ass#3 draft - PLEASE SUPPLY FEEDBACK

STEP ONE:

1.1 Ratio Analysis-

In order to successfully figure out financial ratios on behalf of Harvey Norman, I created links between my ‘ratios’ tab, ‘restated financial statements’ tab and ‘financial statements’ tab in the form of formulas.

Profitability Ratios:

Net Profit Margin:

Net profit margin (NPM) is found by dividing a company’s ‘sales’ from their ‘net profit after tax’. This then generates a percentage of revenue which is remaining after all operating expenses, interest and tax has been deducted. As you can see above, Harvey Norman’s NPM has varied over the past four years. They hit a low in 2013 sitting at 10.9%, but has bounced back up in 2014 showing positive results.

Return on Assets:

Return on assets can be found by dividing a company’s ‘net profit after tax’ by their ‘total assets’. This then generates a percentage which gives the company an idea as to how efficient management is at using it assets to generate earnings. As you can see, Harvey Norman’s ROA has also been up and down over the past four years ranging between 9.4%-16%. In 2003, they hit an all time low but look to be achieving better results as of late.

Efficiency Ratios:

Total Asset Turnover Ratio:

To find a company’s total asset turnover, you divide their ‘sales’ by their ‘total assets’. This then generates a ratio that can measure the efficiency of a company’s use of its assets. Harvey Norman has had a steady four years in regards to their asset turnover.

Liquidity Ratios:

Current Ratio:

To find a company’s current ratio, you can divide their ‘current assets’ by their ‘current liabilities’. This will then measure whether or not a firm has enough resources to pay its debts for the next 12 months.

Financial Structure Ratios:

Debt/Equity Ratio: (debt / equity)

To find a companies debt/equity ratio you can divide their ‘debt’ by their ‘equity’. This then indicates the relative proportion of shareholders’ equity and debt used to finance the company’s assets. In 2012-2013 Harvey Norman was sitting slightly high in regards to their debt/equity ratio, but it looks as though it is settling back down in the most recent years.

Equity Ratio (equity / total assets)

To find a company’s equity ratio, you divide their ‘equity’ by their ‘total assets’. This generates a financial ratio which indicates the relative proportion of equity used to finance a company’s assets. Harvey Norman has been sitting between 55.7%-59% for the last four years. You would hope this never needs to fluctuate, they are currently sitting quite comfortably.

Market Ratios:

Earnings per share (EPS) (Net profit after tax / nos of issues ordinary shares)

Earnings per share is a term used to portray the portion of a company’s profit allocated to each outstanding share of common stock. It is served as an indicator of a company’s profitability. To figure out a company’s earnings per share, you can divide their ‘net profit after tax’ by their ‘nos of issued ordinary shares’. This looks to be on the rise for Harvey Norman which is a big positive.

Dividends per share (DPS) (dividends / number of issues ordinary shares

Dividends per share are the total dividends paid out over one year, divided by the number of outstanding ordinary shares issued. Over the past four years, Harvey Norman’s median is 336.76.

Price Earnings Ratio (market price per share / earnings per share)

A price-earnings ratio can be found by dividing a company’s ‘market price per share’ by their ‘earnings per share’. Harvey Norman hit an all time low in 2013 but have sky rocketed since then, into the 400’s.

Ratios Based on Reformulated Financial Statements:

Return on Equity (ROE)

Return on equity is the amount of net income returned as a percentage of shareholders equity. It measures a company’s profitability by revealing how much profit they generate with the money shareholders invest.

Return on Net Operating Assets (RNOA)

Return on net operating assets is a measure of financial performance. It can show a company which year had the highest returned earnings.

Net Borrowing Cost (NBC)

Net borrowing costs can be found by dividing a company’s ‘net financial expenses after tax’ by their ‘net financial obligations’. Harvey Norman was at -5.51% in 2012, then hit -2.46% in 2014. This means in 2012 they had less costs for borrowing on a drop interest rate.

Profit Margin (PM)

A profit margin is the amount by which revenue from sales exceeds costs in a business.

Asset Turnover (ATO)

An asset turnover is another form of a ratio which measures the efficiency of a company’s use of its assets in generating sales revenue and/or sales income to the company. So, a company with a low profit margin tends to have high asset turnover, while it is the opposite for those with high profit margins.

1.2 Economic Profit-

Economic profit is the difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. As shown on Harvey Norman’s financial statement, a key driver of their economic profit would be the significant growth of their revenue and income stream seen in 2013-2014.  Whilst these improvements could be seen as a key driver, it is also worth noting that for the same accounting period - Harvey Norman decreased their expenses by circa 39 million dollars.

STEP TWO:

Please see the ‘NPV & IRR’ tab on the Excel Spreadsheet.

STEP THREE:

3.1       Student Feedback

Student #1: Filisha Kumar – via ASS#3 Forum.

Step one- (calculation of ratios):

You have done a fantastic job on step one! The layout makes it easy to read and you have gone into just the right amount of detail for each ratio. 

Step two- (Development of capital investment for firm & NPV / IRR):

Again, your step two is done very well. You have chosen the direction you are wanting to take and backed  it up with evidence.

Step three-(feedback to other students):

N/A

Overall for ASS#3:

So far, what a great job! Brilliant presentation and it looks as though you have got this piece of assessment under control. J

Student #2: Sindi Babi – via ASS#2 Forum.

Step one- (calculation of ratios):

Step one was done really well. You have explained what each ratio represents and how you reached your final calculations. This section is also set out really well – easy to read.

Step two- (Development of capital investment for firm & NPV / IRR):

N/A

Step three-(feedback to other students):

N/A

Overall for ASS#3:

If you continue to put in this much effort for the rest of your assignment, you should do very well. I found it to be detailed and very informative. Good job so far!

Student #3:

Step one- (calculation of ratios):

So far so good! You have explained each ratio very well. I would suggest that you copy and past your ratios from your excel spreadsheet, to your word doc. It gives the reader a nice overview of your ratios.

Step two- (Development of capital investment for firm & NPV / IRR):

N/A

Step three-(feedback to other students):

N/A

Overall for ASS#3:

If you continue to work as hard on the rest of you assignment , as you have in step one, you will do well J Good luck.

3.2       What I think about other student’s feedback (useful?)

ASS#2

Step 1:

Chapter 4: Analysing financial statements

1.       My first ‘key concept’

Why we analyse financial statements

Why do we analyse financial statements? To predict the future. And to predict the future, we need to start with the past. As pointed out by English writer G. K. Chesterton, if we fail to understand the past, indeed if we are wrong about the past, we are unlikely to be able to predict the future very well.

A firm’s financial statements can help us understand the past of the firm and to understand a financial statement and make sense of the firm’s economic and business realities – you need to have a framework or structure to be able to view the firm and see how it adds value to its equity investors. The discounted cash flow (DCF) and economic profit frameworks are two common ways to analyse a firm. They help you know what to focus on in a firms financial statement and what you should also pay less attention to.

“The most efficient way to find the main counting drivers in the economic profit and cash flow is to restate the firm’s financial statements in a way that ensures all earnings are included, that shareholder’s equity only includes genuine equity and that the operating financial activities of a firm are clearly separated.” (Martin 2015, p. 1).

My reflection: (Confusing, difficult to understand or believe, boring, exciting, surprising?)

Okay, so financial statements are a pretty big deal. I have learnt that they are the starting point to assist a manager to predict the near future for a firm. I have never viewed a financial statement before but I think I am about to. They sound complicated! This was a good introduction to get me prepped for the information to come.

2.       My second ‘key concept’

How firms add value

How does a firm ‘add value’ to its equity investors? You need to look deep into a firm to understand how the firm can ‘add value’ which then allows them to pay dividends to equity investors. Since dividends and free cash flow (FCF) are related in a firm’s financial statement, you can focus on a firms cash flow. FCF is a transfer of value within a firm. It is between a firm’s operating and financial activities. FCF is driven by two things:

1-cash flow from operations (C)

2-net cash invested into a firms operating assets (I)

Notes: FCF is a measure of transfer f value rather than a creation of value. The amount of FCF a firm generates will be affected by a firm’s decisions about how to invest into its operating assets (I) each year.

How to measure ‘value-add’ in a firm? Economic profit! Economic profit is based on a firms accounting profit for a period compared to its cost of capital.

RNOA = return on net operating assets

NOA = net operating assets

Operating income = OI

Economic profit = (RNOA – cost of capital) x NOA

RNOA = OI/NOA

“Firms create value for their equity investors by earning a return on net operating assets (RNOA) greater than the opportunity cost of capital; and the more a firm can invest in net operating assets at returns above its cost of capital, the more value a firm can create”.

My reflection: (Confusing, difficult to understand or believe, boring, exciting, surprising?)

I am so glad that is over. What did I just read? I went through this part of the chapter twice and I still feel very confused. I understand why all the above needs to be done, but actually doing it is a killer. This has become the hardest part of the course. I don’t have any questions and can’t really reflect on any of this section, I am just very, very confused. Hopefully if I read on, it will all make a little more sense.

3.       My third ‘key concept’

Operating and financial activities

View a firm as involving two distinct and different types of activities: operating and financial activates. Operating activities include: decisions about which operating assets to acquire or sell and what agreements to enter into with employees, suppliers. The financial activities include: decisions about the financial structure of the firm and matters such as dividend policy.

My reflection: (Confusing, difficult to understand or believe, boring, exciting, surprising?)

I now regret choosing this as a key concept. It is more of an important note to keep in the back of my mind. It’s easy to understand and helps you to view a firm in the way that will assist you to restate a firms financial statement. J

4.       My fourth ‘key concept’

How to re-state a financial statement

My reflection: (Confusing, difficult to understand or believe, boring, exciting, surprising?)

I chose this as a “key concept”, as I understand how important it can be for a firm. But, do I understand how it is done, and the process of achieving a successful re-stated financial statement? I have no idea. I have re-read this section in chapter 4 numerous times and still don’t have a clear understanding. I am going to have to wait until I receive my marks/feedback to see how I went!!

In summary:

Yet another full on chapter! This was the most difficult by far. My print-out of this chapter looks a mess! I went through it so many times, and made numerous notes... Yet I still don’t have the best understanding on the content as I would have liked. Lots of information + lots of formulas = lost Sophie. 

DRAFT ASS#1 - highlighted areas to be completed

STEP 1:

My description box in Moodle has a few words introducing myself.  It also includes a link to my very first Google Blog.  

http://sophiesthoughs.blogspot.com.au/

STEP 2:

The company I have been assigned is Harvey Norman Holdings Ltd. Below is three links to their last three Annual Reports:

30 June 4014:

http://www.harveynormanholdings.com.au/pdf_files/2014-Annual-Report_021014.pdf

30 June 2013:

http://www.harveynormanholdings.com.au/pdf_files/2013_Annual_Report.pdf

30 June 2012:

http://www.harveynormanholdings.com.au/pdf_files/2012_Annual_Report_Final.pdf

Background information on Harvey Norman:

Harvey Norman is a public company that grants franchises to independent business operators, who retail products for the home and office. The company offer products in the following categories:  Furniture, Bedding & Manchester, Electrical, Computers & Communications,  Home Improvements, Lighting and Carpet & Flooring (http://www.harveynormanholdings.com.au/companyprofile.htm).

In October 1982, a gentleman by the name of Gerry Harvey partnered with his friend Ian Norman and opened up their very first Harvey Norman store in Sydney, Australia. In just five years, they expanded and opened up another 15 more stores across NSW. The next 30 years was no different, the company continually expanded and as of December 2011 – there were 216 franchised complexes throughout Australia, trading under three brand names: Harvey Norman, Domayne and Joyce Mayne (http://www.harveynormanholdings.com.au/pdf_files/Company_Profile_2012.pdf).

Whilst Harvey Norman was growing rapidly throughout Australia, in 1997 the company also expanded overseas for the first time in New Zealand. Harvey Norman retail operations situated overseas are operated differently to that here in Australia. The complexes are wholly-owned or controlled stores trading predominantly under the Harvey Norman brand name (http://www.harveynormanholdings.com.au/pdf_files/Company_Profile_2012.pdf). You can now find Harvey Norman in Ireland, Singapore and Slovenia.

The share price for Harvey Norman is currently $4.38 (dated 03/04/2015). Since their highest record in November 2007 - sitting at $7.049, their shares went down to a little $1.78 but  has been making their way back up since (http://www.harveynormanholdings.com.au/shareprice/). The largest shareholder is still Mr Harvey, sitting at 29.51% (http://www.harveynormanholdings.com.au/pdf_files/2014-Annual-Report_021014.pdf).

KCQ’s after viewing Harvey Norman 2014 Annual Report:

The 2014 Annual Report has 148 pages in total. Being the very first Annual Report I have ever viewed, I became worried that it was going to be full of numbers and graphs that I was going to be able to understand. Once I began skimming through the pages, I gained an understanding behind an Annual Report and could relax – as it wasn’t all numbers and graphs! Looking at the table of contents, I wasn’t too sure where to begin. There are four different reports, three different statements, reviews, declarations and more. This is when I had to email my Course Coordinator and ask “where do I start”? Thankfully, I was directed towards the ‘Chairman and CEO’s Report’ which I found simple and interesting to read.

Harvey Norman has had a solid financial result for the 2014 financial year. Their net profit increased by a massive 60.2%, resulting to 26.6% higher than the previous year. Their franchising operations segment recorded a 26.7% increase. Their property segment increased by an estimated $65 million. Their company-operated retail segment increased $16 million. Their net cash flows from operating activities also increased by 41.7% http://www.harveynormanholdings.com.au/pdf_files/2014-Annual-Report_021014.pdf. Financially, Harvey Norman had a very successful 2014.

Something which I found interesting was the big mention of their Omni Channel in the ‘Chairman and CEO’s Report’. Technology has been advancing for some years. In fact, August 2014 was the 20^th anniversary for the first secure online purchase (http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11024908/20th-anniversary-of-first-online-sale-how-we-shop-on-the-web.html).  Harvey Norman stated “In recent years we have transformed Harvey Norman from a traditional retailer... to a truly Omni Channel service offering”. The fact that this is only a recent change for the company, I believe, has put them behind their competitors. There are now business’ which operate solely online, as it has become a preferred shopping style for customers. Harvey Norman should have evolved this side to their company a long time ago to stay ahead of their competitors.  

Looking further into the report, something I didn’t understand was the “Statement of Comprehensive Income for the Year”.  I found that I didn’t have a clear understanding of what the statement was about and why it was included. I also didn’t understand the ‘Statement of Changes in Equity”. The statement itself is simple, but I couldn’t easily read/understand the table provided.

There was one unfortunate event for Harvey Norman mentioned in the 2014 report, and that was the loss of the companies Co-founder Ian Norman. He was described to be “a true gentleman and an Australian Pioneer” (http://www.harveynormanholdings.com.au/pdf_files/2014-Annual-Report_021014.pdf).  I found it touching that the company has included this in the annual report.

Link to an online article:

Here is an article titled “Full Year Ended 30^th June 2014 for Harvey Norman”. It gives you a great overview of the year ended for the company, and finishes with a great quote by Mr Norman.

http://www.applianceretailer.com.au/2014/08/sound-strategic-decision-making-behind-48-9-per-cent-jump-harvey-norman-profits/#.VSHmePmUfc9

Top three student blogs:

I obviously did not have enough time to go through each students blogs, so I have come accress the following three, and discuss what I like about them.

1.       inmyworldbytashmuller.wordpress.com

Wow, what a fantastic blog. It is informative and very pleasing to look at. Tash has used great visual aids which caught my attention from the very beginning. It was a pleasure learning about Tax Haven.

2.       Rebecca11059.blogspot.com.au

I saw that a few people were using this blog as one of their top three, so I had to check it out. Rebecca has used a very simple layout for her blog, but done the complete opposite when it comes to her information on the company Oz Brewing. It is extremely informative and ticks all the boxes on what you should know about your company for this assessment. I learnt a lot about her company.

3.       Jodiesuniblog.blogspot.com.au

This is a great blog! It is my favourite layout. I love the simplicity and colour pallet. The choice of using pictures/quotes is fantastic. She has added a lot of character to her blog.

STEP 3:

I have input my companies’ financial statements into the Excel spreadsheet provided. It has been uploaded with this assignment as requested.

STEP 4:

Chapter 1:

Chapter 1 was a lot for me to take in. I have never thought twice about what accounting entails, so it was quite an overload of information for me. I enjoy the way the beginning of the chapter was written. I felt as though the author was simply talking to me, instead of trying to teach me. I am slowly learning just how complex business can be and accounting really is the backbone. It “is about understanding the realities of a business”... Now that took me a while to understand, but after reading further into the chapter, it made more sense.

After learning  about ‘keeping records’ and ‘double-entry’, Charlie Munger’s quote made a lot more sense to me. Accounting really is the language of practical business life. It allows us to view the financial ups and downs in a business. So there is even an equation we can use to figure out a company’s equity... I think this is nice and simple, Equity=Assets-Liabilities.   But something which i still have no idea about is Assets=Equity+Liabilities. I don’t understand why and/or when we would use this equation?

This chapter was a long and to be honest, brain draining. Although, I have learnt a LOT. I now understand that accounting involves recording what is really going on within a firm and that including aspects of a firm’s economic and business realities are crucial.

Chapter 3:

Chapter 3, where do I begin? Fifteen pages later, I have found time to make a cuppa, feed the dog and get changed into my pyjamas. I found it really hard to stay focused throughout this chapter. I liked the beginning , just like I did for chapter 1. I felt as though I was being told a story, rather than being taught anything about accounting. But once I hit half way, I was slowly fading away. So much reading! I suppose that’s external studies for you.

Annual Reports intrigue me. For some odd reason, I like the fact that they are marketing documents. It gives the company the chance to sell itself, but also supply the important information at the same time. Why wouldn’t the company want to make itself look good when it can?

I still don’t understand why the company picks just one day of the year on the Balance Sheet... I think I read through this section 2 ½ times, then gave up. I also don’t understand why there aren’t rules on how a firm is to set out their financial statements. And to add to that, I am surprised about the fact that it is common for individual businesses to use different names in their financial statements... There needs to be more consistency within in a complex division of business, such as accounting.

Dividends are really a big deal. I had never heard or used this word before in my life. If I want to get into business, especially property – I need to retain the information I have just read in this chapter. The discounted dividend model helped me understand the importance them.

Once finishing this chapter, I definitely felt more knowledgeable and understood the tasks of ASS#1 a little better. Especially when figuring out how to input numbers into the Excel spread sheet. Instead of just following some instructions, I understood why I was doing – what I was doing.

STEP 5:

I received just one email from the students in my group, and that was from Sindi Babi. We both made time to exchange brief feedback to one another, as this step was left quote last minte.

Feedback to Sindi Babi, from me:

To Sindi Babi,

I think you have done a fantastic job on your ASS#1 so far.

By reading through your reflections in Step 4, I can see you have learnt a lot in this class already.

Your layout is nice and simple, and it was a pleasure to read. 

Great job!

Sophie Tieman.

Feedback from Sindi Babi, too me:

Hi Sophie, 

Thank you for your feedback :)

I read your assignment and i liked what you have done so far. The information is summarized properly and it's quite interesting reading about Harvey Norman. It is indeed a large company. even checked each of your top 3 blogs. It's very fair that they're included in your top 3 because they are fantastic. Keep on working with step 4 and I think you will do very well in this assignment.

Cheers, Sindi

What I thought about Sindi’s feedback:

When I sent my Ass#1 to Sindi, it was a very rough draft. I spent another few hours on my ASS#1 before submitting what I had sent to her. So going off the rough draft I sent, Sindi’s feedback was okay. I made me feel a little better about my work and encouraged me to finish and finalise it before the due date/time. 

I have been assigned 'Harvey Norman' for my assignment in this class.

I am glad this is the case, as not only do I know of this company already, but have also personally shopped there.

Company Profile

Harvey Norman Holdings Ltd, a public company that,

as a franchisor, grants franchises to independent 

business operators, as business owners who retail 

products for the home and office in the following 

categories: Electrical, Computers & Communications, 

Small Appliances, Furniture, Bedding & Manchester, 

Home Improvements, Lighting and Carpet & Flooring. 

There are Harvey Norman stores in Australia, New 

Zealand, Slovenia, Ireland, Singapore and Malaysia.

Harvey Norman has become a household name and 

everyone is familiar with the slogan ‘Go Harvey, 

Go Harvey, Go Harvey Norman’. This company motto, 

much like the supporting anthem for a favourite 

sporting team, conveys the enthusiasm and 

entrepreneurial spirit embedded in the Franchise 

operators and the Harvey Norman culture.

Gerry Harvey is his name.

The man behind the iconic retail brand names: Harvey Norman, Domayne and Joyce Mayne.

In October 1982, Gerry and his business partner Ian Norman opened up their very first Harvey Norman store in Sydney, Australia. In just 5 years, they expanded and opened up 15 more stores across NSW. 

The next 30 years was no different, the brand expanded and as of December 2011 - there were 216 franchised complexes throughout Australia trading under three brand names: Harvey Norman, Domayne and Joyce Mayne.

QUICK OVERVIEW - 3 different brand names:

 http://www.harveynormanholdings.com.au/pdf_files/Company_Profile_2012.pdf

Harvey Norman: The Harvey Norman brand name is a retail icon throughout Australia with 185 franchised complexes throughout the local market. The consolidated entity has the capacity and ability to take advantage of market opportunities utilising our low gearing. Our brands are market leaders in the core audio visual and technology segment. 

Domayne: The retail chain Domayne was launched in May 1999 and currently has 11 stores in NSW, 1 store in ACT, 2 stores in Queensland and 2 stores in Victoria. Domayne offers a contemporary range of furniture, bedding, computer and electrical products. 

Joyce Mayne: The retail brand was acquired in July 1998 with 7 stores of which six were converted to Domayne in May 1999. As at 31 December 2011, there were 15 Joyce Mayne stores, 7 in New South Wales and 8 in Queensland.

"Full year ended 30th June 2014" for Harvey Norman:

http://www.applianceretailer.com.au/2014/08/sound-strategic-decision-making-behind-48-9-per-cent-jump-harvey-norman-profits/#.VRYGM46Ufc8

This gives a great overview of the year ended 2014 for Harvey Norman. 

Finished with a quote by the man himself:

“With a robust outlook for the housing market in Australia, we are well-placed to harness our market-leading position in the homemaker categories to build market share and deliver improved performance. Market conditions, together with our consistent strategy and operational focus, gives me confidence in the outlook for Harvey Norman,” he said.

Alrighty....

BRAIN SPILL:

So after a lot of reading, I believe I have finally gained an understanding on what my class AACT11059 is all about... I think. I have found myself to be 1 week behind, as I had a ridiculously busy week full of meetings and appointments!!

 AHHH.

After reading through chapter 1 and 2, I have come to realise that accounting is a lot more complex than I originally thought. Here I was thinking it was just a few numbers put together to depict whether a company was doing well or not. Boy was i wrong! I believe I am going to find this class slightly more challenging than originally thought, so head down and bum up! 

Hi everyone!

My name is Sophie Tieman and I have just turned 22.

I am studying a Bachelor of Business and still trying to figure out which major suits me best.

I currently work at a valuation firm in the Brisbane CBD and have a great interest in property, so I think this is the direction I will take.

I have decided to study externally, as I think going from a full-time wage to a casual wage could be quite challenging. Not only that, I believe I have the determination to stay focused whilst studying my degree from home.

This is my first ever blog, so if it doesn't look too fancy - I am still trying to figure it out!

Enjoy the read.

Sophie Tieman