Assessment Task 2
ACC8105 Financial Statement Analysis
Due date Week 11 (Week 9 of teaching), Wednesday 10th May 2017, 5.30 pm USQ time (AEST)
Length Maximum of 1,500 words for your analysis, conclusions and recommendations (excluding your calculation that should be provided as support evidence)
Objective The objective of this assessment item is to provide you with the opportunity to familiarise yourself with an annual report.
The intention of this assessment item is to enable you to familiarise yourself with the information contained in an annual report and to use relevant information in a strategy decision making situation.
While some questions can be answered by simply reading the report, others require consideration of more complex issues. For example, identifying the cause of changes in balances between years and the calculating and comparing of financial ratios.
BACKGROUND TO STUDENTS’ SCOPE OF TASK:
Assume you are employed by an organisation that wants to diversity its share investment portfolio and considers Australia to be one of the more attractive markets in current economic times. That is, your organisation will be considering the attractiveness of Woolworths Ltd (e.g., return on investment, EPS, dividend yield, etc.) as part of your organisation’s share investment portfolio. You are required to make recommendations about whether Woolworths Ltd would be a possible investment opportunity for your organisation.
WHAT DO YOU NEED TO DO FIRST?:
Before you can write your answers, you need to gather information for the 2016 Annual Report of Woolworths Limited (https://wow2016ar.qreports.com.au/home/pdf/download-centre.html) and then perform some calculations
The annual report is needed for you to collect information, to complete a financial analysis, and to write your report. The majority of senior management and the board of director are not accountants and therefore require you are required to write your report to non-accountants. Some of the directors are from the building materials suppliers industry and have experience with ratios benchmarks from that industry sector. You therefore decided to provide a comparison between Reece Group and Woolworths for some comparison explanations. The annual report is available at http://www.reecegroup.com.au/assets/Uploads/F2016-Reece-Limited-Annual-Report.pdf Please Note:
You should refer to the consolidated ($ Aus) figures in the Woolworths, and where necessary, the consolidated figures in the Reece Limited Group financial statements for a comparison analysis. All your required calculations and answers must be provided as support evidence for your answers with the answer or in an appendix attached at the back of your submitted assessment task 2 document. Placing the all your ratio calculations in appendix may save you duplicating the calculations in the questions, especially where you may wish to use ratios of other questions to help support your answer for a subsequent questions (i.e., some ratios provide support or a whole picture view). (NOTE: these links also are available as a link in this course in ACC8105 Study Desk site).
In evaluating your answer to the assignment, marks awarded will reflect the level of consideration required to answer each question. When considering how to evaluate the performance of Woolworths, student may need to examine details gathered together with other factors from competitors or from more recent information in the press since the annual report release.
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Assessment Task 2
ACC8105 Financial Statement Analysis
WHAT IS REQUIRED FROM YOU FOR THIS ASSESSMENT TASK?
Prepare your analysis, conclusion, and recommendations
Conducting a financial analysis from your discussion answers for question 1 to 7 will help support your conclusions and recommendations for question 8. The following calculations and information must be included in your analysis and report but are not an exhaustive range of discussions, analyses or interpretations of the information. That is, there may be other information that you feel are equally relevant to your analysis. Any calculations or information that you use must be taken from the consolidated figures of the 2016 Woolworths and the Reece Limited Group Annual Report.
HOW SHOULD STUDENTS APPROACH THE COMPLETION OF THIS ASSESSEMENT TASK?
To calculate the ratios required below, please use the ratio formats discussion in seminars and workshops questions. Please write your answers based the ratios and the trends in these ratios.
1. Use the Gross profit from continuing operations on page 56 of the report to calculate the gross profit margin ratio for 2015 and 2016. Is the level of profitability of Woolworths acceptable to you; if so, why, or if not, why not (e.g., what change(s) has to cause this impact on Income and expenses)?
2. Use the Profit from continuing operations before income tax expense on page 56 of the report to calculate the net profit margin ratio for 2015 and 2016. Is the level of profitability of Woolworths acceptable to you; if so, why, or if not, why not (e.g., what change(s) has occurred in the operating expenses and impairment expenses to cause this impact on this year’s profit figure)?
3. Use the Total current assets and the Total current liabilities (and the items within these categories where relevant) on page 56 of the report to calculate the (1) current ratios and (2) quick (acid test) ratios for 2015 and 2016. . Is the level of liquidity of Woolworths acceptable to you; if so, why, or if not, why not (e.g., what change(s) has occurred in the current assets to cause this impact on this year’s liquidity)? Have recent events with Masters Home Improvement has an impact
4. Use the Total current assets and the Total current liabilities and the items within these categories expense on page 26 of the annual report for Reece Limited Group to calculate the (1) current ratios and (2) quick (acid test) ratios for 2015 and 2016. .
5. Use the relevant information on pages 56 and 58 for the annual report of Woolworths and pages 25 and 26 of the annual report for Reece Limited Group to calculate the (1) Days’ Sales in Inventory, (2) Inventory Turnover, and (3) Inventory Turnover in Days. You note that Woolworths operate every day except Christmas day and Good Friday from 8 am to 9 pm Mon day to Friday, with a 5.30 pm closing times on Saturday and Sunday. Reece operates only Monday - Friday 08:00 am - 04:30 pm, Saturday 08:00 am - 12:00 pm. For comparison consistency, you decide to use 365 days as the operating period for the denominator of any calculations for both companies.
6. Use the ratios you calculated in requirement 3, 4, and 5, explain the difference in the level of liquidity of Woolworths compared to Reece Limited Group. Provide an explanation in your report to the board of directors why the level of liquidity of Woolworths acceptable to you; if so, why, or if not, why not acceptable to you.
7. Use the information on page 26 to calculate the debt to equity and debt to total assets for 2015 and 2016. Is the level of long-term solvency of Woolworths acceptable to you; if so, why, or if not, why not? (e.g., impact of changes in debt, assets and/or equity levels)?
8. Using your answers to the previous 7 questions, form an opinion as to whether you would recommend or not recommended to your employer the purchase of Woolworths’ shares. You must answer either to purchase or not to purchase based on the information you have and your conclusion using deductive reasoning that should be drawn from your 7 prior answers. Include the information and your calculations for these questions above in your analysis answers, which should then be as the basis for your conclusions and recommendations.
Please submit this Assessment Task electronically through the ACC8105 StudyDesk. See Assessment Submission link contained in the Assessment button.
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Assessment Task 2
ACC8105 Financial Statement Analysis
Rubric - Assessment Criteria:
Lea rning Outcome Criteria Excellent (85=100%) Very Good (7584%) Good (74-65%) Satisfactory (6450%) Unsatisfactory ( 50%)
2. Demonstrate an understanding of the range of techniques employed in financial statement analysis and the role of both financial and nonfinancial data
Demonstrate the information literacy and numeracy skills required by financial analysts by extracting relevant data from business sources and utilising financial mathematics and analytical techniques 1. Identify & use the correct numerators & denominators
2. Accuracy of calculations of financial ratios
44 marks All Ratios are correct. Most components
& ratios are correct. Shows some
insights in analysis and interpretations. Many components
& ratios are correct. Some components
& ratios are correct. Components &
ratios are generally not correct.
2. Identify and evaluate information sources and demonstrate an ability to interpret and analyse financial information of diverse industries. Demonstrate an ability to solve problems through the analysis of financial and nonfinancial data Use of relevant ratios for
comparison between Woolworths and
Reece 20 marks Shows insights beyond ordinary in analysis and interpretations Shows quality in the development of a credible argument Shows some
ordinary in analysis and interpretations with some errors
and development of a credible argument. Several minor problems with analysis and interpretations. Serious major problems with little or no analysis or interpretations. Satisfactory level for an early career
executive Serious major problems with little or no analysis or interpretations.
2. Describe, explain, interpret and analyse financial statements Understand the basics of financial statement analysis including data gathered from researching for other more recent information Use of Ratio in analysis to identify, evaluate, interpret, and discuss 26 marks .Very easy to follow the relevant links to Ratio Analysis. Easy to follow interpretations. Purpose is clear. Scope is clear. Limitations are clear. Only some minor problems with the relevant links. Some minor problems with interpretations. Purpose and Scope are generally clear. Limitations are generally good. Minor problems with the relevant links. Several minor problems with interpretations. Purpose is generally
consistent though link is not altogether clear. Scope/Limitations are not completely relevant. Some problems with the relevant links. Purpose and Scope are not clear. Limitations are not complete and links are not relevant. Serious major problems with the relevant links
Make financial analyses to make investment decision in the conclusion and
recommendation of your report Conclusion and recommendation do not contain new information 10 marks Conclusion and recommendations based solely on identified information (no new information introduced) Conclusion and recommendations based on most identified information (no new information introduced) Conclusion and recommendations
based on many identified information (minor new information introduced) Not strong conclusion and recommendations
based on some identified information (some new information introduced) Very poor conclusion and
based on little
identified information (much new information introduced)
Total Possible marks 100 marks
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