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Assignment 2ACCT11059 ACCOUNTING, LEARNING AND ONLINE COMMUNICATION

JENNIFER MARTIN 12058778https://betweenthespreadsheetssite.wordpress.com

https://betweenthespreadsheetssite.wordpress.com/

ACCT11059 ACCOUNTING, LEARNING AND ONLINE COMMUNICATION Jennifer Martin

STEP 7 CONTRIBUTION MARGIN Identify three products/services of your firm:Estimate/guess their selling price of each product/service:

Finbar have numerous developments available. I have chosen 3 products, all residential properties; available within the same building that Finbar has developed/built. I chose 3 different apartments within the same development in order to more evenly compare the available products, as different locations of real estate can affect pricing. The difference in these products are essentially size – ranging from 1 bedroom to 3 bedroom apartments. Pricing was readily available on Finbar’s website, keeping in mind however that optional extras are available to the customer if they wish - a great tool for upselling and increasing the profit on their products.

Product 1 - Apartment – 1 bedroom, 1 bathroom, 1 garage - $375,000Product 2 - Apartment – 2 bedroom, 2 bathroom, 2 garage - $539,000Product 3 - Apartment – 3 bedroom, 2 bathroom, 2 garage - $639,000

Estimate/guess their variable cost of each product/service:

To me, the task of guessing variable cost without fully understanding or speaking to someone in management of the company seemed like quite a difficult thing to do with complete accuracy. I have chosen to do as Maria suggests in the lecture and assume a net benefit of 10%, being that the variable costs associated with the products are 90% of the selling price.

Product 1 - 90% x 375,000 = 337,500Product 2 - 90% x 539,000 = 485,100Product 3 - 90% x 639,000 = 575,100

Contribution Margin:

Product 1 - CM = 375,000 – 337,500 = $37,500 Product 2 - CM = 539,000 – 485,100 = $53,900 Product 3 - CM = 639,000 – 575,100 = $63,900

The higher the sale price or better the product is the higher the contribution margin. The basic 1 bedroom apartment contributes almost just over 40% less than the top 3 bedroom apartment products, yet I wonder how much extra space it uses within the building? It would be interesting to see what sales are generated per square meter within a development and whether that combined with the demand for each apartment is a factor considered in Finbar’s planning stages. The 3 products do seem to represent both in product type and sales price: basic, middle range and top range demanded products and the contribution margins step up in the same manner with the CM between product 1 and 2 being $16,400 and the difference in CM

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between product 2 and 3 being $10,000. I believe that Finbar would take into account and research the demand for these different products and realise that although a 3 bedroom apartment has the highest CM, the market would perhaps demand the other sized apartments, and just in my opinion with what I understand of Perth being a mining town – I would hypothesize that the 1 or even 2 bedroom apartments would perhaps be in more demand based on the large mining workforce.

Constraints:

There would be a lot of time constraints when it comes to producing Finbar’s end products. Finbar would definitely be limited by real estate (land) available to develop when it comes to producing their products to meet demand. They would be limited by what land is available for sale, what land is actually suitable to develop – is it in a location that is in demand. Council development approval would be a constraint at times and the protesting by local residents on sites they wish to develop, as discussed in assignment 1, also effects their ability to develop. The long process of actually building their high rise apartments would be a constraint and the amount of funds required and tied up from the time they purchase land to settlement date and actually receiving funds from the customer would be a huge cash flow drain that they need to consider with each project. Fortunately, Finbar seem to handle their cash flow management very well. Other constraints I can see Finbar facing is the downfall in demand in the market. Whilst they produce an exceptional and award winning product and are highly recognised within the industry and with their customers, the change in demand in the market over the last 2 financial years has affected them. And whilst not as much as their competitors due to their reputation and high quality product, it has still had a negative effect on their volume of sales as seem in the financial statements.

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STEP 8 RATIO ANALYSIS Blog Link: Brain Sneeze…

https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/

Net Profit Margin (NPM) & Profit Margin (PM)I use this ratio in my own business so I understand the relevance of it. I know my business is doing well if this percentage is sitting around 10% due to the nature of the business, so, seeing Finbar hit almost 30% in 2015 makes me think wow. 2014 and 2013 also saw strong percentages at 14.8 and 23.1% respectively, and whilst the last financial year – 2016 was just 8.6%, when I think of the actual dollars in profit - achieving 8 million out of 102 million is in my eyes a great result. I step back with what I have learnt about Finbar over this semester though and remember how much time it takes the firm to complete their developments. I feel as though Finbar are going to have huge numbers again in the coming years just as they did a couple of years ago.

Comparing NPM to PM shows very similar percentages year to year. It says to me with a difference of only 1% that the bulk of their profit, as a whole, is related to their operations.

Discussions on NPM & PM:https://www.facebook.com/groups/606638232724110/permalink/1350174225037170/?comment_id=1352352684819324&comment_tracking=%7B%22tn%22%3A%22R5%22%7Dhttps://www.facebook.com/groups/606638232724110/permalink/1350174225037170/?comment_id=1352357384818854&comment_tracking=%7B%22tn%22%3A%22R%22%7D

2016 2015 2014 2013Net Profit Margin (NPM) 8.6% 29.2% 14.8% 23.1%Profit Margin (PM) 7.4% 28.1% 14.9% 23.0%

Days of InventoryAs realised in Economic Profit Finbar due to the nature of its business has a large number for days of inventory. It seems to follow a trend over a 2-3 year cycle over the years (also reflected looking back past 2013) where it follows the cycle of developments, start to finish, over this time. This combined with a slower demand in the market for 2016 gives the high number of days in 2016 of 819.

Discussions on Days of Inventory:https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/#comment-130https://www.facebook.com/groups/606638232724110/permalink/1350174225037170/?comment_id=1352354881485771&comment_tracking=%7B%22tn%22%3A%22R%22%7D

2016 2015 2014 2013Days of Inventory 819 450 156 795TATO & ATO

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https://www.facebook.com/groups/606638232724110/permalink/1350174225037170/?comment_id=1352354881485771&comment_tracking=%7B%22tn%22%3A%22R%22%7D



https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/#comment-130

https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/#comment-130




https://www.facebook.com/groups/606638232724110/permalink/1350174225037170/?comment_id=1352352684819324&comment_tracking=%7B%22tn%22%3A%22R5%22%7D






Even just simply writing a question out to Facebook to get other people’s opinions have really helped me get my head around understanding what a ratio actually means to the business. The ratio for TATO and ATO had me confused. After writing my question and having to think about what I was asking and where my thoughts were leading I believe this ratio means that it refers to how hard the assets are working for the firm. So the amount of sales it produces in relation to its value.

Discussions of TATO& ATO:https://www.facebook.com/groups/606638232724110/permalink/1352409498146976/ Besides 2014 which was an excellent year for Finbar in most all ratios, reaching an TATO of 77% and ATO of 100%, most years where consistently in the loose 30% range with both TATO and ATO % closely following the other. I’m not sure what the industry standard is, however, it seems a good figure to me especially when relating it to the same “sort” of calculation for NPM (profit generated in relation to sales), in that 30% NPM would be considered exceptional.

2016 2015 2014 2013Asset Turnover (ATO) 0.36 0.33 1.00 0.43Total Asset Turnover Ratio (TATO)

0.30 0.26 0.77 0.34

Current RatioCurrent assets are consistently (with the exception of 2014 at 5.6) 2-3 times higher then that of current liabilities. This shows that the firm has much higher assets than they do liabilities and have the ability to meet their short-term obligations 2-3 times over. A good sign and I would imagine would sit favourably for them towards banking institutions. Out of curiosity I also ran this ratio for total assets to total liabilities and each year resulted in a 2-3:1 ratio.

2016 2015 2014 2013Current Ratio 2.56 2.91 5.68 2.79

Financial Structure RatiosDebt/Equity Ratio & Equity RatioFinbar’s debt to equity ratio over the last 3 years range from 46-48%, with a massive 92.9% in 2013. Does this mean that debt represents 46-48% of the money contributed to the business? If this is the case, without knowing industry norms, then that seems a healthy balance to me. Thinking back to when I bought one of the stores here in Rockhampton for my business, equity was $300K to debt of $450K giving a ratio of 150%. I think of the banks and how in my experience they generally do not like to lend more than 70% of an assets value (and in my personal situation above, 64% of the value was borrowed) to a business and combining this thought with Finbar’s Equity Ratio of close to 70% for most years (excluding 2013) this tells me their debt was only 30% of their assets. Well and truly below banking limits, and a clear indicator of where the majority of their funding from projects come from - Equity.

2016 2015 2014 2013Debt/Equity Ratio 48.0% 46.1% 48.9% 92.9%Equity Ratio 67.6% 68.4% 67.2% 51.8%Market Ratios

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https://www.facebook.com/groups/606638232724110/permalink/1352409498146976/


It surprised me how low Earnings Per Share was, especially when compared to the market price per share with the Price Earnings Ratio. I remember Maria stating in the lecture the lower this number (PER) is the better, and that this was basically how long it would take to earn back to cost of your investment in the shares. At a 2016 value of 21.79 that’s a very long time. It was also interesting to see that Finbar pay dividends (DPS) above the EPS figure for the last 2 financial years. In saying that though, I have noticed that the board of directors, managing director and CEO all hold significant amounts of shares. I am wondering if this is a factor.

Discussions on Market Ratios:https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/comment-page-1/#comment-132https://www.facebook.com/groups/606638232724110/permalink/1350174225037170/?comment_id=1352355971485662&comment_tracking=%7B%22tn%22%3A%22R%22%7D

2016 2015 2014 2013Earnings per Share (EPS)

$0.0382 $0.1143 $0.1839 $0.1465

Dividends per Share (DPS)

$0.0914 $0.1291 $0.0987 $0.0896

Price Earnings Ratio 21.74 10.41 8.86 8.60

Return on EquityI loved that Maria described this ratio as the interest the equity has earnt. That’s what made it click for me. Again 2016 has seen a really low result compared to last year earning 3.57% compared to their peak in 2014 at 17.13%. This result flows through from what has already been discussed, with many projects in mid completion at the moment, as well as the effects they have felt in the downward change in demand in the market.

2016 2015 2014 2013Return on Equity (ROE) 3.6% 10.8% 17.1% 15.4%

Return on Net Operating Assets (RNOA) & Return on Assets (ROA)Whilst the ROA and RNOA ratios have been similar to the other in 2016, there was a difference of 1.6% & 1.9% in 2015 and 2013 respectively with a much bigger gap of 3.4% in Finbar’s best performing year, 2014. I think about RNOA being so low at 2.7% in 2016 and even at its highest at 14.9%, and briefly think forward to the thought of how this ratio effects the result of economic profit and that the opportunity cost to invest elsewhere is as a standard 10%. I know that Finbar have a low turnover rate being that it takes a long time to develop properties and therefore keep a high value of inventory on hand, but I do wonder if they could be more efficient as over the whole period you can see (especially when looking over at economic profit totaling each year together) that the RNOA % would still be lower or just under that 10% opportunity cost percentage.

2016 2015 2014 2013Return on Net Operating Assets (RNOA)

2.7% 9.1% 14.9% 9.8%

Return on Assets (ROA) 2.6% 7.5% 11.5% 7.9%

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https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/comment-page-1/#comment-132



Net Borrowing Cost (NBC)Finbar’s NBC rates seem reasonable to me. At a peak of 10.1% in 2014 and currently 4.1% in 2016, these rates seem acceptable and are of a downward trend. I was surprised to see 2013 was only 3% when the firm’s debt/equity ratio is 0.93 that year, which to me says they had much higher debt that year. Perhaps only at balance date? I wonder with that thought if the balance of the debt in 2013 was carried over for a significant portion of the 2014 financial year and reduced significantly by the balance date at June 30 2014? Following that thought I could see that the finance costs (expenses) in 2014 were very similar levels to 2013 despite having significantly less NFO in 2014 at balance date, which makes me think my thoughts on this were accurate, and explains 2014’s 10.1% rate in that financial year more too.

Discussions on NBC:https://aengelbrechtblog.wordpress.com/2017/05/28/ratios-economic-profit/comment-page-1/#comment-113

2016 2015 2014 2013Net Borrowing Cost (NBC)

4.1% 8.8% 10.1% 3.0%

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https://aengelbrechtblog.wordpress.com/2017/05/28/ratios-economic-profit/comment-page-1/#comment-113

https://aengelbrechtblog.wordpress.com/2017/05/28/ratios-economic-profit/comment-page-1/#comment-113


Reflections After completing this portion of the assignment and after completing feedback combined with discussions with other students, I had further thoughts on Finbar’s performance. I’ve outlined them on my blog but felt the insights needed to be included here also.

The profit margin (and NPM) for 2016 (14.9%) was much lower than 2013 (23%) and 2015 (28%), despite having the highest OI and Sales in that period. ATO was the lowest in 2014 going hand in hand with Days Of Inventory at 156, compared to the highest in 2016 at 819 days, 2014 also performed best in RNOA (and ROA) in that year.

Looking at the ratios led me to look back to 2014’s sales and cost of sales, and reflect that the cost of sales to revenue in that year as a percentage compared to other years was much higher, resulting in less operating profit then you would expect to see at the level of sales they achieved compared to prior periods. You can see below that sales in 2014 were 275 million compared to 2015’s 89 million and that cost of sales were, as a percentage, 74.34% in 2014 compared to 66.73% in 2015. So, despite having more than 3 times the sales in 2014 to 2015, high cost of sales meant the difference in operating profit was only $27 million.

2016 2015 2014 2013

Revenue 102,657,451

89,360,407

275,247,830

136,410,140

Cost of Sales 68,118,595

59,638,825

204,631,575

84,553,069

Cost of sales as a % of revenue 66.36% 66.74% 74.34% 61.98%

Operating Profit 9,924,516

31,466,832

58,871,477

44,309,811

Did they sell their products too cheap in 2015? Were there unexpected costs involved with their developments that year?

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STEP 8 ECONOMIC PROFIT ANALYSIS Blog Link: Step 8 you’ve made my head hurt…

https://betweenthespreadsheetssite.wordpress.com/2017/06/03/step-8-youve-made-my-head-hurt/

Just putting funds in the bank for a year can earn around 3%, so I would imagine with the extra risk that is involved with business (business is higher risk so a higher gain is expected) a benchmark % of 10% given for WACC is realistic. The difference that I see with Finbar however, which occurred to me as I was writing my blog post for step 8, is that we are looking at just one financial year at a time.

Helping explain economic profit to another student really helped it solidify within myself what it is and what it means for my firm. Economic Profit is looking at how the firm is performing with regards to the investment it has made into it’s assets, instead of spending the money elsewhere (WACC). The WACC at 10% is what you generally speaking could have made, had you spent (invested) money elsewhere instead of spending (investing) it on the assets (NOA) on your balance sheet. So, if the firms return on assets is below 10% (WACC %) you can expect to see a negative figure for Economic Profit, as it will be the difference between the two. I’ve chosen to think of negative economic profit as the missed opportunity cost. Finbar in 2016 had a ROA of 2.6%, instead of the 10%, so 7.38% represents what could have be earned – the missed opportunity cost. This is a massive amount for Finbar at $20.7 million.

However as I touched on earlier for Finbar, this ratio doesn’t seem all that relevant, or rather the best representation of what’s completely going on in the firm - that is when we are just analysing one financial year. Developments take anywhere from 2 years or more from commencement to completion, which effects how much the firm needs to hold in inventory and the length of time they need to wait till settlement occurs so that funds are released and the money for the properties are realised. This makes me think that in order to get a true reflection on the opportunity cost (economic profit) that applying this ratio to a project from start to end would be more relevant. In saying that though, as mentioned when discussing RNOA above, could Finbar be more efficient with their turnover?

2014 was a great year for Finbar and most numbers reflect that statement. Not surprisingly then that economic profit is also substantial at $13.5 million. Looking at ATO and the low figure achieved in days of inventory, you can see they were a driving factor to Finbar’s level of economic profit that year, more so then Profit Margin unexpectedly. The financial years around 2014, that being 2013 and 2015, were significantly higher than that of 2014, yet they produced negative economic profit. This solidifies my thoughts on timeframe being a big factor for Finbar when analysing economic profit. I wonder what the industry standard is for WACC because of the timeframe and turnover challenges that come with property development?

I still chose to use the recommended 10% WACC, as I can not accurately make a judgment on what lower % would or could be used (and some research on the internet did not shed any light on this either) but out of curiosity I did some calculations in the working area of the ratios tab to see what effect changing the WACC to a guess of 5% would be, and the effect on economic profit. Using this new cost of capital % (WACC) the economic profit does seem to show the effect of profit margin in its figures, as opposed to just being affected by how long developments

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take to complete. It shows as expected a negative economic profit over 2016, which reflects the performance in all ratios over that financial year but shows a more balanced economic profit over the other years that did see good profit margins. Over the 4-year period using 5%, the results show a total economic profit of $47 million compared to the standard rate of 10%, giving a total opportunity cost of $10 million. This is something I think I will definitely keep my mind open to finding the answer to in future, as I personally am keenly interested in property and intend on pursuing a career in accounting and property combined (as per my bachelor degree).

Discussions on Economic Profit:https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/comment-page-1/#comment-129https://www.facebook.com/groups/606638232724110/permalink/1352696534784939/https://betweenthespreadsheetssite.wordpress.com/2017/06/02/brain-sneeze/comment-page-1/#comment-135

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https://www.facebook.com/groups/606638232724110/permalink/1352696534784939/




STEP 9 CAPITAL INVESTMENT DECISION I really struggled with this section of the assignment. Namely in choosing 2 capital investments for Finbar. My issue is that Finbar outsource all parts of their business. From construction to advertising, they are simply the experience and management to tie the projects all together. So what then could they possibly wish to purchase other then another development property? My next issue was finding a suitable property to suggest developing. The people at Finbar do this for a living and I am just a student with no property experience here. I researched online to find vacant land available in Perth, although in reality with the apartments that Finbar choose to develop – that being inner city living, the likely land they would choose would not be vacant but would likely be so other sort of property that requires removal.

In the end I had decided to simply pick vacant land within Perth. A hard task to find one big enough and close enough as well as actually listing a seller’s asking price on the advertisement.

INVESTMENT 1: INVESTMENT 2:84 Phillips Road Wattleup WA 61 Mclarty Road Pinjarra WA$1,499,000 $700,000

Payback PeriodI am assuming 50 apartments available to sell within each development with a average cost of $450,000 (based on the cost of apartments in other developments in the low and high end of the scale). Deposits of 10% collected with the remainder paid out at settlement of the properties in year 3. I am assuming the sale of 12 apartments per year for the first 3 years – generating $540,000 in years 1-3 for cash flow. After property settlement, the balance ($405,000/apartment) will contribute to cash flow $14,580,000. 7 apartments sold in year 4 and again in year 5 - generating $3,150,000 in cash flow per year.

INVESTMENT 1

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Year 0: CF = -$1,499,000Year 1: CF = -$1,499,000 + 540,000 = -$959,000Year 2: CF = -$959,000 + 540,000 = -$419,000Year 3: CF = -$419,000 + (540,000 + 14,580,000) = $14,701,000Year 4: CF = $14,701,000 + 3,150,000 = $17,851,000Year 5: CF = $17,851,000 + 3,150,000 = $21,001,000

NPV = $14,905,464.42IRR = 143%

INVESTMENT 2Year 0: CF = -$700,000Year 1: CF = -$700,000 + 540,000 = -$160,000Year 2: CF = -$160,000 + 540,000 = $380,000Year 3: CF = $380,000 + (540,000 + 14,580,000) = $15,500,000Year 4: CF = $15,500,000 + 3,150,000 = $18,650,000Year 5: CF = $18,650,000 + 3,150,000 = $21,800,000

NPV = $15,704,464.42IRR = 224%

As both investments represent the same cash flow results, then it makes sense the property that is purchased at the lower cost is the investment that should be chosen and the formulas also suggest this. This analysis I believe is a very weak one however. Whilst I can most definitely understand the worth of Payback period, NPV and IRR, there are way too many variables when purchasing real estate that I have not been able to take into consideration. It doesn’t take into account whether where these properties are located are acceptable. Is there, or will there, be demand for these properties? The cash flow does not also take into account the construction costs and all other costs associated with developing a property. Just pure cost price and what the properties are sold for.

I can most definitely see the value of these calculations for my own business and am keen to use them on icecream/thickshake machines that my franchisor has mandated we buy for each store. The machines cost $12,000 each and I have estimates of what we can expect to generate in sales, so I will most definitely be using these formulas to see what benefit we can expect from the acquisition of them.

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STEP 10 FEEDBACK GIVEN For most feedback received I found it just a confirmation of criteria covered rather than contributing. Jessica’s was the most helpful she picked up on some errors to which I am very grateful. I especially liked Donna’s suggestion to add the ratios into my word doc assignment directly in order to help aid the reader rather than expect them to flip between the spreadsheet and word document.

Again, as I’ve mentioned in past feedback sections, I find the most benefit in giving feedback rather than receiving it. Whilst getting someone to pick up on errors and make helpful suggestions is great, from a learning perspective I get the most out of reading others assignments and helping them to complete theirs to a greater level.

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PEER FEEDBACK SHEET: ASS#2

Feedback From: Jennifer Martin

Feedback To: Tia McGrath

My CommentsStep 7Identify three products or services of your firm Estimate selling price, variable cost & CM Commentary – contribution margins Constraints – identify & commentaryo Discuss why CM for each

product/service might differ or be similar

o Why produce range of products with diff CMs?

o Why not only produce highest CM?o Constraints on capacity?o Identify constraints and any market

constraints that impinge on firmo In what way might these

constraints be relevant when deciding whether or how much firm produces these products?

The first portion of the first paragraph describing what CM is, is probably not necessary as not part of the criteria and doesn’t need to be explained with the direction your paragraph is heading. I personally would start with “In order to calculate the CM for computer share,…”

Great to see you explaining your reasoning behind choosing 60% as the variable cost proportion instead of the 90%.

First 3 criteria points discussing CM covered very well. When discussing constraints… I’m not sure if only 5

companies providing these services would be a constraint? I would think that a small number of firms providing the service they do would be a good thing compared to most other industries… is it a factor though because of the small client base that is mentioned? 5 companies are an over flood of services? Tying those together more in your discussion would make me see it the reasoning behind it being a constraint more so.

I don’t believe it is necessary to have resources mentioned in the assignment but I’m sure it wont hurt, however the word resources is spelt wrong on your document: Recourses

All criteria points seem to be addressed.Step 8Spreadsheet Ratios:o Calculation of Ratioso Calculation of Economic Profit

In Word Assignment:RATIO ANALYSISo Commentary on what the ratios tell

you or do not tell you, and how do you make sense of them?

o Commentary on discussions made with other students

Links to discussions with other students:o Discuss your ratios with other

studentso How do ratios differ to other

student’s firm’s ratios?o What do your ratios tell you about

how well your firm is performing?

For the calculations for these ratios: NPM / ROA and EPS, you have used the profit figure that includes other comprehensive income rather then the profit figure further up your financial statement that Maria used in her example in the lecture. So for NPM you reference (on the financial statements tab) cell D118 instead of D111 for all these ratios. It’s in the lecture from 10 May around the 52min30second mark.Other than that all calculations look accurate.

I love that you have put in screenshots of your ratios when discussing them. I had this recommended to me by another student in the 1 feedback I have gotten so far and I will definitely be doing the same.

Good commentary on ratios and should meet the criteria successfully, well done.

On page 6 it seems your picture has jumped up into your paragraph… not sure if it is just a result of it being downloaded onto a mac though…

I really liked that you incorporated a direct comparison of other student’s ratios and made me reflect that I could have done this better in my assignment. I would

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ECONOMIC PROFIT ANALYSISo Commentary on what is driving

firm’s EP over the 4 yearso EP positive or negative, what is

causing it to be either?o If large or small number, what is

causing that result?o If changed a lot over the years, why

did it?o If stayed the same, why was that?o Commentary on discussions made

with other studentsLinks to discussions with other students:o Discuss thoughts on what is driving

firm’s economic profit with other students

o Discuss similarities or differences between EP of your different firms? Why is this?

o Discuss what is causing these similarities/differences

o Discuss what insights gained or not by breaking into bits the firms financial statements

On Blog:Reflections on firm’s RATIOSo What they tell or do not tell about

firm’s performanceo How they compare to ratios of

other firmso What new questions the ratios

might raise about the firm

Reflections on firm’s ECONOMIC PROFITo Reflections about the firm’s

economic profit

recommend adding links to your discussions with other students to your document though.

Good commentary on your economic profit analysis. I believe you have hit all the criteria requested, I would suggest linking your discussions you have had with other students to your word document though.

None of the criteria for posting on your blog has been addressed.The criteria asks for the following to be posted on your blog:On Blog:Reflections on firm’s RATIOSo What they tell or do not tell about firm’s performanceo How they compare to ratios of other firmso What new questions the ratios might raise about the

firm

Reflections on firm’s ECONOMIC PROFITo Reflections about the firm’s economic profit

Step 9Develop capital investment decision for your firm (2 choices)

Spreadsheet Ratios:o Calculation of Payback Period, NPV

and IRR

In Word Assignment:o Briefly discuss thought process in

coming to your recommendationo Briefly discuss strengths and

weaknesses of your analysis

Excellent analysis. All criteria seem to be addressed adequately.I’m struggling heaps with this section and you seem to have done it very well.

Step 10o Individual feedback with students

Not Available

Overall Ass#2 Great job Tia, so far as I can tell almost all the criteria is addressed and I would say you could expect a good result.

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PEER FEEDBACK SHEET: ASS#2STEPS 7-10


Feedback To: Kirrilly Hervey







All criteria met well… Could I make the suggestion on a market constraint though being Uber to the market? I don’t fully understand your firm as well as you do but this was the first thing I thought of when I started reading your document and it doesn’t appear as though you have addressed any constraints with regards to the market.

Step 8Spreadsheet Ratios:o Calculation of Ratioso Calculation of Economic Profit








For the calculations for these ratios: NPM / ROA and EPS, you have used the profit figure that includes other comprehensive income rather then the profit figure further up your financial statement that Maria used in her example in the lecture. So for NPM you reference (on the financial statements tab) cell D118 instead of D111 for all these ratios. It’s in the lecture from 10 May around the 52min30second mark.

In days of inventory… why was only D97 selected? Is that the only cost of goods sold? I don’t know your firm but thought maybe D91 might also be? Again, I don’t know your firm though…

The calculation for NBC is wrong. The formula asks for “net financial expenses/net financial obligations” you have “net financial expenses/net financial assets” calculated. Instead of J72 in 2016 it should be J70.

Your ratio analysis is good and thorough and I believe covers all requested criteria. Good job.

Your picture on page 7 seems to have moved but this may just be because I am viewing your document on a mac…

Can I recommend that you include tables of your ratios within your word document? Another student suggested this to me, which I thought was a wonderful idea and I think really helped make my assignment flow better and be easier to read.

You mention discussions with other students however

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economic profit

I would recommend providing links to discussions made online.

I feel as though the commentary on Economic Profit needs to be more thorough, in that you describe only in a generalistic way what you believe to be the drivers of the firms economic profit results. I think you will get more marks if you do so. The points to the left of this comment details the questions asked to be answered within the criteria if that helps.

I would suggest adding links to your discussions online on economic profit.

None of the criteria for posting on your blog has been addressed. I highly recommend you do so as to not lose marks. The criteria asks for the following to be posted on your blog:On Blog:Reflections on firm’s RATIOS

o What they tell or do not tell about firm’s performanceo How they compare to ratios of other firmso What new questions the ratios might raise about the

firmReflections on firm’s ECONOMIC PROFIT

o Reflections about the firm’s economic profit



and IRR




Great work here.Very thorough and seems to cover all criteria asked of you.Reading your step 9 helped me to understand this step better as I progress forward in completing this step myself.

Step 10o Individual feedback with other

students

Not available. The feedback I received however was helpful.

Overall Ass#2 Great work Kirrilly

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I’m sure with when you add the little bits of criteria missed that I’ve mentioned you should expect a good result back.

PEER FEEDBACK SHEET: ASS#2STEPS 7-10


Feedback To: Shakira Martin







All criteria questions are met… The way some of the paragraphs are written are hard to follow though. Particularly the last paragraph on page 3.

Step 8Spreadsheet Ratios:o Calculation of Ratioso Calculation of Economic Profit








Spreadsheet: No formula is present in the Days of Inventory ratio For the Current Ratio, you have linked to total

liabilities instead of Current liabilities. Needs to be cell D57 in 2016 instead of D51 for example.

Your EPS fluctuates so much each year. It made me think perhaps it was wrong somehow especially as the DPS was so consistent in comparison, however I could not see exactly how it would be wrong.

Price Earnings ratio is just represented as a number I believe and not $. In Maria’s words, think of this ratio as the number of years it will take to buy back your investment into the shares.

For NBC you have your calculation referring to NFA instead of NFO. So for 2016 for example you need to have cell J63 not J64.

Ratio Analysis Word Doc: Discussion about ratios seems thorough and seems to

meet the criteria, good job. I would suggest that you add links to your discussions

you have made online with other students.

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economic profit

I don’t feel as though you have addressed the criteria or rather expanded your commentary on your firm’s economic profit enough in order to get all the marks for this section. What you have written is good, however seems a little general. I recommend using the criteria summary to the left just here to expand on your thoughts?

I would also include links to discussions made online specifically on economic profit with other students.

There does not appear to be a blog post available yet in order to met this part of the assignments criteria.

On Blog:Reflections on firm’s RATIOSo What they tell or do not tell about firm’s performanceo How they compare to ratios of other firmso What new questions the ratios might raise about the

firmReflections on firm’s ECONOMIC PROFITo Reflections about the firm’s economic profit



and IRR




Not yet available

Step 10o Individual feedback with students

You have given thoughtful and thorough feedback

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Overall Ass#2 Good job Shakira. Even as it stands I think you will get a good mark. Tweaking it with these suggestions I’m sure will get you a great result.

STEP 10 FEEDBACK RECEIVED PEER FEEDBACK SHEET: ASS#2 Step 10Feedback From: Donna CondonFeedback To: Jennifer Martin

My CommentsStep 7Identify three products or services of your firmEstimate selling price, variable cost & CMCommentary – contribution marginsConstraints – identify & commentary

Your three products were well thought out.You have explained your selling and carriable costs, but you could also talk about what fixed costs are associated with each product as well.You have explained the contribution margin well and I found it easy to readI believe you have covered the constraints and explained them wellI believed you covered each components of step 7 well.

Step 8Calculation of ratiosRatios – commentary (blog)Calculate economic profitCommentary – drivers of economic profit (blog)

Your calculation of the ratios seems correct, and you have even performed an accuracy check on my RNOA to ensure PM x ATO = RNOA. Well done!I found the commentary on your blog about your radios interesting and it showed your understanding of the various ratios used.I think your word document would have been easier to read if you have added tables with the data from the spreadsheet as I the person reading the word document has to keep flipping between the two. Added and very appreciative of this suggestion.I found that your commentary for the ratio was well written and I fell I have learnt a lot about your company for reading them well done.

I like the way you described the economic profit as I found this the hardest to get my head round it. I like that you are calling the negative a lost opportunity. I believe that you have touched on the drivers of economic profit in your word document and n your blog. Well done.

Step 9Develop capital investment decision for your firmCalculation of payback period, NPV & IRRRecommendation & discussion

N/A

Step 10Individual feedback with students

N/A

Overall ASS#2Overall Feedback

Overall the sections you have drafted are well written and shows the depth on knowledge you have

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Additional Notes / Questions learnt. Well Done.

PEER FEEDBACK SHEET: ASS#2 Step 10

Feedback From: Kirrilly Hervey

Feedback To: Jennifer Martin

My CommentsStep 7

- Identify three products or services of your firm

- Estimate selling price, variable cost & CM

- Commentary – contribution margins

- Constraints – identify & commentary

- You have identified 3 products and clearly stated and explained the selling price, variable costs, and contribution margins thoroughly.

- You have provided a detailed concept of what contribution margins are, how you interpret them and how they are calculated in terms of your products.

- You have clearly identified a number of constraints that your company faces in relation to producing your company’s end products.

Step 8

- Calculation of ratios- Ratios – commentary

(blog)- Calculate economic profit- Commentary – drivers of

economic profit (blog)

- All of your ratio calculations are correct and formulas have been used where needed. The only suggestion I would give is to make your EPS and DPS ratios have only 2 decimal places as the rest of your spreadsheet does.

- You have provided an extensively detailed ratio analysis

- The economic profit analysis was also very detailed and well written

Step 9

- Develop capital investment decision for your firm

- Calculation of payback period, NPV & IRR

- Recommendation &

- This step has not been completed yet but I am aware from the Facebook group discussion that this step is currently being completed

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discussionStep 10

- Individual feedback with other students

- I am aware that you have given 1 student feedback and are in the process of completing 2 more including for myself.

Overall ASS#2 Overall, you have completed an excellent ASS#2 and the amount of effort you have put into this assignment certainly shows in your work. Keep up the good work and I hope you do well in the Step 9, as I am sure you will, well done!

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Feedback from: Jessica FitzgeraldFeedback to: Jennifer Martin

My CommentsStep 7:Identify three products or services of your firmEstimate selling price, variable costs & CMCommentary – contribution marginsConstraints – identify & commentary

Has identified three different products and supplied appropriate pricing

The calculation for variable costs and contribution margin are set out well and correct

The discussion about the CMs is thorough, I like that you have thought about why the product with the highest CM is not the only one in production

Very good analysis of constraints that your company may face

Step 8:Calculation of ratiosRatios- commentary (blog)Calculate economic profitCommentary – drivers of economic profit (blog)

Spreadsheet is well set out – I just think the debt/ equity ratio needs to be expressed as a % fixed

TATO & ATO – 5th line has ration instead of ratio fixed

Liquidity ratios – 2/3 sentence – “shows the firm has much higher assets than they do assets (liabilities?)” good eye! Fixed. I always get then and than mixed up.

Excellent discussion on economic profit, even reading your explanation has broadened my own knowledge of its meaning

I found it interesting that you took the step of changing the WACC to see how this changed the EP

Step 9:Develop capital investment decision for your firmCalculation of payback period, NPV & IRRRecommendation & discussion

N/A

Step 10:Individual feedback with other students

N/A

Overall ASS#2 I enjoy how you link the knowledge you have from own business into this assignment. It helps to demonstrate and strengthen your opinions

Overall what you have supplied is a very deep analysis of the ratios and economic profit

You have completed all the steps to an excellent standard and I congratulate you on such a good assignment!

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% %

Step 7

-This section was very well done.

Identify three products or services of your firm 1 1

Estimate selling price, variable cost & CM 1 1

Commentary – contribution margins 1 1

Constraints – identify & commentary 1 1

Step 8

Calculation of ratios 8 8

Commentary – ratios

-Excellent understanding of the ratios demonstrated.

4 3.5

Calculate economic profit 2 2

Commentary – drivers of economic profit 3 2.5

Step 9

-This section was very well done.

Develop capital investment decision for your firm 1 1

Calculation of payback period, NPV & IRR 3 3

Recommendation & discussion 1 1

Step 10

Individual feedback with other students

-Excellent feedback given to other students, and great evidence of discussions.

3 3

TOTAL 29 28

Hi Jennifer

Excellent work! You have completed this assignment to a very high standard.

If you have any questions about this assignment, please contact me directly at [email protected]

Kind regards

Bridget

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mailto:[email protected]

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