Ass#2 Draft

Well, I have reached a point where I am ready to share my draft Ass#2. It has been hard work getting here so I appreciate any feedback that you may have - good or bad.

Good luck with your studies!

STEP 1

My Ideas

I enjoy the examples given to explain FCF between King Enterprises and Marks Inc, The comparison between Table 4-1 and Table 4-2 provides a great logical example that gives the preceding paragraph a visual meaning.

The explanation of cash and the 2 possible categories is very well written, again providing a great example that all students can relate to. I believe this has in ground the financial and operational concept into my mind and allowed me to continue to grasp what is contained further on within the chapter.

 

My Questions

I have come across the term “opportunity cost” previously, although I feel I need to revisit the definition, therefore I did a little research before continuing. Opportunity Cost being the value of the alternative that was not undertaken, eg my personal Opportunity Cost of studying is the value of the income I have forgone by only working part-time.

 

My Reflections

I find it interesting that Ryman Healthcare would increase its net financial obligations in order to pay dividends and net financial expenses. I can’t help but wonder what effect this has for the company long term.

Continuing reading, I find that this could provide some tax benefit as they are now paying higher interest, therefore reducing the company’s profits. I imagine that dramatic increases to NFO cannot occur year after year otherwise the company will get to a point where their debt to equity ratio will be at dangerous levels.

A profit margin of 66.9%, that is quite high although with the use of some analysis techniques, taking more than just profits into consideration, it can be seen that Ryman Healthcare has a low ATO of just 0.35 times, therefore displaying that Ryman Healthcare is not quite as efficient as it would first seem.

I am interested to know why and how this is a benefit to their operations.

Economic Profit seems to be a logical concept. Using capital investment to increase the value of the firm. This is what I would hope that all companies are trying to achieve, is this not the core value of running a business no matter how big or how small. After reading that some companies actually borrow money to pay dividends, these dividends can definitely not be used to measure the current value of the firm as this is a false indicator. 

My Reactions

I like the idea of ‘active learning’. Rather than just reading about restating financial statements, I am looking forward to actually doing the process with the real financial statements of my company. Active learning is a much better concept in the long run as I am certainly a person who learns by doing.

This was an in-depth chapter that will benefit from the hands-on approach that ASS#2 will provide. It is a chapter that deserves to be read carefully, more than once and given time to settle and become clear.

STEP 2

Please refer to spreadsheet.

My thoughts on the process

Firstly, overwhelming. Secondly, let’s get started …

Statement of Movements in Equity

I am unsure of the entry “Exchange differences on translation of foreign operations” contained on the Statement of Movements in Equity and whether this should be classed as financial or operational. I have chosen to class it as operational as it is related to the interaction with the product sale/purchase, and both firms involved.

 

Statement of Financial Position

Taking into consideration the size and depth of operations of Cardno Limited, a minimal cash balance is displayed on Cardno’s balance sheet therefore I believe the full amount to be an operating asset. Cardno would require cash between projects as I imagine that their quoting and planning phase for new and upcoming projects can be quite time consuming and labour intensive before the first payment is made by a customer who accepts their tender for a project.

Statement of Financial Performance

Whilst working through restating the Statement of Financial Performance it takes me a lot of time reading through notes and comparing Ryman Healthcare statements with my own. I find it helpful that there is a clear example to follow. I also realized that I need to consult the notes of my Annual Reports as there is simply an entry titled ‘Revenue’. I have read through the notes and broken revenue down into its operating and financial components.

I believe ‘Royalties’ to be an Operating Expense because it relates to a product.

The Corporate Tax Rate for Australia remains unchanged at 30%. Quite high in comparison to some countries although seems average overall.

I finished (well I thought I had finished) restating my Statement of Financial Performance only to be heartbroken that my totals were incorrect.  After watching the section of our lecture that explains the process and some further reading, all of which did not correct my issue, I started to sift back through each entry one-by-one only to find I had missed the inclusion of ‘Other Expenses’. This entry evaded me, it has no Note to explain what other expenses may be included with this entry therefore I have grouped it under Operating Expenses assuming it to be an accumulation of trivial expenses that relate to everyday business.  If it were in relation to financial transactions, I think this would have been noted.

MY REFLECTIONS

Although not an active participant in forums as I found I could not contribute anything that hadn’t already been said, I did find some previous discussions useful.

I have completed the task and I completely agree with your statement that “most people find it to be an interesting and challenging learning task”. I certainly did. There were a lot of down moments, shortly followed by ah ha moments. I think each ah ha moment brought with it a greater understanding of the process and a great deal of self-satisfaction that I have completed a task that at first look, seemed like a mission impossible.

Step 3

Identifying 3 products or services that Cardno delivers was not an easy task. Cardno does not do just one or two things, they are like the Superman of service companies, it seems that no task is too big or too small for them to handle.  Each project that Cardno undertakes is specific to the client, therefore would involve an in-depth planning and pricing system.  Each project differs per the clients requirements.

Therefore from their website, I chose 3 previous projects that Cardno have been involved in within Queensland and have assumed what I think could be a realistic price.

 

	Gold Coast Rapid Transit Project $million	Gateway Upgrade Duplication Project $million	Street Tree Survey and Data Capture $million
Selling Price	30	187.5	4
Variable Cost	27	178.125	3.4
Contribution Margin	3	9.375	0.6

 Gold Coast Rapid Transit Project

Cardno formed part of the major design team for the Gold Coast Rapid Transit Project (the Gold Coast tram service). Their initial involvement was to provide consulting services including landscaping, design and traffic management planning. Cardno’s services were also expanded to include engineering services, 12D modelling, fire engineering plus much more. Cardno also acted as managing consultant for various sub-consultants. 

The project began in May 2011 with stage one completed in 2014. The aim of the project is to provide transport for the 2018 Commonwealth Games. 

 I have based my pricing structure on the fact that Cardno provided some very specialist services over a 3 year period, I used a 10% contribution margin. 

Having recently holidayed at the Gold Coast and taking my family on the tram, I am now interested to know that my company played a major role in such a fantastic project.

Gateway Upgrade Duplication Project

Cardno acted as specialist bridge subconsultant to help deliver Queensland’s largest road and bridge project. The project was to duplicate the Gateway Bridge and upgrade 20km of the Gateway Motorway. The design of the bridge began in October 2006 and work was completed in February 2008. The total project was valued at $250 million. As Cardno played a major role in bridge design and construction I have chosen a total project worth of 75%. A large project is likely to have a lower contribution margin therefore I have worked off a 5% CM.

I thought I would continue with my recent holiday experiences, my kids were in augh of such a huge bridge – especially the fact that there were 2!

Street Tree Survey and Data Capture

Cardno used its DRIVE data capture system to develop a register of street trees for Brisbane City Council. The location of each tree was plotted on GIS with a photo included. The project helps council determine many factors on the trees including species, health and possible problems regarding size or interference. The council is able to use the register to schedule maintenance and replacement programs. This seems to be a highly specialised service provided by Cardno, although not highly labour intensive as I imagine it is a highly computerized process. I believe the smaller the project the higher the contribution margin, I have worked on a 15% CM.

My Reflections

I found the research into Cardno’s many varied projects interesting, they have a very broad range of services on offer which keeps them highly competitive in a market such as theirs. It also assists in keeping their high reputation. I am a little uneasy about guessing what such large scale projects might be worth and what kind of Contribution Margin they may have although by sticking to a percentage of the overall price, that percentage being determined by the total project worth, I believe that this is a logical step. A company such as Cardno has many projects in many countries being carried out at any one time, therefore each contribution margin of each project supplements the fixed costs of the firm and contributes in part to overall profits of the parent company. If Cardno were only to accept the large scale projects, they may find that there are periods where they have no work. In an economy that is recovering from the GFC, there have been many large scale projects cancelled or postponed in the past few years. By Cardno taking on projects of all sizes, it ensures that they are receiving a sufficient income to ensure their firm can continue to operate on a profitable basis. When considering what projects to place tenders for, I imagine that if Cardno has the resources to contribute to a project, then they will place a tender. Something like the Gateway Duplication Project is a one-off project that can field high returns, whereas a smaller scale project like the Tree Survey and Data Capture has the potential for flow on business when other councils decide to implement the same register in their region, therefore by taking on a relatively small project, it has the potential to create future income from other areas.

Cardno YouTube Channel

https://www.youtube.com/channel/UChnRtfJ_XrGJkMOgsrDmqBw

On further research I have discovered that Cardno have their own YouTube channel containing videos on their current work and their business structure. I found this clip https://www.youtube.com/watch?v=OVIsK4Hkpcg very interesting, it gives a great overall picture of what Cardno is involved in and what their business is all about.

Cardno-contributed project takes out UDIA top national award

I found this on Cardno's website today:

 

Page Content

​Cardno-contributed project takes out UDIA top national award

Cardno’s team is proud to have contributed to the Greater Springfield Development, which was recently awarded the 2015 Urban Development Institute of Australia (UDIA) National Award for Excellence – Masterplanned Development. The awards celebrate Australian projects that push the boundaries in innovation, sustainability and affordability, within the urban development industry.

 

If you are interested in reading more please visit: http://www.cardno.com/en-au/mediacentre/Pages/Cardno-contributed-project-takes-out-UDIA-top-national-award.aspx

ASS#1 Draft

Following is my draft ASS#1, sorry I couldn't work out how to make it an attachment. I look forward to working with you all...

Step 1

My blog:  http://theadventuresoftanyahoward.blogspot.com.au/

I have found the experience of creating my blog interesting, challenging and enjoyable. It is not something I have ever done before although had heard plenty of information and stories about “blogs”.

 

I think it is great that this course has stepped outside the realm of “normal” university courses and has involved processes such as blogging and Peerwise. As a Flex student it makes me feel that I am not alone and there are many other students going through the same experiences as me. The greatest feature of this assignment is the requirement to add a photo to our student profiles, there are many faces in this course that were once just names with no meaning.

My top 3

Hi everyone, I have spent lot of time looking at everyone’s blogs – there are some great blogs out there, keep up the good work. It has been interesting to read the broad profile of students enrolled in this course as well as the diverse list of companies that we have been assigned.

I think I have found my top 3 blogs, they are:

Monica Ferguson – Cyanhomes. I liked this blog as it had a catchy theme (dream home), the links between blog posts were easy to follow and I got the impression that Monica is a great person with a great personality. Monica’s blog can be found here: https://cyanhomes.wordpress.com/2015/03/02/hello-world/

Natasha Mills – firstly, who doesn’t love Ron Burgundy. I enjoyed viewing Natasha’s blog with a catchy theme, informative posts and I sensed a gentle nature. Natasha’s blog can be found here: http://millsycqu.blogspot.com.au

Kailee Jephcott – a blog with a great layout that is very informative.  I look forward to reading more. Kailee’s blog can be found here: https://kaileejephcott.wordpress.com 

After announcing my top 3 blogs, I have left comments on each blog, letting them know that I have rated them in my top 3 as well as inviting each blogger to view my blog. Natasha kindly accepted my invitation and has left a comment on my blog.

Step 2

My company: Cardno Limited

 

My company is a professional infrastructure and environmental services company, with expertise in the development and improvement of physical and social infrastructure for communities around the world. In 2015 Cardno celebrates 70 years of operations.

Cardno originated in Brisbane in 1945 as a small engineering consultancy known as Cardno & Davies – contributing significantly to the development of Queensland – Cardno now has more than 8,000 staff worldwide delivering physical, environmental and social infrastructure projects in more than 100 countries.

Having an office in my hometown of Bundaberg makes this company interesting and 'real' to me.  There are various projects that Cardno have been involved in from town planning to dam construction, theme park design and the development of Brisbane's Southbank complex, there does not seem to be much in between that Cardno has not dealt with.

I look forward to learning more about my company, and digging a little deeper into the facts and figures. 

On further research of Cardno I have found that the company is currently involved in some unwanted media attention. There have been claims of questionable payments in the Ecuadorian part of the company, click here to read more: http://www.afr.com/business/infrastructure/cardno-knew-of-questionable-ecuador-payments-as-early-as-january-acting-ceo-graham-yerbury-20150303-13tda2  or    http://www.couriermail.com.au/business/cardno-calls-in-investigators-after-raising-alarm-about-payments-tied-to-contracts-in-ecuador/story-fnihsps3-1227245227865.

Also, this revelation comes at a difficult time as in the last few months they have not only lost one-third of their share-price they have also lost their Chief Executive Michael Renshaw.

 

 

Summary KCQs for Cardno Limited’s Annual Reports

Firstly, on inputting Cardno’s figures into my Company Spreadsheet I noticed that Cardno’s profit growth has slowed to a steady rate in recent years since nearly doubling between 2011 and 2013. I continued to read on and within the Chairman’s Statement, it is stated that economic conditions around the world have not encouraged growth, particularly in the construction and engineering sectors. This is noted as the primary factor for affecting profit performance. I think the comment would appear in many Annual Reports for engineering and construction firms such as Cardno, not only is the world economy still recovering from the GFC, there has been a significant slowdown in the mining and resource sector.

 

I found it interesting that Sir Peter Cosgrove was once a Non-Executive Director of Cardno.  The 2014 Annual Report sites his reason for standing down was his appointment as Australia’s Governor-General. Cardno is a company I had not heard of prior to this assignment, to have such a high profile representative on the Board highlights to me the size and reputation of this company.

 

In 2012, Cardno was added to the ASX200. This intrigued me to find out what this means … Cardno Limited is one of Australia’s top 200 companies, I feel like I should have heard of them prior to this assignment.

Cardno is most definitely a global company – operating in over 100 countries encompassing over 104 languages – wow.

 

Financials

As I mentioned, Cardno has seen significant growth since 2011 although I can’t help but notice that Basic Earnings per share and Diluted Earnings per share has reduced. I found the following statement within the 2014 Annual Report providing a reason for this:

 

Basic earnings per share (EPS) was 52 cents, a reduction of 5.5 per cent from the FY2013 results of 55 cents per share. EPS was impacted by the increased number of shares on issue following equity raised and issued for major acquisitions and the broadly flat financial performance of the Group.

Cardno has undergone significant growth, expanding and acquiring new sectors globally, therefore reduced EPS is not necessarily alarm bells for the company, rather it reflects the growth of parent company.

This left me to ponder the difference between basic earnings per share and diluted earnings per share. I consulted the internet and learnt that diluted earnings per share is a performance equation used to gauge the quality of a company's earnings per share if all shares and potential shares were exercised. Earnings per share is calculated by dividing the company's profit by the number of shares outstanding and a big difference in a company's EPS and diluted EPS can indicate high potential dilution for the company's shares.

After continuing, there was a note (well, there are many notes) alongside Income Tax Expense, interested, I found that the effective tax rate for FY2014 was 26.8 per cent as compared to 27.3 per cent in FY2013 although the income tax expense did increase slightly as a reflection of the slight increase in profit.

 

Cardno has declared a 17 cent fully franked final dividend for 2014, therefore the full year dividend equals 36 cents per share. After conducting further research into Cardno I found, as mentioned within my blog, that Cardno is currently experiencing a dramatic drop in their share price after allegations of corruption within their Ecuadorian counterpart. I believe that Cardno’s 2015 Financial Reports could prove an interesting read.

 

Cardno Annual Reports

Cardno’s Annual and Financial Reports can be found by clicking this link: http://www.cardno.com/en-au/InvestorCentre/Pages/Financial-Reports.aspx?DocumentCategory=finance report

 
Facebook

I am not a user of Facebook therefore I have not had any group discussions using this medium.

Step 3

Please refer to my Excel spreadsheet.

Step 4

Chapter 1

My questions:

I can’t help but wonder, in the wake of Cyclone Marcia, how many of the businesses mentioned are still operational and how many were affected, I know this is completely unrelated to the course but this disaster will affect the businesses and their accounts, if they have suffered terribly they will need time and money to get re-established, in the mean time they suffer the loss of income whilst their business is not operational.

 If Luca Pacioli was the first to write about double-entry accounting, who developed it in the first place? Should we be thankful or regretful?  I am yet to decide.

 

My reflections:

I enjoyed the introduction, it captured me straight away, I felt that I just wanted to read more with the question now lingering in my mind – what is accounting?

 

An interesting fact = about half of the directors of listed companies in Australia and New Zealand have accounting backgrounds of some sort. I love this fact, currently I work in an organisation where I hope to step up through the ranks, soak up and receive as much information and experience as possible and ultimately, move to bigger and better firms with a goal to becoming a Director or Managing Director of a business or firm that interests me not only on a work perspective, but personally as well.  I long for the day where I can say “I love my job”.

 

I currently work for an organisation that primarily services farmers, there are a lot of farmers whose businesses are some form of a family trust. I look forward to the possibility that I will learn the advantages of such a business format.

 

Debits and credits are like 2 sides to every story or for every action there is an equal and opposite reaction. As long as I keep with this concept and ensure both sides always balance, I am on the right path to successful accounting practices.

Throughout the explanation of the 5 elements of accounting, I find it useful that generalisations and examples are given, such as “you cannot create value by simply moving things around from one pocket to the next”. This is such a good statement when explaining what revenues and expenses are, what they relate to and why we do not include transactions between a firm and its equity owners. I think this statement will force this concept to remain ingrained in my memory bank, ensuring the idea is not overlooked or forgotten in future.

 

My reactions:

The starting point for my choice of studying a Bachelor of Accounting was the thought that accounting is essential – it is not something that will go out of fashion or that technology can replace. I like that Martin touches on this and agrees that all business (even accounting firms) need to keep accounts. I now feel that I have made a good decision, thankfully because I am half way through my degree.

The “game” of accounting, I completely agree, the more I study the more I find that there are rules about how you can move pieces on the board all within the limits of the game. But like any game, people can find a way to cheat and have done so in many high profile cases.

Chapter 3

My ideas:

I need to spend time gathering various Annual Reports and financial information, research this information and become familiar with the top 4 Financial Reports and how the information in each report relates to each other. I believe this will improve my knowledge of this area of study.

 

My reflections:

I am surprised that Annual Reports often contain 2 years of figures to make comparisons easier. I can imagine that sometimes this is detrimental to the current reputation of the company.

 

Financial reports form such an important part of business, they display figures and information that should allow any financial question to be answered. Once you become familiar with the various financial reports, I think it would prove quite interesting to gather up some related companies’ reports and sit down and compare the various business structures alongside their financials and try and find the best business structure – is bigger really better?

 

My reactions:

I had not previously thought of an Annual Report as a marketing document although now you mention it, how blind was I not to see that. I for one within my job help to create the Annual Report for our company. I am provided the information to display within the report and need to make it look great.  The information provided is always positive and upbeat.

 

It’s interesting that analysts use ratios to analyse financial statements. I would have thought the best analysis was comprehensively reading all materials provided rather than breaking it down into statistical information. Now that I read and grasp the idea of using ratios, it makes complete sense. When comparing companies it then enables you to compare “apples with apples”.

Step 5

Group feedback

I am part of Group 71.  This group involves myself as well as Suzanne Millar, Sven Grima, Tahni-lee Blewett and Tait Chapple.  I look forward to working with this group.

My top 3 ...

Hi everyone, I have spent lot of time looking at everyone’s blogs – there are some great blogs out there, keep up the good work. It has been interesting to read the broad profile of students enrolled in this course as well as the diverse list of companies that we have been assigned.

I think I have found my top 3 blogs, they are:

Monica Ferguson – Cyanhomes. I liked this blog as it had a catchy theme (dream home), the links between blog posts were easy to follow and I got the impression that Monica is a great person with a great personality. Monica’s blog can be found here: https://cyanhomes.wordpress.com/2015/03/02/hello-world/

 

Natasha Mills – firstly, who doesn’t love Ron Burgundy. I enjoyed viewing Natasha’s blog with a catchy theme, informative posts and I sensed a gentle nature. Natasha’s blog can be found here: http://millsycqu.blogspot.com.au

 

Kailee Jephcott – a blog with a great layout that is very informative.  I look forward to reading more. Kailee’s blog can be found here: https://kaileejephcott.wordpress.com

On further research of Cardno I have found that the company is currently involved in some unwanted media attention. There have been claims of questionable payments in the Ecuadorian part of the company, click here to read more: http://www.afr.com/business/infrastructure/cardno-knew-of-questionable-ecuador-payments-as-early-as-january-acting-ceo-graham-yerbury-20150303-13tda2  or    http://www.couriermail.com.au/business/cardno-calls-in-investigators-after-raising-alarm-about-payments-tied-to-contracts-in-ecuador/story-fnihsps3-1227245227865.

Also, this revelation comes at a difficult time as in the last few months they have not only lost one-third of their share-price they have also lost their Chief Executive Michael Renshaw.

Well, I have just completed Step #3 of Ass#1 and have learnt that Cardno has achieved significant growth in the past 4 years. Their total equity has about doubled, although profits have hardly changed. This is reflected in the increase in assets - to match the global expansion of the company. Cardno is showing good balance in their growth to be able to double equity and have profits remain.

On to Step #4 & #5, I am finding these a little daunting but will power on!