Please provide high quality answers for 4 questions in the assignment #2 file and the case study is for question1. The assignment should be 8 to 15 pages long, double spaced, using 12-pt Times New Rom

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Please provide high quality answers for 4 questions in the assignment #2 file and the case study is for question1.

The assignment should be 8 to 15 pages long, double spaced, using 12-pt Times New Roman font.

Please read questions carefully and answer the questions accordingly.

Thank you and I look forward to hearing from you

Please provide high quality answers for 4 questions in the assignment #2 file and the case study is for question1. The assignment should be 8 to 15 pages long, double spaced, using 12-pt Times New Rom
ACCT 356 Assignment 2 Assignment 2 is worth 15% of your final grade for ACCT 356. Complete and submit this assignment after you finish the readings and learning activities for Lessons 4 through 8. Question 1 (30 marks) Read the case Forge Group Ltd Case Study (A): The Revealing Nature of Numbers, and complete the following requirements. REQUIREMENTS: Complete ratio analysis for the years 2010 through 2014, calculating the following ratios (2 marks each). Use the unaudited data for 2014. For any ratios that use an average of 2 years in the formula, you can assume that the 2010 ending balance approximates the 2010 average. (The ratios that use an average of 2 years in the formula include accounts receivable turnover, inventory turnover, return on assets, and return on equity.) You are not given the 2009 data to calculate the average for 2010, so you can assume that the average for 2010 is equal to the year-end balance. Show your calculations for each ratio or complete in Excel worksheet using formulas: Current ratio Receivables turnover Day’s sales in receivables Inventory turnover Inventory holding period Rate of return on net sales Rate of return on total assets Rate of return on stockholders’ equity Asset turnover EPS Debt ratio Times interest earned Provide a discussion of the company’s performance in terms of liquidity, profitability, and leverage. Be sure to discuss each ratio. In your discussion, identify the key indicators that showed the downfall of Forge Group. (6 marks) Question 2 (20 marks) Hyde Park Elementary has plans to build a new playground in 2017. They received a $120,000 government grant to be used for building the playground. They are hoping to break ground in May 2017 and complete the project by the start of school in September. Before they can start the project, however, they must dismantle the existing playground that has become unsafe based on current safety standards. They are also planning to complete soil testing once the existing playground is dismantled as a number of residential properties in the community have tested positive for soil contamination. Due to recent news articles, parents are very concerned about the potential for soil contamination and are demanding a full test to ensure their kids are not playing on a contaminated playground. Sonya Muhammed, the school principal, has compiled the following estimates related to the new playground: Cost for dismantling existing equipment $22,000 Salvage value from the metal from existing equipment $7,000 Soil testing $18,000 New playground equipment $45,000 Cost of installation $16,000 Cost of resurfacing play area in rubber $55,000 Cost of landscaping (including $5,000 for gravel) $22,000 Cost of removing and replacing soil $73,000 The costs for installation, resurfacing, landscaping, and soil removal are the costs quoted by professional contractors. Sonya was approached by the president of the student council, Josh Schwinn, who has volunteered the council’s time for installing and landscaping the new playground. This will save the school approximately $25,000 in costs and Sonya has decided to accept this offer as two of the council members who will be helping are journeymen carpenters. The school has two options in terms of dealing with the contaminated soil. The first option is to not partake in the soil testing and to simply resurface the play area with a poured-rubber matting that can cover the entire play surface. This will cost, as Sonya indicated in her estimates above, approximately $55,000 – a large chunk of the playground budget. The other option is to perform the soil testing. A municipal worker has estimated that there is a 40% chance that the soil is contaminated. If this is the case, the school will either need to resurface the area for $55,000 or it can have the contaminated soil removed and replaced for a hefty cost of $73,000 plus the cost of gravel. However, there is a 60% chance that the soil will not be contaminated. Sonya is wondering what they should do and has asked for your help. REQUIRED Prepare an analysis of the potential project costs for the following scenarios. Note: There is no need for gravel in the resurfacing scenario. Resurface ground without doing soil testing (5 marks). Complete the soil testing. In this case there are two outcomes: remove/replace the soil if contaminated. resurface if contaminated. Use the probabilities provided by the municipal worker to determine a weighted cost for each of these outcomes. (10 marks) What option would you recommend for the school? Why? Are there other non-financial considerations that you need to include in your decision? (5 marks) Question 3 (15 marks) Clean-It-Up manufactures industrial dryers and washers. The following information is available for February: Dryers Washers Budgeted units sold 10,000 40,000 Actual sales (in units) 8,820 33,180 Actual selling price per unit $700 $900 Budgeted selling price per unit $710 $930 Budgeted market share 20% 25% Actual market share 25% 24% Budget cont. margin /unit $275 $375 REQUIRED: Determine the sales-mix and sales-quantity variances. (6 marks) Determine the market-share and market-size variances. (6 marks) Discuss the potential causes of variance. (3 marks) Question 4 (25 marks) Giggles Comedy Emporium provides entertainment for birthday parties. Over the last year, Giggles has entertained at over 150 birthday parties. Giggles’ business is booming! The company has parties booked solid for the next six months. Customers generally must book 6-8 months in advance to secure a spot. Mark Spear, the owner of Giggles Comedy Emporium, however, is worried. His business is busy, his customers are extremely happy, his employees are happy, but he is barely breaking even. He cannot understand, with his business being so successful, why he is barely able to pay himself a wage. Mark has asked you to help him figure out what he is doing wrong. The services provided at each party vary. Some customers only want a clown to perform and they handle the other party details themselves. Other customers want a full package – food, cake, entertainment, cleanup, party favours, decorations, and costumes for the kids. Mark has identified the following services that can be provided at a party. Clown: most, if not all, parties include a clown who performs for one hour at the party. Mark pays the clown $40 for each party. Food (excluding cake): when customers order food for their party through Giggles, Mark outsources this service to Carl’s Catering. Carl charges an average of $12 per child for food. Cake: Mark orders birthday cakes through his sister, Sarah, who has a small bakery and makes custom cakes for Giggles. Her smallest cake is 8” (which will serve up to 10 kids) and costs $40. She also makes a 10” cake for $60 (which serves 20 kids). Cleanup: Giggles also provides cleanup service. Cleaning staff are paid $15 per hour. Cleanup averages 2 hours per 20 kids. Party favours: Party favours can also be ordered through Giggles. These cost $5 per bag to assemble. Decorations: Giggles will also fully decorate a party. Decorating staff are paid $15 per hour and take one hour to decorate a party for 20 kids. Decorations cost an average of $50 for party of 20 kids. Costumes: Giggles also provides costumes for parties so the kids can dress up in a theme. On average, costumes cost $40 each and can be worn 25 times before needed to be replaced. Costumes are cleaned after every party at a cost of $5 each. Mark has set up a fee schedule for each service as follows: Service Fee charged to customer Clown $60 per party Food $15 per child Cake $2 per child Cleanup $2 per child Party favours $6 per child Decorations $2 per child Costumes $6 per child During the two weeks, Mark catered 6 parties. Some details of the parties are shown below: Customer 1 2 3 4 5 6 # of kids attended 20 25 45 15 12 Clown Food services Cake Clean up Party favours Decorations Costumes REQUIRED: Calculate the customer-level operating income for each customer by preparing a customer profitability analysis. Rank the customers according to profitability. (15 marks) Mark would like to earn a return of 50% on costs. What price should he have charged per child for each customer to earn a 50% return on costs? How does this compare the original fee he charged per child? What are the main reasons for this variance? Do you have any suggestions on how Mark could adjust his fee schedule? (10 marks) Question 5 (10 marks) Identify the risk mitigation strategy that would be most appropriate in the following circumstances. Identify the risk each company is facing, the strategy you would use to mitigate the risk, and your reason for suggesting the strategy. Boom Corporation produces fireworks for commercial use. The company developed a new type of firework called the Nuclear Fusion, which they intend to market extensively in 2017. Like other fireworks, the Nuclear Fusion is made of saltpetre, sulphur, and charcoal. The unique blue colour of the Nuclear Fusion firework is made from copper compounds, strontium salts, and lithium salts. The supplier of copper compounds provided a substandard material to Boom. They state it will have no effect on the firework display or safety. Big T Enterprises has been making freeze-dried foods for the survivalist community for the last 10 years. They guarantee their product will last 20-25 years in storage. Recently, a customer complained when food they had in storage for the last 8 years was found to be rancid. Julie’s eBooks is an online seller of books. Unlike other book sellers, they only sell eBooks in order to remove the needs for inventory. They are able to sell their eBooks for 30% less than the paperback price. They have recently had a large number of complaints about not offering hardcopy books. Many potential customers do not want to read a book on digital device. Big Apple Cakes makes New York style cheesecakes that are frozen and distributed across Canada to consumers. Cheesecakes, which sell for $30 each, cost $14 to make and $3 to ship. Recently the shipper who handles all of Big Apple’s shipping announced an increase in shipping charges, to $7 per cake. They informed Big Apple that the refrigeration requirements make the current shipping cost of $3 unprofitable. Big Apple called around and found that other shipping companies have comparable costs of $7 per cake. The manager of sales for True North Industries has just been informed of a potential error in a quote to a key customer. The labour charges were doubled by accident. Unfortunately, the quote was already received by the customer and accepted. ACCT 356v8 Assignment 2 Sept. 2017
Please provide high quality answers for 4 questions in the assignment #2 file and the case study is for question1. The assignment should be 8 to 15 pages long, double spaced, using 12-pt Times New Rom
THE FORGE GROUP LTD SUMMARY In 2012-2013, Forge Group Limited had more than 2,000 employees working across eight countries on four continents. The pride in the growth story is evident, as Forge Group’s 2012 Annual Report (released in September 2013) lists accomplishments in what is described as a groundbreaking year. The main milestones give a snapshot of the types of projects the company was involved in (see Figure 1). At the time of listing (June 26, 2007), Forge Group Ltd (FGL) shares traded for $0.56. (All monetary amounts discussed herein are in Australian dollars. To convert to another currency, visit www.x-rates.com.) The shares peaked at $6.98 on March 6, 2013, valuing the company at $600 million. In less than a year, FGL was placed in a trading halt (February 11, 2014). Voluntary administrators and receivers were appointed. THE ENGINEERING AND CONSTRUCTION INDUSTRY The engineering and construction sector provides significant economic activity in many countries. Large-scale engineering and construction projects—including highways, bridges, railways, airports, harbors, production facilities, and office and apartment buildings—provide employment opportunities and attract large capital investment. The quantum of resources employed in this industry and the profound affect they have on society means that there are strict compliance, regulatory, environmental, and tax requirements on those operating in the sector. The governments of many countries publicly funded a number of large scale infrastructure projects in the aftermath of the Global Financial Crisis (GFC) to stimulate the economy. Joint ventures and public/private partnerships are common in the industry to reduce the risk of large-scale projects and to ensure adequate capital and expertise. Major contracts generally involve a number of different companies with primary contractor and sub-contractor status, all tendering and quoting on various stages of work in a project. This makes the industry highly competitive, and therefore it is vital to have appropriate costing and project management expertise. Mining companies also took advantage of the cheaper finance post GFC and the upswing in demand for minerals and resources. Large-scale mining projects have been the driving force for some economies, especially in Australia. But with the construction of a number of the large projects nearing completion (and moving into production phase), there is a drop in engineering and construction spending. In Australia in 2013-2014, engineering and construction spending was $128 billion, dropping $1 billion from the previous year. This increased competition in the sector and, therefore, demand for lower-priced contracts and shorter completion times. The market value of engineering and construction companies are based partly on their future secured order book. “Order book” is a term used in the engineering and IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 1 ISSN 1940-204X Forge Group Ltd Case Study (A) The Revealing Nature of Numbers Suzanne Maloney University of Southern Queensland Toowoomba, Australia, 4350. [email protected] ©2015 IMA construction sector to capture the company’s future work and the dollar value of the work. The future work is contracted through the normal selling of services and through “tendering” for large-scale works needed by governments and large private companies. If a project is very large, it may be divided into segments with a separate tender process for each segment. Companies have to carefully consider the risk attached to each segment of the larger project and the interrelationship of each of the segments. A company can be held liable to another company if their segment completion is delayed and the other company cannot complete its work on time, as per their contract, because of the delay. For example, when building a tunnel, the riskier segment may be blasting the rock and strengthening the actual tunnel. Excavating the ground and surfacing the road may not carry the same risk but could be held up if the blasting and strengthening is not completed on time. In comparison to a retail or manufacturing concern, the products being sold are large capital works that tend not to be completed within a neat 12-month period. This means that there needs to be payment points built into the contracts. These are called “milestones.” Once a project milestone is reached, it triggers a point when the engineering and construction company can invoice the purchaser and recognize the revenue in its accounts. The product cost (Cost-of-Goods-Sold) expensed against this revenue will contain material, labor, equipment costs, and sub-contractor costs. These costs are all capitalized into inventory at the time they are incurred but not expensed until they reach a milestone. A lot of dollars, long-term time horizons, subjective milestones, and the application of large capital equipment costs contribute to the overall business risk in the sector. Many companies have suffered as a result of stalled projects, unforeseen circumstances or problems, poor costing of the work, and mismanaged cash flow. Within the industry, there is usually significant take-over activity. This is driven in part by companies not performing well and/or insolvency and also by normal merger and acquisition activity. Smaller companies find it difficult to compete with larger companies for the larger projects IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 2 Figure 1: The Year in Review Source: Forge Group Ltd 2013 Annual Report, www.openbriefing.com/AsxDownload.aspx?pdfUrl=Report%2FComNews%2F20130829%2F01438557.pdf, pp. 4-5. and generally need to combine or merge in some way or stay small. This adds further risk and places the financial statements and the order book under increased scrutiny as business valuations rely on this information. THE FORGE GROUP LTD (FGL) The company was a success story. It listed on the Australian stock exchange on June 26, 2007, from a private construction company called AiConstruction. It was a well-run company that needed access to more capital if it was to continue to grow. Within a year, it made its first acquisition by taking over Abesque Engineering. The company survived the Global Financial Crisis and leveraged to the subsequent mining and construction boom led by China’s appetite for minerals and resources. Over the next few years, the company grew organically and in April 2010 another construction company called Clough bought 13% (10.5 million shares) of FGL ordinary shares, thus becoming the largest shareholder. Clough continued to purchase shares in FGL until it divested its total holding of 35% in March 2013. Clough management explained its divestment by indicating that expectations of joint ventures between the two companies did not eventuate, and, therefore, the equity holding was cashed in to allow the pursuit of other objectives. In January 2012, FGL undertook a major acquisition by purchasing CTEC Pty Ltd. In essence, the acquisition meant taking over two major projects. The Diamantina Power Station (DPS) Project in Queensland, Australia, and the West Angelas Power Station (WAPS) Project in the Pilbara region of Western Australia. It was expected that these major projects would add $7.5 million and $10.8 million to earnings before interest, tax, depreciation, and amortization (EBITDA) in 2012 and 2013, respectively. The purchase price was $16 million up-front with further payments due on the meeting of specified performance targets (total paid was $32.26 million). This increased FGL’s order book significantly, and FGL’s share price rose in response. In June 2013, FGL acquired Taggart Global for $43 million. This purchase meant that FGL was now diversifying into asset management and into other economies. SHARE MARKET INFORMATION The historical share price chart since listing is shown in Figure 2. Figure 2: FGL Share Price $8 $7 $6 $5 $4 $3 $2 $1 $0 6/27/20076/27/2008 6/27/20096/27/20106/27/20116/27/20126/27/2013 Closing Price The market closing prices, major announcements, and significant shareholding changes are listed in chronological order in Table 1. CTEC PURCHASE In the wash up of the demise of FGL is the attention being paid to two main contracts: The Diamantina Power Station (DPS) Project in Queensland, Australia, and the West Angelas Power Station (WAPS) Project in the Pilbara region of Western Australia. Both projects were acquired after FGL took over CTEC Pty Ltd on January 13, 2012. The purchase of CTEC was to change the business model by bringing sub-contracting work in-house with the intended consequence of taking out the “middle man” and thereby increasing earnings (by negating sub-contractor margins). The CTEC purchase payment terms required an up- front payment of $16 million with subsequent payments conditional on meeting performance criteria (possible further payment of $40 million in total). CTEC’s prior year (June 30, 2011) EBIT was $2 million, with expected EBITDA at year end 2012 and 2013 to be $18.4 million and $24.8 million, respectively. The DPS and WAPS projects were to increase this expected EBITDA by $7.5 million in 2012 and $10.8 million in 2013. IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 3 IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 4 Table 1. Timeline of Forge Group Ltd (FGL) Date Closing Market Major Announcement/Change June 27, 2007 $0.56 FGL listed on Australian Stock Exchange June 30, 2008 $0.78 June 30, 2009 $0.43 Global Financial Crisis impact April 6, 2010 $2.96 Clough purchases 10.5 million shares for 13% ownership June 30, 2010 $2.66 June 30, 2012 $5.46 June 30, 2012 $4.37 January 13, 2012 $5.25 FGL purchases 100% of CTEC Pty Ltd for $32.26 million March 6, 2013 $6.98 Peak share price March 26, 2013 $6.05 Clough sells FGL shares at $6.05 ($187 million, 35% of FGL) May 17, 2013 FGL awarded major contract (Dugald Rover) June 3, 2013 FGL acquires Taggart Global (U.S. company) at $43 million July 2, 2013 FGL awarded major contract (TAN Burrup plant) June 30, 2013 $4.09 August 29, 2013 Annual Report released NPAT at $63 million, equity at $213.5 million, dividend at $0.14 per share September 2, 2013 $1.47 billion joint venture with Duro Felguera announced (value to Forg e is $830 million – order book now at $2.1 billion) September 12, 2013 FGL awarded major contract (Yandicooogina for Rio Tinto – $100 million contract) September 19, 2013 FGL major contract terminated (Dugald River) October 7, 2013 FGL declares $50 million in major contracts in U.S. and Australia since June 1, 2013 November 4, 2013 $4.18 Trading halt November 5, 2013 ANZ Bank (major financier) appoints KordaMentha to review books November 28, 2013 FGL Market Announcement: –ANZ Bank supports and negotiates new finance facilities –Considering equity capital raising –Identifies underperforming assets (i.e., CTEC projects) –Negotiates agreements with customers and sub-contractors –Normal operations for other parts of business November 28, 2013 $0.69 FGL Market Announcement: -$127 profit write down on two large contracts (Diamantina Power Stat ion and West Angelas Power Station; $45 million to complete both projects) –Challenging liquidity period (net cash flow Nov. and Dec.) –ANZ Bank continued support with some adjustment to finance fa cilities –Business as usual November 28, 2013 $0.69 Trading halt lifted December 4, 2013 FGL Market Announcement: – In response to ASX query, indicated became aware of problems with Diamantina Power Station and W est Angelas Power Station projects in late Sept. with margin erosions due to cost ov erruns and delays causing the profit down – grade. Costing analysis during Oct. and Nov. led to requested trading halt and profit downgrade in Nov. December 17, 2013 FGL awarded major $40 million contract in North American coal sector January 10, 2014 $1.25 Trading halt until January 14, 2014 January 14, 2014 $1.02 Trading halt until January 28, 2014 January 24, 2014 January 28, 2014 $0.90 February 10, 2014 $0.92 Trading ceases February 11, 2014 Board appoints administrators, and secured creditors appoint receivers. Instead cost overruns and poor budgeting meant that the projects’ revised 2013 estimates showed a $61 million project margin loss for the DPS project and a $41.7 million project margin loss on the WAPS project. The cost overruns on these two projects lead to the profit downgrade and contributed to the resulting shortage of cash. Added to that was the discovery of an early payment to the vendors of CTEC Pty Ltd before its performance conditions were met. Further, the payment of bonuses to the previous Managing Director, Peter Hutchinson, of $375,000 was made for a successful acquisition and integration. These payments are the subject of further investigations by the liquidator. DPS AND WAPS COSTING AND BUDGETING In any business the costing and budgeting systems are critical to success. The FGL administrator report for 2013/2014 (year ending January 2014) shows that the: • Actual work-in-progress income for the period was $126 million below management forecast. • Labor costs were $70 million over budget. • Material costs were $55 million over budget. • Work-in-progress overheads were $22 million over budget. FINANCIAL INFORMATION The financial statements for 2010-2014 are presented in Tables 2-5. IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 5 Table 2. Comprehensive Income Statement (in thousands of Australian doll ars) June 30, 2010 June 30, 2011 June 30, 2012 June 30, 2013 Unaudited January 31, 2014 Revenue $246,169 $421,595 $774,879 $1,054,100 $520,041 Cost of sales (711,430) Changes in inventories of finished goods and WIP 9,696 15,000 Materials, plant, and contractor costs (125,171) (211,000) (516,867) (656,334) Employee benefits expense (79,194) (157,191) (164,502) (256,515) Depreciation and amortization (3,218) (5,159) (16,292) (21,361) Consulting fees (582) (5,380) Provision for impairment losses (1,628) (304) Other expenses (7,132) (8,043) (12,711) (21,033) Other gains and losses 537 257 188 Expenses Results from Operating Activities $40,059 $54,898 $64,182 $93,665 Finance income 1,023 3,079 5,698 6,939 Finance costs (716) (711) (2,850) (4,816) Net finance income $307 $2,368 $2,848 $2,123 Share of profit/(loss) of associates and jointly controlled ent ities (513) 3,052 (5,679) Net Profit Before Tax $40,366 $56,753 $70,082 $90,109 $(324,162) Income tax expense (10,915) (17,920) (20,780) (27,190) (2,301) Net Profit After Tax $29,451 $38,833 $49,302 $62,919 $(326,463) Foreign exchange differences (net of tax) (346) (1,946) (310) 1,826 Total Comprehensive Income $29,105 $36,887 $48,992 $64,745 IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 6 Table 3. Balance Sheet (in thousands of Australian dollars) June 30, 2010 June 30, 2011 June 30, 2012 June 30, 2013 Unaudited January 31, 2014 Current Assets Cash and cash equivalents $51,921 $78,285 $51,091 $90,728 $15,316 Short-term deposits 72,500 2,748 Trade and other receivables 42,162 49,542 196,884 83,254 103,279 Inventories and WIP 14,621 29,622 11,331 150,491 40,616 Current tax assets 2,535 Other assets 2,246 1,574 2,487 1,560 (23,415) Noncurrent assets classified as held for sale 6,900 Total Current Assets $117,850 $159,023 $334,293 $331,316 $135,796 Noncurrent Assets Trade and other receivables 7,051 1,424 73,293 Term deposits 14,260 10,468 Property, plant, and equipment 26,789 36,577 67,736 71,546 Deferred tax assets 1,827 2,043 4,273 9,124 Investments accounted for using equity method 2,545 Intangibles 15,621 15,637 48,243 40,332 Other assets 90,467 Total Noncurrent Assets 44,237 54,257 144,108 132,894 163,760 Total Assets $162,087 $213,280 $478,401 $464,210 $299,556 Current Liabilities Trade and other payables 52,968 72,845 267,169 219,568 299,909 Borrowings 2,789 3,272 8,734 11,139 Current tax liabilities 8,644 6,387 8,367 Provisions 525 755 825 3,970 Other liabilities 63,731 Total Current Liabilities $64,926 $83,259 $285,095 $234,677 $363,640 Noncurrent Liabilities Trade and other payables 9,246 1,517 Borrowings 4,901 17,453 14,547 Deferred tax liabilities 51 2,793 1,067 Investments accounted for using the equity method 308 489 493 Provisions 164 299 489 493 Other liabilities 50,667 Total Noncurrent Liabilities $3,785 $5,559 $29,981 $16,107 $52,184 Total Liabilities 68,711 88,818 315,076 250,784 415,824 Net Assets 93,376 124,426 163,325 213,426 (116,268) Equity Issued capital 42,839 44,294 45,430 45,430 42,768 Profit reserve 62,919 Reserves 1,034 (912) (1,221) 1,471 (159,036) Retained earnings 49,505 81,080 119,116 103,606 Total Equity 93,376 124,462 163,325 213,426 (116,268) Number of shares 70,699,487 81,541,569 86,169,014 86,169,014 86,169,014 Share price $2.66 $5.46 $4.37 $4.20 IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 7 Table 4. Statement of Cash Flows (in thousands of Australian dollars) 2010 2011 2012 2013 Cash Flows from Operating Activities Receipts from customers 245,418 431,399 744,720 1,176,226 Payments to suppliers and employees (215,240) (373,464) (631,924) (1,113,073) Other revenue 943 638 Income taxes paid (670) (20,390) (21,537) (45,231) Net cash flows provided by operating activities $30,451 $38,183 $91,259 $17,922 Cash Flows from Investing Activities Payments for property, plant, and equipment (8,371) (11,257) (39,737) (19,521) Proceeds from disposal of property, plan, and equipment 224 6,485 500 869 Interest received 1,023 3,079 5,649 7,379 Term deposits matured/expired (86,760) 73,545 Amount received from joint ventures 130 Acquisition of investments or associates (205) (3,439) Payment of deferred consideration (19,798) Net cash flows provided by/used in financing activities (7,124) (1,898) (123,787) $42,604 Cash Flows from Financing Activities Proceeds from issue of share capital 18,907 1,458 1,136 Proceeds from borrowings 23,011 9,152 Repayment of borrowings (4,131) (3,464) (4,698) (9,654) Interest paid (271) (658) (2,850) (4,877) Dividends paid (3,419) (7,257) (11,265) (15,510) Net cash provided by/used in financing activities $11,086 $(9,921) $5,334 $(20,889) Net increase/decrease in cash and equivalents 34,413 26,364 (27,194) 39,637 Cash and equivalents at beginning of year 17,440 51,921 78,285 51,091 Effect of exchange rate changes 67 Cash and equivalents at end of year $57,920 $78,285 $51,091 $90,728 Table 5. Reconciliation (in thousands of Australian dollars) 2010 2011 2012 2013 Profit for the year after tax $29,450 $38,832 $49,302 $62,919 Depreciation and amortization 3,217 5,159 16,292 21,361 Other noncash differences 907 (1,815) (43,488) 28,409 Decrease/Increase in trade debtors and receivables (25,202) (7,380) (154,393) 119,258 Decrease/Increase in inventories and WIP (9,696) (15,000) 18,291 (139,160) Decrease/Increase in other current assets (104) 671 (913) 927 Increase in deferred tax assets (779) (215) (2,231) (4,851) Decrease/Increase in trade and payables 21,881 19,877 203,417 (37,123) Decrease/Increase in current tax liabilities 10,649 (2,311) 1,980 (10,903) Decrease/Increase in deferred tax liabilities 64 2,742 (1,727) Increase in other provisions 64 365 260 86 Net cash inflow from operating activities $30,451 $38,183 $91,259 $17,922 QUESTIONS 1. READING FINANCIAL STATEMENTS Refer to FGL’s June 30, 2013, financial reports and answer the following questions: a. State the accounting equation at the beginning and end of the year and the changes between the beginning and end of the year. b. State the changes in the company’s equity during 2013. Speculate on why the change. c. What is the main asset the company owns, and what is its value? Compare this to the total equity. State your conclusion from this comparison. d. Outline the “other” item that makes up comprehensive income. Why is it important to segregate this amount on the income statement? e. Outline the largest expenses on the income statement. Compare them to the cash, debtors, creditors, and inventory balances. Comment on this comparison. f. State the total revenue and net profit attributable to members of FGL and earnings before interest and tax (EBIT). g. Compare the net profit with the net cash flows from operating activities. Which amount is larger? Is this normal? h. Examine the Reconciliation of Cash Flows from Operations with the net profit after tax (NPAT). Outline the three major reconciliation items, and state how they changed. i. Comment on the changes discovered in the cash flow/ profit reconciliation amounts from part h. j. Outline the changes that have occurred in the company’s financing activities. State your opinion on the appropriateness of the quantum of the dividends paid to shareholders. k. State what investment activity FGL undertook in 2013. Was there a net investment or a divestment? 2. WORKING CAPITAL MANAGEMENT a. Explain the concept of working capital, and outline the working capital accounts on the balance sheet. b. Discuss why it is important for firms to manage their working capital. In your discussion, comment on the level of working capital needed and steps that firms can take if their working capital is insufficient. c. Demonstrate how working capital is related to cash and profit. d. Compute the operating cash cycle for FGL for the years 2011, 2012, and 2013. Outline and discuss the implications of this computation. 3. FINANCIAL STATEMENT ANALYSIS a. For the years ending June 30, 2013, and June 30, 2011, compute and discuss the return on equity (ROE), return on assets (ROA), profit margin ratio, asset turnover ratio, current ratio, cash flow ratio, debt-to-equity ratio, interest coverage ratio, debt coverage ratio, NTAB, EPS, DPS and the PER. b. Discuss the major differences between your analysis of the June 30, 2013, report and the June 30, 2011, report (prior to the takeover of CTEC). Appraise the problems faced by FGL management in light of your analysis. c. Using the January 31, 2014, unaudited financial information, compute the ROE, ROA, profit margin ratio, asset turnover ratio, current ratio, cash flow ratio, debt-to- equity ratio, interest coverage ratio, debt coverage ratio, NTAB, EPS, DPS and the PER. Comment on the ratio analyses performed. 4. COMPANY GROWTH a. Outline and compare two types of company growth strategies. b. Hypothesize why it is important to compute financial metrics that link the income statement and the balance sheet to help understand the growing business. Use the FGL example to test your hypothesis. REFERENCES Forge Group Ltd 2013 Annual Report, www.openbriefing. com/AsxDownload.aspx?pdfUrl=Report%2FComNews%2F2 0130829%2F01438557.pdf. Forge Group Ltd 2011 Annual Report, http://hotcopper.com. au/threads/ann-2011-annual-report-to-shareholders.1552428/ Martin Jones, Andrew Saker, and Ben Johnson, “Consolidated Group Report by Administrators pursuant to Section 439A(4)(a) of the Corporations Act 2001,” Ferrier Hodgson, March 10, 2014, www.ferrierhodgson.com/au/~/ media/Ferrier/Files/Documents/Corp%20Recovery%20M atters/Forge%20Group/439A%20Report%20Pack.pdf. IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 8 IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 1, ART. 2, MARCH 2015 9 ABOUT IMA ® (Institute of Management Accountants) IMA ®, the association of accountants and financial professionals in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Globally, IMA supports the profession through research, the CMA ® (Certified Management Accountant) program, continuing education, networking and advocacy of the highest ethical business practices. IMA has a global network of more than 75,000 members in 120 countries and 300 professional and student chapters. Headquartered in Montvale, N.J., USA, IMA provides localized services through its four global regions: The Americas, Asia/Pacific, Europe, and Middle East/Africa. For more information about IMA, please visit www.imanet.org

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