Report: Introduction to Accounting and Finance, Real Estate Investar

This report provides a comprehensive analysis of the financial statements of Real Estate Investar Group Limited, an Australian company specializing in property investment services. It examines the company's performance from 2014 to 2016, focusing on key financial metrics such as total revenue, gross income, income from operations, and net income. The analysis includes a detailed look at financial ratios, common-size statement analysis, and balance sheet items. The report highlights trends in the company's financial performance, including decreasing gross profit and net income, while income from operations shows a positive trend. The report also discusses the company's industry situation, future plans, and the role of its independent auditors. Overall, the report offers insights into the company's financial health, challenges, and strategic direction, providing a valuable resource for understanding Real Estate Investar Group's financial performance.

Running head: INTRODUCTION TO ACCOUNTING AND FINANCE 1
Introduction to Accounting and Finance
Name
Institutional Affiliation

INTRODUCTION TO ACCOUNTING AND FINANCE 2
Real Estate Investar Group Limited Rev Software and Services
Introduction
Real Estate Investar Group Limited is an Australian company based in Ashmore, Australia
and was founded in 2006. The company provides services and direct investment property
opportunities to property investors in New Zealand and Australia. The company is also a
leading provider of integrated services to property investors so as to assist in the analysis,
identification, acquisition, accounting and tracking of investment property (Acharya,
Gottschalg, Hahn, & Kehoe, 2014). Clint Greaves is the company CEO and managing
director since his appointment in 2015. With over 300,000 investors accessing free online
member services and about 3000 paying subscribers utilizing its platform to manage and
build their respective portfolios. Real Estate Investar Group Limited assist investors to
generate wealth through investment in properties and real estates.
The company is considered to operate through transaction services, property and
subscriptions segments that offer tools, news services, and resources to property investors to
help in the analysis, identification, acquisitions, accounting and tracking of investment
property. According to the company, the transactions service segment offers casual non-
subscription services to its members through paid marketing referral model with accredited
partners that includes real estate transaction services, insurance brokerage and estate and
financial planning (Hofmann, & Lampe, 2013). The property segment basically facilitates the
sale of newly created and off the plan properties from project makers or developers to diverse
investors. Real Estate Investar Group Limited home office is considered to be situated in
Ashmore, Australia in order to oversee its overall business operations. The home office is
basically situated in a strategic position so as to enhance its operations by having an easy
location by both new and existing clients. The company ending date of the latest fiscal year is

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that the company basically reports its financial statements as at 31st December 2016 (Real
Estate Investar Group Limited annual report, 2014, 2015 and 2016).
The main geographical areas include Australia and New Zealand that the company is
considered to be a leader in the data driven matching property investor with the right
investment grade property. BDO Audit Pty Ltd is the company’s independent auditors who
have the mandate to ensure that the company financial statements present true and fair view.
As a lead auditor for the review of the Real Estate Investar Group Limited for the year ended
31st June 2016, they declared to the best of their knowledge and belief that no contraventions
of the auditors independence requirements of the Company Act 2001 in relation to the
company review (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).
The auditors also said that the company financial statements basically present a true picture
of its financial position because there was no contravention of any applicable code of
professional conduct in relation to the review. Real Estate Investar Group Limited was
incorporated in 2009, and the most recent price of the company’s stock is AU$0.044 as at 14th
September 2017. Real Estate Investar Group Limited share price has been increasing for the
last ten days. Over the last financial year 2016, the company did not declare any dividends for
its investors because most of its profits were deemed for expansion purposes.
Industry situation and company plans
With more than 200,000 members utilizing the service, the Real Estate Investar Group
Limited has firmly established itself as essential resources for both the serious and the first
time property investors. Real Estate Investar Group Limited basically generates its revenues
through three districted main sources;
 Sale of premium subscriptions to members so as to provide enhanced tools for better
decisions in property investment.

INTRODUCTION TO ACCOUNTING AND FINANCE 4
 Commissions that are generated from the sale of diverse properties to diverse
investors
 The sale of auxiliary services that are associated with the process of investing
properties (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).
Real Estate Investar Group Limited business operations will continue to focus on increasing
the membership base, enhancing the knowledge and skills of its members, developing data
driven tools so as to accurately match investment grade properties with a range of free and
paid services to enhance the process of property investment (Collier, 2015). As at 2016, the
company gained a 48% increase in membership to about 202,423 members during the
financial years. During the same year, the company gained a marginal increase in paying
subscribers from 2,773 in 2015 to 2818 in FY2016 thus attaining the revenue forecast for
FY2016 as outlined in the prospectus for 2015.
Real Estate Investar Group Limited future plans basically anticipate increasing its number of
members to a significant number so as to ensure that it controls the investment market. The
company also anticipated increasing its sales value because the core aim of this particular
institution is to make sufficient profits for its shareholders and also increase its share price in
the market (Healy, & Palepu, 2012). The company also plans to grow direct property sales
through targeted campaigns to members and also generate new revenues streams through
complimentary, property investing related services that include finance. Real Estate Investar
Group Limited also seek to explore new offshore market opportunities for its products and
services.
Financial Statement Analysis
Gross profit is considered to be the profit that the company makes after deducting the total
costs that is associated with selling and making its products or the costs linked with offering
diverse services.

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Gross income
Real Estate Investar Group
Limited
2014 2015 2016
Total revenue 3,785,451 4,022,805 5,297,131
Gross income or loss (4,423,052
)
(5,091,144
)
(6,558,403
)
From the table above, gross profit has been decreasing over the last three financial periods.
This aspect indicates that the company operations have not been good and thus the company
has been unable to make any profits from its business operations (Kirkham, 2012). Real
Estate Investar Group Limited is facing tough times in its business operations.
Income from operations
Income from operations is considered to be the profit that is realized from a business owns
operations generated from running its primary business and often excludes income from other
sources (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).
Income from operations
Real Estate Investar Group
Limited
2014 2015 2016
Total revenue 3,785,451 4,022,805 4,903,614
Income from operations (2,423,052
)
(2,094,189
)
(1,758,864
)
According to the above table, there is a clear indication that Real Estate Investar Group
Limited has been experiencing an increased income from its operations over the last three
financial years (Wheelen, & Hunger, 2011). This clearly shows that the company business is
gradually picking, gradually increasing and thus proper mechanisms have been initiated by
the company management.
Net income

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Net income is considered to be the total earnings or profits that are basically calculated by
taking profits and subtracting the costs of performing business such as interests,
depreciations, taxes and other diverse expenses.
Net income
Real Estate Investar Group
Limited
2014 2015 2016
Total revenue 3,785,451 4,022,805 5,297,131
Net income or loss (1,023,052
)
(1,354,160
)
(2,091,904
)
The table above demonstrates that there is decrease net profits over the last financial years
(De Franco, Kothari, & Verdi, 2011). During the FY2014, Real Estate Investar Group
Limited had lesser net income as contrasted to FY2015 that shows less control of cost and a
lower assets turnover depicting ineffectiveness at using the assets so as to make revenues.
Decreasing net income basically demonstrates that the company is having diverse difficulties
in trying to pay off its due liabilities.
Common size statement analysis technique
Financial Ratios
2016 2015 2014 3 Year average
Daily sales Receivables 25.23 24.23 25 24.82
Accounts Receivables Turnover 7.73 8.06 7.07 7.62
Daily sales inventory 22.23 20.33 21.25 21.27
Inventory Turnover (Days) 12.12 13.23 14.29 13.21
Current Ratio 1.23 1.15 1.11 1.16
Quick ratio 0.8 0.73 0.69 0.74
Long term debt payment ability
Debt ratio 0.86 0.87 0.88 0.87
Debt to tangible net ratio 23.08 22.62 21.52 22.40
Operating cash/total debt 6.72 6.48 6 6.4

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Profitability
Net profit margin 4.64 4.12 3.95 4.23
Total assets turnover 0.97 0.8 0.79 0.85
Return on assets 4.34 3.45 3 3.59
Return on investment 9.23 8.44 7.69 8.45
Return on total equity 16.71 15.99 14.65 15.78
Gross profit margin 22.24 21.21 20.21 21.22
Investors analysis
Price/Earnings ratio 5.77 4.12 3.99 4.62
Dividends payout 0.64 0.61 0.5 0.58
Dividends yields 3.83 2.69 2.2 2.90
Operating cash flow/cash Div 2.98 2.2 1.47 2.21
Real Estate Investar Group Limited common size income statement heightens a slight
decrease in net property sales relative to revenue from 62% in the FY2015 to 57% in the
FY2016. Conversely, under the trend analysis, Real Estate Investar Group Limited reported a
decrease of 24% in revenues from a property sale in FY2016. The company, common size
income, showed a decrease over the two year period on revenues from the sale of premium
subscriptions to members from 40.2% to 38% in FY2015 and 2016 respectively.
The selling, general and administrative expense is considered to be another significant aspect
of the company. Under the income statement, Real Estate Investar Group Limited recorded
relatively higher percentage over the last two years with the expenses being 15% (Fridson, &
Alvarez, 2011). Real Estate Investar Group Limited selling expenses increased from 119,014
to 100,727 in the FY2015 to FY2016 which means that the company had more expenses
during its overall operation.
The net income for Real Estate Investar Group Limited in relation to net sales under the
common size analysis of the income statement demonstrates a slight decrease over the last

INTRODUCTION TO ACCOUNTING AND FINANCE 8
two years with the FY2015 reporting (1,354,160) in FY2016 to (2,091,904) in FY2017
indicating a 31% decrease from the sale of auxiliary services that are associated with the
process of investing properties (Rinne, & Suominen, 2016). The two years analysis describes
that Real Estate Investar Group Limited had a lower income in the sale of auxiliary services
than in the sale of properties.
Analysis of balance sheet items
Generally, assets of a company include liabilities plus equity. The common size balance sheet
for Real Estate Investar Group Limited basically reflects total current assets to total assets
two-year average from FY2015 to 2016 of 37.1% and total liabilities to total assets two year
average of 33.4%. The current assets as compared to the company assets decreased in
FY2015 by 0.5% but was able to rebound again to 1.3% in the FY2016 while the current
liabilities decreased by 4% and 3.7% in the FY2015 and 2016 (Robinson, Henry, Pirie, &
Broihahn, 2015). Real Estate Investar Group Limited long term debts to total equity increased
from 17% in FY2015 to 22% in FY2016 thus satisfying that the firm was basically reliant on
long term debts in order to finance its operations and sales of its properties. Real Estate
Investar Group Limited also had an increase of long term debt to equity ratio from 20% to
27% in FY2015 to 2016 also satisfying it required funds for sale of auxiliary services that are
associated with the process of investing properties.
According to Real Estate Investar Group Limited financial statements, there is a significant
decrease in the net cash flows that was used in operating activities. According to the company
statement of cash flows, there was a 72% decrease in the amount from 263,004 in FY2015 to
2,157,215 in the FY2016. As compared to the net income of the company, there is a
significant drop in the income because the company has been paying a large amount of funds
to its employees and suppliers. According to Real Estate Investar Group Limited financial
reports, the company seems to be slightly expanding through vesting activities because the

INTRODUCTION TO ACCOUNTING AND FINANCE 9
company increased its net cash flows in investing activities from (551,500) in FY2015 to
(348,304) in FY2016. Proceeds from shares and the amount received from customers form a
most important source of financing for the company that amounts to 5,006,630 and 3,498,648
respectively in the FY2016. The company statement of cash flow demonstrates that there has
been an increase in the cash and cash equivalents at the end of the financial period from
128,813 in FY2015 to 2,271,908 in FY2016 which is a positive result in business operations.
Since Real Estate Investar Group Limited provides services and direct investment property
opportunities to property investors in New Zealand and Australia, the company have the
mandate of recognizing revenues when the transfer of funds have been made. In this case, the
exchange of assets and the money should be complete before the company recognizing the
revenue it acquired from any particular sale (Karpoff, Malatesta, & Walkling, 2016).
Significant accounting policies accentuate that Real Estate Investar Group Limited should
include the recognized revenue in its accounting statements when the entire activity is
complete with funds coming to the company account while the asset is going the other
direction. Revenue recognition, treatment of revenues and assets are some of the items that
might be different from the industry norm (Saleem, & Rehman, 2011). This is because the
accounting policies accentuate that on such transactions, the company cannot treat an item as
an assets or revenue without the complete process. Revenue is recognized at the fair value of
the consideration receivable or received and is basically recognized on a deferred basis over
the time in which the services are offered to the client.
Real Estate Investar Group Limited Ratio analysis
The logical description of ratio analysis often expresses a notion of the mathematical
relationship of diverse accounts from the financial statements. The ratios assessment is
usually articulated by categories that comprise of liquidity, leverage, market value,
management of assets and profitability.

INTRODUCTION TO ACCOUNTING AND FINANCE 10
Liquidity ratios
Real Estate Investar Group Limited liquidity ratios summarizes a degree that demonstrates
the ability of the company to repay the short term obligations when due and long term
obligations as they become current (Schroeder, Clark, & Cathey, 2011).
Current ratio
Current ration often evaluates the company compensation of short term liabilities once they
fall due by the firm current assets.
Current Ratio
Real Estate Investar Group Limited 2014 2015 2016
Current Asset 709 823 4325
Current Liabilities 5171 4547 3191
Current Ratio 1.85
3
1.57
2
1.357
1 2 3
0.00
0.50
1.00
1.50
2.00
1.85 1.57 1.36
Current Ratio
Current Ratio
The table above shows the declining current ratio for the company over the FY2014, 2015
and 2016 which shows that the current liabilities are increasing more that the current assets.
Receivable turnover
Receivable turnover
Real Estate Investar Group Limited 2014 2015 2016
Accounts receivables 449.62
5
484 636.3
Net credit sales 3597 4022.
8
4903.6

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Receivable turnover 8.0 8.3 7.7
Average days’ sales uncollected for the company in the current financial period is seven days.
Profitability ratios
Profitability ratios encompass the financial ratio that is usually used to assess the company
ability to generate earnings attributable to financial assets, sales and equity (Weil, Schipper,
& Francis, 2014).
Asset Turnover
Assets turnover ratio encapsulates an efficiency ratio in assessing the general competence of
the company in using its assets to generate revenue.
Asset turnover
Real Estate Investar Group Limited 2013 2014 2015
Sales revenue 3597 4022.8 4903.6
Total Assets 709 823 4325
Average Assets 351 766 2574
Asset turnover 0.66 0.66 0.79
1 2 3
0.00
0.20
0.40
0.60
0.80
0.66 0.66 0.79
Asset turnover
The above table shows an increased asset turnover for the company over the FY2016 while
2014 and 2015 ratios remained constant which indicates that the company did not utilize its
assets effectively.
ROA (Du Pont equation)

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This ratio encapsulates an efficiency degree of the company in handling its assets so as to
generate income in the financial stages.
Return on Assets
Real Estate Investar Group Limited 2013 2014 2015
Net Profit 1,415 1,488 1,508
Total Assets 709 823 4325
Average Assets 351 766 2574
ROA 6.42% 6.72% 6.43%
1 2 3
6.20%
6.30%
6.40%
6.50%
6.60%
6.70%
6.80%
6.42%
6.72%
6.43%
ROA
From FY2014 to 2016, the company had a positive ROA indicating that the firm’s assets
generated a return for the stakeholders adequately with a return of 5% in the FY2016.
Return on Equity
ROE often measures the company efficiency in generating income with the invested capital
by its stockholders.
Return On Equity
Real Estate Investar Group Limited 2013 2014 2015
Net Profit (1,023) (1,354) (2,091)
Shareholders’ Equity 14,838 15,625 15,797
ROE 9.54% 9.52% 9.55%