Accounting Business Reporting for Decision Making

364 Accounting: Business Reporting for Decision Making

8.10 The balance sheet for Capital Ltd reveals total assets of $840 000, total liabilities of $460 000

and equity of $380 000 as at the end of the reporting period. Using this data, calculate the

debt ratio, equity ratio and debt to equity ratio. Discuss why the conclusions drawn from

these ratios are consistent, despite the ratio calculations generating different numbers. LO7

8.11 When calculating days inventory, the average inventory level is compared with the cost

of sales. When calculating days debtors, the average accounts receivable balance is

compared with the sales revenue. Explain why the former ratio uses cost of sales whereas

the latter uses sales revenue. LO5

8.12 Graph the trend in JB Hi-Fi Ltd’s monthly share price over the past two years. LO3

8.13 Discuss three limitations of ratio analysis as a fundamental analysis tool. LO10

8.14 In its 2015 annual report JB Hi-Fi Ltd refers to the ‘cost of doing business’ (CODB) ratio.

Paraphrase what you believe the CODB represents. LO4

8.15 In its 2015 annual report JB Hi-Fi Ltd mentions that it sells products with various margins.

Discuss what factors impact on margins. LO4

Exercises

 BASIC |   MODERATE |    CHALLENGING

8.16  LO4, 5, 6

There are a variety of tools available to assist business owners to better understand the performance

and position of their business. One such tool is provided by ANZ that allows a financial ratio

comparison of an entity with that of the industry. Access this tool at http://www.anz.com/small-

business/tools-forms-guides/benchmark/. Assume that you own a retail business with a turnover

of $350 000 in the personal and household goods industry. Identify the industry averages for

profitability, liquidity and asset efficiency ratios.

8.17  LO4

The following is a summary of key reported figures for Woolworths Ltd’s business segments for

2015 and 2014. Report on the profitability of the business segments.

Sales revenue and operating profit before tax by business group

2015 2014

$m

Sales

revenue EBIT

Sales

revenue EBIT

Australian food, liquor and petrol

General merchandise

New Zealand supermarkets

Hotels

Home improvement

47763.7

4105.9

5467.4

1475.0

1867.1

3439.8

114.2

303.2

234.5

(224.7)

48235.9

4351.8

5185.5

1472.2

1527.4

3368.0

152.9

271.4

275.4

(169.0)

Source: Woolworths Limited 2015, annual report, p. 67.

8.18  LO8

The following table shows the returns and valuations of selected listed retailers as at November

2015. The table is followed by an extract of an article reporting on challenges facing retailers.

P/E (times)

1-year total

shareholders’

return (%)

EPS

2015

(cents)

EPS forecast

2016

(cents)

Myer Holdings Ltd

Harvey Norman Holdings Ltd

Billabong International Ltd

Pacific Brands

7.75

16.24

33.56

17.6

(44.4

16

10.5

53.2

) 5.10

24.48

0.42

(10.66)

8.9

26.70

1.2

4.9