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BUS5IAF Introduction to Accounting and Finance

Published : 13-Sep,2021  |  Views : 10

Question:

Describe the industry and its outlook Summarise the company’s future plans (based on your research and on reading the annual report) Determine gross profit, income from operations, and net income for the last 3 or 5 years and comment on the increases or decreases in these amount Adopt common-size statement analysis technique / Trend analysis technique (Include and present the time series common-size Statement of Financial Performance in a table) Identify significant (or change in) accounting policies in preparation of the statement.

Identify trends and items that might be different from the industry norm Identify significant accounting policies in preparation of the statement / topics of the notes to the financial statement 
 
Compare operating cash flows with the net income for the past years
- Is the company expanding through investing activities
- Identify the company’s most important source of financing
- Overall, has cash increased or decreased over the past years.

Answer:

Analysis of each and every thing shall be done before proceeding to that action. Similarly analysis of the operations and the position of the company shall be made on regularly basis so as to equip the investor with the health of the company in all the terms. The company so selected for the study is the Bluechiip Limited. The company has been established in the year of two thousand and three in the country of Australia and has been listed in the Australia Stock Exchange in the year of two thousand and eleven. The head quarter of the company is located at 1 Dalmore Drive, Caribbean Business Park, Scoresby, Victoria, 3179, Australia.

The company is providing the unique facility of tracking the item with the wireless arrangement with the security and that too clubbed with the working in the different temperature levels in every environments. The company has left all other companies which are using the bar code scanner or radio frequency identification instruments. The company’s principle place of business is Australia and other one is United States of America. The chief executive officer of the company is Mr. Andrew Mc Lellan (ASX Website,2017). The ending date of the latest financial year is 30th of June 2017. The independent auditors of the company which have audited the financial statements of the company is Deloitte through its partner Anneke Du Toit.

The auditors of the company have though disclosed that the financial statements have been prepared in accordance with the accounting standards and is having the true and fair view of the financial position of the company but has disclosed the key matters in accordance with the new auditing standard 701 on the Communicating the key audit matters in the auditor report (Company Official Website, 2017). The auditor has stated that the management of the company is required to exercise the judgment to estimate the net realizable value of the inventory. The current market price of the share of the company on the 15th day of September 2017 is 0.033 AUD (ASX Website, 2017). Since the start of financial year 2016-2017, the company has neither declared any dividend nor paid any dividend (Company Official Website, 2017).

The company is categorized under the GICS having serial number 4520 relating to Technology hardware and equipment and within that code the sub industry is of electronic components. At first the industry’s health has been detailed and after that the company’s plan in accordance with the situation of the industry has been discussed.  

The industry of the Technology hardware and equipment in the country of Australia has been considered as the technology hub across the world. As per the report of technavio for the year of two thousand and fifteen the investment in this particular industry will reach approximately 73 billion dollars by the end of the financial year two thousand and nineteen (Technavio, 2017). Companies in this particular industry are trying to introduce as many new IT products and services the no their competitor has manufactured.

Companies are generally spending their approximately 20% of their budget defined for the IT department in the hardware sector. With the passage of the time, the investment in the particular field has been increasing on year on year basis. The main companies engaged in the technology sector are the major players in the market of Australia. It includes Dell Inc. Google Inc, Apple Inc, Lenovo and many other top players (Bartlet, 2016). Every company has the urge to develop new and new products and services and that’s why their spending in the collection of data has been increased. Thus, the Technology hardware and equipment industry has the positive indications for much bigger growth in the future

The main strategic action that the company has mentioned in the annual report for the financial year ending 30th of June 2017 is that the company is more focusing on the era of commercialization. The company has also mentioned that in order to start with the commercialization of the company, the company has entered into the three agreements which are known as OEM agreement. OEM agreement is studied as the agreement which led the company to manufacture its own product and services that’s why the agreement is known as the Original Equipment Manufacturer. Under this agreement, the company collects or purchases the raw material from different companies and manufactures their own product in their own brand.

This will not only give the company an insight of making the product but will also create the brand name across the world. This strategic action taken by the company will develop the future of the company. The second strategic action that the company has taken and will bring the drastic change in the future of the company is the company’s focus on the areas where the failure of an action will be expensive. These areas are like IVF, Medicine which helps in regeneration, cryo transport and the health care medicines and equipments. These companies are always ready to take the steps which can reduce the risk of having the failure cost and hence with the entrance of the company in this particular areas will provide the company with goodwill in the market.  (Company Official Website, 2017).           

The analysis of the financial statements have been done with the available annual report of the company for the year ending 30th of June 2017, 30th of June 2016 and 30th of June 2015. The analysis has been made in the three parts. In the first part the financial performance of the company has been analysed through the statement of the profit and loss for the aforesaid financial years. In the second part the financial position has been analysed from statement of the affairs and in the third part cash flow position has been analysed from the statement of the cash flows.

The calculations of the different items have been made in the following table to facilitate the analysis of the performance of the company that the company has made during the financial year ending for the last three consecutive years (White, Sondh, and Fried, 2005). After having the calculations, the changes has been analysed by adopting the statistical method of trend analysis. (Taylor, 2010).

STATEMENT OF FINANCIAL PERFORMANCE WITH TREND ANALYSIS

PARTICULARS

2017

2016

2015

Revenue

237773

155718

33856

Less Cost of Sales

67201

25581

121290

Gross Profit

170572

130137

-87434

Gross Profit

170572

130137

-87434

Less Operating Expense

2618757

2198248

2226935

Operating Income

-2448185

-2068111

-2314369

Net Income

-2018633

-1676983

-1911688

Gross Profit

-195

-149

100

Operating Income

106

89

100

Net Income

106

88

100

Revenue

702

460

100

In accordance with the annual report of the company, the company has followed the accounting policy in relation to revenue and employee benefits.

  • As per the note number 6 of the financial statements, the revenue is recognized and will be measured at the value of the amount that will be received or receivable and which can be measure on the reliable terms. Revenue from the sale of goods is recognized only when the risk of ownership and rewards associated with the goods will be transferred to the buyer.  
  • Employee benefit expense has been recognized in accordance with the Australian accounting standard number 119 and as per the note number 18of the financial statements the expense has been bifurcated into the short term benefits and the long term benefits. Short term benefits includes salaries and wages and long term benefits includes payments for the long term service or the payment for accumulated leave.

The items under consideration are in consonance with the industry standards.

The calculation has been made with reference to the statement of balance sheet for the previous years and the changes have been analysed through the adoption of the trend technique.

STATEMENT SHOWING FINANCIAL POSITION AND TREND ANALYSIS

S. NO.

YEARS

ASSETS

=

LIABILITIES

STOCKHOLDERS EQUITY

TREND ANALYSIS (2015 AS BASE YEAR)

1

2017

2383751

=

178611

597140

114

42

36

2

2016

1857311

=

811482

1045829

89

192

63

3

2015

2092217

=

423030

1669187

100

100

100

In accordance with the annual financial statements of the company, the company has adopted the following:

  • The noncurrent assets - Property Plant and Equipment has been recognized initially at cost and then cost is depreciated in accordance with the useful lives and tested for impairment at the end of every year.
  • The inventory has been valued at the cost or net realizable value whichever is lower and the management has adopted the significant judgment to estimate the net realizable value including the estimation of the selling price.

STATEMENT SHOWING CASH FLOWS AND ANALYSIS

($)

S. NO.

PARTICULARS

 

2017

2016

2015

1

Operating Cash Flows

 

-1682111

-1664486

-2269802

2

Net Income

 

-2018633

-1676983

-1911688

3

Investing Cash Flows

 

-4214

-2999

0

4

Financing Cash Flows

 

2171158

1412616

2402921

In every year the relationship of the company’s cash flows with the net income in direct.

No, the company’s spending is not much in investing activities.

The main source of financing has been the issue of share capital and the borrowings from the financial institutions.

The cash has been increased by AUD363083 since the past years.The accounting ratios are given below: (Lan, 2012;  Drake and Fabozzi, 2010; Olugbenga and Atanda., 2014.):

STATEMENT SHOWING THE RATIO ANALYSIS

PARTICULARS

2017

2016

2015

Current Assets

2278661

1769162

1982533

Less Current Liabilities

1745930

787854

413622

Working Capital

532731

981308

1568911

Current Ratio

1.31

2.25

4.79

Debtors

803171

725764

682989

Revenue

237773

155718

33856

Debtors Turnover Ratio

0.30

0.21

0.05

Average Debtors

764467.5

704376.5

341494.5

Revenue

237773

155718

33856

Average days sales uncollected

1174

1651

3682

Inventory

361700

381911

377867

Revenue

237773

155718

33856

Inventory Turnover Ratio

0.66

0.41

0.09

AverageInventory

371806

379889

188934

Revenue

237773

155718

33856

Average Days Inventory on Hand

570.75

890.45

2036.88

EBIT

-1951967

-1635845

-1863407

Revenue

237773

155718

33856

Net Profit Magin

-820.94

-1050.52

-5503.92

Assets

2383751

1857311

2092217

Average Assets

2120531

1974764

1046108.5

Revenue

237773

155718

33856

Asset Turnover Ratio

11.21

7.89

3.24

EBIT

-1951967

-1635845

-1863407

Average Assets

2120531

1974764

1046108.5

ROA

-92.05

-82.84

-178.13

PAT

-2018633

-1676983

-1911688

Equity

597140

1045829

1669187

Average Equity

821485

1357508

834594

ROE

-245.73

-123.53

-229.06

Debt

178611

811482

423030

Equity

597140

1045829

1669187

Debt to Equity

29.91

77.59

25.34

EBIT

-1951967

-1635845

-1863407

Interest

66666

41138

48281

Interest Coverage Ratio

-29.28

-39.76

-38.60

Cash

972767

487934

742803

Current Liabilities

1745930

787854

413622

Cash Flow Yield

0.56

0.62

1.80

Cash Flow from Operating Activities

-1682111

-1664486

-2269802

Sales

237773

155718

33856

Cash Flow to Sales

-7.07

-10.69

-67.04

Cash Flow

-1682111

-1664486

-2269802

Assets

2383751

1857311

2092217

Cash Flow to Assets

-0.71

-0.90

-1.08

Earnings Per Share

-0.73

-0.83

-1.3

There has been the missing trend in the accounting ratios due to the rapid change in the IT industry (Delen, 2013).  

Conclusion

The study has very well concluded that with the OEM agreements entered into by the company, there has been the increase in the revenue.

On the basis of the whole study and analysis, the company will be regarded as the strong performer.  It is because the company has been able to generate the higher revenue with the increase in the cash and cash equivalents and the increase in the earning per share.

References

ASX Website, (2017), “Bluechiip Limited” available at http://www.asx.com.au/asx/share-price-research/company/BCT accessed on 15/09/2017.

Bartlet C, (2016), “Australia’s Health Care System: An Opportunity for Economic Growth”  available at https://www.strategyand.pwc.com/reports/australias-healthcare-system  accessed on 14/09/2017.

Company Official Website, (2015), “Annual Report 2015”, available at http://www.bluechiip.com/ accessed on 14/09/2017.

Company Official Website, (2016), “Annual Report 2016”, available at http://www.bluechiip.com/ accessed on 14/09/2017.

Company Official Website, (2017), “Annual Report 2017”, available at http://www.bluechiip.com/ accessed on 14/09/2017.

Dechow, P.M., Richardson, S.A. and Sloan, R.G., 2008. The persistence and pricing of the cash component of earnings. Journal of Accounting Research, 46(3), pp.537-566.

Delen, D., 2013. Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.

Drake, P.P. and Fabozzi, F.J., 2010. Financial ratio analysis. Handbook of Finance.

Lan J, (2012), “16 Financial Ratios for Analyzing Company’s Strength and Weaknesses” available at http://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-strengths-and-weaknesses.touch  accessed on 14/09/2017.

Olugbenga, A.A. and Atanda, O.A., 2014. Value relevance of financial accounting information of quoted companies in Nigeria: A trend analysis. Research Journal of Finance and Accounting, 5(8), pp.86-93.

Taylor, M., 2010. Financial statement analysis.

Technavio, (2015), “Top companies in the Australian IT Market” available at https://www.technavio.com/blog/top-companies-australian-it-market  accessed on 15/09/2017.

White, G.L., Sondh, A.C. and Fried, D., 2005. Analysis of Financial Statement. Analysis.

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