ACC00724 Accounting for Managers: Cash Flow & Profit Analysis

This assignment provides a comprehensive analysis of Aristocrat Ltd.'s cash flow statement, focusing on trends in operating activities and significant changes in cash flows from 2016 to 2017. It also evaluates three distinct proposals aimed at enhancing the profitability of Telesmart Ltd.'s high-end smartphone, employing quantitative techniques such as profit estimation, sensitivity analysis, break-even analysis, and margin of safety calculations. Each proposal is assessed based on its potential impact on sales volume, pricing, and overall profitability, while also considering qualitative factors like available capacity, competitive landscape, and the risk of price wars. Finally, the assignment addresses a special order offer received by Free Wheels’ from Cycle World Ltd, determining the appropriate bid quote under different factory capacity scenarios, and weighing the opportunities and disadvantages associated with accepting the special order.

ACCOUNTING FOR MANAGERS (ACC00724)
Student Name
[Pick the date]

Question 1
Cash Cycle (Aristocrat Ltd.)
Statement of Cash Flow (Aristocrat Ltd.)
A significant jump to the extent of $ 119 million has been noticed in the operating cash flows in
FY2017 on a y-o-y basis. The prime contributor of this is the continuous focus of the company to
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grow business through the inorganic route which is leading to significant increase in customer
receipts without proportional increase in outflows associated with employees and suppliers. TO
an extent, this growth of the company is also captured in the high income tax paid in FY2017.
On account of increased spending on intangible asset acquisition, the outflow on account of
investment activities has seen a rise in FY2017 in comparison with FY2016. Also, in both
FY2016 and FY2017, there is a net outflow on account of financing activities as the company is
using the cash generated for paying debts. Besides, the jump in dividends paid in FY2017 is
quite spectacular (Aristocrat, 2017).
Question 2
Proposal given by Aaron Jacobsen:
Proposal includes quality betterment that requires additional variable cost of $28 per mobile
and expense of advertisement of $30,000. The estimated growth in sales volume due to the
proposal acceptance would be 30%.
Comment
1) Quantitative analysis for potential profit estimation
2) Sensitivity analysis for estimated sales of phones
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3) Break-even analysis for number of units for $240,000 profit
4) Margin of safety to find the risk of the proposal
5) Qualitative parameter includes the extent of spare capacity that is available with the company
to take advantage of the higher sales volume expected in this proposal.
Proposal given by Joanne Arnett
Proposal includes advertisement campaign involving total expenses of $50,000 along with
increment in sale price per unit of $60. The estimated drop in mobile sale due to the proposal
acceptance would be 10%.
Comment
1) Quantitative analysis for potential profit estimation
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2) Sensitivity analysis for estimated sales of phones
3) Break-even analysis for number of units for $240,000 profit
4) Margin of safety to find the risk of the proposal
5) Qualitative parameter includes an understanding of the industry ecosystem comprising of
both customers along with other competitors. This is required since the company is planning
to increase the selling price (Petty et. al., 2015, p. 133-134).
Proposal given by Jennifer Saunders
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Proposal includes promotion of phones that requires expense of advertisement of $30,000.
Under the campaign, the firm will issue phone at discount rate (rebate of flat $30) for the initial
1500 phones. The estimated number of phone sold due to the proposal acceptance would be 1000
units more
1) Quantitative analysis for potential profit estimation
2) Sensitivity analysis for estimated sales of phones
3) Break-even analysis for number of units for $240,000 profit
4) Margin of safety to find the risk of the proposal
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5) Qualitative parameter include the possibility of engaging in price war which may be
triggered by lowering price point by company and may be copied by other players. This may
erode profitability in this long run (Brealey, Myers & Allen, 2014, p.67-68).
Question 3
(1) Free Wheels’ has received an offer of from Cycle World Ltd to manufacture 25,000 units
of bike.
(a) The objective is to find the quote for the bid for special order, when the factory capacity
is 100,000 units yearly.
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(b) The objective is to find the quote for the bid for special order, when the factory capacity
is 90,000 units yearly.
(2) The steps undertaken to reach the quote for the special order are explained below.
Step 1: identification of incremental costs
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In this step, the various extra costs that would have to be undertaken for fulfilment of special
order are only considered. The logical conclusion is to term all fixed costs as irrelevant coupled
with selling and administrative costs as well owing to order being direct (Arnold, 2015, p.131).
Step 2: Securing the margin
The company intends to earn a certain profit margin on the goods it sells and the same is secured
through the application of a uniform mark-up which the company follows is 100%,. For the
special order, the same mark-up% has been retained (Damodaran, 2015, p.79).
Opportunities
 Higher capacity utilisation
 Higher profit generation in absolute terms
 Acquisition of a new client with potentially big orders in the future
Disadvantages
 Shift of focus from direct clients to clients such as Cycle World
 Decline in profitability measures on a per unit basis owing to lower price of sale for the
special order.
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References
Aristocrat Leisure 2017 Annual Report 2017, viewed on September 7, 2018 <
http://ir.aristocrat.com/static-files/8a63b725-9d18-403b-a6cb-ae3b6af43acc >
Arnold, G. 2015 Corporate Financial Management. Financial Times Management, Sydney:
Brealey, R. A., Myers, S. C., & Allen, F. 2014 Principles of corporate finance, McGraw-Hill,
New York
Damodaran, A. 2015. Applied corporate finance: A user’s manual, Wiley, John & SonsNew
York:
Petty, J.W., Titman, S., Keown, A., Martin, J.D., Martin, P., Burrow, M., & Nguyen, H. 2015.
Financial Management, Principles and Applications, Pearson Education, French Forest Australia ,
NSW
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