Surfstitch Ltd Financial Predicaments
There are certain predicament in the financial records of Surfstitch Ltd after the exit of Justin Cameron in 2015, who was considered to be one of the founders. This forced the management of Surfstitch Ltd to write down the assets, which directly increased its financial losses. This increment in the overall financial losses was also conducted due to the high-end cost of sales, and selling & distribution expenses conducted by the organisation. These irrelevant expenses did not allow Surfstitch Ltd to generate the required revenue to support its revenue growth. Therefore, in both 2015 and 2016 financial year the company faced major losses (Market Index 2017).
The goodwill portrayed in 2015 was of $73,832,000 in its books, while the investment in subsidiary stood at $70,197,000. Moreover, during 2015 Surfstitch Ltd cash and cash equivalent position stood at $40,837,000 in its annual report (Market Index 2017).
There was no impairment expense identified in annual report of 2015 fiscal year, while in 2016 the impairment costs amounted to $88,999,000. Furthermore, the selling and distribution cost during 2016 mainly rose to $101,268,000 levels from $44,683,000 in 2015. Moreover, the administrative expenses of the organisation increased exponentially in 2016 to the levels of $49,237,000 from $7,424,000 in 2015 (Market Index 2017). Therefore, it could be understood that the organizations overall profit and loss statement depicted the loss in revenues, as the overall expenses increased in fiscal year. However, the revenue of the organization also increased, which was not adequate to support its rising expenses.
The evaluation of the annual report of Surfstitch Ltd mainly helps in identifying the loopholes in the financial performance of the company. The company has not performed well in the last 2 years, where the revenue has increased but expenses also increased exponentially. This rising expenses mainly increased losses of the organisation, which in turn hampered its ability to continue with the operations. The overall operational capability of the organisation declined in 2015 when its partner and co-founder opted out from the business endeavour. This mainly increased the chances of more loss for the company, as it was not able to cope up with the changing management.
The oral valuation of goodwill declined exponentially in 2016 as compared to 2015, as recorded in its annual report. This mainly indicated that the organisation was using manipulative figures to inflate the overall share value. Moreover, the administrative expenses of the organisation have inclined rapidly during the past 2 years, where the overall income is not able to cope up with the rising expenses. Hence, it is advisable to investors to ignore the company for investment related decisions. The current investors of Surfstitch Ltd could sell the shares at every instance it gets, as there is no future for this organisation.
The statement mainly indicates that it is necessary to have a continuous reporting resume for disclosure entities as it helps in reducing any kind of manipulation that could be conducted by organisation. The evaluation of 2007 financial crisis, mainly portray that many companies have been manipulating with their financial records to inflate the share price. This was mainly due to the non disclosure regime followed by the Australian government. This non disclosure regime was the main reason where investors were not able to identify what was that is management planning and conducting with their money (Ahmed et al. 2016). Identifying the decisions that is being made Surfstitch Ltd mainly indicated the wrong disclosures that were conducted by the management to inflate their share price. However, the annual report depicted all the relevant losses that were entered by the company, which directly impact it on its share price and reduced to the cents from dollars. Due to the continuous disclosure measures the company was able to portray wrong information to the investors for increasing the share price in short duration. This disclosure measure mainly backfired on the investors and Australian authorities, where it was not able to stop the inflation of share price. However, the manipulative being used by the management was punished by a lawsuit from investors demanding the lost money, which was conducted due to wrong valuation (Ahmed et al. 2017).
Recommendations for Investors
The research paper mainly indicates the disclosure measures that need to be used by the organisation on both the annual report and ASX website. However, the research paper directly discloses that the disclosure measure before 2000 was not adequate, where organisation were not making adequate assumptions regarding the future revenue of the organisation (Chapple, Prasad and Xiong 2016). The non relevance of the overall future annual projections of the overall revenues and expenditure mainly limited the investor’s capability to evaluate the future price of an organisation. In the paper directly specifies that look before 2000 organisations were not making any kind of development on the annual report the adequate projections of the future performance needs to be conducted. Chapple and Truong (2015) mentioned that the use of continuous disclosure measure mainly allows the organization to portray any kind of changes in the revenue generation capacity and expenditure, which directly affect its ability to generate the required profitability.
Implementation of the continuous disclosure measure would eventually allow the organisation to portray rightful projections of the annual progress, which would eventually allow investors to make adequate investment decisions. However, the article does not comply with the current disclosure measures that are conducted by the organisations, as it states that organisations were not conducting adequate measures in projecting the future cash flow. The article also portrays that if adequate measures are taken then the continuous disclosure measures could allow investors to make adequate investment decisions based on actual news or information portrayed by the organisation (Di 2014). Therefore, relevant authorities with the help of can disclosure measures are able to detect viability of the operations conducted by an organisation. Moreover, ASX aims in evaluating the actual share price of an organisation by portraying the relevant information to the shareholders at relevant time.
There is a relevant article about new continuous disclosure measure, where confusion related to be disclosure measure is detected. The article “Australia’s continuous disclosure system: clear or confused?”, directly indicates that there is relevant loopholes in the disclosure system, which could be used by the organisation to inflate the share price. The article indicates that there are relevant systems and ways in which organisations could use the disclosure measures to float relevant news in the market (Feigin et al. 2016). There are different types of unethical measures, which could be used by the organisation with the help of disclosure measures and manipulate decisions of the shareholders. In the article, David Jones established the overall weakness of the disclosure measures, where relevant news that was not true could be floated in the market. Furthermore, David Jones directly indicated that there could be different types of unethical measures that could be used by organisations to float wrong information in the market. David Jones directly disclosed and that there was a takeover bid, which helped in improving demand for the shares of the company. In this context, Gopalan and Hogan (2014) mentioned that companies with the help of disclosure measures were able to present news to the investors without any monitoring and evaluation.
Importance of Continuous Reporting Regime
This takeover bid was mainly was not confirmed whereas the news was floated indicating that an international investor is bidding for the company’s shares. The article also pinpointed the relevant listing rules laid down by ASX, which did not restrict any kind of disclosure measures that has not been confirmed (Harford and Powell 2015). According to the ASX disclosure measures, any kind of news or information that could affect share price of the organisation needs to be disclosed through the website. The news related to the takeover bid was also a adequate information, which could directly affect share price of the organisation. However, the news was not confirmed there no relevant buyers were present at that time. This mainly portrayed the loopholes in the disclosure system that is currently being used by ASX. On the contrary, Hempel (2015) argued that the current rules laid down by the ASX needs to the improved and modified, as it might help in reducing the relevant unethical measures that could be used by organisations.
The evaluation of the ASX rules of disclosure also needs to be evaluated, which could directly help in depicting the relevant information to the investors (Lewis 2015). The rules were information could be withheld that needs to be evaluated by organisations before the disclosure of information are depicted as follows.
- Information regarding trade secret to the organisation is withheld from any kind of disclosure
- Any kind of breach of law that could be conducted from the disclosure of the information needs to be withheld by the organisation
- Any kind of incomplete information or negotiation needs to be with help from any kind of disclosures conducted by organisation
- Any kind information that is internal and needs to be conducted internally can be avoided from the public disclosures (Mayorga and Trotman 2016).
The above depicted measures that are used by ASX providing relevant exemptions for the disclosure measure mainly states the information that is provided by organisation. These exceptions mainly help in supporting the organisations with the decisions for disclosure of relevant information to the investors. However, the exemption rule does not have all the relevant information regarding different types of disclosure that could be conducted by organisations. Hence, improvement in the disclosure measures and exemptions could eventually help in reducing any kind of manipulative measures that could be used by organisation. As depicted in the article, David Jones used the disclosure measures to manipulate the share price, which directly reflected the loopholes in disclosure measure (Ramsay 2015).
ASX mainly provides relevant information to the investors regarding decisions conducted by companies. This measure mainly helps in improving the relevant information that is portrayed by organisation to their shareholders. The evaluation of the articles, ASX disclosure measures and research paper mainly helps in identifying the relevant need for continuous disclosure measure for the companies in Australia. Therefore, it could be understood that with the help of disclosure measure organisations are able to portray all the relevant information to the investors. However, adequate measures needs to be used by ASX for reducing any kind of unethical measures that could influence share price of an organisation. Relevant disclosure guides needs to be altered where, any kind of agreement that is not made and is conducted verbally cannot be disclosed in the disclosure measures. This overall disclosure measures mainly needs to reduce any kind of problems that might interfere with the justifiable disclosure that needs to be conducted by organisation (Rayson 2016).
Thus, use of disclosure measures with relevant adjustment could eventually help in reducing any kind of unethical measures that could be used by organisation. Furthermore, the continuous disclosure measure relevantly helps in reducing any kind of Manipulations in the annual report that could be conducted by organisation. This continuous disclosure mainly states that organisations need to portray all the relevant decision that is being conducted by the management (Russell 2015). These decisions need to be evaluated by the investors and determine whether the share value will increase or decrease. the main aim of ASX is to maintain Efficient market hypothesis, where stocks are promptly evaluated on the basis of relevant information.
References:
Ahmed, A., Delaney, D. and Ng, C., 2016, January. Does gender diversity influence the frequency and the quality of continuous disclosure?. In Academy of Management Proceedings (Vol. 2016, No. 1, p. 11096). Academy of Management.
Ahmed, A., Monem, R.M., Delaney, D. and Ng, C., 2017. Gender diversity in corporate boards and continuous disclosure: Evidence from Australia. Journal of Contemporary Accounting & Economics.
Chapple, L. and Truong, T.P., 2015. Continuous disclosure compliance: does corporate governance matter?. Accounting & Finance, 55(4), pp.965-988.
Chapple, L.J., Prasad, A. and Xiong, F., 2016. Financial reporting on social media (including Twitter)-reviewing the challenges.
Di Lernia, C., 2014. Empirical Research in Continuous Disclosure. Australian Accounting Review, 24(4), pp.402-405.
Feigin, A., Feigin, A., Ferguson, A., Ferguson, A., Grosse, M., Grosse, M., Scott, T. and Scott, T., 2016. Evidence on why firms use different disclosure outlets: Purchased analyst research, investor presentations and Open Briefings. Accounting Research Journal, 29(3), pp.274-291.
Gopalan, S. and Hogan, K., 2014. Ethical Transnational Corporate Activity At Home And Abroad: A proposal for reforming continuous disclosure obligations in Australia and the United States. Colum. Hum. Rts. L. Rev., 46, p.1.
Harford, J. and Powell, R., 2015. Measuring the Effectiveness of Australia’s Statutory-Backed Continuous Disclosure Policy on ‘Innovative’Investment Disclosures
Hempel, S., 2015. Is my company listed on Chi-X? Technically no, but. Governance Directions, 67(5), p.267.
Lewis, K., 2015. ASX consults on changes to continuous disclosure guidance note. Governance Directions, 67(4), p.201.
Lewis, K., 2015. Changes to Continuous Disclosure Guidance Note 8. Governance Directions, 67(10), p.584.
Market Index. (2017). Surfstitch Group Limited. [online] Available at: https://www.marketindex.com.au/asx/srf [Accessed 8 Sep. 2017].
Mayorga, D. and Trotman, K.T., 2016. The effects of a reasonable investor perspective and firm’s prior disclosure policy on managers’ disclosure judgments. Accounting, Organizations and Society, 53, pp.50-62.
Ramsay, I., 2015. Enforcement of Continuous Disclosure Laws by the Australian Securities and Investments Commission.
Rayson, J., 2016. Directors banned and fined for breaches of continuous disclosure obligations. Governance Directions, 68(10), p.621.
Russell, M., 2015. Continuous disclosure and information asymmetry. Accounting Research Journal, 28(2), pp.195-224.
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