Sophiecolemanblog.files.wordpress.com



ACCT11059 – USING ACCOUNTING FOR DECISION MAKINGTERM 1, 2016ASSIGNMENT STAGE 1 (ASS#1): GETTING STARTEDBY SOPHIE COLEMAN 19 MARCH 2016Step 1I have set up my personal Moodle site, including a few words introducing myself, a photo of myself with a description of the photo and a link to my blog. Here is the link to my Moodle site: seen in the above profile I have also created a blog through wordpress that includes a brief introduction about me and some information on my allocated company. Here is the link to my blog: have posted the above blog link to the blog links forum as seen here: also visited some of my fellow student’s blogs and said hello. An example of that is here: 2On Friday, March 11 2016 I was able to go to ‘Find Your Company’ on the Moodle site and determine what company I had been allocated. I discovered that this company was called Australian Pharmaceutical Industries (API). I clicked the link to their website and was able, very easily to start learning who they were and what they were all about. On first impression, without going too far past their home page I thought that they were a father company for many, if not all of the well-known Pharmacies around Australia but I soon discovered, although a father company they are, they only have three Pharmacy companies under their wing, only one of which I had heard of; Priceline Pharmacy, as they have two stores here in my home town, Rockhampton. Here is API’s website: website is relatively easy to navigate, making their Annual Reports easy to find. They were at the bottom of the home page under a heading called Investors. Here is the link to download the Annual Reports for the past three years: Overview of Australian Pharmaceutical Industries (API):API is the parent company of Priceline Pharmacy, Soul Pattinson Chemist and Pharmacist Advice. It started off in 1910 with three chemists, David Williams, Edgar Scholfield and James Constable and was called the Chemists’ Co-Operative company of NSW. They originally ran out of a small borrowed cellar and had 40 members. They then changed their name to The Wholesale Drug Company (WDC) in 1922 when they purchased their first real estate. In 1948 the Pharmaceutical Benefits Scheme was introduced into Australia which caused rapid growth of the WDC and saw their first distribution facility open in 1960. In 1971 membership consisted of over 1000 pharmacist customers and they changed their name to Australian Pharmaceutical Industries Ltd (API). In 1995 the first Pharmacist Advice pharmacy opened and in 2000 they acquired the Soul Pattinson Chemist brand. In 2002 the first Priceline Pharmacy opened and in 2004 API took control of New Price Retail (which included Priceline Pharmacies). In 2015 it boasted more than 420 Priceline Pharmacies, 100 Soul Pattinson Chemists, 72 Pharmacist Advice pharmacies and 750 pharmacies participating in Club Premium which is API’s member program. They celebrated their 105th year reporting $3.35 billion in revenue. API’s official vision is “Enriching Life as the most inspirational choice for health, beauty and well-being”. They revolve their company around 6 values; Authenticity, Respect, Growth, Initiative, Unity and Excellence.API also runs a? foundation, called the Priceline Sisterhood Foundation, that donates the proceeds raised, through donations and featured products, directly to five charity partners to help women who are affected by serious illness'.I have posted this on my blog as can be seen here: ’s and areas of the report I had difficulty understanding:What is NPAT? Net Profit After Tax What is return on capital? Return on capital is a ration that is worked out by the following equation: After-tax Operating Income/(Book Value of Debt + Equity Capital) – Cash and Equivalents.What does fully franked mean? Something that the company has already paid tax on. What is EBIT? Earnings Before Interest and Tax.If Pharmacy Distribution sales growth excluding the impact of the PBS reforms was 6.5% what was it including the PBS reforms?How does the Priceline Sisterhood Foundation actually raise its money? Through donation boxes at Priceline stores, featured products (a margin of the profits made on these products gets donated), and through fundraising events. What is like for like growth? It is the measure in growth and sales. How does the Company intend to transition from Company owner Priceline stores to Franchise owned Priceline Pharmacies?What are customer payment defaults? A default is the failure to meet legal monetary obligations of a loan. What is meant by the number of performance right entitlements?What happens to the leftover fee pool of $176556 that was put aside for Non-executive directors?What is an Equity Value of rights?What are Group and Segment Scorecards?Vesting definition? Vesting is when an employee accumulates non-forfeitable rights over employer-provided stock incentives or employer contributions made to the employee's qualified retirement plan account or pension plan.Does Mr Roche (Managing Director and Chief Executive Officer) receive 32.5% extra on top of his salary or only 32.5% of his total salary at base at a STIP?What does Cost of Sales mean? It is the total accumulated cost to produce a product or service.What are non-current receivables impairment and intangible assets impairment – under Significant items in the Income Statement?Why were there no other investments made in 2015 but there were in 2014?Why are the proceeds from sale of stores, property, and plant and equipment figures so low compared to 2014?I am unable to understand the Statement of Changes in Equity.Areas of the business that seem important to me:The most important factor within API, in my opinion, is the expansion of the Priceline Pharmacy brand. During 2015 the company added 30 more Priceline stores, making its total 420. As is seen in the Annual Report 2015 and discussed in the below articles, generating growth and expansion has benefitted API greatly with the total years’ profit being $43.1m, up from $90.8m loss in 2014 as well as their net debt reduced to $70.8 million from $99.2 million and many other great figures that show their great achievement as seen in the Annual Report 2015. Here are some articles that discuss the benefits API has received from expanding their Priceline brand: are many key challenges that API has had to face over the past financial year and their strategies to overcome these are evidently successful as is obvious in their financial statements and statistics.Key Challenges:Structural reforms within the Australian Community Pharmacy Sector.This is in regards to the continued government PBS reforms.In basic terms this is the change in the subsidy that the government provides pharmacies for certain funded products/medication therefore meaning that they can sell these products/medications to customers at a reduced price.API has overcome this with a combination of reduced discounts to Pharmacy customers and operational adjustments.Execution of Retail Pharmacy Strategy with associated growth of Priceline Pharmacy stores.This is basically stating that they are worried that any expansions of their Pharmacies will be unsuccessful or any growth will be slower than expected.API has overcome this by having key business processes and responses in place - Retail Pharmacy Business Development teams that track, measure and report growth monthly.One Enterprise Restructure + Information System upgrade.API systems transitioned to One Enterprise in 2011, this included an upgrade of the company's enterprise management information platforms in the latter part of the 2015 financial year.API mitigated this through a Management Steering Committee plus a Business Optimisation Team to ensure that the implementation and changes went over smoothly and to fix any issues that occurred.Financial risk and long term customer loans.Example of this include customer payment defaults, financial guarantees to banks supporting certain Pharmacy customers being called and general retail trading conditions.API found a solution to this through ensuring that they have a financial risk management plan as well as having undrawn funding lines to manage unforeseen financial risk.?Here is some evidence that proves that API has been successful in overcoming these challenges. (Please note these are taken directly from the Annual Report for 2015)?Net profit after tax of $43.1 million, up 37.6% on the underlying1 NPAT for the prior yearEarnings before interest and tax was $74 million, an increase of 13.7% on the 2014 underlying EBITReturn on capital employed up to 13.5% from 11.9% in 2014Cash generated from operations was up $11.9 million on the prior year to $101.8 millionNet debt reduced to $70.8 million, a $28.4 million reduction on the prior yearFully franked dividends paid to shareholders were up 28.6% for the year to 4.5 cents per share.?Here is an interesting article in regards to the loss API suffered in 2014 due to the PBS restructure. It is interesting to see then difference in the company from one year to the next: is an article about the improvements API was making in 2015 and the share price highs they were having: key question about API would have to be why have they not expanded internationally? They are in New Zealand but it appears to me that that is a far as they have gone. If they are doing so well with profit, share prices etc. would the international market not be the next logical step? Just something to think about...Here is a link to where I have posted about the key challenges and articles on my blog: on other blogs:I discussed why I thought API hadn’t expanded overseas (besides New Zealand) here: compared mine and Niami’s allocated company’s financial statements here: discussed Kym’s company with her here: favourite blogs: - This is one of my favourites because Kym has a real way with words, and although their company was not something I would have had original interest in, the way that they explained and told the story I was really engaged and interested. The way the blog is set out is easy to navigate and the author wrote each post in a way that was easy to understand. - I really enjoyed Niami’s blog as the way it is set out really caught my eye. To start off I like pretty things so immediately I was interested. Not only did she have some interesting facts about her company but provided their annual report for me to look at and compare to my own. I really enjoyed the non-accounting related posts also. These kept me interested and engaged. - This blog is awesome. There are so many intriguing and interesting posts. I like the way the author goes in to a lot of detail but in a simplistic way that is easy to understand.Stage 3Please see the excel spread sheet that has been uploaded.I attached a note to cell F7 in the Changes to Equity Statement as there is a difference in values from one report to another. Step 4 Chapter 1:Before I started reading this Chapter (or any accounting material) I have to admit I was very apprehensive. I didn’t do very well in maths at school and assumed that this would hinder me in doing well. Because, as I’m sure a lot of people in the course did, I assumed accounting was only about numbers, maths and finance. When I started to read the first couple of paragraphs I was pleasantly surprised that already my views were starting to change. I started to realise that accounting was a way of connecting the business to reality and human reaction. This pleased me as my opinion went from, ‘I highly doubt I will ever need this subject in the work place’ to ‘this will be relevant to the work I want to do and to the way I conduct business.’ This was a great realisation as it increased my interest in the subject and therefore meant that I would put more time and effort in to doing well. From the first couple of pages I got a decent idea of what accounting actually is. It really is ‘A Way of Viewing Business.’ I don’t normally pay too much attention to titles of articles or chapters, but now I am thinking maybe I should! It is about understanding what is really going on, behind closed doors, of a firm or a business and also about finding out how to better this business and help it grow, just like I saw on API’s financial reports; the comparative nature between years and the difference in figures. I found this chapter very easy to read. I liked all of the personal stories and observations that the author made, relating them back to accounting. These real life views made it easier to understand the information that was presented. I do however think that the lists of businesses on page 3 and the pictures were a bit of overkill as I have to admit I skimmed but did not thoroughly read these. I did like the questions on page 3 that said ‘If you were currently running, or were an owner, or was thinking of purchasing any of these businesses you would find various accounting information coming your way. What would you do with this accounting information? What would this accounting information look like and what would it be for?’ From look at API’s annual reports I think that the accounting information that would be coming my way would be the financial statements, including income statement, change in equity statement, cash flow and income statement. All of these would be really useful as they would tell me if the business was worth buying – so what profit they were making, what assets they had, what their shares were worth etc. If I was currently running or owned this business it would tell me, if it was doing really well, what areas are succeeding and where could use improvement to make it even more successful. If the business wasn’t doing very well it could show me in what areas it is failing so that I could come up with strategies to improve. I learnt a lot in this chapter and I appreciate the basic way the information was portrayed. Exact definitions really helped me to understand. It deemed important for me to understand the concept of a trust, which I had heard of, but wasn’t too sure about. Thanks to the simple explanation I now understand it to be a relationship between a trustee and beneficiaries. The trustee carries on a business for the benefit of the beneficiaries and the terms of this are set out in a trust deed. What I thought was the biggest concept of the chapter was the concept of double-entry accounting. This took me a while to understand as I didn’t see a clear definition in the first few paragraphs that were underneath this term. I decided to look up a definition and then as I continued on reading I finally realised it simply meant entering data in twice. I enjoyed the story about the type writer; it still amazes me how we take technology for granted. I also liked the information about the QWERTY keyboard. I enjoy history so this appealed to me as I did not know this and I definitely relate to the idea that humans are creatures of habit. I definitely am and I do not adjust to change very well!So double-entry accounting, to me, is a way of ensuring that no mistakes are made and everything within the business in relation to accounting is stable and correct. I think I have a grasp on journals and ledgers and that a journal is a list of transactions that are recorded every day as they happen (so they are basically sorted by time.) A ledger is contains the same transactions as a journal but is arranged in to the different types of accounts (so assets, liabilities, revenue, equity and expenses.) I am very grateful that everything is done digitally these days and we do not have to worry about really heavy books or pages and pages of transactions hand written! The trail balance sheet seemed a bit daunting at first but I am just assuming that it is a column of credits, a column or debits and these two columns need to balance out. In saying that, I do feel like that may be too simple and perhaps there is more to it than I think. Another concept that I deemed important is the entity concept. This is the idea that the activities and ideas of the firm’s owners are kept separate to those of the firm itself. I still don’t really understand why this is though. This section of the chapter confused me slightly as I understand what the entity concept is I just can’t really understand the why. I do understand that by putting money into an account you record the increase in the account and then it’s the firm’s obligation to maintain and increase that account.The accounting equation made a lot of sense to me as equity is clearly assets minus liabilities which would mean that assets would equal equity plus liabilities. Simple equations like that, I understand. I appreciate that a firm has five key elements; assets, equity, liabilities, revenue and expenses. Through reading API’s annual report as well as using Peerwise I got a feel for what each of these terms meant and that assets, liabilities and equity are really a way to measure the worth or the financial value of a firm and revenue and expenses are the additions and reductions to the firm’s equity. Understanding these definitions and what they each mean to a firm made understanding the extended accounting equation a lot easier than when I first skimmed over it. It really amazed me, that I learnt in this chapter, that everything in accounting really relates to how good or bad a firm is doing and its value. I found this chapter very interesting and a great introduction in to this subject.Key Points and QuestionsAccounting is about connecting with business and the value of the businessDouble-entry accountingLedgers and journalsBookkeepingCredits and debitsEntity conceptAccounting equation and extended accounting equation5 key elements of accounting – assets, liabilities, equity, revenue and expenses.Chapter 3When I approached this chapter I had already studied API’s annual report and their financial reports so I felt a bit more comfortable about this chapter than the first one. The first chapter definitely helped me in understanding them with the introduction to the five elements of accounting and their relationships through the accounting equation and the extended accounting equation. Reading chapter 3 helped me further my understanding of API’s financial statements and gave me definitions of all of the different headings that made more sense of the different relationships that build the financial side of a business. The second paragraph in, had me understanding that there are main financial statements that most businesses are required to put in their annual reports. These are the balance sheet, income statement, statement of changes in equity and cash flow statement. API’s annual report contains; Income Statement, Statement Flows and Statement of Changes in Equity.I like on page 2 that annual reports are explained as marketing documents. I have an interest in marketing and that makes complete sense to me. It really is trying to advertise the company’s appeal to not only current and future investors but also current and future staff to keep them interested and wanting to work for the company. In regards to the information provided about the balance sheet, straight off the mark the chapter gives a definition in the very first sentence. When looking in API’s annual report I was unable to see any pages that said balance sheet or similar. So I am wondering, why doesn’t this annual report have one? Balance sheet is mentioned throughout the notes to the financial report but there is no actual document in it called balance sheet or anything of the like. From what I understand the balance sheet is a sheet of information from one particular day that sums up how well or not well a business is doing, providing the assets, liabilities and equity figures from that day. I want to know how they pick that day. Is it completely chosen at random, drawn out of a hat perhaps or is it a day they are doing really well? I would also like to know why there are only 3 of the accounting elements included on the balance sheet and not the whole 5. Are expenses and revenue not important in totalling profits and losses as well? I am glad that the author has said no need to worry about the footnotes just yet, although yet scares me a bit. I get they are there to help understand as well as gives rules and policies for the financial statements, but API’s annual report is 88 pages long and majority of that is footnotes so there is no way I would be able to retain all of that information. Throughout the financial statements in API’s annual report there is only the heading of consolidated and no mention of parent, I understand this as API is a parent company and therefore there figures would be consolidated anyway. Although I am unsure if what I have said is true and this part of the text definitely confuses me. I definitely need to read more about ‘parent and consolidated’ to help me understand this topic. Because I didn’t really understand this section, I didn’t really absorb any of the information provided in the next few paragraphs as it was confusing to me. This part I did understand was the other three financial statements, especially from studying API’s annual report and their own financial statements. These seemed to me to be the key elements to this chapter as well as to an annual report. The three key financial statements are the income statement, the change in equity statement and the cash flow statement. The one that deemed most important to me was the income statement as that showed the revenue and expenses and therefore gave the profit for that time period. This then related back, for me, to the concept that I learnt in the first chapter that accounting is the way of understanding what is really going on in a business and this is therefore shown in the income statement. From this section I really got out of it that Revue – Expenses = A firm’s income. I like that the term ‘bottom line’ is quite literal in that it really is the line on the bottom of the statement. Again, not too sure I understand the whole parent and consolidated concept but I was lucky as the company I was assigned only mention consolidated. As I am unable to look at the balance sheet for API I was unable to apply the extended accounting equation to it. It makes sense to me that we would have to look at the statement of changes in equity as equity is included in the extended accounting equation and if there are changes in equity then it would be important for shareholders and potential shareholders to be made aware of them and this also effects the activities and outcomes of the firm. The cash flow is an obvious one to look because as was mentioned in this chapter if the business runs out of assets, being cash, then they will go broke or into liquidation. Again we are looking at the entity concept. (I knew it was an important one!) I like seeing how something learnt in one chapter therefore helps me understand the next chapter and basically helps me understand the question of why we do this that I asked above. I now understand that the balance sheet shows the assets that have been debited with and owes an obligation to its equity owners for those assets which equal generating future value. It is becoming clear to me that this is all about trust and trusting the firm with IOUs and that these IOUs are generating value and being maintained. This was all a lot of information to take in in the space of one time and took me a few reads to get it. Another important concept I got from this subject was the du Pont approach of breaking down return on assets into profit margin and turnover ratios to assist decisions by business managers. I am really starting to understand why it is so important to analyse the financial statements. Before starting this assignment and looking into API’s annual report, dividends, shares etc. were all quite new to me. Of course I had heard the words before but I never really had a proper understanding of what these things meant. I actually did my own research when I was reading the annual report as I had not yet read this chapter. I now understand that shares are sections or portions of a company that people can buy into and the dividends are the profit that is divided amongst the shareholders/owners. I like the equation (DD model) Equity value = PV of expected future dividends, as it gives a basic overview of what occurs. Basically if we want more money today then we discount future dividends. There are a lot of equations in this course and although I was no good at maths I really like them because they help me understand and put it into more simple words. A key concept I found really helpful was the understanding of capital outlays, free cash flow, net debt cash flow from debt owners and their relationship with dividends. This helped me understand dividends equals operating cash flow minus capital outlays plus new cash flow from debt owners and if a firm had no debt it would have no cash flow from debt owners (obviously) and therefore the case dividends would just equal a firm’s free cash flow.All in all there was A LOT of information to absorb in this section but I think that it was laid out well and fairly easy to read and left me with a few questions that I would like to know the answer to!Key Points and QuestionsKey financial statements are: Balance Sheet, Income Statement, Cash Flow Statement and Statement of Change in EquityHow is the day for the Balance Sheet chosen?Entity conceptdu Pont approachHow does the ‘parent and consolidated’ concept work?Why doesn’t API have a balance sheet? – Would just like to note that after I compared their financial statements to others, that I realised that the statement of financial position was API’s balance sheet.Trust between firm and ownersDividendsDD model ................
................

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

Google Online Preview   Download