Business Decision Making Assessment 3 – Individual Analytical Report

Assignment Type: Individual analytical report

Subject Area: Business Decision Making, Accounting and Finance, Financial Ratio Analysis, Master Budgeting

This sample assignment demonstrates how a business decision-making report can be structured with financial statement analysis, ratio calculations, interpretation, master budget preparation, and academic referencing. It is prepared as a learning sample for students who want to understand report formatting, financial analysis presentation, and budgeting discussion.

Table of Contents

Section 1: Analysis of financial statement and interpretations of Charter Hall Long Wale Reit 3

A. Company Operations and CEO’s statement 3

B. Calculation of financial ratios of 2022-2023 3

C. Comparison and interpretation of ratios 5

Section 2: Master Budget 11

References 15

Appendix 16

Annual Report of Charter Hall Long Wale Reit 16

Section 1: Analysis of financial statement and interpretations of Charter Hall Long Wale Reit

A. Company Operations and CEO’s statement

The mode of operations is mainly focused in investments in real estate. There is emphasis given towards investors being provided income that is secured and stable. There also is the scope of growth in capital and income by exposing to properties of WALE (Fengchen,2023). There has been management of growth through investments that are indirect and direct across various sectors of real estate. The main focus lies leasing assets to the tenants who have covenants that are strong on leases in the long term (Zhao & Liu, 2023). David Harrison, the CEO of the firm and group emphasised upon the strategy being on provision to investors stability and security in incomes and growth in capital. Also, he stated putting leases in long term with covenants that have strong tenants would be done in the 2023 Annual report of the firm (Vo,2023).

B. Calculation of financial ratios of 2022-2023

** Working Notes

1. Charter Hall Long Wale Reit does not have any inventories for 2022 and 2023. Hence, it is not possible to calculate Inventory Turnover Ratio and Inventory Turnover (Number of days) due to missing information and values.

2. Gross Profit = Total other income.

3. Total Debts = Total Liabilities.

4. Outstanding shares = Weighted number (average) of the stapled securities (Note son earnings per stapled security).

5. Price of stock = Stock price as on 30^th June, 2023 = $4.01 and Stock price as on 30^th June, 2022 = $4.27. Source: (Charter Hall Long Wale REIT (ASX:CLW) share price (2024) Market Index)

C. Comparison and interpretation of ratios

Current Ratio – It is a measurement of liquidity which judges the ability of a firm towards payments of short-term borrowings within 1 annum. The industry average in Australia is 1.1 to 1.5 times (Zhang, et al.,2024). It is significantly lower for Charter Hall LWR and has declined from 0.59 in 2022 to 0.53 in 2023 due to higher payables of $32.95 million in 2023 compared to $23.164 million in 2022 (Charter Hall Long Wale REIT - Annual Report, 2023).

Quick Ratio – It looks at payable capacity of immediate liquid assets like cash, receivable to compensate liabilities in 1 year. The industry average in Australia is 1 to 1.2 times (Ryan-Collins & Murray,2023). The joint ventures related distributions was higher in 2022 at $21.231 million compared to $18.623 million in 2023. This has led to quick ratio declining from 0.53 in 2022 to 0.48 in 2023 (Charter Hall Long Wale REIT - Annual Report, 2023).

Return on Total Assets – It measures degree of efficiency of a firm in income generated prior to taxes and interest payment. The industry average in Australia is -2 to -3 (Lesh,2023) Thus, the firm is performing much better. It is due to higher valuations of investment properties. However, there is a decline of 121.4% in 2023 compared to 2022 which is a negative indication for potential investors (Charter Hall Long Wale REIT - Annual Report, 2023).

Gross Profit Ratio – It measures the financial performance of a firm after payments of other expenses from revenues. The Australian industry average is fluctuating. However, for Charter Hall LWE it has declined from 363.54% to 0.54%. Many overheads like net profit share firm joint ventures, net fair value on properties of investments was very high in 2022 (Charter Hall Long Wale REIT - Annual Report, 2023).

Net Profit Ratio – It looks at net income after all expenses and taxes get paid. The Australian industry average is fluctuating. However, for Charter Hall LWE it has declined from 415.07% to -84.94% due to multiple expense in 2023 like properties, fund managing, losses in joint ventures and others (Charter Hall Long Wale REIT - Annual Report, 2023).

Debt to Equity – It looks at total leverage of debts to the equity of shareholders. The Australian industry average is 0.75. It is 0.52 in 2023 and 0.45 in 2022 respectively for Charter Hall LWE. This is a positive indication for investors, suppliers and customers. The reinvestment distribution plan has aided in increasing equity contributable for the company (Charter Hall Long Wale REIT - Annual Report, 2023).

Debt Ratio – It looks at total leverage of debts to the total assets. The Australian industry average is 0.8. It is 0.34 in 2023 and 0.31 in 2022 respectively for Charter Hall LWE. It shows an increasing trend which is a drawback (Charter Hall Long Wale REIT - Annual Report, 2023).

Market Capitalisation – It depicts total outstanding shares valuation. In comparison to $1.6 million which is the Australian industry average, Charter Hall LWE has performed twice better due to high shares sellable (Charter Hall Long Wale REIT - Annual Report, 2023).

Return on Shareholder Equity – It is a long term market performance leverage ratio. It has declined 123% from 2022 to 2023 in Charter Hall LWE (Morris, 2023). Due to high expenses, the net income declined and resulted in a negative performance. This is concerning for stakeholders in the firm (Charter Hall Long Wale REIT - Annual Report, 2023).

Earnings per share (EPS) – It gauges the profit measurement from a share outstanding. The Australian industry average has seen 53% growth between 2018-2023. It has declined 119% in Charter Hall LWE from long term expenses (Charter Hall Long Wale REIT - Annual Report, 2023).

In efficiency and solvency ratios, the firm has done well due to its reinvestment policies compared to the other three ratios. It can be summarised that the liquidity, solvency, efficiency, profitability and market performance of Charter Hall LWE has declined considerably in 2023 compared to 2022 (Charter Hall Long Wale REIT - Annual Report, 2023).

Section 2: Master Budget

a) Preparation of following budget for SYDGEE for three specified months of 2024.

i) Production Budget in Units

ii) Direct Labour Budget in hours

Direct Labour Budget

iii) Direct materials Budget

Direct Materials Budget

iv) Sales Budget

Sales Budget

b) Calculation of Total budgeted contribution margin for SYDGEE

Contribution Margin

c) Discuss at least 3 behavioural considerations in the profit planning and budgeting process:

According to Bartocci et al., (2023) it is very essential for a business organisation to devise a proper budgeting and profit planning mechanism especially within the current scenario of the market, due to the increased importance of maintaining sustainability along with increasing profit margins. Some of the few behavioural considerations which can aid firms within this process have been listed as follows:

• Political Considerations within the process of budget allocation can prove to be a major concern for the business as it might not be done while keeping the best interests of the firm in mind. This issue can be resolved effectively through the establishment of stringent guidelines for budgeting and setting up inclusive team building activities.

• The planning and budgeting team should be more wary of taking risks when there are potential losses and should be more outgoing with their ideas when potential gains are reported. Conservative budgeting methods should be avoided and decisions should be made after weighing the potential opportunities and threats behind every move (Aziz et al., 2021).

• Profit planning and budgeting prove to be faulty many times due to excessive reliance on preliminary information and not double checking them from multiple sources. Thus, to reduce biasness, methods like zero-based budgeting should be used which provides proper justification for every expenditure which is taken into consideration.

References

(2023) Charter Hall Long Wale REIT - Annual Report 2023. Available at: https://www.asx.com.au/asxpdf/20220922/pdf/450r6s5nm0hd36.pdf (Accessed: 12 September 2024).

Aziz, H. & Shah, N., (2021). Participatory budgeting: Models and approaches. Pathways Between Social Science and Computational Social Science: Theories, Methods, and Interpretations, pp.215-236.

Bartocci, L., Grossi, G., Mauro, S.G. & Ebdon, C., (2023). The journey of participatory budgeting: a systematic literature review and future research directions. International Review of Administrative Sciences, 89(3), pp.757-774.

Charter Hall Long Wale REIT (ASX:CLW) share price (2024) Market Index. Available at: https://www.marketindex.com.au/asx/clw (Accessed: 13 September 2024).

Evans, B. P., Glavatskiy, K., Harré, M. S., & Prokopenko, M. (2023). The impact of social influence in Australian real estate: Market forecasting with a spatial agent-based model. Journal of Economic Interaction and Coordination, 18(1), 5-57.

Fengchen, W., (2023). The present and future of the digital transformation of real estate: A systematic review of smart real estate. Бизнес-информатика, 17(2), pp.85-97.

Lesh, J. (2023). Values in cities: urban heritage in twentieth-century Australia. Routledge.

Morris, A. (2023). Housing and inequality in Australia. The economic and labour relations review, 34(1), 86-103.

Muckenhaupt, J., Hoesli, M. & Zhu, B., (2023). Listed real estate as an inflation hedge across regimes. The Journal of Real Estate Finance and Economics, pp.1-51.

Newell, G., Nanda, A. & Moss, A., (2023). Improving the benchmarking of ESG in real estate investment. Journal of Property Investment & Finance, 41(4), pp.380-405.

Ryan-Collins, J., & Murray, C. (2023). When homes earn more than jobs: the rentierization of the Australian housing market. Housing Studies, 38(10), 1888-1917.

Vo, D.H., (2023). Volatility spillovers across sectors and their magnitude: A sector-based analysis for Australia. Plos one, 18(6), p.e0286528.

Zhang, L., Ci, L., Wu, Y., & Wiwatanapataphee, B. (2024). The real estate time-stamping and registration system based on Ethereum blockchain. Blockchain: Research and Applications, 5(1), 100175.

Zhao, C. & Liu, F., (2023). Impact of housing policies on the real estate market-Systematic literature review. Heliyon.

Appendix

Annual Report of Charter Hall Long Wale Reit

Consolidated Income Statement of Charter Hall Long Wale Reit 2022-2023

Consolidated Balance Sheet of Charter Hall Long Wale Reit 2022-2023