Accounting And Finance

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ACC10707 Session 2, 2019 Assessment 2

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Business Analysis and Interpretation. Due 19 August 2019 via Turnitin.

You are required to calculate key financial ratios for an ASX listed company and its competitor and interpret this information in the context of your allocated competitor company over time.

You will be allocated two ASX listed companies to study for this assessment. You must do your allocated companies in the order they are allocated to you. You can look up your allocated companies under ‘You/Competitor’ in MyGrades in week 1.

Imagine you work for the FIRST of these companies. The second is one of your company’s competitor.

Your boss has asked you to calculate and assess the company’s key (your boss’s opinion) ratios relative to that of its competitor and provide recommendations for improvement if required.

The key ratios you need to calculate for your company and your competitor are net profit margin, asset turnover, current ratio, quick ratio and debt ratio. Your boss also wants you to calculate the cash cycles. All workings for ratios and the cash cycles are required.

You focus your analysis on the companies’ 2016, 2017 and 2018 ratios mentioned above firstly in terms of their trend changes and also in comparison to your competitors ratios and benchmarks wherever possible.

In making your assessment consider potential differences between your company and its competitor that could explain divergent results. Where relevant, these should be noted. (For example, although the companies may compete in some of the same markets, they may also have different areas of business).

Chapter 8 of your textbook (http://www.wileydirect.com.au/buy/accounting-business-reporting-decision-making-6th-edition/) will give you a background explanation on these ratios and you should in your own words explain a) the issues involved and relevance of using ratios, b) benchmarking and c) the relevance of your particular identified ratios as part of your discussion.

To undertake this task you will need to get some background information on the companies and collect some data to create ratios. Information required is available from DatAnalysis found by following the links from the SCU homepage to the ‘Library’ and ‘Databases’. For the calculation of ratios aspect of this assessment use the ‘Financial Data icon and then across the top, Profit and Loss and also Balance Sheet as necessary.

Since your boss is a busy person and has little time to read lengthy reports, your submission for this task preferably should not exceed 1,000 words. Of course it can be shorter than 1,000 words. Structure your submission as a short report that excludes title and contents pages. Refer to note 1 for further advice on report structure. Ensure you fully reference any non-text book or non DatAnalysis sources of data and information you use in this assessment.

Marks for this task are in accord with the separately provided marking guide.

 

 

 

In essence students should carefully study chapter 8 of the textbook and then calculate ratios and the cash cycle for their company and its competitor. Next describe the meaningfulness of these calculations firstly theoretically (text book chapter 8) and then actually and relate the findings to their company and in contrast to their competitor company. Wherever possible industry or accepted standards might assist your contrast as well. Then outline possible company improvements highlighted by the ratios and cash cycle and any weaknesses in using ratios.

Note also as follows –

1. The report should be presented as follows. At the very beginning of your report should be a Table with headings as depicted below. You should place (complete) each of your ratio outcomes in the table below using the relevant headings in Table form so the reader/marker can initially see the actual ratio numbers you have arrived at. See also the marking guide where we demonstrate a similarly headed table.

           
  Your Company Ratio

Write your company name here

Competitor Company Ratio

Write Competitor company name here

Ratio Name 2016 2017 2018 2016 2017 2018
(Net) Profit margin
Asset turnover
Current ratio
Quick ratio
Debt (to assets) ratio
Days Inventory
Days Debtors
Days Creditors
Cash Cycle Result

 

At the end in the appendix (not counted in word count) there should be another table which demonstrates formulas, completed workings and ratio outcome for each ratio for both companies.

Your Appendix table could use the same headings this time with the ratio name including the formula and the years 2016, 2017, 2018 having the calculated formula numbers used and the final ratio.

Returning to the body of the report you should then have headings (with subsequent discussion) as follows –

 

 

 

• Introduction

• Financial Analysis of Ratios – Begin with sub – heading for each ratio. Here is where you demonstrate an understanding of ratios by describing the meaningfulness of these ratio calculations firstly theoretically (text book chapter 8 helps here) and then actually. Next relate the ratio findings to their company and in contrast to their competitor company. Wherever possible industry or accepted standards might assist your contrast as well. This demonstrates an ability to assess and apply knowledge to calculated outcomes.

• Recommendations – outline possible company improvements highlighted by the ratio outcomes and cash cycle calculations and comment on any weaknesses in using ratios.

• Conclusion.

It is essential that you set your report up as prescribed by note 1 above.

 

2. The Cash Cycle can be a little confusing and some text books use different methodologies for calculating the three elements of the Cash Cycle. For your convenience the formulas are a) Inventory being Current Inventory / Operating Revenue * 365 = ???? b) Accounts Receivables being Debtors / Operating Revenue * 365 = ???? c) Accounts Payables being Creditors / Operating Revenue * 365 = ??? Note that you still need to work out the cash cycle from these calculations.

 

3. For the net profit margin ratio use Net profit after tax before abnormals as the numerator.

 

4. This is a Turnitin assessment so while we acknowledge that some Turnitin score will relate to the cover page and calculations which may be common to some other students you need to take due care with the actual original (yours) commentary of the report. This includes putting into your own words some theoretical discussion of the ratios which you may originally derive from the text book. If concerned then by all means use Harvard referencing.

 

5. Use the Discussion Board forum to raise any issues you may have with this assessment. This method ensures that students and tutors can get an idea of any questions that students may have. Try not to publish answers to your assessment if at all possible.

 

6. Note that your assessment will not be marked if you do not do your allocated companies and in the order they are given to you.