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Products, Ratios and Decisions

Assessment 2: Steps 7-10

Course Name/Code: Accounting, Learning & Online Communication (ACCT11059)

Course Coordinator: Martin Turner

Due Date: 11:00am Monday 5th June 2017

Student Name/Number: Kaylee Baldwin s0255863

S0255863 Kaylee Baldwin

Step 7: Products and Services

I was glad that I had received a retail store when I read this Step and what it involved, it was also

extremely helpful that they were online! I figured it would be difficult enough to “guess” the

variable costs, let alone guess the selling price as well! I have seen discussions with other students

who have service companies who have struggled to determine selling price.

Within my allocated company, there are three separate entities: Glassons - women’s clothing and

accessories, Hallenstein Brothers - men’s clothing and accessories and Storm - a mixture of both,

more luxurious items. I have chosen to select a product from each for this Step.

Product #1 Selling Price Variable Costs CM (Sales – Variable Costs)Glassons:Spotted Lace Detail Dress $ 49.99 $24.99 $ 25.00

I selected this product because it stood out to me on the page when I

scrolled through, it is a simple elegant spotty lace dress.

When I was determining variable costs, I thought about what it would

take to make something like this, you would need items such as

fabric and lace materials, stitching, buttons, and the labour in the

process. For the variable costs, I have chosen to allocate 50% of the

selling price to costs as I believe this to be a reasonable amount.

A resource constraint for this product (and the entity itself) would

greatly involve the competitors. With women’s clothing being a common product the company

would need to make their products stand out. Another constraint may include the seasons, being a

New Zealand company sales may not be as frequent in the cooler months. However, by utilizing the

online store the company can target other areas for this product.

Page | 1

https://www.glassons.com/clothing/dresses/party-dresses/spotted-lace-detail-dress-DS34324SPT?c=PRINT

https://www.stormonline.com/

https://www.hallensteins.com.au/

https://www.glassons.com/


Product #2 Selling Price Variable Costs CM (Sales – Variable Costs)Hallenstein Brothers:Park Sherpa Hoodie $ 59.99 $35.99 $ 24.00

I found that the Hallenstein Brothers had a lot of plain dress shirts or

suits, so I selected this product because it was a little more complex,

with different materials.

When I was thinking about variable costs for this product I thought it

may involve a few more costs than the first product, because this

would include not only the different fabric materials, but also the zip,

cord and buttons as well as the labour in the process. Therefore, I

have chosen to allocate 60% of the selling price to variable costs.

A resource constraint for this product would include its competitors

but also the seasons and availability of materials.

Product #3 Selling Price Variable Costs CM (Sales – Variable Costs)Storm:Mooi Jem Bag $ 169.00 $ 84.50 $ 84.50

I selected this handbag from the Storm products as I had already looked at

menswear and womenswear so thought I would include an accessory. I had

originally selected a black bag but when I went back into the page a few days

later it was gone, nowhere to be found! It was $369 and I selected it because of

its ridiculous price, I wonder if the line has finished and what may have caused

it or perhaps they are out of stock? Anyway, I decided to select this one

instead. It stood out to me, not that I would ever buy a bag that price, but it’s sparkly!

When I thought about variable costs, I thought it would be much the same as the above just

different materials and labour. Although this product would include the zip, clips and other bits and

pieces that would need to be attached. The biggest cost I believe would be the genuine leather with

hair that is used. I have decided to use 50% of the selling price for variable costs in this case, not

sure if that is reasonable but I believe the company would be able to purchase the leather and

materials in bulk depending on the demand, then allocate a markup on their sale price to the

consumer for the ‘genuine leather’ and brand name.

A resource constraint for this product could include the availability of materials, demand, as well as

market trends. Storm must ensure its product stands out and is made available in the competitive

market.

Page | 2

https://www.stormonline.com/product/mooi-jem-bag-20370572

https://www.hallensteins.com.au/product/park-sherpa-hoodie?i=8795258&b=8795673


Contribution Margin The Contribution Margin is a great tool to help managers decide which products and how many of

those products to sell in their product-mix. In simple terms, the contribution margin tells us what

amount of the selling price is left over once you remove the variable costs of that product. That

amount is what will be allocated to fixed and other costs. Products can differ because some could be

marked up in price but may have low variable costs, which results in a higher CM, some may not be

able to be increased (maybe due to demand and supply or resource constraints) and may also have

higher variable costs, this would create a low CM.

In relation to product-mix, if we take Hallenstein Brothers as an example, they don’t only sell one

type of product. This is because of the variety of menswear so they can be covered for seasonal

demand (winter, formalwear, casual etc.). These products will have different CM’s and this could

assist managers when deciding which to select. You cannot try to promote all low CM products or

you risk a low turnover if variable costs increase. However, you cannot necessarily select all the

high products as it could be because they have higher selling prices and your demand may reduce.

Managers need to make decisions that will allow a steady flow for the firm but keep the consumers

happy at the same time.

Step 8: Ratios

Looking at the ratios for my company I can already see that the Profitability Ratios have continued

quite steady, but have decreased from the previous year. 2013 being the highest of the four years

and 2016 being the lowest. After reading my financial statements, I discovered that there were three

main factors that impacted the profit margin in the 2016 year. They included the drop in exchange

rate, record mild temperatures resulting in an early winter which affected winter stock timing, and

they faced difficulties in securing effective management for Glassons. This tells me they are

currently earning 17% return on assets for every dollar, which seems to fluctuate between 17% and

22%.

2016 2015 2014 2013Profitability RatiosNet Profit Margin 6.12% 7.85% 6.86% 8.48%Return on Assets 17.40% 20.15% 17.30% 21.88%

In 2016, the Days of Inventory have continued to drop which is a good sign as it means stock is

turning over a lot quicker than it has in the previous three years but this is quite high overall, there

Page | 3


isn’t necessarily a huge drop or increase so I didn’t look too far into this, I think as time passes they

are steadily decreasing the inventory days and according to the financial statements, E-commerce is

becoming more popular with an increase of 24% in the online sales in 2016.

The total asset turnover had remained steady in the previous three years but has increased a little in

2016, I went back to look at my sales and my assets from the financials and they do remain quite

similar each year, this could be why the asset turnover has also increased. This ratio tells me that

they are turning $1 into $2.84 of sales which I would think is quite a good ratio, I am not sure in the

business world whether this should be higher or lower but to be more than doubling the $1 must be

a good sign. To find out, I discussed with another student who had a Flooring and Bedding

company to see how their figures looked. Our inventory figures were quite similar around the 2 – 3

month mark. However, Carpetright’s Asset Turnover was much lower.

While comparing the Current Ratio, I noticed that is has dropped in 2016 – This means their

ability to pay their short-term debts is decreasing, not a good sign. It has been trending downwards

over the last four years. What I discovered when I was looking through the financial statements is

that the Forward Foreign Exchange Contract liabilities have dramatically increased in 2016,

resulting in 2016 being the only year out of the four with a Derivative financial instrument liability.

This increase in liabilities along with the decrease in Current assets (less cash on hand, less cash

deposits) has overall decreased the current ratio.

Page | 4

Efficiency (or Asset Management) RatiosDays of Inventory 75.32 80.25 84.82 82.89 Total Asset Turnover Ratio 2.84 2.57 2.52 2.58

Liquidity RatiosCurrent Ratio 1.74 2.04 2.22 2.40

Carpetright PLCDays of Inventory 83.15 68.16 72.02 76.54Total Asset Turnover Ratio 1.91 1.97 1.82 1.77


The Financial Structure Ratios show quite a steady trend. I am quite happy with these figures as

the Debt/Equity ratio (the amount of debt being used to fund assets), is considerably low, less than

half, but still high enough to indicates that the company is taking advantage of asset acquirement

through debt. The equity ratio is much higher which can indicate to future investors that the current

investors have more confidence in the firm, this is a good sign for Hallenstein Glasson.

The bottom line to these ratios indicates that the debt ratio is below 40%, this is a good sign for

Hallenstein Glasson. I can also see from these ratios that the equity ratio is decreasing and the debt

ratio is increasing over the period, I guess this is due to the initial investors contributions running

down and new finance taking place.

I found the Market Ratios the hardest to understand and calculate compared to the ones above. At

first I was unsure whether my number of shares needed to be adjusted to match the NZ $’000 that

my figures were recorded as, I soon discovered that they did! My second challenge was to find the

Market Share Price, my annual reports didn’t list this information specifically (only listed ranges)

so I went to NZX to find the history. The page would only allow me to view the last 2 years’ worth

of data so instead I went back to the financial statements and have decided to use the Purchase Price

of shares from the Annual Reports. I also couldn’t locate the discount rate so have opted to use the

recommended 10% rate.

Once I worked out my calculations and had the correct input data (see spreadsheet for details), I

found that my EPS figures matched the figures recorded in the Financial Statements! I also checked

the dividends recorded in the Financial Statements which also matched the DPS, this was successful

for all years. Both EPS and DPS seem to remain steady over the four years and tell me that one

share will earn 23 cents which is the lowest of the four years. This isn’t what the shareholders

receive, they are receiving the 30 cents per share which is more than the earnings!

The Price Earnings ratio tells me that it has remained quite steady and the figures are quite low

which is a good sign to the investors as they are receiving more earnings for every dollar they invest

but it can also indicate that investors are not taking much risk or are not as confident in the firm.

Page | 5

Financial Structure RatiosDebt/ Equity Ratio 40.72% 36.08% 30.73% 27.45%Equity Ratio 71.07% 73.49% 76.49% 78.46%

28.93% 26.51% 23.51% 21.54%

Market RatiosEarnings per Share (EPS) 0.23$ 0.29$ 0.24$ 0.32$ Dividends per Share (DPS) 0.30$ 0.31$ 0.29$ 0.35$ Dividend Yield RatioPrice Earnings Ratio 12.75 11.36 14.76 16.13


Now the Ratios from the Restated Financial Statements, they weren’t necessarily difficult, I just

wasn’t sure what figures are correct and what figures are way out. So, to start I compared the

RNOA figures to the RNA figures to see if they were close in comparison. The RNOA was much

higher than the ROA which indicates that it is more profitable once the operating assets have been

separated out. I believe the dramatic drop in 2016 was due to the factors listed above that impacted

the company within that year.

Return on Assets 17.40% 20.15% 17.30% 21.88%Return on Net Operating Assets (RNOA) 20.94% 45.96% 30.02% 38.93%

I also noticed that the ROE and RNOA has dropped quite a lot in 2016 which is not a very good

sign as it means less is being returned on the investment.

Ratios Based on Reformulated Financial StatementsReturn on Equity (ROE) 18.44% 30.15% 22.88% 29.96%Return on Net Operating Assets (RNOA) 20.94% 45.96% 30.02% 38.93%

I then come to the NBC, which consists of NFE / NFO to determine the net interest rate paid on

financing. My company ended up with NFI and NFA so I wasn’t sure at first whether this would

affect my calculation. I had originally decided to use the figures in the same way I would have

calculated it if they were the opposite. I felt that this was still incorrect so I did some research, on

the Facebook page, Google, Moodle… There was no ‘direct’ solution to this as in most cases people

had either NFI or NFA rather than both. After this research, I have decided to use a different ratio

all together – The Return on Net Financial Assets based on the below:

How does the analysis change when a firm … has net financial assets (NFA) rather than net financial obligations (NFO)? In this case financial income will be greater than financial expense and the firm will have a positive return on financing activities (RNFA) rather than net borrowing costs. (McGraw Hill n.d.)

What this now tells me is the return on asset percentage has been fluctuating over the period. The

highest period being 2013. The financial income and assets were at their lowest in 2016 but the rate

in 2015 was the lowest overall, there were higher financial assets in that year in comparison to

income.

Return on Net Financial Assets (RNFA) 3.85% 2.75% 3.13% 5.26%Page | 6


I then compared PM with the Net PM and the figures were quite similar which gave me hope! But

it also showed me that there was a larger decrease in profit in 2016 than I originally thought, they

were obviously heavily impacted by the interest rate drops.

2,016 2,015 2,014 2,013 0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%

Net Profit Margin vs Profit Margin

Net Profit Margin Profit Margin (PM)

I then compared ATO with the Total ATO Ratio and the figures had doubled? I wasn’t sure if this

was correct but after watching the lecture videos I learned that this was a good sign as it means the

company is using their assets more efficiently as well as keeping quite a steady trend over the

period.

Economic ProfitEconomic Profit = (RNOA – cost of capital) x NOA

For me to comprehend the economic formula I start by breaking it down into words:

(The return on the capital invested – Cost of the capital invested) x Net operating assets

Now realistically the RNOA should be greater than the Cost of Capital so the company can create

value. There are certain limitations to the Economic Profit Ratio which include the lack of

disclosure in GPFR’s, impact of one-off/non-recurring items, incomparable entities and the basis

that it is performed on historical data and historical costs.

Page | 7

Profitability RatiosNet Profit Margin 6.12% 7.85% 6.86% 8.48%Profit Margin (PM) 4.46% 8.38% 6.73% 8.78%

Total Asset Turnover Ratio 2.84 2.57 2.52 2.58 Asset Turnover (ATO) 4.69 5.48 4.46 4.44


The totals that contribute to the Economic Profit include the Operating Income, Operating Assets

and Liabilities and the Cost of Capital (which hypothetically has remained the same over the years

so I cannot see if it has contributed). What I discovered as I dissected my ratios, is that the 2016

figures had been dropping in my Profit Margins, Asset Turnover, Return on Equity ratios, and the

Equity Ratio. These would be contributing factors to the large decrease in Economic profit. I also

found that the Debt ratio had increased. I considered my Operating Income after Tax as that seemed

to have the greatest decrease in the 2016 year and I figured this would be a key indicator to why the

Economic Profit dropped so much in 2016. I found that there were negative cash flow hedges in that

year cause by the drop in exchange rate, this seems to have a negative influence on the Economic

Profit. I borrowed this table from Melissa De Rossi (credit given, where credit due) when I was

reviewing her work, I felt it gave a great overview when reviewing contributing figures. This gives

me a clear view that Sales and the Return of Net Operating Assets were key factors in the decrease

of Economic Profit in 2014 and 2016.

In $’000 2013 2014 2015 2016OI 19,319 13,995 18,570 9,970NOA 49,629 46,620 40,403 47,615RNOA 38.93 % 30.02 % 45.96 % 20.94 %WACC 10 % 10 % 10 % 10 %Economic Profit 14,355.88 9,332.78 14,529.64 5,208.53

I believe the greatest driver in the Economic profit decrease has been the profitability decrease

within the firm. Caused by the drop on exchange rates, unpredicted weather and difficulties in

securing management for Glassons in 2016. In 2014, the weather did have an impact on menswear

sales but the most detrimental factor was internal issues the company faced with planning and

buying in the first half of the year, which had clearly been rectified for the 2015 year. Until

unfortunately more management issues took place in 2016. Cost and performance of two Glassons

stores also led to their closure which impacted sales for the 2016 year.

Page | 8


Economic profit 5,208.53 14,529.64 9,332.78 14,355.88

Step 9: Capital Investment DecisionI have decided to analyse the following potential investment decisions for Hallenstein Glasson,

these will be discussed in detail below.

Option 1: Purchase and Open a Glassons Store in FNQ Cairns

There are a few Glasson stores in Australia but currently there is no store in Cairns. I have decided

to create this scenario based on the market demand for women’s fashion and according to the

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Open a Glassons Store

in FNQ

Refurbish Chermside

Hallenstein Store

Original Cost 2,200,000-$ 465,000-$ Estimated Useful Life 8 6 Residual Value 850,000 550,000 Estimated Future Cash Flows

1 August 2018 (t = 1) 350,000- 670,000- 1 August 2019 (t = 2) 180,000- 109,000- 1 August 2020 (t = 3) 420,000 330,000 1 August 2021 (t = 4) 660,000 650,000 1 August 2022 (t = 5) 775,000 980,000 1 August 2023 (t = 6) 899,000 1,250,000 1 August 2024 (t = 7) 980,000 1 August 2025 (t = 8) 1,200,000

2,013 2,014 2,015 2,016 -

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

Economic Profit


financials a few of the Glassons stores around New Zealand and Australia are currently being

upgraded so I thought a good opportunity to market a new storefront. I had no idea what the original

cost for a new store would be but I decided on 2.2million to cover the purchase of a building in

FNQ, the fit-out for the store, legal fees, insurance etcetera. The residual value I based on the

assumption that the company could resell the building to another retailer or refurbish it as they have

done with others.

To work out cash flow I gave myself an estimated figure to base it around by taken the total sales

from all Glassons Australia stores (from the financials) of $41.18 million and dividing it by the 28

stores currently in Australia which gave me 1.4m per store (this is probably unrealistic as all stores

will differ, especially a smaller area such as Cairns, but I needed a starting point!)

I have decided to use a useful life of 8 years for option 1, which is longer than my option 2 as I

believe a new store will have a longer useful life then the upgrades being completed in option 2.

Option 2: Upgrade and Fit-out the Hallenstein Brothers Store in Chermside

I chose the Hallenstein store in Chermside because it appeared very dark to me in the photos, this is

probably a marketing tactic designed by the firm. But it created a good scenario for me to base my

budgeting plan around for now. To upgrade lighting, shelving, layout etcetera in the Chermside

shop.

I decided on an original cost of 250,000 as the store is already quite new but I wanted to allow for

all costing involved, staff downtime, labour costs, materials, electrical work. Perhaps there would

be permits required. This is what I based my original cost around. I utilized the same formula to

estimate the final cash flow which was the total of $89.41 million of sales through Hallenstein

Brothers stores, divided by the 45 stores – approximately $1.9million.

Results and RecommendationsThe results were quite interesting once I finished calculating all my data. The NPV for Option 2 was

higher than Option 1, as was the IRR. The payback period for Option 2 was also shorter, being paid

back in 4.27 years compared to the 5.97 years in Option 1. Although the amount of money that

would need to be invested in Option 1 was considerably larger than option 2 there wasn’t a huge

difference between the two outcomes. Page | 10


Option 1: Open Glassons Store Option 2: Refurbish Hallesteins

NPV $ 547,310 $ 841,814

IRR 13.63 % 25.37 %

Payback Period 5.97 years 4.27 years

I believe factors that contribute to this could be that the cash flow in the city of Brisbane would be

greater than the cash flow received in a smaller city such as Cairns. Although a new store isn’t

being set up for Hallenstein it will create a marketing tactic and give the store a new ‘fresh look’. It

could also update the store with modern day layouts. Because the store is already established there

will already be staff and stock in the store which will contribute to the costs when refurbishing the

store. There is also more competition which will impact the cash flow of the store depending on the

timeframe it takes for the update. Other factors would need to be considered such as marketing of

the new Glassons store and creating a name within the new location.

Based on the results, I would recommend that the company select both options. They are

independent so if the finance within the company allows it, the best outcome would be to apply both

options. Based on information provided within the financials quite a few of the Glassons stores will

also be refurbished and set up in the short-term future so there may be an available market for a

store in FNQ when the branding is conducted and marketed for those stores. This is also the case for

Hallenstein, the company could use the upgrade to promote a new line or clothing or an existing

line. Both stores have a payback period within 6 years and both have a positive NPV, as well as an

IRR greater 10%. Both options are independent and not mutually exclusion therefore, neither option

will affect whether the other goes ahead. I guess the weaknesses in this analysis could be that the

competitive market does not react as well to the new store, and the costs out-way to cash flow for

longer than expected. Another risk is that there are issues with either development (the upgrade or

the new a store) but overall, both stores should still produce a steady cash flow a few years after the

initial investment.

See the chart below, initially Glasson (Option 1) will make the greatest loss to cash flow, but each

will slowly increase. By year 4 both options will make a close cash flow which will increase up

until the estimate life span. From year 5 and 6 Hallenstein Glasson’s could reassess and perhaps

they can analyse new investment opportunities to increase the life of the Hallenstein’s store.

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Step 10: Feedback

I really enjoy this section of the assessments, being able to openly discuss topics with fellow

students makes the learning process so much easier and helps me understand views from different

perspectives. I enjoy reading through other students work and commenting on it for them and

comparing their figures to mine, as well as receiving feedback. I think it is valuable especially when

comparing ratios and different types of firms.

I found the feedback from others very helpful in finding direction for my assessment and a

reassurance when I get lovely feedback. I used the feedback given to me to expand on some of my

ratio discussions to pinpoint which ratios I could delve deeper into. Ratios such as NBC and

Economic Profit. I also had recommendations to compare my ratios to others, which I have tried to

incorporate where possible. Not only was this good feedback, it was motivation for me to do some

research into others’ firms. I found great layouts, graphs and tactics used by other students that

assisted with my assessment as well so I found this very helpful!

I will be sad to see this one go – I have really enjoyed this course and the assessments it has

entailed! After almost 3 and a half years of doing my accounting degree and it has been one of my

favourites as I found it to be extremely relevant to the real world where you don’t always have all

the answers and sometimes you have to estimate but you will always be able to openly discuss

issues with others (to the extent of confidentiality of course!) This is what I LOVE about accounting

and this is what motivated me to do the degree. Thank you for reminding me after 3 long years

about what I came here to do!

Rhiannon Bellamey

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0 1 2 3 4 5 6 7 8

-2500000-2000000-1500000-1000000

-5000000

50000010000001500000

Cash Flow Comparison

Glasson Hallenstein


Danielle Bradley

Melissa De Rossi

Donna Condon

Feedback From: Kaylee Baldwin

Feedback To: Rhiannon Bellamey

My Comments

Step 7

Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

You have successfully identified 3 products and I like

how you have listed them and how you have displayed

and covered each of the key points for the assessment.

Step 8

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

Debt/Equity Ratio – I think this needs a minus sign to

convert liabilities? This would mean 222% rather than -

222%.

Current Ratio the same - a minus sign needed on

liabilities, it also needs to be converted to a number rather

than a %. It seems low, but I think this is because your

company has a lot more debt.

Just found a spelling error in your first ratio discussion in

case you wanted to know – “for ever pound of sales”. I

also like your view on inventory.

Market Ratios – page 57 in 2016 financials lists “2. Share

price used is the price as at 30 April 2016: 302p.” If you

Ctrl F and search ‘Share Price’ in all your financials you

should find this info you will have to look up 2013 to get

that one, might be helpful for your ratios! I also think

when you list this in your table at the bottom put it as

0.302 because just 302 is saying it’s whole not just pence.

This will also make your PE Ratio look better.

ROE is a percentage, yes. I can’t help with the Cost of

Borrowings unfortunately as I’m in the same boat, and

Page | 13


unsure whether NFA / NFI will impact my ratio.

Don’t forget to update your word doc with your final

ratios! 😊

Step 9

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

I really like what you have created for your capital

budgeting decisions. I think you have summarised

your findings well.

Step 10

Individual feedback with other students

N / A

Overall Overall, I think your assessment (word doc and

spreadsheet) is presented nicely and is easy to follow.

I believe you have covered the requirements well,

maybe could expand on economic profit and may

need to delve deeper into Market Ratios. God job!


Feedback To: Danielle Bradley

My Comments

Step 7





I really enjoyed reading this section, I think you have

selected your products well and balanced the variable

costs.

Your discussion on CM and the restraints was

thorough and made a lot of sense to me. I think I may

have to write a bit more detail into mine now!

Step 8




I couldn’t see any issues in the calculations of your ratios.

You have used the correct tabs and items to calculate. I

also like how you have included a personal view on the

topic.

You have provided an extension insight into the effects on Page | 14


Commentary – drivers of economic profit (blog) your firm’s ratios and contributing factors which was clear

and interesting to read.

I think you have done a really good job on this step.

Step 9




I love how much detail you have in the initial

creation of your investments decisions. It really felt

like they were genuine decisions for the firm! I am

glad to see you have also suggested your company

apply both options.

You have also analysed your scenarios well.

Step 10


Your feedback was very well done and I believe the

students will have benefited from your input.

Overall Overall, I believe you have done an excellent job on

your assessment and just reading through your

documents I have learned new insights for my own

assessment and you didn’t even know it!

Keep up the good work! 😊


Feedback To: Melissa De Rossi

My Comments

Step 7





Your discussion on CM was great. You had a

different outlook to me, which made a lot of sense to

me.

I loved your examples of why variable costs and CM

are important, with real life examples! I also enjoyed

your reasoning behind the varying CM’s.

I think you have outlined all the requirements for this

step.

Step 8 Your ratios look correctly completed in the spreadsheet.

Page | 15






For your inventory calculation, I believe you would use

the ‘Cost of Services Rendered’ figure from the Income

Statement. In Maria’s lecture she says that if you have

Cost of Goods sold you use that, I looked into your

financials and found this in the General Notes:

Revenue and cost of sales are recognised in the income

statement by reference to the stage of completion for

construction contracts.

Once I adjusted it to have a look at the result before giving

you this feedback, I found the days were quite low, this

would match up with what you were explaining in your

word doc about goods only being purchased for the

projects there for being used up in the project timeframe

and not sitting.

Under current ratio I would reword “This is how much

assets” to how many, perhaps? Just flows a little nicer. 😊

I liked the use of the graph for market share ratios and for

your comparisons, I might have to do some to see where

my figures are sitting! I am also going to delve deeper into

my Economic Profit as you describe this very well.

Step 9




Your options are explained well. Your conclusion

made sense and was outlined in detail. I did notice in

your spreadsheet that for Year 10 in Option 2 you

only selected cash flow instead of Cash Flow +

Residual. So, your figures will be out for 2 (note

though it won’t make a huge difference, only

miniscule)

Year 10=C18

Step 10


Your feedback was very thorough and it helped me

greatly so I can see how it has helped others, I

skimmed through what you provide some other

Page | 16


students and I think you are doing a great job.

Overall Overall, your assessment was presented nicely and

flowed through each step. I could follow where you

were going and where you have pulled your figures

from. Great job!


Feedback To: Donna Condon

My Comments

Step 7





You have covered all aspects of this section well. I

think you have accurately discussed Contribution

Margin and reasoning behind different products and

how they impact profitability.

Step 8





Looks like you have calculated Ratios correctly.

In your first paragraph on Ratios is this supposed to

say Profit AT decreasing?

“which resulted in the profits after tax increasing which in

turn drove the profitability ratio down from 3.7% to

2.6%”

Inventory – I see you have inventory under Current

Assets. I found your Annual Report to have a look

for Cost of Sales and found that your company does

have ‘In-flight cost of Sales’ I just Ctrl F ‘Cost of

Sales’ in the report. It falls under your Operating

Page | 17


Expenses in the financials. So, you could make a note

in your Ratios tab with the amounts each year and

use that to calculate your Days of Inventory 😊

NBC - My company ended up with NFI and NFA as

well, I ended up googling it and decided to change

my Ratio to be ‘Return on Net Financial Assets’ use

the same formula but with NFI and NFA in their

place. Just so I had something to consider, entirely up

to you. I think what you have written is correct to, as

it isn’t accurate to call it NBC.

Step 9




You have covered your Capital Decisions and

results/recommendations well. Only recommendation

would be to link your Cash Flow figures in your

calculations back up to your input figures. As there is

room for error if you change something… You can

see my sheet for details if you wish. I also think your

days and months for payback period need to be

divided by 365 and 12 not multiplied. 😊

Step 10


N / A

Overall Overall, the layout of your assessment was easy to

follow and I believe you have covered all the steps

well. So just a few recommendations for some

formulas on Days of Inventory and NBC and to apply

linking in your NPV/IRR cashflow calculations.

References

Fellows, C (n.d.) As an investor, do you want a stock to have a high or low P/E ratio? Retrieved

from http://budgeting.thenest.com/investor-want-stock-high-low-p-e-ratio-30478.html

Page | 18


McGraw Hill Global Education (n.d.) The analysis of profitability. Retrieved from

novellaqalive2.mhhe.com/sites/dl/free/007000000x/484693/chap11.pdf

Page | 19

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