Study Guide Questions

Chapter 1
Q. Why do we have double entry accounting? Why do we put everything in twice? Why not just once?
A. Double entry accounting is important as it gives us the true picture of a transaction that occurs. If transactions aren't recorded twice, it would only give us a partial look into what has occurred. Did we pay cash? Did we put it on credit? Did we trade something? Without double entry accounting, we wouldn't be able to tell.

Q. Identify three assets, three liabilities and three examples of equity for C.banner International?
A. Assets:
          Inventories- For C.banner, this includes inventories of raw materials, work in progress and finished               goods.
          Prepaid lease payments- This is the amount that the company has paid in advance for their lease.
          Pledged bank deposits- Deposits that are pledged to the bank as securities of C.banner's notes                     payable (accounts payable)
     Liabilities:
          Trade payables- Amounts that are outstanding for trade purchases. C.banner's Annual Report                       mentions that these are usually due within 90 days of purchase.
          Deferred revenue- This amount is due to C.banner's customer loyalty program, so I am assuming they           run some of rewards program similar to Flybuys or Myer One etc.
          Other payables- Includes accruals, advances from customers, payroll payable and other general                   accounts outstanding.
    Equity:
          Share capital- capital generated from the purchase of shares
          Reserves- money that is there to meet any unexpected costs, as well as future upkeep costs. Pretty               much the savings account.
          Equity contributed to owners of company- belongs to those with a controlling interest, rather than                 minority shareholders from subsidiary companies

Chapter 3
Q. 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 most are doing and just do this ourselves?
A. In my opinion, what works for me is not necessarily going to be what works for you. I know personally that I like to develop my own way of doing things, as I know I do a better job if I am doing it in the way I feel comfortable. If we just copy what others are doing, how do we grow from this? How do we make advances? An example is the bankers using the balance sheets for financing. Someone realised that it was important to classify assets into current and non current. If people just went on auto pilot to do what the person before them does, we won't get breakthroughs like that.

Q. What is the benefit of having a structure, such as the du Pont company's framework to help use ratios to analyse a firm's financial statements? Is it any better (or worse) than simply doing what experienced practioners do? Why or why not?
A. I think that the du Pont framework is a good idea when analysing financial statements. The use of ratios, in my opinion gives a clearer picture of the business's success. For example, if two businesses both make the same profit, but Business A only has half the assets of Business B, the ratio will tell us that Business A is generating more profit from less. But if we didn't know that Business B had twice the assets, one would assume both businesses are equally performing.

Chapter 4
Q. Why should we bother restating a firm's financial statements? What benefit could there be in simply rearranging the elements of a firm's financial statements?
A. The main advantage of restating a firm's financial statements would be the chance to pick up any errors that may have occurred. What you don't notice in one may just not line up when done again. It would also need to be done if a company changes the way it reports through the year, and in that case the previous financial statements would need to be put in a format that is comparable to the new one.

To be continued... :)

KCQs about Study Guide Chapters 1&3

My reflections and KCQs on Chapter 1

• The first question we are asked when reading the study guide is 'what is accounting?' To me, accounting is not only recording the transactions of a business, but really understanding the information and being able to use that information to the benefit of stakeholders. 
• I agree with the study guide stating that business is a wonderful world to work and live in. The idea of working in business is very appealing to me, which is why I am embarking on a university degree to help fulfill this! 
• I find the idea of comparing business relationships with personal ones very relevant. I know myself if I have a bad experience with a business I would be less inclined to give them my custom again- their value in my eyes will decrease dramatically, and I guess the same could be said for a business that is on the receiving end of a bad business transaction. With a competitive market, would you want to give your hard earned money to someone distrustful? No, just like you wouldn't want to do business with a dodgy company. 
• Something I found interesting in chapter 1 was the number of listed companies with a director that has an accounting background. It really opens my eyes to what is possible with an accounting degree. It seems like accounting could take you as far as you let it.
• Accounting is so diverse- no matter what product or service a business offers, there is always a need for book keeping and some form of accounting. 
• I am astounded by the fact that double-entry accounting has been around for well over 500 years.
• The thing I discovered in this chapter was the confidence in myself that I might be grasping the concepts laid out. Many times I would read a paragraph, reflect on it, only to read on and see something rather similar to what I had just noted myself! 

My KCQs on Chapter 3

• ·         Not actually accounting-related, but I did find the example sequence for chapter 3 amusing as my name is Sarah and I am married to a Chris!
• ·         I noticed in regards to firms calling their financial statements different names, that none of my company’s reports were called anything like I was used to, and I did just look at the actual document to work out which was which.
• ·         I also find it interesting that countries have different financial years- would it not be easier to have the one universal date for a financial year? Does this impact on financial trade?
• ·         I enjoy reading the background information on Ryman Healthcare. It is more interesting to read figures and info when there are a few anecdotes or interesting bits in there.
• ·         A question I have is can a firm choose their best performing day of a period for their balance sheet? Wouldn’t this be misleading? Would there be consequences for doing this?
• ·         Once a firm has chosen the date of their balance sheet, does this date need to remain the same? Would it still be an accurate portrayal if the two days are at different parts of the year?
• ·         I find that income statements are much more practical, as it shows a whole period rather than one snapshot in time.
• ·         If a company has no requirement to disclose expenses, how can people get an accurate portrayal of the business’s financials?
• ·         I agree that cash is king… Like you said in the study guide, you can’t pay employees in chairs! With no cash, you cannot pay anyone, you can’t get new stock, you can’t retain employees. There is really no point to operating, and essentially you couldn’t operate in that position.
• ·         I understand now why we debit- because of the obligation to the owners. I was always wondering why we would debit cash when we receive it, but now it makes sense.
• ·         I think it tells a lot that the second most translated and circulated book (Elements) is one about maths. To me, that just shows how important and used mathematics is in the real world.

KCQs about C.banner International

While reading C.banner International's Annual Report, I found the following points of interest:

• After listing with the Hong Kong Exchange, C.banner had an increase in share capital from RMB 49,271,000 in 2010 to RMB 202,087,000. However, this has plateaued and remained the same for 2011-2013. Has anyone else had a company that has moved to a different stock exchange and seen a massive increase in share capital?
• I have seen only one news article about my company, which was actually only a small reference to their relisting on the Hong Kong Exchange within an article about another company. Are there any other companies that people have been given that have no news, articles or information available other than what is provided on their own website? I am concerned that part of the task is to find news, videos etc on our companies and I am drawing a blank.
• My company is a footwear retailer, and they attribute their decrease in revenue during 2013 to the global economic climate. Has anyone else noticed a decrease in their company's revenue that has been attributed to the same reason? Is your company also in the fashion industry or is it a completely different industry entirely? 
• C.banner mentioned in their annual report that they closed some of their slower performing stores in 2013, their worst performing year. Has the economic position over the last few years caused anyone else's companies to decrease their operations to try to stay afloat?

I must say, when I was given this company and looked through their financial statements, I was a little concerned and overwhelmed, as the majority of it is in Chinese! Luckily it is translated but it still deals in Chinese currency, something that I have not worked with or am familiar with. A few weeks in though, I am glad that I got put a little out of my comfort zone, as it will only help me learn that little bit more. Who else has a company with a currency that you aren't used to or familiar with? How do YOU feel about working with it? Is anyone else's company's Annual Reports primarily in a different language?

Performance of C.banner International 2010-2013

C.banner International's Annual Reports (available here) for the last few years show very strong performance in 2011, followed by good growth in 2012. However, 2013 seemed to be the company's slowest year, with a smaller profit posted than in previous recent reports. 

The Company's Consolidated Statement of Changes in Equity showed a massive increase in equity for the period between January 1, 2010 and December 31, 2013- from RMB 642,086,000 to RMB 1,846,868,000. C.banner's biggest increase in equity was during 2011, when they listed with the Hong Kong Stock Exchange. This followed their removal from the Singapore Exchange in 2010. Their move to the Hong Kong Exchange saw an increase in equity of RMB 564,765,000 generated from the issuance of new shares, at a cost of RMB 29,078,000. 

C.banner's Consolidated Statement of Financial Position, or Balance Sheet, shows a steady increase in non-current assets each year, of around RMB 40,000,000. Although C.banner saw a large increase of current assets in 2011 and 2012, 2013 had a much more modest growth. 

The Consolidated Statement of Profit or Loss and Other Comprehensive Income shows large increases in revenue between 2010-2011 and 2011-2012, but a decrease in revenue between 2012 and 2013. This is despite increases in cost of sales and distribution and selling expenses. A growth in net profit was seen from 2010-2012, however 2013 saw a decrease of just over RMB 90,000,000. The company is still growing, increasing its equity by over RMB 140,000,000 in 2013. C.banner states in their 2013 Annual Report that a sluggish global economy resulting in low consumer confidence is responsible for this. They explain that they closed some under-performing stores during the year, while expanding more successful stores. It will be interesting to see whether the Annual Report for 2014 reflects this.

C.banner leading the way for a change between exchanges

There seems to be something of a tradition of Chinese companies listed with the Singapore Stock Exchange delisting from the exchange and relisting with the Hong Kong Stock Exchange.

My company, C.banner International delisted from the Singapore Exchange in 2010, relisting with the Hong Kong Exchange in 2011. Since then, shares for C.banner have seen an increase in value of around 40%

In July this year, another Chinese company Luye Pharma made this move as well.

You can read more about the Chinese companies which have made the switch to the Hong Kong Exchange here

About C.banner International Holdings

The company I have been given this term is C.banner International Holdings, which is the second largest woman's mid to premium formal and casual footwear in China (based on retail revenue for the year ended 31st of December, 2012)

The C.banner group manages four self-developed brands- C.banner, EBLAN, Sundance and MIO. It also manages the licensed brand Naturalizer and distributes ASH and JC branded products.The products for all their various brands are distributed through department stores and independent retailers within China.

The first of the self-developed brands, C.banner, was launched in 1995. In that time, it has grown to be the fourth largest women's footwear brand in the mid to premium sector (in terms of revenue for 2012). In February of 2013, trademarks of international fashion names Badgley Mischka and Mark and James were acquired, followed by a distribution agreement with Dongguan Highline United Trading in March, 2013 which saw J.C Leather Products become the principal distributor of Ash and JC branded products. The company also has an extensive retail network, operating 2166 outlets as of 31 December, 2013.

C.banner has been listed on the main board of the Hong Kong Stock Exchange since September 23, 2011.

Their website is http://www.cbanner.com.cn/en/home.html 

I am looking forward to delving more into this company over the next few weeks, and not just because I am a girl who likes shoes! :)

Thanks for reading!

Welcome to my blog!

Hi everyone, and welcome to my blog for ACCT11059: Using Accounting for Decision Making for Term 2, 2014. 

The company I have been assigned for this term is C.banner International, which is a Chinese clothing company. 

Thank you for reading my first blog post and I look forward to discussing more about my company as the term progresses. Good luck to everyone else completing this assignment :)