130. Write 3500-4000words group report. Finance majored

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130. Write 3500-4000words group report. Finance majored. Please read the requirements and the grading rubric very carefully. This task is extremely important. Please make sure it’s quality is good. And similarities cannot be over 15per cent even with references. I have also attached a sample for you. Please make sure you can handle this task and you answer fits all the requirements. Thank you.

Please note: The company you chose has to be from the given company list. No other companies allowed!!!!!

130. Write 3500-4000words group report. Finance majored
Financial Statement Analysis Group Assignment A. Macro-economic Analysis 1. Global economy prospects Since 2012, World gross product (WGP) has performed at a median annual ratio of 2.5 per cent, appreciably below the average of 3.4 per cent recorded at a decade preceding the financial crisis (Figure 1) (United Nations 2016). Driven by prolongation of enfeebled global investment, dwindling world trade growth, low inflation, receding productivity, weak wage growth as well as high debt levels, 2016 marked as a slowest pace for the global growth of output (United Nations 2017). In comparison with 2008, 2016’s WGP is merely higher than 0.3 per cent. Besides mentioned factors, the heavy economic losses are also contributed by low commodity prices and heightened conflicts and geopolitical tensions in various regions (Global Conflict Tracker 2017). Figure 1 (United Nations 2017, p. 2) At issue is whether a sluggish economy growth will be ingrained for a longer period. According to some projections, with the end of American destocking cycle and Japan’s supporting policies, there will be a slight increase for developed economies in gross domestic product growth (United Nations 2017). Even though fiscal incentive, if effectuated, may boost global growth, risks to growth forecast could tilt to the downside, including heightened policy uncertainty, financial market disruptions (World Bank Group 2017). Furthermore, commodity exporters in developing nations are forecast to grow modestly, as stabilisation of commodity prices and inflation pressures influenced by depreciations of exchange rate ease (United Nations 2017). World gross product is projected to swell by 2.7 and 2.9 per cent in 2017 and 2018 (Appendix Table 2), respectively, with this moderate improvement more like a signal of stabilization than an indication of a robust amelioration of global economy. 2. Regional economies 2.1 Australia In 2012-2013, Australian GDP increased 3.75% (Budget 2012-2013). The growth was belowtrend due to mining investment cut down, average growth of consumer expenditure as well as continuing fiscal restraint (RBA 2013). Being impacted by the downturn of global economy, the decline of commodity prices and the threat of international financial status which might turn negative, in 2012, RBA decided to cut down interest rate in by 25 basis points (Janda 2012). Until 2013, the rate reached 2.5%, which was historically low (McGrath 2013). It encouraged dwelling price and construction as well as the turnover housing market (RBA 2013). According to data from the ATO (2017), CPI of June 2012 was 100.4, below the target set. A boost from the incline of fuel prices led to the rise of inflation rate in September Quarter, however, a decline happened at the end of the year as a direct result of the drop of carbon price (RBA, 2013). With a not-too-bright economy picture, Blackmore sales only rose $65,771 from 2012 to 2013 (Blackmores 2016). Australian GDP in 2014 climbed due to 0.4% rise in household spending, 0.8% in net exports, however, being pulled by 0.5% drop in business investment together with 0.2% fall in government investment (Janda 2014). In 2015, GDP slightly increased from 2.7% of 2014 to 2.5% (Tang 2016). In September quarter of 2015, the Australian inflation rate experienced a growth of 0.5%, which was lower than expected (Cauchi 2015). Consequently, the interest rate in 2015 was remained the same as a decision of the RBA (Parker 2015). The cut of interest rate offers consumers more discretionary money, which has positive affect on their spending willingness (Parker 2015). A positive economy influenced the boost by $124,855 of Blackmore sales (Blackmores 2016). Due to eases of the detraction from mining investment, in 2015-2016 and 2016-2017, Australian economy is expected to rise 2.5% then surge to 3% in 2017-2018. The slowdown in the growth of non-mining investment is a risk of real GDP. And if it continues to remain unchanged in 2016-2017 and 2017-2018, real GDP would be 0.5% lower than forecast (Treasury 2016). Over 2016, the Australian inflation rate was 1.5% with CPI went up by 0.5%, which was lower than prediction. Consequently, pricing dropped all over the year. Moreover, the unemployment rate has experienced a decrease from 6.1% to 5.5% from 2014-2017 and is expected to remain until 2020. Generally, Australian economy has significantly gone up since 2015. As a result, a surge has been occurred in Blackmores sales from $471,615 of 2015 to $717,211 of 2016. With a brighter picture predicted for the economy, Blackmores might also have a better future if the company’s managers still maintain and develop good strategy. 1 Figure 2 – Blackmores operations and markets (Blackmores 2016, p. 3). Figure 3 – Blackmores Geographical Segments – Revenue (IBIS World 2016, p. 8). Figure 4 – Blackmores Revenue & Net Profit After Tax (IBIS World 2016, p. 6). 2 2.2 East Asia and Pacific 2.2.1 China In 2016, national output estimated at 6.7 per cent, marginally decreased from last year growth of 6.9 per cent (Figure 5). As being projected, the economic growth in China would continue to decelerate steadily and is likely to hit 6.4 per cent in 2017-19 (Zhang 2016). After several years (2012-15) of being negative, producer price inflation eventually bottomed out. This is mainly contributed by overcapacity eased and recovery of raw material prices (World Bank Group 2017). The low inflation of 2 per cent along with benign financing conditions are direct factors in making strong domestic demand growth in 2016 (World Bank Group 2017). Figure 5 (World Bank Group 2017, pp. 86-88) Varied accommodative policies have been promulgated to support economic activity, multiple policies to cut down interest rates in 2015, for example (World Bank Group 2017). Whilst total credit of non-financial sector reached a new GDP high – 255 per cent in the 2016 second quarter (BIS 2016), financial markets have endured steady since the first. Capital outflows have also eased (at less than 4 per cent of GDP in quarter two of 2016), however still maintain sizable compared to period of 2011-14 (Figure 6). Figure 6 (World Bank Group 2017, pp. 84-85) 3 Foreign reserves continued to drop in 2016 (depreciating at $3 trillion for the year ending), yet more optimistic than the previous year (Dufour 2017). In comparison with 2015, the Renminbi has devalued almost half against the Australian dollar (AUD) and touched bottom at 0.19 AUD for a Chinese Yuan during 2016 last quarter (Figure 7). Figure 7 – Chinese Yuan to Australian Dollar Chart 2015-2016 (XE 2016). 2.2.2 Rest of the region Growth in other East Asia Pacific regions maintained at 4.8 per cent. The major factor is the weakened external demand was primarily offset by resilient domestic demand (World Bank 2017). Low and dwindling inflation (3 per cent) permitted regional central banks to keep accommodating monetary policy standpoints (Figure 5) (World Bank Group 2017). Economic growth recovered in importers of commodity, preceded by Philippines and Thailand (World Bank 2017). In Malaysia, as a consequence of diminished revenue from exporting energy, the current account surplus was narrowed and growth rate was burdened, but strong domestic demand has made up at some aspects (World Bank Group 2017). Meanwhile, in Indonesia, accommodative monetary policy lifted domestic demand, boosting Indonesian growth to 5.1 per cent (World Bank Group 2017). In the last quarter of the year, majority of regional currencies have come under renewed strain, especially the Malaysian Ringgit, reflecting intensified world volatility and deficiency of stimulated measures to enhance the foreign exchange market liquidity (World Bank Group 2017). 4 2.2.3 Impacts To build on substantial trading relationship between China and Australia, the China-Australia Free Trade Agreement has entered into force on 20 December 2015, and shall be fully implemented on 1 January 2029 (‘China-Australia Free Trade Aggreement’ 2016). Particularly with pharmaceuticals including vitamins and health products, the elimination of tariffs is up to 10 per cent (‘China-Australia Free Trade Aggreement’ 2016). With the strong growth in China domestic demand, Blackmores (2016) estimates that earned revenue of 2016 from the second largest economy operations accounted for 6.7% total revenue (Figure 4) (AU$48 million), much higher than approximately 7.5 million recorded in 2015. The extended scale, at the outcome of Asia growth, has enhanced Blackmores’s profitability, and has permitted over 100 job opportunities in Australia (MarketLine 2016). The falling strength of the Renminbi was expected to soften the demand for imports as they become more expensive for domestic buyers. Nonetheless, final data tell the otherwise. As being stated in 2016 annual report, sales revenue of year to the China market increased by 636% (Blackmores 2016). This reflects the firm’s strategy to target in middle and upper class consumers. As a result of the strong performance of Australian dollar in recent years, Asian imports have become cheaper, which enables Blackmores to obtain procurement benefits from the exchange rate movements (Clearly 2017). B. Industry Analysis Allday (2016) states that the industry is forecast to develop significantly due to the rise of consumer expenditure as well as positive export opportunities. Consumer health awareness, real household discretionary income and downstream demand from food together affect the industry Allday (2016). Furthermore, the industry can also be influenced by exchange rate and consumer sentiment (Allday 2016). There are ‘five forces’ that contribute to the average profitability of an industry. 1. Rivalry among existing firms – Moderate 1.1 Industry Growth According to Allday (2016), an incline in Australian health consciousness has led to the rise of 10.8% in the industry revenue, reaches $1.4 billion total revenue. Remaining healthy life style by purchasing and consuming imported goods is a trend in middle class consumers of Asian countries, especially China, which is predicted to the dramatically growth of vitamin and supplement industry in these countries (Allday 2016). Also, Allday (2016) expects that there will be a strong but slower increase of 3.9% annually over five years through 20212022. 5 Figure 8 (Allday 2016, p. 7) 1.2 Concentration According to Allday (2016), due to the brand-recognition demand, an increase of market share has occurred critically over the past five years. With an average level of concentration, major players of the industry still take into account of 2/3 of the industry revenue (Allday 2016). Two biggest companies of the industry, Blackmores and Swisse, are expected to endure preeminent in the next 5 years thanks to their growing of scales and worldwide presence (Allday 2016). Figure 9 (Allday 2016, p. 24) 1.3 Differentiation Vitamin and supplement industry differentiates themselves by a wide range of product lines. Allday (2016, p. 12) states that there are 3 main segments including 65.9% of health and wellbeing products, 18 % of dietary and weight control products and fitness and functional supplement accounting of 16.1%. 1.4 Scale and learning economies Allday (2016) highlighted that in order to lower marginal costs and increase profit margins, vitamin and supplement manufacturers could produce greater volumes, spread production cost over a wider amount of goods to lower cost-per-unit. 6 Figure 10 (Allday 2016, p. 13) 1.5 Excess capacity and exit barriers According to Allday (2016), purchase cost, wages cost as well as rent and utilities cost of vitamin and supplement industry has experienced a growth in 2016-2017. Allday (2016) indicates that a high level of capital intensity is the reason that drives the entry and exit cost of the industry expensive. 2. Threat of new entrants – Medium An expectation of increase in the industry new entrants concentrating on niche or specialty products has been forecasted, which drives higher competition in the industry and puts a burden on prices (Allday 2016). 2.1 Economies of scale Over the past 5 years, the increased real household discretionary causes the rise in demand of vitamin and supplement market. Consequently, major players have raised the volume of manufacturing which results in the growth of economies of scale (Allday 2016). This is a challenge for new entrants to approach the market. 2.2 Access to channels of distribution and relationships Following Allday (2016), with the domination of all the existing firms on the distribution channels, it causes difficulties for new companies those want to enter the industry. Moreover, in the coming years, all the material players will be expected to carry on expanding their relationship with channels of distribution to secure their position in the market towards in entrance of new competitors. 7 2.3 Legal barriers Allday (2016) notes that all the vitamin and supplement products are governed by Therapeutic Goods Act 1989 under regulation by the Australian Therapeutic Goods Administration (TGA). The act also mentioned about the manner and social responsibility of the products marketing as well as adequate and appropriate labelling (Allday 2016). With that high level of regulatory barriers, there will be difficulty for any companies that want to join the industry. 3. Threat of substitute products There are no risks of substitution for vitamin and supplement industry. However, according to Dr. Jill Silverman, people can be provided sufficiently vitamin from all the fruits and vegetable that they eat (Becker and Salahi 2010). Moreover, Dr. William Kormos also insisted that obtaining nutrients from food is better than depending on vitamin and supplement products (Willett, Sesso and Rimm 2013). To an extent, published opinion of specialists may create impact on consumers’ thoughts towards vitamin and supplement products and influenced the sales of firms in the industry. 4. Bargaining power of buyers 4.1 Key buyers Vitamin and supplement manufacturers primarily supply direct-to-consumer retailers (Allday 2016). These encompass: • • • • Supermarkets and grocery stores; Pharmacies; Specialty stores; Others (department stores, direct mail orders from consumers, Internet orders from manufacturers’ and wholesaler websites, and health service providers). Figure 11 (Allday 2016, p. 14) 8 4.2 The bargaining power 4.2.1 Price Sensitivity Price sensitivity of buyers depends on whether the manufacture using differentiation or switching costs as strategy, and emphasis of goods on their cost structure (Palepu 2013). Additional, the significance of the product to buyers’ quality of products can also be in consideration of whether price is the key component of purchase (Palepu 2013). One characteristic of the industry is rather than price competitiveness, quality of goods; investment in manufacturing appliances; and number of available products are more a concern for vitamin and supplement manufacturers. This is principally due to differentiation to meet diverse demand of health conscious consumers. 4.2.2 Relative Bargaining Power The bargaining power of buyers is governed by the correlativity of number of buyers to number of suppliers, each buyer’s volume of purchases, and number of available substitute products for buyers to switch (Palepu 2013). Vitamin and supplement manufacturers are more likely to produce high-quality goods in an efficient manner. Manufactures that have a good reputation in the market and wide product offerings are favoured and dominated at approximately 60% the market. Because of this number of alternative products is somehow limited. Similarly, with only few vitamin and supplement suppliers in the market – 184 firms, it is unlikely to meet the constantly rising demand (Allday 2016). 5. Bargaining power of suppliers – Limited Most domestic vitamin companies source largely ingredients from overseas including the big names. While the outsourcing makes 90 per cent of Blackmores’ product, it accounts for 70 per cent of Swisse’s supplement (Clearly 2017). This is part of cost cutting strategy and capturing the surge demand of general wellbeing products in Chinese market. Said by Richard Henfrey – the Blackmores chief operating officer, the major source of supply for its vitamin C and glucosamine was China (Clearly 2017). Additional, krill oil – main ingredient for the famous krill oil capsules was supplied by a Norwegian fishing and biotech company - Aker Biomarine Antarctic (Marine Stewardship Council n.d). Blackmores also approaches load production from Canada, America, Germany, Sweden and Holland such as its probiotics from BioGaia (AB) – a Swedish enterprise (Table 2), and only uses local producers to meet demand when necessary. For key contractors in Australia, Blackmores works with Lipa Pharmaceutical in Sydney, and Catalent in Melbourne. 9 Vitamin and supplement ingredients and sources are the crucial component to businesses within the industry. However, as the diversity in types of suppliers and competitive prices, buyers have a great deal of power over suppliers and are able to switch one from another easily. Table 1 Supermarkets Pharmacies Specialty Stores Others Price sensitivity Level Fraction of buyers’ cost Low Moderate Sales of grocery play as the main income rather than supplements consumption. Relative bargaining power Level Medium Number of businesses in industry of supermarkets and grocery stores is accumulated to more than 2000 (Allday 2016), while only 184 authorised vitamin and supplement manufacturers (Allday 2016). Further, health products account for 10.7% of supermarket segmentation (Cloutman 2017). Medium Large Medium Specialised in pharmaceutical Over 4000 businesses with 79% of products and vitamin and prescription and non-prescription supplements medicines of products segmentation (Richardson 2017). Medium Large Low-to-medium Income largely based on sales of specialist products including dietary and weight control products, and fitness and functional supplements High Small-to-moderate Low Orders from firms that are likely with limited capital, therefore, price is most influenced purchasing factor. 6. Conclusion Within vitamin and supplement industry, rival among existing companies remains moderate. Due to the rise in purchase, wages as well as rent and utilities costs from 2016-2017, the industry is considered as expensive to enter and exit. For new entrants to participate into the market, economies of scale increase, the lack of possibility to approach channels of distribution due to all the big players existing relationships and heavy legal barriers are challenges they might have to overcome to sustain. There are no threats of substitute for this industry but natural healthy foods such as vegetables. Buyers bargain power is medium while it is low for suppliers. Overall, the competitive level in this industry is moderate to high. 10 Table 2 – Blackmores Product Pipeline (Medtrack 2016). 11 Figure 12 – Porters’ five forces DEGREE OF ACTUAL AND POTENTIAL COMPETITION Moderate rivalry among Existing firms Medium threat of New Entrants Threat of Substitute Products • • • • • • • 10% industry growth rate in 2016 Moderate degree of concentration Differentiation Medium scale Medium-high entry/exit barriers. • • Arise economies of scale Moderate access to distribution channels Heavy level of regulation and continue to remain. No substitute products. INDUSTRY PROFITABILITY BARGAINING POWER IN INPUT AND OUTPUT MARKETS Limited bargaining Power of Suppliers Bargaining Power of Buyers • • Various retailers including super markets, pharmacies and specialty stores with significant purchase volume Price sensitivity and Relative bargaining power depend on the number of purchases and fraction of the buyers in cost structure of suppliers. • • 12 Dominance of overseas outsourcing Buyers have power over suppliers C. Business Strategy Analysis 3.1. Key success factors In 2016, Blackmores Company has achieved a successfully growth as a result of well complying and developing their strategies, which consists of: Consumer Centricity, Asia Growth, Product leadership and Operational effectiveness. 3.1.1 Consumer Centricity Suppliers provide Blackmores with the highest quality source of raw material and offer the company a chance to select the best ingredients available (Blackmores 2016). Despite out of stock, Blackmores’s products are committed to be qualified. In such situation, the company will work with suppliers to improve the availability of raw ingredients and raise the production’s capacity (Haggan 2015). The company also has the leading position in the vitamin and supplement industry. Furthermore, due to the fact that the number of Chinese bulk buyers of Blackmores’ products has a great impact on Australian retailers, the firm decide to serve those customers by sustaining and developing their China business (Blackmores 2017). 3.1.2 Asia Growth To develop the differentiation strategy, within 2016, Blackmores have produced 117 new products with the new invent in medicinal cannabis of their partnership- BioCeuticals (Blackmores 2016). According to Buresti, Hill and Clift (2016), the brand differentiation and brand relevance of Blackmores have gain an incline of 10% in 2016. Due to Magyer (2016), Blackmores participate in the infant formula market through a joint venture with Bellamy’s supplier in 2015. It is an opportunity for the firm to capitalize and promote their brand in such booming market. According to Blackmores (2017), in spite of the complexity and challenges, direct sales from China is $64 million, which has risen 92% comparing to previous periods. Other Asian countries have contributed $40 million with the firmly gain in sales of principal markets such as Taiwan (93%), Hong Kong (49%), Singapore (19%), Malaysia (20%) and Thailand (6%) in local currencies Blackmores (2017). Moreover, a $2 million sales is occurred by the launch in Indonesia with limited range (Blackmores 2017). However, due to the adverse movements of foreign exchange, the company has to suffer a loss of $4 million dollars comparing to prior period (Blackmores 2017). 3.1.3 Product Leadership To ensure high quality products will be provided to customers, Blackmores put their concentration on research and development activities as well as engineering skills. For instance, in 2016, the firm cooperates with Griffith University to develop and deliver an attributed course in evidence-based complementary medicine (Blackmores 2016). Beside, a Blackmores Institute is also established approach natural health area through education, research and professional advisory services (Blackmores 2016). Additionally, 13 Blackmores (2016) notes that there are more than 20 involving clinical trials research projects have been proceeded in Blackmores. Furthermore, to provide effective health solutions, based on the latest research and scientific discovery, the company have produced a strong new product pipeline with $2 million of expense on development and innovation every year (Blackmores 2016). Blackmores (2017) states that strong performances of BioCeuticals and Global Therapeutics contribute $51 million of sales, which is 54% higher than previous years. The company is also benefit from acquisition of Global Therapeutics in May 2016. Apart from the acquisition, division sales has been up 19% together with the rise of all brands in this portfolio (Blackmores 2017). In spite of regulatory changes and volatile market conditions, the infant nutrition range developed in partnership with Bega Cheese remains growing constantly (Blackmores 2017). Consequently, Blackmores carries on establishing the right strategy to sustain this business in a future place. In addition, $2 million inventory provision is recorded in the first half financial outcome (Blackmores 2017). 3.1.4 Operational effectiveness According to (Blackmores 2017), decreasing and redirecting costs is still a management concentration in the business. In the first half, company has recorded a flat in other operating costs (Blackmores 2017). Moreover, to develop brand and infrastructure for the future, Blackmores invests in the lease as well as additional warehousing fit-out in Western Sydney, Indonesian new business and operating expenses of Global Therapeutics (Blackmores 2017). 3.2 Key risks 14 Table 3 – Key risks of the Blackmores’s strategies 2 3.3 Forecast the future performance 3.3.1 Sustainability Blackmores (2017) highlights that sustainability is the basic principal objective of the company, including 4 sustainability commitments: • Responsible Facility Management: To lower the burden for the environment by cutting down carbon foot print in the firm’s operation activities and provisions. • Sustainable Supply Chain Management: To provide social as well as environmental encouragement, support and facilitation to the supply chain administration. • Industry Leadership: To maintain the leader position in natural health solutions via innovation, research and education. • People and community: To give feedback and construct auxiliary labor force, community and marketplace. Also, Blackmores has a commitment of sharing perception and knowledge with their suppliers, partnerships, shareholders and government. Figure 13 (Blackmores 2016). 3.3.2 Forecasting Despite the average growth in sales of Asian markets excluding China, Korean operations had quite a tough year and eventually resulted in earnings reduction of $2,798 thousand in the 2016 financial year (Blackmores 2016). This principally because of the heightened competitiveness in Korea, since Korea also has an extreme developed pharmaceutical production, and participation of high-quality Japanese vitamin and nutritional manufacturers. Additional, the release of any sensitive information regarding unfavourable changes in tax commerce or regulation of operating markets, may also adversely affect in the future financial performance of Blackmores and the enterprise’s share value. Nevertheless, impact of those mentioned factors will only be temporary. In terms of Australia, remarkable participation in the total sales revenue of Chinese tourists and students and the increasing in health consciousness over years, it is likely to maintain the present growth. Additionally, the promising land – China is expected to surge in demand further next year due to prejudice towards local pharmaceutical goods and future strategy in developing differentiated product lines that concentrate on Chinese herbal medicine – Global Therapeutics and expanding more operations. Therefore, it is potential that in long term Blackmores will sustain and even keep growing. D. Accounting analysis Accounting analysis aims to facilitate managerial decision making and assess the liquidity, stability and profitability of a business entity which keeps investors informed about the firm’s financial situation. By examining the information obtained from various financial statements carried out by professionals, it extrapolates the firm’s historical statistics into estimates of future performance by improving the reliability of its financial accounting reports. (Palepu 2013) 1. Step1 – Identify Accounting Policy Blackmores has an accounting system for manufacturer. Sales of goods are main income for the company. Blackmores records sales as the ownership of goods is transferred and the legal title is passed. In addition, the amount of revenue, the economic benefits inflow and the costs are measured reliably. Secondly, Blackmores uses production costing system to valuing inventory. The production costs included ingredients, raw materials and finished goods. The inventory cost is traced by direct labor, direct material and overhead costs. The company chooses the most appropriate method to allocate overhead costs for each class of inventory. Blackmores uses first in first out basis to calculate inventory costs. Its means the assets come first are used first. Research and development cost is recognized as expenses in period when is incurred. Those costs shall be recognized as asset if the company can demonstrate the all in following table 1 from Balckmores annual report 2016: Table 3 As a consequence, the intangible asset is recorded at cost less accumulated amortization and impairment loss. From 2014 annual report, the company recognize brand name as an intangible asset with indefinite useful life and cannot be amortized (AASB 138.63, 2015). 2 Depreciation is applied on property, plant and equipment. Land is not depreciable. Depreciation costs are determined using straight-line basis. The asset will be written off to the estimated residual value in the same basis. To estimate useful lives, residual values and depreciation method will be reviewed at the end of the period. The table 1 from Blackmores annual report 2016 has shown forecasted useful lives are used in the straight-line basis. Table 4 Similarly, amortization of intangible assets with finite lives, which are acquired separately, are equal to cost less accumulated amortization and impairment losses. Its also use straight line basis over their useful life. At the end of each period, Blackmores assesses amortization method and estimated useful life. However, intangible assets with indefinite lives are equal to cost less accumulated impairment losses. Finally, the amount of receivables must be fixed and specific, not quoted by a floating market. Blackmores measure receivable at amortized cost. It means that receivables are calculated by effective interest method less impairment. The effective interest rate will be used to calculate long-term receivables. However, the short-term receivables are not counting due to the insignificant interest. 2. Step 2 – Access Accounting Flexibility Blackmores are flexible to choose the policy for calculating inventory depreciation and receivables. The requirement for sale, and research and development is robust. Therefore they are lacks of flexibility. Sales must be recorded at specific time and measurable amount. Inventory is hard to estimate, they are flexible policy lead to increase accuracy. Allocate overhead can through three methods, which are plan wide, depreciation and ABC. To choose one of these based on the product’s features. They also have options on accounting policy for product costing through LIFO and weighted average. For R&D activities which normally recognises as expenses, if Blackmores want to recognise as asset, it need to meet all the criteria from AASB138.57 (2009).The asset recognition of R&D will help company to better show its financial position. There are three methods for business to account for depreciation account, which are straight-line, diminishing balance and unit of production method. Businesses can choose the most suitable method based on the economic benefit inflow pattern and the accessibility to the accounting information. The reason for that is that businesses have different ways to use their assets and some method requires more cost to collect information and calculate than other in large scale. The same flexibility is also applied for amortization for intangible asset with finite life. However, AASB 138.104 (2009) requires business not to amortize intangible asset with indefinite useful life. AASB 139.AG26 (2010) has a robust policy for businesses to record the amount of receivables. However, the 3 effective interest method provided flexibility for companies to account for amortized cost for financial asset. 3. Step 3 – Evaluate Accounting Strategy The accounting policy used by the company help to meet the company strategy and optimise their process .The requirements of sales recognition from AASB 118.35 (2010) and receivable from AASB 139.AG26 clear and specific. Therefore, Blackmores don't have any adjustment in sales in last 5 years. The company have variety products range. Consequently, each class of product need a suitable method to allocate overhead costs. Hence, the application of several methods helps Blackmore to gain accuracy in inventory valuing. The FIFO method is well qualified for their inventory process. Since, the vitamins and supplements are their main products. Thus, most of the raw materials and ingredients don't have long expiration date. Internal generated intangible assets recognised from R&D activates improve BM’s financial position. As its priority for ongoing success is to have leading position in industry, BM invests significantly on R&D activities. Additionally, these actives contribute to the value of the company. However, there are harsh criteria to satisfy to recognise asset from R&D. It shows in the several adjustments of R&D expenditures in the annual report of 2012 and 2013. Brand name haven been recognised from 2014 as intangible asset with indefinite useful life. Therefore, the intangible asset balance developed will illustrate usage of asset. However, brand name account is essential for Blackmores as it is becoming famous globally. In contrast, Vitaco (2016) having similar business model and product doesn't recognise brand name asset. Straight method simplifies the accounting process, however it is not the appropriate for some types of product. The method is the best option for deprecation when the business cannot predict the usage pattern of asset and it can fit most types of business (Keythman n.d). The accounting information required for the method is also easy to collect. Weighted average will better reflect the asset usage in some situation. Nevertheless, the method demand for more information to be collected and it may cost remarkably for large firms. 4. Step 4 – Evaluate The Quality of Disclosure In Blackmores’ annual report 2016, has provided auditor’s independence declaration, the auditor has provided their own opinion and stated Blackmores provide true and fair view of its financial position and its performance in the last five year and complying with Australian Accounting Standards and the cooperate regulations 2001. 5. Step 5 – Indentify potential red flags Despite restrictive accounting rules, Blackmores Limited uses the same accounting policy for the past 5 years. As a result, there are no accounting distortions found in the company’s annual report. 6. Step 6 – Undo any accounting distortions As there is free from potential flag ship, no adjustments need to be conducted. 4 Table 5 Conclusion Overall, until this point, Blackmores Limited remains its leading position in vitamin and supplement industry. This report has provided a brief analysis for the world economy as well as the economies of countries where Blackmores accounts of a considerable market share such as Australia, China and other Asian countries. Also, the report utilises Porter’s Five Forces to analyse the moderate rivalry among existing firms in the industry, the medium level of new- entrant risk, the average power of bargain towards buyers as well as the limited suppliers bargain. Moreover, the report lists out Blackmores’ key of success thanks to complying their 4 strategies: Consumer Centricity, Asia Growth, Product leadership and Operational effectiveness. Risks for the business are also noted and predicted consisting of: supply constraints; product quality issue; brand damage; treasury risk; regulatory changes; reliance on customers and markets; competitors; threat of “grey market”; and transition to cost leadership and after that is the sustainability analysis. Lastly, 6 steps comprising identify accounting policy; access accounting flexibility; evaluate accounting strategy; evaluate the quality of disclosure; are used to analyse Blackmores’s accounting system. In order to maintain being the leader in the industry, Blackmores Company should continue to develop their strategy to adapt with the change of the economy as well as day-to-day changing of customer’s demand. 5 REFERENCE ‘China-Australia Free Trade Aggreement’ 2016, Ecodate, vol. 30, No. 2, pp. 9-12, viewed 10 April 2017, . Abernethy, J. 2010, ‘Evaluating Blackmores’, Switzer Daily, viewed 10 April 2017, . 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Bank for International Settlements 2016, ‘BIS Quarterly Review September 2016: International banking and financial market developments’, BIS, Basel, Switzerland, viewed 10 April 2017, < http://www.bis.org/publ/qtrpdf/r_qt1609.pdf>. Becker, C. & Salahi, L. 2010, ‘Supplement no substitute for healthy diet’, ABC News, 29 October, viewed 9 April 2017, Blackmores 2016, Wellbeing Annual Report 2016, Blackmores, viewed 10 April 2017, < http://blackmores2016.annual-report.com.au/>. Blackmores 2017, ‘Financial Report for the half-year ended 31 December 2016’, Blackmores. Budget 2011, Statement 2: Economic Outlook, viewed 8 April 2017, . Buresti, F., Hill, M. & Clift, J. 2016, ‘General entry form 2016’, The Australian Effie Awards, viewed 10 April 2017, . Clearly, P. 2017, ‘Vitamin ‘bottlers’ like Blackmores find ingredients overseas’, The Australian Business Review, 4 February, viewed 10 April 2017, . 7 Cloutman, N. 2017, Supermarkets and Grocery Stores in Australia, IBIS World, viewed 10 April 2017, . Council on Foreign Relations 2016, Global Conflict Tracker, CFR, viewed 10 April 2017, . Dufour, F. 2017, ‘China Dec forex reserves fall less than expected to $3.001 trillion’, CNBC, 6 January, viewed 10 April 2017, . Haggan, M. 2015, ‘OUT OF STOCK FRUSTRATING, BUT QUALITY COMPROMIS WOULD BE WORSE: BLACKMORES’, AJP, viewed 10 April 2017, . IBIS World 2016, Blackmores Limited, IBIS World, viewed 10 April 2017, . Janda, M. 2012, ‘Reserve Bank cuts interest rates’, ABC News, 2 October, viewed 8 April 2017, . Janda, M. 2014, ‘GDP data show Australia in income recession; falling dollar a 'silver lining'’, ABC News, 3 Dec, viewed 7 April 2017, Keythman, B. n.d, ‘What Are the Differences Between Straight Line, Double-Declining Balance & Units of Production?’, Chron, viewed 12 April 2017, . 8 Magyer, J. 2016, ‘Why Blackmores is worth holding in 2016’, Financial Review, viewed 10 April 2017, . Marine Stewardship Council n.d, Blackmores Ultra Krill Oil, MSC, viewed 10 April 2017, < https://www.msc.org/where-to-buy/product-finder/products/cfpsproduct-6A786600-06B145A8-B481-3EED378A32BD>. MarketLine 2016, ‘Company Profile Blackmores Limited’, MarketLine, viewed 11 April 2017, . McGrath, P. 2013, ‘Reserve Bank of Australia leaves official interest rate on hold at 2.5 per cent, in line with forecasts’, ABC News, 3 December, viewed 8 April 2017, . Medtrack 2016, ‘Blackmores Australia Medtrack Company Profile’, Medtrack, viewed 11 April 2017, . Murray, L. & Evans, S. 2017, ‘Blackmores fined $65,000 in China’, Companies & Markets, 17 March, pp. 21. Palepu, K., Healy, P. & Bernard, V. 2013, ‘Business Analysis and Valuation using Financial Statements: Text and cases’, Mason, 5th edn, Canada. Parker, J. 2015, ‘Reserve Bank keeps interest rate at 2 per cent, leaves door open for further cut’, ABC News, 15 December, viewed 9 April 2017, . 9 Richardson A. 2017, Pharmacies in Australia, IBIS World, viewed 10 April 2017, . Schmidt, L. 2016, ‘Demand for Health Supplements Propels Marcus Blackmore onto Aussie’s Richest’, Forbes, viewed 11 April 2017, . Tang, E. 2016, 2015 GDP growth rate of 2.5 per cent confirms the resilience of our economy, viewed 9 April 2017, . The Reserve Bank 2013, Statement of Monetary Policy, viewed 8 April 2017, . Treasury 2016, Pre-election economic and fiscal outlook 2016, viewed 9 April 2017, . United Nations 2015, World Economic Situation and Prospects 2015, UN, New York, viewed 10 April 2017, . United Nations 2016, ‘World Economic Situation and Prospects 2016’, UN, New York, viewed 10 April 2017, . United Nations 2017, ‘World Economic Situation and Prospects 2017’, UN, New York, viewed 10 April 2017, . 10 Willet, W., Sesso, H. & Rimm, E. 2013, ‘Food and Vitamins and Supplements! Oh My!’, viewed 9 April 2017, . World Bank Group 2017, ‘Global Economic Prospects: Weak Investment in Uncertain Times’, WBG, viewed 10 April 2017, . XE 2017, XE Currency Charts: CNY to AUD, XE, viewed 10 April 2017, . Zhang, L. 2016, ‘IMF Working Paper: Rebalancing in China—Progress and Prospects’, International Monetary Fund, Washington. DC, viewed 10 April 2017, . 11 APPENDIX Table 1 – Growth of world output 2008-2014 and projections of 2015-2016 (United Nations 2015, p. 2). 12 Table 2 – (United Nations 2017, p. 3) 13
Financial Statement Analysis 22319 Group Assignment: Marking Rubric Marking item Marks Macroeconomic Analysis: /4 Industry Analysis: /5 Business Strategy Analysis: /5 Exceeds criteria (Distinction/HD = 75% – 100%) 00000000 First name LAST NAME 00000000 First name LAST NAME 00000000 First name LAST NAME 00000000 First name LAST NAME 00000000 First name LAST NAME Meets criteria (Pass/Credit = 50% – 74%) Report /20 Criteria not yet met (Fail = 0% – 49%) Clearly and concisely introduces the company and countries it operates in. Introduces the company and countries it operates in. Does not clearly and concisely introduces the company and countries it operates in. Clearly and concisely describes the global economic environment and economic environment for the countries the business operates in. Describes the global economic environment and economic environment for the countries the business operates in. Does not clearly and concisely describe the global economic environment and economic environment for the countries the business operates in. Critically analyses five relevant economics factors and persuasively explains why they have influenced your company’s historical performance. Critically analyses five relevant economics factors and describes their influence on your company’s historical performance. Does not critically analyse five relevant economics factors and/or does not explain why they have influenced your company’s historical performance. Persuasively predicts how the economic environment will impact your company’s future performance. Predicts how the economic environment will impact your company’s future performance. Clearly and concisely introduces the industry. Introduces the industry. Does not predict how the economic environment will impact your company’s future performance. Does not include GDP, inflation and/or interest rate in the 5 economic factors. Does not introduce the industry. Persuasively evaluates the level of competition in the industry or industries that your company operates in using Porter’s Five Forces framework. Describes the level of competition in the industry or industries that your company operates in using Porter’s Five Forces framework. Does not evaluate the level of competition in the industry or industries that your company operates in using Porter’s Five Forces framework. Convincingly forms a conclusion for each force and the industry overall. Forms a conclusion for each force and the industry overall. Does not form a conclusion for each force and the industry overall. Porter’s diagram is tailored for your organisation. Parts of Porter’s diagram are tailored for your organisation. Identifies and discusses the key success factors and the key risks of the company’s strategy. Porter’s diagram is missing or too generic or has been copied from another source. Does not identify and/or does not discuss the key success factors and/or the key risks of the company’s strategy. Evaluates the sustainability of profits generated by the strategy in the future. Does not evaluate the sustainability of profits generated by the strategy in the future. Clearly identifies and convincingly discusses the key success factors and the key risks of the company’s strategy. Convincingly evaluates the sustainability of profits generated by the strategy in the future. Marking item Marks Accounting Analysis: /4 Overall Report Quality: Exceeds criteria (Distinction/HD = 75% – 100%) Meets criteria (Pass/Credit = 50% – 74%) Criteria not yet met (Fail = 0% – 49%) Persuasively assess the degree to which the firm’s accounting reflects the underlying business reality using the six-step accounting analysis framework. Assess the degree to which the firm’s accounting reflects the underlying business reality using the sixstep accounting analysis framework. Does not assess the degree to which the firm’s accounting reflects the underlying business reality using the six-step accounting analysis framework. Identifies and persuasively explains how and why accounting numbers have been distorted if there are any. Convincingly evaluates the impact of accounting distortions on profits and the sustainability of profits Communication is clear, concise and precise. Report is very well written, structured, and presented in a professional and coherent manner. Excellent use of visual material (tables, graphs,) that is well integrated with text. Identifies and describes the accounting numbers that have been distorted if there are any. Describes the impact of accounting distortions on profits and the sustainability of profits Communication is generally clear and concise, making it easy for the reader to understand. Report is well written, structured, and presented in a professional and coherent manner. Good use of visual material (tables, graphs,) to support text. Does not identify and/or explain how and why accounting numbers have been distorted if there are any. Does not evaluate the impact of accounting distortions on profits and the sustainability of profits Communication of report is unclear making it difficult for the reader to understand the ideas being presented. This may be the result of errors in written communication, imprecise language, confusing use of diagrams, and/or poor structure. Presentation may appear unprofessional or unfinished. Various reliable sources are used to inform the analysis. The Harvard referencing method is applied consistently with no errors. The formatting, referencing and maximum page limit is strictly adhered to. A few reliable sources are used to inform the analysis. The Harvard referencing method is applied consistently, with a few errors. The formatting, referencing and maximum page limit is mostly adhered to (up to 10% over max page limit). Minimal or no reliable sources are used to inform the analysis. The Harvard referencing method is applied incorrectly. The formatting, referencing or maximum page limit is not adhered to (more than 10% over max page limit) /2
Company list for Group and Individual Assignments 22319 Financial Statement Analysis Autumn 2018 Company name ASX code ADELAIDE BRIGHTON LIMITED ABC ARISTOCRAT LEISURE LIMITED ALL GRAINCORP LIMITED GNC RAMSAY HEALTH CARE LIMITED RHC SEEK LIMITED SEK

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