Assignment Stage 2 (ASS#2): Restated Financial Statements & Ratios

Step 7-10

ASSESSMENT 2

Step 7: Contribution Margin

I admit I saw myself struggling initially with this task as I had seen I had to identify 3 products or services from my firm and guessestimate their selling price and variable costs. Where do I start? However, after watching Maria’s tutorial the task became clear and put more simply to me. I then felt I had a better comprehension of the task and ready to go ahead.

Kesko is a parent company much like many of the other firm’s given to my peers within this unit. It comprises of three different divisions (Grocery, Building & Car Trades). I decided to choose the grocery trade division. There are known for their continual expansion in online grocery shopping. This particular store I chose, is called K-Citymarket. I was not sure how I would go, particularly because the website is displayed in Finnish language and no option to change to English, only European languages but I was willing to give it a go. I mean at the very least I could choose products that we all familiar to us to some degree. Only additional task I was considering was to convert prices to dollars rather than euro for the ease of the task. As per assessment criteria, my aim was to still show calculated contribution margins (per unit) for each of the items I had chosen below. The three items I selected were:

· Maybelline New York Mascara 9.5ml (€11.17 converted to $18.29)

· Sini Toilet Brush (€9.59 converted to $15.70)

· Airwick Botanica Spray 80-236ml (€3.95 converted to $6.47)

I decided to visit an online currency conversion website called themoneyconverter.com to allow me to convert the price items from euro (€) to dollars ($). An additional step not required but thought the task was of benefit to me for personal growth and hopefully aid me in any potential personal investment decisions in the future. This excerpt below essentially means we get 1 Euro for every 1.6376 Australian dollars.

1 EURO = 1.6376 AUD

(Conversion Rate as at 5/02/2020)

The following contribution margins are calculated as follows (blue font):

Contribution Margin = SP – VC

· Maybelline New York Mascara 9.5ml: $18.29 - $14.63 = $3.66

$18.29 AUD

Fig. 7.1 Maybelline New York Mascara 9.5ml

https://www.k-ruoka.fi/artikkelit/k-citymarket/k-citymarket-tarjoukset

I have guesstimated my variable costs of 80% due to the same reasoning as Maria provided in her tutorial video, very small margins on high volume items. I believe this means to have very little difference between the selling price and cost of good/services for products produced at a higher output. The variable costs are directly related to the volume of production. I believe the variable costs pertaining to this product consist of labour, freight and machinery/equipment supplies (i.e. oil for machinery). Kesko is not manufacturing the product, they are simply buying and selling goods on behalf of the manufacturer. K-Citymarket is involved in the trading sector and therefore purchases and sells products and service retailers, like wholesale companies. This scenario applies to all remaining products selected for contribution margins calculations.

This contribution margin is simply showing for every Maybelline New York Mascara 9.5ml sold, it is contributing $3.66 per unit, towards K-Citymarket’s overall fixed costs and profit.

After examining the financial report for examples of fixed costs, I wasn’t that successful. I then remembered Maria mentioning within her video tutorial you would not see those type of internal management accounting costs in there. I did however find evidence of business premises lease and insurance. I believe I could not find examples of fixed costs as these costs are considered more of an internal management accounting role as well. Kesko would not need to include these specific details in a firm’s annual report normally. Other fixed costs that could be considered in this scenario could be equipment depreciation, salaries and maybe even fixed interest rates on any loans.

· Sini Toilet Brush: $15.70 - $12.56 = $3.14

$15.70 AUD

Fig. 7.2 Sini Toilet Brush

https://www.k-ruoka.fi/artikkelit/k-citymarket/k-citymarket-tarjoukset

This contribution margin shows for every Sini Toilet brush sold, it is contributing $3.14 per unit towards K-Citymarket’s overall fixed costs and profit.

· Airwick Botanica Spray 80ml-236ml: $6.47 - $5.18 = $1.29

$6.47 AUD

Kpl means per piece (per unit)

Fig. 7.3 Airwick Botanica Spray 80ml-236ml

https://www.k-ruoka.fi/artikkelit/k-citymarket/k-citymarket-tarjoukset

This contribution margin shows for every Airwick Botanica Spray 80-236ml sold, it is contributing $3.66 per unit towards K-Citymarket’s overall fixed costs and profit.

I have identified there was not a great deal of difference between these contribution margins due to the type of wholesale role our firm plays and the type of high volume products they are. As previously mentioned, all these products were purchased and sold on behalf of the manufacturers and therefore would not have the costs like raw materials that a manufacturer would normally possess.

I’m starting to think I should have investigated a little more for a product variety. Maybe even search to see if Kesko has contemplated manufacturing their own products. Truth be told, these items were selected as they were the first products to catch my eye when accessing the K-Citymarket website. I did not want to spend too much time on this task initially. There was no real process of elimination.

K-Citymarket offers customers an extensive selection of food, home and speciality goods from 81 K-Citymarkets in Finland. They also offer online services to service customers and a wide range of products, with different contribution margins, to provide choice to customers. If my firm was to provide products with just a higher contribution margins, I believe they would have the potential to increase their revenue, but if their fixed costs were also high, sales could decline and therefore potential for significant loss of sales.

A constraint my firm would have to deal with and could quite possibly affect most of their trade sectors is time. From supply chains/manufacturer delivery delays to equipment/machinery failures, all these can cause real disruption and stop a firm from being competitive. Business environment is always evolving and so should the organisational culture. Employees resistance to change could inhibit a firm’s performance and productivity. Labour shortage could also be considered a constraint as retail is not known for their high wage, full-time permanent positions and benefits. These aspects can discourage people to fill these customer service positions and therefore become even more difficult to keep the brick-and-mortar retail stores open and continue to struggle against e-commerce operators. Other large trade sector (wholesalers) competitors with a diverse range of goods, who happen to be located within the same region or country can become constricting. Acting in the best interest of the stakeholders (i.e. suppliers, consumers, debtors) is also important as it can reflect on business operations. Availability and quality of inventory, customer service, debt payments maintained all must be maintained at a high standard to continue to meet customer demands and strategic goals.

Step 8: Ratios

Please find attached spreadsheet presenting calculated ratios.

I think these ratios could make accounting easier to understand once we begin examining an understanding the ratios. Researching the industrial benchmarks shall allow us to gain a better insight into our firm’s performance. I envisage this section shall bring forward some interesting concepts to reflect on as we become familiar with our firms economic and business realities.

As much as I was looking forward to continuing onto this step, I did hit a couple of little obstacles. I thought these would be good learning exercises for me to start with. Luckily, I had some alternative solutions in mind should I not receive any feedback in time.

1. Share prices were shown as two separate items (Share A and B), not a single share price. Both type of shares seem to consist of identical items (shown below) and listed separately on stock exchange (Nasdaq) as well. I also visited other financial site like Google Finance and Yahoo Finance as suggested by Maria in her video tutorial but to no avail (listed the same as Nasdaq stock exchange). Could not see any mention of what to do should this possibility occur within Maria’s video tutorials either. I received some peer feedback suggesting I use the Share A but they were not confident in their recommendation (Fig 8.2). I had sent an email to Maria detailing my query as well and she was happy for me to choose either one or average of both (Fig 8.3). I choose to use average my share prices in the hope of obtaining a more accurate reflection of my firm’s economic and business realities. I have provided the average share prices for the last four years below (Fig 8.1). Still not sure why my firm has two share prices listed though?

Fig. 8.1 Calculated Kesko Oyj’s Average Share prices 2015-2018

Share price as at 31 Dec.

 

2018

2017

2016

2015

A Share

43.60

44.10

43.85

31.12

B Share

47.10

45.25

47.48

32.37

Average Share price

45.35

44.68

45.67

31.75

Fig 8.2 Peer feedback via unit Facebook page regarding Kesko share prices query

Fig. 8.3 Maria’s response via email regarding Kesko share prices query

2. WACC listed per division and country, not an overall single percentage. I asked my peers if it was worth just using the 10% mentioned in the Study Guide. I had received feedback from two peers recommending I use the 10% (Fig. 8.4). When Maria responded to my query via email she revealed she was happy for me just to choose one from the list provided (Fig. 8.5). I have chosen the Grocery Trade division WACC rate of 6% (last four years), as I want to stay relevant to the products I had chosen to do my contribution margins on and also try to indicate an accurate reflection of my firm’s economic and business reality.

Fig 8.4 Peer feedback via unit Facebook page regarding WACC query

Fig. 8.5 Maria’s response via email regarding Kesko WACC query

Profitability Ratios

My firm’s currency is Euro (€) but shall communicate in dollars for simplicity of task.

Net Profit Margin

My interpretation of Net Profit Margin is for every dollar of sales my firm makes, how much has turned into net profit. For example, for every dollar of sales my firm made in 2018, 2 cents of profit was generated. I don’t believe this is a good result. I would of liked to have seen a larger return for this ratio. In my opinion the trend does not look favourable either. Yes, results may have increased from 2015 to 2018 but 2018 results was a decrease from the previous year. Best results were in 2017. Will have to investigate further to see what happened in 2017 to produce this result. Actually, from memory I think some of it had to do with divestments (selling of some subsidiary businesses).

Return on Assets

My understanding of ROA is similar to that of Net Profit Margin, which is for every dollar of sales my firm makes, how much has turned into net profit from assets. For every dollar of sales my firm made, just over 6 cents of profit in 2017 which was their best result in the last four years. I thought this was a better result and if my firm could emulate the same practices for years to come then that would be beneficial. Trend is similar to that of Net Profit Margin. Slight increase from 2015 (3 cents) to 2018 (4.7 cents) but still a decrease from 2017 to 2018. I wonder what my company did differently in 2017 to provide a better return?

Efficiency Ratios

Days of Inventory

This is the amout of days it takes, on average, for my firm to sell their inventory (from the time we purchase inventory, to the time it is sold). My firm’s (Kesko) average number of days taken to sell their inventory remained relatively constant (35 to 40 days). Initially I thought this was pretty good but not fully convinced yet. I conducted an online search to investigate wholesale grocery trade industry benchmarks. This took a little while, but I finally found a site that used the same units of measure as my spreadsheet and therefore didn’t require more calculations or data research (Fig 8.6). It is important to note, I initially tried finding industry benchmarks from my firm’s domicile country but to no avail. According to the Ready Ratios website the industry benchmarks pertaining to days of inventory turnover has decreased from 30 days to 27 days over the last four years. This is basically telling me that my firm could try to improve their performance to meet industry benchmarks and increase revenue. Like Maria mentions in video tutorial you don’t want your firm to have a shorter number of days as may miss out on sales because you can’t replenish stock fast enough. You also don’t want your days of inventory to long either as consumables are intended to be used up relatively quickly.

Total Asset Turnover

I believe this ratio will help investors understand how effectively my firm is using their assets to generate sales. These ratios shows that each dollar of assets generates $2.10 of sales for 2015 and has marginally increased each year, which is a positive. However, I am not sure whether this is a good result or not, so I have decided to check industry benchmarks again. I could not use my initial website as their results were done in a different unit of measure (days) Fig. 8.6). I have infact found it difficult to find industry benchmarks measured in sales and therefore have had to continue on as I am spending to much time on this task. Shall return to this if I have time. I am disappointed I could not find this. I did not think it would of been this difficult considering I found benchmarks for my first efficiency ratio. However, this is something I am aware of now and know what to do to check firm’s performance.

Fig 8.6 Wholesale Trade Non-Durable Goods Industry Benchmarks

https://www.readyratios.com/sec/industry/51/

Liquidity Ratios

Current Ratio

Measures whether a firm has enough resources to meet its short-term obligations. In this instance we are checking for every dollar of current liabilities, do we have sufficient current assets to pay for it (preferably a 1:1 ratio, as stated in Maria’s video tutorial). The ratio indicated my firm has sufficient current assets to cover its current liabilities. Results shows over a dollar value for the last four years. Will have to monitor though, as figure have reduced since 2015. According to industrial benchmarking (Fig. 8.6) it is recommended to have a slightly higher ratio of 1.68 (2018).

Financial Structure Ratios

Debt/Equity Ratio

This ratio is used to evaluate a company’s financial leverage, in other words, how the company is funded. I consider these results to be quite high. In 2018, for every dollar of equity the owner has contributed, the bank has contributed 95.7 cents (that’s almost dollar for dollar). The results were over 100% in 2016-2017. Eventhough the debt level has reduced in the last year I am still worried this practice may not sustainable and will need to be monitored. However, I am not sure this is normal practice for large firms?

Equity Ratio

Equity ratio shows the amount of equity used to finance a company's assets. So, for every dollar of equity, 54.2% was funded by owners in 2015. Trend show percentages have reduced slightly since this but are relatively constant hovering around 50% last four years.

Market Ratios

Earnings per Share (EPS)

When I initially started this exercise, I was not getting the results I thought I would. After reviewing Maria’s video tutorial again and correcting my denomination I can see Kesko’s earning per share is quite good over the past four years. Trend shows earnings per share have increased and its best result was in 2017 where earnings increased to $2.77 per share.

On another note, I had noticed within my annual report, Kesko lists two types of shares (Shares A and B) on the Nasdaq Helsinki Stock Exchange and up to 250 million shares can be issued for each type of share. Does this have something to do with diluted earnings per share?

Kesko’s earnings 2016 were a little less than other years. Kesko also had a reduced Net Profit Margin of 1.1% in the same year. My original financial statements, also states the least amount of operating profit being generated during 2016, which could have an impact on the Comprehensive Income and consequently net profit. Kesko may have just had a little less unfavourable trading year for 2016 but nothing of real significance to warrant concern.

However, 2017 had a greater operating profit and positive finance income and costs which clearly had a positive impact on the comprehensive income and earnings per share.

Dividends per Share (DPS)

This ratio shows the dividends per share that is paid to shareholders. Kesko has a really ideal dividend per share ratio. As Maria shares on her video tutorial, it is not often you will find a company with this sort of DPS. The trend has clearly risen for the last four years but is oddly less in 2017. I thought this would have reflected their good earnings per share ratio. But then again Kesko’s dividends are ranked the second lowest over those four years. Kesko has also paid out more than what they have earnt three out of the four years. I feel that is not a recommended practice as Kesko would need to maintain a very good profit. I believe it could be well spent elsewhere, like reinvesting back into operations.

Price Earnings Ratio

A comparison between the market share price to its earnings per share. For example, if I bought Kesko shares back in 2015, it would take me almost 25½ years to be paid back for my investment at current earnings. Trend is slightly decreasing over the four years. Had a significant increase in 2016 due to a higher average share price and smaller earnings per share. The decrease in 2017 may have something to do with the disposal of non-controlling interests which impacts the comprehensive income and subsequently the net profit.

Ratios Based on Reformulated Financial Statements

Return on Equity (ROE)

For every dollar of equity invested by shareholders, Kesko had turned 5.5 cents into net profit in 2015 and this trend continued to increase over the years. Kesko had a notably larger net profit contribution in 2017 of 12.35 cents. Would be good to see what caused this result.

Return on Net Operating Assets (RNOA)

A company’s ability to create profit from the use of operating assets. How effectively and efficiently are the assets being used by the firm, in order to create profit. A comparative analysis between RNOA and ROA (still includes operating and financial activities) shows operating assets are contributing an increased amount to profit than ROA. Trend shows a slightly higher increase from 2015 to 2018. No surprises a better ratio in 2017 again.

Net Borrowing Cost (NBC)

What a firm gets charged (interest rates and fees) for taking on debt. A comparative analysis between NBC and Debt/Equity ratio indicates more funds were borrowed from banks 2016-2017 period. Did Kesko borrow more money at a cheaper rate for this period? Can this decreased borrowing rate be replicated for a different period? Where was it sourced? Kesko is slowly starting to pay off the debt but can also see a slight increase 2018. As Maria mentioned in her video tutorial, it makes me wonder what expenses are they paying off, could it be the less expensive debt? If so, Kesko may need to reconsider and begin paying off larger amounts of debt.

Profit Margin (PM)

Profit Margin can demonstrate how much operating profit has been generated from each dollar of sales. As I do my comparative evaluation between PM and NPM I can see my firm has stayed relatively the same over the last four years. All profit margin figures consist of positive figures so that is preferable.

Asset Turnover (ATO)

I see this similar to the Total Asset Turnover Ratio, except that this Asset Turnover ratio does not include financial costs. This comparison shows net operating assets contributing a higher amount into sales. For every dollar of operating assets, our sales have slowly decreased from 2015, which indicates Kesko are not utilising their net operating assets as effectively as they once were.

Economic Profit

My understanding of Economic profit is the firm’s total revenue minus the total opportunity costs. Opportunity costs is sacrificing alternatives when another alternative is chosen.

As mentioned earlier, you will notice I have chosen to calculate my economic profit on one of my firm’s divisions WACC (Grocery Trade), as per discussion with Maria. The division has a WACC discount rate of 6% for the last four years.

The first thing I noticed was that my figures are positive for the last four years, which is always a good thing associated to profit. I knew if I had negative figures shown instead, my RNOA would be less than cost of capital and not generating a large enough return.

Economic profit has increased quite a bit over the last four years, but notably a significant decrease in 2016 as reflected in RNOA. Best result was in 2017 which makes me wonder what happened that year in order to get a good economic profit? These economic profit results are inline with RNOA and ROE results.

Overall, I believe this is still a preferable outcome but always room for improvement in certain areas.

Step 9: Capital Investment Decision

Kesko Oyj is considering expanding their Kespro wholesale grocery trade and K-Auto car trade into a new and upcoming commercial area located in Kompton (a suburb on the outskirts of Helsinki) on 31 December 2020. Kesko is uncertain on whether or not to open a wholesale grocery trade or wholesale car trade outlet. This new commercial area neighbours an existing commercial area that has been there for some time and is very successful. There are currently no other wholesale grocery or car trade outlets designated in this area. Kesko acknowledges there is potential for good profit and expansion in the long-term if successful. However, this area is still new and Kesko recommends that the expected cashflows for both of these projects be only calculated for up to 10 years. Kesko does hope that both stores remain open as long as profitability and solvency allows but will remain to be seen.

It is envisaged that the initial cost of investment for both of these projects would include building/warehouse construction, inventory, minimal furnishings, insurance, council rates and other similar start-up costs.

Should either business not be as successful as liked, Kesko will try to sell on to other wholesale retailers in the area. Once Kesko finds a suitable buyer, it is envisaged these sales will only include the building, furnishings and inventory shall be transported to other Kesko wholesalers in neighbouring towns.

The cash flow generated by the Kespro wholesale grocery line shall predominantly consist of retailer purchases of grocery products less the operational costs such as wages and inventory purchases. The cash flow generated by the K-Auto Car Trade store will primarily consist of consumer purchases of vehicles (Audi and Volkswagon) less the operational costs such as wages and inventory purchases as well.

The investment for both projects shall be completed on 1 January 2020. The projected future cashflows are predicted to be received on the 31 December of each year.

Kesko’s pre-selected time for payback period is 7 years. This pertains to both options.

The initial investment costs, estimated residual value, estimated life of investment, and estimated future cash flows for both options are shown in table below. Please be aware all monetary values are expressed in Euro €.

The expected cashflow for the first year of K-Auto is negative and the first three years of K-Citymarket. This is due to the large outlay pertaining to these investment options.

I have assumed a rate of return (WACC discount rate) of 6%, similar to that of my wholesale grocery line mentioned above.

K-Auto

K-Citymarket

Initial Investment

€90 million

€140 million

Estimated Useful Life

10 years

10 years

Residual Value

€1.5 million

€3 million

Estimated Future Cash flows

31 December 2020 (time period = 1 year)

-€5 million

-€11 million

31 December 2021 (time period = 2)

€6 million

-€4 million

31 December 2021 (time period = 3)

€10 million

-€1 million

31 December 2021 (time period = 4)

€17 million

€10 million

31 December 2021 (time period = 5)

€25 million

€25 million

31 December 2021 (time period = 6)

€25 million

€30 million

31 December 2021 (time period = 7)

€30 million

€30 million

31 December 2021 (time period = 8)

€20 million

€35 million

31 December 2021 (time period = 9)

€17 million

€25 million

31 December 2020 (time period = 10 years)

€9 million

€10 million

The net present value (NPV), internal rate of return (IRR), and the payback period for each investment option is found directly below. As used in the NPV calculations the assumed discount rate is (WACC) 6%.

OPTION 1 – K-Auto

OPTION 2 – K-Citymarket

Net Present Value (NPV)

€17.22

-€43.06

Internal Rate of Return (IRR)

9%

1.1%

Payback Period

6.4 years

9.08 years

Payback Period

This method of capital budgeting is to show how soon Kesko will recover their initial investment costs through estimated cash flows. The shorter the length of time the better. Cumulative cashflow shows exactly when this duration shall be. This shall assist Kesko when trying to decide if the project shall be accepted or rejected. For the purpose of this exercise, Kesko is guided by a pre-selected time for payback. It is preferable that these investment options show a payback period shorter than 7 years (as mentioned above).

As you can see K-Citymarket has a payback period of 9.08 years therefore exceeding the pre-selected payback time of 7 years and will disregarded from any further investigations. K-Auto seems to be the most appropriate option and requires further investigation.

Internal Rate of Return (IRR)

Internal rate of return is simply checking whether or not the return on investment will compensate for the initial investment costs. This is shown as a percentage. If a positive percentage is shown this means the cost is higher than original cost, but it is preferable that the percentage is also higher than WACC, so that the firm can receive a higher return overall. It is therefore obvious that should the percentage be a negative than it shall be disregarded from any further investigations as it is not making the returns required. Based on the above figures K-Auto will be accepted for further investigation as it has a return of 9%, well above the WACC rate. K-Citymarket was not considered, as they were disregarded from any further investigations due to their unsatisfactory payback period. K-Citymarket also falls well short of the desired WACC return 6%.

Net Present Value (NPV)

Net present value is considered the most dominant method. A higher rate of return will result in a lower net present value and vice versa. It shows the total value of the investment minus the initial investment cost. It takes into consideration the concept ‘a dollar is worth more today than a dollar tomorrow’. If the net present value is shown as a positive figure than the option is worth considering. K-Auto is clearly achieving this by showing a net present value of €17.22 million and add value to the firm.

Taking all factors into consideration I believe K-Auto will be a suitable project for Kesko to invest in.

I found the task overall very beneficial. Eventhough, we did not have a true and accurate idea of our firm’s estimated cash flows it was still beneficial to know what capital budgeting techniques there are to use, strengths and weaknesses of each and purpose of them. I have no doubt I shall be utilising these methods in the future (personally or professionally).

Step 10: Peer Feedback

Boy what a ride!...for me this has been the most involved unit to date but the most enjoyable. I found this way of learning so effective and has given me an appreciation for the deeper learning concept. I have taken so much from this unit. It has opened my mind up to so many more possibilities, in a personal and professional manner. I am so grateful. Communicating and sharing knowledge is such a powerful tool. Thank you Maria and Martin for your effective teaching style, friendly personalities and resourcefulness whilst delivering this unit. I look forward to any further accounting units with you.

As for the feedback received from my peers, this is always beneficial. My peers have learnt to become more forthcoming with feedback and sharing their knowledge over the course of the unit.

It was so interesting to view other firms economic and business realities. I got to see firms from different industries (shoewear and electrical suppliers). It was so interesting to see the different ways of operating and how they can deliver their product out to the market. I must say I found the contribution margins, ratios and capital budgeting techniques much more interesting when I started applying them, as part of our last assessment. It helps me to better understand the concept.

PEER FEEDBACK SHEET: ASS#2 Step 10

Feedback From: Rebecca Bamford

Feedback To: Megan Main.

My Comments

Step 7

Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

Wow I am super impressed. You have done such a comprehensive report on your three products. Eventhough, it was hard to think of what services you were going to calculate as part of your contribution margin, you really owned it and explained all your reflections and thoughts all the way through the process. It gave me a good understanding of your products, how different they are and what other costs needed to be considered (unlike the normal retail trade). I can see you have taken the time to understand its constraints and reasons why you chose the estimated prices/costs you had provided. You have conveyed your thoughts in a way that appeals to the reader.

Your KCQ’s are very well written and structured. It really looks like you have met all the specified criteria. I like how you have shared examples for each concept. You also identified reasons for a range in contribution margins and the constraints your products may face in the future.

Step 8

Calculations look great. Looks like all cells are linked.

Highlighted queries

Net Profit Margin - I can see your concerns with your Net profit margin and agree that seems to be a high figure. I also checked your linking of these cells and seems to be correct. The only thing I can suggest at this stage is to check what denomination your annual report is in? Does it have to many decimal places shown?

ROA – Looks like your operating profit (low) and share of other comprehensive income of joint ventures and associates (quite high) may be skewing your comprehensive income and subsequently net profit margin.

DOI – I noticed you didn’t have any inventory too. I have to agree with you, maybe they even subcontract that side of operations out so they don’t need to worry about procuring items.

TATR – I too found it difficult at times to find ratio benchmarks. You are being innovative with finding alternative solutions. Well done.

Current Ratio – have noticed your firm has contributed quite a lot of money towards their current assets in bank deposits and cash but this still hasn’t given you a favourable result, as odd as it sounds. I cannot find any other anomalies sorry, therefore I am agreeing with you.

D/ER – For every dollar the owner is contributing, a bank is contributing that calculated percentage. Noticed you have used the incorrect formula. Should be total liabilities divide by total equity. From what I can make out your firm has alot of equity (high reserves) and not a lot of debt, therefore not as reliant on banks as what other firms are. Sounds good initially, but then again could they be using these funds in more beneficial ways?

RNOA – looks like your net operating assets contributed to a higher operating profit, except in 2017 (very low ratio). However, you have a large amount of debt within your NOA. I feel higher total operating income and exchange differences on translating operations has impacted on your Operating comprehensive income that that is why some of your figures are askew.

Profit Margin – the high OI shall affect this ratio as well.

You have done an exceptional effort.

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

Step 9

I must commend you on your efforts. Looks like all the cells are linked appropriately. You clearly have a good understanding of capital budgeting and have met the criteria. Keep up the great work!

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

Overall ASS#2 Steps 7-9

Well done Megan, overall I am very impressed with your understanding. Your KCQ’s are succinct and do well to explain your reflections and thoughts to the reader.

Thank you for all you help over the last couple of months through peer feedback. This has been gratefully received. I look forward to catching up with you in any subsequent units.

Are you glad it’s all over now ;D

I wish you all the very best Megan. Keep up the tremendous work.

PEER FEEDBACK SHEET: ASS#2 Step 10

Feedback From: Rebecca Bamford

Feedback To: Jewel Westerhout.

My Comments

Step 7

Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

I really like learning about such a different product. I myself don’t go crazy over shoes but I can remember in your initial KCQ’s that you were happy to receive this firm for that reason. It is obviously something you can easily relate to and therefore share your thoughts and reflections with enthusiasm. I believe this is what makes your KCQ’s more enjoyable to read.

It looks like you have met all the specified criteria. I like how you have shared examples for each concept. You also identified reasons for a range in contribution margins and the constraints your products may face in the future and further on giving solutions with Step 9.

Step 8

Calculations look great. Looks like all necessary cells are linked. A very minor adjustment required (expansion of columns) pertaining to the number of ordinary shares, just to see data, but otherwise all looks great.

I like how you explained what your understanding is of each concept. I noticed not all ratios were written about but what you have done is certainly great.

The only thing I can suggest is maybe elaborating a little more on the reasons behind the trend/s indicated.

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

Step 9

I thought your reasoning behind your capital investment project options were really good. You pretty much following up potential weaknesses found in Step 7. I believe this conveys a greater understanding of your firm and its capabilities.

The only thing I can suggest is elaborating on each capital investment concept a bit more, explaining your understanding of each concept and reasons why each firm would be accepted or rejected as they go through the various capital budgeting techniques.

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

Overall ASS#2 Steps 7-9

Well done Jewel. I can see you have really come a long way! Your KCQ’s are succinct and do well to explain your reflections and thoughts to the reader.

I have had the privilege of seeing you grow throughout the unit (as you have I) through peer feedback and I am so grateful for what thoughts have been shared. It has helped me grow as well.

Are you glad it’s all over now ;D

I wish you all the very best Jewel. Keep up the tremendous work.

Rebecca BamfordPage | 1