My understanding of chapter 3, Intoducing financial statements

Chapter 3: Introducing financial statements

               After the understanding of chapter 3, I find even more make sense about accounting isn’t just about numbers. It is to understand how the business is running. Thought it was making sense after chapter 1, I realize it makes more sense after specifically understood the financial statements’ definition.

              Knowing types of business could be organized, what business could provide or what can business do is part of knowing the business structure only. As investors, I personally recommend to understand more on financial statement as it provides accurate information which than make investment to be more accurate.

              Annual report is marketing document. I read it again and again and I now understand why it is a marketing document. The reason is because annual reports are to use to support the company so that it could attract more investor. To have more investor to support business to grow bigger than other business this is a part for growing in market of the industry. To be on top of the market you need to be strong and supported. So business made annual reports to attract more investor which than make sense than annual reports are marketing documents.

              Financial reports are included in annual reports. Annual reports also included accounting policies, footnotes (to support financial statements) and summary of key financial and non-financial information.

              Now I will tell you more about financial statement. Financial statements include the five elements of accounting. They are; assets, liability, equity, revenue and expenses. These are introduced and understood in chapter 1. One of the statements is call balance sheet. After understanding, I know that balance sheet is financial statement of the specific day, not annually. Usually it will be the as same date as the end of the normal tax year in the country. We can’t sit and wait for business to run and then get to know what is going on. We need to know what had happened before and what is happening so we could predict future. Balance sheet includes the assets, liability and equity of business. Which means greater assets of business is greater value of the business. But as investors I think it is more important about equity. This is mainly I will know how much investors are getting paid.

              Also, I understood that company could be more than one company. Which means parent company will have lots of subsidiary company. If I were to buy shares of subsidiary company, I would earn equity over that specific company, not the entire equity from what parent company earned.

              So why do we need to read more than balance sheet to understand the business? It is mainly because balance sheet only tells you what happened a day not entire year. Business is exchanging value every day. We need a wider statement to know what is happening. Income statement shows me the revenue and expenses of business. Which means this is where I will find out if the business is making profit or losing money.

              Statements of changes in equity are also important. As I might not get some of the value over income statement as it might be from other sources. Lastly I then need to look at cash flow statement. It tells me what the business uses the cash for. Now I understood that having cash is more important than anything else. As we need cash in company to survive the everyday movement of company. Financial statements give me an idea what I will earn of not what the owner will earn. As this statement separate the equity and the assets and liability of the business.

              I see that we need to have a structure to support the financial analysis than just looking at value of the statements. I must tell myself to understand the key aspects of business and the realities of the business, not just the value.

Question 1: What is wrong with just doing what ‘works’ in relation to analysing financial statements? There are plenty of experienced practitioners in our capital markets. Why do we not simply find out what more are doing and just do this ourselves? What do you think and why?

*As that is only a guess and is a very danger investment. It is because if we just simply look at what most are doing and do whatever they do is very brief of the knowledge that we have got. To understand the business and to have a safe investment, it is very important to understand the ideas and concept of company and knowing what the movement of the company is. Analysing statement let us understand what benefit to us is and what is benefit to the business.

Question 2: What is the benefit of having a structure, such as the du Pont’s framework, to help use ratios to analyse firm’s financial statements? Is it better (or worse) than simply doing what experienced practitioners do? Why or why not?

*To be honest I fist did not understand well so I did some research over internet to get the definition. The Du Pont’s framework is than understood to be a method that assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). It is a good analysis although is a longer process as it tells me what ROE can be affected by three things which is:

Operating efficiency, measure by profit margin

Assets use efficiency, measured by total asset turnover

-AND-

Financial leverage, measured by equity multiplier

My understanding of Chapter 1, A way of viewing business

Chapter 1: A view of viewing business

As my understanding of this chapter, accounting is not just numbers anymore; it is a process for us to see what is going on with the business. It is a look of how business process and what is going on with business. Accounting is a way to understand how to use the information so we could communicate and connect to the economic and business realities of each firm easier. To my understanding, business is creating value substantially, real and actual value. In accounting, the word value is what the actual word that I should be looking for more. It is important as it describes the firm’s business activity and it would make a big difference if the value changes anytime.

I also see that in mainly Australia, New Zealand and UK (but a lot of other country as well) a lot of economic and business activity is conducted by people operating in firms. Firms are creating and exchanging value with other firms in markets and also in all different markets. I also understand that there are different types of markets in the business world. Which is input markets, products markets and capital markets. Input markets are the ones, exchanging value with suppliers and employees. Products markets are mainly exchanging value market with customers and capital markets are exchanging with equity owners and debt investor. I then see that a firm also communicated with government through the taxation and government regulations and services issues.

As mentioned before, value is a important words in aspect of accounting. Firm can destroy or create value through their activities. Business need to understand how to operate business so it creates value rather than destroy value. We need to understand that accounting isn’t just numbers; we used the information to understand what is going on with the business.

Firms are allowed to do many different things and in different sizes. I understand that businesses not just provide services to consumers, they could retail products or they could manufacture products. Also they could mix them up to achieve business need. Businesses are everywhere. I see that not every business are private owned. It could be run by government as well. Business (private business) can also run by one owner, more than one owner and a few staff and also by thousand of shareholders with large number of staff. But it does not affect how we see the business. No matter how small or big is the business; they all do bookkeeping to record transactions.

Now we are going to look more into types of businesses. A small business can run by one owner. This is call sole trader. To remember this name, I told myself the definition of sole is single while trader which is the person trading the services or products (which business does). Which than makes me remember easier that when I see sole, it is meaning of one. Sole trader has no separate legal status apart from its owner. The owner is in the business for themselves. The owner needs to be responsible to themselves regards to decisions or actions made.

Partnerships. Remember the word, partners. This is more than one. Partnerships are run by more than one owner. In this group, the owners pool their resources and share in the firm’s profit and loss together. Every partner in the business are set with partnership agreements, this is to make the relationship between the partners clear. This agreement is to help partners to sort out disputes they might occur over time.

Business can also run as a company. Companies than have their own separate legal entity separated to the owners. Another type of organization is as a trust. It is a relationship where trustee carry on a business for the benefit of certain beneficiaries. Trusts have a trust deed to sets out the relationship between beneficiaries and trustee.

Now we will look at keeping records of business. We have seen that records are to give us guidance and understanding the economic and business realities easier. But there is circumference that it failed to do this which is when things of the firm are first recorded. There is a big range of different people who is genuine interests in the firm’s operations. Firms can be commercial enterprises, not for profit entities or public sector entities.

Double-entry bookkeeping or known as double-entry accounting, is a way to record transactions that have been developed long time ago. Our cultural now is that, he way we do things are the ways have been developed over many generation. But why? Isn’t it would be easier for us to do it in a short form or something? The reason why we still use the previous developed ways is because it would be so much easier to let the people who do not know the ways to learn everything than to retrain everyone who can already deal with the way it works. Yet we still have to remember, ideas are powerful. Also to be accurate in records, it is good to maintain double-entry format as it helps us to fix up any errors that we could spot while doing double entry.

Double-entry accounting is a system of recording transactions of firm to ensure the relationship between the different elements of the business model that underpins accounting is kept intact. We have now move bookkeeping into digital form instead of using books like older days. It is because the world now runs better with computer system and it is easier for us to keep them and review them. There is now a lot of accounting packages that has been developed to make our transaction entry easier. Moreover, Excel spreadsheet can be easily used to record and manipulate and manage data as well. Small business may do their own bookkeeping or they may be like slightly larger business would employ someone to do bookkeeping on a weekly or monthly basis depending on how much transactions a business have each day. (That is a part-time basis) While, the larger business would employ a full-time staff to enter data and to ensure the bookkeeping are up-to-date.

To achieve knowledge of accounting system, I understand that it is important for me to understand the idea and concepts. It has to make sense to myself and all I need to be involved and connected to the ideas of business by myself. No one else could do the work for me. To be able to transform the way I look at business or improving more ideas and concepts, it is important that myself to support accounting prior to my knowledge and previous experiences.

In building-blocks of accounting, there are a part call journals and ledgers. It was break into two books in the older days. Since we have now records everything into digital format I would actually know this as two different folders. Journal is a file that contains daily transactions and economic events of the firm. It is recorded each day, which than you can understand as it is a list of transactions recorded for the firm. While ledger, it contains the same transaction but arrange not in order of each day. It is arranged as an individual accounts form. The different accounts are assets, liability, equity, revenue and expenses. Which also known as the five elements of accounting.

Liabilities are aspects use up in future economic benefits. Equity is the left over concept. Which is what we have left after liabilities are deduct from assets. Assets and liabilities represent value of firm while equity represents the interest of its owners. After understanding of the elements I also know that equity will always be equal to assets less liability. These three elements provide measure of the value of firm. This is the central concept of business.

Also, to my understanding, value would be different as business is always on the move as they change in markets or due to business activities. Now we will make a step forward to revenue and expenses. It is addition or deductions in equity. I see that the reason of business makes profit is because profit gives an addition (increase) in value which is important for the business. Which the less expenses the better it is as it considered being a loss which will be decrease in value.

Question 1:

Why do we have double-entry accounting? Why do we put in everything twice? Why not just one?

The double-entry accounting has been developed awhile ago, the reason why do we still follow it is because it is a good data records as it provides all the information about the firm that is needed as well as it is accurate. Using the double-entry accounting system also helps us to identify any error and giving us an opportunity to correct the error so that all the values are accurate and up-to-date.

Question 2:

For your firm, identify three assets, three liabilities and three items of equity. Describe what each item means to you.

-After my understand of this chapter as I mentioned above, these are the three assets of my allocated company (Webster Limited);

*Trade and other receivable, in both current and non-current assets as amounts billed by Webster to its customers when it delivers goods or services to them in the ordinary course of business and some to be pay now while some to be pay in future

*Property, plant and equipment, non-current assets, vital to Webster operations but cannot be easily liquidated. Not planning to sell them yet which than each year after revaluation, the property, plant and equipment and increase in value which than turns to be future assets.

*Investment property, non-current assets, property that has been purchased with the intention of earning a return on the investment current or in future. As property not sold yet so it would remain as future assets till sold.

-Three liabilities of Webster Limited;

*Borrowings, current liability as a certain minimum amount is needed to be pay each year

*Deferred tax liability, non-current liability, as it has been deferred and to be pay in future

*Provisions, current-liability. Payment of services (transportation and more) or equipment currently

-Three items of equity

*Issued capital, issued share to shareholders. This is part of a Webster’s authorised capital

*Reserves, shareholders’ equity

*Retained earnings, retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery as is part of future plan.

My favourite blogs!

Hello!

I have read a few blogs and this are my three favorite blogs!

YuXing Kang (Aries)
 http://arieskang0302.blogspot.com.au/

Jing Gao (Vicky)
 http://smilevk7.blogspot.com.au/

Quoc Thanh Tu
http://qttu76.blogspot.com.au/

Aries' blog,

Very short form of business movement and history but packed with all the information. Save the time of reading through business information.

Vicky's blog

Lots of information about the company. Can see clearly that she got very good understanding of the company.

Quoc's blog

Good knowledge of chapter 1 study guide as well as company introduction and movement.

Key concept and questions (KCQs)

To be honest a person like me that do not have a lot of knowledge about agriculture industry and understanding of investment perfectly it was a big pain researching Webster Limited 's financial situation.

I took a fair bit of time reading the Annual statement. As it was complicated for me and there was some inputted financial statement was available between 2010 - 2011 but not on 2011 - 2013. So after reading again and again, I realize it is because it was quite a change of the operations. As some product was discontinued but after two years they remain the same and did not discontinued the products that's why I did not get that statement for the further two years. But that is not the main point or a big issue effecting the business.

I realize the business is now growing faster and more stable according to the annual statement that I have research. My understanding of Webster Limited after research, I realize the area that is most important for the business is to produce more and sell more. As the limited field/ orchards available there's a certain controlled amount of products will be produced each year. But if the field/orchards are expended, this is when they could produce more products and sell more to each more profit.

Also I realize Webster Limited is stable earning company they might want to reduce their amount of share that is listed as public shares as there is a big amount of share paid to dividends. But that is definitely not a main way to reduce expenses.

What are the challenges of Webster limited?
There is a few challenges spotted after researching of business news articles.
Challenges of Field Fresh Tasmania:

Cost of product.
As there is many crops in Australia, a commodity such as onions is subject to changing market prices; therefore, local growers must compete with cheaper imports due partly to the high Australian dollar. Exports conversely, are more expensive for the same reason.
-Which than effects that the overseas buyers would considered their local products more as it would be much cheaper than Webster products.

Labour costs.
The cost of doing business and compensating workers in Australia rises at a faster rate than overseas competitors.
-Which than this might causes imported products to than be cheaper than locally grown due to cheaper labour costs so that the prices to maximum imported products can still be cheaper than the price of their products even though was a minimum profit business Also it might be challenging as Webster exports their products to overseas but it might be too expensive for the overseas buyer.

Supply chain issues.
Having lost the International Shipping Service, FFT must now rely totally on a feeder service from Tasmania to Melbourne, Victoria to export its products.
-This costs the transportation fee to rise as there is a need to transfer from Tasmania to Melbourne before it could export directly to international buyers.

Why do we invest Webster Limited even though there is so many challenges? 
Overall, as the business faces challenges but they still making enough funds as Field Fresh Tasmania is not the only operation of Webster Limited. This is good example why to have core-operations. As if one core-operation does not work well, you will have another operation to maintain your funds and incoming profit.

Walnuts Australia considered to be success of Webster Limited at the moment. The company has raised enough capital to expand its walnut orchard estate in Riverina, where the company recently purchased another 1,000 hectare property. This property will be developed over the next 4-5 years. A portion of the funds will also be applied to establishing the walnut cracking facility, as “one of our main objectives is now the push into kernel [distribution],” says Mr Titmus.

After research of the company, I certainly thinks that it is worth it to invest in Webster limited. The financial statements stated that the business is growing and making profit well. Also, according to articles related to Webster Limited, it was stated that company will continue expending and produce which means it is more opportunity earn more profit.

Also, my understanding of Webster Limited, it is a stable investment. According to financial statement, shareholders had been paid with high dividend. If the operations was not earning profit, the shareholders wouldn't receive high amount of dividend.

According to financial statement, and business article, http://www.businessinfocus.com.au/index.php/2011/10/webster-limited/ . I realize that company had highly reduced bank debt over the last 12 months. It means that company had earn a stable profit to be able to pay of debt and also other expenses yet running the business stably and planning to expend then business.


Other related articles supports investment of Webster Limited:
http://nutindustry.org.au/files/nrteUploadFiles/122F042F201313A373A32PM.pdf
http://www.theadvocate.com.au/story/2090855/field-fresh-tasmania-18-million-onion-factory-investment/
http://www.topstocks.com.au/stock_discussion_forum.php?action=searchgo&searchtype=fid&fid=1716
http://www.bloomberg.com/quote/WBA:AU
http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=WBA:AU

Structure of comapny

Webster website:
http://www.websterltd.com.au/

Webster limited build up it's reputation in agriculture business over years and it is well-known locally and internationally. Mainly exporting country are, Europe, Japan, Germany, Hong Kong and China. Headquarter of Webster located in Tasmania, mainly growing and producing. There's a branch located in Abbotsford, Melbourne. While in NSW, there's field own by Webster mainly to grow Walnuts.

·       

      Mainly focused of the company are exportation of brown onions and in-shell walnuts being the two major products grown and processed through quality systems to ensure customers’ high quality requirement and achieve proper health safety and producing healthy food to achieve eating healthily that everyone trying to achieve.

       

     Webster is parent company of the tow core operations:

     Walnuts Australia

Walnuts Australia website: http://www.websterltd.com.au/walnuts/

      AND

       Field Fresh Tasmania

Field Fresh Tasmania website:http://www.websterltd.com.au/fieldfresh/

Field Fresh Tasmania (FFT):

FFT is located mainly at Forth on the northwest coast of Tasmania. Australia's largest exporter of brown and red onions.  It has the highest quality of procedure to ensure their growing of onions are at their highest quality. Field Fresh Tasmania employ specialize staff to develop strict control enforcement at all levels.

Also, to develop and achieve the demand of consumers these days they have food safety verification backed by ISO 9002 and HACCP accreditation standards in the company. This is part of achieving the healthier, better food requirements of consumers.

Company introduction, harvesting and processing of onions video:

Walnuts Australia (WA):

WA is Australia's largest walnut grower, The operation manages 620 hectares of walnut orchards in Tasmania and 1,615 hectares in the Riverina, N.S.W. In total, this orchard area represents over 700,000 trees. These orchards are a combination of joint venture, investor funded, private ownership and company owned orchards. When mature these orchards will produce over 11,000 tonnes of in-shell walnuts. WA's premium walnuts achieve good-relationship for exporting walnuts internationally. Mainly interested buyers from Germany, Italy, Turkey and China and also to sold locally across Australia.



 Company introduction, harvesting and processing of walnuts video:













``Sorry there's a big gap between Field fresh Tasmania and Walnuts Australia introduction, it is due to the insert of photos and I am unable to delete the blank.

History of the company

Webster Limited, founded Year of 1831, in Australia, Tasmania. It is a agriculture industry (food production), mainly growing and processes onions and walnuts.  It is well-known locally and internationally.

History,
Webster limited has specialize in numerous business sector. It is the fourth oldest company in Australia. Impressively they did not began the business with agriculture industry. They started of as a pastoral business. For the successful of the company, in 1974, the company was listed on Australian Stock exchange. (ASX, WBA.)

Webster limited then entered the agricultural industry with the acquisition of leading onion exporter, Vecon Pty Ltd in 1996.Rationalization of the onion industry then saw 3 former competitors combine their resources to form Field Fresh Tasmania (FFT) with Webster holding 50%. Subsequently, Webster acquired the other 50% of FFT. Webster broadened its interests in the food sector with the 50% acquisition of Aquatas in 1999 and the remaining 50% in 2001, adding to its long and vibrant history as an innovative Tasmanian company. In 2005, Webster positioned itself in a strong strategic position in the salmon industry through the merger of wholly owned subsidiary Aquatas, with the ASX-listed Tassal Group Limited (ASX:TGR). Webster emerged from that transaction as the largest shareholder in Tassal Group Ltd with a 25% stake.

In late 1990's and early 2000's, Webster continued the pioneering work done by Vecon in the fledgling walnut industry through the establishment of a 540 hectare walnut orchard at Swansea on the east coast of Tasmania.Later than in 2004 Webster expand walnut productions to NSW on behalf of private investor, Motspur Park Pty Ltd.
 
October 2007, Webster sold both industrial businesses to focus on its agriculture interests, being Field Fresh, Walnuts Australia and its strategic interest in Tassal Group Ltd. Later 2010, Webster sold their shares of Tassal Group Ltd and expanded their business furture.

The company now has it's reputation as Australia's largest onion grower and exporter, and is rapidly becoming known as a reliable, high quality producer and exporter of in-shell walnuts.The operations of the company are entirely land-based and have experienced consistent growth over the years. The walnut division in particular has enjoyed a great deal of recent success, earning Webster Limited the National Emerging Export Awardfrom Austrade in 2012.

My allocated company, The Webster Limited

Hi everyone!

I am back again to introduce my allocated company, Webster Limited. Also just informing, as the company background and structure are pretty big I decided to break everything into different posts. I'll have different tittle so just make sure to check the tittle of the posts to get the right page to find the information you looking for.


WEBSTER LIMITED.

My allocated company is Webster limited. It is a agriculture based company well-known locally (Australia) and internationally. They mainly produce and process two products, which is onions and walnuts.

To be honest, I am not too happy about my allocated company as myself  personally do not understand much about agriculture industry. I would have preferred to be allocated to an airline company as I would understand more and I love traveling as well.

Anyways, doesn't matter love it or not, it is part of my life to learn. This is a great opportunity for me to understand the agriculture industry and also to learn more about how other industry works.

Please look at other posts on my blog to get more information about the company.
Christine