The fact of Dick Smith Electronic collapse case provides that if organizations fail to use its resources in effective manner then it would fail to lead in the given market segment. In addition to this, Dick Smith Electronic collapse is also not good in disclosing its financial information to its stakeholders which results into sudden ups and down of company’s share.
The main issues in Dick Smith Electronic collapse case is related with company’s failure to maintain its internal and external business functioning in effective manner. It is observed that Dick Smith Electronic collapse should disclose its financial information and decisions in effective manner. However, the company is following unethical information disclosing practice which is providing sudden impact on share price of company. This results into losses to shareholders in high manner. In addition to this, directors of company appointed the person as an administrator who used to carry out the advice work for Dick Smith Electronic.
This administrator represents creditors and other persons before organizations for their due amount. This seems unethical to appoint the person who was already working in the favor of Dick Smith Electronic as administrating offer for representing creditors for their dues. Company has also made delay and asymmetric information in its external information which has also resulted into unethical business practice for Dick Smith Electronic. However, company has faced several conflicts and soft landing of directors which have also fetched company in liquidation situation. Dick Smith Electronic has been indulged in insider trading, obfuscation and hiding information from stakeholders for gaining personal profits.
Contemporary theories
It is observed that management department of Dick Smith Electronic has appointed a person who was already working in organization for representation of creditors and their dues before company. This provides that company has followed unethical practice and appointed wrong person to represent creditors concern before company. As per Agency theory, company has violated agency rules and has taken unethical business decision. In addition to this, managers of Dick Smith Electronic are required to follow all ethical principle and should not hire person who is related party to organizations as administrator for creditors.
Social contract theory
Dick Smith Electronic is ethically obliged to abide by both social welfare and justice terms of social contract.
The norms, principle and values to organizations should be based on providing best quality services to clients and identify needs and demand of stakeholders in determined approach.
Ideally in Dick Smith Electronic collapse, shareholders, employees and other creditors who owned money to organizations were highly affected.
Shareholders- These are the persons who are the real owners of company and invested capital in the business functioning of organizations. They have affected due to sudden up and down of share price of Dick Smith Electronic which provides high risk in the capital invested amount.
Employees- These persons have been working in the value chain activities of Qantas Australia group. These people were forced to leave their jobs in Dick Smith Electronic.
Creditors- These are the person who owns money to Dick Smith Electronic and due to unethical business decision have to face high amount of loss. They have affected due to unethical business practice of Qantas Australia group.
The main issues which have been observed in Dick Smith Electronic were related with preparation of financial statement of organization. It is true to say that when company is about to go in liquidation then there is rare chances that it would disclose true and fairview of its financial statement. In addition to this, transparency is also one of the most issues which have been faced by stakeholders in Dick Smith Electronic. If data posting of inventories are considered that it is evaluated that financial information concerning inventories appears to be untimely. Therefore, the main issues which are faced by company are related with inventory management of organizations.
Corporate governance of corporation is related with legal compliance. Company had been making several violations in complying with laws and regulations. It is related with all the issues and problems of Dick Smith Electronic in complying with laws and regulation of Australian governments. It is evaluated that Australian market is consisted with dynamic economy. However, rules and regulation of Australia is also not strengthening which could force organization to increase transparency in disclosing required financial information to stakeholders.
In addition to this, company has also indulged in appointing related party as administrator for creditors which is neither ethical nor legal for organizations. Dick Smith Electronic has also failed in disclosing required amount of information as per government rules and regulations. These results high amount of ups and downs in the share price of company. Therefore, it is observed that Dick Smith Electronic has seen collapse in its business functioning due to its unethical business practice and weak legal compliance structure. If company wants to revive its business then it should focus on developing an effective legal structure accompanied with legal compliance process (Jacqeline, et al. 2012)
Director report- This report is accompanied with all the details of directors and other information about the company’s prospectus which company would do in future. In addition to this, it also divulges information about the company that all the laws and regulation applied on company has been met with high integrity and ethical manner. Director’s report of Qantas Australia group has provided the key financial statistics of company, remuneration report, and declaration for auditor’s independence for auditing of company and all the qualification and history of directors or key managerial persons of company ( Annual report, 2016, Pg, 27- 50)
Director’s declaration – The Director’s declaration of Qantas Australia group divulges that all the financial information reflects true and fair view of financial position of company. They also provides that company has reasonable grounds to pay off its debts and liabilities within the given time period and company. It also provides that Qantas Australia group will be able to meet its all obligations and liabilities in given manner.
Comparison between director’s report and director’s declaration- director’s report contains details of directors and other information about the company’s prospectus which company would do in future. On the other hand, director declaration provides that company will be able to meet its all obligations and liabilities in given manner. ‘
Key features
Director’s declaration helps stakeholders to make their decision in effective manner. It generates confident in stakeholders with the business functioning of organizations. In addition to this directors report provides all the required details about directors and future prospectus of company.
Assets= Liabilities+ Shareholders equity
In the beginning of year accounting equation of Qantas is
16700=13445+3255 (Computed part Please see calculation)
Requirement of both reports
Both reports are very necessary for the purpose of providing true and fair view of financial stamen of company. In addition to this, it reduces risk of uncertainty in stakeholders mind either with their invested amount or with their interest in the business functioning of organization.
KPMG, an Australian partnership and a member firm of KPMG network is the auditor of Qantas Australia group who has audited financial statement of company (Annual report, 2016, Pg, 50)
Audit firm has passed no disclaimer on the business functioning of Qantas Australia group. However, it has provided that all the information shown in financial statement of company is true and fair. It also provides that company has not made any default in its business functioning (Jacqeline, et al. 2012).
There are several services which have been provided by auditor other than its statutory services
In respect to non- audit services KPMG auditors has benefits of indemnity to the extent permitted by laws and as approved by board of directors. Auditors have also provided its advisory services to Qantas Australia group for appointing internal auditors for better management of internal functioning of organizations.
Qantas Australia group owns property plant and equipment as its largest assets in its business functioning. The amount of property plant and equipment stands for $M 11,670 (Annual report, 2016, Pg, 54) which covers more than 70% part of assets in financial statement of Qantas Australia group (Routledge, Sargeant, Jay 2014).
Opening value $M 10,715
Closing value-$M 11,670
Valuation method- These assets has been valued on the basis of method of depreciation and amortization method. This provides deduction from book value of property plant and equipment on yearly basis by certain computed amount Annual report, 2016, Pg, 54).
Written down value have been followed for charging depreciation on the assets of Qantas Australia group Annual report, 2016, Pg, 54-70)
The Largest source of revenue for Qantas Australia group is net passenger revenue which is around $M 13961 which plays around more than 70% part in total revenue of organization (Roth, 2017).
Revenue category consist of
Net passenger revenue-$M 13961
Net freight revenue- $M 850
Other- $M 1,389 Annual report, 2016, Pg, 52-55)
Finance cost which have been charged by Qantas Australia group in its income statement from profit and loss account (Annual report, 2016, Pg, 52-54)
Finance cost- – $M 284
Finance cost in 2015- $M 349
Finance cost in 2016-$M 284
This finance cost has decreased by 19.36% as compared to last year.
These changes in finance cost have been occurred due to decrease in long term loans of organizations. It is evaluated that company has reduced its long term loans in determined approach.
The directors of Qantas’s group have declared a fully franked dividend of seven percent per shares. It is amount of total $ 134 million (Annual report, 2016, Pg, 57).
Cash inflow from operating activities- $M 3,123
Net profit of company – $M 1,029
This reflects that company has $M 2106 difference between amount from its cash inflow from its operating activities and net profit. Annual report, 2016, Pg, 57)
Directors have identified these contingent liabilities on the basis of evaluation of internal and external factors of organizations. However, contingent liabilities held by company would be same as held by parent company (Brigham and Ehrhardt, 2016).
Directors of company have booked Unredeemed Frequent Flyer revenue as liabilities of company. It is the advance amount received by organizations as revenue. Therefore, it is the liability for the organization for which it has to provide its services to clients (Jacqeline, et al. 2012).
Computation of ratio for Qantas Group of company
Liquidity ratio
Liquidity position of Qantas is very weak and current ratio reflects that company has very less amount of current assets as compare to its current liabilities. It shows that company would not be able to meet out its sudden demand and liabilities if arise.
|
Liquidity ratio |
2016 |
2015 |
|
Current ratio |
0.492031873 |
0.675903614 |
|
Quick ratio |
0.444223108 |
0.632797858 |
|
Working capital |
-3,570.0 |
-2,421.0 |
Profitability ratio
This ratio shows company’s ability to earn return on its investment. However, Qantas has increased its profit by 4% in 2016 as compared to last year. In addition to this, return on capital employed also very less which would not even cover cost of capital for the organizations. Qantas has been giving good amount of return on equity to its shareholders.
|
Profitability Ratios |
2016 |
2015 |
|
Operating Profit Margin |
0.101419753 |
0.066262013 |
|
Net Profit Margin |
0.063518519 |
0.035407183 |
|
Return on Capital Employed |
0.0143628 |
0.0117929 |
|
Return on Equity |
0.316129032 |
0.162696107 |
|
Return on Total assets |
0.008474646 |
0.005812928 |
Debt equity ratio
By evaluating the below data, it could be inferred that company has high amount of financial leverage in its business functioning. Company has reduced its long term debts which have simultaneously resulted into reduction in financial cost. Interest gearing ratio has also increased by 3% due to reduction in financial cost of company (Brigham &Ehrhardt, 2016).
|
Debt equity ratio |
||
|
Capital structure ratio |
2016 |
2015 |
|
Debt- equity |
0.124518411 |
0.171213558 |
|
Interest coverage ratio |
7.502283105 |
4.046332046 |
Efficiency ratio- This ratio reflects how well company has been managing its cash and other cash equivalent to reduce its cost of capital (Barton & Wiseman, 2014).
|
Efficiency ratio |
||
|
Efficiency ratio |
2016 |
2015 |
|
Receivable turnover ratio |
18.47206385 |
28.31871083 |
|
Creditor turnover ratio |
7.472976468 |
2.205201875 |
|
Inventory turnover ratio |
43.91793313 |
15.20646507 |
|
Assets turnover ratio |
0.148789023 |
0.278315956 |
Dividend per share – It is the amount of dividend which is computed on the basis of per equity shares of company.
|
Particulars |
2016 |
2015 |
|
Dividend Paid |
134 |
0 |
|
Dividend per Share (DPS) |
0.041167435 |
0 |
Conclusion
In this report financial analysis has been made which provides key statistical about Qantas Australia Group Company. It is helpful for investors to make effective investment decisions. Now in the end it would be inferred that the financial position of Qantas Australia Group Company is not much effective and company is having high liquidity risk in its business functioning
References
Barton, D. and Wiseman, M., 2014.Focusing capital on the long term. Harvard Business Review, 92(1/2), pp.44-51.
Brigham, E.F. and Ehrhardt, M.C. 2016. Account Finance. Cengage Learning, PP 1-549.
Brigham, E.F. andEhrhardt, M.C. 2016. Financial Management: Theory & Practice. 15th ed. Boston: Cengage Learning.
Jacqeline, B. Keryn, C. Sunzanne, B. Alibe, B. Judy,O., 2012, accounting business reporting for decision making, John Wiley & Sons Australia Ltd
Rao, P.M. 2011. Financial Statement Analysis and Reporting. Eastern Economic Edition, PHI Learning Private Limited, New Delhi.
Roth, M., 2017. Top Stocks 2017: A Sharebuyer’s Guide to Leading Australian Companies. John Wiley & Sons.
Qantas, 2016, New horizons, Retrieved on 13th April, 2017.
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