Metcash Financial Analysis Report: Accounting for Managers (BUS103)

This report provides a detailed analysis of Metcash, a major Australian retail company, focusing on its financial performance and accounting practices. It examines the company's principal activities across Food, Liquor, and Hardware segments, and how revenue is recognized. The report delves into the valuation of property, plant, and equipment, the role of Ernst & Young in auditing the financial statements, and Metcash's corporate social responsibility initiatives. Furthermore, it analyzes key financial ratios such as accounts receivable turnover, inventory turnover, and gross profit ratio, comparing data from 2017 and 2018 to assess the company's efficiency, profitability, and debt position. The analysis reveals insights into Metcash's financial health and operational effectiveness, highlighting trends and areas of concern based on the provided financial information and annual report data.

ACCOUNTING FOR
MANAGERS
The Analysis of
Metcash

PART A: THE COMPANY
Principal Activities: The principal business operations of
the company can be seen in three segments of the retail industry; they
are Food, Liquor and Hardware. Metcash provides merchandising,
operational as well as marketing support to these three pillars of
business (metcash.com 2019)
Revenue Recognition: Metcash recognizes their revenue
to the degree when it is likely that the company will get the economic
benefits and they can measure the revenue on reliable basis.
For Sale of Goods, Metcash recognizes the revenue when the buyer
receives the risk and rewards.
For Rental Income, the recognition is done on straight-line basis over
the term of lease. Revenue from Supplier Income is recognized based
on purchase volume, promotional and marketing activities.
This information can be obtained from Page no. 92, Note 17 of 2018
Annual Report of Metcash (mars-metcdn-com.global.ssl.fastly.net 2019)

PART A: THE COMPANY
Valuation of Property, Plant and
Equipment: Metcash measures their all classes of property,
plant and equipment at cost value after deducting accumulated
depreciation and accumulated impairment losses.
The company charges depreciation on these assets on straight-
line basis except freehold land and assets.
Major depreciation period for freehold buildings are 25 to 50
years where the same for plant and equipment are 2 to 20 years.
De-recognition of these assets is done at the time of disposal and
when there is no possibility of economic benefits from these
assets.
This information can be obtained from Page no. 90, Note 9 of
2018 Annual Report of Metcash (mars-metcdn-
com.global.ssl.fastly.net 2019).

PART A: THE COMPANY
Audit: Ernst & Young (EY) was responsible for the audit of
the financial statements of the company (mars-metcdn-
com.global.ssl.fastly.net 2019).
The primary purpose of an audit is to provide the shareholders
with an independent and expert opinion on the fact that
whether the financial statements are true and fair. Hence, the
declaration of auditor’s indolence ensures the fact that the
expressed audit opinion is not influenced by any relationship
between the auditor and the client (Tepalagul and Lin 2015).
The financial statements of the companies must be audited by
external party as the external auditors are independent third
party professionals and responsible for performing neutral
review of the financial statements and records of the
company (Tepalagul and Lin 2015).

PART A: THE COMPANY
Corporate Social Responsibility: As per the 2018
Annual Report of Metcash, the company has taken certain major
Corporate Social Responsibility (CSR) initiatives for their
community like ensuring healthier food, healthier people and
communities. The CSR initiatives of the company for people are
diversity, healthy wellbeing, safety and human rights; the
initiatives for environment are responsible sourcing, energy
reduction and waste control (mars-metcdn-
com.global.ssl.fastly.net 2019).
Sustainability activities ensure the long-term wealth of the
companies. These sustainability activities assist the companies in
maximization of business opportunities while minimizing the
negative impact of their business operations on the environment,
community and economies in places where they operate (Cheng,
Ioannou and Serafeim 2014).

PART B: ANALYSIS OF COMPANY’S
FINANCIAL INFORMATION
•Decrease in accounts
receivable turnover ratio in
2018 indicates towards the
decreased ability of Metcash
to collect from the debtors
in a year
•Decrease in inventory
turnover ratio shows that
Metcash had not been able
in clearing their inventories
on quick basis as compared
to 2017
This whole aspect indicates
towards the decreased efficiency of
Metcash in the year 2018 as
compared to 2017 (Figge and Hahn

PART B: ANALYSIS OF COMPANY’S
FINANCIAL INFORMATION
•Increase in gross profit ratio in 2018 implies
that increased efficiency of Metcash in using
their material and labors for the generation
of sales
•Net loss in the year 2018 indicates the
inability of the company in managing the
operating expenses as compared to sales.
Increase in revenue is another main reason
for this.
The profitability position of
Metcash has deteriorated in the
year 2018 as compared to 2017
(Healy et al. 2014)

PART B: ANALYSIS OF COMPANY’S
FINANCIAL INFORMATION
•The total burden of debt of Metcash
increases in 2018 due to the increase in total
liabilities and decrease in total assets
•Metcash increases the portion of term
debts for their capital requirement while
decreases the portion of equity. It makes
the company highly leveraged as well as
risky due to the massive increase in
interest expense
It indicates towards the deteriorated
debt position of Metcash in 2018 as
compared to 2017 (Garcia-Appendini
and Montoriol-Garriga 2013)

REFERENCES
• Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access
to finance. Strategic management journal, 35(1), pp.1-23.
• Figge, F. and Hahn, T., 2013. Value drivers of corporate eco-efficiency: Management
accounting information for the efficient use of environmental resources. Management
Accounting Research, 24(4), pp.387-400.
• Garcia-Appendini, E. and Montoriol-Garriga, J., 2013. Firms as liquidity providers: Evidence
from the 2007–2008 financial crisis. Journal of financial economics, 109(1), pp.272-291.
• Healy, P., Serafeim, G., Srinivasan, S. and Yu, G., 2014. Market competition, earnings
management, and persistence in accounting profitability around the world. Review of
Accounting Studies, 19(4), pp.1281-1308.
• Metcash | Australia’s leading wholesale distribution and marketing company. 2019. About
Us - Metcash | Australia’s leading wholesale distribution and marketing company. [online]
Available at: https://www.metcash.com/about-us/ [Accessed 28 Jan. 2019].
• Metcash. 2019. 2018 Annual Report. [online] Available at: https://mars-metcdn-
com.global.ssl.fastly.net/content/uploads/sites/101/2018/07/24145704/Metcash-Annual-
Report-2018.pdf [Accessed 28 Jan. 2019].
• Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

THANK YOU