Financial and Economic Interpretation Assignment - Detailed Analysis

This assignment provides detailed answers to five key questions in financial and economic interpretation. The questions cover the differences between liquidation and insolvency, the most appropriate component of ROI for evaluating a supermarket store manager's performance, actions to improve investment turnover, the application of lag and lead indicators within a balance scorecard framework for David Jones, and the treatment of vehicle expenses and vehicles at cost in the income statement and balance sheet, respectively. The solutions draw on relevant financial concepts and frameworks, providing a comprehensive analysis of the topics. The assignment includes references to support the arguments presented. The assignment is designed to enhance understanding of financial concepts and their practical applications.

FINANCIAL AND ECONOMIC INTERPRETATION
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Question 1
When a company goes into liquidation, it implies that the company can no longer be revived
and needs to be shut down. In order to enable the same, the various business assets would be
liquidated. The proceeds generated would be used to settle the claims of secured and
unsecured creditors. If after settling these claims, any proceeds are still remaining, these
would be distributed amongst the shareholders. On the contrary, when the company goes into
insolvency, it implies that the company is not able to honour its obligations. An insolvent
company may again gain solvency after the restructuring of its outstanding obligations.
However, if the situation worsens, then the company may move into liquidation (Berk et.
al.,2016).
Question 2
With regards to evaluating the performance of supermarket store manager, the pivotal
performance component would be the turnover component of ROI. This is because the store
manager is expected to take decisions which would enhance the footfalls of consumers and
also maximise the revenue generated per customer. Additionally, the customer service at the
store is also within the store manager’s domain who must take suitable initiatives to ensure
that consumers are given exemplary service which would result in repeat purchases. The
actions taken by the store manager would have significant impact on the turnover generated.
The profit margin on the contrary is more driven by prices and costs which are not much
under the store manager’s control (Petty et. al., 2016).
Question 3
It is apparent that there is a need to improve the turnover from the available investment or
assets. One of the key actions is to increase the capacity utilisation of the available assets so
that more revenues can be generated without increasing the investment. The spare capacity
may be used to procure special orders which would limit the surplus capacity. Alternatively,
based on the underlying elasticity of the product or service sold, the price may be adjusted so
that the overall revenues increase. Besides, the company can also make new investments
which have high turnover as this would improve the overall turnover component for the
computation of the ROI (Ross et. al., 2015).
Question 4

Lag indicators are those performance measures which can be easily measured but difficult to
control owing to their output orientation. Lead indicators are those performance measures
which are difficult to measure but can be easily influenced owing to their input orientation.
A lag indicator at David Jones would be percentage of customers who engage in repeat
purchase during a one year period. This is easy to measure, but the same is difficult to
control. A lead indicator at David Jones would be percentage of store staff who has received
training in customer service. The lead indicator would be actionable as it is possible for the
company to ensure that a higher percentage of store staff receives the requisite customer
service training (Berk et. al., 2016).
Question 5
The vehicle expenses to the tune of $8,000 are located in the income statement. On the other
hand, “Vehicles at Cost” have been recorded in the balance sheet to the extent of $ 112,000.
The vehicle expenses have been expensed as they have been included in the income statement
as expense in the current period. On the other hand, “Vehicles at Cost” have been capitalised
as these have been included in the balance sheet as assets. These are treated as non-current
asset which implies that future benefit is expected to arise for the company from these vehicle
related costs and this future benefit is expected to be realised for more than one year in the
future. This is indicative of capitalisation since the benefits of vehicles are not limited to
present but also in future (Brealey, Myers and Allen, 2014).

References
Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V. and Finch, N. (2016) Fundamentals
of corporate finance. London: Pearson Higher Education
Brealey, R.A., Myers, S.C. and Allen, F. (2014) Principles of corporate finance. 2nd ed. New
York: McGraw-Hill Inc
Petty, J.W., Titman, S., Keown, A., Martin, J.D., Martin, P., Burrow, M., and Nguyen, H. (2016)
Financial Management, Principles and Applications. 6th ed. NSW: Pearson Education, French
Forest Australia.
Ross,S.A., Tryaler,R., Bird, R.,Westerfield, R.W. and Jorden,B.D. (2015) Essentials of
Corporate Finance. 2nd ed. Sydney: McGraw-Hill Australia