Accounting Theory Report: Stockland Corporation Financial Analysis

This report provides a comprehensive analysis of the financial reporting practices of Stockland Corporation Limited, an Australian property development company listed on the ASX. The report examines Stockland's adherence to the Australian Accounting Standards Board (AASB), the 'true and fair' view, the conceptual framework of accounting, and relevant corporations law. It critically evaluates the company's annual report, assessing its compliance with AASB and International Accounting Standards Board (IASB) standards, including the application of qualitative characteristics such as relevance, faithful presentation, comparability, verifiability, understandability, and timeliness. Furthermore, the report compares Stockland's financial performance with that of Scentre Group, another ASX-listed real estate investment and development entity, using ratio analysis to assess profitability, asset utilization, liquidity, and market performance. Finally, the report concludes with a recommendation on whether an investment of $10,000 in Stockland is advisable, based on the analysis of its financial statements and market performance, including a discussion of share price trends and earnings per share.

Accounting Theory
Written Report – individual assessment
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Introduction
The present report is developed to provide an understanding of the process of general
purpose financial reporting followed by business corporations within Australia. In this context, it
has undertaken an analysis of the annual report of an Australian ASX 100 listed corporation and
has examined its adherence to AASB, true and fair, conceptual framework and corporations law.
The business entity selected for the purpose is Stockland Corporation Limited, an Australian
property development company listed on ASX. The financial performance of the company is also
compared with another entity listed on the ASX. The company selected for the purpose is
Scentre Group, an ASX listed real estate investment and development entity. At last, it provides
an analysis of the investment decision within the company on the basis of examining the annual
report information.
Critical Analysis of Annual Report of Stockland Corporation Limited
Stockland Corporation Limited, an Australian property development company traded on
ASX and is involved in developing of residential communities, shopping and industrial centers.
The company is listed on ASX and therefore develops its annual reports as per the accounting
policies and standards of AASB (Australian Accounting Standards Board). The financial report
of the company has included a statement of compliance for ensuring that the financial statements
are developed as per the AASB and IASB standards. AASB has directed all the ASX listed
entities to comply with the IASB standards for reporting of their financial information. IASB
requires the business entities to adopt the conceptual framework of accounting for reporting of
the financial information (Stockland: Annual Report, 2017). The conceptual framework of
accounting has provided the qualitative characteristics that the business corporations need to
comply during preparation of their financial reports. The fundamental qualitative characteristics
are relevance and faithful presentation of information while the enhancing characteristics are
comparability, verifiability, understandability and timeliness. As such, Stockland Corporation
also needs to follow these principles of conceptual framework of accounting in order to comply
effectively with AASB standards (Conceptual Framework for Financial Reporting, 2018).
As per the relevance characteristic of the conceptual framework of accounting, the
company needs to disclose relevant information to the end-users that is able to guide them in
their decision-making process (Stockland: Annual Report, 2017). The financial information can
said to be relevant when it has both predictive and confirmatory value. It is predictive if it is able
to make future predictions based on the past and present financial information and confirmatory
that represents the confirmatory position of a firm. The company has adopted the use critical
accounting estimates and judgments for predicting the value of key financial items that are based
on past information ad adjusted as per the current market conditions. The confirmatory value is
depicted with the use of key accounting policies to representing their real and fair value that is
disclosed in the notes to financial statement section (Gaffikin, 2003).
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The company as per the faithful presentation of information has included the auditor’s
declaration for ensuring that it is complete, neutral and error-free as depicted below:
(Source: Annual Report Stockland Corporation 2017)
The company according to the enhancing characteristic of understandability has
adequately disclosed the relevant accounting policies and methods adopted for measuring the
value of key financial items in the notes section as depicted below:
(Source: Annual Report Stockland Corporation 2017)
The financial information presented in the annual report of the company is also
comparable with that of the previous year as per the comparability characteristics of the
conceptual framework of accounting (Alexander and Archer, 2008). This will help in analyzing
the percentage financial growth realized by the company in comparison to the previous year as
depicted below:
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(Source: Annual Report Stockland Corporation 2017)
Also, the company has developed its financial reports as per the timeliness characteristics
of the conceptual framework of accounting as it is disclosed to the end-users on an annual basis
regularly (Stockland: Annual Report, 2017). This ensures that the financial position of the
company as reflected from its general purpose financial statements represents the current
financial condition for guiding the investors in taking the right decisions. Therefore, it can be
stated that the company has followed effectively the obligations of conceptual accounting
framework for development of its financial reports (Mackenzie et al., 2014). As such, it can be
said that the company has followed the accounting theories of stakeholder and agency theory. As
per the stakeholder theory, the company is acting in the direction of maximizing the value for
stakeholders by presenting them all the necessary information that facilitates them in decision-
making. Also, as per the agency theory the company has adopted transparency in its financial
reporting for ensuring that the business managers are acting towards maximizing the value for
the principals, that are the stakeholders (Jones, 2015).
In addition to this, the company for ensuring that the material information presented in
the financial report is true and fair and developed as per the AASB and corporations law have
also included the statement of declaration from directors as depicted below:
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As stated by the statement of director’s declaration, the company has followed the
Corporations Act 2001 and the IFRS standards in development of the financial reports. The
financial information presented through the report is true and fair and depicts the actual financial
position of the company (Carmichael and Graham, 2012).
Comparison of selected corporation with other corporation listed on the ASX
In order to compare the performance of Stockland Corporation with any other company
listed on ASX, Scentre Group has been selected. Scentre Group has been listed on ASX100. The
companies listed on ASX uses Australian Accounting Standards as the basis for preparation of
financial statements that helps in comparing one corporation with another corporation easily. In
this section performance of Stockland has been compared with the performance of Scentre
Group. In order to compare the performance there must be similarity that both companies have
applied same accounting standards for measurement of revenues, expenses, assets, liabilities and
equity as all these elements of financial statements help to judge the performance of any
company (Brigham and Michael, 2013).
To compare the performance of Stockland with Scentre Group, it is essential to compare
financial performance of both companies. Financial performance can be evaluated through
applying ratio analysis approach for both selected corporations.
In ratio analysis there will be analysis of profitability, liquidity, efficiency and market
performance of the company for year 2017.
Net profit ratio: This ratio determines the profitability performance of the company as it shows
percentage of net profit earned on net sales. This ratio is calculated as net profit divided net sales.
Net Profit Ratio
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Particulars Stockland SCENTRE GROUP
in Million $ in Million $
Net Profit $ 1,195.00 $ 4,231.40
Net Sales $ 2,744.00 $ 2,469.60
Net profit ratio 43.55% 171.34%
(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)
On the basis of above table it can be said that profitability position of Scentre Group is
much better than Stockland as in year 2017 net profit earned by Scentre Group was 171.34%
which was far better than the net profit of 43.55% earned by Stockland. The main reason why the
net profit ratio of Scentre Group was higher than sales is because of revaluation of fixed assets.
The good profitability position helps the company to continue for longer period and give tough
competition to their competitors.
Asset Utilization Ratio or asset turnover ratio: Asset turnover ratio helps to evaluate the
efficiency position of the company as it provides sales generated through use of applied assets of
the company. It is calculated by dividing total turnover by total assets.
Asset Turnover Ratio
Particulars Stockland SCENTRE GROUP
in Million $ in Million $
Total Assets $ 17,495.00 $ 37,415.60
Net Sales $ 2,744.00 $ 2,469.60
Asset Turnover Ratio 15.68% 6.60%
(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)
Through looking at above ratios it has been analyzed that Stockland has been able to
utilize its assets in much better way as compared to the Scentre Group. This can be articulated
because only 6.60% of total assets have been converted into sales by Scentre Group while
Stockland has converted more than 15% of assets into sales.
Current Ratio: Current ratio determines the liquidity position of the company as it reflects
company position to pay the current liabilities through using the current assets. It is calculated as
current assets divided current liabilities.
Current Ratio
Particulars Stockland SCENTRE GROUP
in Million $ in Million $
Current Assets $ 1,323.00 $ 489.00
Current Liabilities $ 3,778.00 $ 2,704.70
Current Ratio 0.35 0.18
(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)
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On the basis of above table it can be said that liquidity position of Stockland is better than
Scentre Group but overall liquidity position of both companies are not up to satisfactory level.
Earnings per share (EPS): This ratio helps investors to determine what return they have earned
on their overall investment in the company. This ratio tells income earned by the shareholders on
each common share.
Earnings per share
Particulars Stockland SCENTRE GROUP
in Million $
Earnings $ 1,195.00 4,217.90
Number of Shares 2401.00 5,311
EPS (In $) 0.498 0.794
(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)
EPS of Scentre Group was better than the Stockland that indicates market performance of
Scentre Group has been better than Stockland.
Recommendation and Conclusion
On looking over the compliance on reporting requirement of corporations listed on the
ASX, it can be said that Stockland has been successful as it presented its general purpose
financial report on the basis of AASB and conceptual framework. The critical analysis of annual
report of Stockland indicates that company has been true and fair in presenting its financial
statements in their general purpose financial report. Analysis of each element of financial
statement and accounting policies used to recognize them indicates that Stockland has made
compliance with all the relevant Australian Accounting Standards and conceptual framework.
The detailed disclosures have also been provided for each item of financial statements and for
any significant transaction taken place during the year. As company is successful in providing all
the relevant material to its stakeholders it can be said that company has satisfied the stakeholders
theory as management at Stockland have working for best interest of their stakeholders
(Damodaran, 2011).
The comparison of financial performance of Stockland with performance of Scentre
Group it can be said that Scentre has much stronger position in the market. But there is need to
consider the other factors that indicate that Stockland is also a very good option for investors to
make their investment. As both these companies belong to real estate industry it vital to consider
the factor of revaluation of fixed assets that certainly helps to increase net profit of company
drastically.
The share price of Stockland has gone under major change during the last two years. The
historical share price data at yahoo finance indicates that there has been great fall in share price
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of company. The share price was $4.760 on 1 September 2016 and it was $ 4.180 at the starting
of August 2018 that clearly indicates major downfall in the share price of the company
(Historical Price, 2018).
On the basis of critically analysis of financial statements of Stockland it can be said that it
not worth to invest $10,000 in the company as shareholding period return will reduce over the
time. It has been said because share price had decreased a lot during last two years and EPS was
also not good as compared to other companies in the same industry.
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References
Historical Price. 2018. Yahoo Finance: Stockland Stapled Securities (SGP.AX). [Online].
Available at: https://in.finance.yahoo.com/quote/SGP.AX/history?
period1=1472581800&period2=1535653800&interval=1mo&filter=history&frequency=1mo
[Accessed on: 31 August, 2018].
Scentre Group: Annual Report. 2017. [Online]. Available at:
https://www.scentregroup.com/getmedia/a06dc91f-7127-447d-a5e0-727dd6d2c28a/
Annual_Financial_Report_2017.pdf [Accessed on: 31 August, 2018].
Stockland: Annual Report. 2017. [Online]. Available at: https://www.stockland.com.au/investor-
centre [Accessed on: 31 August, 2018].
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Mackenzie, B. et al. 2014. Wiley IFRS 2014: Interpretation and Application of International
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