Essays on Consequences for Competitors due to Impairment Cost Case Study

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The paper 'Consequences for Competitors due to Impairment Cost' is a perfect example of a Finance and Accounting Case Study. The above-mentioned cash-generating unit which comprises of intangible assets were subjected to an impairment cost of $759.9 million for goodwill and $305.7 million for the brand (Annual Report, 2010, p. 67). Material Impairment Cost Foster’ s materials were subjected to impairment cost as it has been stated in the annual report that the company had an impairment cost in materials (Annual Report, 2010, p. 12). Foster’ s had an impairment cost of $1,291.6 million before tax which was a major reason for the materials to be negative (Annual Report, 2010, p.

12). The material impairment cost for Foster has been an area of concern and has resulted in the profits to be substantially low thereby hampering the path of growth. Consequences for competitors due to impairment cost The impairment test for Foster’ s will help the competitors and others associated with the company as they will be able to identify the changes that have taken place. One of the major areas it helps the company and the competitors are towards reporting. The report submitted in Australia helps society as it provides valuable information.

The financial reports contain “ both the financial and non-financial information to improve their strategy” . (Robert & Michael, 2010) The non-financial information provides valuable information to the society like the organisations efforts to curb pollution, the impairment taking place, their contribution towards the society, and other areas where the company is working to improve the condition of the society. (Robert & Michael, 2010) This provides the needed information and helps the society to identify areas that will help them. This will be of great help to the competitors and others as the annual report will signify the impairment that has taken place in the company.

The financial report presentation also helps to identify the core areas. This is of vital help to society as it provides an overview of areas where the organization is working. Also, the detailed description of transactions provides transparency. Any change in the policies or strategies is mentioned. Even, a major decision taken by the organization is provided. This helps the society to get a guideline of changes that is about to follow.

Changes that have taken place in Foster’ s due to impairment test will be signified which will help the competitors understand the stand of the company and will help them to predict their future actions. The society also comes to know the future opportunities and areas where the government along with the organization is working for the society. The report on proper evaluation helps to find vital information. Still, there are certain areas that need to be worked upon. Improving this will help to gather more momentum and provide society with more information.

This will be of immense help to the competitors as they will be able to identify the areas that Foster’ s look to integrate in the future and they can develop strategies to counter those. Profit Margin for Foster’ s Net Profit Margin: “ It is defined as the profit generated per dollar of sales and is calculated after all the direct and indirect expense has been considered” . (Kennon, 2010) Organisations prefer this to be high. It is calculated as “ Profit before taxes / Sales X 100” .

The calculation of the ratio for Beer and wine segment looks as follows Calculation of Net Profit Margin for Wine Segment Net Profit Margin for 2010 = Net Profit after Taxes / Sales * 100                                                                           = 904.7 / 2497.5 *100                                                                           = 36.22 Net Profit Margin for 2009 = Net Profit after taxes / Sales * 100                                                                           = 815.2 / 2459.3 * 100                                                                         = 33.15% Calculation of Net Profit Margin for Beer Segment Net Profit Margin for 2010 = Net Profit after taxes / Sales * 100                                                                           = (1061.4) / 1904.7 *100                                                                           = 55.73% loss Net Profit Margin for 2009 = Net Profit after taxes / Sales * 100                                                                           = (37.4) / 2156.3 * 100                                                                           = 1.74% loss Comparing the performance of the beer and wine segments indicates dis-similarity between the two.

It is seen that the net profit has increased for the wine segment 2010 as compared to 2009. This is a good factor and reflects efficiency to maintain the indirect expense. The ratio for the wine segment has improved signifying better management and control of cost. Comparing the performance of the beer segment indicates widespread dispersion.

It is seen that the net profit has fallen and is negative for both in 2010 and 2009. This is a bad sign and shows inefficiency in maintaining the indirect expense. When we look at the broader picture, it shows that the wine segment has ensured better management policies and reduced expenses to earn a higher return. A comparison of the performance of the beer and wine shows that the companies have been able to generate profits but the return is less. Companies in this type of business rely more on volume to ensure growth in profits.

This is making the company look towards demerger and look towards different marketing strategies as using the same medium has backfired and the company hasn’ t been able to ensure that the same mechanism provides the same benefit for both (Stevens, 2010).

References

Annual Report. 2011. Foster’s GroupLimited 2010 Annual Repord.pdf

Durie, J. 2010. Tired & emotional over Foster’s future as stock takes a hit. The Australian

Deegan, C. 2010, Australian Financial Accounting, McGraw –Hill Irwin, 6th Edition, Sydney

IAS 36. 2011. IAS 36 Impairment of Assets, Summaries of International Financial Reporting Standard, retrieved on April 5, 2011 from http://www.iasplus.com/standard/ias36.htm

KPMG. 2011. Impairment Testing, Corporate Finance, KPMG International

Kennon J, 2010, “Analyzing an income statement: Net Profit Margin”, about.com guide, The New York Times Company

Robert, G. & Michael, P. 2010. One Report: Better strategy through Integrated Reporting, Harvard Business Standard Working Knowledge

Stevens, M. 2010. Joyless Johnston keeps brewer sober. The Australian

Urban, R. 2010. Foster’s suffer $464 million hangover, as wine continues to seep money. The Australian

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