Accounting for Managers Report: Financial Analysis of Harvey Norman

This report provides a comprehensive financial analysis of Harvey Norman, a major Australian retailer. The analysis is based on the company's 2016 annual report and examines various aspects of its financial performance. The report begins with an overview of Harvey Norman's business activities and revenue recognition practices. It then delves into the company's valuation of property, plant, and equipment (PPE) and identifies the external auditor responsible for its financial audits. Furthermore, the report highlights Harvey Norman's sustainability initiatives. Part B of the report focuses on ratio analysis, calculating and interpreting key financial ratios such as working capital, inventory turnover, gross profit, net profit, debt, and debt-to-equity ratios. The report compares these ratios for the years 2014, 2015, and 2016, offering insights into Harvey Norman's financial health, efficiency, profitability, and debt position. The analysis provides a clear understanding of the company's financial performance trends. This assignment is available on Desklib, a platform offering past papers and solved assignments for students.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING FOR MANAGERS
Table of Contents
Part A...............................................................................................................................................2
Answer to Question 1..................................................................................................................2
Answer to Question 2..................................................................................................................2
Answer to Question 3..................................................................................................................2
Answer to Question 4..................................................................................................................2
Answer to Question 5..................................................................................................................3
Part B...............................................................................................................................................4
Answer to Question 1..................................................................................................................4
Requirement A.........................................................................................................................4
Requirement B.........................................................................................................................5
Requirement C.........................................................................................................................5
Requirement D.........................................................................................................................5
Requirement E.........................................................................................................................6
Requirement F.........................................................................................................................6
References........................................................................................................................................7

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Part A
Answer to Question 1
Harvey Norman is a large Australia-based multinational organization. As per the
principal activities, it needs to be mentioned that Harvey Norman is a major retailer of bedding,
furniture, computers, and communications and consumer electrical products
(harveynormanholdings.com.au 2018).
Answer to Question 2
Harvey Norman recognizes their revenue when there is a probability that there’re will be
a flow of future benefits to the company or the consolidated firms of the company and at the time
of the receive, they need to be reliably measured. In addition, they are measured on fair value.
This information can be found in note no. (xx) in 2016 annual report, page no. 75
(static1.squarespace.com 2018).
Answer to Question 3
Harvey Norman values their property, plant and machinery (PPE) at historical cost after
deducting accumulated depreciation and any accumulated impairment losses. The company does
the valuation of PPE frequently in order to avoid any material gap in the carrying value and fair
market value. This information can be found in note no. (vi) in 2016 annual report, page no. 69
(static1.squarespace.com 2018).
Answer to Question 4
As per the annual report of 2016 of Harvey Norman, Ernst & Young (EY) was
responsible for audit operations of the company (static1.squarespace.com 2018). It is required to
have auditors’ independence so that the audit report does not influence any biasness, conflict of

3ACCOUNTING FOR MANAGERS
interest or others. The financial reports of the companies need to be audited by external party in
order to get unbiased audit report (Guénin-Paracini, Malsch and Tremblay 2014).
Answer to Question 5
Harvey Norman has taken certain initiatives from the year 2010 to 2015 as a part of their
sustainability program; they are increase standards in reduction, reuse and recycling; ensure the
growth of recycled packaging and introduction of many initiatives for making the employees
more environmentally aware (static1.squarespace.com 2018). In order to reduce the negative
effect of business operation on environment, companies have become more concerned about
sustainability (Holden, Linnerud and Banister 2017).

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Part B
Answer to Question 1
Requirement A
Two efficiency ratios are shown below:
‘Working Capital Ratio’ = Current Assets
Current Liabilities
‘Inventory Turnover Ratio’ = Cost of Goods Sold
Average Inventory
Particulars 2016 ($) 2015 ($) 2014 ($) Source
Page
No.
Current Assets (A)
1,605,547,00
0
1,644,585,00
0
Statement of
Financial
Position
2016 60
Current Liabilities (B)
1,279,012,00
0
1,251,196,00
0
Statement of
Financial
Position
2016 60
Cost of Goods Sold (C)
1,231,933,00
0
1,126,894,00
0
Income
Statement
2016 61
Inventory (D) 315,746,000 298,381,000 296,381,000
Statement of
Financial
Position
2016 60
Average Inventory (E) 307063500 297381000
Working Capital
Ratio (A/B) 1.26 1.31
Inventory Turnover
Ratio (C/E) 4.01 3.79

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Requirement B
The above request show that Harvey Norman has working capital ratio more than 1 in
2016 and 2015 that indicates the ability of the company to pay their current obligation with the
help of cash and cash equivalent; but decrease in this ratio can be seen in 2016 from 2015.
Improvement in inventory turnover ratio can be seen in 2016 that indicates that Harvey Norman
has cleared their inventory 4 times in the year (static1.squarespace.com 2018).
Requirement C
Two profitability ratios are shown below:
‘Gross Profit Ratio’ = Gross Profit
Net Sales
‘Net profit Ratio’ = Net profit
Net Sales
Particulars 2016 ($) 2015 ($) Source
Page
No.
Gross Profit (A) 563,826,000 490,257,000
Income Statement
2016 61
Net Profit (B) 351,340,000 268,914,000
Income Statement
2016 61
Net Sales (C)
1,795,759,00
0
1,617,151,00
0
Income Statement
2016 61
Gross Profit Ratio
(A/C) 31.40% 30.32%
Net Profit Ratio (B/C) 19.56% 16.63%
Requirement D
As per the gross profit ratio, Harvey Norman has 31.40% and 30.32% of sales revenue
for covering their operating expenses after the payment of inventory. Slight decrease in this ratio

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can be seen in 2016 from 2015. In addition, as per the net profit ratio, Harvey Norman’s
conversion rate from sales into profit are 19.56% and 16.63%; and a healthy improvement can
be seen in this ratio in 2016 from 2015 (static1.squarespace.com 2018).
Requirement E
Two ratios are shown below for assessing the debt position:
‘Debt ratio’ = Total Liabilities
Total Assets
‘Debt to Equity Ratio’ = Total Liabilities
Total Equity
Particulars 2016 ($) 2015 ($) Source
Page
No.
Total Liabilities (A) 1,743,126,000 1,769,801,000
Statement of Financial
Position 2016 60
Total Assets (B) 4,431,800,000 4,326,661,000
Statement of Financial
Position 2016 60
Total Equity (C) 2,688,674,000 2,556,860,000
Statement of Financial
Position 2016 60
Debt Ratio (A/B) 0.39 0.41
Debt to Equity Ratio
(A/C) 0.65 0.69
Requirement F
0.39 and 0.41 debt ratio of Harvey Norman indicates that the company has more
liabilities or debts as compared to their total assets that shows the weak debt position of the
company. Situation becomes worse in 2016 due to the decrease in this ratio. The debt to equity
ratio indicates the dependency of Harvey Norman on equity shares more than debt financing.
Slight decrease in this ratio can be seen in 2016 from 2015 (static1.squarespace.com 2018).

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References
Guénin-Paracini, H., Malsch, B. and Tremblay, M.S., 2014. On the operational reality of
auditors' independence: Lessons from the field. Auditing: A Journal of Practice & Theory, 34(2),
pp.201-236.
Harvey Norman Holdings. (2018). Company Overview. [online] Available at:
http://www.harveynormanholdings.com.au/company [Accessed 19 Jan. 2018].
Holden, E., Linnerud, K. and Banister, D., 2017. The imperatives of sustainable
development. Sustainable Development, 25(3), pp.213-226.
Static1.squarespace.com. (2018). 2016 Annual Report. [online] Available at:
https://static1.squarespace.com/static/54803162e4b08e1b8a472201/t/
58ec31736a49630e8a463444/1491874201272/2016-Annual-Report.pdf [Accessed 19 Jan. 2018].
Static1.squarespace.com. (2018). ACTION PLAN. [online] Available at:
https://static1.squarespace.com/static/54803162e4b08e1b8a472201/t/
54adbca9e4b0212b1fb0c276/1420672169071/Harvey-Norman-Holdings-Limited-APC-Action-
Plan-Review-Document-March-2012.pdf [Accessed 19 Jan. 2018].

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