ASSESSMENT 3

Assessment 3

Step 1:

The Ratios, NPV and IRP Financial Statements for Oz Brewing Limited has been entered into the attached spreadsheet. Please find the “Oz Brewing Limited Company Spreadsheet” Attached.

What do these ratios actually tell you (or not tell you) about your firm?

These ratios tell me how profitability and sustainable Oz Brewing limited is. The efficiency ratio outlines the turnover the company has in relation to their inventories. Whereas the liquidity ratio is all about the assets they can turn into money to pay their debts off. Final is the market ratios and the reformulated financial statement ratios which relate to where the financial position of the company is at. When looking at the ratios for Oz Brewing Limited you can clearly see in 2011 the company had a profit however from 2012 to 2014 the company made a loss which was evident when looking at the profitability rations, efficiency ratios and ratios based on reformulated financial statements.

Discuss your ratios with other students in the course. How do your company’s ratios differ to the ratios of companies of other students in the course? What do your firm’s ratios tell you about how well your firm is performing?

I discussed my ratios with Matthew Barone about our company’s ratios and based on Matthew Barone’s company’s ratios my company is in deep financial trouble. Matthew Barone’s company’s ratios are increasing over the four years not decreasing which means they are building their business up and their profitability ratios is increasing significantly. These rations tell me that Oz Brewing Limited is in deep financial trouble and will be put into voluntary administration very soon as they company keeps doing backwards.

Comment on what is driving or causing your firm’s economic profit over the past four years to be at the levels it is.

The cause of Oz Brewing Limited economic loss/profit is the fact that they have no revenue coming in only when they are selling ventures which is basically once a year. They have no product that they make or sell to the consumer this is why their economic profit/loss is significantly decreasing each year.

Discuss your thoughts on what is driving your firm’s economic profit with other students.

The only similar Oz Brewing Limited has with other companies is the fact that their profit was positive in 2011 which matched Matthew Barone’s company however Oz Brewing Limited was significantly lower to Matthew Barone’s company profits for 2011. The differences between Oz Brewing Limited and other companies is that the companies had better profitability ratios and efficiency ratios then want Oz Brewing Limited had. Which means their companies are more sustainable then Oz Brewing Limited because they have a higher profitability ratio this is because their companies actual have products that they can sell to their consumers for revenue. The insight I have gained by breaking into bits of Oz Brewing Limited financial statement is knowing how to calculate the ratios to determine how profitable the company really is and whether the company is going to be sustainable in the future.

Step 2

The Ratios, NPV and IRP Financial Statements for Oz Brewing Limited has been entered into the attached spreadsheet. Please find the “Oz Brewing Limited Company Spreadsheet” Attached.

Develop Capital Investment Decision for Oz Brewing Limited

I have developed the following capital investment decision for Oz Brewing Limited.

Oz Brewing Limited is in the process of buying 333D Group Proprietary Limited in 2015. To increase Oz Brewing Limited the company can buy 3D Hubbs to expand their portfolio and then on sale the businesses later. Oz Brewing Limited is then planning to sell 333D Group Proprietary Limited to another operator in 5 years. Oz Brewing Limited will be planning to buy 3D Hubbs in 5 years and then on sale the business in 5 years.

The original cost, the estimated life, residual value and estimate future cash flows of each investment opportunity are set out in the table below.

	333D Group Proprietary Limited	3D Hubbs
Original Cost	$650 000	$1 500 000
Estimated Life	5 years	5 years
Residual Value	$1 000 000	$1 850 000
Estimated Future Cash Flows
2015	$205 000
2016	$210 000
2017	$212 000
2018	$215 000
2019	$220 000
2020		$400 000
2021		$405 000
2022		$408 000
2023		$410 000
2024		$412 000

The investment would be made on 31 December 2015. The estimated future cash flows are expected to be received on 31 December of each year.

Briefly discuss your though processes in coming to your recommendation. Discuss the strengths and weaknesses of your analysis.

My though process is that Oz Brewing Limited is in the process of buying 333D Group proprietary Limited and back Oz Brewing Limited in the past tends to buy companies. Then sell the companies in a few years at a loss I though Oz Brewing Limited can continue to follow this process but only sell the companies at a profit. Due to Oz Brewing Limited has not full acquired 333D Group Proprietary Limited yet I figured this could be one company Oz Brewing Limited could get future cash flow from. If this company is successful like it has been doing then Oz Brewing might be inclined to buy again 3D printing company and sell it at a profit. The strengths of my analysis is that it is based on figures Oz Brewing Limited is capability of meeting. The weakness of this model is that it is future cash flows and because Oz Brewing has not been in 3D printing before there is no actual figures to base these calculations on. All the figures in the analysis is selected but not based on Oz Brewing Limited’s performance. 

Step 3

Identify three products or services of your firm

When looking at my company’s financial statements from 2011 to 2014 there was only two forms for income they received. These two forms are: Debts forgiven and Interest Income. The debts forgiven I would not class as a product or service that Oz Brewing Limited has because it is the money Oz Brewing cannot pay from its Mad Monk venture. The only service in the financial statements for Oz Brewing Limited would be the interest income from the money they had invested. Future products once Oz Brewing Limited has acquired 333D Group Proprietary Limited would be the following service and product which is: creating specific products for customers and product designs for customers. The three products or services Oz Brewing Limited will have now or in the future are the following:

-                     -    Interest Income from Term Deposits                          (Service)

-                     -    Creating Specific Products for Customers                 (Product)

-                     -    Product Designs for Customers                                  (Service).

Interest Income from Term Deposits

Selling Price –                       5.5% per annum

Variable Cost –                     - When the interest rate comes due the interest rate changes depending                                                      on the country’s economic.

                                                - Bank Fees and Charges  

Contribution Margins -       = Sales – Variable Costs

2012                                        = 39086 – 30

                                                = $39 056

2013                                        = 19807 – 30

                                                = $19 777

2014                                        = 3192 – 30

                                                = $3 162

Creating Specific Products for Customers – Future Sales

For this product there is no previous annual report so I have to make calculated prices for these products.

Selling Price –                       $1 300 per design

Variable Cost –                     Wages -                       $500 per design

                                                Transportation -          $200 per design

Fixed Cost –                           Electricity -                 $300 per design

                                                Materials -                   $50 per design

Contribution Margins -       = Sales – Variable Cost – Fixed Cost

                                                = 1 300 – 500 - 200 – 300 – 50

                                                = $250 per design

Product Designs for Customers – Future Sales

For this product there is no previous annual report so I have to make calculated prices for these services.

Selling Price –                       $1 500 per design

Variable Cost –                     Wages -                                     $700 per design

Fixed Cost –                           Electricity -                               $100 per design

                                                 ICT Licensing Equipment -     $120 per design

                                                 Materials -                                $80 per design

Contribution Margins -       = Sales – Variable Cost – Fixed Costs

                                               = 1 500 – 700 – 100 – 120 -80

                                               = $500 per design

Discussion on the contribution margins

Calculating the contribution margins was easy once you had the formula. The part that I had trouble with was the products and services. The reason my company has been into liquidation so many times are because for the last four years they have had no revenue coming in from products or services. Two products that I did the selling price, variable cost and contribution margin is future products or services that they could choose to sell to their clients. Martin had stated in the Assessment 2 information sheet that “if you have trouble easily identifying three specific products or services of your firm, then quickly make some assumptions about what specific products/services your firm might have’. So I made assumptions on the company they are looking at taking over which is 333D Group Proprietary Limited. When calculating the selling price, variable cost and contribution margin of these products I tried to find 333D Group Proprietary Limited and 3D Group Proprietary Limited annual reports but none could be found on the internet. This means that the selling price, variable cost and contribution margin is not based on actual figures but target figures. My personal understanding of what the term contribution margin means is the profit the company makes on an item when all other costs have been taken out. With the first service the term deposit the reason it differ over three years because of the investment they invested into the term deposit and the interest rate at the time when it needed to be re-invested. As time went on Oz Brewing at more expenses than revenues which meant they had to pay their bills using the money they had invested. Companies have different contribution margins which depend on how well the product or service sells to their clients and what their costs of producing the products in bulk are. Some produces the more you produce the cheaper it is which means they can sell the product at a reasonable price and get a higher profit/contribution margin for the product. Companies produce both products with high and low contribution margins as a tax deduction and also if the lower contribution margin products are the products the clients come in to buy.

Identify one or more resource constraints Oz Brewing Limited may face

Oz Brewing Limited has a variety of resource constraints that they will be facing to acquire 333D Group Proprietary Limited to produce revenue. Firstly, would be the shortage in funding that Oz Brewing Limited has. Over the last four years Oz Brewing Limited has made a number of horrible decisions that has left the company with a cash and cash equivalent of $26 192. Secondly, would be the shortage in revenue that Oz Brewing Limited has. Over the last four years Oz Brewing Limited has no revenue from products that the company has sold which means that have relied on the financial assets that Oz Brewing Limited has. This strategy was alright for the first year but not for four years because with all the outgoing expenses they have eaten up their cash supply which means it is going to be hard for Oz Brewing Limited to start a new venture with limited cash. Therefore, these constraints are relevant when deciding to produce and sell the three products that are mentioned above. The company needs to budget their assets because there is no revenue coming into the busy until the 3D printing starts making money for Oz Brewing. The shortage of cash relates to how big Oz Brewing Limited can be and how they are going to supply their clients because they do not have the financial assets to support themselves in a new venture. 

Step 2

Restated of Statement of Movements in Equity

Restated of Statement of Financial Position

Restated of Statement of Financial Performance

Any issues of concerns I had about restating Oz Brewing Limited

Oz Brewing Limited had simply Statements of Financial Position, Statements of Financial Performance and Statement of Movements in Equity.

When I was restating the Statements of Movements in Equity it was a simple and easy restatement. The only difference between the Statements of Movements in Equity and the Restatement of Statements of Movements in Equity was the heading ‘Other Financial Comprehensive Income’ and the heading ‘Transactions with Shareholders’.  This restatement was straight-forward and easy to complete.

Secondly, was the Restated Statement of Financial Position which was easy and simply to classify because there were basic accounts that was easy to classify into operating or financial activities. There were only three accounts that I was unsure about whether they are operating or financial activities. Firstly, was the ‘Other Assets’ which was classified under the ‘Current Assets’ because there was no notes relating to what the other assets are I classified it as an operating activity purely because current assets are assets that are to be used in twelve months or less. Secondly, was the ‘Investments – accounted for using the equity method’ which had a note attached to the statement because this account relates to financial matters of the business therefore I classified it as a ‘Financial Asset’. Thirdly, was the ‘Other Assets’ which was classified under the ‘Non-Current Assets’ and when I read the note attached to this account I classified it under a financial activity because asset relates to the heads of Agreement which could be classified as a financial activity because the business is not implementing a Head of Agreement every day. Oz Brewing Limited had no financial obligations. The equity of the balance sheet is a matter of copying and pasting the accounts and amounts into the Restated Statements of Financial Position.

Thirdly, was the Restated Statement of Financial Performance this was the hardest one of the three statements I found this one the hardest to classify into either operating or financial activities. The following expenses I classified as operating expenses because without this expenses there would be no employees to run the company, they are:

• Directors’ and Company Secretarial Fees
• Administration Expenses
• Administrator’s Expense
• Staff Costs

The tax benefit was easy to classify after you located the company’s tax rate on the global tax rate link. My company is an Australian-based company which means it has a tax rate of thirty percent. Once I knew this it was a matter of doing a simple calculation which was Net Financial Expense before Tax multiplied by thirty percent. This was the account the company was either getting a refund or paying to the government. The next step was the Net Financial Expenses accounts. Firstly, my reasoning to classified these expenses as a financial expense was because they have not something that is completed daily or weekly. Expenses that are classified under financial expenses are expenses that occur through the year and relate to the finances of the business to be successful business or unsuccessful business. These expenses are the following:

• Bad Debts
• Accounting and Audit Fees
• Consultants Fees
• Legal Fees
• Share Based Payments
• Share of Loss for Equity Accounted Joint Venture
• Impairment of Joint Venture
• Exploration Costs Written Off
• Deed of Company Arrangement Settlement Costs
• Other Expenses
• Financial Income

The section at the end of the Restated Statement of Financial Performance is the other financial comprehensive income which is a matter of copying and pasting this section from the Statement of Financial Performance.

Discussions with other students about restating

Throughout this course I had discussions about restating to people face-to-face in tutorials. The people I had a conversation about restating was Matthew Barone, Grace Taylor and Rikki Knight. I had a discussion about restating the statements and how to classify each account into operating or financial activities. The way I explained it to all three of the people is that operating activities is activities that effects every day running of the business whereas financial activities is activities that effects the profit or loss and whether to invest into an particular field.

With Matthew Barone we talked about how the Restated Statement of Movements in Equity was exactly the same as the Statement of Movements in Equity you just rearranged and add one or two headings in. Also with Matthew’s discussion I pointed out the following at the match:

• ‘The Equity at the end of year’ in the ‘Restated Statements of Movements in Equity’ has to match the ‘Total Equity’ in the ‘Statement of Movements in Equity’
• The ‘Total Net Financial Assets/Obligations + Equity’ in the ‘Restated Statements of Financial Position’ has to match the ‘Net Operating Assets’ in the ‘Statement of Financial Position’
• The ‘Comprehensive Net Profit/Loss after Tax’ in the ‘Restated Statements of Financial Performance’ has to match the ‘Total Comprehensive Profit/Loss for the Year’ in the ‘Restated Statements of Movements in Equity’

Once I told Matthew this he was able to start restating and if it does not match he can have a look which restating statement is incorrect.

While with Rikki and Grace we were discussing how to actually classify the accounts and which accounts fall into which categories. I told Rikki and Grace that if there is a note attached to a statement to look at the note because sometimes the note will say ‘Operating Activities’ or ‘Non-Operating Activities’ or ‘Financial Activities’. We had a discussion about Bad Debts with it would be an operating or financial activity but we decided it to be a financial activity because it is dealing with the money coming into the business. We talked about other accounts such as legal fees which we thought it would be classified into financial expenses because you are not going to use legal fees every day in a business so it would be financial over operating activities. This helped use to discuss accounts that we were unsure whether they were financial or operating activities.

Step 1 - Chapter 4 – Analysing Financial Statements

This Session Preparation Assessment is looking at Chapter 4 of the Study Guide called ‘Analysing Financial Statements’ which has a number of Key Concepts and Questions that I find confusing, difficult to understand or believe, boring, exciting or surprising.

A concept I strong believe in is equity investors receive from a firm are dividends this builds relationship with the investors and customers. The purpose of dividends is to provide some reassurance of business growth to the investors who invested into the business or the investors have the option to purchase more shares into the company. My personally experience of this is with Tatts; I have shares in Tatts and instead of receive dividends I have decided to use re-invest into the business instead of accepting money. Companies offer this option to keep the profits of the business so they can re-invest, generator more money and financial security for the business. When companies offer the dividend to the investors it is a measure of transfer of value between a firm and its equity investors. The equity investors are receives the benefits and value from investing into a business that is successful. Equity investors are a necessary element for businesses to success and make a profit in the world.

Another key concept that I find interesting and exciting to learn about is the profit margin which focuses our attention on the profitability of each dollar of sales. To me this means you are looking at which items make the most profit and which items make the less profit. From working at Dimmey’s my personal experience of this is when the manager or employee looks at key items that have been on the shelf for a number of months or of items that sell quickly and works out the profit margin on a specific item. Profit Margin is a key to measure the target market of the business for instead if you have a profit margin of 10% you will be aiming at low income people whereas if you have a profit margin of 60% you will be aiming your items for high income people.

A key concept I understand extremely well will be the following:

• Operating activities of a firm are its interactions with the product and input markets, with its customers and suppliers
• Financial activities of a firm are its interactions with the capital markets, with equity and debt investors
• Operating and financial activities of a firm interact with each other
• Restating your firm’s financial statements for the first time can be a fascinating, infuriating and fun challenge
• Categorising the balance sheet into terms of operating activities and financial activities
• Purpose in restating the income statement is to clearly separate operating and financial revenue and expenses
• RNOA is after tax operating income (OI) divided by the net operating assets (NOA) invested in the business.
• The difference between operating revenue (OR) and operating expenses (OE) is operating income (OI)

The way I remember operating activities is anything that has to do with the daily running of the business and financial activities is anything that the business invests into. By using my definition of the terms I was able to easily restate my company’s financial statements without much drama. The only difficult I had with restating was when my Statement of Financial Performance did not match but after half-an-hour of trying to figure out where I had made a mistake I figured it out. The mistake was to do with whether to add or subtract a number to get the comprehensive income. I believe the purpose of restating is for the managers to actually gauge where they need to increase their focus in and where the areas that are letting the company down are. Another than the other two points are calculations-based and once I have the figures for that component I can calculate the RNOA and Operating Income – there is nothing hard about that. Mathematics is my strong area, I am excellent when it comes to calculating and working out ratios.

A few key concepts I am finding difficult to understand would be the following:

• Free Cash Flow (FCF) is driven by two things: cash flow from operations (C) and net cash invested into a firm’s operating assets (I)
• More a firm invests into its operating assets the less will be a firm’s free cash flow (FCF)
• Calculating Economic Profit.

When reading these concepts they seem easy to understand however when trying to apply the theory behind these concepts I get confused.  For instance the whole cash flow from operations and the net cash invested into the firm’s operating assets I do not understand. This is because I have never dealt with a Cash Flow Statement so I unsure how to calculate the Free Cash Flow for a company. I have read about the benefits of knowing how to calculate the Free Cash Flow however I am still confused with the concept because I have had nothing to do with this concept in my life.

In summary my key concepts and questions would be the following:

• Equity investors receive from a firm are dividends
• Measure of transfer of value between a firm and its equity investors
• Free Cash Flow (FCF) is driven by two things: cash flow from operations (C) and net cash invested into a firm’s operating assets (I)
• More a firm invests into its operating assets the less will be a firm’s free cash flow (FCF)
• RNOA is after tax operating income (OI) divided by the net operating assets (NOA) invested in the business.
• Operating activities of a firm are its interactions with the product and input markets, with its customers and suppliers
• Financial activities of a firm are its interactions with the capital markets, with equity and debt investors
• The difference between operating revenue (OR) and operating expenses (OE) is operating income (OI)
• Operating and financial activities of a firm interact with each other
• Statement of changes in equity shows how a firm’s income statement and balance sheet inter-connect
• The ‘bottom-line’ of a firm’s income statement is net profit after tax
• Restating our firm’s financial statements is a technical task that with practice can be done relatively quickly and easily, although there are a few ‘traps’ we need to be careful to avoid
• Restating your firm’s financial statements for the first time can be a fascinating, infuriating and fun challenge.
• Categorising the balance sheet into terms of operating activities and financial activities
• Purpose in restating the income statement is to clearly separate operating and financial revenue and expenses
• Calculating Economic Profit
• Understanding this relationship and maximising the interaction between profitability and efficiency is one of the keys to success in any business
• Profit margin focuses our attention on the profitability of each dollar of sales
• Efficiency is how well net operating assets (NOA) in a business are being used to generate sales or turnover

Above are my Key Concepts and Questions about Chapter 4 – Analysing Financial Statements. 

Feedback from other students was it useful? Why or why not?

The feedback from other students I found was useful. It helped me to ensure I was on the right track when completing my assessment piece and also picked out specific points I needed to focus on. By giving feedback to other students you were able to see how other people interpreted the topic, wrote their assessment piece and related it to their personal experiences. This helped use to broaden our knowledge in the Business Industry. Therefore I was able to go back and add more information in or remove information – if the people needed to. My main feedback I got back was that it was fantastic work but I have to check spelling and grammar. I already realised I had to check spelling and grammar due to the fact I had only just wrote it when I put my assessment piece on my blog. I hadn’t had time to edit my draft! I had a lot of people telling me they could relate to my assessment work which was fantastic. The piece of feedback I did not find useful was when people wrote one or two sentences saying it was fantastic and it made me review my work. That feedback helped the reviewer or my work not me to improve my work!

On a different note I did not like how we were put into groups to give feedback. The reason behind this is because I only received feedback from Rachelle Mertens who was in my team which made this section hard to do. I also had a lot of people that said they would give me feedback and in return I gave them feedback. However, after I gave them feedback the other people did not return the favour. This made it extremely hard to get three critical feedbacks.  Overall the feedback people gave me was beneficial because I was able to see if I was on the right track for Assessment 1. 

Step 4 - Chapter 3 - Introducing Financial Statements

Chapter 3 – Introducing Financial Statements

The first issue/difficult I have with this chapter is getting my head about the different names of Balance Sheets and Income Statement. I always get confused when I see Statement of Financial Position or a Statement of Financial Performance. This goes back to my personal experience at High School. When we were going Financial Statements at High School we always called them “Balance Sheets and Income Statements” now they have two different names. I know that throughout my course at university I am going to have difficulties remembering Statement of Financial Position means Balance Sheets and Statement of Financial Performance means Income Statement. The third statement called Changes of Equity I remember briefly doing a simpler statement in High School in regards to Petty Cash. But now coming to think about it, I think it would be reconciliation of the Cash at Bank account. So the Statement of Changes in Equity and Cash Flow Statement are completely new to me. Hopefully they are easy to understand and get my head around.

Secondly, a firm’s business sheet shows its financial position on a particular day. I thought the Balance Sheet was the financial position over the financial year but it is not. A balance sheet could be done monthly, quarterly, semi-annually, annually or daily. I personally, thing Balance Sheets in Australia should automatically done on the 30 June each year to make it easier for the accountants and businesses. Otherwise companies would have to do adjustments to record the correct amount for the assets, liabilities, equity, revenue and expenses. I know from personally experiences at Dimmey’s that they do a physical stocktake on 1 July every year. Companies do this to actually account of the inventories the company has on a specific data. From other person’s experience I know Woolworths and Coles do a stocktake ever quarter to ensure they have accurate figures on inventory. Balance sheets are an important aspect of a business and they need to be accurate figures.

Thirdly, I realised what the term consolidate means and how it relates to the company I was given. Basically, consolidate means it is the ‘parent’ entity and it has subsidiary companies. This means that Oz Brewing Limited has the majority shares in another company which means it the ‘child’ company to Oz Brewing Limited. Until I read this Chapter I always thought a Consolidate Statement of Financial Position and Statement of Financial Position means the same think. The difference is that a Statement of Financial Position would have one company such as a sole trader and Consolidate Statement of Financial Position would have other assets, liabilities and equity that do not directly relate to Oz Brewing Limited, it may be attached to one of the subsidiary companies. For my company that I have been assigned over the last four years it has sold some of the subsidiary companies off and has tried to buy new subsidiary companies. One of the subsidiary companies Oz Brewing Limited sold was Mad Monks Proprietary Limited to another company. However, when trying to buy new subsidiary companies the deal fell through. Overall, my company needs to aim to get a balance sheet rather than a negative number for equity.

The following statement is so true that ‘businesses are active, doing things all the time, firms are currently changing all the time and can often be very fast-moving’. My personally experience of this would be when Dimmey’s went into Voluntary Administration. In less than 4 months of being in Voluntary Administration they had another company that was interested in buying Dimmey’s. When the new company bought Dimmey’s there whole direction of Dimmey’s change. One product line that they did not want to carry was groceries but then when Crazy Clark’s and Sam’s Warehouse went into Voluntary Administration the Director of Dimmey’s changed their mind. The Director decided to have a small product line in groceries because Crazy Clark’s and Sam’s Warehouse had a huge selection of groceries so Dimmey’s decided to try and capitalised in this line. I can also relate this to the company I got assign - Oz Brewing Limited. If the acquisitions deal with 333D goes head Oz Brewing Limited direction is going to change from brewing, distribution and producing beer to printing 3D objects. Directors of business and managers change direction all the time, employees have to decide whether to change with the business or to find a new job in the similar field.

Fifthly, the Income Statement shows how things are changing in a firm, this is extremely important in business. From the experience at looking at Oz Brewing Limited you can have one fantastic year and then three horrible years. If we are looking at the Oz Brewing Limited financial statements they had a profit in 2011 and then ever sense they have made losses. In one financial year everything can change from stating a flow to going broke. In Oz Brewing Limited case it was the cost of trying to open a Café that sent them broken and from then on that have had miss-management in regards to business decisions. For Oz Brewing Limited to stay operating they need to make a profit this financial year otherwise we will see Oz Brewing Limited in Voluntary Administration again.

The bit I found confusing would be the ‘Other Comprehensive Income’ and Statement of Changes in Equity. If the accounts are supposed to be in the Statement of Changes in Equity why do they have to make it difficult and add an extra statement in? The Australian Accounting Standards Board should make it mandatory that the Comprehensive Income Statement be a part of the Statement in Changes in Equity. I think it would make more sense there. Another question if they do not want to do that than just record it as one big statement of the Income Statement. Do we really need a separate Comprehensive Income Statement?

The Cash Flow Statement is extremely important because it shows the opening cash balance at the beginning of the period, cash inflows and outflows during the period and the closing cash balance. As the Lecturer said in Week 3 “the Cash Flow Statement is the only statement companies cannot forge because money does not lie”. What Maria said is so true, the business bank account can either be a positive or negative number, the business will not liar because they have rules and regulations they are bind to by the Government. In Companies if they are defrauding the Government they will be in huge trouble because they have specific taxation agents whose job is to find people how are defrauding the Government. The Taxation Agents can also do an audit on the company if they think something ‘fishy’ is going on. Anyway, the Cash Flow Statement is the statement that always tells the truth.

To interpret, systemically analyse and assess a business people need to use ratios to get an accurate view of four or more financial statements. Managers and directors can calculate different ratios and compare one company’s ratios to another company in the same or similar line of work to see if the company is working effectively, efficiently and making a reasonable profit for a particular financial year. I personally would use ratios every year and compare a year that has a significantly loss with another company because it could be due to an environment factor, financial factor or any other reasons. If everyone’s figures in that particular financial year dropped then you have nothing to worry about but if it was only your company then you should be looking at the possible reasons as to why it dropped. I personally think ratios are extremely important in business because it helps you compare your figures with someone else in the same industry.

The bit that I found unless was in the ‘Ratios’, ‘Just do what ‘works’’ and ‘Use a Structure’ section when it was talking about centuries. I understand that you need to know how it was created to fully understand how to apply it. But I think this section could have been shortened and Martin could have got quicker to the point rather than talking about Euclid’s Elements, United States Economy and so on. Martin should have spoken about the Australian Economy instead of the United States Economy.

Finally, the Dividends and Cash Flow sections for Chapter 3 is important and it shows how to actually calculate the dividends and cash flow. After reading this chapter I realised you need to calculate the dividends before you can do the cash flow because they are related, even in the formula. Some of the aspects of the formulas I am having trouble with such as: the Capital Outlays and how to calculate the Present Value of Expected Future Dividends. However, this is a significant problem because I have to get my head around Present Value of Expected Future Dividends because it is the key practical difficulty of valuing the equity in a firm using the Discounted Dividend (DD) model. I understand what net dividend is and what the cash flow is it is just specific pieces in the formula on how to calculate it that I do not understand. By when I actually have to calculate the dividend and cash flow I am should I will under the formula more because I can apply the theory I know.  

To me the author is trying to tell me that here are two key financial statements business needs to prepare that shows the five key elements of accounting accounts which are the Balance Sheet and the Income Statement. Then there are two other financial statements that are interconnected to the firms Balance Sheet and Income Statement those statements are: Statement of Changes in Equity and Cash Flow Statement. The final point Martin is trying to get across is that businesses can use ratios to compare a company in the same or similar industry to see how well they are performing.

To summary my key concepts and questions would be the following: 

• What are their so many different names for the Balance Sheet and Income Statement?
• Balance Sheet shows its financial position on a particular day. This day can be anytime through the financial year. There is no set date or day for this.
• What does ‘consolidate’ mean?
• What is the difference between Consolidate Statement of Financial Position and Statement of Financial Position?
• What is the difference between Consolidate Statement of Financial Performance and Statement of Financial Performance?
• What is the difference between Consolidate Statement of Changes in Equity and Statement of Changes in Equity?
• Does Oz Brewing Limited have any subsidiary companies?
• Business are active, doing things all the time, firms are currently changing all the time and can often be very fast-moving.
• Income Statement shows how things are changing in a firm.
• Why is the ‘Other Comprehensive Income’ underneath the Income Statement if some of the accounts relate to the ‘Statement of Changes in Equity’?
• Cash Flow Statement shows the opening chase balance at the beginning of period, cash inflows and outflows during the period and the closing cash balance.
• To interpret, systemically analyse and assess a business people need to use ratios to get an accurate view over four or more financial statements.
• Businesses use ratios to compare companies that are similar or the same in a particular industry.
• Did you real need to go into background knowledge in the ‘Ratios’, ‘Just do what ‘works’’ and ‘Use a Structure’ section?
• Dividends and Cash Flows show how to actually calculate the dividends and cash flow.
• Dividend and Cash Flow are related.
• How do you calculate the Present Value of Expected Future Dividends?
• How do you calculate the Capital Outlays?
• How do you calculate the Discounted Dividend?
• Two key financial statements that shows the five key elements of accounting which are the Balance Sheet and Income Statement.
• Two other financial statements that are interconnected to the firms Balance Sheet and Income Statement those are: Statement of Changes in Equity and Cash Flow Statement.

Above are my key concepts and questions about Chapter 3 – Introducing Financial Statements. 

Step 4 - Chapter 1 - A Way of Viewing Business

Chapter 1 – A Way of Viewing Business

In Australia there is a number of accounting software packages businesses can use to record their business transactions and produce their financial statements. I personally, have used MYOB (Mind Your Own Business) and Quicken/QuickBooks. When I was a senior in High School I did Business Communication and Technology as a subject and a specific assignment piece was to create a business and record its financial transactions using MYOB. MYOB is a fantastic product however, I found if accidently entered the incorrect amount or posted it to the incorrect account it was a nightmare to fix it. I found that with MYOB you need to remember the guide to ensure you are not wasting time trying to fix a mistake. My mistake was I tried to jump in without reading the manual on MYOB which lead to all sorts of mistakes – this is the main reason I do not like MYOB. I also have been exposed to Quicken/QuickBooks due to my family owned their farm and rental properties. Personally, Quicken/QuickBooks I found easier to use and get your mind around then MYOB’s setup. I found it was easier to fix mistakes when you either entered the incorrect amount or posted to the incorrect account in Quicken/QuickBooks. If I was going to open a business I would use Quicken/QuickBooks accounting system over the MYOB accounting system any day but that is just from my personally experience.    

When Martin wrote “accounting is also not like a corporate camera taking precise photo of what is going on” this is absolutely correct. I had and still do have a part-time job with a company called “Dimmey’s” in late 2013 Dimmey’s went into Voluntary Administration. Now you might be wondering why I have bought this up, the reason is because many people think Dimmey’s went into Voluntary Administration was due to financial miss-management. This idea/perception is false, the reason Dimmey’s went into Voluntary Administration was because Dimmey’s was fined $3 million for breaching product safety laws. The owner could not raise the capital to pay the fine so he decided to put the company into Voluntary Administration. Therefore I have come to the conclusion that the financial statements and accounting may not paint the full picture of a company.

People are surrounded by markets everywhere where we go such as: suppliers, employees, customers, debt investors and equity. When people walk down to the store and go to Woolworths or Coles they could possible buy products that are domestic grown or international grown to eat. The buyers of any company needs to research the products they are buying and ensure they are up to the Australian Standards otherwise they will end up like Dimmey’s with a huge fine for breaching the rules and regulations. If you think about it when you walk down the street you have markets everywhere. For example Women’s Clothes you have Target, K-mart, Ice, Alley, Dimmey’s, Big-W, BMAC, Cotton On, Bras-N-Things and many more small boutiques. All these have markets with different suppliers that are why Women visit a range of shops because no two shops have exactly the same stock. Shops many have the same brand but they do not have the same style or colours. By having a range of shops selling the same line the shops have to be competitive otherwise they will destroy the business they have. A personally experience I have with destroying the value of a product would be when working at Dimmey’s. Dimmey’s sells a range of children’s clothing, women’s clothing and men’s clothing at a realisable price anywhere from $10 up. Management recycles clothing that means that if it did not sell great one winter we would pack it up and bring it out the next winter which means the style is two or more years old. Customers are not going to buy two or more years old when they can go to K-mart or somewhere with the same pricing and get the latest fashion. This is an example of destroying the value of a particular line (Women’s Clothing) and the problem now is getting the customers to come back to Dimmey’s after they have found somewhere with realisable pricing and the latest fashion. Shops need to have products the customer wants at a realisable price to be successful in a business.

Business is all around us in everything we do and people who say that is not true has no real concept of business. People may not realise but business is every time you spend your money. When people are ensuring they have enough money to pay the bills, entertainment, going out with friend or for dinner you are using accounting to keep track of your personal financials. People who go bankrupt are a business that has miss-managed their finances. Every time when a person walks into a shop or shops online they have used accounting to record their transactions. People are going to say but that is different. No, it is not there are three types of businesses they are: sole trader, partnerships and companies. Companies are bound by different rules and regulations then sole traders or partnerships however they still have to pay tax and purchase items that are necessary in their line of work. I like to think everyone is a sole trader and then when you are married or financially living with someone you two then become a partnership.  So my main point is that everyone uses business and is in a type of business someway some people just don’t see it.

The area I thought was boring is about the “We Build on the Past” section. I understand how Martin is trying to relate music to accounting however with the other examples in the Chapter I don’t think he needed to restate it. I also found the bit about his Law degree and typing boring, he could have left this whole section out of the study guide. The “We Build on the Past” section did not contribute to me understanding Accounting, the whole time while reading this section I was thinking how does this help me to understanding Accounting and broaden my knowledge on accounting. Secondly, with the QWERTY information, yes it is good to know about however did it really need to be in Chapter 1? Does it help me in any way to “using accounting for decision making”? The answer to both of those questions is no. Martin could have left this out and just kept the topics that directly relate to accounting.  

Having two sides to everything is a great concept and method to use to ensure you have entered the correct amount and your books balance. The whole concept of Journals and Ledgers is great because it allows the people to check the amounts they have entered. It is a way of double checking without physical re-entering everything. This leads to people ensuring they know the five key elements of accounting and which accounts are classified under which element. This is important when doing bookkeeping because each element is given a nature, if the account is increasing the nature is the same however if the account is decreasing the nature becomes the opposite. An example of this with the Cash at Bank account would be if you are banking the sales of the business, the asset is going to be increasing which will make it a debit. But if you are required to pay bills the asset will be decreasing and the amount will be entered in as a credit. This is how the double –entry accounting works. I am quite familiar with the five key elements and the accounting equation because I have worked in businesses ever seen I was 15 years old.  

To me the author is trying to tell me that business and accounting is used in every part of our lives. That without the five key elements, double-entry book keeping and the two journals trying to record business transactions would be a nightmare. People would not be able to interpret or analysis businesses because there would be no rules and society would see more people and businesses going bankrupt without the key principles and regulations.

To summary my key concepts and questions would be the following:

• There are a number of Accounting Software Packages Businesses could use.
• My favourite is Quicken/QuickBooks and MYOB is difficult when you have entered the incorrect amount or posted to the incorrect account.
• Accounting is also not like a corporate camera taking precise photo of what is going on.
• Financial Statements tell you one thing put you need to understand what the business has currently done throughout the financial year to get the full picture.
• Markets, Suppliers, Employees, Customers, Equity and Debt Investors are everywhere where we go.
• Business is all around us in everything we do and people who say that is not true has no real concept of business.
• Business is in our personal lives and professional lives.
• What did Martin include “We Build on the Past” section? This had nothing to do with accounting. It was about Martin mainly and very little if any on accounting.
• What did we need to know about typing and QWERTY in the ‘We Build on the Past” section?  
• Having two sides, debit and credit, to everything is a great concept and method to use to ensure you have entered the correct amount and your books balance.
• Without the five key elements, double-entry book keeping and the two journals trying to record business transactions would be a nightmare. 
• Without business and accounting people would not be able to interpret or analysis businesses because there would be no rules.
• Businesses would go bankrupt without the key principles and regulations of Accounting.

Above are my key concepts and questions about Chapter 1 – A Way of Viewing Business. 

Step 3: Company Spreadsheet

The Financial Statements for Oz Brewing Limited have been entered into the company spreadsheet. There is a restatement of financial figures for the Financial Year ended 30 June 2013 – this is to do with the Issued Capital and Accumulated Losses however the Total Equity and Net Assets amount are the same and they match. Please find the “Oz Brewing Limited Company Spreadsheet” below. 

Oz Brewing Limited - Income Statement - Year Ended 30 June

Oz Brewing Limited - Balance Sheets - as at 30 June

Oz Brewing Limited - Statements of Movements in Equity - Year Ended 30 June

Discussion with Other Students and Tutor in the Course

Throughout this assignment I have discuss my company and other people’s company face-to-face and on their blogs. First of all I like to mention that I have commented on three companies through their blogging page. If you click on the students names it will take you to there I have commented about their companies. Madison Briskey, Jade Tringale and Sarah Ellen have fantastic blogs until I read their blog I had no idea Cellnet Group Ltd, Joyce Corporation Ltd and Abcam was companies. I have more knowledge now about these three companies after interacting with their bloggers page.

The second discussion I had was with Matthew Barone who is in the same course on the 23^rd of March. I told him about “Oz Brewing Ltd” and he told me about “Big Air Ltd” – which is a telecommunication company. This discussion happened face-to-face about both our company’s Financial Statements. After discussing his financial statements and looking at me I realised there was something seriously wrong with my company. This is when I started to look into the background information to figure out why “Oz Brewing Ltd” had made a loss for the last three years.

The third discussion I had was with Grace Taylor, Rikki Knight and Jessica Atkins in the Using Accounting for Decision Making tutorial class. On the 25^th March I helped Grace Taylor, Jessica Atkins and Rikki Knight with their company’s spreadsheet to do with excel formulas for the Statement of Movements in Equity, the Income Statement and the Balance Sheet. By doing this it reinforced the principles of accounting and we were able to see any corrects that a person made. One error we found was in Grace’s Statement of Movements in Equity, she had accidently forgot to put the amount in as negative instead she put possible which made her Statement of Movements in Equity greater than what the company had recorded. We also told about the lengths of our Annual Reports and realised that all four of us have received a small company – which we are happy about.

The fourth discussion I had was with John McGrath relating to the Statement of Movements in Equity. The discussion was to do with the Comprehensive Profit / (Loss) for the year, the company I was given just shows one line with the amount in it where other companies shows the breakdown of the Comprehensive Profit / (Loss). I asked John McGrath if I had the right statement of was the information somewhere else, he then told me it could be on the bottom of the Profit or Loss Statement however it was in. John McGrath then advised me to record the Comprehensive Profit / (Loss) as the one line. This was one Key Concept Questions a few people had because I know Rikki Knight and Grace Taylor was wondering the same thing. 

My Three Favourite Blogs

My top three blogs are Madison Briskey, Jade Tringale and Sarah Ellen. If I was rating on attractiveness and appealing my winner would be Madison Briskey and if I was rating on information about your personally company the winner would be Jade Tringale.

Madison Briskey is my favourite of the three blogs because of the attractive and up-beat colours and pictures she choose. My rating for this blog would be 8 out of 10. Madison has given in-depth background knowledge of her company called “Cellnet Group Ltd”. Madison has designed her blog so that it attracts the attention of her customers through bright and bubbly colours. However, the area she could improve on would be linking the company’s Annual Reports to her blog page. Madison Briskey’s Blog is found at the following link http://madisonbriskey.blogspot.com.au/.  

My second favourite of the three blogs is Jade Tringale because of the attractive banner Jade as designed for this blog. The image at the start of the blog lightens the mood of the blog and brings humour into the blog. Jade has gone into great detail about her company “Joyce Corporation Ltd”. I liked how you incorporated links to your articles that you have used for background information and statistics about the subsidiary companies. My rating for this blog would be 9 out of 10. I like how you have all the assignment information about your company on the blog however the background colour did not appeal to me. Jade Tringale’s Blog is found at the following link https://jadetringale.wordpress.com/.

My third favourite of the three blogs is Sarah Ellen because of the attractive picture and information about her company. The image about ‘My Favourites’ draws the customers into the blog and makes you want to read the information you have posted. I liked how she has linked external websites to the blog relating to her company called “Abcam” it shows the audience that she reads a broad range of texts. I really liked the way she incorporated a youtube clip which made her blog inactive. My rating for this blog would be 9 out of 10. Sarah Ellen’s Blog is found at the following link http://sarahbacct11059.blogspot.com.au/.

The blogs I have commented on about their company and blog design is:

·         Madison Briskey

·         Jade Tringale

·         Sarah Ellen