Accounting for Business Decision Making

Question: Discuss about the Accounting for Business Decision Making. Answer: Introduction This study is based on the subject of accounting and business decision making. During the study, the focus is made on the business of Australian Agricultural Company Limited. This company is under the food and beverage industry in Australia and it is listed on the Australian Security Exchange since 2001. The company was founded in the year of 1824 and currently it is having total 500 employees. Currently, the company is operating its business in 7 million hectares of land in the Queensland (AACo 2016). In this study, the main focus is made on the financial position and performance of the company in last year that is 2015. The financial statements of the company are analyzed and comparison is made between the financial performances of the company in last two years. At the end of the study, some recommendations are provided to improve the financial position of the company. Analyzing the Statement of Financial Position Australian Agricultural Company Limited is very popular company in the food and beverage industry in Australia. It is one of the oldest organization is Australia and currently it is operating its business successfully in the Australian market. If the last years annual report of the company is analyzed, then it can be identified that the financial position of the company has improved from the previous years financial position (AACo 2016). This can be better understood if the important elements of balance sheet are checked. The important elements of balance sheet of a company are current assets, non-current assets, current liabilities, non-current liabilities and stockholders or shareholders equity. The analysis of these balance sheet elements of Australian Agricultural Company Limited is as follows: The annual report of 2015 has mentioned that the total current assets of the company were $280586000, which has increased by 9.67%. In the previous year that is in 2014, the total current assets of the company were $256093000 (AACo 2016). The elements of current assets in the balance sheet have disclosed that the current assets of the company have been increased mainly due to the increase in livestock or biological assets of the company. The livestock of the company has increased by 38% (approx) (AACo 2016). Apart from the livestock, the inventories and trade receivables of the company has also increased by large percentage. In case of inventories, the percentage increased is 39% (approx) and the percentage in creased in the trade receivable is 136% (approx) (AACo 2016). However, the company would have improved the amount of current assets if it could increase the cash and cash equivalent as well as the derivative financial instruments and other assets (Robinson et al. 2015). These t hree current assets elements of the company have decreased from 2014 to 2015. The cash and cash equivalents have decreased by significant amount and the amount of derivative financial instruments of 0. The amount of other assets of the company has also decreased by little percentage. Moreover, on overall basis, it can be said that the current assets position of the company in 2015 was more or less good (Lin et al. 2015). However, the performance of the company needs to be improved in respect to the items, in which the performance of the company has declined. The position of total assets of the company also depends on the non-current assets. There are only two items under the non-current assets of the company and these are Biological assets and property, plant and equipments (AACo 2016). However, both of the items of non-current assets of the company have increased in 2015 than 2014. The biological assets have increased by 11.26% and the PPE increased by 10.35% (AACo 2016). Therefore, it can be said that on the overall basis, the non-current assets of the company have improved. The financial position of a company not only depends on the assets, it also depends on the liabilities of the company (Kim et al. 2016). Therefore, if the total assets of the company increase, it does not mean that the financial position of the company has improved. If the increase in the total liabilities is more than the increase in total assets, then it cannot be said that financial position has improved (Dung 2016). In case of Australian Agricultural Company Limited, the current liabilities have increased by 16.09%, which is greater than the percentage increased in current assets (AACo 2016). The amount under each item of current liabilities has increased except the trade and other payables. The trade and other payables of the company have decreased by 11.80% (AACo 2016). However, as per the overall analysis of the current liabilities of the company, it can be said that the company needs to control its financial position. On the other side, the non-current liabilities of the company have also increased from 2014 to 2015. The total percentage increased in non-current liabilities of the company is 30.23% (AACo 2016). The main reason behind the increase in non-current liabilities is the increase in the interest bearing loans and borrowings. This particular item under the non-current liability has increased by 31.24% (AACo 2016). Apart from the assets and liabilities there is another important component in the balance sheet of a company and that is shareholders or stockholders equity (Cao, Chychyla and Stewar 2015). In case of Australian Agricultural Company Limited, the shareholders equity has also increased in 2015. However, the percentage of that is not so high. The shareholders equity of the company has increased by 1.94% in 2015 (AACo 2016). Therefore, from the overall analysis of the financial position of Australian Agricultural Company Limited, it can be said that the financial position of the company has improved in 2015. However, the company could have improved this more. The increase in liabilities indicates that the financial burden of the company has increased (Weygandt, Kimmel and Kieso 2015). Therefore, the financial performance needs to be controlled by the management of the company. Analyzing the Stockholders Equity The financial performance of a company is also indicated by the statement of stockholders equity or changes in equity. If the changes in equity statement of Australian Agricultural Company Limited are analyzed, then it can be identified that the contributed equity of the company in 2015 has increased than that of 2014. In the year 2014, the contributed equity of the company was increased by 8.74%, whereas in 2015, the contributed equity increased by 0.15% (AACo 2016). On the other side, the total number outstanding shares of the company in the year 2014 were 940625, which have decreased to 590625 in the year 2015 (AACo 2016). Therefore, the percentage of decrease in the number of outstanding equity shares is 59.26%. This type of financial situation indicates that the financial performance of the company has declined in respect to the equity shares of the company (Hasan 2015). On the other hand, the amount of reserves has also increased in 2015 by 1.37% (AACo 2016). This denotes that the percentage increased in the reserve amount is not so high. At the same time, if the amount of retained earnings is analyzed, then it can be said though the retained earnings of the company are negative in 2015, the negative amount has decreased, which indicates the positive movement of the financial performance (Amiram, Bozanic and Rouen 2015). However, the company needs to improve more so that the negative balance in the retained earnings can be changed into positive balance. Analyzing the Statement of Profit and Loss The financial position or performance of a company can be understood in a better way if the analysis of income statement is done along with the analysis of the balance sheet (Titman, Keown and Martin 2015). In the above section, the balance sheet of Australian Agricultural Company Limited for 2015 has been analyzed. Therefore, it is important to analyze the income statement or profit and loss statement to understand the financial performance of the company in better way. The first item that an income statement of a company discloses is the revenue of the company. In case of Australian Agricultural Company Limited, the income statement of 2015 has disclosed that the total revenue of the company has increased by 29.17% (AACo 2016). The increased percentage of the revenue is quite good. High revenue or increased amount of revenue indicates that the total unit of sales of the company has also increased. Increase in total number of unit sold denotes that the demand for the products and services of the company has increased in the market, which is good news for the company (Chen et al. 2015). If the revenue of the company increases, then the financial capacity of the company also increases. If a company earns high revenue, then the possibility of attracting more investors is also high. This is because, by checking the revenue amount or value, the investors determined that how much the company is able to sale its products in the market (Robert Knechel, Vans traelen and Zerni 2015). Therefore, the increased value of the revenue of Australian Agricultural Company Limited will also help the company to attract more investment from the market. The profitability of a company highly depends on the cost of goods sold. Cost of goods sold includes all the direct costs of the company. The cost of goods sold of Australian Agricultural Company Limited includes the cost of meat sold, cattle expenses, deemed cost for selling the cattle, expenses to feedlot cattle and cost of crop and fair value adjustment (AACo 2016). However, on the overall basis, the cost of goods sold of the company has increased by higher percentage. The percentage increased in the cost of goods sold of the company in 2015 is 160.82% (AACo 2016). This percentage indicates a critical situation for the company because increase in cost of goods sold more than 100% denotes that the efficiency level of the company has decreased. At the same time, it can also be said that the company might have not used its resources properly and waste management of the company was weak (Kim and Kim 2015). A company can improve its profitability and financial performance by controlling the expenses. At Australian Agricultural Company Limited, the expenses includes the items like, administrative expenses, operating expenses, employee expenses, overhead expenses, depreciation, finance cost and change in the propertys fair valuation (AACo 2016). However, the overall amount of these expenses before charging the income tax has increased in the year of 2015. However, the profit before tax or PBT of the company has increased in 2015. The percentage increased in the total cost of the company in 2015 is 9.61% (AACo 2016). In the year 2014, the total expenses of the company before paying the income tax were $121000000, which increased to $132628000 in 2015 (AACo 2016). This again indicates the inefficiency of the company in controlling its overall expenses. At the same time, the increase in the expenses level also limits the capacity of the company to improve its business operations. On the othe r side, increase in the expense level means decrease in the income or profit level of the (Jang and Rho 2016). Therefore, decreased profit level of Australian Agricultural Company Limited can de-motivate the investors to invest their money in the company. However, as the company became able to maintain a minimum profit level in 2015, it is very important to maintain the same in the next year and try to improve the performance more. The company has earned negative income tax benefit, which is the non-operating loss of the company. If the annual reports of the company are checked for last two consecutive years, then it can be identified that the company has earned positive income tax benefit in 2014, but in 2015, this amount became negative. Negative income tax benefit decreased the profit level of the company. However, the overall profit of the company was high in 2015 than that of 2014 (AACo 2016). Earnings per common share are the main thing that satisfies the shareholders of the company. The satisfaction level of the shareholders increases with the increase in earnings per share (Loughran and McDonald 2016). If the EPS in 2015 of the company is analyzed with the EPS of 2014, then it can be said that EPS of the company has increased by a good percentage in 2015. In the year 2014, the EPS of the company was (9.3), which increased to 1.8 cents in the year 2015 (AACo 2016). This discloses that there is huge difference between the EPS of the company in two different financial years. Therefore, from the overall discussion on the income or profit and loss statement of Australian Agricultural Company Limited, it can be said that the competency level of the company needs to be improved. However, the competency level of the company has improved from 2014 to 2015. The high expense level is the major barrier in improving the efficiency level of the company (McLaughlin 2016). Hence, it is very important for the company to improve the financial performance by controlling the cost structure. Analyzing the Statement of Cash Flow Cash flow statement is another important financial statement that states about the financial performance of the company in a particular financial year. The cash flow statement discloses the amount of net cash inflow and outflow of the company (Sotti, Rinaldi and Gavana 2015). In the cash flow statement, the cash flow from mainly three types of business activities are identified and these activities are operating activities, financing activities and investing activities (Macve 2015). As per the cash flow statement of Australian Agricultural Company Limited on 2015, the operating activities of the company has generated negative cash inflow. The net cash from operating activities of the company in 2015 is -$75881000, which was $18451000 in 2014. This is clearly indicating that the cash out flow was much higher in 2015 (AACo 2016). At the same time, the net cash out flow from the investing activities of the company was $66317000 in 2015, which was $38588000 in 2014 (AACo 2016). This indicates that the cash outflow in case of investing activities of the company has also increased in the year 2015. However, the positive cash inflow is there in case of the financing activities of the company. The net cash inflow of the company from the financing activities in 2015 is $85829000, which was $78083000 in 2014 (AACo 2016). Therefore, the cash from financing activities has increased in 2015. However, on overall basis, the company has earned negative cash inflow in 2015. The net increase in cash and cash equivalents is -$56909000 in 2015, which was positive in the previous year that is in 2014 (AACo 2016). This negative cash inflow of the company indicates that the company is failure to control its overall cash outflow in 2015, which brings the efficiency level in to a big question in 2015 (Minnis and Sutherland 2015). Higher is the cash outflow, lower is the efficiency level of the company. The negative cash inflow lowers down the capacity of the company to improve the business through further investment (Trigueiros and Sam 2016). At the same time, due to the negative cash inflow, the company may face problem in arranging the money or investment from the external sources because the creditors will not agree to provide loan or credit to the company. Moreover, the market position of the company may be affected due to this negative cash inflow. Conclusion In this study, it has been identified that the Australian Agricultural Company Limited is one of the most popular companies in the Australian food and beverage industry. The study has critically analyzed the financial performance and position of the company on the basis of 2015s annual report. At the same time, the study has also compared the 2015s financial results with the financial results of 2014. Four financial statements have been evaluated and it has been identified that the financial position of the company in respect to the balance sheet of 2015 is more or less good. The company has positive net assets; however, the liabilities of the company have increased in 2015 than that of 2014, which indicates that the financial burden is more in 2015 than 2014. This type of situation is needed to be improved as soon as possible. On the other side, the income statement of the company has shown that though the revenue has increased in 2015, the expense level of the company has also increased. The increased expense level decreased the profitability of the company. At the same time, the increased expense level may also create problem for the company in attracting more investment from the market. The loss in non-operating activity also indicates the poor financial position of the company. Moreover, the cash flow statement of 2015 also disclosed that the performance of the company needs some immediate improvements. The negative cash inflows in 2015 clearly indicated that the financial performance is weak. Therefore, it can be said that the analysis of the financial statements of a company is very important because it indicates the actual financial position of the company. The analysis of financial statement identifies in which point the company is lacking behind. The analysis of the financial statements of Australian Agricultural Company Limited helped to identify that though the company is successfully operating its business in the market, it needs rectifications to make the future secure. Recommendations The evaluations and analysis in this study has found out that the financial position of Australian Agricultural Company Limited needs some improvements. However, the company can apply the following strategies to improve the financial performance: Decrease in the current liabilities: The Company needs to decrease its current liabilities. The increased current liabilities have increased the financial burden. Therefore, if the company decreases the current liabilities, then it can reduce the financial burden. Increase the current assets: The Company can reduce the financial burden by increasing the current assets. Moreover, the company can increase its cash and cash equivalent by increasing the cash inflow. Enforce strong payment discipline: The management of the company can implement strong and strict rules for the payment system of the company. This will help the company to improve its cash inflow position by controlling the cash payment in the particular financial year. Proper budgeting: The management of the company needs to prepare proper budget so that it can prepare proper planning for the financial activities. 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