financial and economic interpretation

 

This assessment requires you to prepare a formal report for a stakeholder of your choice that interprets the annual report of an Australian company and makes appropriate recommendations. You will be assessed on the thoroughness of your interpretation, including the conclusions you draw, the recommendations you make, and the way in which these have been justified by the evidence you include in your report. Importantly, this report will need to be written based upon the needs and priorities of the stakeholder. This stakeholder can be the CEO, the regulator, the employees, the media, the shareholders or an altogether different individual with a vested interest in the success of the organisation.

Task You need to choose a company that is currently listed on the ASX. You are required to write a report interpreting the company’s annual report. This report will need to be written for a specific stakeholder of your choice. Possible stakeholders are listed below: Potential investor• Creditor• Potential employee• Local environmental group• Union seeking a wage rise• You will also be required to source additional information about the company’s performance, for example, via credible articles that discuss the management of the company. Please note that where the annual report may have both group and parent company financial statements, you should use the group financial statements. It is important that you refer to financial analysis measures in your report. See “Workbook: The Tools we use” file which can be found in Supplementary Resources at the bottom of the subject resources page on the portal. This provides further elaboration and for examples of analysis measures that you can use. These can be selected from any analysis measures stated in the annual report and/or your own calculations based on financial statements in the annual report or those provided to you by your workshop leader. It is important to source financial information relevant to your stakeholder.

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You may also refer to relevant non-financial measures which are outlined in Resource B below. It is expected that the language and structure of your report will reflect its formal nature and the preference of the stakeholder for whom it’s intended. Please use Resource A below as a guide. A modern formal report for business includes: an introduction (in the form of an executive summary)• a main• body (with sub-headings as appropriate)• a justified conclusion (with recommendations and limitations of the report)• a reference list.• Take care to clearly communicate your ideas.

Resource A – Report content Introduction (in the form of an executive summary) The executive summary is usually no longer than 10% of the original document. It is written for people who may not have the time to read the entire report, and need an outline that presents the main findings and the conclusions. Identify the company and its main activities and the reporting period to which the report relates. Outline the purpose of your report, identifying the specific needs of the stakeholder you’ve selected, and include a brief summary of your findings, incorporating your recommendation. Accuracy in re-stating your report’s main points is essential as decisions and strategies may be made by your intended user even though they have not read the entire report. For planning purposes, an executive summary should be written after you’ve completed your report

Interpretation Interpreting the annual report for an external user involves explaining the relevant financial and non-financial information, which may be found in the current annual report and other media related to the Australian company. Your interpretation needs to cover profitability, cash management and liquidity, and any other measure(s) relevant to the specific needs of the stakeholder. You should also refer to: financial and/or non-financial information contained in the annual report• other relevant financial and/or non-financial information collected from other sources that relates to the• company and its economic activities. For example, if the report is for a potential employee, you could look for aspects of the business that have been closed down in the previous period or new openings. Provide information about the company’s business activities during the year and the financial implications of these. Identify business/economic causes for the trends in financial results. Provide evidence of the profitability of the company and discuss whether or not it seems to be well placed moving forward. Link these individual aspects together to give an overall picture of the company’s situation relevant to the needs of the stakeholder..

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Conclusion Make a recommendation to the stakeholder tailored towards their specific needs. For example, if the report is for a potential shareholder, the recommendation should include a market analysis. If the report is for a potential employee, the recommendation should include specific details of staff relocations, redundancies or changes in the recent past. Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Include information from commentaries in the company’s annual report or refer to events with wider economic implications such as natural disasters, economic downturns, changes in government policy, inflation, or exchange rate movements. Justify your recommendation by explaining how it will meet the needs of the stakeholder. In your report and recommendation, identify assumptions you have made and limitations, for example, items in the accounts or auditor’s report that you do not completely understand due to their complex technical nature.

The following questions may assist you with your interpretation and with explaining non-financial aspects of the company from the annual report that may be relevant for the external user. Depending on the entity, some of these may not be contained within the report. You may need to use other sources.
What are the core business area(s) and geographic locations in which the entity operates?• How have the financial results improved or changed in the specific area?• Is there evidence from other sources that can verify the trends for the industry?• What are the entity’s current business strategy or strategies and key points of difference in the target• market? Is there a specific skill-set required of employees? What is the current and future market potential for the entity? What influence have recent global events• apparently had on the entity? In which specific areas? Identify strengths of the entity’s management team and how these may benefit the organisation in future• financial years. What are the remuneration trends from last year to this year for the highest earners?• Is there a difference in the wages that could be earned in a competitor’s business?• What is the current management structure and ownership structure?• Identify strengths of the entity’s management team and how these may benefit the organisation in future• financial years. What are the remuneration trends from last year to this year for the highest earners?• Are there other non-wage-related benefits of being an employee at the entity?•

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