Financial Decision Making in assessing company growth - Free Essay Example

Sample details Pages: 4 Words: 1319 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? b) Performance appraisal of Capello Designs PLC Return of Capital Employed (ROCE) is often considered to be the best measure of profitability in order to assess the overall performance of the business (McLaney Atrill, 2009). The year 2009/10 has seen a decrease of 4.5% from 24.6% to 20.1% in the ROCE ratio compared to the previous year, operating profit between the two years are similar, the difference in ROCE is due to the large change in capital employed. The decrease in ROCE suggests a poor efficiency and profitability of the companys investments. Don’t waste time! Our writers will create an original "Financial Decision Making in assessing company growth" essay for you Create order Capello Designs ROCE is significantly lower than the typical ROCE of 27% of other companies in the hair care products sector. Capello Designs should strive to maximise the return of capital employed by finding the optimum mix between mix of unit profitability and capital utilisation. The decrease in Return of Shareholders funds suggests management is less efficient in utilizing its equity base and giving a better return to its investors than it was in the previous year. Gross profit from the year 2008/09 to 2009/10 has declined by 2.4% from 30.8% to 28.4%, this suggests an increase in costs without any corresponding increase in selling price, or/and selling prices have declined due to competition, or the range of goods may have changed to include more products with lower margins. The facts show that the sales revenue has increased by 7% compared to the cost of sales that has increased by 11%; the divergence of figures has contributed significantly to the decline in gross profit. T he decrease in net profit by only 0.5% suggests that overheads have been tightly controlled during 2009/2010. Capello Designs profitability margin figures are falling below the typical profitability gross margin figure of 35% and net margin of 13%. The company can however increase its profitability by reducing costs, increasing turnover, productivity and increasing efficiency, to increase the overall performance of the company. Working capital cycle days has decreased from 81 days to 77 days, trade receivables have decreased by 13 days, while inventory have increased by 13 days which means there has been a reduction in the time taken to collect amounts owed by credit customers, but there has also been a raise in the time inventory is held for, this could also suggest the reason for the difference in current ratio of liquidity in comparison to acid test ratio of liquidity. Trade payables are taking longer to settle in 2009/10 compared with the previous year and has increased for a period of 4 days from 71 days to 75 days. Net Asset Turnover is a measure of the effectiveness with which assets are being used to generate sales and a company would ideally expect to see an increasing trend. However the ratio has actually declined as the growth in sales (7%) has not kept pace with the growth in assets (26%), with particular references to the increases in non-current assets, inventory and trade receivables. The current ratio measures liquidity and solvency, essentially a measure of the businesss ability to meet its current obligations. A generally acceptable current ratio of current assets to current liabilities is 2:1 (Gill Chatton, 2003). The current ratio of Capello Designs has fallen from 1.9:1 to 1.7:1. A lower ratio means that the company may not be able to readily pay off its short-term liabilities or take advantage of any discounts available, overall a weaker liquidity position than the previous year. Current ratios tend to overstate the current liquidi ty position of a company, therefore the acid-test ratios need to be compared. TheÂÂ  acid-test ratio is also a liquidity indicator that further refines the current ratio with the exclusion of inventory (Loth, 2010), a more conservative ratio than the current ratio because of its exclusion of inventory which is more difficult to turn into cash. Therefore, a higher ratio means a higher liquidity position. The acid-test ratio has declined by 25% from 1.2:1 to 0.9:1, the ratio is now less than one, which would suggest that the company cannot meet its current liabilities and that the liquidity of the business is now cause for concern. Furthermore, the acid-test ratio is much lower than the current ratio, which would suggest that current assets are highly dependent on inventory. The combination of ratios would suggest that the liquidity position of the company needs to improve. Various methods in which Capello Designs could do so is by increasing the current assets from loans o r other borrowings with a maturity of more than one year, converting non-current assets into current assets as well as increasing current assets from new equity contribution, or perhaps investing profits back into the business. Gearing Ratio (1) has increased quite considerably from 38.9% to 59.2%. The gearing ratio has increased by over a third, this is a consequence of the significant additional loan taken out during the year. The increase in gearing (leverage) means the company is considered to be more risky than before; because it is more vulnerable to downturns in the business cycle asÂÂ  the companyÂÂ  must continue to serviceÂÂ  its debt regardless of how bad sales are. Interest cover has decreased from 11.3 times to 6.6 times, a reduction of 4.7, which amounts to almost 40%, the gearing of this company needs to be closely reviewed going forward. Capello Designs could consider reducing its loan and maximise the use of its overdraft facility which would help its short term liquidity problem without unduly increasing its gearing ratio. The earnings per share have decreased by 1.1 pence from 27.7 to 26.6 pence which is discouraging. The dividend per share and dividend payout rate has remained constant throughout both years. The dividend yield has reduced by 1.1 however the P/E ratio has increased by 2.6 times from 14.1 to 16.7, giving Capello Designs a greater price/earnings ratio than its main UK competitor. A high P/E ratio is one that has a high price compared with its recent earnings (McLaney, 2009), this implies that investors are more confident this year in the growth of future earnings. However the dividend yield has decreased by 0.5% to 3.6% compared to its main UK competitor with a dividend yield of 4.9%, which is more than a third of an increase of Capello Designs. This comparison suggests that the shareholders of Capello Designs main UK competitor can be more confident that dividends will be maintained as opposed to Capello Designs. Overall the companys performance seems to be deteriorating, in comparison to the typical figures of other companies in the same sector, Capello Designs is not performing as well as it should be, in comparison to the previous year, this year has taken a turn for the worst. Profitability as a whole has declined and there is cause for concern when it comes to the liquidity of the business, gearing, activity and investment. This company needs to be closely monitored over the next few years. Appendix Profitability Ratios Return on Capital Employed Profit before interest and tax x 100 Total assets less current liabilities Return on Shareholders Funds Profit after taxation x 100 Shareholders funds Gross Profit Margin Gross Profit x 100 Turnover Net Profit Margin Operating Profit x 100 Turnover Activity Ratios Trade Receivable Days Trade receivables x 365 Turnover Inventory Days Inventory held x 365 Inventory used (cost of sales) Trade Payables Trade payable days x 365 Credit purchases (cost of sales) Net Asset Turnover Turnover x 365 Total assets less current liabilities Working Capital Cycle Trade receivables plus Inventory days less Trade receivable days Capital Gearing Ratios Gearing Ratio (1) Long term debt x 100 Shareholders funds Gearing Ratio (2) Long term debt x 100 Shareholders funds plus long term debt Gearing Ratio (3) Net Debt x 100 Shareholders funds Interest Cover Profit before interest and tax Net interest payable Liquidity Ratios Current Ratio Current assets___ Current liabilities Acid Test Ratio Current assets less inventory Current liabilities Investor Ratios Earnings per share Profit after tax Number of ordinary shares issued Dividend per share Total ordinary dividend Number of ordinary shares in issue Price/Earnings Ratio Current market share price Earnings per share Dividend Cover Profit after tax Number of ordinary shares issued Dividend Yield Net dividend per share x 100/90 Current market price Dividend Payout Ratio Dividend per share Earnings per share

Historical Views of Leadership Plato and Aristotle

What is leadership, and how do we attain the best and most effective leaders? These are questions that are as old as civilization itself. Bass (1974) wrote that, â€Å"from its infancy, the study of history has been the study of leaders† (as cited in Wren, 1995, p. 50). Since the study of history in the West is commonly held to begin with Herodotus of ancient Athens, it is not surprising that we should examine the historical views of leadership through the eyes of two titans of Greek thought: Plato and Aristotle. Both men lived in 4th century BCE Athens, so much of their background and experience was shared. Aristotle was the younger of the two, and he was Plato’s student. Where leadership is concerned, both philosophers agreed that the†¦show more content†¦126). Here we see that he does not even bother to mention the individual. How will this happiness be accomplished? It will be accomplished by making the State just. Plato believes that justice for the individual consists in fulfilling one’s proper role – realizing one’s potential while not doing what is contrary to one’s nature. This is also true for justice in the State. Each class and each individual has a specific set of obligations to the community that will result in a harmonious whole if everyone fulfills them. While this is true for everyone in the community, for the leader it is even more important, and so he has Socrates tell Glaucon that â€Å"we must choose from the Guardians those who appear†¦ most likely to devote their lives to doing what they judge to be in the interest of the community, and who are never prepared to act against it† (Plato, 1987, p. 119). In the just state individuals are ranked according to their strengths, and placed within a hierarchy. â€Å"No two of us are born exactly alike. We have different natural aptitudes, which fit us for different jobs† (Plato, 1987, p. 59). And still more blatantly: â€Å"Do you suppose some men are better than others? Or are all equal? – They certainly aren’t all equal!† (Plato, 1987, p. 176). If all men are not equal in ability, and certain abilities make oneShow MoreRelatedEvaluating Historical Views of Leadership Essay1194 Words   |  5 Pages Evaluating Historical Views of Leadership March 9, 2014 University of Phoenix Evaluating Historical Views of Leadership This paper evaluates the leadership views of Plato, Aristotle, Lao-Tzu, and Machiavelli from the point of view of the modern military leader. The process of evaluation includes an examination of the commonalities and disparities between these views of leadership. The paper explores a definition of modern military leadership. 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Get Assignment for Auditing and Assurance Services Free Solution

Questions: Part 1 (A). Identify at least three (3) inherent risks that you would have considered for each company in the audit planning phase and justify your answer?(B). What audit procedures and/or tasks would you have plan to carry out in response to the inherent risks identified by you in (A) above?(C). Carry out an analytical review on the financial statements of these companies in the planning phase and identify areas of concern (high risk or problem areas) or comfort. Justify your answer - identify at least three (3) points for each company?(D). What audit procedures and/or tasks would you have planned to carry out in response to the high risks or problem areas identified by you in (C) above? Alternatively, in relation to which area would you have minimised your evidence gathering procedure?(E). An Independent Auditors Report to the Members has been issued for each company:(a) Identify the type of audit opinion issued by each auditor, and justify your answer?(b) Do you agree with the type of op inion issued by the auditor? Why or why not? Please indicate an alternative audit opinion if you do not agree with the one issued?(c) Are there any other matters or events that have taken place after the issue of the audit report that strengthens or weakens the auditors opinion?(F) In relation to corporate governance research and justify your answer to the following questions:(a) Do the above companies have any process relating to corporate governance?(b) Under which section of the annual report would you expect to find information on it?(c) Do the companies have an audit committee and does it have the correct composition?(d) In your opinion, are audit committees of benefit to the auditor, the company, the auditing profession and/or society as a whole? Part 2 a) What you (as a group/team) understand by audit quality?b) Do you think that audit quality is an important issue? Why or why not?c) Do you think that the directors and/or the audit committee assist audit quality? If so, how?d) The CAANZ (formerly ICAA) in a document titled The Benefit of Audit: A Guide to Audit Quality identified five drivers of audit quality. What are these five drivers? Do they have any impact on audit quality?e) Do you believe that literature of the above nature will be of benefit to the auditor, the auditing profession and/or society as a whole? Why or why not? Answers: Part 1 (A) The two companies are Wesfarmers and Virgin Australia. Wesfarmers is a trading company whereas the Virgin Australia is a company from aviation sector. The inherent risks involved in the Wesfarmers are: The slow moving inventory since it is a trading company. There are many cash dealings which get interrupted due to delay in stock being converted back into cash. The adverse commodity price movement increases the financial inherent risk. Also the dependency on the customer supplier chain on the local and overseas areas sometimes leads to operational difficulties which are also an inherent risk for the company. (Identify Inherence Riskof Westfarmer's Essay, 2015) Whereas for Virgin Australia following are the inherent risks:- Vulnerability due to the state of economy since the revenue from operations as well as major expenditure of the company is influenced by the period of recession or boom is it fuels prices or the tariff rates. There is very high competition in the market so easy switching of the customers is the inherent risk attached with the nature of the business. Due to globalization the risk of currency fluctuation is very high. (Rahul, 2011) (B) Procedures that can be undertaken for Wesfarmers are to check the inventory statement in each operating cycle and draws managements attention so that they can take proper steps to dispose off or sell the non-moving or slow stocks. The financial inherent risk can be checked by extending the substantive checking and extending the audit procedures. Whereas the procedures for the Virgin Australia can be the impact of the economic scenario on the business can be assessed and given in the audit report. Also if there is any foreseeing event which can hamper the going concern concept of the company due to increasing competitors then it should be mentioned in the report. The fluctuation of currency is very evident so proper evidencing and documentation of the same should be maintained. (Loughran) (c) In Virgin Australia although the revenue from operations is higher than last year but since the operating expenses are so high the company is suffering losses. Also due to higher revenue from operations the tax expense has increased resulting in higher net losses. Also due to SkyWest Operations under the Game Change Program strategies the fuel consumption has increased as well as the labour and staff charges. Similarly, in the Wesfarmers the revenue from operations has increased but Earnings before interest and tax depreciation and amortization have decreased since 2013. The net profit after tax is shown at the higher figures but it can be considered a progressive sign as such profit is gained from the discontinued operations. The operations are shut down and also the capital expenditure is lowered down this may be said that the company is reaching its saturation point. (AU section 329A) (D) The procedures that can be undertaken are the substantive checking of all the expenditures so that no unusual expenses are shown. Also the auditor must report in the audit report whether the company is going concern or not. It needs to check whether any kind of losses is going to impact the company and shutting it down. Also in the Wesfarmers the company has earned mostly from the discontinued operations this year so we need to carry out procedures for if any further discontinued operations. We would minimize the evidence gathering on the capital expenditure since it is evident that company is facing its saturation point so capital investment can be lowered. (E) (a) The auditors of both companies have formed an unmodified opinion in their Independent auditors report since it is mentioned that they have gathered enough audit evidence to form their audit opinion. Also it is mentioned in the report that financial statements is complying all the corporations regulations, Australian accounting standards and the IFRS giving true and fair view of the statement. (A guide to understanding Auditing and Assurance, 2014) (b) Yes, I agree with the opinion formed by the auditor because there are no qualifications generated so the opinion cannot be more than an unmodified one. (c) Yes there can be events subsequent to auditors report which might change the opinion of the auditor. For example- a sudden economic crisis adversely affecting the going concern basis of the company thus the auditor will have to reconsider its opinion and reissue its report after changes. However it is the duty of the auditor to take back all the earlier reports in its custody and provide the amended one. (F) (a) Yes both the companies have programs and procedures relating to corporate governance. (b) In the introductory section where the policies and procedures as well as about the company is mentioned there corporate governance disclosures should be given. (c) Both the companies have audit committee with a minimum of three members, at least one having required qualifications and expertise thus being the right composition. (d) The audit committee is beneficial for the society as a whole since they are the barometers for the companys compliance of regulations and standards. This compliance will save the company from any mishap and thus will help company, the profession, and the investors. In short, society as a whole since ethical values is too attached with this. Part 2 a) A systemised procedure of conducting audit by properly coordinating each team member and every activity maintaining a complete quality management. Audit quality not only involves conducting all required procedures but also includes the knowledge base of the professionals. b) Yes audit quality is an important issue since in order to conduct any audit work and forming any opinion complete skill, proper qualification, required expertise and total conviction is needed. The entire above mentioned are the basic ingredients of audit quality. c) Directors and audit committee are the top management of the company. In order to conduct any such thing proper support from the top management is very essential. It will only help the company to improve its reputation more by this total quality management in the audit procedures. The management can allow the auditors to conduct audit quality by cooperating enough. d) The five drivers of the mentioned document are: The work culture of the audit firm appointed impacts the company since the firm with good culture will create a feasible environment of work for everyone. The expertise in their work as well as the personal qualities of auditor is also impactful as the auditor with good personality can make its stand and will be very clear in its opinion. The process should be efficient and effective so that the credibility of the organization is increased. Factors outside the control of the auditors are also important since the management can draw their attention to that. Audit reports reliability is impactful as investors follows the auditors report as their one of the barometer to judge the company before investing in it. e) It is beneficial to the auditors as the auditors will have a proper guideline to not deviate from their path of responsibilities. It is not only beneficial for them but also for the profession and the society as society will gain trust on the profession and will have a better reliable source to form their opinion about the financial status of any company. The ethical values of any company can also be judged if the company is under the firm which are following the regime of the Audit Quality. (Driving audit quality, 2013) Reference A guide to understanding Auditing and Assurance. (2014, October). Retrieved 2015, from CPAAustralia.com: https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/auditing-assurance/guide-understanding-audit-assurance.pdf AU section 329A. (n.d.). Retrieved 2015, from PCAOB.org: https://pcaobus.org/Standards/Auditing/Pages/AU329A.aspx Driving audit quality. (2013, August 13). Retrieved 2015, from Chartered Accountants.com: https://www.charteredaccountants.com.au/Industry-Topics/Audit-and-assurance/Current-issues/Recent-audit-headlines/News-and-updates/Driving-audit-quality.aspx Identify Inherence Riskof Westfarmer's Essay. (2015). Retrieved 2015, from Anti Essays.com: https://www.antiessays.com/free-essays/Identify-Inherence-Risk-Of-Westfarmer-s-666519.html Loughran, M. (n.d.). How to Asses Inherent Risk in an Audit? Retrieved 2015, from Dummies.com: https://www.dummies.com/how-to/content/how-to-assess-inherent-risk-in-an-audit.html Rahul, K. (2011, March 10). 10 Reasons Why Airline Industry is Unique? Retrieved 2015, from mbaskool.com: https://www.mbaskool.com/business-articles/marketing/207-ten-reasons-why-airline-industry-is-unique.html