Assessment of Different Risk in the company

Myer Holding Limited
Memorandum
To: Senior Audit Partner
From: Manager of the Company
Subject – Assessment of Different Risk in the company
Answer to A
Every company had some business risk. Business risk is a risk
that is uncertain in nature. It means these are the unexpected events,
which can happen in normal course of business. Company can have
business risk and because of these, the profit will decrease and even it
can incur loss. The risk influenced by many factors such as sales value,
input costs, and competitions of the market. The different business risk
that the company had are:
External Risk
There are many macro-economic factors such as poor customer’s
confidence, changes in government policies, fluctuation of Australian
Dollar, natural or uncertainty event, act of terrorism and national strike,
which in result decrease the ability of company in increasing the sales
growth.
In the case of company it affect the company as if the customers
does not have much confidence in the company than they will not do
business with the company as result company will not able earn the
prescribed revenue, if government changed its policy than it can affect
the company policies regarding the sales.
Competitive Landscape Risks
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The industry in which the company operates is very competitive. New
entrants in the industry is common and because of this existing company
have to get low profit or to incur loss.
In this case company is having large number of competitors as a
result of it unable to make the desired profit which it want to make and
as their new entries of competitor is there so it’s become very difficult
for the company to hold their position in the market.
Brand Reputation Risks
Every company want to build a good brand value in front of its
customers. As it because of brand value that the company is able to
manage the sales and increase its revenue.
In the case of company as it’s the company value, which let them
get new customers so if any criticism is been done regarding the
company it can lose all the brand value and as a result of it company will
lose all its current as well potential customers.
Strategy and Business Plan Risks
Business plan are the important element for any company. The
business is been carried with the help of business plan and strategy and if
the plan fails than the company will not be able to carry their operations.
So to run a successful business company should make a proper and true
business plan.
In the case of company as if, the company business plan fails as a
result of it company will not able to meet the sales which it has been
budgeted and also it will not able to meet all the business activity which
it have planned to do.
Answer to B
Horizontal analysis is the analysis of balance sheet and income
statement, which shows the changes which has come in the financial
statement over the period. It is been done so that the company and the
financial user can know how much the company had growth in last few
years.
In the given case, a horizontal analysis of balance sheet and
income statement is been done in the excel sheet from where it can get
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all the details of the balance sheet and income statement. The analysis of
balance sheet done below:
It can see from the analysis of the total current asset that the trend
is decreasing as the value of the asset decreased so can be concluded as
the company has sell some its current asset in the current year and can be
interpreted as the company is making its asset into paying of its liabilities
It can see from the total non-current asset that the amount that in
current year the amount has decreased so it can be said the company may
have sold some of its fixed asset or has decrease the investment in
different company. It can concluded as the company has sold the asset
compare to last year.
As in above analysis it seen that both current asset and non-current asset
has decrease as result of the, Total asset is also decrease as it can also see
by the amount of both years. The company is decreasing there asset and
paying their liabilities to avoid high debt situation in the company.
It can seen from the total current liability that the current liability of the
company has increased compare to last years, as it the value of the
company in 2015 was 481389 and in 2016 it was 520585. So, it can see
that the company has increase their current liability the effect will be its
decrease the current ratio and will give a question about the liquidity
status of the company as it is increasing its current liabilities in compare
to the current assets.
It can see from the horizontal analysis that the company has
decreased its non-current liabilities with a high percentage, this signify
that the company is paying its long-term debt and making its liabilities
decrease so that it does not have to pay more interest on the loans and
other items which are there in non-current liabilities. It also say that the
company is having a good financial position as because of that only it is
able to pay all the debt of the company.
As a result of changes in both current liabilities and non-current
liabilities the overall Total liabilities has decreased and it show a good
position that the company is making their debt ratio better by releasing
all its Long and short term debt.
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In the analysis it can see that the overall equity of the company is
increased, this signify that the company has earn more in compare to
previous year and it shows that the financial position of the company is
overall good and the business is running smoothly in the company.
The analysis of Income Statement of the company are:
It can see that the revenue from sales of the company, is slightly
decrease in current year as in 2015 it was 2654351, and in 2016, it was
2640154. Therefore, it decreased so it can say that the company is not
able to meet the required sale, which shows that the market of the
company was not so favorable in the current year.
The cost of the goods of the company is been increased compare
to previous year, so it can said that the company has incur more cost in
the product and should take measure regarding the cost of the product.
The operating gross profit of the company is decreased which can
also obtained as the sale also decrease so because of it the operating
profit has also decrease.
The earnings before Interest and taxes has increased in current
year, which shows that the company had incurred less amount in
operating expenses, compare to the previous year. It is a good sign that
the company had decrease its operating cost, which result in increasing
their income.
Net profit of the company has increased in current year, which
shows that the company is been financially strong and able to get the
required numbers of business from the market.
Answer to C
Inherent risk are the risk, which happen when the company omits any
important details from the financial statement. It are the risk, which
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