Principles of Financial Management: Myer Holdings Case Study Report

This report provides an analysis of financial management principles, focusing on financial instruments and off-balance sheet activities. The report examines the use of derivatives, such as interest rate swaps and foreign exchange contracts, by Myer Holdings Ltd, and how these are disclosed in their financial statements. It discusses the nature of financial instruments, including their classification as assets and liabilities, and the different levels of fair value measurement. Furthermore, the report explores the concept of off-balance sheet business, explaining how companies might engage in such activities and the potential implications, referencing Myer Holdings Ltd's external borrowing as a possible example. The report includes references to Myer's investor relations and official website, and it also contains an appendix with the income statement and balance sheet of Myer Holdings Ltd.

Running head: PRINCIPLES OF FINANCIAL MANAGEMENT
Principles of financial management
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1PRINCIPLES OF FINANCIAL MANAGEMENT
Table of Contents
Question 3...................................................................................................................................2
Answer (a)...............................................................................................................................2
Answer (b)...............................................................................................................................2
Reference....................................................................................................................................3
Appendix.....................................................................................................................................4

2PRINCIPLES OF FINANCIAL MANAGEMENT
Question 3
Answer (a)
Financial instrument is the monetary contract among the parties and can be created,
traded, settled or modified. It can also be a form of ownership for part of something as shares
and stocks. Bonds those are considered as contractual rights to be received in cash are also
regarded as financial instruments. Looking into the financial statement of Myer Holdings Ltd
dated 28th July 2018 it can be identified that the entity uses derivatives as financial
instruments and it has both assets as well as liabilities regarding the same. Out of entire
derivative financial instrument that is reported as assets, $ 6725 is accounted as current part
and $ 269 is accounted as non-current part (Myer.com.au 2019). On the other hand, out of
entire derivative financial instrument that is reported as liabilities, $ 64 is accounted as current
part and $ 64 is accounted as non-current part. Derivative financial instruments used by the
entity involve interest rate swaps for hedging specific risk exposures and foreign exchange
contracts. The entity uses the derivatives exclusively hedging purposes and not as the trading
or as any other instrument that is speculative. Financial instruments are disclosed through fair
value measurement by level of different fair value measurement as follows –
 Unadjusted quoted price under active market for similar type of liability or asset
 Inputs for liabilities or assets those are not based on the observable data from market
 Inputs except quoted price considered in level 1 those are observable directly for
liabilities or assets (Investor.myer.com.au 2019).
Answer (b)
Off balance sheet business refers to a situation where the entity has any liability or
assets however, the same is not reported under the balance sheet of the entity. Generally for
the entities, off balance sheet items are associated with financing that allows it maintaining
compliance with the existing covenants. These items are also used for sharing benefits and
risks associated with liabilities and assets with other entities in case of project of joint venture
(Myer.com.au 2019). Though from the financial statement of the entity dated 28th July 2018 it
is not evidential that the entity is engaged in any kind of off balance sheet business however,
on the same date the entity had external borrowing amounting to $ 149 million. Taken into
consideration the refinancing facilities as well as resetting of the covenants subsequent to
end of the period, importance of the capital to support the entity’s strategy and cyclical
demand of finance, likelihood is there that the entity is engaged in off balance sheet business
to arrange this borrowing (Investor.myer.com.au 2019).

3PRINCIPLES OF FINANCIAL MANAGEMENT
Reference
Investor.myer.com.au. 2019. Myer Investor Relations. [online] Available at:
http://investor.myer.com.au/Investor-Centre/ [Accessed 9 Sep. 2019].
Myer.com.au. 2019. MYER | Shop Fashion, Homewares, Beauty, Toys & More. [online]
Available at: http://myer.com.au/ [Accessed 9 Sep. 2019].

4PRINCIPLES OF FINANCIAL MANAGEMENT
Appendix
Income statement

5PRINCIPLES OF FINANCIAL MANAGEMENT
Balance sheet