ACCT11059 ASS#2



Lachlan Melville -12050385ACCT11059 ASS#22019Table of Contents TOC \o "1-3" \h \z \u Step 1 – Ch. 4 KCQs PAGEREF _Toc10995188 \h 2Step 2 – Ch. 6 KCQs PAGEREF _Toc10995189 \h 3Step 3 – Comments on Restating Financials PAGEREF _Toc10995190 \h 4Step 4 – Providing Feedback PAGEREF _Toc10995191 \h 4Interactions and feedback from others PAGEREF _Toc10995192 \h 8Step 5 – Chapter 7 KCQs PAGEREF _Toc10995193 \h 10Step 6 – Chapter 8 KCQs PAGEREF _Toc10995194 \h 11Step 7 – Analysing Three Products PAGEREF _Toc10995195 \h 12Product 1: SK-II MAGNETIC EYE CARE KIT PAGEREF _Toc10995196 \h 12Retail Prices: PAGEREF _Toc10995197 \h 12Selling Price PAGEREF _Toc10995198 \h 12Variable Cost: PAGEREF _Toc10995199 \h 12Contribution Margin PAGEREF _Toc10995200 \h 13Product 2: Olay Magnemasks Rejuvenating Starter Kit 50g PAGEREF _Toc10995201 \h 13Retail Prices from companies: PAGEREF _Toc10995202 \h 13Selling Price PAGEREF _Toc10995203 \h 13Variable Cost: PAGEREF _Toc10995204 \h 13Contribution Margin PAGEREF _Toc10995205 \h 13Product 3: Olay Regenerist Micro-sculpting Cream Anti-ageing Moisturiser 50g PAGEREF _Toc10995206 \h 13Retail Prices from sellers PAGEREF _Toc10995207 \h 14Selling Price: PAGEREF _Toc10995208 \h 14Variable Cost: PAGEREF _Toc10995209 \h 14Contribution Margin PAGEREF _Toc10995210 \h 14Contribution Margins Discussion PAGEREF _Toc10995211 \h 14Potential resource constraint of OBJ Ltd PAGEREF _Toc10995212 \h 15Step 8 – Ratio Analysis PAGEREF _Toc10995213 \h 15Step 1 – Ch. 4 KCQsI am very grateful for the break week. It has helped me to catch up on things and make sure I am on the right track. I hope everyone had some sort of break, other maybe less than some.After having tried to start restating the financial statement I can relate to what Martin said about “finding it confusing, frustrating and definitely time consuming”. Also, again, reassuring that I am not the only one struggling with restating the statements. I am glad that we aren’t ‘learning about restating financial statements’ rather ‘restating our firm’s financial statements to learn about financial statements’. In school, all they teach us is to regurgitate information and show us rather than teach us. This doesn’t help us learn all it does is made us remember till the exam then forget it. Instead they should engage students, make it personal and this way students would actually learn, which we have already heard about in Chapter 1. By restating our firm’s statements rather than an exemplar or random company/firm’s statements this helps us to engage more with our firm to understand more how they are operating. To be honest when reading this chapter, I was a bit put off with all the acronyms I saw (not my strong point) so I with definitely have to keep the definition sheet on me at all times. Lots of times on Facebook I have to google the acronyms just to understand what is being talked about. Not much of an acronym guru you could say. From what I have read I understand that free cash flow (FCF ?) is the use and exchange of cash within the business, like cash for sales and outgoing cash for expenses. I was wondering, is FCF the same as the statement of cash flows? For example, cash received for selling inventory and cash used for buying stationary or small expenses paid with cash as well as cash for investing.I became very interested when I read about Ryman Healthcare’s investment into new retirement villages. I thought it was brave for Ryman Healthcare to invest more cash into developing new retirement villages rather than putting it is the bank, for safe keeping and to provide interest revenue to firm, even though the firm knew they would have a negative FCF for that year. However, this could mean that they get stronger returns in future meaning they would end up better off. Would this decision be something the whole firm would decide on or just the CEO? Is choosing to put that money towards invest rather than putting it in the bank a risky business decision?When Martin said about consulting the past to predict the future I thought about an experience during school I had to do with predicting the future. In grade 10 I did a share game as part of class where you were given a certain amount of money and had to invest into firms and try to have the most money by the end of the game. We were told to look for patterns in the company’s performance so far and decide from that if we wanted to invest in that company. I didn’t have much luck choosing the companies to invest in because they normally did badly after I invested in them. No matter how hard I looked at the past performance of the company and the patterns I couldn’t make the right choice. I soon realised in the game just because they had previously done well doesn’t mean they will continue to do well. This happens even in sport; a team might not have lost a game yet but then they lose to a low team because key players were injured.Capital costs, what could be earnt in alternate options, reminded me of the economics unit I am currently studying and in particular marginal benefit and marginal cost which are what you will gain from making that decision and what you could have got having taken the alternate option. Next come that part about restating the financial statements. I didn’t have many questions or thought about this as I would understand it more as I did them. However the one question I did have is, how does adding a heading in the Statement of changes in equity make it restated? Is it that the ‘Transactions with shareholders’ is the financial part of the statement and ‘Profit and total comprehensive income’ the operating part?I can’t to analyse my firm’s ratios and really understand my company’s operations. Fingers crossed I can get my restating done easily soon then get to the ratios. Step 2 – Ch. 6 KCQsFrom assignments from one subject to another has been crazy but I have been welcomed to the world of Uni – those late night, early morning, coffee and chocolate (well it doesn’t help when Martin starts mentioning chocolate in the chapter reading). I didn’t have much clue to what the chapter would be about when I read the title, “Understanding Key Cost Relationships”. A cost object I have since learnt to be different bits of a firm to which costs are assigned. A cost is a bit of a mistake if it doesn’t bring value in way to the firm/person. “Costs are everywhere” apparently and it wasn’t until I stopped and thought about it that I realised just how many costs each firm has. There are electricity costs, rent/loan repayments, wages, water bills and all the small costs for stationary and things they need for the office just to name the easy ones that came to my head straightaway.Not only are there costs in a firm, I was thinking about how there is a cost to everything that we do. If we decide that we will watch TV or play on our phones when an assignment is due, the cost to that is the less work we will get done on the assignment because of not working on it for the extra time (know this only too well). Also, the cost sleeping in one money has a cost and that is what else you could have got done with that time when you were not sleeping in. “Managers need to control costs in a firm since people in firms are spending ‘other people’s money’”. Reading this I realised just how big a firm’s data base must to keep track of all this information. At Woolworths (I know the costs aren’t as many as in some firms), there are many records and producers the employees need to go through so that they can keep all the data they need – stock takes need to regularly be done, tills need to be counted and records stored, and all the product information needs to be kept. All this information is just as a distributor not a manufacturer. Walking around the store you realise just how many different products there are, and many products means a lot of information to store. This information is mainly sales and product information rather than costs of the business. This information is kept elsewhere like electricity, freight and staff facility expenses.Indirect costs and direct costs are familiar to me through the economics unit I am taking at the same time. Indirect costs are anything you can’t pin on one item and are usually business operating costs like postage or internet. However, when thinking about indirect cost I got thinking about freight/postage. Is freight/postage an indirect cost? I mean you can have postage/freight on individual items/a line of items which could be classed as a direct cost because you pin it on an individual item but then you can have postage of bills and letters they haven’t got to do with a single product or line of products. Can some freight/postage be indirect and some direct?Separating into direct and indirect as well as service or production reminded me a lot of categorising the financial statements into operating and financing. Production seems like operating and service seems like financial. I found it very interesting to read about the different costing systems: functional-based, activity-based, the predetermined overhead absorption rate, and absorption and variable. Fixed and variable costs were also not new to me as we had already met through the economic course. They are very open people, fixed costs and variable costs, as they were easy to understand and get a hold of what they were about. In a firm in the long run, all costs are variable. However in the short run, many costs are fixed like production size but variable costs can include the number of employees.It wasn’t the funest (I will just make up a word) chapter to read but it taught me a lot and consolidated some knowledge I already knew. Plus it made me a bit fat by giving me a chocolate urge when you were talking about Cadbury. Step 3 – Comments on Restating Financials I found restating my firm’s statements, while very frustrating at times, it was fun and I loved doing it. To be honest I probably haven’t learnt as much about my firm as I should have. I was trying to get it done so I could focus back on my Economics. I had trouble with my tax as it had none reported and I didn’t know what to do. I posted this on the Facebook group and I tried to message Maria and Martin too. All I got back on the Facebook group was that Maria would have mentioned this in the video. I am not blaming them because I had no idea myself; this made it a bit frustrating. I had trouble classifying too into ‘O’ and ‘F’. I read the notes and goggled but some I couldn’t work out so I went with my gut instinct. I did get help on a couple but had to go with gut instinct on the rest. All the problems came on the Income Statement. The changes in equity statement and the balance sheet were easy to do. I still want to know why my company isn’t paying tax. Is it because it is made a loss? I was so surprised to see how much cash my company had when I was allocating it to operational and financial, because I was get percentages of 200% to 600% cash to total operational revenue, which I had to post this on the group to make sure I wasn’t going crazy. I was glad when I came to the end of each statement that all the checks matched up.Step 4 – Providing FeedbackPEER FEEDBACK SHEET: ASS#2 Step 4Feedback From: Lachlan Melville Feedback To: Ashley Warburton . My CommentsStep 3Restated Statement of changes in equity1.You have put the heading as comprehensive income when equity is not income 2.Layout should be like below3. Your Transactions with shareholders in the financial part of your statement while the Profit is your operating part.4. closing balances are the same so that is good.Restated Balance Sheet1. Looks like you have really understood your restating balance sheet. Everything looks to be categorised right and the cash is split right and working is shown. Your headings and checks are there as well. 2. Only minor thing is some of your items are bold making them look like headings, this would just make it a bit easier to read. Restated Income Statement1. Not done yet, this one was the hardest one for me. Hope you have a better time doing mentary1. I also found Maria videos a bit quick but I guess it is easy to pause and come back. She did some really good explaining.2. I know other people, including me, when they are doing the balance sheet check have also done the same thing.Restated Statement of Changes in EquityBalance SheetIncome StatementCommentary and discussion with others(Note: You may wish to give some comments on their Excel spreadsheet)Step 4Individual feedback with other studentsIf you give me some evidence I can provide you with some feedbackOverall ASS#2 Steps 3 & 4Step 3 – Only a few little formatting and layout things to do. Otherwise it looks really good. Best of luck for your income statement.PEER FEEDBACK SHEET: ASS#2 Step 4Feedback From: Lachlan Melville Feedback To: Zoe Tomkins . My CommentsStep 3Just a few small things to do.1.Formatting needs fixing up – this just makes it look more presentableBalance Sheet2. You need to do total for your total operating and total financing. Find your NOA which is your Total operating Assets – total operating liabilities. Find your NFA which is your Total Financial Assets – Total financial liabilities.3. You haven’t labelled your NFA/NFO and your NOA – by doing this you can do your check, NFA-Equity should equal your NOA(net operating assets). This shows you have entered everything correctly. Points 2 and 3 will help you when you get to your ratios.4. You need to split cash between operating and financial. See Maria video on the Balance from 8:45 minutes in to see how to split cash.Your Statement of changes in equity and your income statement look fine just a few formatting things to do. Restated Statement of Changes in EquityBalance SheetIncome StatementCommentary and discussion with others(Note: You may wish to give some comments on their Excel spreadsheet)Step 4Individual feedback with other studentsIf you have evidence on this you can provide me this and I can provide some feedbackOverall ASS#2 Steps 3 & 4Overall, Step 3 you have a bit to do on your balance sheet. It seems like you did a great job restating your income statement and statement of changes in equity. Good how your formulas were good so that in the income statement you could find the mistake when your totals weren’t matching. Seems like your have classified into ‘O’ and ‘F’ really well.PEER FEEDBACK SHEET: ASS#2 Step 4Feedback From: Lachlan Melville Feedback To: Jack Knight . My CommentsStep 3Your statement of changes in equity is correct as the same with your balance sheet. All your classifying and your formulas seem to be correct and your checks are right for these two statements. However, there are a few things you need to fix up on your income statement. The first is your tax. You need to multiply your NFE before tax by your company tax rate for your financial tax. Then take the negative of that and that is your tax benefit for your operating tax component. Make sure you adjust your totals and formulas to fit in with the changes you have made. Then compare your total figure from your original to your restated to make sure they are the same. If you have more trouble with your tax make sure you check out Maria’s video on the income statement as she does some trouble shooting of her own at the end. You have also have put NFI instead of NFE because your financial expenses are greater than your financial income. You also need to allocate cash to operating and financial. Allocate 1% of total operating revenue to operating cash and the rest to financial. In 2018 and 2017, all your cash will go to operating because it is less than 1%. However, in 2015 and 2016 there will be some that needs to be allocated to financial. You seem to have the same problem as me with NFA-Equity being negative compared to NFO. Restated Statement of Changes in EquityBalance SheetIncome StatementCommentary and discussion with others(Note: You may wish to give some comments on their Excel spreadsheet)Step 4Individual feedback with other studentsGave me some very good help with my tax question no one else seemed to be able to help me with. Helps when he works with an accountant ?. No other evidence providedOverall ASS#2 Steps 3 & 4Great job on the first two statements and a bit to fix up on the income statement. Gave me some good feedback but no other evidence provided.Interactions and feedback from othersI had many interactions with the other students through facebook, one on my blog and a few peer feedback forms. My interactions with others on facebook probably didn’t go as well as I thought but when people saw my posts they got answered well and generally answered all my questions. With lots of other people posting on there it was easy for my questions to get lost. Stephanie Jones saw my comments about my firm’s statements and gave me some nice feedback.Feedback From: ?????Stephanie Jones (via my blog) ???????????????????????????????????Feedback To: ?????????Lachlan Melville ??????????????????????????????????????????????????. My CommentsStep 3Commentary:I saw Lachlan’s latest post where he wrote about his struggles with his income statements. I comiserated with him as I also had similar problems. He said he sought advice from others but not with much success. It was an interesting insight to the process and in a sense, I am feeling comforted in the fact that others have similar issues. I tried to do this assignment all on my own but perhaps I should’ve reached out to others for help like Lachlan because it seemed to have helped him!Restated Statement of Changes in EquityBalance SheetIncome StatementCommentary and discussion with others(Note: You may wish to give some comments on their Excel spreadsheet)Step 4Individual feedback with other studentsN/AOverall ASS#2 Steps 3 & 4Step 5 – Chapter 7 KCQsUni is a journey of steps for me. With the steps starting at the end of high school and finishing when I get my Bachelor of Accounting. I was very hesitant about starting Uni as many other were. During school we would get the people from previous years to come in and talk about their Uni experience. It was always the ones that got straight A’s at school and so they said Uni was only a bit of a step up from high school. Of course, I wasn’t a straight A student, so I had no idea what to expect. The first step of my Uni journey started with applying. I wasn’t sure if I was going to be accepted after all I didn’t get the best OP. The longer I had to wait, the more nervous I got. Was my Uni journey not even going to reach take-off? When finally, I received the notice to say I was accepted, it was though I had been holding my breath the whole time. The next couple of steps of enrolling in units and setting everything up and getting ready were not too difficult. The next step that I was worrying about was classes. I was sure what to expect but Martin made the transition easy and broke this step down is to small manageable steps. I am glad now I did take those first few steps. Even though I am only a small way through this journey it is looking positive. Maybe this is like a firm. Maybe the manager has steps planned out to reach a goal, some are easy to reach than others and then they reach a step which seems hard to reach. The manager might have to brake this step down into smaller steps to help the firm continue.I tried doing a budget for myself once. It didn’t really go accordingly because some weeks I don’t spend much money at all, whereas on other weeks I spend quite a bit of money. I also came across unplanned income and unplanned expenses. I guess budgets won’t be 100% accurate because unexpected income and expenses can arise. I wondered for a firm how accurate do they try get their budgets. Do they count on getting that exact amount every time? Or do they expect a bit of leeway? I was interested when Martin talked about the different things budgets can do for a firm. Like how not only are budgets a tool for the manager to see how much the firm should receive in the future based on current events but it also helps the employees of the firm work together. Because they communicate what the expectations of the firm is and what they must do to reach those plans/dreams. By having a clear goal and knowing where the firm is at, helps the employees feel involved and ‘in the know’”. I thought budgeting was a simple plan of what to expect in the future but apparently it is so much more – “to co-ordinate, communicate, delegate and motivate”.This chapter sounds a lot like a pep talk in places, yes a really long but still a pep talk. Are you hinting at us Martin? Aren’t we doing good enough for you ?? Did you do really well as school in essays and speeches because these chapters are written really well? Or maybe I was that bad at English that this feels like an A standard piece of work ?.I feel like I can really relate to the part about delegating and the urge to check up on everyone’s work. When at work I sometimes which there was more of me, so I know things will get done. I have to delegate jobs to people and trust that they will get done as I have jobs of my own to do and can’t continually check up on them. They only rarely let me down but more often than not I end up worrying over nothing.Don’t I know about waking up early when it is still dark (and now cold) to do my KCQs or other Uni bits before I go to work for the day. I come home at 9:30 that night, eat and then maybe work on Uni a bit more before going to bed. Some days I wish my alarm clock wouldn’t go off and I can stay snuggled in bed, but there are things to do and plenty of motivation. Motivation of not getting my assignment done in time and motivation to get it done quickly so I can have some relaxation time. I also really want my Bachelor of Accounting as well as I need the money to live, so I do what I need to do. Often at work I think they give the employees the wrong idea on things. Occasionally at work we have raffle tickets to sell to customers and we have a set number we are given to sell. This may seem like a good target for the manager as he might receive a bonus or praise from people above him for selling so many. But then employees start to try force people to buy them rather than let the customer decide for themselves. This is because the target number set to employees doesn’t change no matter how long the promotion has already run for. This means most customers have already brought them, but the employees must try and sell them to those that have already got them because otherwise they won’t reach their target. I loved reading this chapter, it was very insightful, and I could relate to a fair bit of it. Can’t wait to get started on the ratios. Step 6 – Chapter 8 KCQsI can’t believe we are finally at our last KCQ. And even nearer to completing my first two units of my degree.Businesses must take many gambles. Gambles on big decisions that could make or break their business. When I say gamble, I don’t mean that they just choose what ever option they want, more so that all the options are risky. Do some businesses operate too cautiously because the owner/manager of the firm is too afraid to make big business decisions?How much time do businesses spend on their budgets? A week? Or does it depend on the business? Because from what I have read, budgets can provide critical information for the owner and employees of a firm.When deciding between two options, it is common sense to leave out the costs and benefits common to all the options. If these were counted you will have too much information to sort through, plus you are basically double counting. By this I mean that by adding this information to your decision you can’t tell what one option does better or has compared to the other/s.Again, opportunity costs pop up in this chapter. Opportunity costs are everywhere in day to day life, from what we decide to eat, to doing a certain task, to going out to a party. I am glad I took that economics unit at the same time because there are quite a few similarities between the two units. I also, to break myself into the Uni lifestyle, was only going to do one unit in the first term.I thought I had made a long-term ‘business’ decision to buy a second-hand car. Each car I looked at that I wanted had either been sold or was too expensive. At first, I wanted a car with around a hundred and fifty thousand kilometres or less on it. But as time went on I grew frustrated that I couldn’t find a car. I saw a car I liked and due to my impatience, I bought it. Nearly two years later I am regretting buying that car because of the high number of kilometres on it (250,000). Now I need to sell it because it is getting old and is nearly beyond sellable kilometres. Therefore, the ‘long-term’ investment I wanted originally didn’t happen due to a rash decision. I wonder if other business owners have made ‘rash’ decisions like mine.When reading about the payback period I had a few questions. Would a firm spend all its cash flow on paying the investment back? And wouldn’t they need a loan from the bank so wouldn’t there be interest involved meaning it would be initial investment plus interest divided by cash flow? Or it is that that investment was completely paid from cash at bank and the cashflow is just the money received that the investment has added? When you are talking about $1 today in 40 years being worth nothing, is that due to inflation or is there another cause? I know I am doing an economics unit and should know this; however, I am not completely certain. Just a question I had when I first read this I had this question and I keep coming back to it.I have really loved this unit. It has taught me life lessons as well as accounting knowledge. I hope they have one of these units in every course because they are very valuable. Thanks Martin once again for these well written chapter study guides. Step 7 – Analysing Three ProductsProduct 1: SK-II MAGNETIC EYE CARE KITIt includes a first in the world magnetic core delivery system through the magnetic eye wand as well as including Stempower eye cream. This product is a massive seller as I can’t find anywhere where it isn’t sold out.Retail Prices:The beauty club: $235 regular price, $209 member priceFresh: $254 SK-II: $179 rrpYesstyle: $195.21Selling Price Not sure why the stores are selling it well above the RRP - maybe due to low stock - or maybe that is that company’s profit margin. Therefore, the selling price is $179 because SK-II is the manufacturer of the magnetic eye care kit. Variable Cost: Use a 80% variable cost per unit. This allows the business to get a bit of profit because they don’t sell thousands a day. Variable Costs=179*80%=$143.20Therefore, my estimated variable cost per unit of the SK-II Magnetic Eye Care Kit is $143.20.Contribution MarginContribution Margin per unit= Selling price – Variable cost= $179 - $143.20SK-II MAGNETIC EYE CARE KIT Contribution Margin =$35.8Product 2: Olay Magnemasks Rejuvenating Starter Kit 50gMasks that infuse ingredients deep within skin’s surface (, 2019). The kit contains 1 x 50g Olay Rejuvenating Jar Mask and 1 Magnetic Infuser.Retail Prices from companies:Beauty Heaven: $54.99 RRPChemist Warehouse: $54.99 RRPOlay: $45Woolworths: $55Selling Price Olay the manufacturer of the Magnemasks is selling them for $45 but has a RRP, at other companies selling them, of $54.99. This price might include a profit margin for that company plus freight. Therefore, the selling price is of the Olay Magnemasks is $45.Variable Cost: Again use a 80% variable cost of the selling price per unit. This is due to the low number of they would sell unlike other products in a grocery store like 24 packs of coke in Woolworths which the store would sell heaps more than they would Olay Magnemasks.Variable cost per unit = $45*80%=$36The estimated variable cost per unit is $36 for the Olay Magnemask kit. Contribution MarginContribution Margin per unit= Selling price – Variable cost =$45-$36Olay Magnemasks Rejuvenating Starter Kit 50g Contribution Margin= $9Product 3: Olay Regenerist Micro-sculpting Cream Anti-ageing Moisturiser 50gThis cream is formulated with Carob fruit extract and Amino-peptide complex, it hydrates skin to make it regain it's youthful look. Retail Prices from sellersWoolworths: $49Coles: $49Chemist Warehouse: $49Olay: $48.99Selling Price:All the normal selling prices are the same with some products on special at some stores. Therefore, the selling price is $48.99Variable Cost:Again use a 80% variable cost of the selling price per unit due to the same reason as the previous two. Variable cost per unit = $48.99*80%=$39.19Therefore, the estimated variable cost per unit of the Olay Moisturiser Cream is $39.19.Contribution MarginContribution Margin per unit= Selling price – Variable cost =$48.99-$39.19Olay Moisturiser Cream Contribution Margin = $9.80Contribution Margins DiscussionThe contributions margins are the amount per given quantity that is put towards the overall fixed costs. These fixed costs for OBJ Ltd might include electricity, water and maybe even rent. The fixed cost might even include the cost of having a spot on the shelf in a supermarket. A bit of the contribution margin also goes towards profit for OBJ Ltd. For example, for the Olay Magnemasks Rejuvenating Starter Kit 50g the contribution margin is $9. Most of this $9 will go to fixed costs maybe $7 and the rest will be profit. A smaller CM means that that product might have a higher variable cost and a smaller fixed cost than other products. For example, the Manemasks has a smaller contribution margin (CM) than the magnetic eye care kit. This means that magnetic eye care kit might have greater fixed costs than the magnemasks. A company like OBJ Ltd produces a wide range of products not just the one with the highest contribution margin because all their products have different uses. If they just sold one product and that product went out of fashion or better products from other companies are produced, then the company won’t receive any money from sales. Also, if they just sold one product they wouldn’t be looking to find new product instead they will be focused on improving that one product.Potential resource constraint of OBJ LtdA potential resource constraint on OBJ Ltd is a product called Pitera. Proctor and Gamble (P&G) – one of their partners - has a patent on this ingredient meaning no one else without Proctor and Gamble’s permission can use this product. OBJ because it is a partner of Proctor and Gamble uses this ingredient in some of their products. Pitera is a natural bio-ingredient containing over 50 micro-nutrients like vitamins, minerals, amino acids and organic acids to condition skin’s natural functions. It is a by-product of the fermentation of yeast. In the 1970s, SK-II scientists began a fervent quest to uncover a skincare ingredient that would make beautiful skin a reality. It was only by a chance encounter that the scientists observed the soft and youthful hands of aged sake brewers. The breath-taking sight was what hinted at the skincare miracle they would eventually uncover. A destiny of beauty was finally within reach (SK-II,2019). Derived from a strictly controlled natural fermentation process, PITERA? is a clear liquid rich in vitamins, amino acids, minerals and organic acids. The fascinating combination of nutrients work to dramatically improve the skin’s natural surface rejuvenation process. This unique and signature ingredient bears close resemblance to the skin’s Natural Moisturizing Factors (NMF) – a deciding element in the restoration and enhancement of translucency, softness and smoothness. Nature, technology and craftsmanship blend harmoniously to create the miracle of PITERA? – to present a promise of crystal clear skin that is yours to always keep (SK-II,2019).This ingredient is used in all SK-II products such as SK-II R.N.A. POWER Radical New Age Cream and SK-II Facial Treatment Mask. If something was to happen between P&G and OBJ Ltd and they stop being partners. OBJ would have a big problem trying to find another ingredient that does the same job as PITERA. However, apparently so such similar product has been found yet, so this is a potential resource constraint on OBJ Ltd. Step 8 – Ratio AnalysisThere is a trend in OBJ Ltd’s ratios that appears in all the ratios calculated. In 2015 and 2017 the ratios are nearly the same because the ratios calculated for 2016 were considerably worse than those in 2015. OBJ has bad debts that set them back in 2016 (61,784) that they had none of in any other year. However, OBJ improves generally in most ratios onwards from 2017 which means they are heading in the right direction. The first set of ratios are the profitability ratios. Like the name suggests, they show how profitable the company is. The first ratio is the Net Profit Margin (NPM) ratio which has to do with the amount of net profit and the sales. This ratio follows the general trend that most of the ratios follow with the 2015 and 2017 both at -155% NPM, with the 2016 NPM (-234%) 80% worse than the previous year and 2018 improved from 2017 with -83% NPM. This means that the NPM ratio is trending well and it is heading in the right direction. All the Net Profit Margin ratios are negative as are any that involve the net profit because OBJ hasn’t made a profit yet. Compare to another technology company. The second ratio is the Return on Assets (ROA) ratio which shows the percentage of profit a company earns in relation to its overall resources. This ratio doesn’t follow the trend that most of the ratios follow. From 2015 to 2016 the ROA improved (-57% to -45.3%) but the ratio decreased in 2017 (-49.1%) but improved again another 12% in 2018(-35.8%). Because of the increase into 2018 it also looks promising in this ratio for the company moving forward and heading towards a profit. Compare to another technology company.The next set of ratios are the efficiency ratios which show how well the company is at their asset management. The first ratio in this set is the days of inventory ratio. This ratio couldn’t be calculated because OBJ Ltd doesn’t have inventory. They have a system called zero inventory management when they need to get parts or items in. Zero inventory is a system in which a company keeps no or very little inventory in storage, only ordering exactly what is going to be sold and receiving it when needed. It is more effective, less expensive, and more flexible (The Innovation Enterprise,2019). The second ratio is the Total Asset Turnover (TAT) ratio which shows how efficiently a company can use its assets to generate sales. These TAT ratios show the trend that keeps popping up with a bad year in 2016 (0.19) and improving then on to 2018 (0.42). Despite the trend, the ratio figures aren’t that flash at all with the best in 2018 only producing 42 cents of profit for every dollar worth of assets generated. Big improvements still need to be made before they make good progress. Compare to another technology company. The next category of ratios is the liquidity ratios which examine the ability of an organization to pay off its short-term obligations. The ratio calculated is the current ratio which measures the company ability to cover its assets with their liabilities. This ratio also is one of the ratios that follow that trend been mentioned before. However, by 2018 (8.04) the company hasn’t recovered from the big jump in 2016 (from 6.97 to 13.22). This ratio is high showing that the company would struggle to cover their current assets with their current liabilities. Compare to another technology company.The next set of ratios calculated were the financial structure ratios. The first ratio in this set is the Debt/Equity (D/E) Ratio which indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. The ideal D/E ratio is between 1 to 1.5. This D/E ratio is also that follows that general trend that occurs for most of these ratios, yet at its best result in 2018 (0.129) this ratio is far from the ideal position. Compare to another technology company. The second ratio in this set is the equity ratio which indicates the relative proportion of equity used to finance a company's assets. It is better to have a lower equity ratio which means that these equity ratios also follow the general trend with the worst ratio in 2016 (92.8%) and again in 2018 OBJ Ltd doesn’t recover from the drop with the best ratio in 2015 with 86.3%. Compare to another technology company. The next set of ratios is market ratios which are to do with shares and the profitability of shares. The first ratio is the Earning per Share (EPS) ratio which calculates, as you probably guessed, how much money is earnt or lost per share. Obviously, the higher numbers the better. This is another one of those ratios that follow the trend that has been talked so much about. In 2015 they started off a losing 0.15 cents EPS to losing 0.09 cents per share with it fluctuating up to 0.2 cents in 2016. They won’t see a profit per share until OBJ Ltd start making a profit and they are heading the right way. Compare to another technology company. The next ratio in this set the dividends per share ratio. This ratio couldn’t be calculated because no dividends have been paid yet due to the OBJ Ltd having not yet made a profit. It was also stated in the annual report that no dividends were also expected to be paid. Don’t expect dividends to be paid until they make a profit. The last ratio in this set is the Price earning per share ratio which is used for valuing companies and to find out whether they are overvalued or undervalued. The goal is to have a reasonably high price earnings share. Therefore, according to this, this ratio also is another one that follows the general trend that OBJ improved all the way except in 2016 in which they had a setback. Compare to another technology company. The last set of ratios are the ratios based on reformulated financial statements. The first ratio is the Return on Equity (ROE) ratio which measures the ability of a firm to generate profits from its shareholders investments in the company. The ROE ratios don’t follow the trend that has been seen so often, instead it starts of at its lowest in 2015 (-66%) then improves to -49% in 2016. However, it then fluctuates a little bit up in 2017 (-53%) and then reaches its highest in 2018 (-40%). The next ratio is the Return on Net Operating Assets (RNOA) ratio. This ratio can be compared to ROA ratio and it shows that the operating assets of OBJ isn’t as productive as the financial side with massively high negative percentages between 500% and 2300%. The profit margin ratio measures how much they make or lose per sale. This ratio follows the general we have been seeing in OBJ Ltd’s ratios with the lowest loss in 2018 (loss of 90c per $1 sales) and the greatest loss in 2016 (278 cents loss per $1 sales). This ratio won’t become positive until OBJ starts making a profit. The second last ratio in this set is the Asset Turnover (ATO) ratio. The ATO ratio can be compared to the TAT ratio and this shows that the operating assets take longer to get rid of rather than the financial assets. This ratio’s results are not similar to the structure most of the others take with the 2018 and 2015 figures very similar at (5.83 and 5.59) with the lowest turnover at 2017 with 3.16 and the highest in 2016 with 8.10.The last ratio in this set is the economic profit ratio. This ratio is another one that follows the trend where it is improving from the previous year except for 2016 where there is a big spike. Compare to another technology company. ................
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