Accounting For Managers Report 2022

ACCOUNTING FOR MANAGERS
HARVEY NORMAN

PART A: THE COMPANY REPORT
Answer 1)
The entity is principally engaged in the activities of integrated retail, property, franchise and
digital enterprise (Harvey Norman, 2019a). The products that are sold under the various
brand names are the electrical goods, furniture, kitchen appliances, computerised
communications, small appliances, and others.
Answer 2)
For the purpose of revenue recognition, the entity follows the AASB 15. When the said
accounting standard is applicable on the franchise agreements, the amount that is expected by
the entity to be received from the operating activities of the franchise agreements when the
sale of the goods is made that is when the control over the product is obtained by the
customer (Harvey Norman, 2019b). The above policy is described on the page number 76 of
the annual report note (f).
Answer 3)
The valuation of the plant and equipment is done at the historical costs. In contrast to this, the
owner occupied land and buildings are first recognised at cost and the later valuation of such
land, leasehold land and buildings is done at the fair values (Harvey Norman, 2019c). The
determination of such fair values is done with reference to the market evidences as obtained
by the external valuers. The valuation of the property, plant and equipment is elaborated on
page number 70 and the paragraph (vi).
Answer 4)
For the financial period ending on June 30th, the auditors of the company were the Ernst &
Young. Apart from the legal mandatory requirements in the Corporations Act 2001 and
accounting guidelines, the general requirement of the auditors independence is due to the fact
that the decisions of the potential lenders, investors and the business regulators is dependent
upon the externally audited financial statements. The said reports provide the reasonable
assurance that the financial statements are devoid of the material misstatements (Delen,
Kuzey and Uyar, 2013). The external examination of the financial statements increases the
reliability of the financial information.
Answer 5)

A number of initiatives have been undertaken by the company on the lines of the sustainable
business practices in varied areas. The entity fulfils its obligations of the state and federal
environmental guidelines and accordingly the company has complied with the new legislated
requirement of a minimum of 70 microns thickness plastic bags. In addition, the company has
introduced initiatives on the lines of recycling and management of waste in conjunction with
Australian Packaging Covenant (“APC”), as stated on page 56 (Harvey Norman, 2019d).
Further, the entity continues to support Aboriginal people such as Australian Indigenous
Mentoring Experience (AIME) program.

PART B: ANALYSIS OF COMPANY’S FINANCIAL INFORMATION
Answer 1)
The analysis of the various ratios of the company Harvey Norman Holdings Limited is
conducted as follows.
A. The efficiency ratios of the company is provided for the year 2018 and 2019 below.
Financial Ratio Analysis - Harvey Norman
Ratio Formula 2019 2018
Asset
turnover Sales / Average total assets
2234118/
((4798744+4577642)/2)
1993760/457764
2
0.476541388 0.435543015
0.48 0.44
Cashflo
w return
on assets
Net cash from op activities /
Average total assets
372845/((4798744+4577642)/
2) 454170/4577642
0.079528509 0.099214836
0.08 0.10
B. The asset turnover ratio of the company indicates the levels of revenues as against the
investments in the total assets and the fixed assets of the company (Fridson and Alvarez,
2011). There is improvement in the asset turnover ratio over the period of one year and
the same is because of the increment in the revenues and the average assets, where the
simultaneous increase in the revenues is more than in average assets. This is a positive
sign for the entity’s efficiency. The cash return on assets indicates the efficiency of cash
generation from the operating activities from the business against the assets. The decline
in ratios is due to the fall in the levels of cash from the operating activities and is
indicative of a possible liquidity crunch faced by the organisation.
C. The two profitability ratios of the company are provided as follows in the table depicting
the comparison over the year 2018 and 2019.
Financial Ratio Analysis - Harvey Norman
Ratio Formula 2019 2018
Return on
Equity Profit / Average equity
409002/ ((3197793+
2937932)/2) 380050/2937932
0.133318231 0.129359699

13.33% 12.94%
Net Profit
Margin Net profit / Sales or revenue 409002/2234118 380050/1993760
0.183070903 0.190619734
18% 19%
D. The profitability ratios aid in the understanding and evaluation of the different levels of
earnings alongside the equity and assets of the company (Edmonds, 2013). The analysis
lead to the observation that while the net profit margin has slightly declined, the return
on equity has improved slightly over the period of one year. The reason is the
comparative higher increase in the profits as against the average equity, and is a positive
sign. The net profits margin has slightly reduced and might be indicative of the possible
issues in some indirect expenses during the year. It can be concluded that the overall
profitability position of the company is stable from the point of view of the investors.
E. The calculation of the debt ratios of the entity Harvey Norman is depicted as follows.
Financial Ratio Analysis - Harvey Norman
Ratio Formula 2019 2018
Debt to
Equity Total liabilities / Total equity (1600951/3197793) (1639710/2937932)
0.500642474 0.55811707
50% 56%
Cash debt
coverage
Avg total liabilities / $$ from op
activities
((1600951+
1639710)/2)/372845 1639710/454170
4.345855516 3.610344144
435% 361%
F. The evaluation of the liabilities against the assets and the equities highlight the balance
of equity and the borrowed funds in the capital structure of the company (Robinson et.al,
2015). The analysis of the gearing ratios of the company highlights the fact that debt to
equity ratio of the company has reduced over the one year period which is indicative of
the risk reduction in the capital structure of Harvey Norman. The cash debt to coverage
ratio has increased in comparison from the ratio of the year 2018. The increment in the

ratio indicates better coverage of the average total liabilities of the company as against
the cash generated from the core business activities.

References
Delen, D., Kuzey, C., and Uyar, A. (2013) Measuring firm performance using financial
ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp. 3970-3983.
Edmonds, T. P. (2013) Fundamental financial accounting concepts. UK: McGraw-Hill.
Fridson, M. S., and Alvarez, F. (2011) Financial statement analysis: a practitioner's guide
Vol. 597. UK: John Wiley & Sons.
Harvey Norman Holdings Limited (2019a) Company Overview [online] Available from:
http://www.harveynormanholdings.com.au/company [Accessed on: 07 January 2020].
Harvey Norman Holdings Limited (2019b) 2019 Annual Report [online] Available from:
https://static1.squarespace.com/static/54803162e4b08e1b8a472201/t/
5dac405a64fbcd1ae7b3bd58/1571569849947/HVN+2019+Annual+Report.pdf [Accessed on:
07 January 2020].
Harvey Norman Holdings Limited (2019c) 2019 Annual Report [online] Available from:
https://static1.squarespace.com/static/54803162e4b08e1b8a472201/t/
5dac405a64fbcd1ae7b3bd58/1571569849947/HVN+2019+Annual+Report.pdf [Accessed on:
07 January 2020].
Harvey Norman Holdings Limited (2019d) 2019 Annual Report [online] Available from:
https://static1.squarespace.com/static/54803162e4b08e1b8a472201/t/
5dac405a64fbcd1ae7b3bd58/1571569849947/HVN+2019+Annual+Report.pdf [Accessed on:
07 January 2020].
Robinson, T. R., Henry, E., Pirie, W. L., and Broihahn, M. A. (2015) International financial
statement analysis. UK: John Wiley & Sons.