Financial Statement Analysis of Treasury Wine Estates - UTS 22319

This report provides a comprehensive financial analysis of Treasury Wine Estates Limited, an Australian wine brewing company. It begins with an introduction to the company and its operations, followed by an in-depth discussion of the macroeconomic trends in Australia over the past five years, including inflation rates, interest rates, and GDP. The report then delves into an industry analysis, utilizing Porter's Five Forces to assess the competitive landscape of the wine industry and its implications for Treasury Wine Estates. Furthermore, it examines the company's business strategy, critical success factors, and key risk factors. The analysis also includes an accounting framework to understand how the business can sustain its profits. The report concludes with a summary of findings and references.

Running head: FINANCIAL STATEMENT ANALYSIS
Financial Analysis
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1FINANCIAL STATEMENT ANALYSIS
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Economic Trend in Australia for the Past Five Years................................................................2
Inflation Rate......................................................................................................................2
Interest Rate.......................................................................................................................5
Gross Domestic Product.....................................................................................................7
Industry Analysis.......................................................................................................................9
Overview of Treasury Wine Estate Limited....................................................................10
Porters Five Forces on the Treasury Wine Estate Limited..............................................11
Implication of Porters Five Forces in Treasury Wine Estate Limited.............................15
Business Strategy Analysis......................................................................................................15
Types of Strategic Planning.............................................................................................16
Critical Success Factors...................................................................................................20
Key Risk Factors..............................................................................................................21
Accounting Analysis................................................................................................................21
Conclusion................................................................................................................................24
References................................................................................................................................26

2FINANCIAL STATEMENT ANALYSIS
Introduction
The financial analysis was done for the Treasury Wines Limited a wine brewing
company based in Australia with its headquarters in Melbourne. The company harvests own
grapevines in its own vineyard spread over Australia and New Zealand and some parts of
France and the United States. The wine brewing industry is an age old industry which is
spread around the globe and thus is affected by various economy factors. There were various
aspects of the company analysed in order to get a macroeconomic view of the Australian
economy along with an analysis of factors that affect the wine brewing industry and Treasury
wines limited (Tweglobal.com 2019). In terms of understanding the business industry
analysis Porter’s five forces is used for determining the factors in the industry level and
competition prevailing in the wine industry. Thus, this helps to understand the competitive
factors and the edge held by treasury wines limited. The success of any business depends on
the strategy it employs in its day to day operations. Thus a wide business strategy analysis is
done to understand the success factors and the key risk faced by treasury wines limited.
Along with this the sustaining of profits is also analysed by the treasury wines limited. The
six step accounting framework is used to understand how the business will sustain its profits
and maintain its current level of production.
Discussion
Economic Trend in Australia for the Past Five Years
Inflation Rate
The Economy is widely affected by the rate of inflation trending in the economy. The
inflation rate is an indicator of the purchasing power which individuals have when they are

3FINANCIAL STATEMENT ANALYSIS
purchasing goods and services. Business entities are widely affected by the rate of inflation as
it shows the overall health in the economy (Behlul et al., 2017). The inflation of the
Australian economy in the five years has been very volatile being the highest in the year 2014
and reducing over the years in 2016 and slowly again rising post 2016 .
Figure 1: Inflation
Source: Australia Bureau of Statistics
As seen in the above chart it is seen that inflation was very high during the year 2014
with an increasing trend throughout that year. It almost reached 3% during that year being the
highest for a five year analysis period. It then rallied down to a downward or decreasing trend
in the following years and reached almost 1% in the year 2016. This was the lowest rate
observed in the five year period (Cusbert and Kendall 2018). After hitting the lowest level in
the year 2016, it has started on an increasing trend and has been relatively consistent
throughout the years till the present date ranging between 1.5%- 2%. This lower level of
inflation has set the Australian economy below the expected level of growth.

4FINANCIAL STATEMENT ANALYSIS
Economy Forecast for Inflation:
Figure 2: Forecasted Inflation
Source: Australia Bureau of Statistics
The forecasted inflation rate for the next financial year is between 2% - 2.2%
indicating that the inflation rate to continue with an upward trend for the next year 2020.
After the year 2020 the increasing trend of inflation is expected to continue onwards till the
year 2024. It is expected to remain stable over the period from 2021-2024 (Doepke, Hazan
and Maoz 2015).
Impact of Inflation:

5FINANCIAL STATEMENT ANALYSIS
Inflation in the Australian economy after its high in the year 2014 has fallen
drastically and reached the lowest in the year 2016. Economic growth is widely dependent on
the inflation and the Australian government has failed to boost the economic inflation at the
desired level. The current level of inflation focuses on the wine industry and specifically
treasury wines limited as its operations is directly and indirectly affected by the trending
economy (Jayasuriya and Leu 2017). As the inflation will rise, it will lead to an increase in
the cost of production for treasury wines limited. As treasury wines limited has most of its
operation spread over most of Australia and New Zealand. It is involved directly in the
harvesting of grapevines, production of wines and as well as selling of the wine produced.
Thus the effect of inflation is ultimately leading to increase in the cost of wine produced.
Also since rise in inflation leads to a fall in disposable income in the hand of consumers.
Thus the consumers will tend to purchase necessity goods and might spend less spending on
luxury goods. Thus this will lead to fall in sales of treasury wines limited with an increase in
the cost of production for the company. This will lead to fall in profitability of the company
(Cooper and Dynan 2016).
Interest Rate
The level of interest rate in an economy determines the cost of funding projects by
various business corporations. It is one of the most important factor to determine the level of
the economy. The rate at which an economy is going to grow or fall depends on the level of
interest rate. The interest rate is determined in Australia by the Reserve bank of Australia.

6FINANCIAL STATEMENT ANALYSIS
Figure 3: Interest Rate
Source: Australia Bureau of Statistics
As seen by the data in the graph it is analysed before 2016 the interest rate was very
high which is the period ranging from 2014 and 2015. After that the reserve bank of Australia
was cutting the interest rate to boost the economy. From the year 2016 to the present day the
interest rate is at the lowest level of 1%. The constant cut in interest rate is done to boost the
economic growth of Australia (Rochon and Rossi 2017).
Economy forecast for Interest rate:
Since the level of inflation in Australia is well below the targeted inflation rate, this
will lead the reserve bank of Australia to further make a fall in interest rate (Martins, Gan and
Ferreira-Lopes 2017). This means that the level of interest rate will fall below the ongoing
level of 1% and might be 0% or even negative. This is done to increase consumer spending to
make the Australian economy grow.
Impact of Interest rate:

7FINANCIAL STATEMENT ANALYSIS
The level of interest rate has an impact on consumer spending and the expansion of
Business Corporation. The treasury wines limited having its base in Australia can raise loans
at a lower interest rate and invest in further vineyards and expand globally with its marketing
programs. Since interest rates are low the consumers can borrow money at easily and spend
on luxury goods such as wine. Thus with an effective marketing strategy and branding
treasury wines limited can use this opportunity to expand its business and grow its revenue.
Gross Domestic Product
The gross domestic product is an indicator of the health of the economy. It shows the
level of goods and services produced by an economy in a given period of time. The primary
contributor to the Australian GDP is from the service sector and the agricultural sector.
Figure 4: Gross Domestic Product
Source: Australia Bureau of Statistics
As seen by the GDP graph of Australia it is seen that the growth rate is widely
fluctuating. It is seen falling after 2014 and rising all along 2016 reaching its highest in 2017

8FINANCIAL STATEMENT ANALYSIS
and then again falling and rising all over 2017 and 2018. It finally is in the downward trend
after 2018 and is well below 2%.
This shows that the Australian economy is in a need of an economic boost by the
government and reserve bank of Australia. The Australian wine sector although makes a
significant contribution to the Australian GDP. Treasury wines limited makes a direct
contribution to the GDP as it involves and employs all the three process of wine making. It
has around 9000 hectares of vineyards spread over Australia and New Zealand. Thus it
directly or indirectly employs more than 10000 employees and provides a good economic
boost to the economy.
Forecast of Gross Domestic Product:

9FINANCIAL STATEMENT ANALYSIS
Figure 5: Forecasted Gross Domestic Product
Source: Australia Bureau of Statistics
The forecast for the GDP of Australia is given at 2.07% for the year 2019 and is
expected to increase and be stable between the years 2020-2024 at the level between 2.7% to
2.9%. The outlook for the GDP of Australia is positive.
Impact of GDP:
As the GDP is an indicator of the health of the economy the impact of GDP on the
wine industry therefore on treasury wines limited is positive. Since if the GDP is the total of
the goods and services of an economy, so treasury wines can easily acquire raw materials,
necessary skilled labour and necessary machinery for brewing wine.
Industry Analysis
An Industry analysis is an analysis done by business owners and other individual to
understand the current business environment in which industry lies. This analysis will let the
business to understand the market and economic sources by which business can gain over the
competitors present in the market (Aithal 2016). As per the requirement of the business the
owners make different industry analysis which need to be done in their business market.
Operations of Treasury Wines Ltd

10FINANCIAL STATEMENT ANALYSIS
Overview of Treasury Wine Estate Limited
Treasury Wine Estate Limited is a wine company which is operated in Australia. It is
basically comes under the Beverage, Food and Tobacco sector. It is also one of the leading
company among the company listed in Australia Securities Exchange and improving the way
of business with the passing time (Sammut Bonnici and Galea 2015)‐ .
Porters Five Forces on the Treasury Wine Estate Limited
Porters Five Forces is a tool to analysis business competition in the industry. It used to
make better strategy management and making achievable goals and objectives for the
business (Aithal 2017). Treasury Wine Estate Limited will get benefit from using Porters
Five Forces and can develop plan for enhancing company competitive advantage and long
terms goals. Porters Five Forces are threat of new entrant, bargaining power of Suppliers,
bargaining powers of Buyers, threat from substitute product, rivalry among the existing
players (Hanafi and Fatma 2015).

11FINANCIAL STATEMENT ANALYSIS
Figure 6: Porters Five Forces
Source: (Aithal 2016)
 Threat of New Entrant: As new entrant in the Wine Industry requires innovation,
strategy, and new way of doing business. Treasury Wine Estate Limited tries to keep
its wine price low, making low cost finished product and keep providing making
different kind of product. And so company make fair difficulties to the new entrants
and make them weak force. In such company should have good capital support as
research and development cost are generally high (Mathooko and Ogutu 2015). As it
is easy for new entrant to make channel in industry to enter. But in Wine industry full
filling government license requirement is not an easy process. The Level of
competition would be Low as the Treasury Wine Estate Limited have an economic
advantage and also cost advantage (Takata 2016).
 Bargaining Power of Suppliers: As in such industry there are large number of
suppliers in which Treasury Wine Estate Limited lies. In fact the buyers are less
compare to the suppliers present so by having large numbers suppliers there is less
control of suppliers over prices and the bargaining power of suppliers is low (Zhao et
al., 2016). The cost at which suppliers provide goods are standardize and so company
like Treasury Wine Estate Limited can switch easily and thus make the suppliers