WordPress.com



Assessment #2 Steps 7-10Anuj ShuklaThis is one of the last assignments I am writing, for this term. I feel that just a little time ago, I started this Unit and now it’s time to write the last couple of steps for the Assessment#2. As back in my home country I used to analyse different company’s share in the share market, I can definitely tell that this unit has helped me analyse any company in more detail henceforth. All the chapters and the assessment were perfectly explained by Mr. Martin and the videos by Maria also helped me a lot for completing my assignments. I am quite sure that this unit will help me in my future endeavours.Step 7Sky Networks operates in Television Network broadcasting and Online streaming sector. This company has a very wide range of products and packages to offer to the customer and So, has a good share in the domestic industry segment. The products I have chosen here are the three types of setup box the company provides to the new customers. In all the boxes, it seems to be compulsory to buy the Sky Starter pack. This Sky Starter pack consists mainly of News, kids, music, action, food, lifestyle and international channels. The selling price for this pack is NZ$ 25.99 per month. Source of the data- The three types of setup box are: Sky Box- This includes recorded T.V. shows and all the live streaming. This box comes free with the Sky Starter pack. My sky- This box provides all the benefits of Sky Box and includes extra features such as pause, rewind, recording and storage. My sky+- This box provides all the benefits of My sky with additional storage. All of the above data were sourced from- When a firm, carries out any activity, there is both fixed and variable costs involved in doing that activity. I searched a lot about distribution of costs in TV network industry, but I couldn’t find any figure for the fixed and the variable costs. So, I looked on to the products and I have guessed the variable cost according to the product. Sky Box- This box is provided for free of cost to every new connection who has subscribed to Sky starter package or a pack of higher value then Sky starter. So, for Estimate selling price of this product we will only take the minimum selling price of Sky starter pack, NZ$ 25.99 per month. As the starter pack remains the same in all boxes, so the cost for that package can be considered as the fixed cost and the cost for the box from the package cost has to be considered as the variable cost. We consider the cost for the package as fixed cost as the company has already signed the agreement with channel producer for distributing it for certain amount. Cost for the box is considered as the variable cost because it is the extra cost that company incurs for producing the box and may be for providing services for installation. So, I have taken the variable cost percentage of the total cost for the box as 40%.Sales Price (SP)= NZ$ 25.99Variable Cost (VC)- 40% of NZ$ 25.99 = NZ$ 10.39Contribution Margin (CM)= SP – VC= NZ$ 25.99 – NZ$ 10.39= NZ$ 15.6CM Ratio= CM/SP= NZ$ 15.6/ NZ$ 25.99= 60%My Sky Box- This Box provides all the benefits of Sky Box and other additional features such as pause, rewind, record. For these extra features, this pack costs an additional of NZ$ 15 per month on top of Sky starter pack or a higher value pack. In this box also I have considered the cost of sky starter pack as the fixed cost. As we have seen in Sky box that the cost of the box and other services can be estimated at NZ$ 10.39, so here the variable cost will be NZ$ 15 in addition to NZ$ 10.39. Sales Price (SP)= NZ$ 25.99 + NZ$ 15= NZ$ 40.99Variable Cost(VC)= NZ$ 10.39+ NZ$ 15= NZ$ 25.39. In terms of percentage, it will be NZ$ 25.39/NZ$ 40.99= 62%Contribution Margin (CM)= SP – VC= NZ$ 40.99 – NZ$ 25.39= NZ$ 15.6CM Ratio= CM/SP= NZ$ 15.6/ NZ$ 40.99= 38%My Sky+ Box- This Box includes all the benefits of My Sky Box, including pause, rewind, record. The additional feature in this box is of additional storage. This means the customer can record more live and recorded shows. This additional storage comes at the cost NZ$ 5 more than My Sky Box. This additional cost will be considered as the variable cost.Sales Price (SP)= NZ$ 40.99 + NZ$ 5= NZ$ 45.99Variable Cost(VC)= NZ$ 25.39 + NZ$ 5= NZ$ 30.39. In terms of percentage, it will be NZ$ 30.39/NZ$ 45.99= 66%Contribution Margin (CM)= SP- VC= NZ$ 45.99 – NZ$ 30.39= NZ$ 15.6CM Ratio= CM/SP= NZ$ 15.6/ NZ$ 45.99= 34%NameSales Price (SP)Variable Cost (VC)Contribution Margin (CM)CM RatioSky BoxNZ$ 25.99NZ$ 10.39NZ$ 15.660%My Sky BoxNZ$40.99NZ$ 25.39NZ$ 15.638%My Sky+ BoxNZ$ 45.99NZ$ 30.39NZ$ 15.634%Contribution MarginContribution margin is the calculation of Sales minus the variable cost. This means how much amount of the total sales price can be allocated to fixed expenses done by the company for producing the service or the product. The fixed and the variable prices vary for all the 3 products that I have considered. All the products are the types of Boxes which are used to connect to the Television that enable channels to watch but as there are different types of box, the price varies. In Sky Box, as the box was included with package, I chose the minimum package and guessed the variable cost at 40% of the Sales Price (SP). So, the Variable Cost (VC) was calculated as NZ$ 10.39. The Contribution Margin (CM) is found to be NZ$ 15.6. This means the CM ratio is 60% of the SP. This further means, NZ$ 15.6 can be used to realise the Fixed expense. Now, My Sky Box comes at the cost of NZ$ 15 in addition to Sky starter pack and the SP for this box is NZ$ 40.99. So, the VC and CM is calculated at NZ$ 25.39 and NZ$ 15.6 respectively and the CM ratio is lowered down to 38% because of increase in the VC. Finally, in My Sky+ Box there is more storage for recording purpose and so its selling price is NZ$ 5 more than My Sky Box on top of package cost. So, the SP of this box is NZ$ 45.99. VC and CM is NZ$ 30.39 and NZ$ 15.6 respectively. The CM ratio is also lowered a bit at 34% as the VC percentage has increased to 66%.Above, we saw that the three products were of same company and had quite same role as other two but due to some other features, the Variable cost and contribution margin deferred. Also, the Contribution Margin remained the same throughout the three products. This means that, as the Sky Box is the most basic one, and it doesn’t have to provide other additional benefits, the Variable cost is low compared to others. This is why the company can use the remaining 62% towards realising the fixed cost but in My Sky Box and in My Sky+ Box there are other benefits on top of the basic package. So, the Variable cost shoot up and there is a decrease in CM. Only 38% cost in My Sky Box and 34% cost in My Sky+ Box is realised towards Fixed cost. As far as the company is concerned, the company cannot only produce the product or the service with higher CM because the customers are of all types, one needs a basic and at the same time some need the premium one. So, for fulfilling the consumer demand and for staying in the market, the company has to bear some revenue with low CM. ConstraintsConstraints and difficult times are experienced by every in every sector. Sky TV operates in the Television broadcasting and distribution network industry. One of the major possible constraint is customer shifting towards online media. Although the company has developed its online platform, there mainly focused on the TV network. We can see that nowadays people watch many videos and TV series on their Mobile Phones or tablets and nowadays Smart TVs are in trend and so, even if people have TV, there is a possibility that people wants to watch stuff online. For overcoming this constraint, the company needs to invest more in online platform and produce or broadcast good contents. The company basically runs on the rights of the TV channels and shows to broadcast. At present, the company has many rights for different sports event and other shows, this can help company to boost its consumer base by offering them the exclusive event. So, another possible constraint here is , the company should have a good number of rights for channels, sports and other events that people want to watch. If they fail to get crucial rights, then the customer base can shift towards the competitors. Step 8Accounting ratios help not only managers but also every stakeholder of the company, to get a quick look into the company’s financial and operational performances. In this Assessment, we have calculated 16 different ratios that shows many important things of the company.Profitability ratios include mainly two ratios, Net profit margin and Return on Assets. Net profit margin shows the percentage of profit the company made, considering its revenue. during a financial year. Sky Network Television LTD has a very inconsistence Net profit margin over the four years. In 2015, the company has reported 22.94% of Net profit. That means the company made profit of close to 23% of the total revenue, which can be considered a good margin for the company. But in 2016, margin reduced to close to a whopping 50%(year on year)(will be referred as Y on Y henceforth). Reported margin was 11.97%. In 2017, the margin grew very slightly by 0.78%(Y on Y) to 12.75%. In 2018, the net profit margin of the company took a disastrous drop from 12.75% to -26.56%. This means the company reported a loss of 26.56% of the total revenue. Although the company experienced decline in net profit margin over the years, it is important to mention that the company’s revenue also took drop from NZ$ 927,525 in 2015 to NZ$ 839,729. That means company’s sales also fell considerably. Return on Net Assets shows the percentage of profit made by the company considering Total Assets. In 2015, the company reported 11.0% of return on the Assets. The company had Assets worth NZ$ 1,942,021 and profit after tax of NZ$ 212,785. In 2016, the return was nearly halved to 5.7% of the Total Assets. In 2017, the ration improved a small bit to 6.0%. Ultimately in 2018, as the company reported a loss of NZ$ 223,045 and the revenue also reduced to NZ$ 1,503,002, the ratio was reported at negative valuation of -14.7%. Efficiency Ratios include Days of inventory, which shows the how many days the goods will last in the inventory. For Sky Network Television LTD, inventory are the programmes they broadcast. Although the company has suffered in the profit, the inventories of Programme they have to offer, doesn’t seem to have got affected. In 2015, inventory was of 89.62 days. Further, in 2016, it reduced to 87.95 days. Reduction of 1.67 days then again in 2015, it reduced by 5.43 days to 82.52 days but in 2018, the inventories climbed up to 87.19 days. Total Asset Turnover Ratio, which shows the proportion of Sales to total assets shows increased considerably from 0.48 to 0.56 in 2018. This ratio shows the ability of the firm’s assets to produce sales. In 2015 and 2016, the ratio was 0.48 and it reduced only by 0.01 to 0.47 in 2017 but in 2018, the ratio increased to 0.56. This marked an increase in ability of firm’s assets to produce sales. Important thing to mention here is, the revenue and the total asset reduced by a large number over these four years.Liquidity ratio are a measure of liquidity in the firm. The Current ratio talks about the liquidity position of the company. By the formula of Current Assets/ Current Liabilities, it calculates if the firm has enough liquidity or cash to fulfil its short-term activities. Current assets mainly comprise of Inventory of goods, trade items, receivables , etc. and Current liabilities comprise of Interest for borrowings, Bonds, Payables, income tax and other taxes. In 2015, the company’s ratio was 0.94. This means that the company had enough current assets to fulfil 94% of the current liabilities. In 2016, as the liability increased by almost 100% and assets decrease by a bit, current ratio experienced a very steep fall to 0.42 but in 2017, the company managed to push its current ratio to 0.71. In 2018, the company further improved its position to 0.82. Liabilities were almost same in 2018(NZ$ 199,532) to 2015(NZ$ 201,116).(Although current liabilities took a serious drop in 2016)The financial structure ratios depict firm’s financial structural strength. It includes debt/equity ratio and equity ratio. Debt/Equity ratio(will be referred to as D/E ratio henceforth) shows composition of total debt to total equity. In the year 2015, the ratio was 45.2%. This means that debt was 45.2% of total equity. In 2016, it increased by 0.8% to 46.0%. in 2017, it lowered down a bit by 3.9% to 42.1%. This can be seen as good sign for the company as the company lowered down the composition of its debt to total equity but in 2018, it increased to 46.4%. Lower the D/E ratio, its good for the company. Equity ratio shows the relationship of the company’s equity used for financing total assets. Equity ratio remained almost the same throughout four years. In 2015, the ratio was 68.9%. then in 2016 it lowered a bit to 68.5%. In 2017, it increased by 1.9% to 70.4% and gain in 2018, it lowered down to 68.3%.As the name suggests, market ratios are the ratios used for the transaction with the shareholders of the company. The company’s issued number of ordinary shares were 389,139,795. Earnings per share(EPS) shows the how much money was earned on a single share. EPS is calculated as Net profit after tax/ No. of ordinary shares issued. EPS in 2015 was NZ$0.44 and in 2016, it reduced down to NZ$0.38. Further in 2017, the ratio came down to NZ$0.30 but in 2018, as the firm reported a loss, the earnings took a big plunge to negative figure of -NZ$0.62. Dividend is the amount given to the shareholders of the company of the total income. Dividends per share shows the amount earned per ordinary share by the dividend. Dividend earnings per share in 2015 was NZ$ 0.30. This amount remained constant throughout the 2016 and 2017. In 2018, due to losses, the company may have taken a decision of lowering the dividend payout and so in 2018 it was NZ$0.20. Other ratios which are based on the reformulated financial statements, talk deeply about operating and the financing activities. Return on Equity(ROE) shows the how much percentage of return was earned on the equity. In 2015, the ROE was at 15.91%. this means that comprehensive income was 15.91% of the total equity. In 2016, it lowered down by almost 45% and it was reported at 8.35%. In 2017, it remained somewhat same as 2016. ROE was reported at 8.58% but in 2018, as the comprehensive income went into negative, ROE was reported at -21.72%. Return on Net Operating Assets (RNOA) specifically depicts the operating side of the firm. RNOA is operating income after tax divided by the Net Operating Income. In 2015, return was reported at 14.00%. we can compare this with Return on Asset(ROA). ROA is the ratio of Total profit divided by total assets. ROA was at 11.00% during the same period. This means there was 14% return on the total activities, which is more than the operating activities. In 2016, RNOA was 7.46 and ROA was 5.7%. this means that return on operating activities more than the total. In 2017, RNOA and ROA were reported at 7.78% and 6% respectively. Again in 2017, return on operating activities was more than total. Finally, in 2018, RNOA and ROA were reported at 16.91% and 14.8%. The negative figures were because of the loss and from the ratio we can see that loss was mainly led by the operating activities. Net Borrowing Cost(NBC) is percentage of the cost incurred for borrowing the capital divided by the borrowed capital. NBC in 2015 was 5.18% that means 5.18% of the total borrowed capital is the cost of capital. In 2016, it reduced down to 4.03% but in 2017, it increased by 0.35% to 4.38%. Finally, in 2018, it gained by over 1% to 5.66%.This means that NBC remained around 5% in the period of 4 years. Profit Margin(PM) is the measure of the profit margin but of only operating income. In the above ratios we saw Net Profit Margin, which is the profit margin of the total sales. In 2015, PM was reported at 24.58%, while NPM was reported at 22.94%. This means, expenses in the non-operating activities lowered the NPM. In 2016, PM and NPM almost dropped 45% from the previous year and were valued at 13.48% and 11.97% respectively. In 2017, both of them increased by a small percentage to 14.30% and 12.75% respectively but in 2018, as the company reported a big loss, the ratios stood 25.10% and 26.56% respectively. Asset Turnover Ratio(ATO) shows how much percentage of sales the firm can do from the operating assets. Earlier, we also talked about Total Asset Turnover Ratio(TATO), which shows us the turnover on the Total Assets. In 2015, the ratios were valued at 0.57 and 0.48 respectively and in 2016 also it was almost same and was reported at 0.55 and 0.48 respectively. Even in 2017, the ratios were almost same as the previous two years and it was reported at 0.54 and 0.47 respectively. In 2018, the ratios changed by a good percentage and were reported at 0.67 and 0.56 respectively. By looking at the ratios, we can see that in 2015,2016,2017, the ratios remain quite unchanged but in 2018 it changed and it showed that dependence on Assets(most importantly Operating Assets) increased for Sales. Economic ProfitEconomic profit/(Loss) ratio, shows quite different situation about the firm, then by looking at all the other ratios. When I read formula to calculate the economic profit, I understood that Economic profit is found by subtracting the Return on Net Operating Assets from cost of capital and then multiplying it to Net Operating Assets. So, basically this ratio shows the return on Net operating Assets after subtracting the cost of capital, these can also be considered as the drivers of the Economic profit. In 2015, the Economic Profit was reported at NZ$ 65,037.18 but in 2016, it reduced to -NZ$ 42,575.31. As Net Operating assets increased from previous year and WACC remained the same, the loss in the Economic Profit is only led by Return on Net Operating Assets(RNOA). It is because return was lowered by almost 45% from previous years. In 2017, although it was again reported in a negative figure, it improved by around NZ$ 6,000 to -NZ$ 36,429.70. This improvement was because, RNOA increased from 7.46% to 7.78%. Finally, in 2018, Economic Profit was reported at whopping loss of -NZ$ 335,225.10. This was because RNOA fell from 7.78% to -16.91% and also NOA fell by NZ$ 395,546. Mainly, all the loss in 2018 were led by the impairment of goodwill. When goodwill of any firm is valued at a higher price than the fair value and needs to adjusted to the fair value is known as impairment of goodwill. ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download