University: BUS103 Accounting for Managers - Metcash Company Report

This report analyzes Metcash, a leading Australian wholesale distribution and marketing company, focusing on its financial performance and accounting practices. The report is divided into two parts: Part A provides an overview of the company, covering its business segments, revenue recognition methods, property, plant, and equipment valuation, the role of external auditors (Ernst & Young), and corporate social responsibility initiatives. Part B delves into the analysis of Metcash's financial information, including calculations and interpretations of key financial ratios such as accounts receivable turnover, inventory turnover, gross profit ratio, and debt ratios, comparing 2017 and 2018. The analysis reveals insights into the company's efficiency, profitability, and financial leverage, highlighting trends and potential areas of concern. The report references the 2018 Annual Report of Metcash to support its findings.

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 – THE COMPANY..........................................................................................................2
Answer to Question 1..................................................................................................................2
Answer to Question 2..................................................................................................................2
Answer to Question 3..................................................................................................................2
Answer to Question 4..................................................................................................................3
Answer to Question 5..................................................................................................................3
PART B – ANALYSIS OF COMPANY’S FINANCIAL INFORMATION.................................4
Answer to Question 1..................................................................................................................4
Requirement A.........................................................................................................................4
Requirement B.........................................................................................................................4
Requirement C.........................................................................................................................5
Requirement D.........................................................................................................................5
Requirement E.........................................................................................................................5
Requirement F.........................................................................................................................6
References........................................................................................................................................7

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PART A – THE COMPANY
Answer to Question 1
Metcash is regarded as the leading wholesale distribution and marketing company of
Australia. 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).
Answer to Question 2
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. In case of 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).
Answer to Question 3
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

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obtained from Page no. 90, Note 9 of 2018 Annual Report of Metcash (mars-metcdn-
com.global.ssl.fastly.net 2019).
Answer to Question 4
It can be seen from the 2018 Annual Report of Metcash that 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).
Answer to Question 5
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

4ACCOUNTING FOR MANAGERS
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
Answer to Question 1
Requirement A
Requirement B
As per the above, decrease in accounts receivable turnover ratio in 2018 indicates
towards the decreased ability of Metcash to collect from the debtors in a year. At the same time,
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 2013).

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Requirement C
Requirement D
As per the above tables, increase in gross profit ratio in 2018 implies that increased
efficiency of Metcash in using their material and labors for the generation of sales. However, 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.
On the overall basis, it can be said that the profitability position of Metcash has
deteriorated in the year 2018 as compared to 2017 (Healy et al. 2014).
Requirement E

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Requirement F
As per the debt ratio, the total burden of debt of Metcash increases in 2018 due to the
increase in total liabilities and decrease in total assets. As per the debt to equity ratio, 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.
On the overall basis, it indicates towards the deteriorated debt position of Metcash in
2018 as compared to 2017 (Garcia-Appendini and Montoriol-Garriga 2013).

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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.