August 22, 2020

Write a background summary of your assigned company including the following

Part 1 – Introduction to Company Annual Report and Financial Statements

The purpose of part 1 is to begin your exploration of your company’s annual report and corporate governance structure.

Part 1 – Question 1: (related content – topic 2)

Write a background summary of your assigned company including the following:

· When and why did your company first commence operation?

· What is the main or core business of the company?

· Some companies are diversified and have investments in other industries, for example, Wesfarmers has diverse business operations that coversupermarkets, department stores, home improvement and office supplies; coal production and export; chemicals, energy and fertilisers; and industrial and safety products. Is your assigned company diversified? What industries does the company operate in?

· Does your assigned company operate solely within Australia or does it operate internationally? Identify the operational locations.

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Part 1 – Question 2: (related content – topic 2)

What are the headings and sub-headings of the discussion on corporate governance? Note, if not presented in the Company Annual Report, review the Company website.

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Part 1 – Question 3: (related content – topic 2)

What are the page references for the discussion on corporate governance? (Hint – try the table of contents at the beginning of the annual report or review the Company website.) Briefly list the information included in the company’s corporate governance report. Does this information differ from the corporate governance information covered in the content and required reading for topic 1?

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Part 1 – Question 4: (related content – topic 2)

What position was held and what was the composition and total remuneration of the highest paid board member? (Hint – try the Directors’ Report.)

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Part 1 – Question 5: (related content – topic 2)

How many “subsidiary companies” or “controlled entities” are in the group? (Hint; try looking towards the end of the financial statements, near the end of the report). Are the subsidiaries/controlled entities located domestically and or internationally? Identify where they are located. This will give insight into how widespread the company’s operations are and may assist you with your background information.

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Part 2 – Financial Statements

The purpose of part 2 is to not only introduce students to an actual set of financial statements of a publicly listed company, but to also identify information that may be significant for ratio analysis which will be conducted in Part 3. The financial statements are presented in the financial report section of the company’s annual report. For this section you may find it easier to refer to the Excel spreadsheets to obtain the financial data. The Excel spreadsheet will contain the financial information for the past 10 years; however, you will only need to refer the data for the past four years in your spreadsheet, (the past three years and the fourth may be required to create averages for some of the ratios in part 3). This will make it easier to refer to the financial data for several years in one excel worksheet.

Part 2 – Question 1 (Statement of Financial Position): (related content – topic 4)

What is the amount invested by the company in net assets for the current year? (Hint use total assets less total liabilities). How does this amount differ from the value of net assets for each of the previous three years? Can you identify any reason for the changes? (Hint: look at the individual amounts that make up both the total assets and total liabilities, are there any changes to individual items over this three-year period? Alternatively, you could perhaps look at the notes to the financial statements in the annual report to see if there are any changes in the breakdown of individual items in the reports.) Discuss.

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Part 2 – Question 2 (Statement of Financial Position): (related content – topic 4)

How much was the total equity for the current year? How does this differ from the total equity in each of the previous three years? Can you identify any reason if there are any changes? Discuss.

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Part 2 – Question 3 (Statement of Financial Position): (related content – topic 4)

How much was the total current assets for the current year and what are the components classified under this heading? Is there any difference in the value of total current assets for each of the previous three years? Can you identify any reason if there are any changes? Discuss. (Hint: you may need to refer to the notes to the financial statements in the annual report to review more detailed information.)

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Part 2 – Question 4 (Statement of Financial Position): (related content – topic 4)

What are the items listed under non-current liabilities? Are there any new non-current liabilities in the current year that were not there in the previous three years? (Hint: you will need to look in the notes to the accounts to see the breakdown of non-current liabilities).

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Part 2 – Question 5 (Statement of Profit or Loss ): (related content – topic 5)

How much was net profit for the current year? How does this compare to the net profit for each of the previous three years? Can you identify any particular revenues or expenses that may have led to changes in the profit figures over the three-year period? Discuss.

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Part 2– Question 6 (Statement of Profit or Loss ) (related content – topic 5)

Is the total revenue in the current year greater or less than the total annual revenue recorded in each of the previous three years? Discuss.

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Part 2 – Question 7 (Statement of Cash Flows): (related content – topic 6)

How much was the cash flows from operating activities for the current year? What was the largest inflow item and the largest outflow item in the operating activities section? Does this differ from the previous three years? Discuss.

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Part 2 – Question 8 (Statement of Cash Flows): (related content – topic 6)

How much was the cash flow from investing activities in the current year? Has the company had any new investing cash flows in the current year compared to the previous three years? If they did, list the activities (Hint: it may be necessary to look in the notes to the accounts).

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Part 2 – Question 9 (Statement of Cash Flows): (related content – topic 6)

What was the net change in cash flows in the current year? How does this change compare to the previous three years? Discuss.

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Part 3 – Financial Statement Analysis Tools

The purpose of part 3 is to introduce students to using financial statement analysis tools. Hopefully your answers to questions in part 2 may have flagged monetary differences that you can now compare based on percentages using ratio analysis. Ensure you include your calculations in your answer and more importantly, try and identify why percentage changes may have occurred. It is this analysis that is most important in this exercise, trying to identify “why” changes have occurred. The group should aim to incorporate the answers and calculations each member has prepared for their assigned company as supporting documentation for the comparative analysis of the companies in the appendix of the final submission. The more analysis provided in the answers to the questions in this workbook, the more information the group will have to draw on when preparing the comparative essay.

From the lecture Powerpoint slides – Performing ratio analysis you should answer the questions on the basis of:

1. Describe the change

2. Explain the change

3. Suggest a cause

Part 3 – Question 1 (Profitability): (related content – topic 7)

Can you identify a trend in the return on equity ratio over the past three years? Comment on the trend. Briefly discuss possible reasons for this trend.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 2 (Profitability): (related content – topic 7)

Has the Return on Assets changed over the past 3 years? What may have caused the change?

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 3 (Profitability): related content – topic 7)

Has the profit margin and gross profit margin, if applicable, changed over the past three years? Is this a good result for the company? Briefly discuss what the change indicates. (Hint: as mentioned above, refer to your horizontal and vertical analysis of the Statement of Profit or Loss and Statement of Financial Position to assist in your analysis of this ratio.)

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 4 (Asset efficiency): (related content – topic 7)

Identify if the asset turnover ratio increased or decreased over the past three years?Is this a good result for the company? Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 5 (Asset efficiency): (related content – topic 7)

The inventory turnover ratio is only applicable to retail businesses. If your assigned company is a retail business, has the Inventory turnover changed over the past three years? Is this a good result for the company? Briefly discuss what the change indicates. Note you might find it useful to also convert to the number of days.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 6 (Asset efficiency): (related content – topic 7)

Has the receivables turnover changed over the past three years? Is this a good result for the company? Briefly discuss what the change indicates. Note you might find it useful to also convert to the number of days.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 7 (Liquidity): (related content – topic 7)

Has the current ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 8 (Liquidity): (related content – topic 7)

Has the quick ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 9 (Liquidity): (related content – topic 7)

Has the cash flow (to current liabilities) ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 10 (Capital structure/Gearing): (related content – topic 7)

Has the debt to equity ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 11 (Capital structure/Gearing): (related content – topic 7)

Has the debt ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 12 (Capital structure/Gearing): (related content – topic 7)

Has the interest coverage ratio improved/declined over the 3 year period. Briefly discuss what the change indicates.

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 13 (Capital structure/Gearing): (related content – topic 7)

Has the debt coverage ratio changed over the 3 year period? Is this a positive / negative result for the company?

Describe the change:

Explain the change:

Suggest a cause:

Part 3 – Question 14 (Horizontal Analysis): (related content – topic 8)

Conduct a horizontal analysis of the Statement of Profit or Loss (Income Statement) for the past 3 years. Comment on any trends.

Perform horizontal analysis on the Statement of Profit or Loss to identify changes to support your ratio analysis

Part 3 – Question 15 (Horizontal Analysis): (related content – topic 8)

Conduct a horizontal analysis of the Statement of Financial Position (Balance Sheet) for the past 3 years. Comment on any trends.

Perform horizontal analysis on the Statement of Financial Position to identify changes to support your ratio analysis

Part 3 – Question 16 (Vertical Analysis): (related content – topic 8)

Conduct a vertical analysis of the Statement of Profit or Loss (Income Statement) for the past 3 years. Comment on any trends.

Perform vertical analysis on the Statement of Profit or Loss to identify changes to support your ratio analysis

Part 3 – Question 17 (Vertical Analysis): (related content – topic 8)

Conduct a vertical analysis of the Statement of Financial Position (Balance Sheet) for the past 3 years. Comment on any trends.

Perform vertical analysis on the Statement of Financial Position to identify changes to support your ratio analysis

Note: Horizontal and vertical analysis can be used as a point of reference to assist in identifying percentage changes of individual items that appear in the financial statements. When conducting ratio analysis, over a period of time, you may find it easier to not only identify the change in the numerator and denominator of the formula, but to also use horizontal and vertical analysis to identify the individual components that make up the numerator and denominator of the formula.

Part 3 – Question 18 (Trend Analysis): (related content – topic 8)

Conduct a trend analysis of the Statement of Profit or Loss (Income Statement) for the past 3 years. Comment on any trends.

Perform trend analysis on the Statement of Profit or Loss to identify changes to support your ratio analysis

Part 3 – Question 19 (Trend Analysis): (related content – topic 8)

Conduct a trend analysis of the Statement of Financial Position (Balance Sheet) for the past 3 years. Comment on any trends.

Perform trend analysis on the Statement of Financial Position to identify changes to support your ratio analysis

Part 4 – Comparative Essay

Task: You are required to write an essay of no more than 2 pages analysing and comparing your assigned company with the Elders Ltd, the company nominated for comparison by your subject coordinator, and then provide a recommendation of the best company to invest in.

To do this, you will need to workbook questions for your assigned company. The comparative essay will be prepared by drawing information from the workbook for your assigned company and from the information provided by your subject coordinator for Elders Ltd.

Task Question:

An investor is contemplating a potential investment opportunity in one of two companies. The investor has asked your group to provide a two-page comparative essay discussing the profitability, liquidity, asset efficiency and gearing of the your assigned company and Elders Ltd and recommend the company that provides the best investment opportunity.

Structure – Comparative Essay

Pages 1 to 2: Essay should be structured as follows

1. Introduction – approx. 100 words

Introduce the aim (task) of the paper in one sentence. Next introduce each company in brief. Include a Thesis Statement which begins “This comparative essay will…”

2. Body

In the body you should provide a brief comparative analysis of the key factors of each company in separate paragraphs. This is an overall summary based on your own analysis from the Workbook. You must also identify which company is stronger in each category.

Paragraph 1: Overall Profitability Analysis – approx. 100 words

Include the overall probability analysis for all companies. In the last sentence of the paragraph identify which company is better from the perspective of profitability.

Paragraph 2: Overall Asset Efficiency Analysis – approx. 100 words

Include the overall asset efficiency analysis for all companies. In the last sentence of the paragraph identify which company is better from the perspective of overall asset efficiency.

Paragraph 3: Overall Liquidity Analysis – approx. 100 words

Include the overall liquidity analysis for all companies. In the last sentence of the paragraph identify which company is better from the perspective of overall liquidity analysis.

Paragraph 4: Overall Capital Structure Analysis – approx. 100 words

Include the overall capital structure analysis for all companies. In the last sentence of the paragraph identify which company is better from the perspective of overall capital structure analysis.

Paragraph 5: Limitations of Analysis – approx. 50 – 100 words

Identify any limitations encountered in conducting the comparative analysis. This may include things like insufficient or old data sources and so on.

3. Conclusion – approx. 50 – 100 words

Repeat the main findings/analysis of your report in summary format. Very clearly explain the status of all companies.

4. Recommendations – approx. 100 words

Make a very clear recommendation for the investor. Explain which company is the best option and use the findings you have presented in the body to support your stance.

Page 3: References

Include the bibliographic details of any references you have used. You must use APA 7^th format. Check the Library Guides here for correct usage:https://libguides.jcu.edu.au/apa

You can only use appropriate reputable sources such as journals, textbooks, newspaper articles, or published reports. You cannot use online sources such as Investopedia or Wikipedia.

Page 4 onwards: Appendix

The appendix is not included in the word count or page requirements. This means there is no page restriction here. For each area of analysis, you must put screenshots or copies of the data from your Excel Financial Data Spreadsheet of your assigned company and include your analysis for each ratio from part 3 of the workbook. Do not include the whole workbook in the appendix. You may use the following template to prepare the appendix to support your comparative essay. You should also included the spreadsheet calculations for Elders Ltd that have been provided for you, however, you are not expected to provide analysis on each individual ratio for Elders Ltd.

Include the following opening statement:

This comparative essay has been developed based on reference to Birt et al. (2020), the [insert each company name in the group assignment] annual reports from 2017 to 2020 and company financial data obtained from the Data analysis Database (Morningstar, 2020).

The individual calculations and analysis for each ratio should be presented as follows for each company:

COMPANY A

PROFITABILITY

Return on Equity:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet, i.e.

Copy your analysis from Part 3 – Q1, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Return on Assets: