Blackmores Limited - Auditing and Corporate Governance - Case Study Example

Part A 1. The principal activity of Blackmores Limited in natural health products which is rich in vitamins, minerals, herbs and nutrients which helps to supply the human body with the required nutrient 2. The Chairman for Blackmores Limited is Marcus C. Blackmore and the number of shares being held by the chairman as on June 30, 2011 is 4,479,278 fully paid shares. 3. The name of the financial report found in Blackmores Limited annual report for the year 2011 is Five Year History Directors Report Remuneration Report Auditors Independence Declaration Independent Auditors Report Directors Declaration Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Position of Changes in Equity Consolidated Statement of Cash Flows Notes to Financial Statement Additional Information Company Information 4. The number of significant accounting policies found is the annual report of Blackmores Limited 2011 are 22. Property, plant and equipment have been depreciated at straight line basis. The method to determine the usefulness of the use of property, plant and equipments is determined at the useful life of the assets that the assets intend to provide for use in the future. 5. Corporate governance is a set of rules and procedures that a business follows so that the interest of the stakeholders can be prevented. The eight principles of corporate governance that Blackmores adheres are Lay solid foundation for management & oversight Structure the board to add value Promote ethical and responsible decision making Safeguarding integrity in financial reporting Make timely & balanced disclosure Respect the right of shareholders Recognize & manage risk Remunerate fairly & responsibly 6. The auditors for Blackmores is Deloitte The firm audits the statement so that the financial figures could be verified and a true and correct position of the financial status of the company provided which can be relied on by its users 7. Total Revenue is $236,592,000 Other Income is $1,325,000 Two revenue items are sale of goods, interest on bank deposit and rolyaties Other income comprises of gain on sale of property, government grants, net foreign exchange gain, and net exchange losses on forward exchange contracts 8. Cash receipts amounts to $234,423,000 The amount differs from sale as sale includes interest on bank deposit and royalties as well Part B 1. 2011 2010 Current ratio 78521/33221 = 2.36 80485/34457 = 2.34 Acid test ratio (78521 – 23749)/33221 = 1.65 (80485 – 22555)/34457 = 1.68 Gearing ratio 40797/79112 *100 = 52% 48102/71790 * 100 =67% Interest cover ratio 39322/2372 = 16.6 34731/2442 = 14.22 2. Blackmores The current ratio has increased slightly in 2011 which but is more or less consistent highlighting that the business has sufficient liquidity and will be able to manage their short term obligations easily. This also shows that the business has good liquidity and will be able to meet its daily requirements easily The quick has decreased slightly but is more or less consistent. It shows that the business has sufficient liquidity even after removing inventories as inventories take time to be converted into cash. Further the ratio also shows that the business has sufficient liquidity and will be able to ensure that the payment are made on time to its lenders The gearing ratio shows improvement in 2011 as it shows that the external debt has decreased which will ensure that the business is able to get loan in the future. This also helps to ensure that a balance is maintained between long term debt and will help the business in ensuring opportunities for improving their business in the near future. The income gearing ratio shows that the ratio has improved which increases the chances of paying the money that that the business has taken through external agencies on time. This also reflects that the business is able to pay the interest in a timely manner and is able to ensure that they look towards a framework where the external bodies are satisfied. Company X The current ratio has increased in 2011 highlighting that the business has sufficient liquidity and will be able to manage their short term obligations easily. This also shows that the business has good liquidity and will be able to meet its daily requirements easily The quick has decreased. It shows that the business has reduced its liquidity position and increased the amount of inventories being held by them. Further the ratio also shows that the business has increased its inventory which increases the chances of the inventory becoming obsolete in the near future and has resulted in unnecessary inventories to grow The gearing ratio shows improvement in 2011 as it shows that the external debt has decreased which will ensure that the business is able to get loan in the future. This also helps to ensure that a balance is maintained between long term debt and will help the business in ensuring opportunities for improving their business in the near future. The income gearing ratio shows that the ratio has decreased which increases the chances of defaulting the money that that the business has taken through external agencies on time. This also reflects that the business is unable to pay the interest in a timely manner and is able to ensure that they look towards a framework where the external bodies are satisfied. 3. Based on the information and data Blackmores Limited is a better company to invest as the financials of the company reflect so. The company has improved its liquidity position and has also looked towards ensuring a sound acid test ratio. Further, the fact that the business has ensured a proper match between debt and equity along with improving interest ratio highlights that the business is gaining efficiency. The business has also been able to improve its bottom line and being able to pay the external agencies on time and ensure that the interest are also paid in a timely manner highlights that Blackmores Limited is improving its business. The manner in which the overall performance of Blackmores Limited has improved makes it’s a good company to provide credit 4. Financial Item 2011 ($) % 2010 ($) % Sales 234423 100.0 214934 100.0 Total expenses 195059 83.21 180347 83.9 Promotional and other rebates 22907 9.77 19054 8.87 Raw materials and consumables used 69920 29.83 65748 30.59 Employee benefits expense 52730 22.49 48179 22.42 Selling and marketing expenses 22102 9.42 19134 8.90 Profit for the year 27305 10.11 24297 11.3 The performance shows that despite the growth in revenues and decreased expenses the business hasn’t been able to generate the same amount of profits which is seen by the fact that profit as a percentage of sale has decreased. This transforms into the fact that despite the business being able to ensure more sales hasn’t been able to convert those into additional profit for the business. This shows that the expenses have increased and the business has not been able to manage it efficiently. The overall performance shows a dip and is an area that Blackmores needs to work on so that the future performance improves. References Antony, T. (2004). Thin Capitalization: Issues on the Gearing Ratio. Journal on Australian Taxation, 7 (1), 39-57 Deloof, M. (2003). Does Working Capital Management Affect Profitability of Belgian Firms? Journal of Business Finance & Accounting, 30(3&4), 573-587. Eljelly, A. (2004). “Liquidity-Profitability Tradeoff: An empirical Investigation in an Emerging Market”, International Journal of Commerce & Management, 14(2), 48 - 61 Finance. (2011). Why business needs finance. Retrieved on May 2, 2012 from http://tutor2u.net/business/gcse/finance_why_needed.htm Read More