Assessment Task 1:

Assessment Assess Business Performance Trend: Nick Scali Furniture

Task

Schedule Week 2

Outcomes Performance Criteria:

Assessed 1.1, 1.2, 1.3
Addresses some elements of required skills and knowledge as shown in the
Assessment Matrix

Assessment 1

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Part 1

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1. Evaluation of assets and liability from the balance sheet

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Statement of financial position is another name for balance sheet. These
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reports are available in Nick Scali’s Annual report. Please see the balance sheet
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below for data for FY2012 to FY2014. The balance sheet highlights the financial
condition of a company and is an integral part of the financial statements.it is
also know as the statement of financial condition, offers a snapshot of a
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company’s health. It tells you how much a company owns (its assets) , and how
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much it owns ( its liabilities). The difference between what it owns and what it
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owes is its equity, also commonly called “net assets” or “shareholders equity”
In general, from FY2012 to FY2014, the total assets have increased every year,
while the total liabilities of each year have also increased. The only way to
evaluate the business performance is through comparing ratios. Please see the
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chart below for the ratios of assets versus liability from FY2012 to FY2014. As
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you can see the ratio hasn’t changed much through the three years, meaning the
company is maintaining a healthy level of debt to assets.
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2. Cash flow analysis (refers to “statements of income” for income and

expenses data and assesses, financial and investment activities)

Cash flow is important because it shows how much actual cash a company has
generated, the statement of cash flow is critical to understanding a company’s
fundamentals. It shows how the company is able to pay for its operations and

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 future growth. Please see the cash flow summaries for FY2012 to FY 2014 in Nick
Scali’s Annual reports. As the reports show, the net cash carried forward
continue to expand, which means every year the company is getting more and
more capable of funding its operation and meeting its immediate debt
obligations.

3. Cost and sales analysis – and accumulated stocks if any

● Revenue from sale of goods 141,442 (2014) 127,431 (2013)

● Cost of goods sold 56,019 (2014) 49,925(2013)
● The sales from 2013 to 2014 is increase by 14,011, increase rate is

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10.99%

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● The cost from 2013 to 2014 is increase by 6,094 , increase rate is 12.21%

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Cost and sales analysis

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150,000
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100,000
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0
2013 2014
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Revenue from sale of goods

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Cost of goods sold

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● Revenue from sales of goods 127,431 (2013) 109,391(2014)

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● Cost of goods sold 49,925 (2013) 42,883 (2014)

● The sales from 2012 to 2013 is increase by 18,040 increase rate 16.49%
● The cost from 2012 to 2013 is increase by 7,042 increase rate 16.42%
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Cost and sales analysis

200000

150000

100000

50000

0
2013 2014
Revenue from sale of goods Cost of goods sold

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 4. Analysis of debtor and creditor values to assess impact of credits on
cash flow and operational Performance.

AT first sight it appears that Venture get a much greater return during 2014 , as
the revenue increase by 29.30% compare to 2012 , however, the gross profit and
net profit did not correspond to decrease, but increase by 28.44% and 57.76%
respectively.

5. Analysis of “director’s report” to identify business critical factors,

growth prospects, performance appraisal and market sentiments

Business critical factors

Growth prospects; in their Annual 2013 report, it indicates “key

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profitability drivers are the ability to continue to grow sales and market share

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through a store network with appropriate reach and to manage the quality and

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cost of the furniture to maintain margins. “Directors believe that the company
has considerable room for the gradual expansion of its store network, with a

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number of sites currently under negotiation opening in the new financial year”
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The directors’ report of a listed company has an important role in meeting the
information needs of shareholders. While company’s financial report
provides useful information about financial position and performance, it will
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rarely provide all of the information needed to readily assess the company’s
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financial position and to appreciate the underlying reasons for the entity ‘s
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results. It will also provide little, if any, information about business strategies
and prospects relevant to future financial performance. The directors’ report
contains information that shareholders of the company would reasonably
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require to make an informed assessment of:

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● The operations of the company reported on

● The financial position of that company
● The business strategies of that company and its prospects for
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future Financial years (unless their inclusion would be

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unreasonably prejudicial)
This information is complemented by:

● a review of operations
● details of significant changes in the company’s state of affairs
● a statement of the company’s principal activities and any
significant changes in the nature of those activities
● details of matters since the end of the year that may significantly
affect the company’s future operations, results or state of affairs
● reference to likely developments In the company’s future
operations and expected results of those operations (unless their
inclusion would be unreasonably prejudicial)

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 ● details of the company’s performance in relation to any particular
and significant environmental regulation

The report by the directors will identify the names of the directors and officers of
the company, and is required to contain information about options including
share options, executive options, indemnity and insurance. The directors’ report
includes a remuneration report that must include a discussion of the board’s
policy on remuneration and its relationship to company performance.

The remuneration report includes information about the cost to the company of
providing its directors and key management personnel with short – term
employee benefits, post- employment benefits, other long- term employee
benefits, termination benefits and share- based payment arrangements.

Part B

Next, conduct the following ration analyses across the financial data from 2012

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to 2014 ( three different sets of analyses)

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1. Debt- to – Equity: Debt/equity ratio is a debt ratio used to measure a company’s
financial leverage, calculated by dividing a company’s total liabilities by its

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stockholders’ equity. The D/E ratio indicates how much debt a company is
using to finance its assets relative to the amount of value represented in
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shareholder’ equity
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2. Current Ratio: The current ratio is a liquidity ratio that measures whether or
not a firm has enough resources to meet its short-term obligations. It
compares a firm's current assets to its current liabilities, and is expressed as
follows:

Current ratio = Current Assets

Current Liabilities

The current ratio is an indication of a firm's liquidity. Acceptable current ratios

vary from industry to industry. In many cases a creditor would consider a high
current ratio to be better than a low current ratio, because a high current ratio

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 indicates that the company is more likely to pay the creditor back. Large current
ratios are not always a good sign for investors. If the company's current ratio is
too high it may indicate that the company is not efficiently using its current
assets or its short-term financing facilities.

3. Return on equity: Return on equity (ROE) is a measure of profitability that

calculates how many dollars of profit a company generates with each dollar of
shareholders’ equity. The formula for ROE is : ROE = Net income /
shareholders, /equity . ROE is sometimes called “return on net worth “

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4. Liquidity ratio: A higher quick ratio means a more liquid current position. The
formula for calculating a company's quick ratio is
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Liquidity ratio = Cash Equivalents + Cash

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Current Liabilities
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5. Debt ratio: The debt ratio is calculated by dividing total liabilities by total
assets. Both of these numbers can easily be found the balance sheet. Here is the
calculation:

Debt Ratio = Total Liabilities

Total Assets

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 6. Profitability ratio: Profitability Ratio Definition
A profitability ratio is a measure of profitability, which is a way to measure a
company's performance. Profitability is simply the capacity to make a profit, and
a profit is what is left over from income earned after you have deducted all costs
and expenses related to earning the income. The formulas you are about to learn
can be used to judge a company's performance and to compare its performance
against other similarly-situated companies. Types of Profitability Ratios
Common profitability ratios used in analyzing a company's performance include
gross profit margin (GPM), operating margin (OM), return on assets (ROA) ,
return on equity (ROE), return on sales (ROS) and return on investment (ROI).
Let's take a look at these in some detail.

Gross Margin
Gross margin tells you about the profitability of your goods and services. It tells
you how much it costs you to produce the product. It is calculated by dividing
your gross profit (GP) by your net sales (NS) and multiplying the quotient by

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100:

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Gross Margin = Gross Profit/Net Sales * 100
GM = GP / NS * 100

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Operating Margin
Operating margin takes into account the costs of producing the product or
services that are unrelated to the direct production of the product or services,
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such as overhead and administrative expenses. It is calculated by dividing your

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operating profit (OP) by your net sales (NS) and multiplying the quotient by 100:

Operating Margin = Operating Profit / Net Sales * 100

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OM = OP / NS * 100
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Return on Assets
Return on assets measures how effectively the company produces income from
its assets. You calculate it by dividing net income (NI) for the current year by the
value of all the company's assets (A) and multiplying the quotient by 100:

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 Return on Assets = Net Income / Assets * 100
ROA = NI/A * 100

Return on Equity
Return on Equity measures how much a company makes for each dollar that
investors put into it you calculate it by taking the net income earned (NI) by the
amount of money invested by shareholders (SI) and multiplying the quotient by
100:
Return on Equity = Net income/Shareholder investment*100
ROE = NI/SI*100

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