Analysis of Accounting and Management Principles
Discuss about the FINA6017 Financial Management of Myer Holding.
The analysis of the financial statements and key ratios has been undertaken in the report for presenting it as an evaluation in order to predict the future growth aspects of the company. Thus, it has been decided to make financial analysis on the Myer Company. The ratio analysis has been conducted for last five year and for this purpose annual reports have been taken from the Myer Company Website. Detailed analysis of the accounting principles and management accounting principles that applies to the business has been discussed in detail in the report.
Accounting principles refers to the set of general rules and concepts that are developed to govern the field of accounting. The basic accounting principles and guidelines are used by the many of the accounting regulators to set up their own comprehensive set of accounting rules and standards. Some of the important accounting principles are accrual principle, conservatism principle, consistency principle, disclosure principle, going concern principle and many others (Lumby & Jones, 2007).
Management accounting principles refers to the set of procedure used for recognition, measurement, examination and communication of the information that helps the managers to take the effective decisions. Effective implementation of the management accounting can help to develop the power of decision making in the companies. The four basic management accounting principles are as follow:
- Influence: There is great role of effective communication in the business as it provides insight view of business aims and objectives and also influences the workers to work for well being of the organization.
- Relevance: Information generated for the decision making purpose must be relevant so that it will manager to take proper decisions.
- Value: As per this principle the value of goods must be analyzed and incorporated in the decision making process (Arnold, 2013).
- Trust: Management must follow the principle of Stewardship in order to build the trust.
Analysis statement analysis requires interpreting the results of the financial statements and noting the increase or decreasing in financial items over the year to make the complete evaluation. In this section of the report financial statement of the Myer Company has been analyzed for last five years. Financial statements consist of three main statements, namely, income statement, balance sheet and cash flow statement.
Interpretation of the Income Statement
|
Key Elements of the Income Statement of Last Five Years (Myer Holdings) |
|||||
|
Particulars |
2017 |
2016 |
2015 |
2014 |
2013 |
|
Net Sales |
$ 2,641,826.00 |
$ 2,801,843.00 |
$ 2,785,774.00 |
$ 2,740,936.00 |
$ 2,738,000.00 |
|
Gross Profit |
$ 1,220,432.00 |
$ 1,274,291.00 |
$ 1,290,392.00 |
$ 1,285,870.00 |
$ 1,287,000.00 |
|
Net Profit |
$ 11,939.00 |
$ 60,543.00 |
$ 29,826.00 |
$ 98,542.00 |
$ 130,000.00 |
|
EPS |
$ 0.01 |
$ 0.07 |
$ 0.05 |
$ 0.17 |
$ 0.17 |
(Annual report 2013 to 2017: Myer Holding)
On the basis of above table it can be said that sales in current year has been decreased and during the last five years there has been no increasing trend in the net sales that indicates poor utilization of resources for generating the sales revenue. Net profit of the company has been continuously decreasing that indicates the company has failed to keep up the growth in the profitability performance in last five years. Same has been reflected in the earning per share of the company as it has been declining at very rapid speed during the last few years (Ross, Jaffe & Kakani, 2008).
Interpretation of the Income Statement
Interpretation of the Balance Sheet
|
Key Elements of the balance sheet of Last Five Years (Myer Holdings) |
|||||
|
Particulars |
2017 |
2016 |
2015 |
2014 |
2013 |
|
Current Assets |
$ 430,567.00 |
$ 479,738.00 |
$ 480,804.00 |
$ 480,460.00 |
$ 479,000.00 |
|
Current Liabilities |
$ 487,014.00 |
$ 520,585.00 |
$ 481,389.00 |
$ 530,881.00 |
$ 523,000.00 |
|
Debt |
$ 143,367.00 |
$ 149,804.00 |
$ 445,833.00 |
$ 425,431.00 |
$ 421,000.00 |
|
Equity |
$ 1,072,868.00 |
$ 1,107,765.00 |
$ 863,016.00 |
$ 893,413.00 |
$ 896,000.00 |
(Annual report 2013 to 2017: Myer Holding)
The value of current assets has been decreasing and value of current liabilities has been increasing in the last five years that clearly shows poor financial position of the Myer Holding. However there has been declining in the debt capital that shows that Myer Holding has improved its capital structure. This is the only positive sign that favors the financial position performance of the company.
Interpretation of the Cash flow statement
|
Key Elements of the cash flow statement of Last Five Years (Myer Holdings) |
|||||
|
Particulars |
2017 |
2016 |
2015 |
2014 |
2013 |
|
Cash flow from operating activity |
$ 149,278.00 |
$ 149,490.00 |
$ 96,915.00 |
$ 191,576.00 |
$ 225,525.00 |
|
Cash flow from Investment activity |
$ (109,456.00) |
$ (58,251.00) |
$ (62,350.00) |
$ (104,250.00) |
$ (66,956.00) |
|
Cash flow from financing activity |
$ (54,438.00) |
$ (99,355.00) |
$ (54,806.00) |
$ (95,232.00) |
$ (115,157.00) |
|
Net change in cash and cash equivalent |
$ (14,616.00) |
$ (8,116.00) |
$ (20,241.00) |
$ (7,906.00) |
$ 43,412.00 |
(Annual report 2013 to 2017: Myer Holding)
The cash flow position of the company has been worst during the last five year and it can be clearly seen through looking at the figures of net change in cash and cash equivalent. Meyer Holding has also failed to meet the cash flow required for investing activity and financing activity as there was not enough cash flow from the operating activity (Moles & Kidwekk, 2011).
Interpretation of Key Ratios
Solvency Ratio Analysis
The solvency condition of the company cannot be regarded as adequate as the company interest rate risk is increasing with a rise in the debt proportion on the company in comparison to equity.
Liquidity Ratio Analysis
The liquidity ratio analysis of the company has revealed that its liquidity position is not proper with a decline in its current asset base. As such, there is increasing risk on the company to meet its financial obligations as they become due. This is clearly depicted from the decline in the current ratio and working capital of the company. In addition to this, the inventory ratio and the receivables turnover ratio is also on decline and this depicts that its liquidity position is not appropriate.
Profitability Ratio Analysis
The net profit margin of the company ahs experienced a larger decline as depicted from the ratio analysis for the year 2013-2017. In addition to this, there is a major downfall in the asset turnover and return on equity ration which is further a cause of main concern for the company.
Cash Flow Ratios:
The cash flow ratios of the company ahs depicted that it is not able to generate cash from the sale of its products and services.
Myer, is recognized as largest department store chain in Australia having variety of products across women’s, men’s and children clothing. It is having more than sixty retail tore locations across the country by development of its own and acquiring competitor deportment stores. Myer has merged with Coles in the year 1985 but it was sold to private equity group in the year 2006 and was listed as a public company in the year 2009. The company has achieved large success after its being publicly listed as can be analyzed from the review of its financial performance over the past few years. It has continued to make large progress in each of its key business areas and is able to realize higher growth in its sales and profit by providing wide range of products and services to its customers (Pash, 2017). The performance of the company is highly impacted by the challenging retail conditions due to presence of highly competitive pressure and the changes in income level of consumers. This has resulted in reducing the sales percentage of the company by about 1.4 per cent in the year 2017 as compared to the last year with a significant reduction in its operating gross profit. However, the company is expected to deliver strong financial results in the future context as reflected from its solid growth strategies. The simplification of the operating model has resulted in reducing the operational cost of the company and leading to a significant improvement in its profitability position (Myer Holding: Annual reports, 2017).
Interpretation of the Balance Sheet
In this context, the company is recommended to focus on its all its side business activities in addition with the core business products and services. The core business activities of Myer at present is to deliver wide range of products across women’s, men’s and children clothing. In addition to this, it is also involved in providing the products such as footwear, accessories, cosmetics, home wares, electrical, computers, and furniture, toys, books, stationer and food products to its customers. Therefore, the company is recommended to provide diverse range of products and services across the customers for meeting the competitive pressure and ensure its continuing growth and development.
The analysis of political environment includes analysis of factors such as regulations, taxation and trade policies on the growth and development of Myer in future context. The regulatory environment in Australia is stable and it can be stated that there are no such major changes that will impact the industry growth and development. The country at present is having the presence of a good federation system characterized by the low corruption level and high assistance from the government. As such, there is no such political threat present for Myer that can negatively impact its future growth prospects. However, there is some uncertainty present in the political environment of Australia due to election that can negatively impact the consumer sentiment. It has been analyzed that global investors are restricting to invest in the financial market of Australia due to the presence of uncertainty till the declaration of the results of next election (Desloires, 2015). This is reducing the capital inflows in the market and therefore can have an effect on the sustainable growth and development of the company. Also, the company can realize benefit from the reduction in tax rates of business corporations listed in Australia and this can further support the success rate of the companies. However, the rising competition level within the industry can impact its future growth opportunities and significantly impacting its sale and profit realization. Also, the introduction of new taxes such as carbon tax can have a major negative impact on the spending level of consumers. Thus, the management of the company needs to take into account all these significant challenges present in the political environment of Australia and develop its growth strategies that tend to overcome all these issues in context (Political uncertainty weighs on Australian economy, 2013).
Interpretation of the Cash flow statement
An insolvency practitioner needs to take into account the ethical considerations for protecting the interest of wide range of its stakeholder group. The ethical considerations that need to be taken into account by an organization in the situation of occurrence of any uncertainty condition of insolvency are as follows:
- Integrity: The ethical standard of integrity in solvency condition implies that business managers should be honest and straightforward to provide a fair view of the organization to the stakeholders.
- Objectivity: The insolvency practitioner should restrict the occurrence of any biasness or conflict of interest within the business judgments to maintain objectivity in the business operations.
- Professional Competence: Insolvency practitioner need to have adequate professional skills and capabilities to act diligently in situation of insolvency and protecting the interests of the stakeholders.
- Confidentiality: The confidential information of an organization should be protected from being disclosed to any third party. The confidential information can be used by a third party to gain personal advantage (Code of Ethics for Insolvency Practitioners, 2009).
The company needs to analyze the political, economic, social and technological factors present in the external environment of Australia fro gaining an analysis of its potential of growth and development. The political and economic factors will help in evaluating the impact of government rules and regulations on the spending power of consumers. The social factors will provide an analysis of the changing lifestyle and habits of consumers regarding the company products and services. Also, the technological factors will help in identifying the impact of recent development of online technologies on the growth of the retailing sector in future.
Myers at present is facing problems in meeting the competitive pressure present in the retails sector of Australia. Therefore, the potential merger or acquisition with the large retail companies such as David Jones can support its plan of future growth and expansion. The company was about to merge with David Jones but its merger did not take place. However, it is estimated that the merger of both the companies will result in creating a high worth department store and thus can gain a large market share (Mitchell, 2018).
It can be stated from the overall financial and external analysis conducted for the company that Myer though is optimistic about its future growth performance but its present financial condition does not match with its growth strategies. It is analyzed o the basis of ratio analysis that it is having a risk of liquidity and insolvency. This is due to the insufficient maintenance of cash resources for meeting its debt obligations. Its profitability position is also not sound that is largely on account of its inefficiency to realize sales from turnover of its asset base (Myer Holding: Annual reports, 2017). In addition to this, the high competitive pressure present in the retail market of Australia along with its recent political uncertainty can further decline the chances of is future growth and success. The stagnation in the political scenario due to election can negatively impact the spending level of consumers which can further impact negatively its financial condition (Political uncertainty weighs on Australian economy, 2013). It is therefore recommended to investors that they should restrict their investment in Myer by looking at its declining performance and also uncertainty in its future growth prospects.
Conclusion
It can be stated from the overall discussion held in the report that Myer is presently not having a sound financial growth on the basis of overall analysis conducted. The declining profitability and performance of the company is evident form its ratio analysis. The increasing competition in the retail sector of Australia can further negatively impact its performance.
References
Lumby,S & Jones,C. (2007). Corporate finance theory & practice. Thomson.
Moles, P. & Kidwekk, D. (2011). Corporate finance. John Wiley &sons.
Ross, A., Jaffe, J. & Kakani, R.K. (2008). Corporate Finance. Pearson.
Arnold, G. (2013). Corporate financial management. Pearson Higher Ed.
Political uncertainty weighs on Australian economy. (2013). Retrieved 7 May, 2018, from https://www.instreet.com.au/content/political-uncertainty-weighs-australian-economy-%E2%80%93-instreet-market-and-economic-opinion
Code of Ethics for Insolvency Practitioners. (2009). Retrieved 7 May, 2018, from https://www.icaew.com/membership/regulations-standards-and-guidance/ethics/code-of-ethics-d
Mitchell, S. (2018). Is a Myer and David Jones merger back on the agenda? Retrieved 7 May, 2018, from https://www.afr.com/business/retail/is-a-myer-and-david-jones-merger-back-on-the-agenda-20180118-h0kn93
Desloires, V. (2015). Worst yet to come for Myer and David Jones, says expert. Retrieved 7 May, 2018, from https://www.smh.com.au/business/companies/worst-yet-to-come-for-myer-and-david-jones-says-expert-20150119-12sznp.html
Pash, C. (2017). Myer has returned to profit growth. Retrieved 7 May, 2018, from https://www.businessinsider.com.au/myer-has-returned-to-profit-growth-2017-3
Annual report. (2017). Myer Holding. Retrieved May 7, 2018, from https://investor.myer.com.au/Reports/
Annual report. (2016). Myer Holding. Retrieved May 7, 2018, from https://investor.myer.com.au/Reports/
Annual report. (2015). Myer Holding. Retrieved May 7, 2018, from https://investor.myer.com.au/Reports/
Annual report. (2014). Myer Holding. Retrieved May 7, 2018, from https://investor.myer.com.au/Reports/
Annual report. (2013). Myer Holding. Retrieved May 7, 2018, from https://investor.myer.com.au/Reports/
Retail Industry in Australia. (2017). Retrieved 7 May, 2018, from https://www.mordorintelligence.com/industry-reports/retail-industry-in-australia
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