And That’s a Wrap

Well, Assignment 2, Steps 7 – 10 have been done and lodged for marking, miraculously early I might add – yay me! I have to say I actually enjoyed the last stages of this assignment where the last 3 months of learning was all “coming together.”

I was surprised by the outcomes for my company, which up until I calculated the Economic Profit (Losses!) I had thought they were tracking pretty well. This is assuming I have done all the calculations and adjustments to the previous steps correctly of course!!

I have had a great feeling of satisfaction in at least getting to this stage of the unit, and on reflection, I do actually feel that I have effectively “learned” a great deal.

Here’s my final submission for interest sake.

I now await my marks with baited breath!

Thanks to everyone for your assistance with this unit – the online communication has certainly been a god send! I appreciate every bit of encouragement, advice and assistance you have given to me 🙂

Maree Smith Ass 2 – Steps 7 – 10 Response

Grand Baoxin Ratios

Good luck with the rest of your studies xx

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Draft ASS#2 Steps 7 – 9 for Feedback

The immature part of me always has a slight chuckle at writing ASS as the topic of my blog posts for this course. After completing the remaining sections of this assignment, I’m beginning to think that’s exactly what ratios and shares can kiss …. its been a far more challenging exercise than I had first anticipated!

Nevertheless, here is my draft Steps 7 – 9 for this assignment, as well as my spreadsheet.

*Edit – I have updated the Spreadsheet since my original post, so my market ratios may not reflect those reported in my Response just yet 🙂

Grand Baoxin Ratios

Maree Smith Ass 2 – Steps 7 – 10 Response

I would really welcome any feedback, positive or negative – don’t worry I can handle it! 🙂

The part I struggled with most (apart from everything) was the market ratios. I’m still not totally confident with these and is what I am hoping to focus on perfecting or at least improving over the next week before the assignment is due.

It has taken me a lot of research to get to this stage, so I hope I have come up with the right interpretations, particularly for the Economic Profits of my firm, which have actually been fairly significant losses for the past 2 years. Here’s my analysis of the contributing factors (from my assignment).

The year 2013 seems to be, across all figures, the most positive for the firm. The firm seems to have been in a good position at this time, despite there still being room for some improvements.

From an industry perspective, there were other external influences at play that have contributed significantly to the downturn seen in the above figures.

The Chinese macro economy was facing a recession. As mentioned previously, growth rates were the lowest they had been since 1990 and this would result in the firm experiencing losses regardless of their structure, inventories, turnover rates or sales.

In hind sight, the firm to a certain extent maybe had to “whether the storm” and do the best it could to turn around figures as quickly as possible. This resulted in a management re-structure, purchase of additional selective subsidiary companies.

Regardless of these, the firm is still facing some pretty heavy losses. So what does this mean? When all the figures I had analysed so far were coming out positive (albeit very low) I figured the firm would surely then have to still be making an economic profit, right? Well, for 2 of the 4 years, yes.

So here’s my best shot at an analysis, as the build up to “the big one” hadn’t really shed much light on my understanding.

Economic profit is based on the RNOA, the Weighted Average Cost of Capital (WACC) and the NOA. It measures the opportunity costs of capital in the investment decisions made by management. When these opportunity costs are positive, the firm has made positive choices for the company. When the economic profit is negative (or a loss) the opportunity cost is greater, reflecting poor choices of management.

The greater the WACC, the worse it is for the economic profit (or loss). In determining which figure to use, the WACC Expert from Moodle suggested 9%, while the Assignment suggests 10% without anything firm to justify otherwise. I have adopted 10% in this instance as the assignment suggests.

From playing with the figures, it seems to me that the main drivers for economic profit for Grand Baoxin are its Operating Income. This is the figure that it needs to increase, its operating income after tax, or the OI part of the RNOA. If Grand Baoxin can (obviously) increase its revenue, but at least reduce its costs of services or even more specifically the administration and selling & distribution expenses, this seems to make a huge impact on the Economic Profit.

The company (any company) needs to maintain a RNOA above 10% (or the WACC) in order to be making an economic profit. Obviously the WACC is also a key driver in economic profit (or losses).

On review of the annual reports, I can see that Grand Baoxin has taken steps to do exactly this. The administration expenses may or may not be able to be significantly reduced, although they have undertaken a major restructure of the company. Essentially now, each store is responsible for its own new car and spare parts ordering and inventory. This will hopefully reduce (possibly significantly) its selling and distribution expenses with a reduction in warehouse costs while a central department holds and distributes new cars and parts. Instead, they will go straight to the stores.

Another One Bites the Dust… ASS#2 Step 3 & 4

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Well, its done.

Not sure how I feel about the actual spreadsheet, or how I will go in this part of the assignment, but here it is – my spreadsheet and submission for anyone’s interest.

Surprisingly, I was feeling disturbingly satisfied with the end result, which makes me nervous in itself! I’m actually looking forward to getting the feedback this week (as opposed to cringing most other weeks).

Hope everyone else goes well!

Company Spreadsheet – Grand Baoxin Auto Group

Ass 2 – Step 3 & 4 Response

 

Take 2 – Draft Restated Financials

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Ok, so after my last frantic semi-melt down post, I have had a few “aha” moments and I think I might actually be getting there, also thanks to some much needed feedback and reassurance that I’m not completely losing my mind ….. thank you Brodie McDougall!!

While I still don’t completely understand the Statement of Movements In Equity, I think I at least understand how to restate it – luckily it seems simple enough and the figures look right to me.

I think I have figured out the tax – there was a section in the footnotes of the annual reports that referred to calculation of tax under Chinese regulations, so I have adopted the general 25%. I have decided to ignore the potential for this tax rate to be varied to either 15% or even 5% as there is no way of actually knowing what rates apply to what company or when portion of income. I hope this is correct 🙂

I found some hidden references in the footnotes to the interest income, and also found the solution as to why my total NFO + Equity did not equal my NOA – just a straight forward check on the calculations and its all looking matchy matchy.

Still hoping for some feedback as I’m hoping my matching figures aren’t just a coincidence, if anyone has the time. Company Spreadsheet – Grand Baoxin Auto Group

Finally seeing a light at the end of this very long tunnel though! Hope everyone else is too 🙂

Restated Financial Reports…. desperately seeking help

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So i have finally come to the end of my tether in restating these financial reports on my own. This is my plea for help if anyone has a spare moment to help me out 🙂

I have uploaded my work in progress restated financials here: Company Spreadsheet – Grand Baoxin Auto Group

If needed, the 2016 annual report is also here: 2016

The first and probably most major problem I have encountered in entering, interpreting and restating is my firms Consolidated Statement of Movements in Equity – yes, the very first report!!

For some reason this report does not make sense to me and I find it very difficult to follow. Perhaps because it runs and is laid out differently to the others, perhaps because there are no direct footnotes to help me decipher the different “reserves” or maybe it is a combination of both.

I’m not sure and I cant seem to figure out what it all means and how I show the Transactions with Shareholders. The final three items being the Equity Settled Share Based Transactions, the Final Dividend Declared (from previous year) and Transfer from retained profits accounts. Are these simply transfers of equity to the shareholders?

Can anyone can offer some translation of this report or of these items in particular? Any assistance would be most graciously received! I can feel some grey hairs coming through….

The second problem i have encountered is with calculating and allocating Tax.

I have known this problem was coming for some time, ever since I looked into the setup of the company with the Cayman Islands, Hong Kong and China. I just wasn’t sure what form it would take or exactly how it would cause me grief. Income tax seems straight forward enough, this seems to fall under China’s rules for the majority of the business, but the Company Tax (which I assume is what we are generally referring to when we say “tax”) I feel becomes a bit complicated. Firstly, the principal place of business is in Hong Kong; therefore I would think I would adopt their company tax rate of 16.5%.

However, there are footnotes in the annual report that talk about the Chinese subsidiaries, that may be allocated either a 25%, 15% or 5% Company Tax rate, depending on different circumstances and agreements between the 2 countries.

The Cayman Islands on the other hand, has no Company Tax.

So how do I know/decide what rates to apply for restating the financial reports?? Or, if I have to apply these at all, and how do I decide what part of income to allocate it to, particularly given that the company has so many subsidiaries, and not all of them are even listed in their reports?

Has anyone else come across this situation??

Also, to further complicate this issue, I cannot for the life of me find any reference to interest, either being received or paid as a separate item, or in the footnotes. Am I completely missing something?

The (hopefully) final thing I am searching for some assistance/guidance with is my balance sheet. Why in my restated balance sheet would my total NFO + Equity not equal my NOA for 2015, for one year only?

Is there an obvious reason for this that i have missed or is this “acceptable”?

I have checked all the figures and sums which seem right to me, but its sending me a little crazy!

Any thoughts or other comments/insights into my work in progress would be much appreciated!!

Treading water hoping someone might be able to throw me a lifeline 🙂 Thanks in advance for taking time to look at them for me, or even just letting me vent on here!

Hope everyone else is going ok with theirs!

ASS# 2 Step 2

Whose idea was it to undertake a Term 3 at uni that would allow only 1 week intermission over Christmas????

I’m sure all of you (myself included) have now “restated” the weekly study program to discover that the “realities” of this are that there is no study break over Christmas!

Nevertheless, I submitted by Step 2 this morning, which is attached below for anyone who may be interested.

In the end, I enjoyed this chapter a little, assuming that my interpretation of the material is correct! Otherwise I am anticipating another type of “F” in my accounting vocabulary.

Also, in the spirit of Christmas and giving, my computer has given me a very valuable lesson in backing up data and keeping in in 5 different places……. (“massive face palm”). Needless to say, I have managed to fall a little behind in my restating the financial reports, so I am hoping to upload my draft for comments and review tonight.

Hopefully I am not too late for you guys to give me some much needed feedback as I am just catching up to where I was 2 weeks ago!

Hope your all managing to stay sane through it all 🙂 x

Ass 2 – Step 2 Response

Death by Kinder Surprise

Restate the financial Reports they said…. it’ll be fun they said!

Is anyone else finding this a much more difficult task than they had anticipated!?!

I have finally got through (and submitted) my Assignment 2, Step 1, which I have included for interest if anyone wishes to have a read. ASS#2 Step 1 Response

I’m sitting here trying to get my head around the actual concept of sorting some of these items into Operational and Financial Assets & Liabilities (as I have been for a couple of nights previous). Initially, all I have to do, it put O’s and F’s next to each category. Simple right… WRONG!

I have 2 chapters of the study guide on hand, the “Guide to Reading Financial Reports” document,  Glossary of Terms, Summary of Ratios, Google at the ready, plus what feels like 1 million pages of Footnotes all fanned around me just to complete this portion of the exercise.

I feel like I might go a little insane. Hopefully a light bulb flickers on soon and this all starts making some sense or some of these categories are getting some serious F’s!

Any tips, life lines or actual kinder surprises would be appreciated 🙂

Hope everyone else is having a little more luck!