Assignment 2 – Step 3

MY FINAL SPREADSHEET

STEP 3: COMMENTARY

Due 11:00am Monday 8 May (Week 9)

The countless hours spent staying back at CQUniversities Brisbane campus with peers, endless nights spent on the phone figuring out inaccuracies and errors, never-ending emails sent and copious amounts on social media posts all regarding restated financial statements has undeniably paid off. What an extraordinary, yet awfully frustrating journey. No words or statements could possibly describe the feeling of finally attaining a well-balanced restated financial statement. Let alone, the feeling of adrenaline before entering an equation, hoping it would equal to the required figure. Thank you Martin and Maria for providing us with immeasurable resources such as step-by-step explanations regarding restating within lectures and chapter study guides. They are incredible and tremendously helpful. Additionally, I would like to acknowledge the following students who I had worked hard with to achieve a completed step 3 and 4: Amanda Panda, Billy Van Moolenbroek, Ryan Guha, Vatsal Thakar, Geena Wise, Mikaela Dobie, Sihua Cheng, and Tia McGrath. It has been particularly advantageous working with these students, with an incentive to succeed in all components of the restated financial statements. Together we had uncovered countless errors then expected. On the contrary, reevaluating each other’s work eliminated many of these errors and miscalculations. Although we come from different campuses, the interminable use of social media majorly impacted the final outcome of our assignments.

Overall, reading through the instructions for step 3 confused me. I immediately knew that the difficulties of assignment 2 were awaiting in the future and I was eager to begin as soon as possible. I planned out a solid two and a half weeks to complete steps 3 and 4. The fact that we should allow about 12 to 13 hours to complete step 3 frightened me. It struck me hard as I figured this step would be quite an enduring one. Thus, I immediately knew help from peers would be extremely beneficial. Moreover, in the process of completing step 3, I experienced a mix of emotions. To be honest, many times I had been frustrated with numbers swarming and consuming my mind. However, other times I had felt enlightened and progressive. Slowly beginning to understand my firms restated financial statement positively contributed to my outlook and positivity towards the lengthy, yet intriguing assignment two. Moreover, I felt as though restating positively contributed to my accounting knowledge. I was finally able to understand and make sense of Credit Corp Groups economic and business realities. Additionally, I began to realize how these restated financial statements have the ability to predict their future business activity. Furthermore, I must say that separating operating and financial activities is a powerful way of viewing a business within a spreadsheet.

Firstly, prior to attending the initial lecture regarding the statements of movements in equity, I tried to restate on my own. However, majority of my work was inaccurate. Marias explanation was incredibly helpful. I completed the restated statements of movements in equity throughout this lecture and nothing was overly confusing for me. The original statement of movements in equity for Credit Corp Group was very short and to the point in comparison to other students companies. For example, my transactions with owners in their capacity as owners was already clearly listed out with several components beneath the heading. Additionally, the total comprehensive income, profit for the year and balances at 1st of July and 30th of June were highly emphasized. Therefore, I was able to complete this without a problem. At this point my daunting thoughts about restating had been put to ease. I was surprised to see that many factors revolved around dividends. Thus, I learnt that Credit Corp Group is quite involved in their transfer of value with its equity investors. Moreover, I noticed that Credit Corp Group heavily invests towards operating assets; therefore, I assumed that they would have less free cash flow (FCF) and less value under a discounted cash flow (DCF) approach. Furthermore, I began to understand how Credit Corp Groups investment into operating assets was done with an incentive to add value to equity investors. They expect new operating assets in order to earn greater than the cost of the capital used to obtain them. Additionally, I was intrigued because dividends and cash flow are related to one another. Moreover, they are also majorly related to economic profit. Once I finished my restated statements of movements and equity and started to figure out more on Credit Corp Group, I came to realization that these financial reports are very important.

Secondly, restating the balance sheets was more advanced. I had troubles distinguishing which factors should be part of operating or financial. After referring to Martins study guides and a few definitions, I found this task a lot easier. Once I figured out that operating activities of Credit Corp Group are interactions with the product and input markets, with its customers and supplier and that financial activities are its interactions with the capital markets, with equity and debt investors I understood a lot more. I was surprised to see a large number for net operating assets. Thus, Credit Corp Group has many ways to produce services for customers in the product market in order to earn operating revenue. Furthermore, through NFO, I realized that Credit Corp Group is a part of a huge interaction with the debt and equity capital markets. This section heavily interested me and I really enjoyed analyzing it. Additionally, I found linking frustrating at the start, however, towards the end I became used to it. It took a while to grasp knowledge on what components make up equity, financial obligations and so on. I had an issue balancing my total NFO+ Equity with Net Operating Assets (NOA), however, this issue was resolved as I worked with another student. During our discussion, I had figured that one component was missing from the operating assets. The section Other Assets below the heading Current Assets had confused me. It took me a while to read through my firm’s annual report for 2016 in order to grasp information to what components make this section up. When I discovered note 12 on page 27 of the 2016 annual report, figuring out that these other assets include prepayments and inventory made more sense. Furthermore, I had been confused with cash and cash equivalents as they are regarded as both operating and financial. At the beginning I thought that I should take them from the original statement and sum them in operating assets. However, I then realized that it should equal allocation to operating. Everything from this section made more sense. What confused me the most was when the total NFO + equity and the net operating assets (NOA) did not equal each other. I realized that I had missed other receivables in line 39 of the original financial statement. I also had made a typo in the prepayments figure in line 36 for 2013 in the restated statement. This figure was 540 when it should have been 542. When I finally thought that they would all balance I still had a problem with 2013. I frustrated me how all other years were balanced except this one. This problem was caused by line 32. For cash and cash equivalents for operating assets, I linked the total amount of cash to the working area, not the allocation to operating which is on line 142 of the restated financial statements.

Lastly, the restated statements of financial performance were incredibly frustrating. This section definitely took me the longest to complete, as it was by far the most challenging. Likewise, I communicated with my peers in regards to this section the most. As my original income statement was quite small, I was confused. I initially thought most of my components were missing. As soon as I realized some firms statements are not as long as others I felt more at ease. For example, the section for income had startled me as I had nothing to include for finance income (FI). As soon as I checked the 2016 annual report I had found a useful section, which was note 3 on page 54. This note comprised of income related figures that had positively influenced my restated statement of financial performance. I had doubted myself the moment my comprehensive net profit after tax (CI) did not equal to the total comprehensive income for the year on the original statement. The whole concept of balancing had frustrated me at this point. After discussing with other students, I realized I had forgotten to include other comprehensive income. Furthermore, I missed the addition of changes in the fair value of cash flow hedge to my original statement. Additionally, realizing that my other income was already included in revenue helped immensely. Furthermore, I initially included income tax expense below the heading operating assets until I recognized that it was included in tax expense as tax reported. Furthermore, I had linked total other comprehensive income to total comprehensive income for the year from my original financial statement. This was an error as I had no total other comprehensive income and I should just put 0 for all years. Another error I had discovered through discussion with peers was to do with my finance income (FI). The figures for FI were previously linked to the allocation to financing, which should only be used in the restated balance sheet. Once I had fixed these errors, my CI had finally balanced and I felt very relieved. Additionally, throughout this section I learnt that Credit Corp Group pays tax at a rate of 30% on their profits. Likewise, I saw that they had a high rate of borrowings from the previous restated statements of financial position. Therefore, I learnt that if Credit Corp Group increases its borrowings then they would pay more interest, which increases its interest expenses, and reduce its tax expense. On the other hand, I learnt how if they reduce their borrowings they would pay less interest that reduces the interest expense and increases tax expense. Through this knowledge I began to understand that a firms profit is not only affected by operating activities but also by financial activities.

In conclusion, although I had many errors, which were incredibly frustrating, the interaction with other students had helped me a lot. Exchanging help with each other really did make a difference. I was able to find these errors and fix them more rapidly with their support. Overall, even though I had lots of downs, I managed to get the main components balanced.

 

About Credit Corp Group!

Hi everyone!

I would like to take this opportunity to discuss the firm I was assigned. My allocated firm is Credit Corp Group and their annual reports can be found in the links below:

2016: https://www.creditcorp.com.au/media/1355/20160930_annual-report-2016.pdf

2015: https://www.creditcorp.com.au/media/1081/creditcorpannual-report2015.pdf

2014: https://www.creditcorp.com.au/media/1080/credit-corp-annual-report-2014.pdf

Credit Corp Group Ltd is an Australian company and they are known for being the largest contributor of sustainable financial services within the credit impaired consumer segment. Basically, they specialize in debt purchase and collection services. So, more specifically, what they do it buy overdue debts from consumers and businesses from the major banks, utility providers, telecommunications and finance companies. Each of these major centers is located within New Zealand, United States of America and Australia. It was founded in the year 1992 and has already made huge revenue of 191.1 million AUD! Thus, I am confident to say that it is definitely a successful business. Furthermore, they have a net income of 38.4 million AUD and their total assets are 274 million AUD. These statistics had me quite shocked, as the figures are a lot larger then expected. The aim of the firm is to responsibly help customers by agreeing to an affordable repayment, improving their credit over time while they remain active within the community. When I read these statistics from their company website I was absolutely astonished! You can find their website in the link I have provided below:

www.creditcorp.com.au/customers/

Furthermore, their current stock price is $17.29.

Some key individuals who are very important to the company include: Donald McLay (Chairman, NE Director), Thomas Beregi (CEO), Eric Dodd (NE Director), Leslie Martin (NE Director) Robert Shaw (NE Director), Richard Thomas (NE Director), Matthew Angell (COO), Michael Eadie (CFO).

They are facing many challenges and they have come up with several strategies. I have mentioned this in my assignment. I read through the following news links to find information regarding what faces them as a firm:

http://www.theaustralian.com.au/business/financial-services/debt-collector-credit-corp-group-lifts-revenues-and-profit/news-story/f5e36ba961c05219d749fecff7e4d8d9

http://www.fool.com.au/2017/01/31/why-the-credit-corp-group-ltd-share-price-is-tumbling-today/

http://www.fool.com.au/2016/08/02/credit-corp-group-limited-rockets-on-double-digit-profit-growth-forecast/