Corporate Accounting
Part I
The financial predicament facing Surfstitch Ltd
SurfStitch Group is involved in the global action sport. The current financial position of the company is not good. It is because the profitability of the company has decreased from the last year. Even though, SurfStitch has been succussed to increase the total revenue.
The consolidated financial statements of Surfstitch Ltd 2015 and 2016 shows that the total revenue of the company in 2016 was $235.6 million that increased by $199.4 million by 2015 (Surfstitch, 2017). At the same time, it is also found that the gross profit of the company was also increased from $93.0 million to 91.6 million. But, it is identified that cost on the various expenses has increased that is why return from the operating activities decreased.
Due to the increase in the expense, the gross margin has decreased by 6% from 46% to 40%. In the same concern of this, EBITDA is recorded ($18.8 million) in 2016 that was $7.7 million in the financial year 2015 (Surfstitch, 2017). In the concern of profit before tax, it is identified that PBT is ($18.9 million) which was $4.1 Million. It depicts that the financial position of Surfstitch Ltd is worst.
The company is not generating sufficient profit at the current time. Due to this, the value of the goodwill also decreased (Surfstitch, 2017).
The 2015 Goodwill, the Investment in Subsidiary, the cash position and
In the financial report of 2015, it is identified that goodwill of Surfstitch $36,001 thousand. In the same financial year, the company had done $58,633 thousand of investment in subsidiary acquisition (Surfstitch, 2017).
All investment on the subsidiary has been made in the cash (Wilson, 2015). The balance of the cash flow statement shows that Cash and cash equivalents at 30 June 2015 was $40837 thousand.
The 2016 Profit and Loss Statement in reference of different expenses
In the profit and loss account of Surfstitch, it is found that impairment expenses were $88,999 thousand in 2016. This value impairment expense was null in the financial year 2015. In the context of selling and distribution expenses, it is found that the company has expensed $101,268 thousand in 2016 while it was only $44683 thousand in 2015 (Surfstitch, 2017).
It means that the company increased their expenses in selling and distribution expenses. Along with this, in the financial report of 2016, it is also found that company has also increased its administrative expenses in 2016. In 2015, administrative expenses were $7424 thousand that increased by the company at $49237 thousand.
Recommended to clients to buy, hold or sell Surfstitch shares? Why?
Based on the above analysis, it can be recommended that the investors should no buy the share of Surfstitch. It is because to do investment in the Sufstitch can be subject to loss. At the same time, it is also recommended that the existing shareholder should also sales their share because the share price of the company is declined from starting of 2016 (Olson and Dolgui, 2015).
Part II
Reporting is a significant part of the business environment. It is one of the significant parts of the business process. The main aim of the reporting is to provide some justification of transactions. In the business scenario, the term reporting contains disclosure of information of financial and managerial.
It depicts that how the company is performing in the particular financial year. Reporting of a company is different each year due to the implementation of new managerial policies and different marketing activities. Reporting is a significant element of the business process that contains important information. It is also helpful for the decision-makers to prepare an effective business plan and business strategy (Singh, et. al. 2016).
Typical, in the business environment, it is essential for all the public companies to conduct the reporting process.
In the same concern, a continuous reporting regime is significant for disclosure entities to develop trust among the shareholders. Along with this, there are two main purposes of reporting. In, first, it is helpful for the management of the company to develop and implement a significant financial strategy (Lawrence, 2013).
Along with this, it also allows the management to keep concerned on the organisational objective. The information and data that are disclosed in the reporting provide awareness to the management about the strengths and weaknesses of the company. At the same time, reporting also provides financial information to the management and investors that it is effective to know about the financial health (Wilson, 2015).
The second main objective of continuous reporting is to provide huge information on the financial information of the company with accuracy. Generally, shareholders, potential investors, consumers, and the government are required the financial information.
The reporting ensures the company that it is running appropriately. It is essential for a public company to strictly follow the regulation of reporting developed by the Securities and Exchange Commission (Olson and Dolgui, 2015).
In financial terms balance sheet is an image of the financial performance of the company. It represents the overall summary of the business with including assets, liabilities and equity. It is also a significant part of the financial statements and annual report of the company. The main principle of the balance sheet depicts that Assets = liabilities and equity.
The balance sheets represent all the information clearly in on the income, expenses, assets, liabilities and equity. In the reporting, assets are those things that are owed (Mandelbrot, 2013. It contains the cash, inventory, building and etc. On the other hand, liability refers to the thing for the company is liable to pay in the future such as creditors. The equity is the amount that is invested by some external investors in the firm that contains the shareholders.
The Corporations Act (2001), Accounting standards and ASX requirements regulate the disclosing entities. The continuous disclosure requires timely reporting to ASX regarding the essential events and the financial information that has an effect on the price of the entity’s securities (Lawrence, 2013).
The listing Rule 3.1 requires a listed entity to further disclose information related to “market sensitive” to ASX instantly. There are many types of information that is market sensitive such as, material acquisition, withdrawal of a material agreement, giving or receiving a notice of making a turnover, a material mineral, becoming a plaintiff, etc.
The information that is a specific individual expects to have a material effect on the price or value of GPT’s securities is referred to as “market sensitive information”. The major aim of this policy is to assist GPT to comply with the obligation of continuous disclosure. It is done by developing a framework that enables disclosure to the investors and the market on timely basis (Brigham & Ehrhardt, 2013).
Along with this, it is also necessary for a public organisation to represent the report on a continuous basis. It is because the continuous reporting regime provides lots of advantages to a company. With the help of the continuous regime, a firm can increase the value of the overall organisation because reporting improves financial and operational control (Higgins, 2012). The management is able to control on the financial expenses on the basis of the reporting.
Along with this, it is also able to develop strong and strict monitoring policies. The continuous reporting regime is also necessary for disclosure entities because it improves risk and control assurance usually in the same or less than previous approaches. The reporting procedure allows the organisation to access the measures of the financial performance (Chandra, 2011).
In the same concern of this, it is also identified that a continuous reporting regime can enable an enterprise to reduce the cost including the internal and external cost of the company. In a business environment, there are various kinds of costs such as internal and external. Along with this, continuous reporting also develops the principles of internal control.
A firm can increase the level of risk mitigation for business risk. It provides the visibility of business to the manager and investors. It also makes the awareness of all the business transactions in a financial time (Kelly, 2015). Along with this, in the business environment, it is also necessary for disclosure entities to have a continuous reporting regime because it allows to the investors to recognise the long terms financial plans of the company.
Having a continuous reporting regime is also important for disclosure entities. It also allows the management to identify the control issue in real-time. In the views of Cheng, et. al. (2014), disclosure entities should have an effective continuous reporting regime to the main control system. It also enables the organisation to expand internal audit coverage with minimal incremental cost.
The disclosure regime is considered as crucial for publically listed companies as the disclosure regime act 1994 comes under the law of Australia. In this, it is necessary to continuous disclose all the necessary information which investors or the public should need to know.
It can be a company financial position statement (P&L and balance sheet). Besides that, the disclosure should also include the facts related to stakeholders, shareholders, new investment-related information etc (Chang et al., 2014).
It is also identified that in the disclosure regime, there are certain guidelines and laws that are present. Likewise, it is stated that there is a timely release of information. It means that organization should disclose their share price information in a timely manner so that the public could take the decision whether they get revenue from this investment (AbuGhazaleh et al., 2012). Thus, the company achieved the quick response of external stakeholders with the timely disclosure of information.
In addition to this, it is identified that the disclosure regime allows equal access to information. However, share price information gives equal chances to all investors in regards to taking the investment decision (Aly et al., 2010). So it can be stated that disclosure regime is the important and crucial policy for the company in order to develop and maintain their healthy relationship.
Continuous disclosure is required to minimize the information irregularity between managers and investors and also other stakeholders. It can be helpful for the firms to reduce the governance issues and reinforce the standards and guidelines for proper reporting of the accounts. If the firms do not comply with these disclosures, they may face penalty proceedings.
It is important for the firms to provide the right and fair information to the stakeholders in their reports as they could make the appropriate decisions (Miihkinen, 2012). With the help of this disclosure entity, it is effective for the firms to provide fair and right information with proper reasoning that ensures the stakeholders for the fair information and helps them to make appropriate decisions. Only disclosure of material events on an ad hoc basis alone is not sufficient for the stakeholders to make decisions.
It is also required for the firms to disclose material events to the public after their occurrence. For this, it is mandatory for the firms to make certain periodic reports, such as annual reports and other interim reports that provide specific prescribed disclosures on regular basis to the public (Elzahar & Hussainey, 2012). These reports on a periodic basis are effective for the investors to make better decisions and monitor the markets through comparative analysis of the information over regular intervals.
These disclosures set forth the particular guidelines to facilitate high-quality disclosure on a consistent basis. It is also crucial to enhance the confidence and informed participation of the investors in secondary securities markets (Michelon, 2011). It is also effective to improve the depth, liquidity and efficiency of these markets. It also helps to reduce the possibility of insider trading and market abuse.
References
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Surfstitch (2017) [Online]. Available at: https://www.surfstitch.com/(Accessed: 11 September, 2017)
Wilson, T.C. (2015) Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions. USA: John Wiley & Sons.
