessed an increase in CGS which was expected. (aaco.com.au, 2016) Breakup of the CGS tells that there was increase in CGS of meat which again was expected but the point of concern for the company is increase in cattle expenses which could be on account of bad cattle management or increase in cost of material and labour used for cattle. (Van & Wachowicz, 2004) Next section in the above table is total expenses before income taxes. There was increase of 8% in year 2016. This increase is mainly due to increase in expenses such as employee expenses and depreciation and amortization. (aaco.com.au, 2016) Increase in employee expenses could be due to increases in payment amounts to existing employees or due to induction of new employees. (Brealey, 2012) On the other hand, increase in depreciation and amortization could be due to purchase of new assets which is again a sign of expansion and growth and could attract investors. (Ross, 2008)  The last section in the above table is earning per share (EPS). The EPS increase about 6-folds in comparison to previous year which is again will attract new investors. (Brealey, 2012)

D. Statement of Cash Flow

Particulars 20162015%
$000$000
Net cash flow from operating activities               21,789         (75,881)129%
Net cash flow from financing activities                        –           85,289-100%
Net cash flow from investing activities             (19,415)         (66,317)71%
Net increase (decrease) in cash during the year               14,659           12,28519%
Source: (aaco.com.au, 2016) In the above table the first figure which is presented is net cash flow from operating activities. According to above table, AACo witnessed increase in cash flow from operating activities in year 2016 which means the cash inflow from operating activities increased than the cash outflow from operating activities. (Brealey, 2012)  Last year, the cash flow from operating activities was negative which means the outflow exceeds than the inflow of cash from operating activities. Net cash flow from operating activities was negative in previous year while it is positive in year 2016. This improvement is an encouraging sign for the financial executives of AACo as the positive cash flow from operating activities suggests that the company can easily meet its operating cash requirements in coming years. (Penman, 2001) Net cash flow from financing activities compares cash out flow to financing sources and inflow from financing activities. As for the net cash flow from financing activities of AACo is concerned, the company had to sustain 100% decrease in net cash flow. The company had “0” net cash flow from financing activities which tells that cash inflow from financing activities was equal to cash outflow to financing activities. There is very rare scenario where cash inflow from financing activities equals to cash outflow to financing activities. (Brealey, 2012) However as mentioned, the company witnessed a decrease of 100% in net cash flow which tells that the company made extra payments towards debts.  This could be due to repayment of debts, extra interest expenses, or less inflow from debts or other financing sources such as issuance of new shares. (Van & Wachowicz, 2004) If, financing activities section of the cash flow statement of AACo is analyzed in detail, in year 2016 the company did not have any proceeds from issue of shares where there were 460 thousand dollars revenue from issue of new shares in year 2015. (aaco.com.au, 2016) The other factor which caused decrease in net cash flow from financing activities is decrease in proceeds from borrowing which decreased to 25000 thousand dollars from 84,829 thousand dollars. (aaco.com.au, 2016)Yet another underlying reason in decrease in net cash flow from financing activities is due to repayment of borrowings, amounting to 25,000 thousand dollars. (aaco.com.au, 2016) Even though there was decrease in net cash flow from financing activities but there is healthy sign for the company. Despite there was not any proceeds from issuance of new shares and from new borrowing, the company paid 25,000 thousand dollars towards repayment of loan which shows ability of the company to satisfy its obligations. (Brealey, 2012) As for the net cash flow from investment activities is concerned, it compares cash inflow from investment activities to cash outflow to investment activities. As for net cash flow from investment activities for AACo is concerned, there was improvement. Despite cash flow from investment activities improved 71% in years 2016 it was still negative like the previous year which tells us that outflow from investment activities was greater than inflow from investment activities. (Brealey, 2012) Main reason behind negative net cash flow in both years is payments for property, equipment, plan and other assets. On the other hand, improvement in net cash flow investment activities in current year in comparison to previous year is due to decrease in payment for property, equipment, plan and other assets. (aaco.com.au, 2016) Even though the company had less proceeds from sales of property, equipment, and plant but yet this decrease was less than decrease in payments towards the property, equipment, etc, therefore, there was improvement of 71% in net cash flow from investment activities. (aaco.com.au, 2016) Decrease in payments towards property, equipment, etc is an indication that the company has changed its policy in terms of capital expansion and it is also indication of less growth for the company which is not a healthy sign from investors’ point of view. (Brealey, 2012) At the end, there was increase in net cash flow operating activities and decrease in net cash flow from financing and investment activities in comparison to previous year. Overall, there was increase of 19% in net increase in cash during the year in 2016 in comparison to previous year. Reason behind the increase is that the increase in net cash flow from operating activities was greater than the decrease in financing and investment activities due to improvement in cash management in relation to operating activities and less focus on expansion and growth. (Brealey, 2012) CONCLUSION Too much increase in liquidity can cause spare funds to be tied into spare current assets which is waste of spare assets and cause opportunity costs for AACo which have excessive liquidity due to increase in current assets and decrease in current liabilities. (Van & Wachowicz, 2004) Investment in non-current assets is considered as a positive sign for production companies; therefore, increase in non-current assets could be taken a plus point and sign of growth which will attract more investors towards AACo. (Brealey, 2012) On the other hand increase in non-current liabilities is most likely due to increase in long-term debts. Increase in non-current liabilities or debts increase in cost of capital or increase in interest expenses. (Ross, 2008) Increase in interest expenses has two different implications. One is that increase in interest expenses will decrease in profits and the decrease in profits available for distribution as dividend to shareholders. (Brealey, 2012) Decrease in profits could discourage prospect investors. The other implication of increase in interest expenses is that there will be decreased profits which will decrease tax expenses for the company. (Ross, 2008) Second implication is beneficial for those companies which are looking to pay taxes and tend to retain profits in the business instead of distributing to shareholders. However, increase in interest expenses for AACo is not a positive sign. Extra dependence will have vice versa consequence of the above. (Brealey, 2012) There were not any changes in contributed equity which implies that there was not any new issue of contributed equity. Increase in retained earnings is equal to increase in net profit for the year which tells that the company did not distributed any dividends. (Ross, 2008) Overall, increase in retained earnings has two implications for AACo; it will help in achieving growth but will discourage those investors who look for dividend payments. (Ross, 2008) Income statement or Statement of Profit & Loss is a very important financial statement. It contains significant amount of information and facts about operational performance of a company. Increase in total operating revenues for AACo shows that the company is focusing more on sales of meat or the company has better sales and marketing management of meat in comparison to live cattle sales. (Ross, 2008) Breakup of the CGS tells that there was increase in CGS of meat which again was expected but the point of concern for the company is increase in cattle expenses which could be on account of bad cattle management or increase in cost of material and labour used for cattle. (Brealey, 2012) Increase in expenses is mainly due to increase in expenses such as employee expenses and depreciation and amortization. Increase in employee expenses could be due to increases in payment amounts to existing employees or due to induction of new employees. (Van & Wachowicz, 2004) On the other hand, increase in depreciation and amortization could be due to purchase of new assets which is again a sign of expansion and growth and could attract investors. So much improvement in EPS is on account of better management, increase in sales, controlling CGS and expenses which are all healthy and positive signs. (Ross, 2008) Comparative analysis of the cash flow statement of AACo will help in holding clues about its liquidity, risk and earning potential. It will also provide information about repeatability of sources of funds and costs of AACo and whether in the future these sources can be relied upon. (Van & Wachowicz, 2004) Improvement in net cash flow from operation activities is an encouraging sign for the financial executives of AACo as the positive cash flow from operating activities suggests that the company can easily meet its operating cash requirements in coming years. (Brealey, 2012) Decrease in net cash flow from financing activities could be due to repayment of debts, extra interest expenses, or less inflow from debts or other financing sources such as issuance of new shares. Despite there was not any proceeds from issuance of new shares and from new borrowing, the company paid 25,000 thousand dollars towards repayment of loan which shows ability of the company to satisfy its obligations. (Brealey, 2012) Improvement in net cash flow investment activities is due to decrease in payment for property, equipment, plan and other assets. (aaco.com.au, 2016) Decrease in payments towards property, equipment, etc is an indication that the company has changed its policy in terms of capital expansion and it is also indication of less growth for the company which is not a healthy sign from investors’ point of view. (Van & Wachowicz, 2004) At the end reason behind the increase is that the increase in net cash flow from operating activities was greater than the decrease in financing and investment activities due to improvement in cash management in relation to operating activities and less focus on expansion and growth (Ross, 2008) RECOMMENDATIONS
  • Too much increase in liquidity can cause spare funds to be tied into spare current assets which is waste of spare assets and cause opportunity costs for AACo which have excessive liquidity due to increase in current assets and decrease in current liabilities. (Van & Wachowicz, 2004) The company should do proper and effective liquidity management so that it could invest the spare funds in useful schemes and would earn profits rather than just total wasting. (Van & Wachowicz, 2004)
  • Increase in non-current liabilities is most likely due to increase in long-term debts. Increase in non-current liabilities or debts increase in cost of capital or increase in interest expenses. Increase in interest expenses for AACo is not a positive sign; therefore, AACo must minimize its dependence on debt to financing business operations. (Brealey, 2012)
  • Increase in retained earnings has two implications for AACo; it will help in achieving growth but will discourage those investors who look for dividend payments. Therefore, the company must ensure that it distribute some amount of dividend each year. (Ross, 2008)
  • Increase in total operating revenues for AACo shows that the company is focusing more on sales of meat or the company has better sales and marketing management of meat in comparison to live cattle sales. Moreover, breakup of the CGS tells that there was increase in cattle expenses which could be on account of bad cattle management or increase in cost of material and labour used for cattle. AACo must increase its focus on sales of cattle and controlling of labour and material costs for cattle. (Brealey, 2012)
REFERENCES aaco.com.au, 2016. Investors & Media. [Online] Available at: http://aaco.com.au/investors-media/annual-reports/# [Accessed 19 September 2016]. aaco.com.au, 2016. Our History. [Online] Available at: http://aaco.com.au/about-us/our-history/ [Accessed 17 September 2016]. ACCA, 2005. Financial Management and Control. 1st ed. London: BPP Publishing Company. ACCA, 2007. Financial Management. London: BPP Publishing Company. accountingcoach.com, 2012. Financial Ratios. [Online] Available at: http://www.accountingcoach.com/financial-ratios/explanation [Accessed 15 Augustus 2016]. Brealey, R.A..M.S.C..A.F..&.M.P., 2012. Principles of corporate finance. [Online] Available at: https://books.google.com.pk/books?hl=en&lr=&id=XMGjAgAAQBAJ&oi=fnd&pg=PR1&dq=finance+&ots=rj_Shl8UxP&sig=T1maojtlVyqduhne93d3MFOnk_8#v=onepage&q=finance&f=false [Accessed 15 Augustus 2016]. demonstratingvalue.org, 2013. Financial Ratio Analysis. [Online] Available at: http://www.demonstratingvalue.org/resources/financial-ratio-analysis [Accessed 15 Augustus 2016]. Eshna, 2012. Financial Risk and Its Types. [Online] Available at: http://www.simplilearn.com/financial-risk-and-types-rar131-article [Accessed 08 April 2016]. Healy, P.a.P.K., 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning. Lee, A.C..L.J.C.a.L.C.F., 2009. Financial analysis, planning & forecasting: Theory and application. World Scientific. myaccountingcourse.com, 2014. Financial Accounting. [Online] Available at: http://www.myaccountingcourse.com/accounting-basics/financial-accounting [Accessed 15 June 2016]. myaccountingcourse.com, 2014. Financial Ratio Analysis. [Online] Available at: http://www.myaccountingcourse.com/financial-ratios/ [Accessed 15 Augustus 2016]. Orlitzky, M..S.F.L..&.R.S.L., 2003. Corporate social and financial performance: A meta-analysis. Organization studies, pp.403-41. Penman, S.H.a.P.S.H., 2001. Financial statement analysis and security valuation. New York: McGraw-Hill/Irwin. Putra, L.D., 2009. ANALYSIS OF THE STATEMENT OF CASH FLOWS [WITH CASE EXAMPLES]. [Online] Available at: http://accounting-financial-tax.com/2008/09/analysis-of-the-statement-of-cash-flows-with-case-examples/ [Accessed 19 September 2016]. Putra, L.D., 2009. INCOME STATEMENT ANALYSIS [WITH CASE EXAMPLE]. [Online] Available at: http://accounting-financial-tax.com/2009/06/income-statement-analysis-with-case-example/ [Accessed 19 September 2016]. Ross, S.A..W.R..&.J.B.D., 2008. Fundamentals of corporate finance. [Online] Available at: https://books.google.com.pk/books?hl=en&lr=&id=Rlw1ibgjpVwC&oi=fnd&pg=PA2&dq=finance+&ots=jJLIi_sLcU&sig=XYF-F7tIFfniHK2NkB0DPlc-mjo#v=onepage&q=finance&f=false [Accessed 15 Augustus 2016]. Van, H.C. & Wachowicz, M., 2004. Fundamentals of Financial Management. New York: McGraw Hill Publishing Company Limited. Vietz, O., 2015. Five Ways to Manage Financial Risk. [Online] Available at: http://smallbusiness.chron.com/five-ways-manage-financial-risk-4564.html [Accessed 05 April 2016]. Warren, C.S., 2013. Financial and managerial accounting. Cincinnati: South-Western. Women24, 2015. 5 ways to deal with financial risk. [Online] Available at: http://www.women24.com/CareersAndMoney/Money/5-ways-to-deal-with-financial-risk-20111117 [Accessed 05 April 2016].
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Principals of Financial Markets-Answer

Telecommunication services industry australia
Principals of Financial Markets
HA1022
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 Fundamental analysis of the Telecommunication service industry of Australia and two ASX listed companies of telecommunication service industry. First company is Telstra Corporation Limited and second company is the Vocus Communications Limited.
Table of Contents Executive Summary: 4 Introduction: 5 Telstra Corporation Limited: 5 History: 5 Mission Statement: 6 Vocus Communications Limited: 6 History: 6 Mission Statement: 7 Top-down Analysis: 8 Macro Economic Factors: 8 GDP: 8 GDP Growth rate: 9 Exchange Rate: 10 Inflation Rate: 10 Interest Rate: 11 Unemployment Rate: 12 Bottom-up Analysis: 13 Telstra Corporation Limited: 13 Share price: 13 Earnings per share: 13 Dividend per Share: 13 Current Ratio: 14 Net Profit Margin: 14 Vocus Communications Limited: 15 Share price: 15 Earnings per share: 15 Dividend per Share: 15 Current Ratio: 16 Net Profit Margin: 16 Summary and Recommendations: 17 References. 18

Executive Summary:

This assignment includes the fundamental analysis of the Telecommunication service industry of Australia and two ASX listed companies of telecommunication service industry. First company is Telstra Corporation Limited and second company is the Vocus Communications Limited. Conduct a fundamental analysis of these companies of telecommunication services industry of Australia as well as the overall economy of Australia. For the purpose of fundamental analysis two approaches are used top-down analysis and bottom-up analysis. Top-down analysis is started from global markets to specific company while bottom-up analysis is started from the specific company rather than economy as a whole. Different types of economic fundamentals in Australian economical environment such as GDP, Exchange rate, Inflation, and Interest rate etc are analyzed and relate them to the specific industry of telecommunications and specific companies of telecom Telstra Corporation Limited and Vocus Communications Limited. The EPS and different other ratios are analyzed to conduct a bottom-up fundamental analysis of telecommunications selected companies.

Introduction:

This assignment includes the fundamental analysis of the Telecommunication service industry of Australia and two ASX listed companies of telecommunication service industry. First company is Telstra Corporation Limited and second company is the Vocus Communications Limited. Telecommunications means ways of communication with others people in large distances of the world by using different types of technologies like television, internet, telephones, computers, and mobiles. Fundamental analysis exploits the expected interest rates, dividend and earnings of a company to establish share prices properly and accomplish the future performance of the company that is not predictable by the market. Fundamental analysis trying to find out the items that effect the operations of a company and analyze different factors that influence the changes in the value of the company ultimately affects the share price of the company. We have to conduct a fundamental analysis of these companies of telecommunication services industry of Australia as well as the overall economy of Australia. For the purpose of fundamental analysis two approaches are used top-down analysis and bottom-up analysis. Top-down analysis is started from global markets to specific company while bottom-up analysis is started from the specific company rather than economy as a whole.

Telstra Corporation Limited:

History:

Telstra Corporation Limited or Telstra is largest telecommunications organization of Australia which operates in various telecommunications networks like television, mobile, internet access, voice services etc and a competitor of all telecom organizations. The word Telstra is made from the combination of Telecommunication Australia Telecommunication (TEL) and Australia (STRA). Telstra Corporation Limited is a telecommunications company which has its headquartered in Melbourne, Australia. In 1995 Australian Telecommunication started working with the brand name of Telstra before 1995 it is working as a name of Telecom Australia. Telstra is an international brand and working its business operations over 22 countries of the world. In Australia Telstra have 17.2 million of mobile services, 7.0 million of fixed voice communication services and 3.4 million of retail broadband services. In the 21st Century with the fast growth of telecommunication sector there are lots of opportunities to connect governments, businesses, individuals and communities So, Telstra telecommunications Services Company provide help to customers to improve their life and workplace through connections.

Mission Statement:

A mission statement is defined as summary of the organization values and aims. What is the purpose of the business and what are the reasons of existence of the business in operations. Telstra Corporation Limited believe to connected more people of the world together by availing all the opportunities they have they also believe to “create a brilliant connected future for everyone” and for the achievement of this build content solutions and technology revolutions and have a fastest and largest mobile network as well as other communication services.

Vocus Communications Limited:

History:

Vocus Communications Limited started its operations in Australia in March 2008 and is a national telecommunications company of Australia its headquartered in situated in Sydney, Australia. Vocus is deals with the business telecommunications and operates in the Network services of Data such as Internet, fibre network, Telephony, WAN etc and Vocus acts as wholesaler of the telecom services provider. Merger of Vocus with Amcom is take place in 2015 and with M2 Group in February 2016. As a result of these mergers Vocus become fourth largest telecommunications company of Australia. Vocus Communications limited is considered as one of the top growing companies of Australia and earn 5 billion dollar in a short period of only 8 years. Vocus Communications Limited  now have fibre optic cable 11,000 km throughout Australia and  about 3000 buildings on-net connected to vocus networks.

Mission Statement:

Vocus Communications limited is believed “to build a telco for people like us” and they also believe to treat with their customers in positive manners by providing them awesome services. They operate in telecoms networks which always grow, expand and improve to meet the future requirements of their customers. Vocus Communications limited work very hard to provide reliable, high-performance and secure network solutions to their customers.

Top-down Analysis:

Top-down analysis is defined as the analysis in which investors’ initially examine the global markets and macro-economic factors like inflation, GDP, exchange rates, and interest rates, etc and afterward narrowing their analysis to the industrial factors like foreign competition,  sales, price, effects of substitutes etc and lastly to the individual company of the industry.

Macro Economic Factors:

Australian Macro-economic factors are the key to analysis the fundamentals of finance in top down analysis approach some of the macro economic factors and their impact on the telecommunications services industry of Australia and on companies listed in ASX Telstra corporations Limited and Vocus Communications Limited is discussed in details below.

GDP:

Gross domestic product or GDP, is defined as a measure of the economy of a country’s total goods and services production. If GDP of a country is growing rapidly it indicates that there are sufficient opportunities for a company to enhance its sales. The GDP of Australia for the 2016 is 1340 billion US dollars and last 10 years GDP per capita income is showed in the figure below. Source: Tradingeconomics.Com/ World Bank The share of telecommunications services industry in GDP of Australia is 23175 million AUD for the June 2016 and because Telstra is leading brand of Australia and Vocus is forth largest communication organization so it also contributes a great amount in the GDP of the country.

GDP Growth rate:

GDP growth rate is a gross domestic growth rate of a country which tells us about the economy’s total goods and services production and consumption rate of a country. In the economy of Australia GDP growth rate for June 2016 is 0.5% which 1.0% less than the previous quarter of 2015 0.6% percent growth rate which represents net trade decrease while investment have no change and final consumption is stable. The GDP growth rate of previous years is showed in the figure below: Source: Tradingeconomics.Com/ Australian Bureau of Statistics Telecommunications services industry of Australia is become a great industry with the change and quick revolutions of technology GDP Growth rate share of this industry has great importance in the economy of the Australia.

Exchange Rate:

Exchange rate refers to the rate of domestic currency which can be or is converted into foreign currency. Exchange rate of US dollar for one Australian dollar is 0.75 as per 16 September 2016. The Australian Exchange rate with other countries is as under:
Currencies of various countriesOne Australian DollarInverse Exchange rates
USD0.750191.333
EUR0.668411.4961
GBP0.56861.75869
INR50.24270.0199
NZD1.027540.9732
THB26.17740.0382
MYR3.099360.32265
SGD1.02340.97713
JPY76.49420.01307
Source: http://www.xe.com/currency/aud-australian-dollar Retrieved 2016-09-16 10:01 UTC Telstra corporations limited not only operate in the country of Australia but also 22 other countries of the world that’s why exchange rate has great impact on the company as well as the whole industry.

Inflation Rate:

Inflation refers to the rate where the general prices level rise. High inflation rates are not considered good in economies because if the equilibrium of the economy is not maintained accordingly and demand of goods and services exceed from the supply of goods and services the prices have upward pressure and ultimately the prices rise and inflation rate increase. Consumer prices and inflation rate in Australia increase 1.0% percent up to June 2016 due to which GDP deflates. The inflation rate of Australia for previous years is showed in the figure below. Source: Tradingeconomics.Com/ Australian Bureau of Statistics High inflation rates are not considered well in economies so, if the rate increases the telecommunication services sector of Australia suffers lot of problems related to the financial circumstances.

Interest Rate:

High interest rates of the country decrease investment opportunities because due to high interest rate reduced the value of cash. In Australia, interest rates are decided by the Board of Australian Reserve Bank. The official interest rate of Australia is cash rate. The cash rate is defined as the rate charged on the loans between financial intermediaries. The interest rate is decided 1.5% percent in the meeting of Reserve Bank of Australia held on 6th September 2016. The interest rates of pervious years of Australia are shown in the figure below. Source:www.tradingeconomics.com/australia unemployment-rate If there is low interest rate the demand of domestic products increase and the lower exchange rate helps the trading sector of a country to grow. High interest rates of the country decrease investment opportunities so telecommunications industry of Australia and companies working in this industry perform better in low interest rate of the country.

Unemployment Rate:

The unemployment rate refers to as the percentage of individuals of a country that are capable of doing the job but still not working it indicates the strength of a country’s economy. Australia’s unemployment rate fell to 5.6% in August 2016 from 5.7% in July 2016. Other detail of the unemployment rate of previous years is demonstrated in figure Source:www.tradingeconomics.com/australia unemployment-rate Unemployment rate of Australia has also impact the operations of telecommunications industry as well as other industries of the country.

Bottom-up Analysis:

Bottom-up analysis is defined as the analysis in which investors’ initially examine specific company regardless of the whole industry and economy of a country or global market. In short, bottom-up analysis is totally opposite to the top-down analysis (Kaliva and Koskinen, 2008).

Telstra Corporation Limited:

Bottom-up fundamental analysis of the Telstra corporations Limited is analyzed by calculating the different terms and ratios like, share prices, Earnings per share, Dividend per share and dividend yield, Current ratio etc.

Share price:

According to ASX officials website Share prices of Telstra Corporation Limited are $5.10 per share as per the day end 16 September 2016 with a positive movement of 0.08 (1.58%) and within 1 year it have a range from ($4.92 to $5.86) the 1 year return of the Telstra Corporation Limited is -6.93%. When Telstra is privatized in 2010 its shares price was only over $2. Telstra shares price is increased to $5 per share in 2013 and $6 in 2014.

Earnings per share:

Earnings per share mean profit after tax divided by weighted average of ordinary shares. EPS of Telstra Corporation Limited for the financial year ended June 2016 is 0.474 as calculated below which is greater than the previous financial year 2015 was 0.345

Dividend per Share:

Dividend per share is defined as the specific percentage of amount paid to the shareholders of a company against the possession of each share. It is calculated as dividend divider by the weighted average of the ordinary shares. Telstra corporations Limited divided per share is $0.31 per share as per the financial year ended June 2016 on ordinary shares of ($1,893 million) which will be paid to the shareholders on 23 September 2016. Dividend yield of the Telstra corporations Limited is 6.18% in the financial year ended on June 2016 (Jacoby and Zheng, 2010).

Current Ratio:

Current ratio means the current assets which are easily convertible into cash divided by the current liabilities and Current ratio evaluate the overall liquidity of the Telstra corporations’ limited company for the financial year ended 2016 is 1.01 while in 2015 it was 0.85. This indicates a positive trend considering liquidity. However, the company cannot meet the benchmark of “2” still it is considered that the company more assets to meet its obligations of current liabilities (Jacoby and Zheng, 2010)

Net Profit Margin:

The ratio of net profit margin describes that the income before interest and tax paid divided by the net sales of the company. The ratio of net profit margin for Telstra corporation limited is 0.40 for the financial year ended June 2016 and in 2015 it was 0.41 the difference of profitability of the company is minimal because it is leading company of Australian telecommunications services that’s why the chances of growth in this company are not high (Zarowin, 1990). Above terms and calculations are helpful for the fundamental bottom-up analysis of the Telstra corporation limited the overall analysis shows that the company is a growth company due to the rapid changes in technology day by day while Telstra is a leading company of Australian telecommunications network so the chances of growth are less in the Testra communications limited (Giot, 2003).

Vocus Communications Limited:

Bottom-up fundamental analysis of the Vocus Communications Limited is analyzed by calculating the different terms and ratios like, share prices, Earnings per share, Dividend per share and dividend yield, Current ratio etc (Deo Kodwani, 2006).

Share price:

According to ASX officials website Share price of Vocus communications Limited are $7.12 per share as per the day end 16 September 2016 with a positive movement of 0.11 (1.57%) and within 1 year it have a range from ($5.55 to $9.41) the 1 year return of the Vocus communications Limited is 15.99%

Earnings per share:

Earnings per share mean profit after tax divided by weighted average of ordinary shares. EPS of Vocus Communications Limited for the financial year ended June 2016 is 0.189 as calculated below which is greater than the previous financial year 2015 was 0.153

Dividend per Share:

Dividend per share is defined as the specific percentage of amount paid to the shareholders of a company against the possession of each share. It is calculated as dividend divider by the weighted average of the ordinary shares. Vocus Communications Limited divided per share is $0.156 per share as per the financial year ended June 2016 on ordinary shares of the company. Dividend yield of the Vocus communications Limited is 2.23% in the financial year ended on June 2016 (Christodoulakis and Mamatzakis, 2013).

Current Ratio:

Current ratio means the current assets which are easily convertible into cash divided by the current liabilities and Current ratio evaluate the overall liquidity of the Vocus communications limited company for the financial year ended 2016 is 1.02 while in 2015 it was 2.12. This indicates a negative trend to the liquidity of Vocus Communications limited. However, the company meets the benchmark of “2” in the financial year 2015 while the results of 2016 showed that the company should have more assets to meet its obligations of current liabilities.

Net Profit Margin:

The ratio of net profit margin describes that the income before interest and tax paid divided by the net sales of the company. The ratio of net profit margin for Vocus communications limited is 0.34 for the financial year ended June 2016 and in 2015 it was also 0.34. Above terms and calculations are helpful for the fundamental bottom-up analysis of the vocus communications limited the overall analysis shows that the company is a growth company due to the rapid changes in technology day by day while Vocus communications limited is a forth largest company of Australian telecommunications network so the chances of growth are more in the Vocus communications limited.

Summary and Recommendations:

It is concluded that the telecommunication services industry of Australia has a great contribution to the economy of Australia as the rapid change in the technology and the two companies listed in the ASX Telstra Corporation Limited and Vocus communications Limited gives great contribution to the growth of economy. Top-down approach represents as a creative approach for the fundamental analysis as it discuss the broad range of economic environment of a country like Australia as well as its comparison with other countries of the world yet it has some limitations because the assess to all fundamentals of the economy is very difficult and if the access is possible than it is an unlikely process to analyze and understand all terms of macro-economic at on one occasion. On the other hand the bottom-up analysis is one in which the experts or analysts investigate the company specific terms and compare it with the industry and economy it is somehow easy from the top-down analysis but there is still need to use both approaches of the fundamental analysis together to attain good results of analysis.

References

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