ACCT11059Accounting, Learning and Online Communication.

Assignment 2 Steps 7-10

Sharna BranchinaStudent number 12152069

Step 7

For step 7, my three chosen products from my firm Geberit, I have decided to choose buttons

for hidden cisterns. These buttons are not just any type of buttons they seem to me to be high

class modern buttons. I was drawn to these products because of the uniqueness and large

range. Geberit certainly knows their market. The figures I will be using are my estimated

figures which is what I guess the product to cost although out of interest I have included the

actual costs of the products from Reece Plumbing website. Reece Plumbing is a distributor

for Geberits products. I will be calculating the contribution margin for these products made

up of assumptions and I will use the equation, Contribution Margin = Sales Price – Variable

Cost, to work out the contribution margin.

My Three Chosen Products, Sales Price, Variable Cost and Contribution Margin

Sigma80 - For the highest demands Sigma80 is quite unique, this particular button is glass, touchless – operated by the wave of a

hand and contains a LED light which is the blue strip in the photo below. This LED light in

the button can be programmed. This button is slick and ticks all of the boxes for the new era

technology therefor I estimate this button to cost $1000 and this is the figure I will use.

Interestingly I could not help myself and googled this product, I found it valued at $1349.01

on Reece Plumbing website. Due to the high tech involved in this button I assume the

variable cost to be 25% ($250) in particular I thought that the glass material used is a variable

cost and could range due to resource constraints in the market as glass is a popular material in

the construction industry.

Contribution Margin = Sales Price – Variable Cost

(CM) = $1000 - $250

(CM) = $750

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Sigma70 - Our lightest touch flush activationThe Sigma70 stainless steel option is my second chosen product from Geberit. This button is

similar to the Sigma80 although it is stainless steel and from my experience working in a

hydraulics and fittings store, I am aware stainless steel is expensive although in this case my

estimated cost price for the Sigma70 stainless steel button is $700. Unlike the Sigma80 the

Sigma70 does not contain operated wave function nor the LED light. Reece plumbing

advertises this button for $605.00 in my local area as per their website. The prices of stainless

like glass also fluctuates and I am guessing and making the variable cost for this product 20%

($140).

Contribution Margin (CM) = Sales Price – Variable Costs

(CM) = $700 - $140

(CM) = $560

Sigma50 - Free-floating elegance The third product I have chosen is the Sigma50 and I estimate this button to cost $600. This

button is different to the other two buttons, it is brushed with a metal finish and you can see

that the buttons themselves are not slim and do not create that smooth finish. This product

does not contain the technology that is in the two above products such as the touchless

function. This product I found advertised on Reece Plumbing website for $459.00. To me

from my judgement of this product its variable cost is 15% ($90) as it is more simplified than

the other two.

Contribution Margin (CM) = Sales Price – Variable Cost

(CM) = $600 - $90

(CM) = $510

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Contribution Margins and Constraints Discussion

By using this equation, Contribution Margin = Sales Price – Variable Cost, I have determined

the contribution margin for my three chosen products which in return gave me figures $750,

$560 and $510. These figures are high and would cover the fixed costs associated to make

them, the fixed costs involved I believe is labour, insurance, rates and electricity which

powers the manufacturing plants. Throughout this process of thinking about the fixed costs I

searched Geberits 2019 consolidated statement and I found two other fixed costs which are

Annuity plans and Capital account plans. From a google search and a read of the notes in the

consolidated statement I have gathered that Annuity is similar to superannuation and I am

still unsure on Capital account plans. The Capital account plan in Geberits consolidate

financial statement tells me that this item also has to do with pension, and I am aware that

this item contributes to the fixed costs.

The contribution margins that I calculated from my own judgements I gather they are similar

because they are the same product design, but they do have differences. The differences are

to do with the variable costs associated with the products used to produce that product. For

example, the Sigma80 is made of glass, Sigma70 is made of stainless steel and the Sigma50

is completed with a metal finish. Although these products have the same outcome (to flush

the toilet) I believe the reason behind why the contribution margins are different is because of

the different variable costs related to the materials used. From my judgement of these

products they attract the same market the construction industry but in particular more so the

luxury side.

Geberit faces both market constraints and resource constraints, market constraints are

associated with the construction industry and companies who purchase Geberits products

such as Reece. Fluctuations in the construction industry’s market influences market

constraints for Geberit, this is one factor, to expand my knowledge I referred to Geberits

2019 Business Review. As defined in the 2019 Business Review other market constraints

were defined as stricter environmental regulations in the Netherlands and ongoing political

instability in the Middle East/Africa region. As addressed previously in my Assignment 1,

Geberit is a global group and the market constraints vary depending on the country and what

is happening in that country. If determined that the luxury construction industry was

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performing better than the residential construction industry this could help Geberit focus on

certain products that compliment the luxury construction industry to better the contribution.

Geberits resource constraints I believe stems from resources such as material used to produce

the products on offer including stainless steel in the Sigma70 or glass in the Sigma80. Not

only can sourcing resources be a constraint but it could possibly hold a negative impact to

Geberit. Geberit manufactures products and without material to produce these products

Geberit will have to look at different avenues. Although buttons are just one product Geberit

manufacture and sells. Geberits product range is quite vast therefor a shortage in materials I

believe would not have a big impact. If there was an impact on stainless steel, then a product

mix decision could be used to determine what product out of the three I have chosen could

return the greatest contribution.

Step 8, Ratios

This section involved me calculating ratios for my firm Geberit, in return in, supposed to help

me understand the gearings of my firm. Maria Tyler’s video I found quite helpful just like all

of the other videos I have watched throughout this unit. Calculating the ratios which you can

find in my Excel spread sheet attached separate, was easy. The difficulties for me stemmed

from me trying to find my firms share price and market price of shares. I spent A LOT of

time searching for these two in my firms financial statements, I went through each and every

financial statement I had downloaded.

I kept rewinding Maria Tyler’s video in the hope to find my answer in trying to find my

ordinary shares, it then dawned on me “Check the statement of changes in equity sheet” I

found them, I was very happy when I found my ordinary shares as I could progress onto the

next step which was finding the market price. Throughout this process I also had Maria

Tyler’s helpful advice which she said she has never seen a firm that does not disclose

ordinary shares in their financial statements, it really helps whilst watching these videos to

pay attention.

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Ordinary shares just staring right back at me, all years ordinary shares were 3.7 Million Swiss

Francs (MCHF). It wasn’t until I received feedback from Belinda Mclintock that the decision,

I made in choosing my ordinary shares was incorrect. The below ordinary shares as pointed

out by Belinda are in Swiss Francs and not numbers. Belinda & Martin helped me in

choosing the correct ordinary shares to use for calculating the ratio’s which I am very

thankful for.

The screen shot below is the correct ordinary shares to use in the ratios, I searched over this

part before, but I found it very confusing and it had me thinking if I was to use the treasury

shares. But thankfully Belinda pulled me up on this mistake I had made or else I would have

totally missed it and lost marks because of it.

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I must admit I struggled to find the market price for Geberit as well, although Geberit

discussed the market price they do not disclose this in the financial statements. See below in

the screen shot. Thankfully Maria Tyler mentioned that this does happen although you can

find the market price for you firm on the stock exchange. I knew that Geberit was listed on

the SIX Swiss stock exchange however I decided to sign up to Simply Wall Street Investors

Website to find the market price as I found their website easier to navigate. Not only did I

find the SIX Swiss stock exchange website hard to navigate I noticed that they used different

terms that really confused me.

Below is a screen shot of Geberits share prices on Simply Wall Streets Investors website.

This was my second time actually analysing a stock exchange website besides SIX Swiss

exchange. I found by far Simply Wall Streets Investors website so much easier to use and

when I was determining the market prices for the years ending, to do this you move your

mouse to the year then scroll to almost zoom in and out of the year. This I found awesome to

find the end of the year as when you look at a whole year there is a lot of lines and I found

when you move your mouse over it not zoomed in that is where it is inaccurate as the mouse

tends to jump days. When I was analysing this it dawned on me... I am looking at a stock

exchange website and for once it is making sense! Maybe I am a natural at this or maybe I

was always afraid and now that I have learnt more about accounting, I somewhat am finding

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these last steps a breeze. Ok so now I have my ordinary shares and market price, time to

tackle these ratios.

RATIOS COMMENTARY – I AM STILL WORKING ON THIS STEP

Profitability Ratios

The net profit after tax/sales tells me that in 2019 this figure was 18.1% and this percentage

means that Geberit turned 18.1 CHF into net profit after tax. Compared to years 2018 and

2017 this percentage was down which means Geberits net profit after tax was affected,

however in 2017 is when it was at its highest which was 22.2% so 22.2 CHF into net profit

after tax. The reasoning behind why 2017 was higher is because Geberits products and

markets experienced an increase as per Geberits 2017 annual media release.

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Another reason as to why Geberits 2017 net sales increase was due to the “positive currency

effects and the net sales-reducing divestment of Koralle and Varicor” as seen below. Now I

didn’t even know what divestment meant until I googled it (handy google) now what this

means is that Geberit sold off these two subsidiary companies and in return was a positive for

Geberit.

Net profit after tax/total assets I calculated from Geberits total comprehensive income (CI)

divided by total assets. This ratio was able to tell me that for every dollar of assets or in

Geberits case Swiss francs (CHF), Geberit in 2019 is turning 15 CHF into net profit. This

ratio consisted of the total comprehensive income (CI) divided by total assets. Both of the

profitability ratios showed me that Geberit is a profitable group and no figures were in

negatives therefore Geberit was generating profit.

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Efficiency Ratios

Days of inventories ratio or Inventory/av.daily cost of goods sold or Inventories divided by

cost of materials. This ratio was completed by using the item inventories in current assets in

the balance sheet then dividing this figure by the costs of material and finally divided this by

365 days of a year. From this ratio I gathered that yes Geberit has inventory as identified but

the ratio itself gave me an insight into number of days it has taken geberit to sell its

inventory. The track of figures is interesting, in 2016 took Geberit 129 days where in 2019 it

took 130 days. 2017 turnover in inventory spiked to 137 days but then in 2018 it lowered to

124 days. Geberit I could see is in a good position, if there was a high product demand.

Although this has me thinking Geberit selling these products to other companies who then

sell the products, in return Geberit needs that stock quantity to be able to keep their buyers

happy as they have a large distribution network.

It is a large figure although it does not fluctuate much in 2019 it has taken Geberit 130 days

to sell the inventory. Not turning inventory over quick enough taking longer ….

Now I have read that in 2017 Geberit acquired Sanitec which is a ceramics manufacturer

therefore the possible spike in inventory in 2017 could be the reasoning from Geberit

acquiring Sanitec.

Total asset turnover ratio or sales divided by total assets was able to tell me how much

Geberit is generating in sales for years 2019, 2018, 2017 and 2016. In 2019 Geberit generated

0.83 CHF for every 1CHF in assets turning that 0.83 into sales. Now I find it interesting how

2017 was a good year for Geberit when I calculated the Net Profit Margin however the figure

in 2017 for the Total asset turnover ratio got better from year 2017. So, this tells me that

Geberit not only had a good 2017 but the trend is increasing, and they are turning over more

in sales from assets.

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Liquidity Ratio

This ratio calculated current assets divided by current liabilities, Geberits trend increased

substantially in 2019 being 1.91 compared to 1.35 in 2018. The liquidity ratio has shown me

that Geberit can pay its debt out if it needs to, in 2019 there was 1.91CHF of assets to pay

1CHF in liabilities. To me the figures are quite good, and it means if Geberit had to pay out

its current liabilities it not only can but Geberit will also have money left over from paying

them out. I wonder why in 2018 the figure was the lowest out of the four years being 1.35,

why?

As per the spreadsheet for 2018 current assets were lower and current liabilities for 2018 was

higher compared to the other years. The short-term debt for Geberit in 2018 was was 154.3

Million Swiss Francs!! And compared to the other years this short-term debt really did

skyrocket in 2018. Cash and cash equivalents in current assets 2018 was quite low compared

to other years which would have influenced the liquidity ratio.

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Financial Structure Ratio

Debt/Equity Ratio for every CHF of equity that the shareholders have put into Geberit,

Geberit has borrowed from the bank 96.2 in 2019. Now what is confusing me is that figure

96.2 I guess you could think of it as cents, I have googled the currency however I am still

quite unfamiliar with it. I know MCHF stands for millions of swiss francs and then CHF is

swiss francs so I am guessing here but that figure of 96.2 I am assuming that I should be

looking at it as 0.96 in CHF. Which is quite a lot to borrow especially when you think about

how Geberit borrows 0.96 for every 1CHF of equity the shareholders put in.

Gerberit is funding a lot by borrowings, although compared to the previous years the trend

has lowered.

Equity/total assets I calculated by dividing total equity by total assets, now this ratio tells me

how much of Geberit is funded by the owners. The figures to me there is not much of a

change in 2019 51.0%, 2018 49.9%, 2017 49.1% & 2016 45.4%. It dropped down in 2016

which I saw Maria Tyler’s firm also had a drop, but it was in 2019. Now this ratio I find

slightly confusing, Maria Tyler’s lowered figure she explains that this is because Wes

Farmers were more funded by debt, so I am assuming this is also Geberits case in 2016 but

by 2019 it was more funded by the shareholders than debt.

Now I did choose to do the Debt Ratio because i thought it would be a good experience to see

how mine turned out. Now the debt ratio is calculated by using total liabilities divided by

total assets. I then added the Debt ratio and Equity ratio together to find out Geberits total

Ratio or Total Ratio (Debt+ Equity) Ratio. Now I did also get 100% just like Maria Tyler and

this 100% shows me that it is 100% fully funded by the owners, shareholders and the bank.

Now that I think back and look at these figures I can now understand that the Equity Ratio

shows me the percentage funded by the owners and shareholders then when you plus the

Debt ratio which is made up of what percentage Gerberit is funded by the banks it then equals

100%!! I can see clearly now that I Geberit is funded a lot by the banks the figure sits from

49% to 54%.

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Market Ratio

Earnings per share (EPS) ratio I calculated by using Geberits Net profit after tax then divided

this by the number of issued ordinary shares. This ratio was able to tell me how much in

shares would be given out, out of the net profit. I thought this ratio was a bit odd. The

numbers did not change much in 2019 ordinary shares given out from the net profit was 15.1

CHF. In 2017 the figure spiked to 17.4 compared to 2019 which made me think that there

must have been more net profit out of tax and in return made the figure of shares higher. This

was correct in 2019 Geberit had 559.30 in net profit and in 2017 Geberit had 644.30 in net

profit.

Dividends per share (DPS) ratio I used to calculate how much in shares Geberit actually had

to pay. I did this calculation by getting the Distribution item in my financial statement then

dividing it by the number of issued ordinary shares. At first I did this calculation incorrect, I

linked to the wrong cell and thankfully Belinda also picked up on this. Now the figures in

2019 was 10.50 and in 2016 it was 8.35, this tells me that it is good for the shareholders it has

increased but why has it increased? The reason behind the increase in the figures does not

stem from the number of issued ordinary shares that figure stayed the same. I am thinking

that it is because they just didn’t have the same number of dividends to pay out to the

shareholders. Maybe not as many people were investing?

The price earnings ratio shows how long it will take for an investment to be paid back. Both

Market price per share/earnings per share have been expressed in Swiss Francs CHF, the

trend in the figures I quite think they are large! In 2019 its 35.98 and in 2018 it is 25.69 this

jump is because of the differences in the market price per share. In 2019 the market price per

share was significantly higher at 543.2 compared to 2017 which was 382.3. This has me also

thinking because of the differences in the market price per share Geberit had more to offer to

investors compared to 2017.

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Ratios Based on Restated Financial Statements

Return on Equity (ROE) I calculated by linking cells from my restated financial statement

and to actually calculate it I got my Comprehensive Income (CI) and divided it by the total

equity. The return on equity for Geberit is high higher than Maria Tyler’s firm and the trend

is not bad at all. Out of Geberits equity they are getting a good return, and this is because

Geberit itself has good profits from its products located around the world. The trend in these

figures also coincide with Geberits profits for the past four years there was not a huge

difference in profit therefore their (ROE) is almost consistent.

Return on Net Operating Assets (RNOA) was calculated by using Operating income after tax

(OI) divided by net operating assets (NOA). This ratio tells me that Geberit has a very

consistent return on their net operating assets in 2019 it is 24.40%, 2018 24.36%, 2017

27.76% and 2016 29.50%. Those percentages tell me, that is what Geberit is making out of

operating income from their operating assets. It is quite high as it should be because Geberit

is a manufacturer of products and this needs to be high, if it was not then it would not look

good for Geberit at all. When compared to return on assets (ROA) this tells me that when

taking away the financial and just leaving the operations in with (RNOA) the percentage

calculated is solely the return from the operation side of Geberit.

Net Borrowing Cost (NBC) is the 3rd ratio I calculated for Ratios based on reformulated

financial structure and I did this by dividing Geberits net financial expenses (NFE) by net

financial obligations (NFO). This shows me Geberits cost of borrowings for the 4 years. I

personally did not think the figures was high at all. It’s a borrowing rate but it’s a good

borrowing rate for Geberit as identified Geberit has high and it tells me there was no large

changes within borrowing debt. They did however have a difference of this rate when

comparing 2019 2.57% with 1.51% in 2017. By comparing these two years I can see that

Geberit increased its borrowings from 2017 to 2019.

The Profit Margin (PM) ratio was calculated by using Geberits Operating income after tax

(OI) dividing it then by net operating assets (NOA) or net sales. This ratio isolates Geberits

operations and in return is considered a true figure of profitability compared to the Net Profit

Margin ratio. Every CHF of sales Geberit is making this ratio shows me how much of those

sales in percentage % it is turning into income.

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Asset Turnover (ATO) ratio I calculated by linking Sales then dividing sales by the net

operating assets (NOA). It shows me that when the operating assets have been isolated and

calculated compared to the total asset turnover ratio the asset turnover from operating assets

is higher. The trend over the four years is also good, I strangely found it interesting in how

2019, 2018 and 2016 was the same being 1.32 of asset turnover from operating assets and

then for 2017 it was 1.24.

Economic Profit

Now economic profit, I did not quite understand this when I came across it in the study guide

but I am so excited to give this the very best I have!! Come at me Economic profit. Starting

off with the ratio itself economic profit is made up of return on Net operating assets (RNOA).

Now, (RNOA) is calculated as identified above by the operating income after tax (OI)

divided by the Net operating assets (NOA). Return on net operating assets (RNOA) is then

taken away by the cost of capital of 8% now, I chose 8% because it was in the assignment

guide and I like to follow with what is written (most of the time). The next step in the

Economic profit ratio is to multiply what I just covered with net operating assets (NOA), this

then gives me the Economic profit number.

Operating income (OI) is just one of the gearings involved in the economic profit ratio, this

operating income is less of tax and is made up of multiple items including my other operating

comprehensive income (CI). Net operating assets (NOA) is Geberits total operating assets

minus total operating liabilities, which is what is left over after the liabilities. When you

divide (OI) with (NOA) you get return on net operating assets (RNOA). Return on Net

operating assets (RNOA) is the return that Geberit is receiving from its net operating assets

which is made up of all the yellow below

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The economic profit ratio includes the cost of capital that is the opportunity cost which as

stated before I used 8%. Economic profit is a way to add value to its investors and in Geberits

case it has high economic profit. The economic profit for Geberit for the four years ranges

from 350.3 to its highest figure recorded in 2017 464.1. In 2017 Geberit recorded increases in

product sales and sales within different markets over the world this in return is why 2017 is

more favourable and has a higher figure. In 2017 Geberit also intergraded Sanitec into the

group which I discussed in the Profitability ratio. In the profitability ratios it was also noted

that 2017 for Geberit was a golden year in fact a record breaker and a milestone. With

Geberit not only acquiring Sanitec it also closed down 2 of its factories which were a burden

on the firm for the previous year. This decision of closing down the 2 factories in France was

mentioned in a media release on the 17.05.2016, due to a fall in the market, costs were higher

than what was being generated by the two sites in France and in 2017 Geberit announced full

closure of the 2 sites in France.

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Step 9, Capital Investment Decision

Geberit is in need of acquiring a new warehouse to keep stock in and from the warehouse

Geberit plans on distributing this stock. Geberit have identified 2 potential warehouses

currently for sale in the groups headquarters home area located in Rapperswil-Jona,

Switzerland. Geberit have identified that the warehouse needs to be over 3000m2 to fit the

stock in and the budgeted investment payback period is set at 7 years. An expected use life

has been determined for 10 years although Geberit would like to keep the warehouse for

indefinite years it has been identified and set at 10 years encase of fluctuations in the

construction industry.

One of the warehouses is 3900m2 with an initial investment cost of 29.8 MCHF, this

particular option is in an ideal location, not too far away from the established manufacturing

plant. Option 1s layout is solely all floor and is ideal for Geberit. The other warehouse is

3400m2 and initial cost is 28.5 MCHF, this warehouse contains rooms and does not have an

open floor plan like option 1 therefore it will need to be renovated and will possibly set

Geberit back an estimated 8 MCHF in the first year including start-up costs. However, the

cost for option 2 is lower than the cost for option 1.

Neither warehouses contain adequate amenities for staff therefore an area needs to be built

for staff including an in-house accounts department. Option 2 as stated contains rooms

therefore it could be beneficial as no new rooms will need to be built just renovated to the

needs. Initial start-up costs are substantial (in negatives) for both options in year 1 and 2.

Start-up costs will require stock, staff, equipment such as forklifts, a truck to ship the stock

from the manufacturing plant to the warehouse and multiple delivery vans to get products to

buyers or wholesalers.

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Expected future cash flow has been determined by assumptions and from my knowledge of

Geberit. The knowledge of Geberit I have is that it is a very efficient firm, in the year 2019,

Geberit had a net income of 646.9 Million Swiss Francs (MCHF). The expected cash flow

from the investments below if correct would one day compliment that net income.

As seen in the table below option 2, the expected cash flow is significantly different in year 1

and 2 compared to option 1. This is due to the vast renovations that will need to be done to

the warehouse to have it in working order. The expected cash flow for option 1 has been

deemed higher in years 3 to 10 due to little renovations therefore it has a head start on selling

products and being established. Whereas option 2 has a smaller floor space however the cash

flow is expected to increase after renovations have been complete from years 3 to 10. Option

1 and 2 are expected to have an almost exact cash flow from years 7 through to year 10.

Geberit Capital Investment Decision OPTION 1 OPTION 2  3900m2 Warehouse 3400m2 WarehouseOriginal Cost 29.8 28.5Estimated Useful Life 10 Years 10 YearsResidual Value 5 4.5Estimated Future Cash Flows    31 December 2021 (Time period = 1 year) -5 -831 December 2022 (Time period = 2) -3 -531 December 2023 (Time period = 3) 5 331 December 2024 (Time period = 4) 5 331 December 2025 (Time period = 5) 10 531 December 2026 (Time period = 6) 10 631 December 2027 (Time period = 7) 10 1031 December 2028 (Time period = 8) 15 1531 December 2029 (Time period = 9) 15 1531 December 2030 (Time period = 10) 20 19.5

The residual value is the value of the warehouse alone if Geberit opts out of the investment

and chooses to sell. I have taken into account depreciation on the equipment and the value

would be less in the future even if the equipment was sold with the warehouse.

*Residual Value, Original Costs and Expected Future Cash Flows in chart below are

expressed in Million Swiss Francs (MCHF).

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It has been deemed necessary that the investment is to be paid off in a maximum of 7 years.

To work this out the payback period has been used, in option 1 almost at the end of year 6 is

when the cumulative cashflow is expected to be the last figure that is in a minus this results in

the warehouse then generating profit that is not affected by the cost of the investment.

Whereas option 2s investment payback period is not until the end of the 7th year and it is then

after that 7th year the warehouse investment will start operating at a profit that does not

include the cost of the investment. In fact option 2 exact payback period as seen in the table

below is expected at 7.97 years, so this has already exceeded the budgeted payback period by

an extra 352.8 days to be precise.

Net Present Value (NPV) has been calculated with a cost of capital of 8% and expected

cashflow from years 1 to 10 and also the cost (minus) of the investment. I decided to use the

cost of capital of 8% because the assignment guide told me to. The (NPV) tells me that the

figures calculated from option 1 and two are both higher than the cost of capital which is

good for Geberit however option 1 is substantially higher compared to option 2. Although

both (NPV) are positive numbers the table below clearly defines that option 1 is the better

investment to choose from.

Although the internal rate of return (IRR) is considered important when determining the

investment as it will show if the return of the investment is positive or negative which should

be then compared with the cost of capital. The (IRR) has been calculated by summing the

expected future cash and including the cost of the investment. In Geberits case the (IRR)

calculation has shown that both (IRR) for options 1 and 2 are both positive numbers and are

both higher than the cost of capital. This means that the investment will be making a return

that is higher than the cost however as you can see in the table below, it is option 1 that has

the greatest figure and is almost double the percentage of the cost of capital therefore a better

option.

Gerberit Capital Investment Decision OPTION 1 OPTION 2  3900m2 Warehouse 3400m2 WarehouseNet Present Value (NPV) 14.46 2.05Internal Rate of Return (IRR) 13.4% 8.8%Payback Period 6.78 years 7.97 years

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After my capital investment decision, I now think I undervalued the residual value although

unsure of this area I gave it my best shot and determined it from my initial judgment. I

wonder if managers make more than one of these or they are just more accurate and

experienced in making decisions. The weaknesses I saw in this step is that everything can be

changed depending on decisions and I am unsure if this is a good decision. The cost of capital

can be changed and so can the expected cash flow which then changes the (NPV) and (IRR).

When thinking about how easily this capital investment decision can be changed in regard to

the (NPV) and (IRR) I almost see this as a kind of weakness. Or now that I think about it how

easily they can be changed, they can be changed in a way to ensure strength.

Although a manager who has the experience and possibly has more than one person helping

in making the decision who is also experienced, I can see how valuable this can be in making

the correct investment decision.

I must say I did have fun with this step, I started off thinking about what Geberit would and

could invest in and how the firm would think and what to take in consideration. As a supplier

and manufacturer, I knew Geberit produces products and also needs warehouses to put the

products in. This helped me in making my capital investment decision and once I made a

decision on what Geberit could invest in, I had all of these thoughts just popping into my

mind. I had already identified that Geberit sells these products and therefore I determined that

transportation for the products was also viable to think about and to put into costs.

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Feedback

Feedback for me in assignment 2 has been quite useful especially the Feedback provided by

Belinda Mclintock. If it wasn’t for Belinda looking over my ratios, I could have easily lost

marks because of my ordinary shares I had used they were incorrect, and Belinda put in a

feedback form. Unlike the other steps I found this step 10 in particular, my feedback I

provided was quite adequate which I am quite proud of. This feedback seemed more involved

and time consuming then the other feedbacks I have provided in this unit.

“I have checked over the ratio calculations in spreadsheet. I would double check the number

of ordinary shares issued. It needs to be a number, not a dollar figure. I would go and check

the notes in your annual report to confirm.”

I emailed Belinda my firms annual report and we both agreed we had somewhat found the

correct ordinary shares although still uncertain I emailed Martin. Martin as always was very

helpful and also suggested how I had to convert the million swiss frans (MCHF) into swiss

francs (CHF).

Belinda also picked up that I had incorrectly linked to the wrong cell in my ratios spreadsheet

and again if it was not for Belinda picking this up it would have gone unnoticed. See there is

a difference when checking someone elses work, you either put 100% in and check every cell

or you do the bare minimum and Belinda went beyond and picked up these errors. Belinda

said “In calculating the dividend per share ratio, I am not sure that it is calculated

correctly? You have selected the cell that says Management Option Plans? It doesn’t

sound right? Your company is a bit harder than mine, but if I were doing it I would have

selected cell D10 – distribution. This to me would mean the distribution of dividends to

shareholders. I would double check this, maybe check in the notes to your financials?”

This little error I made could have lost me a whole mark! Lukily it was an easy fix and I went

back to my spread sheet and fixed it within seconds.

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Feedback I have given

PEER FEEDBACK SHEET: ASS#2 Step 10Feedback From: Sharna Branchina Feedback To: Belinda Mclintock

My Comments

Step 7Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

Great work on identifying and explaining your three services. Your explanation on the different costs between the three was very good. I can see how hard it would have been judging the costs of the retirement housing, but I think you managed this very well. I noticed that you had not included constraints and this had me intrigued on what constraints could be associated with building retirement housing. Building regulations, building costs could come under a constraint or funding maybe. I found a document in my firms folder which was titled Business Review and from this I got a good idea on what constraints my firm faces, maybe your firm might also have this?

Step 8 No commentary provided as of yet.I have noticed for the Net profit after tax/sales ratio you have chosen to use profit of the year instead of total comprehensive income, it might be worth double checking this as the total comprehensive income figure includes other items net of tax or after tax. The liquidity ratio you have put N/A is this because it is incomplete? Other than that, I checked your other ratios and I could not fault the rest, great work.

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

Step 9 I found it funny how your firms primary competitor is Ryman Healthcare which Martin uses as examples. I also like the idea of including a competitor in your capital investment decision. Your capital investment decisions story line is really nice and intriguing. I noticed that it is still in a draft and not completed but it is a great start! I can see already that your option 1 looks more of the better option for your firm to decide on. It will be interesting to include in your discussion on why the expected cash flow for option 1 is higher than the other and why it took -$2.5 million in year one for option 1 and why only -$1 million in year one for option 2. I have noticed in column L in your NPV & IRR spreadsheet you have included your

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

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residual value correctly. Year 10 cashflow in your table in word should be 9million as per your spreadsheet. The NPV calculation does not include the discount rate in your spreadsheet for option 1 but option two has been done correctly. The IRR and payback period has been calculated correctly. I noticed that you used a discount rate of 10% in the NPV & IRR spreadsheet, the Assignment stage 2 document page 9 states to use 8%, I will attach the document with my email for you to check out.

Overall ASS#2 Steps 7-9 Overall you have done a great draft and I really enjoyed your story line for your chosen services and capital investment decision/

PEER FEEDBACK SHEET: ASS#2 Step 10Feedback From: Sharna Branchina Feedback To: Serena Colbran

My Comments

Step 7Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

I enjoyed reading your identified services! Cash transport reminds me of armour plated vehicles and security guards with guns and bullet proof vests. I wonder how much they pay in insurance.. Your estimated selling price, variable cost and contribution margin was interesting. At first, I would have thought a service is usually charged at an hourly rate, but I like how you put it down to months or for the risk management consulting per day.Your commentary on the contributions was good and you clearly explained the differences between the services.I had a search through your firms 2019 annual report using search words “restrictions” “Limitations” and “constraints”. I found some of your firms constraints to be government policy or trade agreements, as your firm contracts out services so I think I am not 100% certain but if your firm contracts out to the government it could be subjected to government policies. Your firm to me sounds quite competitive and has to be due to customer demands and customer changes therefore offering a wide range of services, maybe you could talk more about this type

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of constraint in your commentary. Or another section I found talked about PPE during the pandemic such as face masks which when the pandemic first kicked off there was a limitation to those.

Step 8 I found inventories in your financial statement 44 which you have also added reasoning to in your word document with why you have chosen not to include this ratio. I checked the inventories note and it does state that your firm has inventories but does not specify clearly in that note on exactly what. I took to google and found your firm supplies alarm systems, check it out maybe, I just typed in G4S products or alarm systems. In response to your question if you had done the liquidity ratio correct, I personally could not fault the formula, I tested it by taking the – out of the formula and seeing if it changed the number itself but it did not. Economic profit calculations look all good to me and I have seen that you did include why you chose not to use the 8% as per the assignment guide in your commentary. Your commentary is great!! Far better than my draft

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

Step 9 Your capital investment decision I found very intriguing and I liked how you did not include a residual value and included this in your commentary.NPV & IRR calculations look all good to me, great job. The payback period I could not personally fault as well.

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

Overall ASS#2 Steps 7-9 Overall your draft is great and very detailed.

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Feedback I have received

PEER FEEDBACK SHEET: ASS#2 Step 10Feedback From: Belinda McLintock Feedback To: Sharna Branchina

My Comments

Step 7Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

I really enjoyed reading Step 7 of your word document. I liked how you described each of your products (e.g. what they were made out of) and how they worked. It I is obvious that you have done your research. You have calculated the Contribution Margins correctly for each of your products. Are you able to think of any other variable costs attached to the product beside the material they are made from? What about direct labour costs associated with the design and production of the buttons for cisterns? Just something to think about. Your discussions about the constraints facing your firm was great, it was very insightful! Just a quick spell check. the word ‘therefor’ has an ‘e’ on the end. 😊 I just noticed it a couple of times throughout your document. .

Step 8 The commentary on your ratios so far is great. I like how you have included screenshots of your research. It shows the marker of your assignment that you have in fact done the work. I need to remember to do this in my document! I have checked over the ratio calculations in spreadsheet. I would double check the number of ordinary shares issued. It needs to be a number, not a dollar figure. I would go and check the notes in your annual report to confirm. For example, in my company this was the number of shares issued in the 2019 year was 213,304,722. Martin helped me complete this step in a workshop, so I know that it is correct. If you like, email me your annual report and I can have a look at it for you if you like 😊 I just want to make sure you have the right figure! In calculating the dividend per share ratio, I am not sure that it is calculated correctly? You have selected the cell that says Management Option Plans? It doesn’t sound right? Your company is a bit harder than mine, but if I were doing it I would have selected cell D10 – distribution. This to me would mean the distribution of dividends to shareholders. I would double check this, maybe check in the notes to your financials?

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

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Otherwise looking good! Great job!Step 9 I can tell that you enjoyed this Step of the

Assignment. It is evident in your word document. The calculations in your spreadsheet appear to be correct. I noticed that you are using a discount rate of 8% in your calculations. Make sure you explain why you chose to do this in your word document.

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

Overall ASS#2 Steps 7-9 Overall, you have done really great work! Congratulations on making it through the unit and to this last assignment. I wish you all the very best moving forward! Good luck!

PEER FEEDBACK SHEET: ASS#2 Step 10Feedback From: Serena Colbran Feedback To: Sharna Branchina

My Comments

Step 7Identify three products or services of your firm

Estimate selling price, variable cost & CM

Commentary – contribution margins

Constraints – identify & commentary

3 Products – tick. I just learnt a lot about toilet buttons! Estimates & CM calculation – tick. CM Commentary – tick excellent Constraints – tick – well thought out constraints.

Step 8 Ratio Calcs – tick (I’m jealous that your company is making $!) Ratio commentary – I can see you are still working on this. Make sure

you include questions that you get from any weird ratios. Economic Profit Calcs – tick Economic Profit commentary –still working on – Make sure you talk

about the ‘drivers’ of EC

Calculation of ratios

Ratios – commentary (blog)

Calculate economic profit

Commentary – drivers of economic profit (blog)

Step 9 Investment options –Well explained reasons for options Calcs – tick Recommendation & discussion – Good reasonings. Not sure if you are

still working on this but the strengths and weaknesses of using NPV, IRR and payback period need to be discussed I am sure there are marks for that too. I still have to add that to mine.

Develop capital investment decision for your firm

Calculation of payback period, NPV & IRR

Recommendation & discussion

Overall ASS#2 Steps 7-9 I really enjoyed reading what you have so far on your word doc! Looking forward to seeing what you write about the rest of the ratios.

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