Accounting for Decision Making - Case Study Example

Accounting for Decision Making Activity 1 1. The name of the company is Transurban Group, which consist of the following entities. Transurban Holding Trust. Transurban International Limited. Transurban Holdings Limited. 2. The registered addresses of the company are: Transurban Group Transurban International Limited - ARBN 121 746 825 Transurban Holdings Limited- ABN 86 098 143 429 Transurban Holding Trust- ABN 30 169 362 255, ARSN 098 807 419 email@transurban.com.au www.transurban.com.au level 3 505 Little Collins Street Melbourne Victoria 3000 Australia Telephone +613 9612 6999 Facsimile +613 9649 7380 Level 5 50 Pitt Street Sydney NSW 2000 Australia Telephone +612 9254 4900 Facsimile +612 9254 4990 3. Principal activities of the company during the financial year were; development, maintenance and operation of toll roads. 4. Size of the company – Small Transurban group is classified as small since it has a market value of below $2 billion 5. The period covered by the financial report is one year, 1st July, 2009 -30th June 2010. 6. The term consolidated in financial statement means that in the presentation, assets, liabilities, equities and operating accounts are combined. This is done after eliminating inter-firm transactions. 7. Issued capital- This is the value that has been allocated to the shareholder from the authorised share capital. 8. Financial statements included in the annual report are: Income statement- shows the company’s ability. It is used as a measure of a company financial performance during a given accounting period. This is assessed by giving a summary of the given business incur expenses and revenues through non- operating and operating activities. With an income statement, one can be able to know the net profit or loss that was incurred over the given accounting period. Cash Flow statement- shows how a company pays for its operation and its future growth, it reports the amount of cash generated and spent within a given period of time interval which should be clearly specified in its heading. Balance Sheet- this is a statement that is used to illustrate what the company owns. It is a financial statement which usually gives a summary of the company’s assets, shareholders equity, liabilities at a specific point in time. The three segments contained in this financial statement are very important because they give the investors an idea of what the company owes and own, and also the amount that has been invested by the shareholders. Any balance sheet should follow the following formula: Assets= Shareholders’ Equity+ Liabilities 9. Figures from consolidated reports a) Cash and cash equivalents- $ 681,259,000 page 41 b) Financial costs-289,706,000 c) Goodwill - $ 7,678,619,000 page 74 d) Revenue -$ 817,169, 000 page 39 e) Inventories f) Intangible assets-$7,678,619,000 page 41 g) Income tax expense- $34,506,000 page 92 h) Total assets- $10,081,322,000 page 41 i) Total current liabilities- $630,162,000 page 41 j) Retained earnings -$690,554,000 page 94 k) Cash Flows from Financing Activities - $300,304,000 l) The profit / loss of the company (after tax)- loss $3,202,000 page 92 m) Provisions for non-current liabilities- $5,274,650,000 page 41 10. How the assets of the company being finance. The assets of the company are financed by the shareholders and company revenue. It is also noted that no significant breach on the company’s controlled assets was reported which is very commendable. 11. Company profitability and financial position. The company had a net profit of $59.6 million for the financial year ended 30th June, 2010. This was despite the cessation of M4 concession. There was an increase in toll revenue by 0.9% to 684.4 million which reflected a traffic growth in all the company’s assets. The financial position is stable as the management continues to focus on cost control. 12. Necessity of reading the annual reports. Annual reports should be read thoroughly and understood as they give the actual company’s position and its future. It shows the company’s ability, what the company own and how it operates 13. Non financial information contained in the financial report. a) A List of the company directors. b) Statements from the key company executives. B. statement of cash flows 1. Cash from operating activities Cash from operative activities = 355,782,000 Operating profit (loss) after tax = 59, 605,000. They are not similar and can only be similar when the operating profit after tax is adjusted. The adjustment can be made by adding depreciation charge for the year and also provision created in the year and deducted provision released in the year. The adjustment is made to; non-cash expenses and non cash revenue, non-operating items and timing difference between net profit and cash flow. 2. Cash from operating activities for 2009 and 2010. 2009 320,027.000 2010 355,782,000 Cash from operating activities in 2010 is higher than 2009 Operating activities are activities that bring revenue to the company while operating cash flow is close to net profits. Examples include receipts from sale of goods, taxes commissions, royalties, payment to employees and suppliers. An increase in cash from operating activities in 2010 shows an increase to the activities. 3. Money was spent on investing activities. 2009 338,508,000 2010 175,383,000 The amount of money spent on investing activities dropped in 2010 compared to 2009 Investing activities is the acquisition and disposal of a long lasting tangible and intangible asset. Cash flow from investing activities indicates downsize or an expansion of operating capacity. There was a downsize in operating capacity in 2010. 4. Financial activity undertaken. The financial undertaken in the financial year included; issues of stapled securities, sale of treasury securities, borrowings, Repayment of borrowings ,Loans to associates, paying group’s security holders and paying non-controlling interests. There was an increase in the activities undertaken compared to the previous year. 5. Amount paid to shareholders. The amount paid to the shareholders was $295,901,000. activity2: financial Extracts 1. Vertical analysis from the income statement extract The percentage figures for each year are expressed in terms of total sales for the year. The cost of sales for 2010 is calculated as [(261,000 / 555,000) × 100 = 47.03] common size percentage 2010 2009 2008 sales 555000 465000 405000 100 100 100 cost of sales 261000 210000 174000 47.03 45.16 42.96 interest 25500 13500 6000 4.59 2.9 1.48 income tax other expenses 90000 84000 81000 16.21 18.06 20 2. Balance sheet trend percentage trend percentage assets 2010 2009 2008 current assets inventory 27000 22500 25500 105.88 88.23 100 accounts receivable 93000 61500 46500 200 132.25 100 Total current asset 135000 90000 75000 180 120 100 non current asset plant and equipment 210000 180000 165000 127.27 109 100 Total non current asset 315000 285000 225000 140 126.67 100 Total assets 450000 375000 300000 150 125 100 liabilities and equity current liability accounts payable 45000 25500 18000 250 141.67 100 total current liabilities 75000 60000 45000 166.66 133.33 100 total ncl 165000 120000 45000 366.67 266.7 100 total liabilities 240000 180000 90000 266.67 200 100 total shareholder fu 210000 195000 210000 100 92.85 100 The base year is set as 2008. The figures in the other years are expressed in percentage with the base year. The trend of the base year is 100%. A trend percentage greater than 100% means increase while a trend percentage less than 100% shows balance decrease (Asx Release 2010). 3. Ratios Financial Strength and Liquidity: Working Capital: Current Assets - Current Liabilities 2008 75000-45000=30000 2009 90000-60000=300000 2010 135000-75000= 60000 Working Capital per Dollar of Sales: Working Capital /Total Sales 2008 30000/405000=0.074 2009 30000/465000=0.06451 2010 60000/555000=0.108 Current Ratio=Total Current Assets / Total Current Liabilities 2008 75000/45000=1.6 2009 90000/60000=1.5 2010 135000/75000=1.8 Acid Test / Current Ratio: Current Assets minus inventory ÷ Current Liabilities 2008 (75000 – 25500)/45000= 1.1 2009 (90000 – 22500)/60000=1.125 2010 (135000 – 27000)/75000=1.44 Company's Efficiency Inventory Turnover: Cost of Goods Sold ÷ Average Inventory for the Period 2008 174000-25500= 148500 2009 210000-22500= 187500 2010 261000-27000= 234000 Management Report The above analysis shows a decline in the company’s performance in 2009 compared to 2008 and this can linked to the management. There is also a recovered performance in 2010 from the decline in 2009 which can only be credited to the management. According to Sebastian (2000), the first role of the management in a company is to forecast, plan and perform a variety of analysis. The management should review and control the all the costs in the company. The decline in the company performance in 2009 must have been failure by the management to control cost related factors. Another role of the management is to prepare financial reports, report risks and regulations which help them come up with useful financial reports. This must have been the case in 2009/2010 financial year which saw a recovery from the previous year. The management should also ensure financial stability, through controlling the budget and giving profit generating ideas. The managers should also be good motivators, team builders, be dynamic and be the overall in business growth and development (Goessl 2008). References Asx Release, 2010, Transurban Group 2009/10 Full-Year Results, viewed 3 September 2011, Goessl, L. 2008, The role of management in business, viewed 3 September 2011. Sebastian, N, 2000, Taking Control of IT Costs. Lodon: Financial Times / Prentice Hall. Read More