N400 Project Report Accounting - Assessment Answers

Quesrion 

Answer the following questions about the company and its financial reports. When quoting numbers, use the group/consolidated data. 

Part 1 - General information about the company What is the name of the company and its ASX code? Where is its main office located? What is the website address? What is its industry type? Find a chart that shows the share price over the last 5 years. Over this period, have there been any sharp rises or drops in the share price? If there have, can you find an explanation? Copy the chart to your Word document and print any supporting information. 

Part 2 - Revenue What is the company’s main source of revenue? If your company sells a physical product, what was the gross profit for the current year and the previous year? Locate at least two articles relating to the company earnings. One of these must be from an independent source. (Include these articles in the appendix). Using these articles, what events or company policies etc have impacted most greatly on company earnings over the last two years? Read the chairman's report and the CEO's report. What are the company’s main strengths and weaknesses? Based on these, prepare a forecast of revenues for the next two years. Please give reasons why you have come up with this answer. 

Part 3 - Property, plant and equipment Which group of tangible assets (property, plant and equipment) has increased the most over the last two years? What is the reason for this change? Looking just at the last year, were any assets revalued or impaired? If impaired or revalued, what is the reason for this? Please support your answer with information from the published report and an article or company announcement if relevant.

Part 4 - Provisions, contingent assets and liabilities and leases What provisions does the company have? Describe them and if possible, the movement or change in them during the year. What is a contingent asset and what is a contingent liability? How does a contingent liability differ from a provision? Does the company have any contingent assets and/or liabilities? Explain, showing estimated amounts. Does the company have any leased assets? If so, what are they and what did these assets cost the company in the last year? 

Part 5 - Responsibility and sustainability Define “sustainability” as it relates to a business. Looking at your company’s sustainability report, what are some ways in which the company is “giving back” to the community? How do you think  this will impact on the company’s earnings in the longer term?

The name of the company is DANONE. It is not registered in the Australian stock exchange. It is a French company which is operating its business and operations at various countries. The company has been founded in Spain and headquarter of the company is at Boulevard Haussmannn 9^th arroundissement, Paris, France (Home, 2018). The company is running its business under the “Food processing” industry.

The main products of the company include baby food, dairy products, coffee, dairy free products, plant based products, bottled water, supplements etc. the company has 3 subsidiary companies which are operating in different countered in order to meet the common goal of the business. The name of the subsidiary companies is the DANONE Company (US), DANONE North America and Evian. According to the reports of 2018, it has been found that the company is offering its services in around 120 markets (Market watch, 2018). The sales of the company were EUR 24.7 billion in the year of 2017. In the year of 2017, the sales of the company have been 29% because of the nutrition launching. Further, the annual report of the company expresses that the 29% of the sales would come from nutrition, 52% would be generated from the dairy products and 19% would be generated from the waters.

The website address of the company is www.danone.com (Home, 2018). The stock price of last 5 years of the company has been discussed further and the graph of the company is as follows:

                                                                            (Yahoo finance, 2018)

On the basis of the above given chart, it has been found that the current stock price of the company is EUR 67.83. The 5 year stock price fluctuations of the company are lower. The average return of the company represent about the positive changes. The stock price of the company has been improved at great level in last 5 years. Earlier, the stock price of the company was around EUR 55 which has been improved to EUR 67.83 in current year. The growth in the stock price of the company is lower.

The changes into the stock price of the company have been taken because of the growth of the company in the market and better market position. The management of the company has made proper market strategies in order to improve the stock price (Baker & Wurgler, 2015). The company is even following the relevant dividend policies in order to improve the attractiveness level of the investors in the company.

Revenue:

The revenue of the company has been studied further. The annual report (2017) of the company explains that the main source of the revenue of the company is its 3 segments which are nutrition, water and dairy products. The annual report (2017) of the company explains that the year of 2017, the sales of the company have been 29% because of the nutrition launching. Further, the annual report of the company expresses that the 29% of the sales would come from nutrition, 52% would be generated from the dairy products and 19% would be generated from the waters .

The sales by region of the company has been discussed further and it has been found that 53% of the sales of the company comes from the Europe Norman and the 47% of Asia pacific, Africa, Latin America, C.I.S. etc. (Appendix). The study on the total revenue expresses that the main sales of the company is generated from the USA (18%), France (9%), China (7%), Russia (7%), Indonesia (6%), United kingdom (5%), Argentina (4%), Mexico (4%), Spain (4%) and Germany (4%) (Financial reports, 2017). These markets are the top 10 market of the company from where the revenue is generated by the company.

The main strategies of the company are to give healthier choice to their clients along with the healthier lifestyle. In order to maintain and meet these strategies, the company connects to the local needs of the customers and offer them the required products accordingly. The company feels responsible towards the company and because of it; the company offers the best of the products for the customers (Baker, Dutta & Saadi, 2010). It has helped the company to improve their sales in the market and it also explains that the corporate social responsibilities of the company are quite better.

The below given image from the Statista 2018) explains about the total revenue of the company of last 5 years. It expresses that the revenue of the company has been improved by a great % in the year of 2017. The revenue of the company has been improved because of the changes into the strategies of the business as well as the marketing strategies of the company has also helped it to improve the turnover level in the market.

                                                                            (Statistic, 2018)

The amigo bulls (2018) has expressed that the total revenue and the gross profit level of the company has been improved and it expresses that the company is holding a competitive position in the market. The products of the company are related to the healthier choices which attract the people to come and consume the products of the company. The financial projection of the company has expressed that it is not sufficient to check the stock price of the company and judge the stock of the company on the basis of that. An analyst is also required to focus on the final financial statement of the company (Chandra, 2011). It concludes that the overall position of revenue and financial performance of the company is strong in the market (Baker & English, 2011).

The annual report (2017) of DANONE Company explains that the chairman and CEO have focuses on their strategies in their statement. CEO and chairman have expressed in the annual report (2017) that the 2017 has been a pivotal year for the company as various new agendas and strategies have been implemented in the operations of the business and it has been succeed. The main vision of the company was to offer healthier choice to their clients and currently billions of the people are using the products of the company.

The main strength of the company is its products and the visions of the company which expresses that the main goal of the company is offer different moments of the day in order to inspire them about the healthier and sustainable drinking and eating practices. The company is continuously disrupting innovation, sales, and distribution and marketing models in order to make the customers engaged in the healthier practices and healthier eating choices (Ahrendsen & Katchova, 2012). A better management team has been also a reason behind the success of the company.

The company has also planned various new strategies for the upcoming year in order to improve the position of the company in the market and grab more market share through offering the healthier choices in more market. On the basis of the study, it has been found that the main focus of the company has been to manufacture the healthier choices and offer them to the clients of the company in order to improve their lifestyle and lead it towards the healthier lifestyle which has helped the business to improve the overall sales and meet the business goals of the company (Brigham & Houston, 2012).

However, the CEO letter has also explained about few weakness of the company such as still there is huge market is to be grabbed by the business in order to maintain and improve the turnover and market share of the business. The board structure of the company is also required to be improved in order to sustain the position of the company in the market. The company believes that the combination of the chairman and the CEO roles reflect the planned leadership of the company and once the company would achieve this level, it would help the business to come as strongest player in the market (Financial reports, 2017).

On the basis of the overall evaluation on the revenue by products, revenue by regions etc., it has been found that the revenue of the company would be EUR 26022985.21 thousand. The revenue of the company would be improved by 5.45% from the last year in the year of 2018 and in the year of 2019, the improvement rate would be around 7%. The reasons behind this increment are the average growth rate of last 3 years of the company and the strategies of the company which would help the company to meet the target of the company soon (Morningstar, 2018). On the basis of overall evaluation on the sales of the company, it has been found that the revenue level of the company would be improved in upcoming year along with a great profitability position (Fernandes, Lynch Jr & Netemeyer, 2014).

Property, plant and equipment:

Property, plant and equipments are the main tangible assets of an organization. These resources help the company to manufacture the products and maintain the sustainability level in the business (IAS plus, 2018). On the basis of the study on the PPE of the company, it has been found that the worth of PPE on 31^st Dec 2016 was EUR 5036 which has been improved to EUR 5971 in the year of 2017. It expresses that the PPE investment of the company has been improved in the year of 2017 in order to manage the enough resources for the betterment of the company and to accomplish the needs of the requirement of the company (Financial reports, 2017).

On the basis of the study on PPE of the company, it has been found that in the PPE in the Europe was EUR 11532 millions on Dec 31, 2016 which has been improved to EUR 22836 million on 30^th June, 2017. Further, the PPE level of the company has been studied in the market of France and the rest of the world. On the basis of the study on France market, it has been found that in the PPE in the Europe was EUR 2011 millions on Dec 31, 2016 which has been improved to EUR 2015 million on 30^th June, 2017. Further, in the rest of the world, the PPE level has been lowered from EUR 9307 to EUR 8861 (Market watch, 2018). It expresses that the different PPE level has been maintained by the company at different geographical region in order to manage the performance level, cash level and take the maximum utilization of the minimum resources of the company.

On the basis of the cash flow statement of the company, it has been measured that the company has sold the machineries, property and plant in the year of 2016. But till June 2017, from Jan 1, 2017, the company has invested EUR 16 million in the property of the company so that the company could achieve the new targets set by the management for the year of 2017 and 2018 (Yahoo Finance, 2018). The study further expresses that the investment level in the PPE of the company has been improved further by EUR 39 million from the last year to manage the new plants and the machineries for the extra production of the business. The Morningstar (2018) explains that the PPE level of the company is EUR 12558 million in 2017 and the accumulated depreciation of the PPE is EUR 6553 million which expresses that the level of PPE and accumulated depreciation, both has been improved from the last year in current year 2017.

From the study on the interim financial reports (2017) of the company, it has been found that the no impairment has been taken into the company in this half year performance. The interim financial report (2017) of the company explains that the no impairment on the property, plant and equipment and other assets held for the sales has not been impaired and it has not been recognized as on the date 30 June, 2017. The accounting policies of the company express that the impairment test are performed by the company mainly in 3 situations which includes:

1. At the time when assets are held for the sales
2. At the time of preparing the final reports and realize that the worth of assets have been changed
3. And at any time, when the management realizes that there is huge difference among the market price and book price of the assets of the company (Du & Girma, 2009).

The impairment process is held by the company in a proper way and financial notes are provided by the company in its annual report about the reasons and the process of the impairment amount of the company (Deegan, 2013). In case of the current performance of the company, it has been measured that the current worth of the PPE has been improved because of the huge investment of the company in PPE. The investment is worth doing because of the fact that the revenue of the company and the sales units of the company is improving along with the higher demand of products in the company. The improvement in the PPE would make it easier for the company to meet all the demands of the company. Market watch (2018) further explains that the main improvement has occurred into the buildings and the land and improvement of the company. From the year of 2016, the buildings and the Land & improvement of the company has been improved to EUR 12.56 billion and EUR 3.35 billion.

It expresses that the changes in the PPE level of the company is quite satisfactory and it further expresses that the financial performance of the company has been managed by the company at better level.

Provisions, contingent assets, liabilities and leases:

The provisions, contingent liabilities and leases outline the provision accounting together with the contingent assets and contingent liabilities of the business. Contingent assets and liabilities describe about those assets and obligations of the company could probably take place in the business (Dagwell, Wines & Lambert, 2011). Provisions are calculated by the business to estimate the required expenditure of the business in order to settle the personal obligation of the company which reflects the present worth of the future expenditure in order to follow the accounting concept of materiality and manage the concept of time value of money. The contingent assets and contingent liabilities are managed by the company in order to reduce the affect of sudden risk of the business (Bardley, 2017).

In case of DANONE Company, it has been found that the provisions are managed and presented by company on the basis of IAS 34. The company mainly makes the provisions for the retirement obligations, long term benefits of the company, and tax risks of the business, employee related and commercial disputes of the business, restructuring provisions and the investment subsidiaries of the business (Interim financial reports, 2017). These provisions define about that risk which could be occurred into the business and could affect the profitability level and financial performance of the business. By preparing the provisions for this risk, the company makes sure that the affect of those figures could be lowered in the business.

On the basis of financial notes 11.1 in the interim financial reports (2017) of the company, it has been measured that the level of the tax risks provisions has been improved from EUR 445 million to EUR 514 million. Further, the employee related provisions have been lower by the company Euro 3 million in the company because of the reversal of the used provisions of the business. In addition, the investment subsidiary provision of the company is same like last year and the restructuring provisions of the company have been improved from EUR 60 million to EUR 72 million.

The contingent liability is a possible obligation in which a business which could take place because of the past events of the business whose outcome is based upon any future event or which cannot be measured or which is not probable i.e. it might take place whereas the provision stands for the current liabilities of the business which timing and the amount is not certain (Brigham & Ehrhardt, 2013). The interim financial reports (2017) of the company further explain that the company is not holding any contingent assets and liabilities in the business.

Further, the lease accounting of the company has been discussed and it has been found that the company is following IFRS 16 in terms of recording and presenting the lease amount in the annual report of the business. The current interim financial report (2017) of the company explains that there is no lease in the business in the current year. Even though, the company has not managed the lease in last year as well. The company is utilizing all the PPE after purchasing them from the market. Though, it has been studied in the annual report (2017) of the business that the financial lease could take place in the business and if so, the IFRS 16 rule would be followed by the business to manage the reports.

Responsibility and sustainability:

Sustainability is an ability to maintain and continue to define the behaviour of the business indefinitely. It is a process to maintain the changes in the business in order to exploit the resources, the direction of the investment, the technological development etc of the business. Business sustainability is mainly defines as the management of the triple bottom line which manages the process to maintain the financial, environmental and social risk, opportunities and obligations (Deegan, 2009). These three lines are sometimes explains as the profits, people and planet in the business.

In terms of the study on the DANONE Company, it has been found that the main strategies of the company are to give healthier choice to their clients along with the healthier lifestyle. In order to maintain and meet these strategies, the company connects to the local needs of the customers and offer them the required products accordingly. The company feels responsible towards the company and because of it; the company offers the best of the products for the customers (Annual report, 2017). The company’s corporate mission expresses that the company wants to bring the health to greatest number of people across the world through offering them the best of the healthier choices in the world.

The core values of the business are nutrition and health, nature and the people. The company focuses upon all the three core activities in order to make sure that the main goals of the company could be met and it could lead to the company towards the better sustainability and responsibility level. The products of the company are related to the healthier choices which help the company to meet the corporate social responsibilities level of the business (Financial reports, 2017).

The chairman and CEO have focuses on the CSR and sustainability position the company and explained that the main vision of the company was to offer healthier choice to their clients and currently billions of the people are using the products of the company. The main strength of the company is its healthier products of the company which inspires the customers of the company to buy the healthier choice and make the sustainable drinking and eating practices (Interim financial reports, 2017). The company is continuously disrupting innovation, sales, and distribution and marketing models in order to make the customers engaged in the healthier practices and healthier eating choices.

Conclusion:

On the basis of the study on DANONE Company, it has been concluded that the DANONE Company has followed the proper IAS and IFRS rules in order to record, prepare and present the financial figures of the company. It has been found that the proper accounting standards, accounting concepts and accounting rules has been followed by the business in order to record and present the data in the annual report. The company has maintained the proper accounting policies in order to get the proper outcome and offer transparent information about the company’s performance to the stakeholders of the company.

References:

Ahrendsen, B. L., & Katchova, A. L. (2012). Financial ratio analysis using ARMS data. Agricultural Finance Review, 72(2), 262-272.

Ambigo bulls. (2018). DANONE company. [online]. Retrieved from: https://amigobulls.com/stocks/DANOY/income-statement/annual

Annual report. (2017). DANONE company. [online]. Retrieved from: https://produkte.erstegroup.com/modules/res/PdfRenderer.php?f=FR0000120644-2017-12-19.pdf&u=%2Fmodules%2Fres%2Fcompany_profile%2Fdownload.php%3FLANG%3Den%26MARKET%3Dat%26ISIN%3DFR0000120644

Baker, H. K., & English, P. (2011). Capital budgeting valuation: Financial analysis for today's investment projects(Vol. 13). John Wiley & Sons.

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Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.

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Deegan, C., (2013). Financial accounting theory. McGraw-Hill Education Australia.

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Fern&es, D., Lynch Jr, J.G. & Netemeyer, R.G., (2014). Financial literacy, financial education, & downstream financial behaviors. Management Science, 60(8), pp.1861-1883.

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Home. (2018). DANONE company. [online]. Retrieved from: https://iar2017.danone.com/

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Market Watch. (2018). DANONE company. [online]. Retrieved from: https://www.marketwatch.com/investing/stock/danoy/financials/balance-sheet

Morningstar. (2018). DANONE company. [online]. Retrieved from: https://financials.morningstar.com/balance-sheet/bs.html?t=BN&region=fra&culture=en-US

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Yahoo Finance. (2018). DANONE company. [online]. Retrieved from: https://finance.yahoo.com/quote/BN.PA/history/