Step One .com



Stacey WalkerStudent Number:S0195571Course:Accounting For Decision MakingCourse Code:ACCT11059Assessment:Assignment TwoDue Date:16 January 2017Weighting:30%Contents TOC \o "1-3" \h \z \u Step One PAGEREF _Toc470013292 \h 2Step Two PAGEREF _Toc470013293 \h 6Step Three PAGEREF _Toc470013294 \h 6Step Four PAGEREF _Toc470013295 \h 9References PAGEREF _Toc470013296 \h 10Appendix One PAGEREF _Toc470013297 \h 11Step OneChapter FOUR:You can find this as a blog post here.Halfway point and also the last chapter to read. And it is almost holiday time and I just want to be sipping drinks on the beach but here I am on the way to work reading chapter four. I’ll apologise now if this seems disjointed, it has been started and stopped and rehashed and mixed up. I’ll do my best to not be too disjointed. Here we go...Oh good capital markets, my job should help with this one. Did anyone else immediately go to Finding Nemo with the fish analogy? No? Just me then? Cool moving on.No, no, no, past performance is not an indicator of future performance. Stop that, stop it now. You can look at a company’s past performance and decisions but you must read them in context, for example during 2008-2009 financial year, a lot of companies took the loss head on from the GFC. That's not an indicator that the company will do poorly in the future. Similarly, a company with large profits and returns is not sustainable and will eventually drop in earnings, and dividends will dry up. Machiavelli was wrong. There I said it. You can't predict the future and it's about time everyone started realising that. There are too many global influences on our economy and environment that have an impact whether large or small to be comfortable predicting the future. It's all well and good to say oh this company has had a good track record, and that may be true but what happens when it all goes down the toilet? How much money have you lost then? See, playing the stock market is a gamble. By all means, you must absolutely do your research, but for the love of god do not buy shares in a company based solely on their past performance.?Jeez, I'm not looking forward to restating the financial statements, honestly, I don't see the point. If you understand the actual financial statements, what's the point in restating them? Also I just really don’t see the point. I will never be an accountant and I don’t have to read any Financial Statements for my role. I seek no involvement in anything that requires me to restate Financial Statements until it’s a mechanical process. Nuh uh, no thank you. This is probably why I have avoided this part of the assessment for well over two weeks now. Including actually reading this chapter. FCF = C – I Does anyone else find it difficult to read a formula and understand it if it's explained in words rather than by simply stating the formula??I understand words on the page, but I cannot visualise when the words are tossed around and thrown together in an illogical way. For example, I know the E equals MC squared and I can read that and see the formula straight away yet, the page and a half on the formula for Free Cash Flow was a bunch of words to me. I think I actually learnt what the formula was through Peerwise instead.Am I the only one interchanging the terms “Shareholder” and “Equity Investor”? Should I be interchanging them? I also struggle agreeing that they OWN a company. They make no decisions in the everyday running of a company. For example, one of our investors holds a few million shares, but he doesn’t dictate the way the business operates. He has a say when it comes to resolutions at the AGM but nothing more than that. I would look at them more so as silent partners if they are to be given any title. Even that seems wrong. I guess I just struggle with the concept of a Shareholder/Equity Investor owning anything but their shares in a company which doesn’t give them an ownership right to the company itself. Otherwise companies would break down and no one would get anything. According to HBC, in 2012 the Board of Directors approved a Dividend Policy aiming to increase payments and a medium term target payout ratio of 35-45 percent on comparable net profits. This immediately meant nothing to me, but seems to apply here. From what I can gather and using the Study Guide, it looks as though HBC is aiming to payout 35-45% of its net profit to investors each year (they only seem to pay a yearly dividend), which means the Free Cash Flow would need to be equal to 35-45% of the Net Profit. According to the Annual Report for 2015, the Net Profit for the year was €280,700,000. So HBC by its own policy needs to have a Free Cash Flow amount between €98,245,000 and €126,315,000 to meet its policy in 2015. At least that’s how I understand it working. Someone please correct me if I am wrong. I’m pretty sure I did that wrong. Annnnndddddd now I am lost. Do accountants and people who come up with these “ways of doing things” intentionally make it so difficult? Perhaps it’s their way of ensuring job security otherwise the lay people would be able to do it.Economic Profit is based on a firms accounting profit for a period compared to its costs of capital. I have now read the same sentence about Economic Profit about six times. I got nothing. I’m not sure if it’s because its mid-afternoon and I want a nap or if this content is just unrelateable/boring/hard to understand. Either way, it’s becoming increasingly frustrating. Oh look another paragraph explaining a formula that is hard to understand only to then be followed by the damn formula. See, this chapter has made me crabby…and I’m only on page four. So let me get this straight, Capital Cost = potential expected returns from an alternative use. So if I invested in HBC five years ago, I couldn’t use the money to buy a house at the time. Well this isn’t a difficult concept. There is a reason they say Time = Money and that if someone is willing to give you their time, they have given you the most precious gift. Neither can be used in the same value across different projects. I cannot spend quality time with my loved ones when I am at work or studying and similarly, I cannot buy that chocolate bar with the money I spent on the double vodka, red bull on Friday night. It’s about making a choice. Company’s choose to invest in operating assets in order to realise potential gains in the future, to the benefit of the equity bottom line. I choose to spend my limited free time with my partner and my dogs. What future benefit do I see in that? I’ll still have a partner and dogs because they won’t have up and left me for someone who will pay them the attention they deserve. If we are going to learn how to restate these Statements, there better be pictures and not just words, or I will fail hopelessly. Please don’t ruin Kinder Surprises for me. They are quite possibly the only chocolate I can eat. I would much prefer to have the chocolate than the accounting. Just saying. Personally, I won’t be jogging. I hate jogging almost as much as accounting, but I also won’t be consuming chocolate. The amount of chocolate I would need to consume to get me through the restating process. I will stick to my “go-to” – Alcohol. HAHAHAHAHAHAHANFO and NFA, more like NFI. I’m hilarious, I don’t care what you say. The world is full of acronyms; I feel like we all need a cheat sheet of what they all mean. I deal with them every day from the slang I see on social media to the funds we have on offer, every exchange uses a Ticker system which is in most cases an acronym of sorts. For example, Coca-Cola Hellenic Bottling Company is CCH on the London Stock Exchange. Is it easier to convert everything to an acronym or is it because we are super lazy? I remember hearing the story of how CBF has been shortened even further to Ceebs and I couldn’t help but roll my eyes. FCF = OI – ?NOAWhy do we have two different formulas to calculate the same thing? Is one better than the other? More accurate? Easier to calculate? Tell you something different? In all honesty, these questions have probably been answered, but we’ve already discussed to death how much I hate formulas being explained in words rather than visually. I still don’t understand how we get Free Cash Flow or its purpose or the convoluted relationship between NOA and NFA and its getting really frustrating. So I did what anyone in my generation would do, I googled it. I found this pretty graphic, and now I sort of understand better. “Free cash flow is derived from the operating cash flow outlined above and then takes into account major expenditures on, for example, property, plant and equipment, the purchase or sale of a business and major expenditure on maintaining or growing business assets.The distinction here is that even though a business may produce good operating cash flows from its daily operations, the cost of maintaining or buying new equipment, say, every five years, may actually turn a business with good operating cash flows into a business that loses money at the free cash flow line.Conversely, a business that makes only moderate operating cash flows but employs little to no capital in making those operating cash flows may actually produce an acceptable free cash flow.It is important to understand whether the big capital investments made to generate an operating cash flow actually exceed that cash flow or provide sufficient return to justify the capital investment.” – Cadence Capital LimitedFinally, I think I get it. Free Cash Flow is the money left over after a business makes capital expenditure in order to keep making profit. So in my electrical business, we make $100,000 in year two after all the hard work we did and paying all the bills etc, and I take $50,000 of it and buy a new work vehicle and kit it out with all the fun stuff ready for a second electrician to come on board. I have $50,000 Free Cash Flow, because I have then increased the operating assets and increased the likelihood of profit increases in year three. If I chose to do this each year, one could hypothesize that I would continue increasing profit each year, provided we still needed electricians. By George! I think she’s got it!I thought Figure 4.1 was confusing, but let me try and wrap my rambling head around it for a sec. Operating Revenue (OR) is inflow from customers which is used to pay the Operating Expenses (OE) and any surplus is Net Operating Assets (NOA). Equity Investors provide cash investments and the company provides dividend back which is why the arrows are double ended. Debt Investors provide Debt vehicles which have to be serviced, again meaning the arrows are double ended. These make up the Net Financial Assets. Then I get lost again. I don’t know if using the term ‘clearly’ is misleading or constitutes false information, but I’m looking into it. I still don’t understand why debt is a good thing. I hear so much of gearing at work especially and I never understood why it’s good to be partially in debt. So why wouldn’t debt be paid out before paying dividends? The Share market can’t be used as an income stream so why not lower the debt ratio a little more in order to save money and pay just a little less in dividends? Maybe it’s just me, because I hate owing anyone money. Sidebar: I’m on page eight and at 2000 words, this is ridiculous. I don’t write this much for law assignments. So there’s dirty accounting? I knew it! Sneaky buggers! Ooh I know what interest rate swaps are. It’s an option to change an interest rate on a debt facility. We talk about them all the time. For example, a managed investment fund would have used a debt facility for half of the value of the fund and the investors or unitholders make up the rest. Depending on the rate, an interest rate swap can mean giant savings for the investors in the fund as they begin to be responsible for a lower interest rate, saving the fund money and in turn allowing forecast returns to increase. At least that’s how I understand it.Losses and gains in foreign operations is a tricky one for HBC, being they would need to deal with a vast array of currencies across Europe, the Nordics, Russia and Northern Africa. Although, throughout the four years of reports, everything is converted to Euros, so I suppose that’s slightly easier. Would still be more of a headache than simply operating in the one currency. Mary, Lady Archer was high. There is absolutely nothing fascinating about balance sheets. And seriously? Page 10?!? *SIGH*Restating your firm’s financial statements for the first time can be a fascinating, infuriating and fun challenge.I agree with this…except the fun part. I believe I may have just had my lightbulb moment in trying to wrap my head around NOA and NFA. The bank account analogy is actually a good one. One could almost look at a loan facility like a personal loan in the same light as a debt investor. The Bank has provided cash for me to purchase a vehicle. I pay that money back, but not in full and not the full amount I earn each pay. They could even be an equity investor if you wanted to be cheeky and look at loan repayments like dividends being paid to a bank. I find the low level of cash to be too much guess work and adds an unnecessary variable to the mix. I think for my Financial Statements I’ll either split the cash down the middle or it’s an Operating Asset. I haven’t decided yet. I clearly missed something here. Why are there two columns for each year on the Income Statement and the Statement of Change in Equity? Someone clear this up for me?Information is not knowledge – Einstein Ooh good quote. I like that one. I like this one better:Knowledge is knowing that a tomato is a fruit, wisdom is not putting it in a fruit salad – UnconfirmedWACC is similar to WALE. I deal more with WALEs than WACCs and I kinda like that. WALE is Weighted Average Lease Expiry and the higher this number is, generally the better. So where a building has multiple tenancies for example the Queen Street Mall here in Brisbane, no two tenancies would be the exact same length, well they couldn’t but rarely do they start on the exact same day under the exact same conditions. So the Lease Expiry terms are weighted and averaged, as I assume the weighted average cost of capital is as not every piece of capital is a carbon copy of another capital. For example, there is a shop in the Queen Street Mall, called Forever 21, they may have a five-year lease for 100sqm. This lease would be weighted differently to the anchor tenants, Myer and David Jones. Similarly, a vehicle purchased for my business is not of equal value to the tools purchased for the workmen to use. RNOA = PM x ATOOk so I read that as the Property Management against the Australian Tax Office. I think I need a nap. Thank god I can estimate, because I more than likely wasn’t going to go looking for the WACC. I can already hear cocktails on the beach calling me and I am just about to give up on assessment. It took 16 years for Ryman investors to get their money back? Is that through distributions alone? Or has the value of their shares doubled? Are they tax deferred distributions? What’s the capital gains look like on a 15-year investment? I know what some of our Investors look at as they are in a similar position and I’ve heard “oh I’ll just keep them until I die and then it will be my kid’s problem” so many times, it’s quite scary. PM= OI/SalesAh so PM actually means Profit Margin, gotcha. ATO= Sales/NOAAsset Turn Over and that’s the best acronym they could come up with. I thought Turnover was one word anyway so I am relabelling the equation. It’s now AT = Sales/NOA. You heard it here first folks, I’m just your average trailblazer.Thank you for joining me on this rollercoaster journey. I hope you learnt as much as I did. Step Two My spreadsheet with the Restated Financial Statements completed is attached separately and also available on my ments & ThoughtsComments are a lovely thing. I had no real commentary regarding my Restated Financial Statements. None that really warranted voicing, until I realized I uploaded the incorrect spreadsheet to my blog and had deleted the correct one. So right now, my hatred for spreadsheets knows no bounds. I know it’s my own fault and being so engrossed in the technological age I should have been more careful. Unfortunately, not even an embattled call to our IT team will get my file back. So I have to go ahead and remember what I put where. I think I am mostly just disappointed in myself and its manifesting as anger at the process. KCQsMy main KCQ is still I don’t understand why we do this. I still don’t see the point in restating anything. We have seen it takes a mammoth amount of effort to create these Financial Statements, why would we want to do that again? Why aren’t the Statements in this Restated format originally? There must be a reason for that? I still think there should be a uniform way every listed company provides its Financial Statements. Templates would be fantastic. More to come as I redo the spreadsheet.Step ThreeYou can view this blog post here. The Coca-Cola Hellenic Bottling Company (HBC) has been scaling back the products it actually produces in its plants as well as focusing on sustainability, including purchasing renewable energy in Austria (HBC, 2016). This means that in their plants fewer and fewer products are being produced. We are however able to hypothesize which products would still be made. For the purposes of this assessment, the variable costs have been plucked from thin air and do not represent the actual cost in producing the product. Deep RiverRock:420433537465000Deep RiverRock is a high quality, Irish water bottled and sourced from the glacial hill of Co Antrim (HBCIR, 2016). Deep RiverRock comes in a variety of sizes and boasts a rich mineral makeup of calcium, magnesium and potassium. Using the two litre bottle as our product: Cost to customer: One Euro (Tesco, 2016)Variable Costs per bottle: 0.2 euroContribution margin: 0.8 euroNestea:3613785459105Nestea is a delicious drink that gives you deep down refreshment. Made with real tea leaves, natural fruit flavours and sweetened to taste, each can or bottle is filled piping hot (Nestea, 2016). Nestea has a variety of product types across the globe.Using the three-ounce jar as our product: Cost to customer: $2.98 USD (Walmart, 2016) Variable Costs per bottle: $1.45 USDContribution margin: $1.53 USDVanilla Coke:460438545529500All the refreshing taste of Coca-Cola Classic with a hint of vanilla makes Vanilla Coke a unique and delicious twist on the classic soft drink (Coca-Cola, 2016). It’s my favourite coke flavor other than original.Using the 600mL bottle as our product: Cost to customer: $3.00 AUD (Coles, 2016)Variable Costs per bottle: $0.85 AUDContribution margin: $2.15 AUDHBC produces many more products across many more ranges in multiple countries so contribution margins would be different for each and every product range. Making decisions on which products are worthwhile within a specific range is easier, however all three of the above products are under different license classes and made in different countries. This makes it more time consuming and costly to try and convert every product to one currency, the Euro for ease, and then convert all the costings and margins. It would be simpler to do this on a regional basis or better at a product line basis. As an example, should Vanilla Coke be produced in a factory in London and a factory in Bucharest, and both delivered to Istanbul, it would be more cost effective to simply ship from Bucharest as the costs would be larger if shipment occurred out of the London factory. However, a delivery to Amsterdam would be cheaper out of the London factory than the Bucharest factory. I believe the sheer size and reach of HBC prevents one solution to the product pricing game and therefore would need to be planned out. It is not as simple as only producing the product with the highest contribution margin, for a diversified company, with many subsidiaries and licenses, having many product lines across a larger populous would be more beneficial than having one product produced in many locations. They teach us in Business Finance that diversification lowers the risk of losing on an investment. The same can be translated to product lines. Diversification can allow a business like HBC to continue operating despite a low performing product and allow it time to react and remove the product if necessary. HBC doesn’t appear to have too many constraints against them. Other than needing to find factories and experienced workers to operate them in strategic areas, in order to ease pressure on other centers, and allow for products to be produced in more locations reducing the need for long haul transport. The three products above are all produced in different locations and sold in many more. The logistics of moving products from factories to shelves would be the other large constraint faced by HBC. Moving large amounts of products from one location to another is a large logistical project and would be difficult to initially set up, however once in place require little amendment. I don’t believe these constraints impact how many units of each product are produced and sold.Another constraint that could potentially impact HBC is the renewed health kick, and of course sustainable practices. HBC needs to carefully consider the products it produces and how it produces them in order to keep up with the current health and environmentally concerned customer. Whilst HBC do not make the syrup used in the soft drinks, they do then mix it with other products to get the final product placed on the shelf. Alongside this constraint, runs the environmental concern that continuing to produce plastic products and the burning of fossil fuels to do so, and the impact of that on our environment. HBC now has to also factor the cost of the sustainable practices into its fixed costs, generally meaning the cost of goods will need to increase without benefit to either the consumer or the company. Constraints on companies are difficult, as often they can be subjective. For instance, a constraint according to one person, may not be considered a constraint by another. For example, I don’t see the amount of sugar in a bottle of a coke a constraint against the whole company. I see it as a constraint on the product. As a company HBC cannot force the health conscious to consumer their products, they can however do as they’ve done and create a product with no sugar or using a sugar substitute. In fact, that is exactly what HBC have done. Their “Low Calorie/Lifestyle” soft drinks make up 25% of the options (HBC, 2016). Step FourPeer FeedbackI have attached in Appendix One the feedback I have provided and the feedback I have been provided with. My thoughts on feedback haven’t changed since the first assignment. Most students are unable to either provide or take on board constructive criticism. Perhaps it’s the age we live in where everyone is easily offended and well we can’t have that anymore and students are afraid to say what they really think of an assignment for fear of offending the other person. I have seen the same in Peerwise as well. Unfortunately, this is the problem with Peer Feedback. Would be great if someone can explain why we have to do this.ReferencesCoca-Cola Hellenic Bottling Company 2016, Operations - Production, viewed December 14 2016, Coca-Cola Hellenic Bottling Company 2016, The Brands we Sell – Sparkling Soft Drinks, viewed December 14 2016, Coca-Cola HBC Ireland & Northern Ireland 2016, Deep RiverRock, viewed December 14 2016, Coca-Cola Journey 2016, Coca-Cola Vanilla, viewed December 14 2016, Coles 2016, Coke Vanilla, viewed December 14 2016, Nestea 2016, Our Story, viewed December 14 2016, Tesco Ireland 2016, Groceries – Deep River Rock Still Water 2 Litre, viewed December 14 2016, Walmart 2016, NESTEA Unsweetened Iced Tea Mix 3 oz. Jar, viewed December 14 2016, Appendix OneProvided By me:Feedback provided to Feedback provided to Feedback provided to Feedback provided to Feedback provided to Provided to me:Feedback provided by Feedback provided by Feedback provided by Feedback provided by Please note you will need a CQUmail account and be signed into Google to view these documents. ................
................

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

Google Online Preview   Download