Accounting Report: Analyzing ABC Motors Company Limited Annual Report

This report analyzes the annual report of ABC Motors Company Limited, a leading automotive entity listed on the Mauritius stock exchange. It identifies the major components of the annual report, including the director's report, company profile, corporate governance report, auditor's report, and financial statements (statement of financial position, statement of profit and loss, statement of changes in equity, and statement of cash flows). The report also identifies potential users of the annual report, such as investors, management, lenders, suppliers, government, employees, customers, and the general public, and elaborates on their specific information needs. Furthermore, the report analyzes Fresh Food Lovers (FFL), a listed company operating outlet chains for fresh meat and vegetables, using key financial ratios such as annual sales per store, gross profit margin, net profit margin, and non-current asset turnover, comparing them with industry benchmarks to assess the company's financial position and performance. The analysis concludes that FFL has generally improved its performance compared to the previous year and performs better than the industry benchmark, making it a potential takeover target.

Running head: ACCOUNTING
Accounting
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Part 1................................................................................................................................................2
Answer 1......................................................................................................................................2
Answer 2......................................................................................................................................4
Part 2................................................................................................................................................6
Introduction..................................................................................................................................6
Discussion....................................................................................................................................6
Conclusion...................................................................................................................................8
Reference.........................................................................................................................................9

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The main purpose of the report is to select one company listed under Mauritius stock
exchange and find out its annual report to concentrate on the major components of its annual
report. The report will further identify the group of potential users and will elaborate the
information needed by them (Stockexchangeofmauritius.com 2018). In the next part of the report
it will concentrate on the operation and financial position of Fresh Food Lovers that is engaged
in operating the outlet chains for fresh meat and vegetables all over the island
Part 1
ABC Motors Company Limited is the leading automotive entity that was established in
the year 1985. Since the establishment the entity is the sole distributor of Nissan brand all over
Mauritius market. The entity also operates as the distributor for Nissan commercial vehicle in
addition to UD Trucks and Eicher that market the buses as well as heavy duty trucks
(Abcmotors.mu 2019).
Answer 1
Major component of annual report
Annual report presents the business performance for the 12 months period generally the
fiscal year of business that is also known as financial year. Annual report focuses on the
accounting principles and standards used by the entity in preparing the annual report and
summarizes the equity, assert, liability, expenses and profit position as well as the cash flow
position of the entity. Annual report of ABC Motors Company starts with the overview of last 5
years summarized financial performance and follows by the director’s report. Director in his
report highlighted the financial performance of the entity for previous year that is 2017
(Abcmotors.mu 2019). Director’s report also discussed about the market dynamics that

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highlighted the sales trend as compared to the previous year, initiatives and future outlook that
highlighted the initiatives taken by the entity during the year keeping in mind the objective of
sustainability (Abcmotors.mu 2019). Next the annual report stated the company profile that
included the details regarding the entity like its establishment year, business operation and
reputation. In the next section the annual report presented the corporate information and
corporate governance report. Independent report of the auditors is provided in the next section
that highlighted the auditor’s opinion regarding the financial report preparation and presentation
of the entity (Abcmotors.mu 2019).. In the next section the financial reports of the entity are
provided that includes the following –
 Statement of financial position – it summarizes the entity’s business assets as well as
liabilities and also known as the balance sheet. Balance sheet preparation starts with
reporting the non-current assets like property and equipment, intangibles and
investments. After that the current assets comprising of trade and other receivables,
inventories and loan to the associates are reported. Equity including capital and reserves
are presented in the next section that further includes the retained earnings and share
capital. Non-current liabilities are presented in the next section including loans and
obligations followed by the current liabilities including bank overdrafts, trade and other
payables and bills payables (Abcmotors.mu 2019).
 Statement of profit and loss and other comprehensive income – it represents the detail
break-up for profits an loss that is generated through business operation during the
financial year. It provides details of revenue, profit from operation, finance costs, share of
results from associates, profit before taxation, tax expenses and profit for the year
(Abcmotors.mu 2019).

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 Statement of changes in equity – it represents the details regarding comprehensive
income for the year and transfer from the retained earnings to the regulatory reserves and
adjustments for dividends (Abcmotors.mu 2019).
 Statement of cash flows – it represents the details of cash flows of the entity generated or
expensed for operating activities, financing activities and investing activities and
represent the closing cash balances of the entity (Stockexchangeofmauritius.com 2018).
Answer 2
Potential users of annual report and their needs
Main purpose of accounting is to deliver information to the users for making decisions.
Users of the accounting information include investors, owners, managements, customers,
government, employees, lenders and general public (Almazari 2014).
 Investors and owners – stakeholders and the owners require the information for making
decisions regarding what to do with the investments like buying, holding or selling.
Potential investors require the information for analyzing the entity’s ability regarding
profitability and success. Likewise, the small business owners require the information for
determining whether the business is profitable and whether to continue, drop or improve
the same (Robinson et al. 2015).
 Management – in the small business, management also includes the owners. However, in
big organizations managements is made up of the hired professionals those are entrusted
with responsibilities of business operation and they act as the agent of owners. Managers
require the information to take economic decisions like quantity to be purchased, targets
to be met and cash to be maintained (Easton and Sommers 2018)

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 Lenders – fund lenders like banks as well as other financial institutions are generally
interested in the ability of the entity to meet the liability upon the maturity.
 Suppliers and trade creditors – suppliers, trade creditors and lenders are interested in
measuring the ability of the entity to meet the obligation upon its becoming due. Further
they are interested in the liquidity of the entity and ability to meet short term obligation.
 Government – governing bodies of territory, particularly tax authorities are interested in
the financial information for the regulatory and tax purposes. Taxes are calculated on the
basis of operational result and associated tax bases (DeFusco et al. 2015).
 Employees – Generally, the employees are interested in the financial performance and
position of the entity and the entity’s stability. This is analyzed as it helps in assessing the
ability of the entity to pay the employee benefits and salaries.
 Customers – while there is long term association between the entity and its customers,
customers also become interested in the ability of the entity to continue the existence as
well as maintaining the operational stability (Stockexchangeofmauritius.com 2018).
 General public – people outside the entity including students, researchers and financial
analysts requires the information for various reasons like industry comparison.

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Part 2
Introduction
FFL is the listed company which is engaged in operating the outlet chains for selling
fresh meat and vegetables all over the island. It is also engaged in supplying different various
hotels with the fresh as well as non-perishable food items. At present the company has 42 outlets.
During the year 2017 it has been speculated that in financial press that the company may become
target for takeover by a South African food giant.
Discussion
The position and performances of the entity will be analyzed through 4 key ratios and the
same will be compared with the industry benchmark as follows –
Ratio –

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Annual sales per store – the entity had 32 stores till 2016. However, it opened 10 more stores
during 2017 that made the total number of stores to 42. Though the revenue of the entity has
been increased from $ 1220 million to $ 1255 million over the years from 2016 to 2017 as the
number of stores increased, the sales per stores reduced from $ 38.13 million to $ 29.88 million.
However, still the annual sales per store for FFL are more than the industry benchmark which is
$ 27.6 million per store (Cao, Chychyla and Stewart 2015).
Gross profit margin – it determines the percentage of revenue left with the entity after meeting
expenses for sales cost. In other words, it determines the proportion of revenue left for meeting
other operational expenses including finance expenses and tax expenses (Ehiedu 2014). It can be
identified from the financial records of FFL that the gross profit margin increased from 6.15% to
6.22% over the years from 2016 to 2017 which is more than the industry benchmark of 5.90%
(Loughran and McDonald 2014)
Net profit margin – it determines the percentage of revenue left with the entity after meeting all
the operating expenses including finance expenses and tax expenses. It can be identified that the
net profit margin of FFL increased from 1.89% to 2.63% over the years from 2016 to 2017
which is more than the industry benchmark of 3.90% (Feng et al. 2014).
Non-current asset turnover – it determines the efficiency of the company in context of using its
non-current assets for generating business revenue. It can be identified that the non-current asset
turnover of FFL reduced from 0.55 to 0.54 over the years from 2016 to 2017 which is
significantly lower than the industry benchmark of 1.93 (Maaloul and Zéghal 2015).

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Conclusion
On the basis of above discussion it is concluded that except the non-current asset turnover
in all other aspects the entity has improved its performances in 2017 as compared to the previous
year. Further, if the performances are compared with key sector ratios it can be stated that FFL’s
performance is better as compared to industry benchmark. Hence, considering the improving
trend of FFL, it can be considered as the potential target by the international supermarket.

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Reference
Abcmotors.mu. 2019. [online] Available at: http://abcmotors.mu/images/uploads/ABCM
%20_ANNUAL_REPORT_2018.pdf [Accessed 14 Jun. 2019].
Almazari, A.A., 2014. Impact of internal factors on bank profitability: Comparative study
between Saudi Arabia and Jordan. Journal of Applied finance and banking, 4(1), p.125.
Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement
audits. Accounting Horizons, 29(2), pp.423-429.
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. and Runkle, D.E., 2015. Quantitative
investment analysis. John Wiley & Sons.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: the
financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5),
pp.81-90.
Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory management. The
Accounting Review, 90(2), pp.529-557.
Loughran, T. and McDonald, B., 2014. Measuring readability in financial disclosures. The
Journal of Finance, 69(4), pp.1643-1671.

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Maaloul, A. and Zéghal, D., 2015. Financial statement informativeness and intellectual capital
disclosure: An empirical analysis. Journal of Financial Reporting and Accounting, 13(1), pp.66-
90.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.
Stockexchangeofmauritius.com. 2018. ABC Motors Company Limited - DEM – Stock Exchange
of Mauritius. [online] Available at: https://www.stockexchangeofmauritius.com/company-
snapshot/dem/abc-motors-company-limited?market=dem [Accessed 14 Jun. 2019].