AYB200 - Financial Accounting - Higher Order Thinking - Professional Communication - Report Writing Assessment Answer

AYB200 - Financial Accounting - Higher Order Thinking - Professional Communication - Report Writing Assessment Answer

Task:

Higher Order Thinking (HO)
Exercise independent judgment and initiative in adapting and applying knowledge and skills for effective planning, problem solving and decision making in diverse contexts.

Professional Communication (PC)
Use information literacy skills, and communicate effectively and professionally in written forms and using media appropriate for diverse purposes and contexts.

After graduating as one of the top 10 QUT Business School students, you have recently started your career as a financial analyst at a well-known financial institution in Sydney. A colleague approaches you and asks for your assistance to evaluate two companies, Carl Cola and Kewl Kombucha as potential equity investment opportunities for one of her clients. Both companies operate in the beverage industry. Your colleague provides a short description on the business model and strategy as well as financial information for the past three years for Carl Cola and Kewl Kombucha.

Carl Cola - AYB200
As a global leader in the beverage industry and over 5 years of international experience, Carl Cola is one of the most rapidly growing family businesses in Australia.
With its headquarters in Brisbane, Carl Cola has successfully built up 16 branches in 5 different countries with over 260 full-time employees. The executive management of Carl Cola follows a ‘growth through the acquisition’ strategy to expand the business into new international markets. With acquisitions of direct competitors, Carl Cola has successfully gained significant market shares in Europe and China. Furthermore, the acquisitions of competitors allow Carl Cola to increasingly utilize economies of scale and synergy effects. Carl Cola aims to be the cost leader in the market and relies on a wide range of suppliers to run its operations.
After a few years of strong growth and increasing profitability, the family owners of Carl Cola aim to sell 20% of their shares to a new strategic investor in order to finance future acquisitions through equity capital.

Kewl Kombucha
As a local market leader in the beverage industry with over 5 years of market experience, Kewl Kombucha is one of the most innovative and well-known businesses in Australia.
Following a ‘growth through innovation strategy’, Kewl Kombucha is operating its business out of its headquarters in Melbourne and employs a diverse team of 70 professionals form 12 different countries. Starting with the development and production of a Kombucha drink that is based on an innovative healthy sugar substitute, Kewl Kombucha has been able to develop a variety of juices, teas, and energy drinks that are based on the healthy sugar alternative. This has differentiated Kewl Kombucha from its competitors. Kewl Kombucha has built a well-known brand that is associated with a healthy lifestyle and sustainable production cycles. Kewl Kombucha relies on a small number of suppliers that are able to fulfil the high quality standards and sustainable production.
The owners of Kewl Kombucha are looking for new equity partners in order to finance future growth through the development of new products for the Australian market.

Part A - AYB200
1. Briefly summarize the Competitive Strategy of Carl Cola and Kewl Kombucha. Present your answer in Table 1.
2. Calculate the financial measures for profitability (Return on Sales, Gross Profit Margin, EBIT Margin, Return on Equity, Return on Assets), capital management (Current ratio, Debt ratio), and growth (Sales growth, Gross profit growth) for each of the firms for the financial years 2 (FY2) and 3 (FY3). Present your answer in Table 2.
3. Summarize the relevant requirements of AASB 138 Intangible Assets with respect to accounting for Goodwill and Research & Development costs (including paragraph citations). Discuss how these requirements impact the balance sheet and income statement in the short- and long term. Present your answer in Table 3.

Part B
4. For each entity, outline the strengths and weaknesses of the differing Competitive Strategies identified in Table 1. Following your discussion in Table 3, explain how the requirements of AASB 138 Intangible Assets impact the financial measures of both firms calculated in Table 2. Present your results in Table 4.
5. Discuss how the accounting for Goodwill and Research & Development according to AASB 138 Intangible Assets provides incentives for managers to follow a ‘growth through acquisition’ or ‘growth through innovation’ strategy, assuming that management compensation is based on profits. Discuss the potential short- and long-term implications for the businesses. Present your answer in Table 5.

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