Principles of Financial Accounting

This document provides an analysis of the principles of financial accounting, including industry description, company description, financial instrument analysis, financial ratio analysis, and competitor analysis. It discusses the size of the industry, level of competition, regulators of the industry, main source of business, ownership and management structure of the company, role within the financial system, financial instruments, off-balance sheet business, profitability performance, liquidity performance, efficiency performance, main competitors, basis of competition in the industry, and opportunities and threats for the company.

Principles of Financial Accounting
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Contents
1. Industry Description................................................................................................................................3
a)Size of Industry and Level of Competition............................................................................................3
b. Regulators of the Industry and extent of compliance within the industry..........................................3
c. Industry Groups Regulating the Behavior............................................................................................3
2. Company Description..............................................................................................................................4
a. Main Source of Business and the type of products and Services.........................................................4
b. Ownership & Management Structure of Company.............................................................................4
c. Role within the Financial System.........................................................................................................4
3. Financial Instrument Analysis..................................................................................................................4
a. Financial Instruments..........................................................................................................................4
b) off Balance Sheet Business (OBS)........................................................................................................5
4. Part A: Financial Ratio Analysis................................................................................................................5
Profitability Performance........................................................................................................................7
Liquidity performance.............................................................................................................................7
Efficiency Performance............................................................................................................................8
Part B: Competitor Analysis.......................................................................................................................10
a. Main Competitors..............................................................................................................................10
b. Basis of Competition in Industry........................................................................................................10
c. Opportunity or Threat for the Company on the basis of Competition...............................................10
5. Financial Market Analysis......................................................................................................................11
a. Interaction among the Financial Players of the Industry...................................................................11
b. Government Intervention..................................................................................................................12
c. Ethical Behavior within Brisbane Broncos..........................................................................................13
6. Findings, Conclusion and Recommendations........................................................................................13
References.................................................................................................................................................15
Appendix...................................................................................................................................................17
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1. Industry Description
a)Size of Industry and Level of Competition
The ASX listed entity selected for analysis purpose is Brisbane Broncos Rugby League
Football Club Ltd that is commonly known as Brisbane Broncos. It is a recognized Australian
rugby league football club that is located within the city of Brisbane. The company operates
within the sport sector of Australia that is composed of various types of entities promoting
growth and development of sport. The sports sector realizes revenue of about $12 bn on annual
basis and the growth of the sector is contributed to be about 4% on an annual basis (Sports -
Australia Market Research Report, 2018). The football sports largely contribute to the growth
and realization of revenue within the Australian sector. Football is regarded as the major sport
within the Australia and therefore there exists many football club within the country. As such,
the level of competition is intense with many dominant football leagues present within the
country such as Queensland Reds, Brisbane Roar, Brisbane Lions and many others (McMahon,
2017).
b. Regulators of the Industry and extent of compliance within the industry
The football leagues within the industry are governed by Australian National Football
Council (ANFC). ANFC is regarded as the national governing body for developing and
maintaining football rules within the country. Also, the Australian Football League (AFL) also
serves as a sport governing body for football game within the country.
c. Industry Groups Regulating the Behavior
The AFL Players Association (AFLPA) is the representative body that is involved in
promoting and protecting the members through taking initiatives such as improving workplace
relations, supporting career growth and community events. It act as a lobbying group for the
players of the league by promoting investment in past, present and future personal development
of the footballers (National Rugby League and Australian Rugby League, 2017).
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2. Company Description
a. Main Source of Business and the type of products and Services
Brisbane Broncos Limited is an Australian based company that is involved in
management and operations of Rugby League Football Team of Brisbane Broncos. The football
club drives its revenue through sponsoring of the football team of Brisbane Broncos and is
regarded as one of the most financially successful franchise for National Rugby League having
one of the highest base of supporters (Brisbane Broncos Limited And Its Controlled Entities:
Annual Report, 2018).
b. Ownership & Management Structure of Company
The parent company of Brisbane Broncos is Nationwide News Pty Ltd that is a subsidiary
of News Limited having about 70% of the shares of the company. It is regarded as the only
publicly listed national rugby league club within Australia. The management of the club consists
of Board of Directors including executive and non-executive key management personnel
(Brisbane Broncos Limited and Its Controlled Entities: Annual Report, 2018).
c. Role within the Financial System
The football club is regarded as the source of funds as it generates funds through
undertaking sponsorship of Brisbane football team. It has a stable portfolio of committed
partners providing support the club and achieves the highest annual revenue of all rugby clubs
within Australia as Brisbane is regarded as the most popular and football teams of the country.
3. Financial Instrument Analysis
a. Financial Instruments
As analyzed from the financial report for the year 2018 of Brisbane Broncos, its major financial
instruments include cash and short-term deposits. It can be depicted as follows:
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It is not exposed largely to fluctuations within the interest rates as it does not own debt. Thus, the
financial assets and liabilities of the group that is exposed to the risk of fluctuations within the
interest rate are only cash and cash equivalents and use the financial instruments of short-term
deposit for earning interest on an average rate per annum (Brisbane Broncos Limited And Its
Controlled Entities: Annual Report, 2018). The other significant risks associated with assets,
liabilities and equity section of the group such as credit risk, liquidity risk and capital risk by
adoption of adequate policies that aims to minimize these risks and does not incorporate the use
of any financial instruments for reduce the adverse impact of these risks(Makoujy, 2010).
b) off Balance Sheet Business (OBS)
The off-balance sheet items refer to the specific assets and liabilities that are not present within
the balance sheet of a company. This type of accounting practice is mainly utilized by a company
for overcoming the impact of ownership of an asset and its significant liability over its financial
statements. The major types of OBS items that are present within a company are operating leases
as the company leasing asset only accounts monthly rental payments and do not list the asset and
its associated liability on the balance sheet (Paterson, 2016). Also, in a leaseback agreement a
company selling an asset such as an item of a property does not mention this type of financial
transaction on its balance sheet. Brisbane Broncos has integrated the use of this method of
financing as it involves operating lease payments that are recognized an expenses in the income
statements by the use of a straight-line basis over the lease term. The associated expenses
incurred are recognized over the lease term and is added to the carrying amount of leased asset
and recognized under expenses of the income statement as depicted below:
(Source: Brisbane Broncos Limited And Its Controlled Entities: Annual Report, 2018)
4. Part A: Financial Ratio Analysis
The 3 financial ratios – Profitability Ratio, Efficiency Ratio, and Liquidity Ratio are
going to be discussed in this report.
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Calculation of Financial Ratios of Brisbane Broncos Limited
Financial Item 2016 2017 2018
Amount in $
Net Profit $
2,803,861.00
$
2,747,519.00
$
2,067,148.00
Net Sales $
33,588,050.00
$
36,661,210.00
$
38,088,287.00
Current Assets $
23,094,081.00
$
15,770,725.00
$
16,568,307.00
Current Liabilities $
9,742,299.00
$
11,520,720.00
$
12,295,641.00
Total Assets $
43,126,536.00
$
50,698,751.00
$
50,134,525.00
Avg. of Total Assets $
46,912,643.50
$
50,416,638.00
Ratio
Category Ratios 2017 2018
Profitability
ratio Net Profit Ratio
Net Profit/ Net Sales In percentage 7.49% 5.43%
Liquidity
ratio Current Ratio
Current assets/ current
liabilities In time 1.37 1.35
Efficiency
ratio Asset Turnover ratio
Net Sales/Average of
Total Assets In percentage 78.15% 75.55%
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(Source: Brisbane Broncos Limited And Its Controlled Entities: Annual Report, 2017 &
Brisbane Broncos Limited And Its Controlled Entities: Annual Report, 2018).
Profitability Performance
Profitability ratio measures the ability of the company to earn the sales through use of
resources and capital employed within the business operations.
Net Profit Ratio:
2017 2018
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
7.49%
5.43%
Net Profit Ratio
In %
Net profit Ratio measures the percentage of profitability in relation to net sales.
Formula: Net Profit/Net Sales
In past two years this ratio seems to be a weakness for the Brisbane Broscone Limited as
the net profit ratio falls from 7.49% to 5.43%. The reason can be decrease in net profit even if
there is an increase in net sales. This will lead to dissatisfaction among shareholders and
prospective investors (Krantz, 2016).
Liquidity performance
Liquidity ratios measures the short term solvency of the company and provides level of
short term assets entity keeps with them to manage the working capital requirements.
Current Ratio:
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2017 2018
1.33
1.34
1.35
1.36
1.37
1.37
1.35
Current Ratio
In Times
Current ratio indicates that whether a company is able to pay off its short term obligation
with company’s current assets.
Formula: Current Assets/Current Liabilities
A downward trend in past two years is notices. Current ratio in 2017 was 1.37 times
which comes to 1.35 times in 2018. However the difference is not such big but it indicates that
company’s current liabilities are getting high as compared to its current assets. If this trend is
being followed than this ratio can become a weakness for the company as creditors can lose faith
in the company because soon the current assets will not be sufficient to pay its short term
liabilities (Davies and Crawford, 2011).
Efficiency Performance
Efficiency ratios evaluate the management performance in using the resources of the
company to earn the income and also manage the cash cycle within the company.
Asset Turnover Ratio:
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2017 2018
74.00%
74.50%
75.00%
75.50%
76.00%
76.50%
77.00%
77.50%
78.00%
78.50%
78.15%
75.55%
Asset Turnover ratio
In %
Asset Turnover Ratio measures how efficiently a company is using its assets to generate
revenue.
Formula: Net Sales/Average of Total Assets
In the above chart it is indicated that company is not able to use its resources as it should
use. In 2017 the asset turnover ratio was 78.15% but this ratio comes to 75.55% in 2018.
Turnover has increased from 2017 to 2018 so as average total assets too. It is a major weakness
of the company that even if it has sufficient resources but these are not fully utilized to generate
revenue (Bragg, 2010).
Overall analysis of the report says that these financial ratios seem to be a weakness for
the company. Brisbane Broncos Limited is neither a high profit making company nor it is using
its resources efficiently to generate high revenue. But in the current scenario company is able to
pay its short term obligations but it will not be able to pay them in long run as its current ratio is
going down by the time.
Part B: Competitor Analysis
a. Main Competitors
The major competitor of the Brisbane Rugby League Football team is the Queensland
Reds that is a rugby union team for the Australian state of Queensland. The rugby union club of
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Queensland represents the main competition for Brisbane Broncos club. Besides it, the national;
Rugby League (NRL) women’s Premiership is the national club within Australia promoting the
development of female players and represents major competition of Brisbane Broncos. North
Queensland Cowboys is regarded as the major competitor of Brisbane Broncos and the two have
intense competition between them. Also, other competitors of Brisbane Broncos are Sydney
Roosters, Melbourne Storm and Gold Cost Titans that have strong rivalry with the Brisbane
Rugby League Football team (McMahon, 2017).
b. Basis of Competition in Industry
The basis of competition within the National Rugby League (NRL) field of sport industry
in Australia is the average amount paid per member and the quality of personal development
facilities offered to the members. Brisbane Broncos Limited competes mainly on the factors of
price and quality as it tends to provide highest price to the members of its football team and also
providing them best quality personal and career development training and other resources for
improving their performances (Sport Business Staff, 2019). It tends to become the low cost
producer of recreational activities within NRL sport sector of Australia. The differentiation
attained by Broncos limited due to its unique recreational activities that enables it to boost the
performance of footballers of its team have enabled it to attain a distinctive competitive position
among NRL’s of Australia. In addition to this, the football league of Brisbane also competes on
the basis of location and number of wins that its team acquires over another. The location is a
competing factor as different leagues are competing from different states and number of
premierships that they have won as compared to other leagues (MacIntosh, Bravo and Li, 2019).
c. Opportunity or Threat for the Company on the basis of Competition
The competitors identified above for Broncos Limited pose a threat for the company.
This can be said on the various basis of competition that has been identified on which they
compete with each other. The price paid to each member by the football league to its players is
the main basis of competition between Brisbane Broncos Limited and Melbourne Storm as it is
striving to overtake Broncos on the basis of money provided to the players. The club competes
on the basis of quality and location with the competitors such as Queensland Red (Whitelock,
2018). The two competing leagues have fierce competition with each other owing to their
different states and achieving a win over other to realize more funds for the sport association of
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their state. In addition to this, the fierce competition exists between Brisbane Broncos and North
Queensland Cowboys on the basis of premierships won. Brisbane have own about six
premierships that includes two NSWRL titles, upper league premiership and three NRL
premierships. The football league has won three grand finals and has also reached the finals of
NRL premiership several times. It has also defeated Brisbane Broncos in their first premiership
and that has developed a strong competition between the two clubs (Devaney, 2014).
5. Financial Market Analysis
a. Interaction among the Financial Players of the Industry
The NRL sport sector of Australia works under the interaction of large number of
financial players such as sponsor, shareholders and regulators. They all work in co-operation
with each other for carrying out football matches. The individual firms within the industry such
as Brisbane Broncos Rugby League derives funds from various sponsors who can be regarded as
investors investing within the club for deriving funds from winning of its team. Brisbane
Broncos has also realized a growth in its sponsorship in the financial year 2018 due to existence
of large number of partners who are providing large help for supporting the club. The principal
partners of the club are the companies such as Premier Partner Arrow Energy, National Storage
Coco-Cola and many others. These all sponsors of the club are continuously providing support to
it for conducting its various activities and also realize returns from the premierships wins of the
football team of Brisbane (Brisbane Broncos Limited And Its Controlled Entities: Annual
Report, 2018).
The management of the club borrows funds from sponsors for conducting of events of
football matches. Also, the major investors of Brisbane Broncos are its shareholders that are
News Limited and BGM projects holding major portion of its shares. The financial
intermediaries involved in managing the financial activities of Brisbane Broncos are its sponsors
such as NRMA Insurance and financial services partner such as FirstMac. NRMA insurance is a
general insurance group that acts as financial intermediary by gathering funds from its lenders
and providing it to support various numbers of activities of the rugby league club. Similarly,
Firstmac is a financial services partner involved in conducting various campaigns for promoting
brand image of club and as such act as a financial intermediary (O'Boyle and Bradbury, 2013).
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The regulators such as AFL are involved in developing regulations for governing the different
functions and activities of the various clubs involved in organization of football matches within
Australia. The different players within the sector exists in a mutually beneficial relationship as
management of clubs acquire funds from sensors and shareholders to conducts its various
activities and provides returns to them with winning the football matches. The financial
intermediaries also acquire funds from the lenders and provide them to the clubs and in return
realized large funds from the wins of their teams (Brisbane Broncos Limited And Its Controlled
Entities: Annual Report, 2018).
b. Government Intervention
The Australian Rugby League commission is the official governing body for regulating
the various activities under the rugby league within the country. It is regarded as the single
controlling body developed for administration of the game in Australia. In addition to this,
Australian Rugby League (ARL) and the National Rugby League (NRL) work in partnership
under the commission to promote ethical behavior within the industry and protecting the interests
of each of the member within the industry. This is required due to issues relating to racism that is
common within the rugby league due to involvement of players belonging to different cultural
backgrounds (National Rugby League and Australian Rugby League, 2017). The presence of
governing bodies is required to prevent any issue relating to harassment and discrimination of
teammates that can result in negatively impacting the team environment. ARL has also provided
a national code of conduct for governing the behavior of all participants in the game such as
players, coaches, guardians, spectators and other associated parties. NRL in partnership with the
commission has also implemented an NRL anti-discrimination framework for creating an
inclusive and non-discriminatory sport environment within rugby league (Nrl Anti-
Discrimination & Vilification Framework, 2017).
c. Ethical Behavior within Brisbane Broncos
Brisbane Broncos Limited and its related entities ensure to comply with the highest level
of integrity and ethical standards in carrying out its all business activities. The company ahs
implemented an ethical policy for complying largely with all the governing laws and regulations
present within rugby league. The code of conduct within the club is developed for providing
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detailed information to the employees regulating the ethical standards and practices to be used
within the workplace (Brisbane Broncos Limited, 2016).
6. Findings, Conclusion and Recommendations
It can be said on the basis of overall analysis carried out in the context of Brisbane
Broncos Limited a rugby league club of Australia operates in a financial healthy sport sector of
Australia. The sports sector of Australia is a financial healthy sector realizing large amount of
revenue as sports is a big business in Australia. Rugby League is the major segment of the sports
industry of Australia with Australian households spending a large proportion of their budget
towards watching football league matches (Cox, 2019). Also, the rugby league clubs such as
Brisbane Broncos Limited receives a continuous financial and other type of support from their
various sponsors. Also, the rugby league segment of sports industry of Australia is regulated and
governed by large number of bodies such as NRL and AFL.
The AFL and NRL are working in partnership with each other for supporting the
sustained growth and development of rugby league in Australia. The governing bodies are
actively working towards for reduction in the net expenditure incurred in various activities
within various rugby league clubs for driving the industry growth by increasing the net profit
realized. The governing bodies are placing continuous efforts towards reducing the
administrative staffing and overhead costs for improving the profitability margins of the league
clubs within Australia (Brown, 2013). The report with the use of ratio analysis has also depicted
that Brisbane Broncos is realizing lower profits and thus there exist a high need for reducing the
operating expenses to sustain its profitability position in the future context. The liquidity position
of the company is also weak which can prove to be detrimental for the company to sustain its
financial performance in the long-run. The regulators are also aiming together support of
Australians and also inspiring generations of future players for achieving financial benefits and
thus gathering more money for investing within the game. The sustained growth and
development of Rugby Australia is also promoted by regulators by investing within women’s
rugby to promote large-scale growth of rugby within the country. The initiatives undertaken by
the regulators can be regarded as accurate as they are striving to take key measures that aim to
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overcome the problems that can result in negatively impacting the long-term performance of
rugby league clubs such as Brisbane Broncos Limited (Sport Business Staff, 2019).
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McMahon, C. 2017. Analysis of Brisbane sporting market reveals how fierce competition is
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Appendix
(Source: https://www.broncos.com.au/contentassets/dd5bc77f7826405c97e8cf8d8dee7024/190404-
annualreport.pdf)
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