Link to my Blog:

Chat Flow $$$, a blog talking about Accounting, Finance and Business

chatflow386831018.wordpress.com

Link to the Company Website:

Cochlear Limited

https://www.cochlear.com/au/home

Links to the Annual Reports:

2018 Annual Report

2017 Annual Report

2016 Annual Report

2015 Annual Report

About my Company:

Cochlear Limited is an international company, which is designs, develops and sells hearing products.

This is the company responsible for the famous ‘cochlear implant’, which is a device placed inside

the human ear, to improve hearing, and to resolve loss of hearing quality, by sending signals to the

brain (Cochlear Ltd, n.d., para. 1). Their products and solutions continue to enhance hearing for

people all over the world.

Cochlear has offices in just about all parts of the world, including Australia, New Zealand, Japan,

China, Hong Kong, South Korea, India, United States, Canada, Panama, Switzerland, England,

Germany, France, Belgium, Italy, Sweden, Turkey and the United Arab Emirates.

Working within the health care equipment and services sector, this company is an industry leader,

with world-leading innovative and technological products.

Cochlear Limited (COH) is a company listed on the ASX.

Figure 1 displays their logo.

Figure 1. Cochlear Logo. From 2018 Cochlear Limited Annual Report, by Cochlear Ltd, 2018

(https://www.cochlear.com/shared-library/downloads/global-downloads/about-cochlear/annual-

report-fy-2018).

My Key Concept Questions:

My key concepts are underlined, my questions in italics, and my reflections have normal formats.

Inside Cover Page and Page 1

Upon opening the 2018 Annual Report, I could tell straight away that this company is a profitable

company. Cochlear certainly communicates this very clearly on page 1, with a graphical financial

summary, no doubt intended for prospective and potential investors. The financial summary shows

information on the number of product units manufactured, sales revenue, net profit, and dividends

per share. They are all growing, especially the sales revenue and dividends. I found this impressive!

The inside cover page told me that Cochlear has a global tax strategy, corporate governance, and a

detailed strategy. They have separate documents regarding these things, for investors to look at.

Profit drivers are the elements of a firm that drive up their profit. They can include price, variable

costs, fixed costs and sales volume, just to name a few key ones (bizcoach.org, n.d., para. 2).

Knowing that Cochlear is a profitable company makes me excited. I was wondering what is driving

and growing its profits, and consequently its dividends. Obviously, I can see that the number of

product units manufactured and sales revenue have increased. With more product units to sell, and

with success in sales, this must be one of the key factors resulting in a high turnover for the company

(Queensland Government, 2016).

What are the elements that are contributing to strong sales revenue results?

What are the elements that are contributing to strong net profits results?

What are the economic and business realities of this firm, contributing to its recent success?

Operating and financial review – Page 7

Cochlear has a market capitalisation of A$10 billion plus. I was thinking that this might mean how

much a firm was worth in terms of market value? But I forget what market capitalisation is. If I am to

truly understand what I am reading and what is really going with my firm, then I need to ask

questions, even if they are rather plain and simple.

What is market capitalisation?

Market capitalisation is the market value of a company’s shares, according to the current market

price of one publicly offered share (Investopedia, 2018). According to Investopedia (2018), it is

calculated as:

Number of company shares outstanding x Market share price.

Having reminded myself of the definition, I found this concept fascinating, because this definition

actually answers one of my original key concept questions for Assessment 2 Step 1 of ACCT11081.

These were:

How does one then account for changes in the value of the equity in the financial accounts,

i.e. according to the market value of the equity?

If the current value of a firm and the equity of the firm’s owners is expressed in the financial

accounts then are these just changed through the revenue and expense accounts?

After all, these values, that of the firm and that of the equity belonging to the firm’s rightful

owners, are changing all the time. (Spurway, 2019, p. 17)

I now know the answer to the first question!

Cochlear’s investment proposition – Page 8

An investment proposition is a written position developed by management for investors, detailing

the benefits of investing into the firm, which will hopefully attract and encourage investors to

commit investments to the firm (Business Dictionary, n.d.). It usually contains some of the most

relevant and prominent information about a firm, including the firm’s qualities, history, growth

potential, business objectives, and prospects for return on investment (Business Dictionary, n.d.). If

well-developed, it can be a powerful tool to draw investments (Adviser Business Review, n.d.).

I found this concept exciting because an investment proposition is where one gets to hear the really

great things about a firm, including its investment prospects. This is surely a key part of a firm’s pitch

to investors and other stakeholders, revealing something about its ability to create value for these

parties with a genuine interest in the firm’s activities.

In summary, Cochlear’s investment proposition highlights 5 key points to potential investors:

- Cochlear is a global leader in its industry;

- It has long-term market growth opportunity;

- It has a clear commitment to product innovation;

- It has developed a growing annuity income stream; and

- It has strong free cash flow generation for growth in industry, innovations and dividends.

If an investment proposition is so useful, powerful and yet simple, then why don’t some firms feature

one within their annual reports?

Market-leading technology – Page 12

Research and development (R&D) is important to firms because it helps to differentiate them,

enhances their sustainability, generates more revenue, can assist in accessing tax incentives, and can

give firms a competitive advantage (Ganapathy, 2014). R&D needs to be looked as a potential value

creator and driver.

I agree with this concept, because it seems like R&D can be a real game changer for firms if these

benefits are realised. In order to survive and thrive, firms should always be looking to be better than

what they are, and look for opportunities to create more value. R&D is part of that looking! It is

about being sustainable. It is about being a part of a broader strategy to advance.

What are the appropriate strategies for engaging in R&D spending?

What is the return on investment and cost of capital benchmarks regarding this?

How might R&D spending be sustained within a firm?

What is the right way to plan a R&D spend?

For FY2017-18, Cochlear spent A$168 million on R&D (Cochlear Ltd, 2018, p. 12). They continue to

spend more and more on R&D because they are committed to retaining industry leadership through

market-leading technology (Cochlear Ltd, 2018, p. 6). They are also able to access the Australian

Government’s tax incentives for significant R&D work (Cochlear Ltd, 2018, p. 3).

Growing revenue across all business units – Page 18

A sales revenue analysis allows a firm to make decisions regarding their business strategy, showing it

how products are performing, and helping it to decide on where further investments or

discontinuations are needed (Chron, n.d.).

Cochlear has produced a sales revenue analysis within its annual report, showing a breakdown of its

products’ sale revenues. Figure 2 shows the graphic used.

Figure 2. Cochlear’s sales revenue analysis for the last 4 years. From 2018 Cochlear Limited Annual

Report, by Cochlear Ltd, 2018 (https://www.cochlear.com/shared-library/downloads/global-

downloads/about-cochlear/annual-report-fy-2018).

I believe this is a good concept and tool to use, because it can show what products are driving sales

revenues and what ones are lagging. Also, a sales revenue analysis will help a firm in deciding upon

which areas to engage in for R&D, for future product upgrades or replacements.

How common are sales revenue analyses? Where are they used most?

What other analyses will be useful in strategic product and R&D decisions?

Cash flow – Page 22

Free cash flow (FCF) is a measure of profitability that is the calculation of residual cash available after

accounting for the necessary maintenance spending on operations and the capital assets

(Investopedia, 2019). Being a pure cash measure, it excludes non-cash items.

Operating cash flow (OCF) is another measure of profitability that is the calculation of the cash

generation from a firm’s normal business operating activities (Investopedia, 2019). Being a pure cash

measure, it involves using the earnings before interest and taxes (EBIT) and then making changes

with non-cash items, in order to arrive at the OCF (Investopedia, 2019).

I agree with these key concepts, because they are very different concepts, being arrived at in

different ways. Nevertheless, they are similar also, being both cash measures. They can both be

measures of success for a firm! In ACCT11059, I had some confusion in thinking they were both the

same thing. Yet while reading the ACCT11059 Study Guide, ‘cash’ was actually often meaning FCF.

But I did not know what FCF was before ACCT11059. I only knew what OCF was. However, they are

both different. FCF is always a certain bottom line total, OCF is not.

Cochlear has obviously put together much financial analysis for potential investors. This is very

organised. The figures of the FCF and OCF in particular, will be useful and of great interest for any

sophisticated investors.

For FY2017-18, Cochlear’s figures are strong: OCF = A$258.1 million, FCF = A$202.7 million (Cochlear

Ltd, 2018, p. 22).

In my view, this is a great way to attract more investors. That is, to do a lot of the financial analysis

work for them.

Why don’t more firms put out their FCF for potential investors?

Is it because of a lack of human capital or time taken to prepare the annual report?

What do the ‘sophisticated investors’ look for in an annual report? What is important to them?

Capital employed – Page 23

Capital Employed represents the amount of capital being used up for a firm’s capital assets and

projects, in order to generate value (Investopedia, 2019). According to Investopedia (2019), it is

calculated as:

Total Assets – Current Liabilities

or

Total Equity + Non-Current Liabilities.

I found this concept interesting, and potentially helpful for a firm, because it allows one to see the

value of the capital being used in the firm, and where it is being used, for value creation

(Investopedia, 2019). This figure is useful to calculate the return on capital employed (ROCE), which

is EBIT divided by capital employed (Investopedia, 2019).

What might ‘capital employed’ be able to tell us about the economic and business realities of a firm

beyond what has just been said?

For FY2017-18, Cochlear has A$697.0 million worth of capital employed, being an increase of A$24

million mostly by way of working capital increases (Cochlear Ltd, 2018, p. 23).

Net debt – Page 23

Net Debt represents the amount of cash that would be left if the firm’s debts were paid immediately

in the short-term (Investopedia, 2019). It only compares the liquid cash assets to the payment of the

debts, regardless of other current assets of value (Investopedia, 2019). According to Investopedia

(2019), it is calculated as:

( Short-Term Debts + Long-Term Debts ) – ( Cash + Cash Equivalents ).

I thought that this concept was useful, but somewhat confusing, being among so many other debt

metrics out there. Some of the other debt metrics that exist are: Debt-to-Equity Ratio, Cash

Conversion Rate, and the Net Liquidity Ratio (Investopedia, 2019). Each other metric has its own way

of analysing and looking at the debt situation of a firm. I would love to know the difference and

significance of each.

What are the other debt metrics? What are their differences?

When should each type of debt metric be used? How can they be used together?

What is the best way to make a sound judgement about a company’s solvency?

What is the best way to make a sound judgement about a company’s debt situation?

Should ‘net debt’ best be used in conjunction with other debt metrics, to get a better picture?

Cochlear has obviously given prominence to the ‘net debt’ concept and calculation. Just how often is

it used in companies?

Areas I Found Difficult to Understand:

I found some of the terminology used difficult to understand. In particular, ‘indications’ on page 5

and ‘tender activity’ on page 20.

In the health care sector, indications are the latest innovations relating to existing treatments that

are already available (Investopedia, 2018).

Tender activity, in the context of the cause of growing sales revenues, refers to Cochlear’s winning of

contracts, in order to go ahead with the supply of their products (Investopedia, 2019).

Areas That Were Most Important to Me:

The following areas were of most importance to me:

The recent Financial History, the Chairman’s Report, the CEO & President’s Report, the Investment

Proposition, the Growth Drivers, the Company Strategy, the Results of Operations, the Financial

Review, the Business Risks, the Financial Statements, and the Shareholder Information.

These areas were important to me, because I really want to engage with and connect to the

economic and business realities of this firm. In other words, I want to find out what is really going

on, and what makes this firm tick. What makes it successful. What drives its value creation.

Therefore, these areas were important to me so I could learn about and discover Cochlear’s

economic and business realities.

About the Key Challenges:

Cochlear is doing extremely well. Therefore, their key challenges look more like opportunities than

difficulties.

One of Cochlear’s main key challenges is to raise awareness among, and treat, the 95% of people

who could benefit from a quality implantable hearing solution and who are currently missing out

(Cochlear Ltd, 2018, p. 9). This presents a great opportunity to Cochlear (Cochlear Ltd, 2018, p. 2).

Figure 3 highlights the situation. This is expected to drive Cochlear’s growth and that of its industry

(Cochlear Ltd, 2018, p. 9).

Figure 3. The hearing loss market. From 2018 Cochlear Limited Annual Report, by Cochlear Ltd, 2018

(https://www.cochlear.com/shared-library/downloads/global-downloads/about-cochlear/annual-

report-fy-2018).

Another challenge for Cochlear is to maintain innovation and R&D investments. The reason for this is

to retain market leadership and remain competitive and sustainable (Cochlear Ltd, 2018, p. 25). As

new products and services become replicated by their competitors, the price of these will fall, and

consequently the revenues (Cochlear Ltd, 2018, p. 25).

An additional challenge is to deliver on their plans for continued growth and a dividend payout of

70% of net profit (Cochlear Ltd, 2018, p. 18). Cochlear has made ambitious plans. However, recent

business and market conditions would suggest that they will probably deliver. Nevertheless, they are

forecasting a weighted average AU/US exchange rate of 75 cents for the 2018-2019 financial year

(Cochlear Ltd, 2018, p. 6). On recent exchange rate figures, for the year so far, I’m not sure they will

hit this target. They may end up falling under it.

How it is meeting the Key Challenges now:

Cochlear is building collaborative partnerships to achieve research and treatment access for those

affected by hearing loss (Cochlear Ltd, 2018, p. 3). Initiatives include:

- committing US$10 million over 10 years to the Johns Hopkins Bloomberg School of Public Health in

the United States, in order to address hearing loss as a global health priority;

- setting up the Cochlear Chair in Hearing and Healthy Ageing at Macquarie University in Australia, to

bring about collaborative research; and

- partnering with the Chinese government and universities to establish an international hearing

research centre (Cochlear Ltd, 2018, p. 3).

Cochlear is continuing to spread awareness about hearing loss and their solutions, through their

products, programs and services (Cochlear Ltd, 2018, p. 5). Initiatives include:

- strengthening Cochlear’s servicing capability to provide world-class products, programs and

services;

- investing in sales and marketing activities, including direct-to-consumer marketing activities and

marketing through the hearing aid channel; and

- reinvesting efficiency gains into more market growth activities (Cochlear Ltd, 2018, pp. 5-6).

Cochlear is going to keep on investing significantly in innovation and R&D (Cochlear Ltd, 2018, p. 6).

Initiatives include:

- monitoring the world for new technologies that may advance Cochlear innovations;

- making small early-stage innovation investments with other organisations, like Otoconsult working

on technology to have a superior cochlear implant fitting, Sensorion looking into therapeutic

approaches with cochlear implants, and Epi-Minder developing a monitoring device for epileptic

seizures; and

- investing in product developments to grow sales revenues (Cochlear Ltd, 2018, p. 3).

Cochlear is striving to maintain its growth. They seek to work toward delivering excellent customer

outcomes, and returns for investors. Initiatives include:

- continuing product developments;

- promoting market growth activities;

- reinvesting operating cash flows for building awareness and market access;

- upholding disciplined investment;

- reinvesting any efficiency, currency or tax gains into market growth activities; and

- progressing large long-term investment projects, like the construction of a new Chinese

manufacturing facility and stronger IT platforms to advance health, digital and cyber security

capabilities (Cochlear Ltd, 2018, p. 6).

“Cochlear invests more than $160 million each year in R&D and currently participates in over 100

collaborative research programs worldwide.” (Cochlear Ltd, 2018, p. 7).

About the Company Strategy:

Figure 4 sums up Cochlear’s chief business and mission is, i.e. what they set out to do.

Figure 4. Cochlear’s chief business. From 2018 Cochlear Limited Annual Report, by Cochlear Ltd, 2018

(https://www.cochlear.com/shared-library/downloads/global-downloads/about-cochlear/annual-

report-fy-2018).

Cochlear wants to be the standard of care for people when it comes to hearing loss (Cochlear Ltd,

2018, p. 11).

Their strategy centres on:

- activities to build awareness of hearing loss and their products,

- efforts to improve access to hearing solutions,

- strengthening servicing capability to provide products, programs and services for patients, and

- being the industry technology leader by investing in R&D to improve hearing solutions (Cochlear

Ltd, 2018, p. 11).

Figure 5 sets out what Cochlear are trying to do to fulfil and accomplish their mission.

Figure 5. What Cochlear is doing in terms of strategy to accomplish their mission. From E. M.

Spurway, 2019.

Figure 6 shows what Cochlear’s strategic priorities are.

FOCUS ON CUSTOMERS

Activities in growing awareness and industry access.

FOCUS ON DELIVERStrengthening service capability to support

customers.Improving hearing outcomes through

R&D and innovations.

COMPANY STRATEGY

to accomplish the Mission

Figure 6. Cochlear’s strategic priorities. From 2018 Cochlear Limited Annual Report, by Cochlear Ltd,

2018 (https://www.cochlear.com/shared-library/downloads/global-downloads/about-cochlear/

annual-report-fy-2018).

Retain market leadership

Cochlear is delivering market-leading products, generating strong sales revenues (Cochlear Ltd,

2018, pp. 12, 19). They recently delivered A$1,351.4 million overall, up by 9% in FY2017-18,

including:

- 62% from cochlear implants;

- 26% from services, including sound processor upgrades and accessories; and

- 12% from acoustics, including bone conduction and acoustic implants (Cochlear Ltd, 2018, p. 19).

They are also striving for a world-class experience for customers, through reliable products and

consistent customer engagement efforts (Cochlear Ltd, 2018, p. 14).

Grow the hearing implant market

Cochlear seeks to build market awareness, access, and hearing solutions based on clinical evidence

(Cochlear Ltd, 2018, pp. 15-17). Figure 7 shows their target market segments.

Figure 7. Cochlear’s chosen market segments and targets. From 2018 Cochlear Limited Annual

Report, by Cochlear Ltd, 2018 (https://www.cochlear.com/shared-library/downloads/global-

downloads/about-cochlear/annual-report-fy-2018).

Deliver consistent revenue and earnings growth

Cochlear seeks to invest significantly in sales, marketing and R&D activities; reap and reinvest savings

from operational efficiencies through their scale; and maintain a strong Balance Sheet and FCF with

the aim of returning substantial dividends to investors (Cochlear Ltd, 2018, p. 18).

Media Links:

Videos about Cochlear:

These videos are chiefly about the Cochlear company.

Cochlear™ Company profile (02:58 mins)

Cochlear's 30 year mission (01:42 mins)

Scientific Invention of Cochlear Implants Helps Those with Hearing Damage (02:26 mins)

These videos star Cochlear’s First Global Hearing Ambassador, Australian cricket legend Brett Lee.

Cochlear's First Global Hearing Ambassador - Brett Lee (00:22 mins)

Cochlear's Sounds of Cricket campaign advertisement (00:31 mins)

Cochlear Global Hearing Ambassador review featuring Brett Lee (02:15 mins)

These videos show some of Cochlear’s products.

How a cochlear implant works (00:45 mins)

Nucleus® 7 overview - the first cochlear implant sound processor that’s Made for iPhone (01:59

mins)

Nucleus 7 Sound Processor is a cochlear implant product.

How the Baha Connect System works (01:05 mins)

Baha sound processor is an acoustic product.

Videos about some of Cochlear’s main competitors:

MED-EL Medical Electronics

MED-EL The Greatest Gift (01:42 mins)

The MED-EL SYNCHRONY Cochlear Implant System: It's Your Moment (01:33 mins)

Advanced Bionics – a Sovona Group Company

Why Choose Advanced Bionics (03:03 mins

New to Cochlear Implants? (00:31 mins)

Sovona

Sonova – For a life without limitations (01:42 mins)

Videos about the Health Care Equipment and Services Sector:

How To Get A Cochlear Implant | 3 Step Process (05:13 mins)

3 Biggest Lies In The Hearing Aid Industry And Why They Should Make You Angry (04:50 mins)

Australian Hearing Hub: Empowering, Transforming, Innovating Hearing Implants Around the World

(02:59 mins)

Videos about Cochlear’s Opportunities and Challenges:

ASEAN NOW – Cochlear

ASEAN is the Australian Government’s Australian Trade and Investment Commission

Recent News Articles about Cochlear:

(2019-03-05) Top broker slaps buy rating on Cochlear shares

(2018-02-13) Cochlear adds R&D reform to tax wishlist

Recent Feature Articles about Cochlear:

NSW Government Department of Industry – Case Study – Cochlear Limited

Australian Advanced Manufacturing Council – Showcase – Cochlear

Salesforce.com – Customer Success Story – Cochlear

Recent News Articles with relevance to Cochlear’s Opportunities and Challenges:

(2018-11-26) The Implant Files: Australian Taxation Office targets $12b medical device industry

Recent News Articles about the Health Care Equipment and Services Sector:

(2019-02-08) Call to regulate the hearing aid industry

(2018-09-28) Leading Australian hearing clinic pays penalties for misleading customers

(2015-10-06) Hearing experts warn against privatisation of Australian Hearing in already-pricey,

'cowboy' industry

Recent Feature Articles and Reports about the Health Care Equipment and Services Sector:

Deloitte – 2019 Global health care outlook – February 2019

Macquarie University – Cochlear implants: not just for babies – March 2019

The Motley Fool – Should you buy these 3 ASX healthcare giants? – July 2018

PricewaterhouseCoopers’ Review of services and technology supply in the Hearing Services Program

for the Australian Government Department of Health – September 2017

Hearing Care Industry Association – About Hearing Loss – June 2017

Cochlear Blogs:

Hear & Now – Cochlear Americas

Hear & Now – Hearing Center – Cochlear Americas

Health Care Equipment and Services Sector Blogs:

American Cochlear Implant Alliance – Community Blogs

SCIC Cochlear Implant Program, a service of the Royal Institute for Deaf and Blind Children – Blog

Health Care Equipment and Services Sector Websites:

SCIC Cochlear Implant Program, a service of the Royal Institute for Deaf and Blind Children - Links

Australian Hearing Hub

Hearing Care Industry Association

Australian Government’s hearing website and other links

Australian Government Department of Health – Hearing Services Program

Better Hearing Australia

AusBiotech – Australia’s Biotechnology Organisation

ASX Listed Health Care Equipment & Services Companies

S&P/ASX 200 Health Care (Sector) - Market Index

Cochlear’s Competitors:

MED-EL Medical Electronics

Advanced Bionics – a Sonova Group Company

Sonova

Discussion with Zacchary Hulsman on Moodle:

Tuesday, 2 April 2019, 5:10 PM

Hi Zac,

I enjoyed reading about your firm, Bapcor. Great job so far! Here are my thoughts:

I think you have a very successful firm, because it seems to be have done so well so soon after their

initial public offering (IPO). Certainly, having the earnings before interest, tax, depreciation and

amortisation (EBITDA) growing year upon year, is a very good sign of great performance for the firm.

I think you made an interesting comparison made between your firm and the firm of Candice Morris,

i.e. Bapcor v Bod Australia. It looks like you are engaging well with the economic and business

realities of both firms. This has made me think what my firm emphasises again and again. What is it

that my firm, Cochlear Ltd, keeps coming back to? What is the main thing, where it seeks the most

advantage over its competitors? And what is the key business driver of my firm? I would have to say

it is innovation and R&D efforts that are its main competitive advantage. As for the key business

driver, market expansion, sales and marketing activities are the chief drivers. These three activities.

I checked out Bapcor’s 2018 Annual Report and compared it to my firm, Cochlear Ltd. One difference

between our firms is that Bapcor has a “Consolidated Statement of Comprehensive Income” and my

firm has an “Income Statement”. Same things but with different names.

One similarity is that both of our firms are very profitable. Almost at the same level as well. Bapcor

operating revenues of $1,236,681,000 in 2018 and $1,013,553,000 in 2017. Cochlear has operating

revenues of $1,363,700,000 in 2018 and $1,253,800,000 in 2017. Very similar!

Bapcor’s financial statements are organised a bit differently, compared to Cochlear. Your firm is a

parent company with subsidiaries. They seem quite open, and break the expenses up more than

Cochlear does.

I do feel like Cochlear Ltd are not that open on expounding upon some of their strategies and

financial particulars. One of the disadvantages of being a public company is a loss of privacy.

However, public companies know that annual reports are more like marketing documents than a

detailed analysis of what’s going on. Therefore, they don’t have to be very detailed and can get away

with hiding sensitive truths by just putting out the general information.

Like you, I also am happy with my firm being a profitable one. In ACCT11059, my firm was Greatcell

Solar Ltd. It was really struggling financially, due to a lack of sales, and lack of manufacture of

products for sale. It has since gone into administration mode, with an administrator being appointed

to it.

I found it a fascinating talk you gave about Melrose PLC. This is fascinating for me, because I know

that this is what private equity companies usually do. They buy, improve, and then sell start-ups. I

think they would still focus on maximising the value of their investments, but this would be a long-

term thing. Perhaps 3 to 7 years. The important thing is to calculate a positive Net Present Value

(NPV), whatever the project or investment might be.

I totally agree with you that the retail industry would be a little more predictable than the

manufacturing industry. I think your reasons are very good and valid. There probably is more scope

for adaptation and change with the retail industry than the manufacturing industry. You made an

excellent point about liquidity too. The retail industry being more liquid than the manufacturing

industry. I thought you were spot on by saying that liquidity makes for a more secure investment.

You now have me thinking thoughts about the future assessment step with inventory policies!

Your work has also made me think about the impact of my firm’s industry. Cochlear’s industry is the

health care equipment and services sector. I wonder how the firms within the sector are in nature;

regarding scope of change, liquidity, natural reactions to sector events, etc.

Again, like you, I feel I can relate to my firm of Cochlear Ltd more than Greatcell Solar Ltd, because I

have heard of Cochlear before but I had not heard of Greatcell Solar before. I also became satisfied

with my firm as I looked into the financial figures of Cochlear, which happened to be on page 1 in

fact. Cochlear’s financial statements are also easy to read and understand, like Bapcor. Cochlear is

thriving and growing just like Bapcor. Bapcor has had record profits over the four years. Cochlear has

likewise, over the last 3 years. Similarly, I believe Cochlear has a bright future. So many similarities,

Zac!!

I liked how you used the term ‘outlier’. It made me think and wonder if there were any outliers for

Cochlear. And if there were, what they mean for the firm, i.e. what was the story behind these

outliers, in the context of the firm’s journey over time. Having looked at Cochlear’s financial history

of the last 23 years, on page 1 of the 2018 annual report, I do not see any outliers with Cochlear’s

financial results.

I found the video you linked to very good. If I was an investor, this video tells me a lot about the

company, breaking it down thoroughly so I can understand the business of the firm and where it is

and where it is going. They did a good job with it.

The first article you linked to told me that Bapcor knows their markets well. This is very important in

business, as one needs to be efficient in using a firm’s scarce resources on the market segments that

will respond best to the firm’s product offering.

The second article you linked to told me that Bapcor would be a good firm to invest in. It is surprising

that a successful firm like Bapcor should be affected by an Australian economy slowdown. But from

my experience, publicly listed companies go up and down all of the time, due to business conditions

and environmental updates and trends. However, these articles about share prices going up or down

can tell us more about our firms, what their economic and business realities are. They might give us

insights that we might not have otherwise have known.

This is great work, Zac. Keep going brother 😊

Best regards,

Evan Spurway

Discussion with Courtney Horn on her blog:

April 3, 2019 at 6:31 am

Hi Courtney,

Thanks for sharing about your firm. Here are my thoughts for the assessment discussion purposes:

Like my firm, Cochlear Limited, your firm, Azure Healthcare Limited, works in the healthcare

technology industry. Or the healthcare equipment and services industry. Also, similar to my firm, is

that Azure has a global presence, with Azure being in service markets right around the world.

It seems like Azure has a good product that sounds like it is in high demand. If something is in high

demand then it will sell well. This is very important for a firm, because demand is a key measure and

driver of a firm’s success prospects. It must sell its products or suffer financially. Cochlear supplies

cochlear implants and other innovative hearing solution services and accessories, to people with

hearing loss. This made me think about the demand regarding Cochlear’s products.

Having thought about the concept of demand, I wondered what your firm’s annual report and

financial statements were like. Like Cochlear, Azure’s 2018 Annual Report seems well presented and

easy to read. The financial statements were likewise. Unlike Cochlear, Azure’s report is in full colour!

It looks like Azure is a profitable company. It has done very well, especially after its restructuring

phase. They have healthy Net Profit, Net Assets and Net Cash From/(used) by Operating Activities

numbers.

I read the Chairman’s Report. It seems like Azure’s strategy now is to expand and grow. They want to

get into new markets. Similarly, Cochlear is also seeking to grow and is also spending big on research

and development (R&D). Both firms are looking to supply innovative products and seek market

leadership through these.

In light of this, one thing that did concern me about Azure, and that was their marketing. How much

are they spending on marketing? Cochlear significantly invests in its sales and marketing activities.

After all, if one cannot sell, then one cannot make money through its normal business activities. In

other words, without sales, a firm is doomed to fail. Unless there are other income sources, of

course. But that’s another matter entirely. I could not find Azure’s marketing financial figures.

However, Azure own four subsidiaries which appear to be involved in marketing. At least, that’s the

impression I got. The last page of the annual report looks like Azure is involved in a strategic

partnership with one of its subsidiaries, Austco Marketing & Service (USA) Ltd. This might help with

their marketing efforts, hopefully, in a big way.

It good to see Azure looking to build upon strategic partnerships and alliances to advance their

business. This is also a part of their strategy. Azure is only a small company, and therefore the extra

help from others should help them. Cochlear believes in collaboration also, and uses it in R&D works.

Good job so far, Courtney. Keep up the good work 😊

Best regards,

Evan Spurway

There is more to come!

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