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BUS5IAF Introduction to Accounting and Finance Assignment

   

Added on  2020-05-04

11 Pages1978 Words59 Views
Running head: INTRODUCTION TO ACCOUNTING AND FINANCEIntroduction to accounting and financeName of the studentName of the universityAuthor note

1INTRODUCTION TO ACCOUNTING AND FINANCE Table of ContentsPart I – Valuation of debt...........................................................................................................2Part II – Share valuation.............................................................................................................3Part III – Cost of capital.............................................................................................................6Part IV – Market analysis...........................................................................................................8Reference....................................................................................................................................9

2INTRODUCTION TO ACCOUNTING AND FINANCE Part I – Valuation of debt1.Long term and short term debtLong term debt – Blackmores raise the long term borrowing under common term deedthrough the unsecured debt facility from 3 banks and the amount of debt for the closing of theyear dated 30th June 2017 amounted to $ 236,901 thousands, out of which amount of $ 78,968being used for the businesses and $ 157,933 remained unused on the balance sheet date(Blackmores.com.au 2017).Short term debt – the company generally raise the short-term debt through bank overdraftfacility and the amount is payable at the call and are reviewed annually. For the closing of theyear dated 30th June 2017 amounted to $ 5,000 thousands and the entire amount remainedunused on the balance sheet date2.Debt structure Total debt of the company for the year closed on 30th June 2017 amounted to $241,901, out of which only $ 5,000 is raised through short-term borrowing and the remaining$ 236,901 raised through long-term borrowings.3.Industry influence Generally the industries with high growth rate raise finance through long-term debt asthey are quite sure that in future years also they will be able to generate profits and repay theloan. As Blackmores fall under the Australian retail industry that is rapidly growing sincepast few years, it is easier for the company to obtain long-term debt and use that for the longterm purpose of the business. Therefore, the maximum portion of the debt of the company isof long term nature (Della Seta, Morellec and Zucchi 2015).4.Cost of debtFor the financial year closed on 30th June 2017, the debt cost for the company was2.82%

3INTRODUCTION TO ACCOUNTING AND FINANCE Part II – Share valuation1.Cost of equity of the companyCost of equity (ke) = Rf + β (Rm – Rf)Where, Β = Beta = 0.35Rf = Risk free rate = 2.82%Rm = Market risk premium = 4.35%Thus, ke = 2.82 + 0.35 (4.35 – 2.82) = 3.36%2.Analysis of the performance of BlackmoresRevenue – from the annual report of the company for the year ended 2016 as well as 2015, itis recognized that the revenue of the company on 30th June 2017 was amounted to $ 692,790thousand as compared to $ 717,211 thousand. Therefore, there is a 3.4% decrease in therevenue as compared to the previous year (Blackmores.com.au 2017). Earning – looking at the earning figures of the company, it is recognized that the earning ofthe company is decreasing trend and it reduced by 42% over the year from 2016 to 2017. Theexact figure of earning for the year closed on 30th June 2017 was $ 58,028 thousands whereasthe earning figure for 30th June 2016 was $ 100,020 thousand. EPS – as the earning of the company was in the decreasing trend, it is obvious that the EPStoo of the company is in decreasing trend and it decreased by 41% over the year from 2016 to2017. The EPS for the year closed on 30th June 2017 was 342.6 cents whereas the EPS for30th June 2016 was 580.6 cents (Blackmores.com.au 2017).Dividend – the dividend payment of the company reduced by 34.1% during the year ended2017 as compared to 2016. The dividend paid by the company for the year closed on 30thJune 2017 was 270 cents per share whereas the same for the year ended on 30th June 2016was 410 cents. Growth expectation – the company is committed towards the superior performance of thebusiness. The strategic direction of the company is focussed on providing continuous

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