financial acct project slides

8/13/2019 Financial Acct Project slides

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ACC1002 [V08]



Dairy Farm

Founded in 1886, mainly “family-run” business

Have many stores all over world, especially Asia

Products ranging from food to healthcare

Healthy growth, sustainable



Contents

1) Working Capital Management (W.C.M.)

2) Key Liquidity and Efficiency Ratios

3) Conclusion to W.C.M.

4) Examples of Provisions & Their Reliability

5) Examples of Contingent liabilities & Their

Reliability

6) Overall Conclusion



Working Capital

Management

Overall

Conclusion

Key RatiosConclusion to

W.C.M

Provisions &

Reliability

Contingent Liability

& Reliability

Working Capital Management

Decisions relating to working capital and short

term financing

Relationship between firm's current assets andcurrent liabilities

Ensure continual operations and sufficiency of

cash flow



Year 2011 2010 2009 Working

Capital

(US m)

-412.3 -405.8 -316.5

Working Capital

Current assets Current liabilities

Working Capital

Management



Key Liquidity & Efficiency Ratios

1. CurrentRatio

2. % of CurrentAssets that are

Inventories

3. Acid Test

(Quick Ratio)

4. Cash

ConversionCycle

Working Capital

Management

Overall

Conclusion


W.C.M

Provisions &

Reliability


& Reliability



Current ratio < 1

Working capital is negative

1. Current Ratio

Average Current Ratio

0.818



Dairy

Farm

Sheng

Siong

Carrefour Industry

2011 0.825 1.84 0.741.2 - 1.5010 0.804 1.28 0.71

2009 0.825 2.02 0.71

1. Current Ratio

Consistent current ratio

Proper management of resources and funding

Key Ratios




1. CurrentRatio


Inventories

3. Acid Test

(Quick Ratio)

4. Cash

ConversionCycle

Working Capital

Management

Overall

Conclusion


W.C.M

Provisions &

Reliability


& Reliability



2011 2010 2009% of total assets

which are

inventory

26.8% 25.1% 25.1%

% of current

assets which are

inventory

48.8% 49.2% 47.7%

2. % of Current Assets that are Inventories

Close to half of current assets being inventories

Too much? Good working capital management?

Key Ratios



2. % of Current Assets that are Inventories

Nature of the business

DF has to stock up more = Huge inventories

Inventories are quickly converted quickly to cash

Quick RatioCash conversion cycle

Key Ratios




1. CurrentRatio


Inventories

3. Acid Test

(Quick Ratio)

4. Cash

ConversionCycle

Working Capital

Management

Overall

Conclusion


W.C.M

Provisions &

Reliability


& Reliability



3. Quick Ratio

Liquid assets Current liabilities

2011 0.422

2010 0.408

2009 0.432

Key Ratios



3. Quick Ratio

2011 0.422

2010 0.408

2009 0.432

Measures the ability of company to use quick assetsto pay off current liability immediately

Key Ratios



Dairy Farm Sheng Siong Carrefour Industry

2011 0.422 1.45 0.25

0.8010 0.408 0.987 0.20

2009 0.432 1.74 0.32

3. Quick Ratio

Low liquidity ratio may not be unhealthy:

- High inventory turnover rate

- Fast payment from customers

- Long terms from suppliers

Key Ratios




1. CurrentRatio


Inventories

3. Acid Test

(Quick Ratio)

4. Cash

ConversionCycle

Working Capital

Management

Overall

Conclusion


W.C.M

Provisions &

Reliability


& Reliability



Cash Conversion Cycle (CCC)

Days’ sales uncollected (DSU)

Days’ sales in inventory (DSI)

Days’ purchases in /P (DPP)

4. Cash Conversion Cycle

Key Ratios



Days’ sales uncollected (DSU) =

Days’ sales in inventory (DSI) =

Days’ purchases in /P (DPP) =


Key Ratios



Why negative CCC?

Lower receivables collection period- Frequent customer billing, automatic electronic

transfers

Increase payables- Trade credits, pay suppliers slowly


Key Ratios



Dairy Farm more efficient in managingworking capital

Inter-industry comparison

Industry Average: 10-15 days

Dairy Farm: -59.78 days


Key Ratios



Conclusion to Working Capital Management

Low current ratio- Dairy Farm invests in new stores, does not leave

current assets idling

High inventories turnover which are dealt in cash

Working Capital

Management

Overall

Conclusion


W.C.M

Provisions &

Reliability


& Reliability



Obligation due to past event;

Outflow is probable & can be reliablyestimated

Timing & amount is uncertain

Provisions

Working Capital

Management

Overall

Conclusion


W.C.M

Provisions &

Reliability


& Reliability



Provisions

DeferredTax

Liability

IncomeTax

Pension

Liabilities

Provisions &

Reliability



IncomeTax

Provisions

Provisions &

Reliability



2009

• Additional provision = 3.2

• Under provision of tax = 0.3

2010• Additional provision = 5.2• Over provision of tax = 3.2

2011• Additional provision = 5.5• Over provision of tax = 0.4

Provisions

Dairy FarmProvisions &

Reliability



Reliability of Provisions

EstimatesExpertise of

Experts

AdequateKnowledge on

Types ofProvision

Provisions &

Reliability



May not provide for sudden shocks like

financial crisis or adjustments to policies

Reliability of Provisions

Provisions &

Reliability



Possible obligation due to past event,

confirmed by future events;

Outflow not probable and/ or

Outflow not measurable

Contingent Liabilities

Working Capital

Management

Overall

ConclusionKey Ratios

Conclusion to

W.C.M

Provisions &

Reliability


& Reliability



Financial Guarantee Contracts

Litigation

Environmental damagesInsurance losses

Government investigation

Possible tax assessments



& Reliability



Financial Guarantee Contracts



& Reliability



Careful evaluation of

guarantees

Default of loansunforeseeable

Non-disclosure

FinancialGuarantee

Contracts

Drawing on theexpertise of its

lawyers

Confident of winningmost lawsuits

Immateriality

Litigation

Reliability of Contingent Liabilities



Reduction of negative impact

Costs needed to compensate for damages

Adequate efforts to avoid incurringcontingent liabilities

Reliability of Contingent Liabilities

Environmental

Damages



• Dairy Farm (2009, 2010, 2011) Annual Reporthttp://www.dairyfarmgroup.com/shareholder/reports.htm

• Sheng Siong (2009, 2010, 2011) Financial Statementhttp://www.shengsiong.com.sg/pages/Investor-Relations.html

•

NTUC (2009, 2010, 2011) Annual Reporthttp://www.ntuc.org.sg/wps/portal/up2/home/searchResults?searchString=annual%20report

• NGFL WALES Business Studies A Level Resources (2008) RatioAnalysis—Liquidity Ratios http://www.ngfl-cymru.org.uk/liquidity__ratios.pdf

• Riley, J. (2012) Working capital - why a business needs ithttp://www.tutor2u.net/business/finance/workingcapital_needs.htm

References

http://www.dairyfarmgroup.com/shareholder/reports.htm


http://www.shengsiong.com.sg/pages/Investor-Relations.html


http://www.ntuc.org.sg/wps/portal/up2/home/searchResults?searchString=annual%20report


http://www.ngfl-cymru.org.uk/liquidity__ratios.pdf






http://www.tutor2u.net/business/finance/workingcapital_needs.htm
















Charissa Chow

Jean LeeRachelle Ang

Yong Hui Min

Yu Zhiqi

financial acct project slides

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