Assignment Stage 2 (Ass#2) Restated Financial Statements ...



|Assignment Stage 2 (Ass#2) Restated Financial Statements & Ratios |

|ACCT11059 Accounting, Learning and Online Communications |

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Step 7 – Due 11:00am, Monday 5 June 2017

Identify three (3) Products

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| |Product 1 |

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| |Fruit Shoot (Apple & Blackcurrant) 300ml @ £2.52 each |

| |(can be found cheaper if you purchase in 4 pack) |

| |Image from |

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| |Product 2 |

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| |Gatorade 500ml @ £2.57 |

| |(can be found cheaper if you purchase in 4 pack) |

| |Image from |

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| |Product 3 |

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| |Pepsi Max 330ml @ £2.50 |

| |Image from |

| |Retail Price |Variable Cost |Contribution Margin £ |

|Product 1 |£2.52 |£1.40 |£1.12 |

|Product 2 |£2.57 |£1.42 |£1.15 |

|Product 3 |£2.50 |£1.47 |£1.03 |

Comments on Contribution Margins

I didn’t have much choice in regards to choosing my products as my company only produces fruit juices and soft drinks and I couldn’t find any services so I decided to choose two products from each category in regards to “still” and “carbonated” drinks and the third one I chose due to popularity. I also chose one product that was made for an audience of children (Fruit Shoot), one that was made for adults (Pepsi Max) and one that was made for athletes (Gatorade).

Product 1 (Fruit Shoot) is a line of fruit juices made available for an audience of children. Fruit Shoot is available all over the world and in majority of retailers including petrol and convenience shops, IGA, Foodland and Woolworths. I discovered that this product is often purchased in 4 x 200ml packs for $4.40. I chose to focus on one singular product rather than the 4 pack in my retailed prices and contribution margin calculations.

Product 2 (Gatorade) is a scientifically formulated drink to provide athletes with a carbohydrate-electrolyte solution that enhances the absorption of water during physical exercise and contribute to the maintenance of endurance performance during prolonged endurance exercise. This product can be purchased in powder form, 4 packs and singular. For the purposes of this assignment I have chosen the singular item.

Product 3 (Pepsi Max) is a product that Britvic manufactures through an agreement with PepsiCo which is part of the low sugar campaign to avoid the sugar tax. “Maximum taste, no sugar”. This product can be purchased in singular can form, and packs of 4, 6, 18, 24 and 30. This one in particular would have significant changes in respect of the contribution margin depending on the amount of cans that you purchase however for the purpose of this assignment I have chosen the one single can.

As all three of my products are produced in mass amounts and packaged in small amounts the cost of my products are extremely low in respect of manufacturing. I used the annual report to find out how much it cost to make one litre of the product (carbonated vs still) and I then calculated how much it would cost for each product amount in the size bottle that I am using in my example. Product 1 and 2 were designated as “stills” in the annual report whereas Product 3 was “carbonated”. Both carbonated and still items contribution margins were actually identified in my annual report so I took advantage of this to play with some figures. I also could not locate how much the products were sold for in Great Britain so I found them in Australian dollars and completed a currency conversion to get the estimated retail price. I actually found this particular part of the step quite interesting and enjoyed the process. I feel that the contribution margins are all similar because my product are mass produced and have similar production style and similar distribution outlets.

I also believe that there is a slight difference in contribution margins between carbonated and still because of the manufacturing process entailed however they are reasonably close because soft drink and juice is cheap to produce, can be manufactured, bottled and distributed from one location which therefore creates large profits with minimal warehouse costs.

Resource and Market Constraints

Upon researching my products, I identified that one of the major constraints Britvic faces is consumer opinion. This was then followed closely by competitive brands and increasing health concerns (high sugar, caffeine etc.) One example that I found was Britvic rebranded and approved a comprehensive media campaign for their children’s product Fruit Shoot. Britvic discovered that competition was becoming tougher and in order to get the children to want their product they needed to strengthen their relationship with parents. Britvic campaigned that their Fruit Shoot product would increase children’s skills while playing outside, had a variety in flavours and bright attractive wrapping on the bottles. Britvic advertised that their Fruit Shoot product is 30% less sugar with no artificial colours, sweeteners or flavours. The campaign showed to be successful in the 2016 annual report because it highlighted that the Fruit Shoot product maintained its share of the market and increased distribution by 10%.

I feel that Gatorade and Pepsi Max would have constraints in regards to their competition in the market known as Poweraid and Coco Cola. Britvic is constantly building relationships and gaining suppliers to distribute Gatorade and Pepsi Max to which would indicate that their marketing campaigns for the products are successful. Britvic was able to maintain their lead in the GB market with their ‘no added sugar’ drinks and hitting back against the sugar tax that was brought in by focusing on reformulating their existing products to provide a variety on the market which allowed consumers to have a choice in how much sugar they consumed. While this suited those people who preferred low sugar it did also create the risk of creating another constraint by losing their quality of flavours.

One resource constraint that I have been pondering about since having a discussion with Danielle Bradley on the differences with our companies was the potential risk of running out of supplies to make the drinks. As the drink formulas are specialised if the company were to run out of syrup, this would have a massive impact on the production of the drinks even for just one day. This could then have a domino effect on when these drinks can be given to the distributers which of course would impact the profit made that week. Another constraint that may occur in the future is if Britvic want to expand to countries that are further away they would need to consider purchasing a large block of land and building another manufacturing site as it would be more cost effective to do this than ship their products from their existing manufacturing warehouses.

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Step 8 – Due 11:00am, Monday 5 June 2017

I actually enjoyed completing this task a lot more than originally anticipated. I’m not sure if it was due to the previous work in restating or if I have grown more confident to trust myself when completing the task. A big learning curve for me last time was to complete the task while watching Maria’s lecture and while she is super-duper speedy in completing the task I just kept rewinding and re watching until I got it. Another positive to this was that I had Kerryn Zimmerman online with me while I was completing it and each time I hit a sticky spot we would discuss different options on whether our figures looked right or not and whether we had got the information from the right places or not. All in all it was a pleasantly surprising experience.

I have done my comparisons on two companies that are no similar to mine in the fact of producing small items at a large production level but reading the other two spreadsheets did help give me a better understanding on how ratio’s work.

Ratio Analysis

Profitability Ratios

I had to break this step down into small chunks while I was typing to really get a good understanding of my figures, you may be here a while! My understanding of profit ratios is that they give us the opportunity to look at Britvic’s financials to and compare the expenses and relevant costs over the year to assess if the business is heading in the right direction to gain profit. Looking at Britvic’s Net Profit Margin I was really concerned because it is very very low compared to Kerryn Zimmerman’s and Danielle Bradley’s. Bother of their companies have over -48% whereas my company is 8% and under. One thing I did observe however was that my company has doubled its net profit margin since 2013 so looking at this we are on the right track. If I understand correctly though I would say that my company is not very good at generating earnings after tax.

|Profitability Ratios |2016 |2015 |

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|Original Cost |£m -300 |£m -87 |

|Estimated Useful Life |10 years |5 years |

|Residual Value |£m 100 |£m -40 |

|Estimated Future Cash Flows | | |

|31 December 2018 (time period = 1 Year) |£m -150 |£m -25 |

|31 December 2019 (time period = 2 Years) |£m 80 |£m 25 |

|31 December 2020 (time period = 3 Years) |£m 90 |£m 30 |

|31 December 2021 (time period = 4 Years) |£m 90 |£m 30 |

|31 December 2022 (time period = 5 Years) |£m 100 |£m 35 |

|31 December 2023 (time period = 6 Years) |£m 100 | |

|31 December 2024 (time period = 7 Years) |£m 90 | |

|31 December 2025 (time period = 8 Years) |£m 80 | |

|31 December 2026 (time period = 9 Years) |£m 75 | |

|31 December 2027 (time period = 10 Years) |£m 75 | |

I really enjoyed completing this task in excel and found it quite easy to do while following Maria’s lecture. When I completed this task I quickly realised that my better judgement would tell me to go for option 2. Now I realise most people would probably do this without completing this process however the reason I would choose Option 2 and launch a new drink is because long term costs would not be incurred in respect of running another factory with another lot of employees when realistically this isn’t necessary right now. I feel that Britvic need to look at their financials and try and focus on reducing their debt over the next few years. By reducing their debt they will gain more profit and equity in their business which would prepare them for another expansion in say 5-10 years’ time. By choosing option 2, Britvic is still expanding their business without incurring the extra costs of setting up another factory. The internal rate of review is higher on option 2 and the payback period is shorter. I believe that Britvic would gain more capital in a shorter amount of time by choosing this option. I can also see that many people would think I was crazy for suggesting option 2 when Option 1 clearly offers more capital with only 1 extra year of payback period however option 1 would place my company in a position where they would need to borrow more money to try and get this capital and I feel it would be a step in the wrong direction and potentially send them broke.

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Step 10 – Due 11:00am, Monday 5 June 2017

Feedback

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Sarah Zillmann Student No: 12050880

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