Empirical Analysis of Two Australian Firms

The study investigated the changes that took place in case of Treasury Wine Estates (TWE) & Tassel Group Limited (TGR) in the form of announcements or undertaking of important financial decisions that significantly influenced or brought difference in the market.

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Running head: EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
Name of the Student
Name of the University
Author’s Note

1EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
Executive Summary
Every business firm prefers to incorporate changes in their financial system in order to
restructure the accountability of the organizational performance and ensure that the objective of
the firms are moving towards accomplishment after encountering industrial fluctuation as well as
the risks associated with market uncertainties. It is been seen that due to the fact that all the firms
are part of the industry hence new announcements regarding changes in their business activities
as well as financial decision making impacts upon the overall market. The significance of that
impact is important to analyze in order to support the understanding of the investors and realize
the market trends. Organizational take overs, new leases, earnings announcements, dividend
changes, consistent GAAP adjustments as well as changes in the non-GAAP earnings, etc. all
information contribute in creating variations in the market performance. Hence, it is required to
understand the nature of change that takes place in the market after new announcements made by
different firms as well as examine that whether there exists any abnormal market effect based
upon that. In other terms further proposal can be developed based on the event study or
accounting changes to research upon the issue and light upon new sphere or genre of financial
functioning of the businesses that runs within market. The study investigated the changes that
took place in case of Treasury Wine Estates (TWE) & Tassel Group Limited (TGR) in the form
of announcements or undertaking of important financial decisions that significantly influenced or
brought difference in the market. Estimation are done based on the comparison of the Non-
GAAP and GAAP earnings and evaluation is made based on the annual reports of the companies
followed by understanding how the market has reacted upon the financial decision makings.

2EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
Table of Contents
Executive Summary.........................................................................................................................1
PART I.............................................................................................................................................3
Introduction..................................................................................................................................3
Treasury Wine Estates (TWE) & Tassel Group Limited (TGR) Data Analysis.........................3
Conclusion...................................................................................................................................6
PART II...........................................................................................................................................8
Introduction..................................................................................................................................8
Research Questions......................................................................................................................8
Research Hypothesis....................................................................................................................8
Review of Literature....................................................................................................................9
Materials & Methods.................................................................................................................10
Limitations of the Research.......................................................................................................10
Future of the Research...............................................................................................................11
Gantt chart.................................................................................................................................11
References......................................................................................................................................12

3EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
PART I
Introduction
Treasury Wine Estates Ltd (TWE) demerged from Foster’s Group in 2011 and became a
global wine company based in Australia. Being within the top five wine producers throughout
the world it is the owner of a portfolio that is inclusive of Pinfold’s & Wolf Bass, 19 Crimes,
Maison de Grand Esprit as well as US wines like St Jean and Sterling. The company owns a
treasury with nearby 13000 planted hectares having over 130 wineries. It remained on track
through hitting a 25 % operating income growth by the end of the fiscal year 2017. On the other
hand Tassel Group Limited (TGR) has its engagement in farming, hatching and marketing of
Tasmanian grown smoked, frozen and canned Atlantic salmon where it integrated the seafood
processor and salmon growers along with marketers and bottom line sellers. It produces almost
10 million smelt per year through its operation over 3 hatcheries. 15.4 kilograms of final
products are produced per minute which added up to 3050 tons on average every year.
Treasury Wine Estates (TWE) & Tassel Group Limited (TGR) Data Analysis
The data represented below provides the changes in the GAAP and Non-GAAP earnings
of the company and based on the market beta, the respective abnormal returns are shown as
follows:

4EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
Through the event study method significant aspects are found in case of changes in the
GAAP earnings and the non-GAAP earnings for 0 day after announcement, 1 day after the
announcement and 2 day after annocement. For the 0th day after announcement significance is
being found in 19/08/2015, 18/02/2015 and 18/08/2016. For the 1st day after announcement on
16/02/2011, 28/02/2013 and 13/02/2017, the changes in case of 17/02/2011, 01/03/2013 and
14/02/2017, the value of GAAP and Non – GAAP earnings are found to be positive except
14/02/2017. It is been found that 2nd day after announcement is done on 16/02/2012,
28/02/2013, for which the market reacted significantly upon the information on 18/02/2012,
02/03/2016. In all the cases the GAAP and Non – GAAP earnings are positive. However, the

5EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
change in the GAAP earnings which is the net profit bor statutary profits are positive while the
changes in the Non- GAAP earnings the values are negative. Thus is is been seen that even when
the chages in the GAAP earnnings found to get increased, the Non-GAAP earnings have
decreased significantly. The market found to react upon this financial information significantly at
5 % level.
It is been found that in this period the annoucement that is being made helped it in th
challenging economy. The income statement reveals that the company had EBITS of 210.2
million in this periiod which ensured its strong perofrmance within the period of 2011-2012
financial year. Apart from that it strategized its buisness endeavors by excluding it from UK &
Ireland where volumes declined by 1.6 millions due to its inability to make financial sense out of

6EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
its investments. The change in 2016 in TWE took place due to its acquisition of Diageo’s Wine
potfolio while tye cchange in 2-011 w, 2012 as well as 2013 impacted the market price after their
announcement of demergeer with Foster Wine. Tassal group on the other hand have its merger
formation where retailers supported sales and non-current inventory raised by 84 % which
improved the NSR by 1.6 %. The rise in EPS is 14.8 % per share which contributed for a ful
year dividend of 13 %. Moreover, net debt was down by 34.4 million due to its operational and
strategic flexibility. The volatility in the European economy was thus surpassed though
maintaining an increase in GAAP earnings by 17.3 % million (Clinch et al., 2018). Thus the
financial decisions where freed from its oerational performance or tax environments. Howevrer,
the true performance of the company are being revealed by the Non – GAAP earnings which
included cash earnings, adjusted EPS, operating earnings and adjusted operating income of
Treasury Wine Estates (TWE). Moreover, in case of Tassel Group Limited (TGR) the non
GAAP earnings have a positive change in few periods where the non GAAP values have risen.
However, in those periods the GAAP earnings have and the net profit after tax has confronted a
minute declination. This shows that the operating expenses and profit actually reverses the
GAAP accounting distortion across the companies on a consistent basis.
Conclusion
It can be concluded based on the analysis that the Non-GAAP earnings are the
measurements of profit for both the companies in actual terms and for this reason this ar not
always included in the financial disclosure. The GAAP earnings are reflects of net profit or
statutory profits. However, Non-GAAP earnings reflects the best possible figures and the actual
financial health of a company towards its investors. Based on the GAAP rules, the quarterly
financial reports provides investors a composite representation of the company’s cash flow and

7EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
other financial transactions. Whereas the non-GAAP earnings includes more credible results
which excludes the impact of the large non-recurring events as for example the sales or purchase
of major assets. The non-GAAP earnings provides a way of evaluation of the operational
performance of the companies under consideration which are not dependent upon its financial
decisions.

8EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
PART II
Introduction
The GAAP earnings are utilized to provide an overview of any company’s financial
performance. In this process the financial statements renders information based on the existing
financial health of the company and being abided by the GAAP rules (Venter et al., 2014).
However, the non GAAP earnings are the parametric factor which help investors to delve into
the depth of the financial state of any company (Isidro & Marques, 2015). In the present case the
companies undertaken are Treasury Wine Estates (TWE) & Tassel Group Limited (TGR).
Through the GAAP and Non-GAAP earnings the obtained information provides sufficient details
to the investors regarding the operational performance of the company which are not influenced
by the financial decisions undertaken by TWE & TGR. In order to investigate on the
relationship between operational aspects of the company which are latent. However, the financial
decisions are revealed due to non-GAAP earnings. Research needs to conduct over the
relationship between non-GAAP earnings and how the operational performance becomes latent
due to financial decision making which is the objective of the research.
Research Questions
The research questions for the study can be incorporated as follows:
1. Does the operating profit reverses the GAAP accounting distortion across the companies
on a consistent basis?
Research Hypothesis
The null hypothesis can be reflected as follows:
H0 = Operating profit reverses the GAAP accounting distortion across the companies on a
consistent basis

9EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
The alternative hypothesis can be incorporated as follows:
H1 = Operating profit does not reverses the GAAP accounting distortion across the companies on
a consistent basis.
Review of Literature
According to Ciesielski & Henry (2017) the real estate companies requires extensive use
of representing their adjusted earnings which do not highlight the true scenario of the
organizational financial performance. GAAP earnings maintains a uniformity within companies
regarding their financial reports. On the other hand the non-GAAP earnings provides a high
quality information as it excludes the impact of one-time items or unusual items. The paper
basically incorporates the fundamental aspects of the income statement where in case the non-
GAAP earnings plays a better role than only the GAAP earnings.
According to Charitou et al., (2018) non GAAP earnings provides privilege to the
company based on their local authoritarian needs of preparing financial statements or for
incorporating local regulations or for adding new management perspectives for betterment of the
company. Since non-recurring items like restructuring charges, one-off gains or losses in major
assets, goodwill impairments, etc. are excluded in the non-GAAP earnings hence it provides a
better reliable and comparable financial information.
In accordance with Black et al., (2017) from conceptual perspective of the financial
information it is a fact that the non-GAAP earnings provide a better information regarding the
financial state of some companies though it lacks in merit for providing a clearly understandable
reporting once it becomes more frequent or regular in use. The GAAP provides a uniform
financial information in this respect that is acceptable and understandable from all respect.

10EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
Moreover, the non-GAAP earnings across companies lacks in providing standard definitions that
are consistent throughout all companies.
According to Bhattacharya et al., (2015) investors are found to give more focus upon the
non-GAAP measure rather than the GAAP figures which makes the less – sophisticated investors
to become at more risk to get misled. It was also reflected in the study that the true motivation of
the mangers for reporting certain numbers in financial terms are understood for their desire to
beat the expectations of the analysts as well as for avoiding decreases in earnings. The paper
revealed that the non-GAAP earnings help the investors to communicate better with the financial
state of the companies though it lacks in keeping a uniformity across the industry.
Materials & Methods
The data collection procedure based on quantitative research design can be utilized as an
effective way to conduct the research. Information from different secondary sources may be
utilized followed by annual reports of companies. The secondary data and information thus
obtained will be further analyzed with the help of statistical tools to understand the nature of
relationship that exists between the operational performances and financial decision making of
the companies that uses GAAP rules for revealing financial information.
Limitations of the Research
The research paper also needs to examine that whether the true profitability is better
understood by the investors through the non-GAAP earnings measurements and whether the non-
GAAP earnings use rules by inflating the reports of growth and profitability of any organization.
These are not thoroughly reflected through this study but further research is needed on this
aspect (Leung & Veenman, 2018).

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Future of the Research
The research will provide scope on understanding the flaws and fortes of the non-GAAP
earnings and how it can help the investors to understand the financial condition of organization
that behaves in similar manner due to uniformity of the GAAP rules implemented upon them for
financial understanding of information regarding the company’s financial health. This paper will
reflect will rejuvenate the existing relationship between operational health and financial health of
the companies and will reveal the true financial state that becomes latent due to implementation
of GAAP rules in their financial statements.
Gantt chart
Areas Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7
Introduction of
the Research
Literature Review
Research
methodology
Data analysis
Data collection
Conclusion and
Recommendation
s
Final Submission

12EMPIRICAL ANALYSIS OF TWO AUSTRALIAN FIRMS
References
Bhattacharya, N., Christensen, T., Liao, Q., & Ouyang, B. (2015). Can Short Sellers Constrain
Opportunistic Non-GAAP Earnings Reporting? https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2724935
Black, D. E., Christensen, T. E., Ciesielski, J. T., & Whipple, B. C. (2017). Non-GAAP
Earnings: A Consistency and Comparability Crisis?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2789037
Black, D. E., Christensen, T. E., Ciesielski, J. T., & Whipple, B. C. (2018). Non‐GAAP
reporting: Evidence from academia and current practice. Journal of Business Finance &
Accounting, 45(3-4), 259-294.
https://onlinelibrary.wiley.com/doi/abs/10.1111/jbfa.12298
Black, E. L., Christensen, T. E., Kiosse, P. V., & Steffen, T. D. (2017). Has the Regulation of
Non-GAAP Disclosures Influenced Managers’ Use of Aggressive Earnings
Exclusions?. Journal of Accounting, Auditing & Finance, 32(2), 209-240.
http://journals.sagepub.com/doi/abs/10.1177/0148558X15599131
Black, E. L., Christensen, T. E., Taylor Joo, T., & Schmardebeck, R. (2017). The relation
between earnings management and non‐GAAP reporting. Contemporary Accounting
Research, 34(2), 750-782. https://onlinelibrary.wiley.com/doi/abs/10.1111/1911-
3846.12284
Charitou, A., Floropoulos, N., Karamanou, I., & Loizides, G. (2018). Non-GAAP Earnings
Disclosures on the Face of the Income Statement by UK Firms: The Effect on Market
Liquidity. The International Journal of Accounting, 53(3), 183-202.
https://www.sciencedirect.com/science/article/pii/S0020706318302085

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Ciesielski, J. T., & Henry, E. (2017). Accounting’s Tower of Babel: Key Considerations in
Assessing Non-GAAP Earnings. Financial Analysts Journal, 73(2), 34-50.
http://search.proquest.com/openview/0fade8cbf35f9a6dc3aa42ac1670453e/1?pq-
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subtotals and non-GAAP performance measures.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3178567
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Kothari, S. P. (2017). High Non-GAAP Earnings Predict Abnormally High CEO Pay.
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https://onlinelibrary.wiley.com/doi/abs/10.1111/1475-679X.12216
Venter, E. R., Emanuel, D., & Cahan, S. F. (2014). The value relevance of mandatory non‐
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