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MAA103-Accounting for Decision Making Assignment Specialty Fashion Group

2014-08-03T15:36:00.001+10:00

1 Introduction

Specialty Fashion Group Ltd holds a leading position in the women's apparel retailing in Australia. It manages 6 brands aimed at offering women of all ages and sizes contemporary fashion at competitive prices. During 2010, the group closed 10 underperforming stores and refurbished 52 stores. This strategy is expected to be continued in 2011. By the signing of the agreement with Limited Brands, the group will be the exclusive La Senza licensee in Australia and New Zealand until August 2020. The expansion of brand portfolio is believed to be a key drive of growth in the future.

Noni B Ltd is one of Australia's leading fashion retailers with two fashion labels focused on becoming the fashion store of choice for the 40+ women. The improvement of every detail- e.g. ensuring the quality of garments; strengthening the relationship with customers; tightening the inventory control and providing personal in-store services is believed to be the drive of growth.

Financial ratios are indicators of the broad state of a business. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment (Financial Pipeline 2009). Therefore, informed decisions can be made on the basis of this analysis. Ratio is also a useful tool for management. Certain ratios must be maintained as specified in some debt covenants and manager is responsible for calculating and monitoring those ratios (Atrill, McLaney & Harvey 2006).

2 Body of report

2.1 Profitability

Every company is most concerned with profit. Profitability ratio measures the overall efficiency of a company (Biz/ed 1996-2010).

Margin ratios

Margin ratios represent a company's ability to transform sales dollars into profits at various stages of business (Peirson & Ramsay 2003).

2.1.1 Gross Profit Margin

Gross profit margin=Gross profit/ Net sales= (Sales-COGS)/Net sales

GPM for Noni B has increased from 57.48% to 59.69% while it has slightly decreased from 57.52% to 57.03% for Specialty Fashion Group. The difference between the two companies is not significant. It may indicate that the inventory control in Noni B has improved over the two years period as every sales dollar could generate more profit now (as a result of lower COGS or higher price). However, it is unlikely to conclude that Noni B has better inventory or pricing policy in place than SFG as the differences in the company size; strategy and related sales volume.

2.1.2 Net Profit Margin

Net profit margin = Profit before interest and tax / Net sales

This figure that measures profitability after considering all the expenses has increased for both companies. It has increased by 153% for Noni B, which implies the success of Noni B's policy of focusing on margin rather than sales volume. Tighter inventory control has enabled Noni B to avoid the more aggressive discounting and improved operation throughout the business has brought lower costs. The modest increase in profitability for SFG is driven by its sophisticated marketing strategy, increased store optimization, well controlled costs and direct sourcing strategy. This ratio for SFG is 60% greater than Noni B, which might suggest the overall efficiency of the business.

Returns ratios

Returns ratios measure the overall efficiency of a company in generating returns for its shareholders (Peirson & Ramsay 2003).

2.1.3 Return on asset

Return on assets=Net profit/ Total assets

The increment of return on asset ratio for both companies is about 7%. These ratios have shown that both companies are managing their assets efficiently and using them effectively to generate profit. However, Noni B has improved its efficiency more significantly (the figure for 2009-10 is 136% higher than 2008-09) during the relevant period compared with SFG (with only 34% higher). The profit earned by SFG is 30% relative to the company's level of investment in assets while Noni B's profit is only 13%. Thus, these figures show that Noni B is under rapid growth even though the assets base is relatively small and SFG is at a mature stage and generates profit steadily from assets invested.

2.1.4 Return on equity

Return on equity=Net profit/ owner's equity

The movements of this ratio for the two companies are at opposite direction. This ratio is perhaps the most important to investors as it shows how the company is doing its job using the investors' money. Even SFG has decreased from 73% to 50% and Noni B has continued its growth trend, the return on equity for SFG is still 233% greater than it for Noni B. It further confirms the conclusion that Noni B is a fast growing company and SFG is profitable and stable. The dropping of ROE for SFG is probably due to the financial crisis and government's less aggressive fiscal policy, leading to a sever swing in consumer confidence. More detailed discussion will be given later.

2.2 Efficiency

2.2.1 Asset turnover (Times)

Asset turnover=Net sales/ Total assets

This ratio measures a company's productive use of fixed asset (Biz/ed 1996-2010). Noni B' amount of sales generated from every dollar's worth of assets has decreased by 0.07 times and SFG has increased this figure slightly. It may indicate that SFG is more efficient at using its assets in producing revenue. It may also simply imply the difference in pricing policy. Noni B with higher gross profit margin (60%) tends to have lower asset turnover (2.61) and SFG with lower gross profit margin (57%) tends to have higher asset turnover (3.88).

2.2.2 Inventory turnover (Days)

Inventory turnover=COGS/ Average inventory

The inventory turnover for SFG is almost 2 times fast than Noni B. Sourcing directly from Asian suppliers not only could help SFG increase gross margin, it could also avoid cash being tied in inventories. The integration of planning, buying, design and sourcing and sophisticated marketing strategy allow SFG to achieve the inventory turnover ratio to only 68 days. On the other hand, low turn may indicate overstocking for Noni B. As fashion is a highly-fluctuated industry, inventory may become obsolete quickly and further lead to inaccurate sales forecast.

2.2.3 Debtors turnover (Days)

Debtors turnover=365/ (Net credit sales/Average receivables)

Debtors' turnover measures the number of days r accounts receivable can be turned into cash (Birt 2008). The lower the ratio, the more liquidate the company. The figure shows that Noni B can liquidate its accounts receivable fairly fast.

2.2.4 Creditors turnover (Days)

Creditors turnover= 365/ (COGS/ Average payables)

Creditors' turnover measures the number of days the company needs to pay its debt (Birt 2008). SFG pays its debts 3 times faster than Noni B does and it is significantly lower than its trading term of 45 days. This has shown a strong cash position, as confirmed in the chairman's report that the operating cash flow rose to $49.6 million for the year. It took Noni B 11 weeks to pay its trade debts and almost 18 weeks to turn its inventory; these figures might indicate a cash shortage during economic downturn.

2.3 Financial stability

Short-term

2.3.1 Current ratio

Current ratio= Current assets/ Current liabilities

As Noni B has reduced its level of current assets modestly in relation to current liabilities, SFG has prudently managed its balance sheet by paying off its debt to $5.3 million from $25.8 million, increased its current ratio from 0.57 to 0.84. However, it is still lower than the general rule of thumb (2 to 1). This ratio is more satisfactory for Noni B as 1.26 means that it has $1.26 of current asset to pay for every $1 of current liability.

2.3.2 Quick ratio

Quick ratio= (Cash and its equivalent + Short-term investments + Trade receivables)/ Current liabilities

Quick ratio is a more conservative measure of short-term liquidity because only cash and accounts receivable are taken into account (Carlon 2009). The total current liabilities of SFG were probably settled by cash, therefore quick ratio dropped by 0.22. On the contrary, Noni B has an increased amount of total current liability than 2009, but its year end cash position has been improved. Thus its quick ratio moved in a positive direction. Both companies' ratios are lower than the general rule of thumb (1:1), which might suggest that the company may not be able to pay its debt in a crunch situation. This problem is especially severe for borrowers of SFG.

Long-term

2.3.3 Debt asset ratio (total debt)

Debt assets ratio= Total debts/ Total assets

This ratio measures the leverage of assets-what you owe to what you own (Hoggett, Edwards & Medlin 2006). Both ratios are below 1, which means that for both companies the majority of assets are financed via equity. Debt asset ratio for SFG has decreased by more than 20% with the change in total assets negligible, and the decrement in total debts is consistent with chairman's announcement. Again as the two businesses are different in scale, these two figures are not immediately comparative.

2.3.4 Debt equity ratio (total debt)

Debt equity ratio= Total debts/ Total equity

This ratio is a common benchmark used to measure the leverage within a company (Hoggett, Edwards & Medlin 2006). Given a fixed level of total assets, the less the debt, the higher the net worth. As SFG has reduced its debts by $20 million and set aside a great amount of reserves, the debt equity ratio has increased by 251%. Yet it is still quite highly-leveraged. According to this ratio, Noni B appears to apply a more cautious strategy and maintains a moderate level of debt related to equity. It is inappropriate to give a judgment about which company is better.

2.3.5 Times interest earned

Times interest earned=Profit before taxes and interest / Interest expense

Both companies have shown a strong cash-flow to cover their interest expenses. Noni B has earned a profit that is 8 times of the interest it has to pay. Even it has dropped by 2.7 times (probably due to the six consecutive interest rate increases), it is sufficient to be a going concern. For SFG, attention needs to be paid, this ratio has increased by 18.5 times- borrowing costs have decreased significantly (likely because debts had been paid off). However, SFG has financed an $8 million loan from bank during the year; this ratio is expected to drop in the future.

3 Additional information

The past financial year had been very challenging for clothing retailing industry due to the financial crisis and a series of government fiscal and monetary policies. In June 2009, government made stimulus payments. The additional cash injections, together with the low interest rate, had pulled domestic demand from recession. Consumers had more confidence in the market as well as more disposable income. However, since October 2009, the Reserve Bank had adjusted interest rate upwards six times in a row. Consumer confidence was dragged to a historically low level and the international financial market was also gloomy during the same period.

Both companies stated in their annual reports that they benefited from the stimulus packages in the first half year and carried out aggressive discounting to attract reluctant customers in the second half year. SFG and Noni B are trading under this tough situation, challenging but still hold a strong market position.

4 Limitations

Financial ratio analysis is valuable to managers only if the data under comparison are comparative (Peirson & Ramsay 2003). As procedures normally adopted, ratios are compared with company's historical figure as well as industry data in this report. However, the appropriateness of comparison is subject to many factors, such as scale of business, company's visions and strategies, accounting policy used, largely depreciated fixed assets, seasonal fluctuations, fraudulent reporting and miscalculation etc.

More specifically, It is inappropriate to conclude that Noni B performed better then SFG simply because of higher gross profit ratio. In fact, SFG earned a much larger amount of profit as its size of business is greater. Low Times Interest Earned does not necessarily suggest insufficient cash flow; Noni B may be just less leveraged than SFG.

5 Recommendations

According to profitability, efficiency and financial stability discussed above, Special Fashion Group Ltd appears to be a preferable choice for investors. It is the largest women's apparel retail group in Australia and has generated a very high return on equity to investors. It has differentiated itself by its S.H.I.R.T culture; sophisticated marketing strategies-especially the valuable customer database which can reach over 85% of the target market and direct sourcing from Asian factories. The effectiveness and efficiency of these strategies can be proven by the turnover ratios. SFG is a company that is mature and financially stable. It has sufficient operating cash inflows to pay for its interest expenses and has recently reduced its debt to an even more prudent level. The addition of La Senza would bring youth market to the group, which will benefit investors in the long term.

On the other hand, Noni B is growing at full speed and has a huge potential to grow further. This is particularly shown by margins ratios and returns ratios that almost doubled previous year's figure. However, it is highly recommended that Noni B could tighten its inventory control and speed up cash flows to improve inventory and/or creditor turnover. It may develop more brands and widen its market to include more young customers.

6 Conclusions

This report has evaluated the financial ratios of the two leading fashion retailers of Australia over the two years period of 2008-2010 from three broad perspectives. The analysis shows that Special Fashion Group Ltd is more attractive to investors as its stability in generating profits and higher efficiency in asset and debt management. Noni B Ltd also demonstrates a strong growth potential in the long term and the management adopts a very prudent strategy in managing resources. Its low level of debt would positively affect equity holders' wealth. Each company has its own strength and weakness, and the analysis is not complete because of the limitations discussed in part 5. As a whole, financial ratio analysis is an objective and useful instrument for decision-making and manager's performance assessment.

7 List of References

Atrill, P., McLaney, E. & Harvey, D. 2006, Accounting: An Introduction, 3rd ed., Prentice Hall, Sydney.

Birt, J., et al, 2008, Accounting: Business reporting for Decision Making, 2nd ed., Wiley, Brisbane.

Biz/ed (1996-2010), Ratio Analysis 1: Profitability, <http://www.bized.co.uk/compfact/ratios/profit1.htm>

Biz/ed (1996-2010), Total Asset Turnover, <http://www.bized.co.uk/compfact/ratios/asset3.htm>

Carlon, S., et al, 2009, Accounting Building Business Skills, 3rd ed., Wiley, Brisbane.

Financial Pipeline (2009), Financial Ratio Analysis, <http://www.finpipe.com/equity/finratan.htm>

Hoggett, J., Edwards, L. & Medlin, J., 2006, Accounting in Australia, 6th ed, Wiley, Brisbane.

Noni B Ltd Annual Report 2010, viewed 27th Dec 2010, available at <http://www.nonib.com.au/assets/pdf/Noni-B-Annual-Report-2010.pdf>

Peirson, G. & Ramsay, A. 2003, Accounting: An Introduction, 3rd ed, Prentice Hall, FrenchsForest, NSW.

Special Fashion Group Ltd Annual Repot 2010, viewed 27th Dec 2010, available at <http://media.corporate-ir.net/media_files/irol/15/154279/ar_2010_sfg.pdf>.

8 Appendices

1. The percentage of change over 2008-2010

% of change of ratios	Noni B Ltd	Specialty Fashion Group Ltd	% of higher over lower (2010)
Net profit margin
Return on asset
Return on equity

A study on JB Hi-Fi Limited and Harvey Norman Holdings Limited

2014-08-03T15:32:00.001+10:00

Introduction

JB Hi-Fi Limited (ASX code: JBH) and Harvey Norman Holdings Limited (ASX code: HVN) are two Australian leading brands in retailing electronic products (The Australian 2010). Both of them enjoyed a time-honour business in Australian-the former was set up in 1974 and the latter in 1961. As to the differences, JB Hi-Fi is more specialised on personal digital and home entertainment products, while Harvey Norman has a wider range of products from personal gadgets, home appliances to furniture and beddings. In terms of scale, on 30 June 2010, Harvey Norman had 264 stores under its brand but only 194 of them were franchised (Harvey Norman Holdings Limited, 2010), whereas JB Hi-Fi owned all the 141 stores (JB Hi-Fi Limited 2010). In terms of overseas business, Harvey Norman had already set up 70 stores in New Zealand, Slovenia, Republic of Ireland and Northern Ireland, Malaysia and Singapore (all those 70 stores are directly owned by the Holding company), while JB Hi-Fi but had 10 stores in New Zealand.

As for the investors who are interested in retailing industry, both companies are undoubtedly in the candidate list. The report will concentrate on ratio analysis to provide recommendation on investment choice based on their performance in the year ended 30 June 2010.

Ratio analysis

Ratio analysis, as a method to compare financial performance and financial position of different companies, had been regarded as a handy instrument for investors. As early as 1960's such method had been utilised as a major means to extract value from the company's financial information (Horrigan 1978).

In this section, the profitability, efficiency, and financial stability would be compared between JB Hi-Fi and Harvey Norman based on ratio analysis. Note that all the detailed calculation of ratios can be found in the appendices.

Profitability

Gross profit margin

The gross profit margin measures the gross profitability by calculating the proportion of gross profit in revenue. Here, both companies increased their margin in 2010 a bit, and Harvey Norman enjoyed a 6% higher margin than JB Hi-Fi in both years, which implies that it had a better profitability in gross revenue.

Since gross profit margin is revenue minus cost of goods sold, a higher gross profit margin can be caused by higher selling price, lower cost of goods sold or both. Higher selling price means that Harvey Norman had better marketing strategy or more prevalent products; lower cost of goods sold implies that it had better inventory, supplier management or costing system of both direct material and direct labour. Generally, Harvey Norman had a stronger ability to earn gross profit.

Net profit margin

Both companies improved net profitability in 2010 compared with 2009 and it is noticeable that Harvey Norman had a staggeringly higher rate over JB Hi-Fi (about 20% in 2009 and 25% in 2010).

The primary reason behind the gap is that, besides retailing, franchising contributed a large proportion as other income items, which is not included in the denominator of calculating the net profit margin. If included, the Net Profit Margins for Harvey Norman would be 15% in 2009 and 17% in 2010 respectively. More importantly, franchising business means that Harvey Norman does not have to purchase inventory or spend salary to manage inventory for franchising revenue; therefore, the profit margin of Harvey Norman must be higher.

More meaningful information might be generated by comparing the net profit margin of JB Hi-Fi with that of Harvey Norman's retailing sector.

	JB Hi-Fi Ltd (Consolidated) for years ended 30 June		Harvey Norman Holdings Ltd. (Consolidated) for years ended 30 June
	2009	2010	2009	2010
Net Profit Margin (Retailing)	6.16%	6.46%	-1.69% (1)	1.74% (1)

It can be found that JB Hi-Fi has better net profitability in retailing business while Harvey Norman has better overall profitability thanks to the franchising business.

Efficiency

Return on equity

Return on equity measures the capability of the company to make net profit using the equity it owns. JB Hi-Fi had a dominant advantage in this respect: it was able to earn 40 cents of net profit for each dollar of the equity while Harvey Norman could only make 11 cents.

Actually, the net profit of Harvey Norman was approximately twice as much as that of JB Hi-Fi, but its profit efficiency was lagged by the huge amount of retained earning which amounted to 1.8 billion and over 6 times higher than JB Hi-Fi. On a positive side, huge retained earnings means Harvey Norman had better financial position and liquidity as what will be discussed below. On the negative side, it means that Harvey Norman's investment and development is sort of stagnant.

Assets Turnover and Return on Assets

Both Asset Turnover and Return on Assets measure the efficiency by comparing assets with revenue or profit.

In terms of Asset Turnover, JB Hi-Fi could use one dollar of its assets more than 3.5 times every year to generate one dollar revenue at each time in 2009, and this figure increased to 3.8 times in 2010. On the other hand, Harvey Norman was much less efficient in using its assets, and the efficiency was even worse in 2010.

In terms of Return on Assets, each dollar of asset owned by JB Hi-Fi generated around 22 cents and 25 cents net profit in 2009 and 2010 respectively, whereas that by Harvey Norman only about 11 cents in 2010 despite 1 cent increase from 2009.

First of all, it can still be explained by that part of the assets in Harvey Norman was used in franchising business whose revenue was excluded in the Assets Turnover calculation. If counted such proportion back, the Assets Turnover would become 0.58 time in 2010. But still the efficiency of Harvey Norman in exploiting assets was far below that of JB Hi-Fi.

Inventory, Debtor and Creditors Turnover

These three ratios are key indicator of business's efficiency in utilising main current assets and handing main current liability (Mowen et al. 2007).

Inventory turnover compares the cost of goods sold during the fiscal year, whose major component is inventory, with inventory balance at the end of that year. The shorter the turnover days, the faster the company can sell the inventory for revenue (the more efficient). Comparing the two companies, JB Hi-Fi improved its efficiency in 2010 and it could sell all its inventory within 57 days-8 days quicker than 2009, while Harvey Norman was 41 days slower than JB Hi-Fi in 2010 and 7 days slower than itself in 2009. It is undoubtedly that JB Hi-Fi did a better job in efficient retailing and it explained why its net profit margin on retailing was better than Harvey Norman.

Debtor turnover measures the ability of company's efficiency in receiving cash from sales by comparing the revenue with the trade receivable balance at the year end. It is obvious that the debtor turnover in JB Hi-Fi is much faster than Harvey Norman. Generally, JB Hi-Fi only needed 1.34 days to settle the sales in 2010 and Harvey Norman needed 282 days. It is also noticeable that the efficiency in JB Hi-Fi was still improving while that of Harvey Norman was deteriorating.

Creditor turnover measures the number of days trade payable outstanding. Again, JB Hi-Fi settled its creditor much faster than Harvey Norman and was even shortening the outstanding days from 49 days to 44 days. Harvey Norman's outstanding days were around 250 days in both years.

With these three days, the Cash Conversion Cycle (CCC) of these two companies can be calculated.

	JB Hi-Fi Ltd (Consolidated) for years ended 30 June		Harvey Norman Holdings Ltd. (Consolidated) for years ended 30 June
	2009	2010	2009	2010
Cash Conversion Cycle	17.8 days	14.34 days	102 days	132 days

CCC describes the number of days a company needs to generate cash flows from the resources it owns. It is the key to the efficiency of the company as well as vital to the liquidity which will be discussed below. Here, JB Hi-Fi won by a great margin, in 2010 its cash cycle only cost 14.34 days while in Harvey Norman, it took 132 days. It means that JB Hi-Fi can generate cash flow much more quicker.

Financial Stability

Short-term (Current Ratio and Quick Ratio)

Comparing the current assets against current liabilities, those two ratios directly demonstrate whether a company has enough current assets to cover the current liabilities. Specifically, quick ratio is stricter than current ratio because quick ratio excludes the amount of inventory in the current assets owing to its lower ability to be exchanged into cash.

Comparing these two companies, Harvey Norman generally had a better short-term financial stability. In 2010 it had 1.62 dollars of current assets to cover each dollar of current liability and it improved significantly from 1.11 dollars in 2009. By contrast, JB Hi-Fi had 1.25 dollars of current assets to cover each dollar of current liability in 2010 and it worsened from 1.31 in 2009. As to quick ratio, Harvey Norman had a larger margin over JB Hi-Fi: the former had 1.43 dollar of quick assets to cover the current liabilities and the latter only had 0.33 dollar in 2010.

It could be found that both companies had no short-term liquidity problem and Harvey Norman had a better short-term liquidity condition than JB Hi-Fi because of the lower inventory level and higher trade receivable balance.

Long-term (Debt Asset Ratio, Debt Equity Ratio, and Times Interest Earned)

These three ratios gauge the financing structure of the company by comparing its debt over its total assets and EBIT over interest expense.

The most rudimentary equation of accounting tells us assets equal to liability plus equity. Therefore, the first two ratios are basically the same because they both describe the debt proportion in the total assets, which, in more finance aspect, is called gearing ratio. The higher proportion the liability takes up, the riskier the business is, because the liability means the legal obligation of repayment.

Here, we may find that JB Hi-Fi relied more on debt financing than equity: in 2009 the Debt Equity ratio was 1.88 and in 2010 the ratio dropped to 1.43 (the Debt Asset Ratio also fell from 65.30% to 58.90%); in contrast, the Debt Equity ratio in Harvey Norman was around 0.75 in both years (0.775 in 2009 and 0.717 in 2010) and the Debt Asset ratio was around 40%.

Times Interest Earned measured company's capability to cover the interest expense from its operation. It could be found that, although JB Hi-Fi had a higher gearing, it met no problem in covering the liability when its Times Interest Earned ratios were 17.86 in 2009 and 25.38 in 2010. In terms of Harvey Norman, despite of lower gearing, its ratios were lower than JB Hi-Fi (11.03 in 2009 and 12.48 in 2010, respectively).

Overall, JB Hi-Fi used higher gearing than Harvey Norman, but no long term liquidity issue can be identified in its business.

Additional information

There is another two crucial ratios that should be taken into consideration

Earnings per share (EPS)

EPS is also frequently used by stock investor and more valuable to them because it is the portion of a company's profit allocated to each outstanding share of common stock and hence it directly relates to the value of the stock investors own (O'Shaughnessy 2005).

	JB Hi-Fi Ltd (Consolidated) for years ended 30 June		Harvey Norman Holdings Ltd. (Consolidated) for years ended 30 June
	2009	2010	2009	2010
EPS (Diluted)	87.63	108.42	20.18	21.78

Evidently, JB Hi-Fi had a much higher EPS and it was still increasing quickly (about 24%). During fiscal year 2010, every issued share can be allocated more than 1 dollar net profit, whereas Harvey Norman's investors can only be allocated 22 cents net profit for each share they own. Such difference implies that stock of JB Hi-Fi can be potentially of higher returns.

Price-earnings ratio (P/E ratio)

It compares the market value per share with the EPS and is regarded as the description of investors' expectation of the company's growth (Brealey, Myers & Marcus 2009).

	JB Hi-Fi Ltd (Consolidated) for years ended 30 June		Harvey Norman Holdings Ltd. (Consolidated) for years ended 30 June
	2009	2010	2009	2010
Price-earnings ratio	17.45	17.38	16.40	15.15

Both companies shared similar P/E ratios and both witness a little dip in 2010. It means that investors gave higher expectation on JB Hi-Fi's future performance. Moreover, as the difference is not significant, neither of the two stocks was markedly under- or over-priced.

Limitation

The ratio analysis conducted has the following major limitations:

The first limitation of ratio analysis is over simplification. It can be discerned from the above that the ratio analysis only considers most general figures in the financial report and ignores most of the details and all the off-report information, such as future business prospective and competence of management. Moreover, it also ignores the absolute numbers and scales of companies. Such drawback can be covered by combing ratio with other analysis such as data envelopment analysis, market analysis and so on (Athanassopoulos and Ballantine 1995).

The second limitation exists for all the analysis based on financial information. According to efficient market hypothesis (EMH), the current stock price already comprises all the public information in the semi-strong form efficient market. All the financial data including those used in ratio analysis is already available to public through the financial report, thus such analysis with such data cannot bring any extra profit (Patton 1982).

Conclusion and recommendation

Through the analysis, a series of differences have been identified between the two companies with similar business.

As to JB Hi-Fi, its retailing business was more profitable than Harvey Norman's counterpart, its efficiency in using assets and equity was higher than Harvey Norman and so was its cash flow generation efficiency. As to financing structure and stability, JB Hi-Fi relied more on debts but had no liquidity issue in either short- or long-term.

In terms of Harvey Norman, its franchising business ensured a higher and, probably, more stable profitability, but the retailing proprietary business was obviously worse than JB Hi-Fi. Its efficiency in exploiting assets and equity was lower and it could not generate cash inflows from business as quick as JB Hi-Fi. As to financing aspect, Harvey Norman had stronger equity base, which was supported by huge retained earnings.

Overall, it can be found that JB Hi-Fi was more profitable and more robust, while Harvey Norman was more stable thanks to the franchising business. Hence, the recommendation is that investing in JB Hi-Fi when the economy trend is positive, because its retailing development needs to rely on the overall business condition and positive overall trend can enlarge its advantage in retailing profitability and efficiency, and investing in Harvey Norman when the economy trend is negative given its stability in both business and financing structure.

List of references

Athanassopoulos, A. & Ballantine, J. 1995, Ratio and Frontier Analysis for Assessing Corporate Performance: Evidence from the Grocery Industry in the UK. The Journal of the Operational Research Society, Apr., 1995, Vol.46(4).

Brealey, A., Myers, S. & Marcus, A. 2009, Fundamentals of Corporate Finance. New York: McGraw-Hill Irving.

Harvey Norman Holdings Limited 2010, Annual Report. Retrieved from http://www.jbhifi.com.au/corporate/reports/

Horrigan, J. 1978, Financial ratio analysis : an historical perspective. New York : Arno Press.

JB Hi-Fi Limited. 2010, Annual Report. Retrieved from http://www.harveynormanholdings.com.au/

Mowen, M. M., Hansen, D. R., Mitchell, G., & Tibbits, G. 2007, Management Accounting. Thomson.

Patton, J. 1982, Ratio Analysis and Efficient Markets in Introductory Financial Accounting. The Accounting Review, Jul., 1982, Vol.57(3)

The Australian 2010, Electronics retailers impress consumers. Retrieved from http://www.theaustralian.com.au/news/breaking-news/electronics-retailers-impress-consumers/story-fn3dxiwe-1225833121343

Triple Steel Corporation -2

2014-08-03T15:26:00.001+10:00

ntroduction

In this report, first it calculates several ratios to find out the performance of Triple Steel Corporation in both 2009 and 2010. Then according to these ratios to determine which areas needed to pay more attention during the auditing. After that, two special issues are discussed, the first one is inventory internal control system. The second one is the dividend payment issues in 2010.

Evaluation and assessment of the company's performance

The following ratios are calculated during the analytical review:

Liquidity Analysis

Current ratio = Current assets / Current liabilities

Quick ratio = (Cash + Short-term investments + AR)/ Current liabilities

	2009	2010
Current ratio	3.7125	2.9503
Quick ratio	2.3238	1.6492

Table 1: Current ratio and Quick ratio of Triple Steel Corporation (2009, 2010)

The higher the current ratio, the greater the assurance that current liabilities can be paid in a timely manner (Leung & Corman, 2009, p259). From Table 1, the current ratio of Triple Steel Corporation (TSC) for 2010 is 2.95 which is greater than 1.

The larger the quick ratio means the greater the liquidity (Leung & Corman, 2009, p 259). The quick ratio of TSC in 2010 is 1.64, which is also greater than 1.

Besides that, the "Operating cash flow ratio" is also calculated to determine the liquidity of TSC.

Operating cash flow ratio = (Cash flows from operations)/ Current liabilities

= 1,531,000/ 2,992,000 = 0.5116

The operating cash flow ratio is only 0.5116 which means that TSC may not have enough money or exchangeable securities. Also, in the Cash Flow Statement, the Net Cash Flow is negative $34,000. Because of the low level of operating cash flow ratio, TSC has lower potential to generate cash and they will have lower probability to expand their business range.

From the current ratio and quick ratio, it is clearly that TSC has a good liquidity, but the low operating cash flow ratio indicates there may be a potential problem with its cash flow.

Efficiency Analysis

Accounts receivable turnover = Sales / Accounts Receivable

Asset turnover = Sales/ Total asset

	2009	2010
Accounts receivable turnover	10.31	14.65
Asset turnover	1.0837	0.9957

Table 2: accounts receivable turnover and asset turnover of TSC (2009, 2010)

According to the equation of Accounts receivable turnover, a low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. And the Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. The both ratios of TSC are high, so the efficiency of TSC is good. But from Table 2, it also shows that the accounts receivable turnover is increased in 2010 compared with 2009, from 10.31 to 14.65. On the other hand, the asset turnover is slightly decreased in 2010. Accounts receivable is one component of Total Asset, the two ratios changed in different ways, potentially there may be some problem with accounts receivable or total asset.

Solvency Analysis

Debt to equity= Total liabilities/ Shareholders' equity

Times interest earned= EBIT/ interest expense

	2009	2010
Debt to equity	0.4529	0.4773
Times interest earned	13.5	4.2234

Table 3: Debt to equity, times interest earned of TSC (2009, 2010)

Debt to equity is to measure the extent to which a company is using its debt financing capacity (Leung & Corman, 2009, p259). In this case, the debt to equity is stable, a little change between 2009 and 2010. The Times interest earned is to measure the number of times a company can meet its fixed interest charges with earnings. In 2010, this ratio is 4.2234, it means TSC can cover its interest expense. But compared with this ratio in 2009, it is reduced from 13.5 to 4.2234. There must be some big changes in either EBIT or interest expense of TSC in 2009 and 2010. The details will be discussed in the next part.

To sum up, from Debt to equity and Times interest earned, TSC has ability to pay its liabilities and it does not use so much loan or debt to run the business.

Performance (Profitability) Analysis

Return on sales= Operating profit/Sales

Return on assets= Operating profit/Total assets

	2009	2010
Return on sales	17.42%	5.15%
Return on assets	17.42%	5.13%

Table 4: return on sales, return on assets of TSC (2009, 2010)

The return on sales ratio is to reveal profits earned per dollar of sales. This ratio indicates ability to earn satisfactory profits for owners, as well as the entity's ability to withstand adverse conditions such as falling prices, rising costs and declining sales. The return on assets is to indicate profitability based on total assets available (Leung & Corman, 2009, p260). The two ratios of TSC are basically the same in the same year, but compared between 2009 and 2010, they reduced from 17% to 5%. So the profitability is reduced a lot.

Key areas require special attention

According to the ratios calculated above, the following numbers changed a lot in 2010 compared with 2009.

a. The Net Sales in 2009 was $24,019,000, while $21,643,000 in 2010, reduced more than 2 millions in one year (decreased 10%). Because of reducing in Net Sales, the EBIT is reduced from $3,861,000 to $1,115,000. Reducing EBIT leads sever ratios decreased in 2010. Also the reducing Net Sales leads the Net Income decreased from $1,795,000 to negative $49,000. In the other words, TSC did not make profit on 2010. So during the audit for the year ended 2010, it should pay special attention on its sales records to find out the reasons of decreasing the sales.

b. Accounts Receivable is decreased from $2,327,000 to $1,465,000 (decreased 37%). The decreased Net Sales may be the one reason of decreased Accounts Receivable. But the other main component of current assets, cash and cash equivalents, is only decreased $34,000, while Accounts Receivable decreased $862,000. There must be some other reasons cause the decreased Accounts Receivable. So during the auditing, we should find out the other reasons for decreased Accounts Receivable.

c. On the Balance Sheet, the "Miscellaneous deposits and Accounts" records on $203,000 in 2010, but only $133,000 in 2009 (increased 52.6%). And in the Cash Flow Statement, "other deposits" records as $70,000. But no other details about what "Miscellaneous deposits and Accounts" really is. Therefore, during the auditing, it should find out the details of "Miscellaneous deposits and Accounts"

d. The Net Income and Net Cash Flow are both negative in 2010, but the Dividends Paid are both $500,000 for both 2009 and 2010.

e. As TSC uses both First In First Out and Last In First Out to manage its inventory, so inventory should also pay more attention.

Internal control of inventory

There are three basic principles should be involved TSC's inventory internal controls

a. Adequate separation of duties between those responsible for the physical inventory (ordering, receiving, distributing/selling) and those responsible for the inventory accounting records (approving payments, charging departments/customers, maintaining the perpetual inventory balance in the Finance System and reconciling the Finance System) (Cliffsnotes, 2011). For example, inventory receipts should be handled and verified by 2 people. One to input the receipt into the system and another to secure the goods. The person responsible for ordering inventory should not be the same person to receive it. This procedure helps TSC to control its inventory, and make sure all the inventory transactions and activities recorded in a right way.

b. Store inventory in secure areas. Access to these areas should be restricted also. Physical control over assets and records helps protect the company's assets. These control activities may include electronic or mechanical controls (such as a safe, employee ID cards, fences, cash registers, fireproof files, and locks) or computer-related controls dealing with access privileges or established backup and recovery procedures (Cliffsnotes, 2011). This procedure can help TSC to minimise the unnecessary loss of inventory. So that, it will benefit inventory recording and valuation system.

c. Conducting a periodic count and costing of the inventory. This must be done at least annually for the TSC's June 30 fiscal year-end. More frequent counts should be made depending upon the size and vulnerability to misappropriation of the inventory. Compare the count and costing to the inventory record system and to the Finance System. All differences should be investigated and explained.

Dividend payment issue

As mentioned above, in both 2009 and 2010, TSC paid $500,000 for dividend. But in 2010, the Net income of TSC is -$49,000, which means TSC paid dividend even it did not make profit in 2010. According to Corporation Act 2001 Section 254T:

A company must not pay a dividend unless:

Circumstances in which a dividend may be paid

(a) the company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and

(b) the payment of the dividend is fair and reasonable to the company's shareholders as a whole; and

(c) the payment of the dividend does not materially prejudice the company's ability to pay its creditors (Austlii, 2011).

So, first of all, auditor should make a judgement about whether this dividend payment is against the law. According to Corporation Act 2001 S254T, auditor should run three tests to determine whether TSC has breached the law.

According to Balance Sheet of TSC, TSC clearly passes the first test (Total Assets are $21,737,500, and Total Liabilities are $7,024,000), but need more information to determine whether it can pass the rest two tests.

In the case- London and General Bank (No.2) (1895) 2 Ch. 673 (Leung & Corman, 2009, p128), it states that it is no part of an auditor's duty to give advice either to directors or shareholders as to what they ought to do. It is nothing to auditor whether dividends are properly or improperly declared. So in the TSC case, the auditor could find out whether the dividend payment is valid, but no responsibility to give advice to directors or shareholders. But the auditor can write report to directors of TSC in respect of this dividend payment, as what the auditor done in London and General Bank case.

References list

Austlii, 2011, CORPORATIONS ACT 2001 - SECT 254T, http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s254t.html

Cliffsnotes, 2011, Internal Control, http://www.cliffsnotes.com/study_guide/Internal-Control.topicArticleId-21081,articleId-21006.html

Leung. P., Corman. P., Cooper. B. & Richardson. P., 2009, Modern Auditing & Assurance Services, 4th edition, John Wiley & Sons, Milton, Qld

Effective outsourcing allows organisations to focus on their core business

2014-07-22T21:51:00.001+10:00

In the modern world, many organisations choose to outsource one or more their business processes to manage the increasingly costs or to profit at the high level of skills' expense (Langfield-Smith, Thorne & Hilton, 2007, p917). But it should be done only after a serious analyse at the business needs and available options. Only effective outsourcing decision can help the companies to develop their business (Srivastava, Arora & Grover, 2010).

Before the company outsource its production, sever factors should be considered carefully. In this essay, it will first describe the dimensions to be considered before the company decides to outsource its production. Then it will discuss how the relationship strategy approaches to contracting assists organisations to choose to outsource. After that, two cases from Australia are provided and discussed. In this essay, it will compare and contrast the two organisations' decisions to outsource. At the end of the essay, a conclusion will be given.

As mentioned above, before companies outsource their business processes, several factors should be considered carefully. Several scholars have conducted studies about outsourcing. In the next few paragraphs, it will describe three previous studies about outsourcing dimensions.

Mcivor writes a report in 2010, in that report he states three key dimensions when companies want to outsource their business processes. According to Ronan Mcivor (2011, p32), the first one is -Relative capability position. This means the company should conduct an internal analyse to find out what they can do and how well they do inside the company, then compared with competitors or suppliers to find out whether the company possesses a competitive advantage over others.

As in Mcivor's report (2011, p32), the second dimension is contributing to competitive advantage. Generally, when process does not a source of competitive advantage, the manager will consider outsourcing this process. On the other hand, if a process is the main reason for the firm to reach the competitive advantage in the market, the management will not consider outsourcing this process.

The last one as Mcivor's report (2011) is potential for opportunism. When there is a high opportunism potential with outsourcing, the management will not consider outsourcing the process. When there is low potential for opportunism from vendors, management will consider to outsourcing the process only if the first two factors allow them to do so.

After considering several factors, and if processes are suitable for outsourcing, the company should choose an appropriate relationship strategy.

As Mcivor wrote in 2011, there are three relationship strategies of outsourcing. When the supply market is very competitive and buyers who have very similar requirements, the company can make a nonspecific contracting with supplier. When there are only few players in the supply market and the companies have quite specific needs, recurrent contracting is a good choice for these companies. The last choice as Mcivor (2011) recommended is called relational contracting. The companies can choose this kind of relationship strategy when there is a high potential for opportunism as well as the process is critical for the company.

No matter what kind of relationship strategy the companies employed, the key points are the strategy can help the companies to build up a stable relationship with the supplier. Also, the relationship strategy should help the company to achieve the competitive advantage in the market.

Besides the formal relationship strategy, the companies should also adopt informal buyer-supplier relationship

Recommendation

To sum up, before the management want to outsource the process, several factors should be considered carefully. First, three dimensions- relative capability position, contributing to competitive advantage and potential for opportunism should be considered. As discussed above, the company would like to outsource the processes which are not important for company to achieve the competitive advantage and there is no high potential for opportunism from vendors. To do that, company can reduce the cost as well as focus on its core business. Then based on the analysis of three dimensions, if both inside and outside conditions allow the company outsources the process, there are three relationship strategies available for company to choose. The company should choose the suitable strategy based on the companies' own situation.

According to Chwen Sheu, John Wacker and C.L. Yang's research (Micvor, 2011, p33), the informal supplier-buyer relationship is also important when outsourcing, because in the contract it cannot cover every risk and outcome. So the best relationship strategy is the company needs a formal contract with its supplier as well as has informal relationships when outsourcing.

References

1. Langfield-Smith, K, Thorne, H and Hilton, R 2007, Management Accounting, 4th edn, McGraw- Hill Australia

2. Mcivor, R 2011, "Outsourcing done right", Industrial Engineer, vol. 43, no 1, pp 30-35

3. Mcivor, R 2008, "What is the right outsourcing strategy for your process?" European Management Journal, vol. 26, pp24– 34

4. Srivastava, S., Arora, S. and Grover, N. 2010 "Outsourcing: As a Competitive Strategy" AIMS International Conference on Value-based Management, August 11-13

Coca Cola @ Youtube

2014-07-22T21:50:00.001+10:00

Executive Summary

Choosing an appropriate method to promote companies' productions is very important. In this report, it discusses one promote method which Coca Cola used. On 1st Jan 2006, Coca Cola created its official YouTube channel, and during five years developing, it uploaded more than 200 video clips and has nearly 20 million clicks. In this report, it discusses why Coca Cola Company chooses YouTube to promote its products. Three reasons are shown in this report.

First reason is advertising on YouTube can raise awareness, because a lot of people can access Internet now, especially in some developed countries. And YouTube is ranked on No. 3 of the whole websites, a huge number of people browse YouTube every day. Therefore YouTube can be a good channel for Coca Cola to promote its products. The second reason is promoting through YouTube can lower the cost. Promoting via YouTube costs less for Coca Cola, compared with other traditional promoting methods such as TV commercial. That is because when Coca Cola uploads video clips (e.g. commercial) on YouTube, it will cost Coca Cola nothing. Besides that, Coca Cola needs not to pay the rights of broadcasting for different countries. The third reason is Coca Cola can get the feedback from the viewers timely through YouTube comments function. This helps Coca Cola have a better combination with its customers or potential customers.

After that a conclusion is given that the YouTube does a good promotion channel for Coca Cola. But YouTube also has some shortcomings such as it has been blocked in China. So it is remanded that Coca Cola should use YouTube as its promotion channel as well as others.

Introduction

The Coca-Cola Company is the world's biggest non-alcoholic beverage corporation. It owns or licenses and markets more than 500 non-alcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Along with Coca-Cola, which is recognized as the world's most valuable brand, it owns and markets four of the world's top five non-alcoholic sparkling beverage brands, including Fanta, Sprite and Diet Coke. Finished beverage products bearing its trademarks, sold in the United States since 1886, are now sold in more than 200 countries (Coca Cola, 2010, p3).

YouTube is a video-sharing website on which users can upload, share, and view videos, created in February 2005. Most of the content on YouTube has been uploaded by individuals, although media corporations including BBC, CBS, Vevo, Hulu and other organizations offer some of their material via the website, as part of the YouTube partnership program. In November 2006, YouTube was bought by Google Inc. for $1.65 billion, and now operates as a subsidiary of Google (Tim, 2007).

Promotion is one of the four elements of marketing mix (product, price, promotion, place). It is the communication link between sellers and customers for the purpose of influencing, informing, or persuading a potential buyer's purchasing decision (Dave, 2010). Fundamentally, however there are three basic objectives of promotion. These are:

1. To increase demand

2. To present information to consumers as well as others

3. To differentiate a product (Dave, 2010).

Base on the definition and objectives of promotion, in this report, it will discuss the reasons that why Coca Cola chooses YouTube to promote its products. Sever reasons will be shown on this report. After that conclusion and recommendation will be given at the end of report.

Raise awareness

As mentioned above, there are three objectives of promotion, and the first objective- increase demand can be achieved by raising awareness. The more knowledgeable the customer is about a product or service the more confident they will be in buying it. If customers do not know a product exists they will not think to buy it. In this case, when there are more people know and aware Coca Cola, potentially more people will buy it. So no matter what marketing or promoting strategy Coca Cola company used, the generally idea should be let more people to see this brand- Coca Cola.

According to Dave (2010), there are two types of promotion:

Above the line promotion: Promotion in mass media (e.g. TV, internet, radio, mobile phones, newspapers, and, historically, illustrated songs) in which the advertiser pays an advertising agency to place the advertisement

Below the line promotion: All other promotion. Much of this is intended to be subtle enough for the consumer to be unaware that promotion is taking place. E.g. personal selling, sponsorship testimonials, sales promotion, product placement, merchandising, direct mail, trade shows and public relations.

Internet can be treated as a very good method to promote, especially in the modern world. According to internetworldstats (2010), there were only 360,985,492 people access Internet in 2000, but this number grew to 1,966,514,816 in 2010 (grown 444.8 % in 10 years). Also, there were approximate 6,845,609,960 people in 2010, which means 28.7 % of the world population are Internet users. This number is higher in some developed countries, for example 77.4 % people in North America use Internet, and 61.3 % of Australian are Internet users. Through these figure, it can proof internet does a good promotion method for Coca Cola as well as other companies, especially in some developed countries or areas, internet can affect more percent of the whole population.

Among countless websites in the Internet, YouTube is a very famous one. According to Alexa Internet, which is best known for providing information on the web traffic to other websites, (2011), YouTube is ranked No. 3 based on the internet traffic of the whole world. This rank is calculated using a combination of average daily visitors to youtube.com and pageviews on youtube.com over the past 3 months. The site with the highest combination of visitors and pageviews is ranked No.1. And it ranks No. 2 in Saudi Arabia, and No. 4 in US, UK, Japan, France, Australia, Germany and other 18 countries. In another words, a lot of people from different countries access YouTube every day. So, if a company put its advertisements or other video clips on YouTube, people from different countries can watch it, therefore more people can know this company or the brand.

The last two paragraphs proof that, YouTube is a very useful media for companies to promote their productions because of its high volume users/viewers. In the next paragraph, it will state what Coca Cola has done in YouTube.

The official Coca Cola YouTube channel- http://www.youtube.com/user/cocacola was established in 1st January 2006. During these 5 years developed, Coca Cola YouTube channel uploaded more than 220 video clips, and its video clips have been watched for nearly 20 million times (YouTube-Coca Cola Channel, 2011). Among these video clips, the video clip: Snow Globes - Coca-Cola 2010 Christmas Commercial (long version), which was uploaded before 2010 Christmas, got almost 2 million clicks. This means, this Coca Cola commercial has been watched for nearly 2 million times in YouTube, and if people like this commercial, they can watch it over and over. During this process, Coca Cola let more people to know this brand, and shows the spirit of Coca Cola in this commercial. Besides the official Coca Cola YouTube Channel, there are thousands of unofficial YouTube channels created by people who like Coca Cola. When search "coca cola" on YouTube, there are more than 220,000 video clips about Coca Cola. Through these video clips, Coca-Cola can spread its advertising and philosophy through wide range users.

To sum up, YouTube can be a good promotion channel for Coca Cola as it has a high volume viewers. And so far, Coca Cola did well in YouTube.

Lower Cost

Compared with other promotion methods such as TV commercial, YouTube also has other significant advantage- low cost.

When Coca Cola makes a commercial, the cost of the commercial is fixed, but distributes the commercial is extra cost. When Coca Cola put its commercial on TV or big screen in big events (e.g. super bowl, Melbourne Cup), it needs to pay extra dollars for the broadcast. For example, 30 seconds of super bowl advertising time during the 2010 telecast is expected to cost US $2.6 Million dollars (Monica, 2007). Also, this kinds TV commercial has another two limitations, Coca Cola needs to pay the rights of broadcasting country by country, even station by station. For example, when Coca Cola wants put a commercial in ABC Australia, the commercial will be only shown on a specific time on ABC. If Coca Cola wants to show another commercial on SBS Australia, Coca Cola needs to make another payment. What is more, when Coca Cola wants to show the commercial on NBC in USA, it also needs extra payment. So, this kind of promotion costs Coca Cola a lot. According to the Coca Cola 2010's Annual Reports (p65), the advertising costs included in selling, general and administrative expenses were $2.9 billion, $2.8 billion and $3.0 billion in 2010, 2009 and 2008, respectively. The advertising cost was very huge for Coca Cola as the Total Selling, General and Administration Expense were $13.1 billion, $11.3 billion and $11.7 in 2010, 2009 and 2008, respectively. Advertising cost contributed a lot for the total cost. Also, it should be noticed that the Advertising cost was even more than Bottling and distribution expenses in 2008 and 2009. Generally, TV commercial is more expensive than radio commercial or other kinds of commercial (Gaebler, 2011), so it is believe that TV commercial contributes a lot for the total advertising cost.

On the other hand, when Coca Cola make a commercial, then it decides to upload on YouTube, no extra payment needs to be made. When the other people want to upload a Coca Cola commercial on his own YouTube Channel, it is still free for Coca Cola. Not only uploading for free on YouTube, but also no country boundaries in YouTube. When Coca Cola uploads a commercial via its official YouTube channel in US, the viewers from Australia can also watch it. Coca Cola needs not to pay anything for broadcasting the commercial in both US and Australia.

The second disadvantage of TV commercial is that the TV commercial can be only shown on specific TV station on a specific time. For example, when Coca Cola makes a payment to ABC Australia for advertising on 8:00 pm for 3 months, so the commercial will be only shown on ABC Australia at that time period. If a person does not watch ABC Australia on 8:00 pm, he or she will be not exposed by Coca Cola commercial. On the other hand, after the commercial uploaded on YouTube by Coca Cola or other people, it will be there forever until the video clips deleted by the owner of the channel or YouTube itself. So people can view the commercial on YouTube at any time when they access the Internet. Also, storing the commercial on YouTube cost nothing.

Receive timely feedback

As the definition of promotion, it is the communication link between sellers and buyers. The communication process includes sender, receiver, message, encoding, decoding response, feedback and noise (Sanchez, 2011). The relationship between these elements is shown as follow:

Feedback is a key component in the communication process because it allows the sender to evaluate the effectiveness of the message. Feedback ultimately provides an opportunity for the sender to take corrective action to clarify a misunderstood message. Feedback is the final link in the chain of the communication process. After receiving a message, the receiver responds in some way and signals that response to the sender. The signal may take the form of a spoken comment, a smile, a long sigh, a written message or some other action. Without feedback, the sender cannot confirm that the receiver has interpreted the message correctly (Bovee & Thill, 1992).

In traditional promotion methods such as TV commercial, the sender is hard to get feedback from receiver. For example, Coca Cola put a commercial on TV, and then the audiences watch the TV commercial, when the commercial is over, the communication is over. That because Coca Cola cannot ask how the audiences feel about the commercial they just watched. And on the other hand, even audiences have some positive or negative feelings about the commercial (e.g. they want to buy Coca Cola or they will not buy any Coca Cola), they cannot tell Coca Cola their feelings. Maybe they may tell their feelings to their friends, but the original "sender"- Coca Cola cannot receive the feedback. Coca Cola can hire the third party company (e.g. The GlobalTestMarket) to conduct a survey about how audiences feel about Coca Cola's TV commercial. But this process needs take time and money.

When Coca Cola promotes its products via YouTube, the Coca Cola is the "sender" in the communication process, the viewer on YouTube is the "Receiver". Coca Cola put commercial or other video clips on YouTube, then the viewer click these video clips. In this process, the sender has sent messages to receiver, so next the receiver should give sender the feedback. In another word, the more feedback which sender received, the more efficient the communication made between sender and receiver.

On YouTube there is a comment place for viewers, if viewers have some feelings about the video clips they just watched, they can write few words about their feelings or which can be called "feedback" for Coca Cola. What is more, if viewers agree with certain viewers' comment, they can "vote up" that comments. On the other hand, if viewers do not like certain comment, they can "vote down". Another function of YouTube is the viewers can choose whether they like or dislike the video clips on the lower right corner of the video clips. All these functions are shown on the YouTube websites. For example, the commercial which mentioned above- Snow Globes - Coca-Cola 2010 Christmas Commercial (long version), there are about 2 million views, and 7,666 people like this commercial but 222 dislike it. Also, this commercial gets 3033 comments. All these numbers can be treated as feedback for Coca Cola. Through these numbers, Coca Cola can know exactly how the viewers feelings about these video clips. So it is clear that compared with the traditional promotion methods, Coca Cola can get timely feedback from the viewers via YouTube.

Besides these three reasons there are also some reasons why Coca Cola use YouTube to promote its products, for example YouTube is a vivid experience. Compared with to the boring text form Blog, YouTube is more vivid, more attractive.

Conclusion

As mentioned above, YouTube has three significant advantages compared with traditional promotion methods such as TV commercial. First one is advertising on YouTube can raise awareness, because a lot of people can access Internet now. And YouTube is ranked on No. 3 of the whole websites, a huge number of people browse YouTube every day. The second advantage is promoting through YouTube can lower the cost. Promoting via YouTube costs less for Coca Cola, compared with other traditional promoting methods such as TV commercial. That is because when Coca Cola uploads video clips (e.g. commercial) on YouTube, it will cost Coca Cola nothing. Besides that, Coca Cola needs not to pay the rights of broadcasting for different countries. The third advantage is Coca Cola can get the feedback from the viewer timely through YouTube. This helps Coca Cola have a better combination with its customers or potential customers. Among these advantages, YouTube also has other advantages as a promotion channel for Coca Cola. Because of these advantages, YouTube is a very good choice for Coca Cola as a promotion channel.

Recommendation

Although YouTube has some advantages as a promotional channel for Coca Cola, it still has some disadvantages. For example, the country which has the biggest population and most numbers Internet users- China cannot access YouTube (Sommerville, 2009). China is a big market not only for Coca Cola, but also for the other companies. China has 1.3 billion population which means potentially it has the most number of customers. YouTube is blocked in China that means no matter what video clips Coca Cola put on YouTube, people in China will never watch it. Therefore YouTube is not a good promotion channel in China. Another disadvantage is the most of video clips uploaded by Coca Cola are filmed in English. That means people who cannot understand English will not easily to understand the spirit of the video clips.

As YouTube has several advantages, Coca Cola should use YouTube more as a promotion channel, such as upload more video clips on YouTube. But considering the shortcomings of YouTube, it is suggested that YouTube should also use other promotion methods around the world, especially in China and other countries which cannot access YouTube. Also Coca Cola should focus on localising its commercial, so that more people will understand the spirit of commercial.

References list

Alexa (2011) "YouTube.com" http://www.alexa.com/siteinfo/youtube.com

Bovee, C.L., & Thill, J.V. (1992). Business Communication Today. NY, NY: McGraw-Hill

Coca Cola (2010) Annual Report (Form 10K)

Gaebler (2011) "How Much Do Television Ads" Cost?http://www.gaebler.com/Television-Advertising-Costs.htm

Kurtz, Dave. (2010). Contemporary Marketing Mason, OH: South-Western Cengage Learning

Internetwoldstats (2011) "World Internet Users and Population Stats" http://www.internetworldstats.com/stats.htm

Monica, P (3rd Jan 2007) "Super prices for Super Bowl ads" http://money.cnn.com/2007/01/03/news/funny/superbowl_ads/index.htm

Quentin Sommerville, Q (24th Mar 2009) "China 'blocks YouTube video site'" http://news.bbc.co.uk/2/hi/asia-pacific/7961069.stm

Sanchez,N, (2011) "Communication Process" http://web.njit.edu/~lipuma/352comproc/comproc.htm

Tim, W (March 2, 2007). "BBC strikes Google-YouTube deal". BBC. http://news.bbc.co.uk/1/hi/business/6411017.stm.

YouTube-Coca Cola channel (2011) "Coca Cola Channel" http://www.youtube.com/user/cocacola

Video

Snow Globes - Coca-Cola 2010 Christmas Commercial (long version) http://www.youtube.com/watch?v=4TMwBFK2qHI

Triple Steel Corporation

2014-07-22T21:42:00.001+10:00

1. Introduction

As this is the initial auditing appointment for the Triple Steel Corporation, it is appropriate to draw a detailed audit plan and audit strategy in the planning stage of the audit. Therefore it is necessary to conduct a preliminary analytical review of key account balances and identify the key areas that require special attention. This report will discuss the ratios used in the analytical review, and then put up with some related issues based on the ratio analysis.

2. Evaluation and assessment of the company's performance

A preliminary analytical procedure is usually used during the planning stage of the audit as it allows the auditors to better understand the client's business and performance, more precisely identify key areas that contain potential risks and require special attention, and determine the audit strategy and detailed plan of the nature, timing and extent of audit procedures. In the case of Triple Steel Corporation a preliminary analytical review can be conducted in terms of some key financial ratios and then compare these ratios with the prior year's ratios. If there exist significant variations between these two from expectations, it is indicated that investigation may be required during future auditing stages. The related ratios will be discussed and explained as follows:

	What the ratio means	Conclusions to draw and potential risks to be investigated
1	Liquidity Ratios ·Current ratio It indicates the liquidity of the entity in terms of net working capital position, and provides information about entity's ability to meet its current obligations over the short term. A benchmark figure of 2 is generally accepted as a basic requirement. ·Quick ratio It indicates the similar information as the current ratio, however it eliminate the effect of the inventory to the result. It is suggested to keep the ratio no less than 1.	Current ratio is 2.95 for 2010, compared to 3.71 for 2009. This downward trend indicates the liquidity of the company is deteriorating; however the current level may not necessarily need immediate concern given a benchmark of 2. Procedures should be taken to manage working capital and review current and projected cash flows for future liquidity problems. As for the quick ratio, it also faces incredible decrease from 2.32 in 2009 to 1.65 in 2010, though still above the usual benchmarks of 1, it may imply that there are obsolete or slow-moving inventories and the value of the inventory may be overstated. Effective internal controls should be adopted to ensure the valuation and allocation assertion of the inventory account balances and it needs to be monitored to ensure it will not deteriorate further.
2	Turnover Ratios ·Inventory turnover It shows the efficiency that an entity manages its inventory and uses the inventory to generate sales. ·Receivable turnover It reflects the efficiency that an entity collects its bills ·Fixed asset turnover& Total assets turnover It indicates the entity's ability to generate sales from total/ fixed assets.	Inventory turnover decreases from 5.98 in 2009 to 5.21 in 2010. Inventory turnover is slowing, which indicates poor inventory management practices and also supports the idea that there are obsolete or slow-moving inventories. Investigation is necessary to find out the reason for current deterioration and the inventory account should be reviewed to check if it is overstated. Compared to inventory management, receivables management is actually getting better. Last year it took 35 days to collect the credit sales, whilst this year it only took 25 days on average to collect the money. Although the receivables turnover this year is faster than prior year, indicating good working capital management, the reason of the improvement and the potential effect on the doubtful debts provision still need further investigation and examination as it can be caused by an inaccurate cut-off or debtors' follow-up. Assets utilization, on the other hand, is deteriorating. Although there is a increase in the whole value of the total/ fixed assets, the amount of sales $1 (fixed) asset can generate is decreasing, which indicates the assets did not function fully. Therefore management should figure out how to achieve the full utilization.
3	Profitability Ratios ·Profit Margin This ratio shows how many profits can be generated from $1 sales. · Return on asset & Return on equity These two ratios show the profits generated for the assets/equity employed.	As it is shown in the income statement, the amount of net sales for 2010 is smaller than that for 2009, whilst the total expense is more than that in 2009, especially the cost of goods sold and the selling, administrative, general expenses. This led to a loss and negative net cash flows for 2010, which can be caused by misallocation of the expense as the inventory valuation system adopted by Triple Steel Corporation is complex, or shrinking of the market share. Whatever the reason, it should draw immediate concern and conduct further investigation. As the net profit is negative for 2010, the return on assets/equity ratios are also negative, which means the entity is using its assets less efficiently than it was before. The decline of assets utilization is a very serious problem as it will restrict the performance and development of the entity, and therefore further investigation is necessary to find out the reasons and associated solutions.
4	Long-term solvency ratio ·Debt/equity ratio It reflects how the entity is financed and its ability to meet the obligations in the long-term period. A benchmark figure of 1 is generally accepted as a maximum requirement.	The long-term solvency ability is slightly decreased from 0.45 in 2009 to 0.48 in 2010, however since it is still smaller than the benchmark, the entity's long-term solvency is still under control. It also should be pointed that one of the conditions of the long-term loan is to maintain a debt-to-equity ratio of 2:1 and many valuable assets are pledged in connection with the long-term loan, then it is suggested that the company reconsider its financing strategy.

As discussed above, the company still faces lots of challenges and need to improve its performance in many aspects. It is suggested that the company can consider reconstructing its financing strategy, reevaluating its inventory system, improving the assets utilization, and turning losses into profits.

3．Key areas require special attention

Firstly, as it is the first time to provide auditing services to the Triple Steel Corporation, procedures should be taken to Investigate this potential client and acceptance of an engagement based on the requirement in APES 320 and ASQC 1 (ISQC1). It is also necessary to review audit working papers of previous auditor or double-check the financial statements to ensure that the opening balances of all accounts do not have material misstatements, the closing balances for the previous period have been correctly carried forward to the current period, and also appropriate accounting policies are consistently applied. These procedures will help to reduce the inherent risks and facilitate the comparative analysis.

Secondly, at the planning stage of the audit, it needs to better understand the business risks the entity faces and develop a proper audit strategy and audit plan by analyzing the inherent, control and detection risks. In the case of Triple Steel Corporation it also needs to assess going concern at the planning stage based on the requirements in ASA 570.10/ISA 570.10. From the above analysis in part 1, it clearly indicates that the company fails to maintain sustainable operating profits and positive net cash flows, and is facing deteriorating key financial ratios and incredible difficulty in complying with terms of loan agreements. Besides that, other mitigating factors, such as the inability to reduce costs and additional capital issuing, also supports the fact that the company may face going concern issue. Therefore the auditors should consider its effect on appropriateness of presentation of financial report and possibility of management misrepresentations.

Moreover, as the company adopts a complex inventory system, the inherent and control risks are assessed as high and the inventory account has a high potential for material misstatements. As mentioned in the part 1 of this report, there may exist obsolete or slow-moving inventories and the inventory balance may be overstated, the auditing procedures should be modified to concentrate on the existence and valuation assertion of the inventory account balance. Furthermore as not all the inventories are recorded at first-in-first-out method, it will affect the valuation assertion of the finished products account, work-in-progress account and the accuracy assertion of the cost of goods sold account, so the auditor must understand and assess the efficiency of the internal controls associated with the inventory recording and valuation system, and if the internal controls are not adequate or ineffective, a substantive approach should be adopted to ensure there is no material misstatements related to these accounts.

Finally, it is important to check whether the notes of the financial reports contain the disclosure that most of the non-current assets in the company, such as the land, building and life insurance policies, are pledged in connection with the mortgage loan. As the pledge is associated with the right and obligation assertion of the assets，this disclosure will affect the true and fair of the financial report.

4. Internal controls associated with the inventory system

As it is indicated that some finished inventories are measured by the last-in-first-out method whilst the remainders are determined by the first-in-fist-out method, this complex procedure and complicated value determination system increase the inherent risks. To secure the existence assertion and the valuation and allocation assertion of the inventory account, certain internal controls should be put in place to reduce the inherent risks and control risks. For instance, there must exist a manual instruction that clearly identify the two different groups of inventories using the two different methods, and the inventories being measured by the last-in-first-out method must satisfy the requirements in the accounting standards. Those instructions must be communicated to the related staffs, making sure that they understand the differences and keep the related documents about the completion date of the inventories and the date when it is moved out from the warehouse. Besides that, it is also necessary to pre-number the inventories based on the order they were finished, as it will be easy to find out whether the finished goods are sold in order, either FIFO or LIFO, when conducting the stock taking at the end of every month or accounting period. The frequent stock taking itself will help to check the existence of the inventories and, at the same time, make sure the inventory recording and valuation system operate correctly. And also the stock taking will assist in observing whether there are obsolete, slow-moving and damaged items, which will support the valuation and allocation assertion of the inventories.

5．Issues related to the dividend payment

As it is shown from the income statement for the year ended in June 30 for the Triple Steel Corporation, the dividend amount to $500,000 was distributed to the shareholders. The validity of this payment depends on whether it was paid out of the profit as indicated in Section 254T of the Corporations Acts. As the net profit for Triple Steel Corporation for the year 2009/10 is negative, this distribution is invalid as the payment of the dividend will prejudice the company's ability to repay its creditors. An action may be taken to against the directors for compensation in the amount of the dividend, and bring the company back into the position that it held before paying the dividend. Refer to the case Re Exchange Banking Co (Flitcroft's Case) (1882) 21 Ch D 519 the dividend must be paid out of the profit, and otherwise the payment is void. Same rules can also be found in the case QBE Insurance Group Ltd v ASC (1992) 38 FCR 270. As for the responsible of the auditor, the auditor should exercise reasonable care and skills, and communicate with the management level or the director directly about the breach of company law. Although the void dividend payment will not affect the audit opinion in the auditor's report, it is still necessary to state this fact in the Other Matter paragraph in the auditor's report.

References

Arens, A., P. Best, G. Shailer, B. Fielder, R. Elder & M. Beasley, Essentials of Auditing Assurance Services & Ethics in Australia, Eight Edition, Pearson, Sydney, 2010.

Auditing Handbook: "Auditing Handbook 2010", being volume 2 of the Accounting and Auditing Handbook 2010, published by Prentice Hall.

Gay, G. and Simnett, R., Auditing and Assurance Services in Australia, Fourth edition, McGraw-Hill Book Company Australia Pty Limited, 2010.

Leung, P., Coram P., Cooper, B.J., Cosserat, G. and Gill, G.S., Modern Auditing and Assurance Services, Fourth edition, John Wiley & Sons Australia, Ltd, 2009

Virgin Blue Holdings Limited

2014-07-22T21:35:00.000+10:00

Abstract

Virgin Blue Holdings Limited was set up in 2000 and operates domestic and international airlines as well as other services such as freight in Australia. In this report, it evaluates Virgin Blue's strategies from different perspectives. First it describes the companies' profile and the situation in the market. Then it analysis Virgin Blue's business strategy, and it finds out Virgin Blue uses cost leadership since 2000. But after Tiger and Jetstar entered the market, Virgin Blue should modify its strategy because the cost leadership strategy led Virgin Blue in a position of dilemma in the market. After that, it analyses the how Virgin Blue segments the market. And it finds out that's Virgin Blue segments its market based on geography to help allocate revenue and cost. But it also can segment its marketing based on customers need for marketing purpose. And different segmentation markets can use different business strategies. Then, frequency marketing is applied, and finds out Virgin Blue adopts frequency marketing well. But compared with its main competitor- Qantas, Virgin Blue still need to work hard. At the end of report, other marketing strategy- sponsorship is analysed.

After several analyses and evaluations, it finds that Virgin Blue did well in overall level from financial perspective, but it still can work hard to achieve higher target.

Introduction

Virgin Blue Holdings Limited was formed in 2000 which is wholly owned by the Virgin Group. It is headquartered in Bowen Hills, Queensland. It was listed on the Australian Securities Exchange (ASX code VBA) on December 2003. Virgin Blue Holdings Limited owns and operates four airlines: Virgin Australia (previously known as Virgin Blue), Polynesian Blue, Pacific Blue and V Australia. Its business runs in four areas- domestic airlines, international airlines, tourism and freight. It operates over 2,100 domestic flights and eight international destinations (IBISWorld, 2011).

In the market of domestic airlines of Australia, Virgin Blue Holdings Limited has 18.40% market share. The biggest competitor which holds 73.50% market share is Qantas Airways Limited. In the international airlines in Australian market, Virgin Blue has 9.30% market share, meanwhile Qantas has 27.6%. In the tourism of Australian market, Qantas still has more market share than Virgin Blue. Qantas has 20.80% market share, but Virgin Blue only has 3.30% (IBISWorld, 2011).

In this report, it will analysis Virgin Blue's performance in domestic airlines industry and international airlines industry. This report will focus on revaluating the marketing strategies of Virgin Blue in these two industries. Besides that, the marketing strategies of Virgin Blue's main competitor- Qantas Airways Limited will be compared. Also, the results of Virgin Blue's marketing strategies will be provided. And at the end of this report, the conclusion will be given.

Key Business strategy

Business strategy, also sometimes called competitive strategy, defines how a firm or entity within the firm chooses to compete in its industry and tries to achieve a competitive advantage relative to its competitors. Generally, there are two types of competitive strategies: cost leadership and differentiation. A cost leadership strategy involves offerings of relatively standardized, undifferentiated products. A differentiation strategy involves the creation of a product or service that customers perceive as uniquely differentiated from competitors' offerings (Merchant & Stede, 2007). According to the features of airline industry, the products of each company are very similar. They all are offering the customers travelling from one place to another in a relatively fast way. As IBISWorld states, Virgin Blue operated in Australia as a low-cost domestic airline since August 2000, it is clearly that Virgin Blue's business strategy is cost leadership. Moreover, Virgin Blue uses low price airfare to attractive customers then achieve competitive advantage.

Next, this report will evaluate how this strategy performed in Virgin Blue. If a customer wants to flight from Melbourne to Sydney on 1st June 2011, and the prices of each company are shown as below (the listed prices are checked on 20th May 2011):

Also, after checking after flight routes and dates, it can be concluded that the airfare of Virgin Blue is not cheap.

Tiger operated in Australia since 2007, and Jetstar offered low-cost airfare since 2003 (IBISWorld, 2011). These two companies are new-comer of Australian market compared with Virgin Blue. So after these two companies enter Australia, Virgin Blue should change its pricing strategy or business strategy to keep the market share. But in fact, Virgin Blue did not change, so it led to a position of dilemma for Virgin Blue. For the price aspect, Virgin Blue is more expensive than Tiger or Jetstar. And for service aspect, Virgin Blue is not good as Qantas, because Qantas provides meal for passengers which included in the airfare.

So Virgin Blue should adjust its business strategy to achieve competitive advantage. More details are shown on next part.

Segmenting

Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides into distinct groups which have distinct needs, wants, behaviour or which might want different products and services.

According to the annual report of Virgin Blue (2010) and IBISWorld report (2011), Virgin Blue has two segments marketing- Short haul operations and long haul operations. Short haul operations means using the short haul fleet of Boeing 737 aircraft and Embraer 170 and 190 aircraft. This comprises Australian domestic, New Zealand domestic, Trans-Tasman and Pacific Island flying. Long haul operations using the Boeing 777 aircraft. This comprises Trans-Pacific flying. Basically, the Short Haul Operations mean the domestic airlines and the flights to New Zealand. The Long Haul Operations mean the international flights exclude Australia to New Zealang. When the costs associated with the centralised management and governance of Virgin Blue, together with certain items which are not allocated to business segments, are reported in Corporate/Unallocated. In 2010, the financial results of each segment are shown as below:

From the figure and table, it is clearly that the Short Haul contributes a lot to the total revenue. As sales of tickets contribute over 90% of the total revenue, so it can be calculated that the Short Haul Operations made up over 75% of total revenue (90% times 85.2%). Next table shows the profitability of each segment.

From the above table, it is more clearly that the Long Haul Operations segment did not make any profit in 2010. In the other words, the revenue from Long Haul Operations cannot cover the cost relates to this segment. That's make perfect sense, on one hand the demand of international flights are much less than domestic flights. On the other hand, the airfare is decreased due to the high competition in international airlines.

Clearly, Virgin Blue segments the marketing basically according to geography (inside and outside Australia). For financial purpose, this segmenting method can help Virgin Blue to allocate revenue and cost to each segment, and then find out the most profitability segment. But for marketing and pricing purpose, Virgin Blue can also segment the marketing base on the customer needs.

Generally, the airfare can be classified as "first class" and "economic class". It cost much more money to buy a first class ticket than economic class. For the people who buy first class tickets generally care less about airfare, they care about the service such as delicious meal and comfortable seat more. For the people who buy economic class ticket will generally care the airfare. When other airline companies offer cheaper airfare, this kind of customer may choose the cheaper ticket.

As analysis above, Virgin Blue should consider segment the market according to the customer needs. One segment is the customers who buy first class airfare. Virgin Blue provides these customers highest standard of service and charges them at a reasonable high price to achieve more revenue and more profit. In another word, for this segment, Virgin Blue could use differentiation strategy. The other segment is normal fliers. For these customers, Virgin Blue offers low price tickets to attract more customers. Also Virgin Blue should provide reasonable service to keep the customers. Clearly, this can be called cost leadership strategy.

Frequency marketing

Frequency marketing is reinforcing regular purchasers by giving them rewards with values that increase along with the amount purchased (Solomon, 2009). As other companies, Virgin Blue has its own frequency flyer program called Velocity Rewards. It is Virgin Blue's loyalty program that allows points to be used to purchase airline travel, hotel nights, car hire, online shopping and charitable donations (IBISWorld, 2011). It is free to join this program, and very easy to earn Velocity Points and bonus Points on international flights, shopping, everyday credit card spend and more (Virgin Blue, 2011). This program has different levels meanings for the company. From financial perspective, Virgin Blue receives revenue from the sale to third parties of rights to have Velocity reward points allocated to members of the Velocity Program (Virgin Blue, 2010). So the company can get financial benefits from launching this program directly. More important, this program can let the company get more loyalty customers. As the competition in both domestic and international airlines market are very high and the production different becomes smaller, customers will easily switch from one company to another. For example, a customer wants to fight from Melbourne to Sydney. Qantas charges him $100, Jetstar needs $80, and Virgin Blue costs $90, and the customer has no special need for flighting. If all the flights take off at same period, the customer may choose Jetstar, because there are slight service differences between these companies. Under this situation, the company who has the cheaper fight fare may get the competitive advantage. But if this customer has joined the Velocity Rewards program, or he is a loyalty customer of Virgin Blue, he may buy Virgin Blue fly ticket despite Jetstar's is $10 cheaper. Under this situation, the customer may cost extra $10 if he buys Virgin Blue's ticket instead of Jetstar, but he may get other benefits from Velocity Rewards program. For Virgin Blue, it needs to pay extra money if the customer redeems his points, but this rewards program brings $90 for the company. And this is a win-win situation. The third level of the benefit of launching rewards program is let more people know Virgin Blue. And potentially, it will increase the customer number of Virgin Blue, and then increase the revenue and profit of the company.

This marketing strategy sounds good, but in fact, this program did not bring so much benefit to Virgin Blue directly. According to Virgin Blue 2010 Annual report, more than 90% revenue of the company from tickets sales. And other activities such as holiday booking, freight, fees and rewards program contributed the rest of companies' revenue. Although this rewards program cannot bring the financial benefit directly to Virgin Blue, it is still important for Virgin Blue. As analysis above, it is not only brings the financial benefits directly, but also indirectly. And it is believed that the indirect financial benefit will bring more benefits in the future.

Compare with Virgin Blue, Qantas has received financial benefits from its own frequency flier program called Qantas Frequent Flier. This program brought $1.1 billion revenue and more than $300 million profit in 2010. Next, it will describe the rewards program of Qantas.

The program model of Qantas is basically the same as Virgin Blue. The customer can get points from flights, online shopping and other particular activities. And these points can be used at flight tickets purchase or some other activities. But if a customer joins Qantas Frequent Flier program, he can get points from wider range. According to Qantas (2011), when customers fly with Qantas and any of other 25 airline partners to over 750 destinations worldwide, customers could earn and use points on eligible fares and flights. Moreover, people can earn points when they shop at Woolworths if they join Qantas Frequent Flier program. This is easier to get the points because people buy groceries more frequent than buy flight tickets. Also, when customers get points from Qantas, it can be used to buy groceries from Woolworths.

As mentioned above, it is clearly that, Qantas Frequent Flier is much better than Velocity Rewards. Virgin Blue should enhance the rewards benefits to attract more people join Velocity Rewards. But at overall level, Virgin Blue did well at frequency marketing.

Sponsorship

A good news for Vrigin Blue in 18th November 2010, AFL (Australian Football League) has turned to Virgin Blue after a nine-year association with the flying Qantas (Sheahan, 2010). Virgin Blue is believed to have promised to refrain from any arrangement with any other football code in return for the business of Australia's biggest sport. Virgin Blue sees sport as a powerful marketing tool and will gain huge exposure flying the AFL's 17 clubs round the country for seven months a year from February 2011 (Sheahan, 2011). This contract means a lot for Virgin Blue. From financial perspective, this contract may bring a lot of benefits for the company such as expending the customer size. For the strategy perspective, it indicates Virgin Blue becomes stronger as AFL signed this contract with Virgin Blue instead of Qantas. Also, it will help Virgin Blue to build up a better positioning in the market. Positioning is developing a unique image for product or service in the mind of the customer. As AFL is very popular in Australia, and customers may change their mind of Virgin Blue.

To sum up, although this sponsorship may cost some money for Virgin Blue, it will bring a lot benefits from different aspects. And it will help Virgin runs better in the future.

Conclusion

This report evaluates Virgin Blue's marketing strategy from four aspect- business strategy, segmenting, frequency marketing and sponsorship. The business strategy can be classified as cost leadership strategy and differentiation strategy. Clearly, Virgin Blue uses cost leadership strategy which means provide low-cost airfare to customers. But after Tiger and Jetstar entered Australian market, Virgin Blue loss its advantage on price as Tiger and Jetstar can offer cheaper tickets.

Virgin Blue segments the markets according to geography- short haul and long haul. This strategy can help Virgin Blue allocate cost and revenue. And from marketing aspect, the market can also be segmented by customer needs- first class and economic class. Virgin Blue can use differentiation strategy on first class customers and cost leadership strategy on economic class customers.

About frequency marketing, Virgin Blue has Velocity Rewards Program make normal customers become loyalty customers. This program works well, but it still needs to be improved compared with Qantas Frequent Flier.

References

Virgin Blue, 2011, Velocity Rewards- how it works, https://www.velocityrewards.com.au/content/ProgramBenefits/HowItWorks/index.htm

Qantas, 2011, Airlines Partners, http://www.qantas.com.au/fflyer/dyn/partners/airline?int_cam=ff:promo:earnairlinepartners:lang:en

Sheahan, M 2010, "AFL dumps Qantas as its official carrier, set to sign deal with" Virgin, Herald Sun, http://www.heraldsun.com.au/news/victoria/afl-dumps-qantas-as-its-official-carrier-set-to-sign-deal-with-virgin/story-e6frf7kx-1225955673452

Contrast the rules in two countries regarding the deductible gift status of NFP organizations.

2014-07-22T21:18:00.001+10:00

Australia

1. Introduction

Receiving gift is one of the most important methods of fundraising for non-for-profit organisations in Australia. However, only certain types of organisations are entitled to receive tax deductible gifts which called deductible gift recipients (DGRs). To encourage the donation to such organisations, the Australian Tax Office provide the donors that include individual, company, trust or other type of taxpayer can with deductions against their assessable income for the gifts they have given to the deductible gift recipients in the income year.

2. Deductible gift recipients (DGRs)

There are two categories of DGRs, namely, DGRs endorsed by the Tax Office and DGRs listed by name. The organisations are eligible to receiving deductible gifts only if they confine into either the category.

2.1 DGRs listed by name

This includes prescribed private fund which listed by name in the Income Tax Assessment Regulations 1997 and other DGRs listed by name in the Income Tax Assessment Act 1997. For an entity to becoming a DGR listed by name is a very complicated procedure, it requires the parliament to amend the Income Tax Assessment Act 1997 to include them individually by name as a DGR.

2.2 DGRs endorsed by the ATO

There are two types of ATO endorsed DGRs. The first is the organisation being endorsed as a whole. Examples include hospital and public university. The other is organisation endorsed for a fund, authority or institution that it owns or includes, for example school building funds and council libraries.

For an organisation to be endorsed as a whole, It must satisfy following requirement ( sated on the ATO's website )

	-"have an Australian business number (ABN)
	-be in a general DGR category set out in the income tax law
	-be in Australia (with some exceptions), and - be required – by a law, its constituting documents or rules governing its activities - to transfer the following assets to another DGR if the organisation is wound up or its endorsement is revoked: surplus gifts and deductible contributions made for the principal purpose of the organisation, and the money received by the organisation because of such gifts or contributions."
	For an organisation to be entitled to be endorsed for a fund, authority or institution it owns or includes it must satisfy: -have an ABN -Satisfy the gift fund requirements -The fund, authority or institution your organisation owns or includes must be in a general DGR category set out in the income tax law -In Australia

The majority of deductible gift recipients (DGRs) are endorsed by Australian Tax Offices. A complete list of endorsed DGRs can be downloaded from the Deductible gift recipients page on www.abn.business.gov.au

3. Deductible gifts

It's significant that not all the gifts make to the DGRs are deductible, the gifts have to be covered by the following types of deductible gifts as it stated by Australian Tax Offices on its website.

There are mainly eight types of deductible gifts:

(1) Money equals to $2 or more

This includes foreign currencies and can be paid by various ways such as cash, cheque and credit card, etc. The donation can be aggregated in an income year for the purpose of deduction. However, this type of gift does not include testamentary gifts, that is, gifts made under a will.

(2) Property valued by the Tax Office at more than $5,000

Property includes physical things and rights and interests that are capable of ownership and have a value but does not cover testamentary gifts, that is, gifts made under a will. The amount of gift deduction is determined by the ATO except for the property acquired less than 12 months before the donation.

(3) Property purchased by the donor during the 12 months before making the gift

The property has the same meaning and range as mentioned above. The amount of the gift deduction is the lesser of the market value of the property on the day the gift is made, and the amount paid by the donor for the property.

(4) Gift of shares that satisfy four conditions such as:

-acquired in a listed public company

-when the shares were gifted, they were listed for quotation on the official list of an Australian stock exchange

-the shares were acquired at least 12 months before they were gifted, and

-the market value of the shares was $5,000 or less on the day they were gifted.

(5) Trading stock

This covers the trading stock of a business, only if it satisfy that the gift is a disposal of the trading stock outside the ordinary course of the donor's business, and if the gift involves the forced disposal or death of livestock - no income tax election has been made to spread or defer the profit.

(6) Cultural gifts

This gift type covers gifts of culturally significant property (except property that is an estate or interest in land or in a building or part of a building) made under the Cultural Gifts Program

The Cultural Gifts Program is administered by the Department of the Environment, Water, Heritage and the Arts (DEWHA) with the advice of the Committee on Taxation Incentives for the Arts

(7) Cultural bequests

The Cultural Bequests Program was administered by the former Department of Communications and the Arts for three years to the end of the 1999–2000 income year. However, the program is currently suspended.

(8) Heritage gifts

This gift type covers gifts of places included in:

the National Heritage List, or the Commonwealth Heritage List, under the Environment Protection and Biodiversity Conservation Act 1999, or the Register of the National Estate under the Australian Heritage Council Act 2003.

Significantly, this gift type can only be donated as deductible gifts to DGRs that are National Trust bodies for the purpose of preserving it for the benefit of the public.

4. Documents required for claim deduction

The donor must keep a record of all their deductible gifts donated to DGRs in the income year when preparing the tax returns. The Australian Tax Office will check the evidence when granting the deduction to the donor.

Normally, DGRs are not required by tax law to issue receipt for deductible contribution. However, if the DGRs issue the receipt to the donor, they must include following information in the receipt:

-the name and ABN

-the fact that the contribution was made for

-the amount of donation

-the GST inclusive market value of the right or the goods or services (the benefit) received in return for the contribution

United Kingdom

1. Introduction

In the United Kingdom, the rule regarding the deductible gift status of NFP organizations is named Gift Aid scheme. Gift Aid was introduced in the UK in 1990, and is designed to enable the provision of tax-effective charitable donations to UK charities. The scheme originally applied to cash gifts of £600 or more. However, this limit was abolished in 2000. Under the scheme, individuals subject to UK income tax can make a declaration to a charity (either orally or in writing) to enable their donation to be treated as a Gift Aid donation. The declaration must identify both the donor and the charity. The charity is then able to reclaim the basic rate of income tax paid on the gift from the government. Charities must maintain clear and auditable records of declarations to demonstrate that each donor has made an appropriate declaration. The scheme enables higher-rate taxpayers to claim income tax relief above and beyond the amount claimed directly by the charities. Individuals who do not pay income tax are unable to use Gift Aid

2. Giving to charity through Gift Aid

Gift Aid increases the value of donations to charities and Community Amateur Sports Clubs (CASCs) by allowing them to reclaim basic rate tax on the gift. If you pay higher rate tax you can claim extra relief on your donations. If you claim age-related allowances or tax credits, Gift Aid donations can sometimes increase your entitlement.

3. How Gift Aid works

• Tax relief for charities

Gift Aid is an easy way to help the recognized charity or CASC maximize the value of its donations, as these organizations can reclaim tax from HM Revenue & Customs (HMRC) on its 'gross' equivalent - its value before tax was deducted at the basic rate. This is 20 per cent from 6 April 2008. The charity can work out the amount of tax it can reclaim by dividing the amount donated by four. This means that for every £1 donated, the charity can claim an extra 25 pence.

In addition, HMRC will automatically pay the charity or CASC a further three pence for every pound donated. This 'transitional relief' - to adjust to the fall in basic rate tax (from 22 per cent to 20 per cent) - is available on Gift Aid donations made from 6 April 2008 until 5 April 2011. This means that for every £1 donated, the charity or CASC can receive 28 pence, so the total value of the donation is £1.28.

• Tax relief for donors

If a donor is a higher rate taxpayer, they too can benefit from tax relief as they can claim back the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 20 per cent on the total value of the donation - a total of 20 per cent. So if £1 was donated, the gross donation would be £1.25, so the donor could claim 25 pence back (20 per cent of £1.25).

The donor must pay at least as much UK tax (Income Tax and/or Capital Gains Tax) as the amount of Income Tax that the NFPs are reclaiming. If a donor makes a number of Gift Aid donations, they must pay a sufficient amount of UK tax on the total amount of those donations and they may be required to pay any shortfall in tax paid to HMRC. The NFPs must advise the donor of their tax requirement and keep a record of the NFP's notification along with the donor's confirmation - known as a Gift Aid declaration.

4. Donations that qualify for Gift Aid

Gift Aid can only be claimed on gifts of money from individuals, sole traders or partnerships, in any of the following forms:

-cash

-cheque

-Direct Debit

-credit or debit card

-postal order

-standing order or telegraphic transfer

Gifts made by cheque only count as received once the cheque has cleared.

The charity or CASC can accept gifts of money made in sterling or any foreign currency.

5. Payments that don't qualify for Gift Aid

These include:

-donations of money from a company

-donations in the form of a loan waiver or debt conversion - for example an individual may lend money to the charity or CASC and then, at a later date, agree that it does not have to be paid back - this is not a gift of money it is the waiver of a loan

-gifts made on behalf of other people for example a membership subscription paid on behalf of somebody else - this is a gift of membership from the payer to the member not a gift made to the charity or CASC

-gifts that come with a condition about repayment

-gifts with enforceable conditions about how the charity or CASC should use the money - for example on condition that it buys goods or services from the donor

-payments received in return for goods or services - these are not gifts - for example payment for admission to a concert, payment for a raffle ticket, an entrance fee for an adventure challenge event etc

-a 'minimum donation' where there is no choice about payment - this is simply a fee for goods or services, it is not a gift

-gifts made using 'charity vouchers' or 'charity cheques' provided by another charity

6. Providing benefits in return for donations

The charity or CASC can give donors modest tokens of appreciation - called 'benefits' - in order to acknowledge a gift but there are limits on their value. A benefit is any item or service given by the charity or a third party to the donor or to a person connected to them in return for a donation. Examples might include theatre tickets or discounts. The benefit does not have to be monetary or have a market value.

There are two limits that apply to the value of the benefits that a donor, or a person connected with the donor, may receive in return for making a donation.

These are worked out using the relevant value test and the aggregate value test. If the value of the benefits received exceeds either of these limits, the donation will not qualify for Gift Aid.

7. The relevant value test

The relevant value test sets the maximum value of a benefit for a particular amount of donation as follows:

8. The aggregate value test

As well as passing the relevant value test above, the benefits must also pass the aggregate value test. This says that the value of benefits received by the same donor in one tax year as a result of making more than one donation to the same charity in that tax year must not exceed:

-£250 for donations made up to and including 5 April 2007

-£500 for donations made on or after 6 April 2007

The key principle to remember is that if any donor - or person connected to the donor - benefits significantly from their donation, then their donation(s) will not qualify for Gift Aid.

The benefit limits listed above are for Gift Aid purposes only. If the charity gives a donor a benefit in return for a payment this may be considered a business supply for VAT purposes and VAT may be due on income.

9. Claiming tax back on Gift Aid donations

The charity or CASC can claim tax back on Gift Aid donations in the same way they claim other tax relief.

They don't have to register to claim Gift Aid but the charity must be recognised by HMRC for tax purposes. Recognition by HMRC as a charity is a separate process from registering with the Charity Commission for charitable status.

Before the charity can make a Gift Aid or other repayment claim it needs to nominate someone in the charity or CASC to be a signatory and/or a claimant. This means that they can claim/receive money on behalf of the charity or CASC.

10. Keeping records

The charity or CASC must keep an auditable record of:

-all Gift Aid declarations and confirmation that you have advised the donor that they must pay at least as much UK tax (for the tax year that they donate) as the amount your charity or CASC will reclaim on the donation

-any cancellations of Gift Aid declarations

-any benefits you provide to donors

Records must be kept in the same format as when the charity received them, but can be scanned and stored electronically. The charity or CASC must also be able to locate individual declarations on request for audit checks.

Significant differences

In this presentation, it compared the Rules for Deductible Gifts of NFP in Australia and United Kingdom through 3 criteria. Firstly, the donations that qualify for Gift deduction. It finds out the Australian Tax Office provide the donors that include individual, company, trust or other type of taxpayer can with deductions against their assessable income for the gifts they have given to the deductible gift recipients in the income year. But in UK, donations of money from a company is not qualify for gift aid

Secondly, how gift deduction work. In Australia the donors can deduct the total amount of money donated. However, in UK the donors cannot deduct all of the donations. For example, if a donor is a higher rate taxpayer, they can claim back the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 20 per cent on the total value of the donation

Finally, the requirements for claiming deduction. Individuals subject to UK income tax need to make a declaration to a charity (either orally or in writing) to enable their donation to be treated as a Gift Aid donation. In contrast, in Australia, the donor must keep a record of all their deductible gifts donated to DGRs in the income year when preparing the tax returns. And Australian Tax Office will check the evidence when granting the deduction to the donor.

Conclusion

Comparing with the two countries' regulations related to gift deduction, it finds out the Australia regulations are easier to understand and use, when individual or company donate $2 or more to the charity then they can get all of the donated money deducted. But as mentioned above, the UK regulations are more complex. Although the regulation in Australia can encourage people to donate, it also has some short comings. For example, individuals may use the regulation for a bad purpose such as avoid the tax. Thus, the Australia Tax Office need to set some rules to avoid it may be they can set a highest amount of gift deduction.

Energy Market Privatization

2014-07-20T15:49:00.001+10:00

ABSTRACT

Energy market relates to everyone, no matter people or company need to live on it. So the governments deal with it very carefully, especially when they decide to involve private sector in the provision of public infrastructure and related services. There are three popular ways of privatization of energy market- BOT, BOO and BOOT. In this report, it states the key features of each method at first. Then three cases from three countries are provided. The Malaysian case provides a fail example of BOT, but the Chinese and Egyptian cases are the success examples. After the cases, it finds out that there is no "one size fits all" method in the field, and the government can choose any method of privatization. However, no matter what method government chooses, it should maximum the benefits of the public.

INTORDUCTION

Energy market is very important for everyone, because people needs energy (e.g. gas and electricity) to live, and companies need energy to operate. In the past, the energy market is controlled by the government. But recently, in many countries, high growth in the demand for power (etc.electricity, gas) plus limited capital for power plant construction, has led to consideration of independent private power generation. Especially, in the mid-1980s, many Asian countries turned to the privatization of infrastructure to overcome problems which threatened to constrain economic growth (Smith, 2010). In this report, it will first introduce three popular ways of structuring private power projects- BOT, BOO and BOOT. After that, three cases will be provided, two from Asia and one from Egypt. And at the end of the report, a conclusion will be given.

BOT, BOO and BOOT

Three of the most popular ways of structuring private power projects are: build-own-transfer (BOT) or build-own-operate (BOO). Projects structured this way allow countries to develop new power plant capacity without major capital investment by the government. Industrial growth in developing countries is the major reason for electricity demand growing at 10 percent to 15 percent or more per year. Electricity, for instance, under BOT a plant is constructed and operated for a predetermined period of time by a private electric power company. At the end of a specified period the plant is transferred to the country's electricity generating authority at no cost. Usually, a power plant has approximately another 10 years of life when it is handed over. A BOO developed power plant, on the other hand, is built and operated by the private electric power company for the life of the plant(Smith, 2010).

There are several variations of the BOT format, and the most significant difference among them lies in the issue of ownership of the infrastructural facilities and equipment (Mcmullan, 2010).

The "build-own-operate transfer"(BOOT) scheme refers to an arrangement whereby the sponsor possesses ownership of the facility during the operating period of the concession, only at the end of which is ownership (as well as operating and financial control) turned over to the state. It is a form of project financing, wherein a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract. It enables the project proponent to recover its investment, operating and maintenance expenses in the project. Due to the long-term nature of the arrangement, the fees are usually raised during the concession period. The rate of increase is often tied to a combination of internal and external variables, allowing the proponent to reach a satisfactory internal rate of return for its investment (Handleya, 1997).

CASE STUDY

In Asia, the governments have latched on to the BOT concept as an important alternative for enhancing economic growth and development, or at least as a quick fix for problems associated with the demand for the establishment of infrastructural facilities. However, achieving the basic BOT goals has proven to be difficult, as examples in Malaysia.

-Malaysia's Power Project

In Malaysia power generation BOT projects were built upon a weak industrial structure. In 1992 the government handed out a number of concessions to separate sponsors, and the state power monopoly, Tenaga Negara Bhd., had to sign power purchase agreements with all. This accelerated the development of power generation capacity. But, at the government's order, Tenaga had to pay the private producers plant-gate prices that were roughly the same as Tenaga's own sales price to the public, less delivery costs. It meant that profitable Tenaga was delivering the private power to consumers for free, and paying the private concessionaires more for the power than Tenaga's own production costs. This became a more significant problem when national power capacity far outran supply in 1995, due to expansion by both the private producers and Tenaga. With the oversupply of power, and its commitment to buy the power of the independent producers, Tenaga had to take less power from its own plants. This would effectively further encroach on its own profitability and create potentially serious conflicts.

Actually, the important identifying criterion of a BOT is that it is a project that can be economically and operationally "ring-fenced." That is, it can be isolated from related operations so that its revenue streams and cost basis can be clearly identified and assessed. This is crucial not only for determining the commercial viability of a project but also for its successful launching and management. Beyond this, from the standpoint of sponsors and investors, there are several aspects which are essential to making a BOT project successful. These include: a recognition by the government, in all its parts, and the public generally of the legitimacy of private operation of infrastructural facilities; a recognition of the user-pays principle as central to the success of a BOT project; a fair and attractive rate of return for sponsors; the enforceability of the concession contract, including a transparent regulatory environment and a suitably developed legal system that assures fair dispute resolution; and assurances of payment in cases where the principal buyer of the project's service or product is a state-owned-enterprise, as in independent electric power producer BOTs. Secondary requirements to a project's success include exclusivity, assured convertibility or repatriation of profits, availability of exit paths for sponsors and investors, and clear avenues of conflict resolution (Hill, 1995).

For example, the flowing case of china seems much more successful.

-China's Shajiao B Power Plant Project

Located in the Hong Kong border area of China's Guangdong province, the US$550 million, 700 megawatt Shajiao B project was developing Asia's first large independent power producer (IPP) program. In 1984 the local government of the fast-growing area, realizing it urgently needed better power generation capacity, accepted a proposal by Hong Kong construction firm Hopewell Holdings to develop a plant on a BOT basis. Risks were high because the BOT structure was very new to Asia and China had no policy on foreign investment into infrastructural development, which was controlled by the country's state-owned enterprises. The project proceeded on the basis of Hopewell founder and chief executive Gordon Wu's good relations with government officials and state enterprises in both Beijing and Guangdong. In addition, the government shouldered a significant portion of the risk, while offering disproportional rewards to Hopewell. A government owned investment unit became a significant equity partner, and another state-owned entity guaranteed power purchase payments and foreign exchange risks. Meanwhile Hopewell, which was the major contractor to the project as well, arranged that it (as equity partner) would be paid a large cash bonus and preferential share of tariff receipts (compared to other investors) for beating the construction deadline. This amounted to more than US$50 million. These payments ensured that, for Hopewell, Shajiao B would make an estimated 25-30 per cent return on equity, thus reducing its capital exposure very quickly. In essence, China's acceptance of a very high level of profitability and very early payback for the sponsors, in return for the latter's commitment to provide new power capacity rapidly, made the project work (Handleya, 1997).

Apparently, not all countries are the same. In some countries, such as Egypt, Canada, Australia and New Zealand, the term used is Build-Own-Operate-Transfer (BOOT).

-Egypt

Egypt had installed generating capacity of 17.06 gigawatts (GW) as of 2004, with plans to add 4.5 GW of additional generating capacity by 2007 and 8.38 GW by 2012. Around 84 percent of Egypt's electric generating capacity is thermal (natural gas), with the remaining 16 percent hydroelectric, mostly from the Aswan High Dam. All oil-fired plants have been converted to run on natural gas as their primary fuel. With electricity demand growing, Egypt is building several power plants and is considering limited privatization of the electric power sector. Egypt's power sector is currently comprised of seven regional state-owned power production and distribution companies, which were held by the Egyptian Electricity Authority (EEA) (Mbendi Information services, 2010).

Egypt has several privately-owned power plants currently under construction which were financed under Build, Own, Operate, and Transfer (BOOT) financing schemes. BOOT projects are used to fund large-scale public infrastructure without affecting the country's debt profile. Private developers are allowed to recover their costs of construction through ownership and operation of the plant for a fixed period before handing it over to the state. The first BOOT project was a gas-fired steam power plant with two 325-megawatt (MW) generating units, located at Sidi Kerir on the Gulf of Suez. The plant cost $450 million, and began commercial operation in late 2001. Electricity from the plant is priced at 2.54 cents per kilowatthour. This competitive price stems largely from the availability of cheap natural gas -- to be supplied by Egypt's EGAS -- as a feedstock. U.S.-based InterGen (a joint venture of Bechtel Enterprises and Shell Generating Ltd.), along with local partners Kato Investment and First Arabian Development and Investment, have the 20-year BOOT contract for Sidi Kerir. The second BOOT power project award went to Electricite de France (EDF), for two gas-fired plants to be located near the cities of Suez and Port Said. Each plant will have an installed capacity of 650 MW, and the project cost will total around $900 million. The price for power from the EDF plants will be 2.4 cents per kilowatt hour (Kwh), the lowest price yet offered for a BOOT plant. The plants both began commercial operation in 2003 (Mbendi Information services, 2010).

EEHC-owned projects currently under construction include the 1,500-MW plant planned at Nuberiya in the western Nile Delta near Alexandria. The first 750-MW generating unit at Nuberiya is scheduled to begin operation by the end of 2005. The 64-MW Nag Hammadi hydropower project is under construction, with European Investment Bank financing, and is scheduled for completion in 2006. After several years of delays, the 1,500-MW capacity expansion at the Cairo North power complex came online in mid-2004. A contract has been awarded to Russia's Power Machines Group for the refurbishment of the turbines at the Aswan High Dam. The project will extend the operational life of the turbines by about 40 years and increase generating capacity at the dam from 2,100 MW to 2,400 MW (Mbendi Information services, 2010).

Egypt is also planning to build a part-solar power plant at Kureimat as a BOOT project, which will have 30 MW of solar capacity out of a total planned capacity of 150 MW. The World Bank will provide a financing package from its Global Environmental Facility which will offset the cost difference between the solar capacity and thermal capacity. A Netherlands-funded project is building 60 MW of wind power units in the Suez Canal area. Egypt also has a 22-MW nuclear research reactor at Inshas in the Nile Delta, built by INVAP S.A. of Argentina, which began operation in 1997.

Work has been completed on the interconnection of Egypt's electric transmission grid with other countries in the region. The Five-Country interconnection of Egypt's system with those of Jordan, Syria, and Turkey was completed by 2002. Egypt also activated a link to Libya's electric grid in December 1999 (Mbendi Information services, 2010).

From the Chinese and Egyptian cases, we can see that although there are some successful programs of privatization, but the governments still play a very important role in the energy market.

CONCLUSION

BOT, BOO and BOOT are three popular ways of privatization in energy market. In some level, it can reduce the financial pressure of the governments. The government can choose any of them depends on the governments need. The cases from three countries indicate that there is no "one size fits all" format of privatization in energy market (infrastructure construction). The government should choose the way of privatization based on the situation of country. Also, the governments should use these methods in a proper way, because even using the same method, the results may be different. And no matter what method the government chooses, it should maximum the benefits of public as the energy market is related to everyone. As the nature of the energy market, the governments will still play a very important role in some countries, especially in some developing countries.

REFERENCES

Handleya. P, (1997) 'Critical View Of The Build-Operate-Transfer Privatization Process in Asia', Asian Journal of Public Administration Vol 19, No 2 (December 1997) 203-243

Hill. C, (1995), 'A Dam Too Far', Institutional Investor

Mcmullan (2010) Build own operate transfer (boot) projects

http://www.mcmullan.net/eclj/BOT.html

Mbendi Information services, (2010) 'Electrical Power in Egypt' Retrieved 23rd September 2010, from http://www.mbendi.com/indy/powr/af/eg/p0005.htm

Smith. D, (2010), 'Private ownership of electric power is more efficient and reliable than public-owned plants' Retrieved 23rd September 2010, from http://www.powergenworldwide.com/index/display/articledisplay/45943/articles/power-engineering-international/volume-3/issue-features/feature-article/private-ownership-of-electric-power-is-more-efficient-and-reliable-than-public-owned-plants.html

Sample assignment: Adelaide Football Club

2013-08-14T14:02:00.001+10:00

Executive Summary

Adelaide Football Club (AFC) is a famous club in Australia, it plays games in AFL and other matches. It provides high-level matches for its customers (fans), so that satisfies customers' needs. Although there are some micro and macro environment factors affect AFC, it still runs well in the recent years. Also AFC segments its market in two ways, by geography and by age, and it helps AFC runs more efficiency and effective.

Introduction

Adelaide Football Club (AFC) is a famous football club in Australia. It established in late 1990, competes in the Australian Football League. Based at AAMI Stadium in the South Australian capital of Adelaide, the club has won two premierships in 1997 and 1998. The official colours are navy blue, red and gold. So far the club has two offices, one is in Adelaide, and the other in Melbourne. (AFC, 2009) As a football club, its main product is not physical object, but is the performance of the players in each match. Through their outstanding performance, the club can attract more fans and sponsors, so that the club can get more benefits. In the rest of this report, it will review the appropriateness of its product by analysing market environment, type of product and target segment.

Discussion

Market Environment

The marketing environment surrounds and impacts upon the organization. There are three key perspectives on the marketing environment, namely the 'macro-environment,' the 'micro-environment' and the 'internal environment'. (Marketingteacher, 2009) In this section, it will discuss from two market environment- micro-environment and macro-environment.

According to Kotler et al (2006) the microenvironment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets, competitors, and publics. Among these micro-environment elements, the competitors have more effect on AFC than other elements.

Some markets are very competitive, with a number of vendors selling the same kinds of products or services. Conversely, some markets have low or no competition, particularly if the industry is protected by government legislation. (EcnomyWatch, 2009) The market which AFC in is very competitive, because there are many other teams play the same sports as AFC. In AFL, there are total 16 teams. So within Australia, there are 15 competitors. But in the whole world, its competitors are countless. That is because, some Australian may be not the fan of Australian rules football, maybe they like soccer, and they maybe the fans of Manchester United. So in this level, Manchester United also can be treated as AFC's competitor. Focus on the Australian market, Geelong Football Club affects AFC a lot among the 15 competitors. There are two reason for that, the first one is from geography perspective. The below figure shows the 16 teams in AFL, it clearly there are two teams near AFC, one is Port Adelaide, and the other one is Geelong. People always choose the club near them because it is easy for them to watch the game.

The second reason is Geelong has very good results in the past. It has been playing in the Australian Football League, it has been VFL/AFL premiers eight times and won a record nine McClelland Trophies. Formed in 1859, Geelong is the second oldest club in the AFL after Melbourne and one of the oldest football clubs in the world. Geelong was an under-achieving club. Despite playing in five Grand Finals it took 44 years until it won another premiership- an AFL-record 119-point victory in the 2007 AFL Grand Final. Despite recording the most successful home and away season in the game's history, the club went one win short of back-to-back premierships in losing the 2008 AFL Grand Final, but won the 2009 Grand Final against St Kilda. (GFC, 2009)

From these two points of view, Geelong Football Club is the major competitor for AFC. But fortunately, AFC still have some advantages, such as number of members. AFC continued to rank number one for membership in the AFL during season 2008. Its average home game attendance was 40,683 compared to Port Adelaide's 23,841. The AFL average was 36,996. The figure below shows 2008 ticketed members for each AFL team. (AFC, 2009)

To sum up, although AFC has many competitors, and its competitors get stronger and stronger, AFC still performance well.

From the macro-environment perspective, macro-environment means the larger societal forces that affect the whole microenvironment- demographic, economic, natural, technological, political and cultural. (Kotler et al, 2010, P134) Among these six factors, three factors can affect AFC. First one is demographic, it has bad effect to AFC. The population of Australia is not big which is only 20 million. That means this market is not big. The figure below shows the population in different States. (ABS, 2009)

From the figure, it shows South Australia only has 2 million people, but has two AFL team, this information is not good for AFC. The second factor is economic. As the global economic recession in 2007 and 2008, Australian income is declined, potentially people would choose spend less money on some entertainment, such as watching AFL. But lucky, AFC's members keep increasing in recently years. The third factor is culture which has positive effect on AFC. According to ABS (2007), more than 30% SA people attended AFL in 2005-06. It is twice than the average of Australian sports attendance in AFL.

To sum up, form macro-environment, it affects AFC in both positive and negative way. But in the overall level, it has positive effect.

Type of product

Product is anything that can be offered to a market for attention, acquisition use or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas. (Kotler, et al, 2010, P7) And service can be defined as deeds, efforts, or performances. (Berry, 1980, P20-24) For the AFC which is the football club, it belongs to the service market, because though it provides service (performance of players) to its customers, and makes its customers fun and relax. In the rest of this section, it will state the three level of AFC's product (service).

Core product. Core product refers to the benefit of the product (service) that makes it valuable to buyer. (marketingteacher, 2009) AFC provides the matches for the fans (buyer), the fans want their team win the games, so they can feel happy, relax and exciting.
Actual product. The actual product must then reflect the core product in its characteristics, packaging, branding, and quality. (Pike, 2006) For AFC, because their actual product is service which is intangible, it doesn't need to be packed and labelled. And according to Kotler (1996) a brand is a name, term, sign, symbol or design or combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. So its brand is Adelaide Football Club, or Crows.
Augmented product. It is usually consists of lots of added value, for which the buyer may or may not pay a premium. For AFC, its augmented product may include some gifts, sports dress and souvenirs from team. There is a shop called CROWmania in Adelaide sold these kinds of goods, and it promises that 100% team products. Also, the fans can buy this kind of goods on online on AFC official website.

Target segment

In general, dividing the market into different segmentations and applying different strategies for each segment based on their characteristics and needs is crucial in order to come up with effective marketing plans. Traditionally, researchers have examined different demographic factors, such as gender, age, education level, and household income to determine whether segmenting the market based on these characteristics is beneficial (Dietz-Uhler et al, 2002) For AFC, its market can be segmented in two ways, geography and aged.

There are two offices of AFC, one is in Adelaide, and the other in Melbourne. The club sets an office in Melbourne because Melbourne has more population than Adelaide and not far from Adelaide. Through an addition office, the club can get more members of Club, and improve its financial performance. The fans from Adelaide and Melbourne may have different characteristics and needs.

The fans from Adelaide: these fans (customers) are easier to be held by AFC, because there are only two teams in Adelaide. They won't become other team's fans unless AFC does so bad in certain season. So far, AFC does not bad, so they will still be the fans of AFC. All they want is AFC plays well in all matches in the season.

The fans from Melbourne (or other places in Victoria): these fans (customers) are not stable compared with the fans from Adelaide. As mentioned above (from the first figure), there are ten teams in Melbourne area (includes Geelong), and there are total 16 teams in the AFL. So the people in Melbourne have at least 10 options to decide which team they support. Consequently, AFC wants to increase its market share in Melbourne is very hard. But in the bright side, Victoria's population is 2 times than South Australia. Compared with fans from Adelaide, fans from Melbourne have their own needs, for example, maybe they can not go back Melbourne immediately after the matches finish, they may need some places for stay overnight. Also, the transport cost is a problem of these fans. If the club has free coach from Melbourne to Adelaide, the customer satisfaction will increase dramatically.

AFC also segments its market by age. But it does not so well in this way, it just has two categories- one is kids, and the other is people exclude kids. It should be classified into more sub-groups. According to ABS (2005), it shows that people in age from 25 to 44 are more like to participate in sports. Also, generally, people in this age have job, in another word, they can afford the tickets. AFC should treat these people specially, because these people are its main customers (fans). And their needs are simple, all they want is just a fantastic game. There is another benefit from focusing on these group people. Because these group people often have family, their kids or their partner, maybe they will come to watch the game together. Potentially, their kids or partner will become the fans (buyer). The club's customer size will be increased. Also this group (age between 25 to 44) can be segmented by gender, because male and female fans have different needs. (Clark et al, 2009) And as males are typically thought to be more involved with sports than females, AFC should consider male fans' special needs, such as big sports clothes. (Galen et al, 2008) For the kids group, their needs are different from adults, they maybe not so interest in the matches. Maybe they like the mascot more. Also, on the AFC's website, there is a special link for kids. So far, because AFC does not bad in AFL, it can say that all its fans' needs are satisfied.

Conclusion

AFC's product is not physical object, but service. It provides performance for the customers (fans). And its customers' need is AFC plays well in the AFL or some other matches. Both micro and macro environment have effect on AFC, but so far, AFC runs well, it provides the good matches to fans (buyer). So its customers' needs are satisfied.

Recommendations

As mentioned above, AFC needs consider how to segment its market. And it is recommended that AFC should focus on its fans (customer) in age from 25-44. That will make its business more effective and efficiency.

Reference List

Books and Journals

1. Berry, L., June 1980, Services Marketing Is Different, Business Magazine

2. Clark, J., Apostolopoulou, Artemisia, Gladden, James M.2009, Real Women Watch Football: Gender Differences in the Consumption of the NFL Super Bowl Broadcast , Journal of Promotion Management; Vol. 15 Issue 1/2, p165-183,

3. Dietz-Uhler, B., Harrick, E. A., End, C., & Jacquemotte, L. 2002,. Sex differences in sport fan behavior and reasons for being a sport fan. Journal of Sport Behavior, 23,

4. Galen T. Trail, Matthew J. Robinson, and Kim, Y 2008,Sport Consumer Behavior: A Test for Group Differences on Structural Constraints, Sport Marketing Quarterly, 2008.17. 190-200,

5. Kotler, Phillip and Armstrong, G, 2006, Principles of Marketing 12^th edition, Pearson Education Inc. New Jersey

6. Kotler, Brown, Adam, Burton and Armstrong. 2010, Marketing, 8th edition, Pearson Education Australia, Frenchs Forest

7. Kotler, Philip., 1996, Marketing Management Analysis, Planning, Implementation, and Control. 8^th edition. New Delhi: Prentice-Hall of India Pvt. Ltd.

8. Pike W, 2006, The demise of independent wine production in France: a marketing challenge? International Journal of Wine Marketing

Websites

9. Australian Bureau of Statistic, Jun 2009, Australian Demographic Statistics http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0

10. Australian Bureau of Statistic, 2005, 1301.0 - Year Book Australia, 2005, http://www.abs.gov.au/Ausstats/abs@.nsf/46d1bc47ac9d0c7bca256c470025ff87/daaada81176e2f89ca256f7200833023!OpenDocument

11. AFC, 2009, The Club, http://www.afc.com.au/the%20club/tabid/4491/default.aspx

12, AFC, 2009, Corporate Packages 2009, http://www.afc.com.au/hospitality/tabid/4562/default.aspx

13. Economywatch, 2009, Market types, http://www.economywatch.com/market/market-types/

14. Gautam, J. 2009, Marketing environment, http://knol.google.com/k/marketing-environment#

15. Geelong Football club, 2009, Detailed history http://www.geelongcats.com.au/gfc%20history/tabid/4015/default.aspx

16. Marketingteacher, 2009, the marketing environment, http://www.marketingteacher.com/Lessons/lesson_marketing_environment.htm

17. Marketingteacher, 2009, Three level of product, http://www.marketingteacher.com/Lessons/lesson_three_levels_of_a_product.htm

sample essay of MGX5440 (4)

2011-02-06T15:09:00.001+11:00

this is the last assignment of MGX 5440, also, it is last assignment of my Monash study life.

Abstract

North Korea is a less developed country as well as a mysterious socialist country. In this report, it will figure out how to develop its economic. First, the background of North Korea is introduced. From the introduction, it finds that North Korea is a unique country, and it should find a special way to develop its economic. Second, some problems contained in North Korea are identified. Two types of problems are found, first one is political problem, such as bad relationship with other countries. Second one is economic issue, such as its infrastructures are needed to be modernised. Between these two problems, political problems are needed to be fixed first, as the economic cannot be developed without a stable social environment. So, in the third part, two plans are recommended- first five years plan and long term plan. In the first five years plan, it will focus on fix its political problems through Six Party Talks. And the main idea of long term plan is using China and Vietnam's method- "economic reform and opening up" to change North Korean economic situation. The priority of long term plan is infrastructure construction, as without infrastructure, other economic activities are hard to work smoothly. And at the end of this report, some special tips are given, North Korea government can learn a lot from China's high speed economic development, but it also should watch out some bad impacts of high speed economic development.

Introduction

Democratic People's Republic of Korea is a country in East Asia, occupying the northern half of the Korean Peninsula. The peninsula was governed by the Korean Empire until it was annexed by Japan following the Russo-Japanese War of 1905. It was divided into Soviet and American occupied zones in 1945, following the end of World War II. North Korea refused to participate in a United Nations–supervised election held in the south in 1948, which led to the creation of separate Korean governments for the two occupation zones.

North Korea has long maintained close relations with the People's Republic of China and Russia. The fall of communism in Eastern Europe in 1989, and the disintegration of the Soviet Union in 1991, resulted in a devastating drop in aid to North Korea from Russia and North Korea's economy declined sharply, although China continues to provide substantial assistance (Travel Document Systems, 2010).

GDP is estimated to have fallen by about 25% in 1990s. The economy has since stabilized and shown some modest growth in recent years, which may be reflective of increased inter-Korean economic cooperation. Output and living standards, however, remain far below 1990 levels. North Korean industry is operating at only a small fraction of capacity due to lack of fuel, spare parts, and other inputs. Agriculture and fisheries were 22% of GDP as of 2008, although agricultural output has not recovered to early 1990 levels. The infrastructure is generally poor and outdated, and the energy sector has collapsed (ABC, 2010).

North Korea has a centralized government under the rigid control of the communist Korean Workers' Party (KWP), to which all government officials belong. A few minor political parties are allowed to exist in name only (Government, 2010).

In the rest of this report, it will first identify the current problems contained in the North Korea. Then based on the features and problems of North Korea's economic and government system, it will make two plans for North Korean government to solve these problems as well as help its future development. At the end of the report, a conclusion will be given.

Current Problems

There are two types of problems are needed to be considered in North Korea future development- political problems and economic problems.

Political issues

North Korea was placed under the Soviet Union's rule for a considerable period of time, thus it is structured as a Communist state with special references taken from the Russian constitution. Even though the political system of North Korea has undergone several changes over the last few years in order to boost up the economic growth of the country, the nature of the political system, a major aspect of the North Korean political system lies in the fact that it is widely seen as a totalitarian dictatorship built upon the rationale of centralization. Due to the political and historical reasons, the bilateral relations with its neighbouring western-friendly countries are often tense. It remains a lot contentious issues among those countries on political and economic aspects.

America

North Korea has been among the most vexing and persistent problems in U.S. foreign policy in the post-Cold War period. The United States has never had formal diplomatic relations with North Korea. Relations between the two countries worsened in the early 1990s when North Korea expanded its nuclear program and the US considered bombing the suspected weapons development facilities. The two sides eventually negotiated their way back from the brink of the war. The resulting Agreed Framework required that North Korea freeze its nuclear program in exchange for shipments of heavy fuel oil from the US and two light-water nuclear reactors to be built by an international consortium funded largely by Japan and South Korea. As part of this agreement, the two countries pledged to move toward full normalisation of relations. However, the Agreed Framework averted war but did not create a lasting peace. The US government has continued to criticize North Korean sales of advanced missile technology to countries such as Pakistan and Iran. In August 1998, North Korean launched a satellite that pass over Japan and demonstrated its possession of three-stage rocket technology without notification. At the same time, US and South Korean get the information that an underground facility in North Korea might house a nuclear weapon program, the US encouraged Japan to expand its military role in the region to threat North Korea. All of these limited the steps toward normalisation of relations. Although US rhetorically supports a more open and internationally integrated North Korea, all the embargo further servers Pyongyang from the capitalist world and reinforces the isolationist faction within the North Korean political elite (Porter, 2010).

Japan

Attempts to establish normal relations in the early 1990s and again in 2000 ended in failure, due to seemingly unresolvable obstacles. In September 2002, a one-day summit was held in Pyongyang between Japanese Prime Minister Junichiro Koizumi and North Korean leader Kim Jong il, the first ever between the leaders of the two countries. Koizumi and Kim momentarily appeared to break longstanding stalemates on several issues and agreed to restart bilateral normalization talks, but the talks subsequently stalled, due to North Korea's apparent admission to U.S. officials in October 2002 that it had a secret nuclear weapons program based on the process of uranium enrichment. Japan's role is potentially critical in the current crisis over North Korea's nuclear weapons programs for a number of reasons. Most importantly, Japan has promised North Korea a large-scale economic aid package to compensate for the Japanese occupation of the Korean Peninsula from 1910-1945, much as it gave South Korea economic assistance when Tokyo and Seoul normalized relations in 1965. Since North Korea launched a long-range missile over Japan in 1998, relations with North Korea have been a highly politicized issue inside Japan, creating strong domestic support for taking a hard line against Pyongyang. Prime Minister Koizumi, however, has equivocated on taking more coercive measures against North Korea, such as economic sanctions, absent an escalation of the situation by Pyongyang. Japan fears such measures could provoke a military response by North Korea or trigger a surge in refugees (Japan-North Korea Relations, 2010).

South Korea

After nearly two decades, inter-Korean relations had not improved measurably. In fact, it may be argued that political leaders in Seoul and Pyongyang have skilfully used the perceived mutual threat to maintain and justify their political legitimacy. Recently, the sinking of the South Korean Navy warship Cheonan on 26^th March and the subsequent determination two months later by a multinational investigation team that a North Korean torpedo attack had caused the destruction has sharply escalated tension on the Korean peninsula (Kurt Achin, 2010).

Economic issues

The political issues are not the only problems that North Korea faced at the moment. Although North Korea's infrastructure is extensive, it is crumbling and in need of expansion and modernization. The country's road system, estimated at 20,000 to 31,200 kilometers, is limited and unpaved. Private cars are scarce and the number of trucks is limited. The 5,000-kilometer railway network, originally built by the Japanese, provides 70 percent of passenger transport and carries about 90 percent of the annual freight traffic.

Most of the country's ports and airports need modernization. Of North Korea's 12 ports, only a few can handle large ships, while only 22 of its 49 airports have paved runways. Pyongyang's Sunan airport operates 20 weekly flights, servicing only 6 destinations.

North Korea suffers from a shortage of oil and gas. The oil shortage came after the country was deprived of its access to low-priced Soviet oil and saw a significant decrease in oil shipments from China. The country produces electricity from fossil fuel (34.4 percent) and hydroelectric power generators (65.6 percent). Over the next several years, North Korea will approve funds to construct over 100 new power generating plants. The state-owned oil and gas facilities are being privatized and provide excellent opportunities for investment. In 1999 it was estimated that the country produced 28.6 billion kilowatt-hours of electricity.

The telecommunication system is undeveloped. In 1995 there were 1.1 million telephone lines in use. Based on 1998 statistics, North Korea has 12 radio stations and 38 television stations. There are 3.36 million radios and 1.2 million television sets in use. The country has one Internet service provider and no cellular telephone system (Vyapaarasia, 2010).

Future Plans

First five years plan (2011-2015)

Obviously, there are several problems with North Korea. As mentioned above, the most important problem is that the society is not very stable. More explicitly, the relationship with Japan and USA is bad, and import and export activities cannot work well. If the society is not stable, it will be very difficult for this country to develop their economic. So in the first five years, North Korea should work hard on fixing its relationship with other countries, especially with Japan, USA, and South Korea.

Six-Party Talks

Seven years ago, an meeting called the Six-Party Talks used to give North Korea a very good platform to communicate with other countries. Unfortunately, the Talks was discontinuation since 2007. The last Talks was held on September 2007. And after its discontinuation, several events happened in North Korea. On 5^th April, 2009, North Korea proceeded with its announced satellite launch, despite international pressure not to do so. The pressure was due to international belief that the "satellite" was in fact a test of North Korea's Taepodong-2 ICBM. The launch was a failure, and it landed in the Pacific Ocean. Despite the failure, U.S. President Barack Obama responded that "violations must be punished," ordered North Korea to be "punished." South Korea urged heavier sanctions against North Korea. On 13^th April, 2009, the United Nations Security Council agreed unanimously to a Presidential Statement that condemned North Korea for the launch and stated the Council's intention to expand sanctions on North Korea. On 14^th April, 2009, North Korea, responding angrily to the UN Security Council's resolution, said that it "will never again take part in such [six party] talks and will not be bound by any agreement reached at the talks." North Korea expelled nuclear inspectors from the country and also informed the International Atomic Energy Agency that they would resume their nuclear weapons program (Mark, 2009). On 25^th May, 2009, North Korea detonated a nuclear device underground. The test was condemned by the United Nations, NATO, the other five members of the Six-party talks, and many other countries worldwide (Louis, 2009).

These facts indicate that the discontinuation of the six party talks made the situation worse in North Korea. We suggest North Korea goes back to the Six-Party Talks. The Six-Party was set up to solve the problems between Korea and other countries, North Korea should seize the opportunity to solve the problems. We suggest North Korea uses 3-5 years to make some agreements with these counties through the Six-Party Talks. By singing these agreements, at least North Korea can achieve peace at some level. And the peace in North Korea is the precondition of the development of North Korea. So at the first five years plan, North Korea should put Six-Party Talks in the first priority. Only under peaceful environment, the economic construction can be conducted smoothly.

To sum up, the first five years plan is aim to let North Korea achieve some level of peace through six party talks. After that, the economic development can be done without so many troubles.

Long term plan

Overall

There are only few countries are socialism countries, for instance, North Korea, China and Vietnam. During recently years, China and Vietnam are developing very well. Basically, these two countries used the same method to develop the economic- the reform and opening-up policy. In the following few paragraphs, it will introduce the cases in Vietnam and China.

Vietnam started Economic Reform in 1986. Over the past 20 years, Vietnam has made a shift from a centrally planned economy to a Socialist-oriented market economy. Over that period, the economy has experienced rapid growth. Nowadays, Vietnam is in the period of integrating into world's economy, as a part of globalization and is in transition from a planned economy to a market-oriented mixed economy. Although, almost all Vietnamese enterprises are SMEs with some nationwide trademarks such as VNPT, Vinamilk, Trung Nguyên, Kinh Do and others, Vietnam has been rising as a leading agricultural exporter and an attractive foreign investment destination in East and Southeast Asia.

In 2009, the nominal GDP of Vietnam reached $92.439 billion, with nominal GDP per capita of $1,060. According to a forecast in December 2005 by Goldman-Sachs, Vietnamese economy will become the 17th largest economy in the world with nominal GDP of $ 436 billion and nominal GDP per capita of 4,357 USD by 2025 (IMF, 2010). According to the forecast by the PricewaterhouseCoopers (2008), Vietnam may be fastest growing of emerging economies by 2025 with a potential growth rate of almost 10% per annum in real dollar terms that could push it up to around 70% of the size of the UK economy by 2050.

China has had a spectacular economic development and has come to play an increasingly important role in the world economy, especially since China became a member of the WTO. For a long time, the Chinese economy was a centrally-planned economy in which all companies were owned by the state. In 1978 China started an economic reform. In the beginning, in the late 1970s and early 1980s, trade was opened to the outside world and the Contract Responsibilities System was implemented in agriculture. By the end of the 1980s China had almost solved its food shortage problems. Around 1990 six special economic zones were established, including the Shanghai Pudong zone, which was a pioneer attracting foreign capital.

The reforms of the late 1980s and early 1990s focused on the creation of a pricing system, which was achieved using a dual track pricing system (China.org, 2009), and on decreasing the role of the state in resource allocations. Increasingly competitive sectors, such as distribution, were opened to private enterprise and foreign capital. In 2004 the GDP per capita was US$1,267. In 2009, this number reached US$ 6,567. Industrialization, open organization and internationalization was the tendency that helped move towards a market economy. In 2009 GDP increased to US$8.765 trillion, which makes China the third biggest economic body in the world, just followed US and European Union (IMF, 2010). Opening to the outside remains essential to China's development.

China continues to attract large investment inflows. By the end of 2004 China had become the biggest FDI developing country. In 2003 foreign fund and enterprises produced about 45% of China's exports. By comparison, China's imports and exports account for 5.3% and 5.8% of the world's, respectively. Foreign exchange, on the other hand, total about US$ 609.9 billion in 2004. This appeared in the IMF report of 2004. More than 20% of the world increase in trade was contributed by China. China emerged as the third biggest trade body, after the US and the European Union.

From these two cases, it is clearly that "economic reform and opening-up policy" seems very suitable policy for socialism country for economic development. So, in the long term plan, North Korea can follow the China method, first set up one or two special economic zones. We suggest the first special economic zone should set up at Sinuiju. Sinuiju is a city near China, so it can build up some factories in this city, and then trade with China more easily. Another reason for setting up a special economic zone in this city is because of Pohai (Korea Bay). North Korea can trade with other countries through Sinuiju Port. So in the overall level, we suggest North Korean government follow China and Vietnam's way to improve its economic situation.

Priority in the long term plan

Generally, when a country decides to improve its economic situation, the infrastructure should be improved first. For example, when several factories are needed in special economic zone, it needs power to support these factories, also needs roadway to deliver their products. And as mentioned above, there are so many problems contained in the infrastructure system of North Korea. So we suggest North Korea should consider how to improve its infrastructure first. And we also notice that the North Korea government may face financial problem, so BOT can be used to finance its infrastructure construction. Also China has some experiences on BOT. For example:

China's Shajiao B Power Plant Project

Accordingly, North Korea government could sign contracts with foreign countries' companies to construct infrastructure. Especially, the government can hire Chinese companies to do that. Because China and North Korea have good relationship compared with other countries, when China companies running business in North Korea, the resistance from government maybe low.

Special tips

As mentioned above, North Korean Government should learn a lot from Chinese Government. So, North Korean Government should also notice the shortcomings of Chinese high speed economic development. There are several points should be avoided.

1) The economic growth model, from an extensive economy to an intensive one; from large investment and high consumption of resources to a high technology model, high added value and low consumption of resources.

The foreign companies direct invest in China contributes some GDP of China. For example, SONY operates some factories in China, and these factories manufacture a lot of products every year, and make some profit which count in China GDP. But who is the really beneficiary for operating the factories in China? The answer is SONY. SONY opens factories in China does help China to solve the employment problem in some level. But the eventual beneficiary is SONY. SONY can reduce cost through producing the products in China. And it gets the net profit of its products, just leave the Tax and GDP number for China. And China cannot get the technologic because SONY still holds that. From the pure economic point of view, SONY can get more benefits than China.

So, North Korea needs pay more attention to develop the high-tech products by itself, and get more real economic benefits.

2) Gap between the rich and the poor.

There is a common comment in China now- the rich people get richer, and the poor people get poorer. The rich people can use their capital to reinvestment, and earn more profit. But the poor people cannot do that. The huge gap between rich and the poor people maybe the main shortcomings of capitalism economic. But some capitalism countries use some leverage to solve this problem. For example, Australian Government uses tax to balance the gap between rich and poor. When people earn more money, they must pay more tax. The highest tax rate for individual people is 45%, if plus medicare levy it can reach 46.5%. That's quiet high tax level. A joke talk about the huge gap between rich and poor- China spent 30 years creates the gap between rich and poor larger than that capitalism spent more than 100 years. That's quite an irony. But it can reflect the true situation in China. So North Korea should also need to find some methods to balance the income of difference groups of people.

There are also some other problems should be considered, such as pollution problem during the high speed development.

Conclusion

In this report, it first introduces some background of North Korea, and it shows that the economic situation in North Korea needs to be improved. Then it finds the main problems contained in North Korea. There are two main problems, one is political problem such as bilateral relationship with US, and the other is economic problem, such as infrastructure needs modernized. After that, according to the problems contained in North Korea, we make two guidelines for North Korea Government. First one, we call it "first five years plan". We suggest North Korea Government uses 3 to 5 years to fix its relationship with other countries through the Six Party Talks. After fixed the political problems, the economic problems can be fixed faster. The second plan, we call it "long term plan". The main idea of long term plan is North Korea can use China and Vietnam's method to fix its economic problems, we can call it "reform and opening up". The priority of long term plan is constructing infrastructure. As North Korea government may face financial shortage, it is recommended to use BOT to construct infrastructure. Also, some special tips are given such as notice the gap between rich and poor people during the economic development.

References

ABC, 2010, Korea, North, http://www.theodora.com/wfb/korea_north_economy.html

Achin, K. (2010) North Korea Breaks Relations with South Korea, Global Security, http://www.globalsecurity.org/wmd/library/news/dprk/2010/dprk-100525-voa01.htm

China.org.cn (2009) 1981: Dual-track Price System, http://www.china.org.cn/features/60years/2009-09/16/content_18534471.htm

CNN (2010) North Korea's leader, presumptive heir, attend huge parade, http://edition.cnn.hu/2010/WORLD/asiapcf/10/09/north.korea.arirang/index.html

Government (2010) Government, http://countrystudies.us/north-korea/55.htm

Handleya. P, (1997) 'Critical View Of The Build-Operate-Transfer Privatization Process in Asia', Asian Journal of Public Administration Vol 19, No 2 (December 1997) 203-243

IMF (2010) Vietnam, http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?sy=2007&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=582&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr.x=71&pr.y=7

IMF (2010) China http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/

Japan-North Korea Relations (2010) Ministry of Foreign Affairs of Japan, http://www.mofa.go.jp/region/asia-paci/n_korea/index.html

Louis, C. (2009) U.N. Security Council condemns North Korea nuclear test. Reuters. http://www.reuters.com/article/worldNews/idUSTRE54O4FS20090525

Mark, L. (2009). North Korea Says It Will Halt Talks and Restart Its Nuclear Program. The New York Times. http://www.nytimes.com/2009/04/15/world/asia/15korea.html?ref=global-home.

North Korea Economy Watch (2010) http://www.nkeconwatch.com

PWC (2008) China to overtake US by 2025, but Vietnam may be fastest growing of emerging economies http://www.pwc.com/gx/en/press-room/2008/china-asia-economic-markets-growth-emerging-markets.jhtml

Porter,. K. (2010) The US-South Korean Relationship, US Foreign Policy, http://usforeignpolicy.about.com/od/countryprofile1/p/usskoreaprofile.htm

Scobell, A. (2006) Kim Jong Il and North Korea: The Leader and the System, www.strategicstudiesinstitute.army.mil/pdffiles/pub644.pdf

Travel Document Systems (2010) North Korea Economy, http://www.traveldocs.com/kp/economy.htm

Vyapaarasia (2010) http://www.vyapaarasia.com/n.korea/roads.asp

sample essay of MGX5440 (3)

2011-02-06T14:59:00.000+11:00

this is the second assignment of MGX 5440

Abstract

Historically, airports around the world were owned and operated by governments. Since the mid-1980s, however, significant changes have occurred in the way airports are owned, managed, and operated. In the report, it first states the five types of airport privatisation. Then it states the cases from UK, Canada and Colombia to demonstrate these types of privatisation in details. After that, two previous studies conducted by different researchers are shown. They find that the benefits of privatisation are not as clear as some documents stated. Finally, the conclusion is the governments should think thoroughly before they decide to involve the private sector in the provision of public infrastructure and related services.

Introduction

Currently, for some reasons, the governments would like involving the private sector in the provision of public infrastructure and related services. According to Northern Territory Treasury (2010), the greatest attraction in privatisation is the impetus it gives to the pursuit of dynamic efficiencies. Dynamic efficiency involves the degree to which the minimum level of inputs is being used to produce a given level of a particular output. This requires the assets or business in question being put in the hands of owners with enough of a stake to benefit from improved performance and with the power to achieve results. Privatisation also has the attraction that it can basically eliminate the administrative and monitoring burdens on the government of having to oversight the risks and returns of the businesses in question. The government can then concentrate on activities more suited or appropriate to government ownership. A final benefit of privatisation is the budgetary gains possible from any privatisation, and the associated additional financial flexibility that results. Such gains depend upon whether investors are prepared to pay a premium for the control of the government business. In this report, it will describe privatisation in a specific industry-airport. First, it will show the types of airport privatisation. Then it will describe the airport privatisation in UK, Canada and Colombia in details. After that, some previous studies' results will be analysed. At the end of this report, a conclusion will be given.

Types of airport privatisation

According to Dr Anne Graham (2010), there are five types of privatization.

1. Share flotation or IPOs

Shares sold on stock exchange and all risks passed to shareholders. Airport needs to perform well to be sold in this way. Management maintains controls as small/ passive investors.

Examples: BAA, Vienna, Rome, Auckland, Fraport

2. Trade Sales

All or some of airport sold to single investors or consortium. It usually brings expertise as well as finance.

Examples: Australia, UK regional airports, Brussels, Dusseldorf

3. Concession

Private company/ consortium has concession to operate all or some assets for fixed period (usually 20-30 years). At end of concession in theory airport is handed back to government. Annual fee is usually paid to government and there may be a guaranteed level of investment or service quality. It is favoured by many governments as they keep ownership of the airport.

Examples: Columbia, Bolivia, Argentina, Mexico, Luton, Peru, Delhi, Mumbai

4. Project Finance/BOT

It is used when a new airport or new facilities are needed. Operator finances, builds and operates new facility then in theory hand back to government. There may be a special type of concession agreement with the operator paying an annual fee to the government.

Examples: Athens, Istanbul, Hyderabad, Bangalore, Antalya, Amman, Cyprus.

5. Management Contract

It has more limited privatisation as government maintains ownership, makes strategic decisions, sets aeronautical charges etc. Operator runs airport (or part of airport) on a day-to-day basis usually for 5-10 years. Government pays a contract fee (or operator pays government some revenues). It is often used in areas of high risk or where other privatisation models are not possible.

Examples: total contract- Indianapolis. Retail contract- Boston, Pittsburgh, Baltimore

BAA (British Airport Authority) was privatised under the Airports Act 1986 and is the largest UK airports manager, operating seven airports in England and Scotland. In addition to the London airports of Hethrow, Gatwick, and Stansted, BAA owns airports at Glasgow, Edinburgh, Aberdeen and Southampton. Although there are 41 airports in the UK handling passengers and/ or cargo and levying airport charges, the market is highly regionalised. In particular, BAA's London airports have almost a localised monopoly in the economically important south-east of City and Southend. Luton has developed its business in recent years but still remains largely concerned with chartered flights for holiday makers. Most airlines and passengers, and especially those in the lucrative business market, prefer to use Heathrow. In total, BAA accounts for 72 per cent of UK air passenger traffic and 82 per cent of cargo shipped by air (Parker, 1996).

At the time of privatisation, all of BAA's issued share capital was sold by the government, except for a retained special ("golden") preference share, which still exists. The state corporation was privatised without restructuring on the grounds that a unified company would have the financial resources to fund future investment needs. In addition, there appears to have been recognition that the hiving-off of either or both of Gatwich or Stansted to another company would not necessarily produce effective completion for Heathrow. The main impact of privatisation was not, therefore, in the product market, but in the capital market. BAA became subject to pressure from commercial investors and, in particular, was no longer completely sheltered from the threat of takeover by another company that indentified possible efficiency gains. At the same time, the continued existence of the government's golden share in BAA may have reduced the takeover threat (the special share held by government can block takeover bids. The government chose not to invoke its powers in the case of the Ford purchase of Jaguar, but did so in the case of a more recent bid in the electricity industry. The government's attitude to a takeover bid for BAA remains unclear) (Parker, 1996).

Before privatisation BAA was regulated directly by government in conjunction with the CAA (Civil Aviation Authority) in a manner that was implicitly cost-plus. The cost of airport operation was forecast, and to this was added a target minimum rate of return. This approach to price setting was typical of the economic regulation of UK state enterprises. However, under the regulatory system for designated airports introduced at the time of the Airports Act, charges are controlled through a form of RPI-X price cap. The price cap is of a revenue yield per passenger form applied to runway charges, aircraft parking charges, and the passenger charge, all of which are levied on airlines. The price cap therefore covers around 35 per cent of BAA's total revenues. Commercial activities inkling duty free sales and airport facilities are not governed by the cap; but when setting X account is taken of all revenues under what is called "the single-till principle." This principle derives from international agreements that establish the rule of a reasonable rate of return on airport investment, irrespective of the precise source of the revenues. By linking X explicitly to the rate of return, a cursory appraisal might suggest that the price cap is a form of profit regulation with associated efficiency disincentives. In the case of the UK airports, however, Xis set ex ante, therefore efficiency incentives remain for the airport management to exceed the expected profit. There have been two price reviews since privatisation, in 1991 and 1996 (Parker, 1996).

BAA has been encouraged by the price control on aeronautical charges to seek out revenues elsewhere. Although BAA remains primarily an airport operator in the UK, it does have business overseas and in recent years has expanded its real estate, retail and other commercial ventures (Skapinker, 1996). For example, it is responsible for retail management at Greater Pittsburgh International Airport in the USA, and has undertaken consultancy work in countries such as Malaysia, Macau, and Hong Kong. In 1988 BAA acquired Lynton Property and Reversionary plc to diversify into property development. This proved to be mistimed, given the property slump. In more recent years the company has adopted a strategy of concentrating on its core airport operations, including its retail skills; for example in 1993 it sold the electrical distribution system at its south-east airports to London Electricity. The company now earns over 40 per cent of its revenue from retail activities, mainly at its airports (Parker, 1996).

Canada

Toronto's Lester B. Pearson Airport is a rare case both of joint public-private ownership of facilities on shared premises and of competitive provision of airport infrastructure services. Terminals one and two are owned and operated by Transport Canada, the government transport authority, and terminal three, operating since 1991, is owned by the Terminal Three Limited Partnership (TTLP). Terminal three is operated under a management contract by Lockheed Air Terminal of Canada Inc. (LATC), and it was developed under a build-own-operate-transfer (BOOT) arrangement that includes a sixty-year renewable land lease contract. The development cost for the terminal, which has capacity for 10 million to 12 million passengers, was about Can$570 million. Transport Canada coordinates activities between Lester B. Pearson's privately and publicly owned terminals. It also provides air navigation services, owns all runways and taxiways, and receives all revenues from landing fees, passenger fees, airline fuel taxes, and ticket taxes. LATC controls the landside activities for terminal three, which begin when aircraft switch from general to terminal three tower control. While airside charges for terminals one and two are purely on a cost-recovery basis, terminal three generates revenues through airline rents and charges (aircraft taxiing and parking, and terminal fees), concessions, and parking to cover not only higher operating costs and capital costs but also profits. The market is segmented: the average per passenger airside charges at terminal three are twice as high as those at terminals one and two, and the more prestigious international carriers tend to use terminal three, while lower cost regional or local carriers use the others (Juan, 1996).

Colombia

At the end of 1993, the government of Colombia corporatized its Civil Aviation Authority (CAA), separating airport operations from air navigation activities. At the same time, it undertook the development of a second runway at El Dorado International Airport in Bogotá, using a BOT scheme for construction and maintenance of the new runway and maintenance of the existing runway. In May 1995, the government awarded the BOT concession, stipulating investments of US$97 million, to the consortium of Ogden, Dragados, and Conconcreto. The concessionaire's investment and operating costs, financing expenses, and profits will be covered by the landing fee revenues, which the CAA will cede during the twenty-year concession. Once bidders had fulfilled the technical requirements, bids were evaluated on the basis of the net present value of the minimum landing fee revenue the bidder would require throughout the concession period (landing fees multiplied by estimated traffic volume) and the weighted average landing fee in U.S. dollars. The government has guaranteed a minimum level of revenues (floor pricing), in a rare case of a government's accepting commercial risk. If the landing fee structure or traffic volume, or both, cannot support the required revenue stream, the government would compensate the concessionaire from a trust fund equivalent to 30 percent of the annual landing fee revenue. The El Dorado transaction demonstrates the flexibility of BOT schemes and is becoming a model for private sector participation in developing such airside airport infrastructure as runways, taxiways, and aprons (Juan, 1996).

Privatisation or not

Numbers of studies were conducted by different researchers based on various data. Parker's (1996) study has been concerned with technical efficiency at BAA's airports, and found out no evidence was found that performance improved because of privatisation. And a similar study conducted by Oum, Adler and Yu (2006) shows that 100% public (single government owned) airports are more efficient than the PPP (Public Private Partnership) airports, where a government retains majority ownership and control. Furthermore, airports with majority private ownership (including 100% private ownership) do not achieve significantly higher efficiency than the 100% government-owned airports, such as those in the U.S. their date were collected in 116 airports in several countries. From these two studies, it indicates that privatisation is not as good as it described.

Conclusion

As mentioned above, there are five types of privatisation relation to airport industry- share flotation, trade sale, concession, project finance and management contract. Different airports in different countries used different methods. Then three cases from UK, Canada and Colombia are provided to demonstrate these types of privatisation in details. Although in some documents they state there are some benefits of privatisation, through some previous studies, the benefits of privatisation are not very clear. So, when the governments decide involving the private sector in the provision of public infrastructure and related services, they should consider it thoroughly as the benefits of privatisation are hard to achieve.

References

Graham, A. (2010) Fundamentals for Airport Privatization and Concession Policies, University of Westminster, London

Juan, E. (1996) Privatising Airports- Options and Case Studies, Public Policy For The Private Sector, The World Bank, Note No. 82

Northern Territory Treasury (2010) Privatisation and Outsourcing, Retrieved 25^th September 2010, from www.nt.gov.au/ntt/financial/9899bps/bp3/ch_8.pdf,

Oum, T. Adler, N. and Yu, C. (2006) Privatization, Corporatization, Ownership Forms and their Effects on the Performance of the World's Major Airports Retrieved 25^th September 2010, from http://linkinghub.elsevier.com/retrieve/pii/S0969699705001006

Parker, D. (1996) The Performance of BAA Before and After Privatisation, Journal of Transport Economics, Volume 33, Part 2, pp133-46

Skapinek, M. (1996) BAA Hopes to Elude Labour Windfall Tax, Financial Times, 12^th November, page 22

sample essay of AFF5130

2010-12-05T20:38:00.000+11:00

this is really a huge assignment, we wrote about 50 pages, more than 9,000 words. and we got D.

the figures will not show on this site, because i am lazy~

Introduction

Purpose

This report is business valuation of EBET Limited. The report attempts to estimate the value of the firm based on the current performance and forecast the future performance of the company.

Scope

This report is mainly consisted of 6 parts, which are Business & Industry Analysis, Acquisition, Corporate governance analysis, Accounting analysis, Financial analysis and Forecasting & Valuation. The time period chose here is from 2006 to 2009.

Methodology

This report uses various sources of information such as annual reports, electronic sources and online databases related to the company.

Limitation

The result of this report would be limited to the amount and quality of available information and the given time frame. Relevant assumptions would be made in the case of inadequate information. Bias may arise due to data has been collected from various database which may have different sources.

Section A- Business and Industry Analysis

Economic Analysis

Current and future economic conditions need to be discussed to conclude EBET's business activities. The International Monetary Fund (IMF) in its latest World Economic Outlook released is forecasting a strengthening global economy from 2010, but cautions that the recovery remains fragile in many parts of the world and is being supported by policy stimulus and temporary cyclical factors. (Treasure of the Commonwealth of Australia, 2010)

The IMF now forecasts that Australia will grow by 2½ per cent in 2010 and 3 per cent in 2011. This is considerably stronger than the recovery forecast for other advanced economies, which are expected to grow by 2.1 per cent in 2010 and 2.4 per cent in 2011. (Treasure of the Commonwealth of Australia, 2010)

Domestic forecast by Reserve bank of Australia reported a similar outlook on May 2010. (Reserve bank of Australia, 2010)

	Dec 2009	June 2010	Dec 2010	June 2011	Dec 2011	June 2012	Dec 2012
GDP growth	2.7%	2.5%	3.25%	3.75%	3.75%	3.75%	4%
Non- farm GDP growth	2.5%	2.5%	3.25%	3.75%	3.75%	3.75%	4%
CPI inflation	2.1%	3.25%	3.25%	3%	2.75%	3%	3%
Underlying Inflation	3.25%	2.75%	2.75%	2.75%	5.75%	3%	3%

Table 1 Output Growth and Inflation Forecasts[1]

Source: ABS; RBA

Recent Greek debt crisis have affected global equity markets and exchange rates. Australia's economy could be buffeted by global fallout from Europe's debt turmoil, the central bank said (Reserve Bank of Australia, 2010). The Reserve Bank of Australia released its minutes decided to raise interest rates by a quarter bases points. The bank said it weighs Europe's debt crises against inflation risks (Reserve Bank of Australia, 2010). In additional, Australian government bond yields had also fallen slightly and the exchange rates have fallen from 0.93 to 0.84 to US dollars on May. (Reserve Bank of Australia, May, 2010) These could lead to an increase in the investment of multinational companies.

According to EBET's Annual Report 2009, its overall revenue decrease 13%, directly attribute to the impact of the external financial environment, which has had a negative impact on the gaming industry. And International sales revenue decreased to $1.582 millions compared to $1.912 millions in 2008, under the reflection of the global financial crisis. (EBET, 2009, p5)

However, EBET believes that demand for the Group's products in international markets is expected to be significantly stronger in FY 2010, and the Group is well placed to increase revenues from this area. At the same time, EBET is reviewing the potential of opening a regional office in Asia to drive its international sales growth. (EBET, 2009, p6)

Business Strategy Analysis

During FY 2010, the Group plans to continue to develop its unique Tikit+™ ticket-based solution for older style poker machines, which has been approved by the NSW Office of Liquor, Gaming and Racing (OLGR) in 3Q FY 2009. (EBET, 2010)

This product enables venues to offer a ticket-based (as opposed to cash) solution across their entire gaming floor, thereby enhancing player appeal and reducing venue operating costs. This product is expected to make a significant contribution to sales in FY 2010. (EBET, 2009, p6)

As IBISWorld reported, technology and systems are used widely in casino industry. (IBISWorld, 2010, p18) To develop current technology and systems and introduce new games is one of the key success factors of casino industry (IBISWorld, 2010, p21).

Industry Analysis

Industry analysis aims to evaluate the profitability of the industry in which EBIT belongs to in order to analyse the sustainability of its current performance and future prospect. Industry analysis is conducted based on "Porter's Five Forces" model.

Rivalry among Existing Firms

As the profitability is directly affected by the nature of rivalry among existing firms in the industry, many factors are analysed and discussed in the Figure 1. To summarised, the overall rivalry among existing firms is relatively high and increase over time mainly on the basis of price wars. And the online gaming is no national boundaries, some other countries' websites are very popular in Australia. For example, one of the tough competitors - SpinPalace Casino (multinational company), it has hundreds of types of online pokies available, as well as countless other games.

Threat of New Entrants

It is not recommendable for new market entrants to gain market share because Australia has truly emerged as a hot spot for the online gaming industry. There are nearly 480 existing players in the whole of Oceania and of them a sizable chunk operates from Australia (BBC, 2001). Also, some of the existing players are already having a defensive market position such as SpinPalace Casino. Thus, the threat of new entrants is low.

Threat of Substitute Products

In this industry, there is a low level of substitute products' availability. As there is limited products that serves similar functions. For example, although network games can make people exciting, it is usually not a money maker. However, due to numerous online gambling, customers are easy to switch to another gambling game with the similar functionality but much easier to earn money. Thus, the threat of substitute products is low to medium.

Bargaining Power of Buyers

The consumers of this industry consists a lot of people who wants make more money. People may not focus on one particular game and they always seek for the lowest price but highest return. That is, price sensitivity is evaluated at a high level. Also, due to low differentiating ability of products, the switching cost is low. Hence, the bargaining power of buyers is high.

Bargaining Power of Suppliers

There is huge number of software providers such as MicroGaming, Parlay Entertainment and Real Time Gaming. And EBET also develops software and gaming system itself. So the suppliers are considered not to be very powerful in this industry and give buyers a strong bargaining position.

Rivalry among Existing Firms

Assess Level: High

Reasons:

-Industry growth rate for this market is expected to be growing

-low degree of differentiation and low switching cost

-Industry has enough capacity to meet its customers' demand

Threat of New Entrants

Assess Level: Low

Reasons:

-It's difficult for new entrants to gain market share, because existing players have a defensive market position.

-Legal barriers, according to Interactive Gambling Act some of the online game are illegal

Bargaining Power of Buyer

Assess Level: High

Reasons:

-Price sensitivity of industry products is at a high level due to low differentiating ability

-Low switching cost due to low degree of differentiation

Bargaining Power of Suppliers

Assess Level: Low

Reason:

-Huge number of software providers

EBET

Thread of Substitute Products

Assess Level: Low- Medium

Reasons:

-Limited products that serves similar function available

-Customers are easy to switch to another product

Figure 1: Porter's Five Forces

Section B- Acquisition

Because of the regulation, there are not many companies engage in the gambling industry. There are only 14 casinos in Australia (IBIS, 2010). And table 2 is summarised the selected 11 companies' market cap in this industry on 19^th April 2010.

Company	Market Cap (Million)
Ainsworth Game Technology Limited	35
Aristocrat Leisure Limited	2,347
Centrebet International Limited	142
Crown Limited	6,149
eBet Limited	18
National Leisure & Gaming Limited	9
Sky City Entertainment Group Limited	1,432
Sino Strategic International Limited	27
Tabcorp Holdings Limited	4,282
Tatts Group Limited	3,128

Table 2: Market cap

Source: Fin Analysis

From this table, it shows that Crown's market cap is 6,149 million. But EBET's marker cap is only 18 million. Compared with Crown, EBET is a very small company in this market. So, at least crown has the ability to acquire EBT.

Crown now operates in Melbourne, Perth and Macau. Its business made up of three parts- gambling, hotels and conferences, restaurants and bars. In these three places, Crown has 5,600 gaming machines and 1,040 table games (Crown, 2009).

So, in the gambling part, gambling machines and table gaming is one of major cost of Crown. And EBET develops and markets a range of networked solutions for gaming machines, including loyalty and tracking systems, cashless gaming solutions and machine management software.

At June 2008, EBET acquired all issued share capital of Bounty Limited, which was engaged in the development and distribution of software products to the gaming industry (EBET, 2009). If Crown acquires EBET, EBET can be treated as the supplier of Crown, so Crown can reduce cost. Also, Crown can introduce a new product or service- online gaming, so that it can increase its business scale. The Online division of EBET develops and operates online gaming and wagering system, and produces.

On the other hand, EBET also can get benefit from this acquisition. The most important one is increasing the profit. The gaming system division is the largest and core contributing division to EBET's revenues in EBET (EBET, 2009). The current distribution territories are NSW (including Star City Casino), ACT and the Burswood Casino in WA (EBET, 2009). If Crown acquires EBT, and uses EBT's system and machines, EBET's sales will increased sharply.

Another benefit EBET can get is increasing the markets. EBET now reviews the potential of opening a regional office in Asia to drive its international sales growth (EBET, 2009). And Crown has some market share in Macau. If acquisition is succussed, EBET's plan maybe launched quicker than it's expected.

Section C- Corporate governance analysis

As a central reference point for companies to understand stakeholder expectations, in order to promote and restore investor confidence, ASX convened the ASX Corporate Governance Council in August 2002. Its purpose is to develop recommendations which reflect international best practice (ASX, p4). According to the EBET annual report 2009, there are four directors in the board. And there are some problems exist in its corporate governance.

1. Recommendation 2.4 - The Board should establish a nomination committee. But due in EBET, due to the size of the board and company, it does not have nomination committee.

2. Recommendation 4.2 - The Audit Committee should be structured so that it:

i. consists only of non-executive directors;

ii. consists of a majority of independent directors;

iii. is chaired by an independent chair, who is not chair of the board; and

iv. has at least three members.

But Due to the current size of the Board and Company, the Audit Committee has only two members, of which one is independent.

Except these two problems, EBET performs well in corporate government, such as the majority of board is independent directors, and it established code of conduct, makes timely and balanced disclosure. And the four directors are all experienced.

In the external part, PKF is the external auditor of EBET from 2005 to 2009. PKF is a leading group of specialist Chartered Accounting and business advisory firms offering a comprehensive suite of up-to-date specialist advice and services, including audit and assurance, corporate advisory, corporate recovery, enterprise advisers and tax consulting services (PKF, 2010). EBET paid PKF $380,000 in 2009, and $368,000 in 2008.

Overall, EBET has sound corporate governance. Its shortcomings are mainly due to the size of board.

Section D- Accounting Analysis

The purpose of this section is to evaluate EBET's accounting quality and the degree that the company's accounting captures its underlying economic business.

The accounting analysis involves examining the company's accounting system through analyses of EBET's accounting policies and estimates, corporate governance, and quality of disclosure. Time series analysis of operating revenue and account receivables is the main tool used to look for potential red flags in EBET's financial statements from 2005 to 2009. Then, the financial statements are restated to 'undo' the distortions so that it can represent EBET's nature of business.

Key Accounting Policies

EBET's operations are involved with developing gambling system and software, and running online gaming. Outlined below are some key relevant accounting policies EBET uses:

² Inventories are measured at the lower of cost or net realisable value. Costs have been assigned to inventory quantities on-hand at balance date using the first-in, first-out basis

² Property, plant and equipment are carried at cost or at independent or Directors' valuation, less, where applicable, any accumulated depreciation or amortisation and impairment losses.

² The depreciation rates used for each class of depreciable assets on a diminishing value basis are:

Fixed Assets Class	Depreciation Rate
Plant and equipment	10%- 33%
Leasehold improvements	20%

Table 3: Depreciation Rate

Source: EBET Annual Report

² Intellectual Property, Software Development and Other Intangibles: Intellectual property and other intangibles are carried at cost and are amortised on a straight-line basis over 10 years.

Assessing Accounting Flexibility

Some firms are constrained to accounting methods strictly; however, EBET has some flexibility in choosing from different methods. The first concern here is the depreciation methods. For the fixed asset, EBET simply classifies two types, but the details of how to depreciation are not disclosed in the annual report. For this one, EBET has great flexibility regarding the useful life and residual value of the depreciated assets in order to increase revenue, since they are reassessed annually. Second, the property, plant and equipment is revalued every year by independent valuer the directors. That gives a chance to managers to cook the accounts.

Accounting Strategy

Although EBET has some degree of accounting flexibilities, however, EBET believed to have employed sound accounting policies that fairly reflect its business characteristics. After penetrating into annual reports throughout five years, the firm's policies and estimates are considered to be realistic and consistently applied throughout the years. But in the remuneration reports, it states that EBET pays share to directors as compensation. So the incentives and opportunity still exist for managers to manage earnings.

Quality of Disclosure

Disclosure quality is quite important regarding the whole quality of the financial reports. Several questions should be asked below in order to assess the disclosure quality:

² Does the company provide adequate disclosure to assess its business strategy and its economic consequences? – Yes, Median

² Does the firm adequately explain its current performance? –Yes, Median

² Do the notes explain key accounting policies adequately? – Yes, but not enough

² What is the quality of its multiple business segment disclosure? – Median level

² Does the company disclosure and explain the reasons for bad news? – Yes. Median

From the above questions, it can be concluded that AMO has disclosed relevant and important information in their annual report but lack of some adequacies. For example, some accounting policies are not disclosed in annual report, such as how to measure the bad debt, the details of depreciation methods, and how to measure the tax provision.

Earnings Quality Assessment

Corporate governance quality

As mentioned above, EBET employs a sound corporate government. The majority of directors are independent, and four directors are all experienced. But the shortcomings are also obviously. Due to the size of the board, EBET does not have nomination committee, and only two members of Audit committee. And as EBET states in 2009 annual report, the Board, as a whole, is responsible for monitoring the ongoing development of the Board, consistent with the Company's growth and development prospects, making recommendations for the appointment and removal of Directors to the Board and so on (EBET, 2009). But let the board chose the members of the board is confused. And last year, one director left from the board, but in the annual report, the reason for that is not disclosed in the annual report.

Earnings persistence

Regarding earnings management, persistency of the number is the primary concern. Firstly, to assess the persistency of earnings, earnings persistence model is used and the followings are the output.

	Coefficients	Standard Error	t Stat	P-value
Intercept	0.009842226	0.033987683	0.289582129	0.780525325
X Variable 1	0.716405858	0.257721387	2.779768752	0.027307337

Table 4 Earnings persistence analysis (EBET)

From the above table, it is clear that EBET's earnings is persistent over time since it got the high coefficients (higher than 0.5) and low P-value (less than 0.05).

Compared with the top company in this industry (Crown holds the most market share in Casino industry, but it listed in ASX from 2007, so not suitable for earnings persistence analysis. Consequently, Tabcorp Holdings Limited is chosen for the earnings persistent analysis). The outcome of earnings persistent analysis is shown below.

	Coefficients	Standard Error	t Stat	P-value
Intercept	0.08661105	0.054825587	1.579756004	0.165243
X Variable 1	0.396024192	0.375055356	1.055908644	0.33166

Table 5 Earnings persistence analysis (TAH)

From Table 4 and Table 5, it indicates that EBET does better than TAH in earnings persistence perspective.

Discretionary accrual

The discretionary accrual analysis is conducted, the result of EBET is shown below:

EBT

0.0498924

And the results for the competitors are shown in Table 6:

Company code	Company Name	DISC ACC
AGI	Ainsworth Game Technology Limited	0.0751637
ALL	Aristocrat Leisure Limited	0.0493668
CIL	Centrebet International Limited	0.0551907
CWN	Crown Limited	0.0698222
LAS	Lasseters Corporation Limited	0.0671706
NLG	National Leisure & Gaming Limited	0.126043
SKC	Sky City Entertainment Group Limited	0.0560666
SSI	Sino Strategic International Limited	0.0076567
TAH	Tabcorp Holdings Limited	0.0783345
TTS	Tatts Group Limited	0.0875614
MEAN		0.06723762
MEDIAN		0.0684964

Table 6: discretionary accrual results

From the table above, it is clear that the earnings quality of EBET is better than top three companies (CWN, SKC, TAH) in this industry, and also better than the average of this industry[2].

To sum up, although some potential corporate governance problems exist in EBET, from the data above, the earnings quality of EBET is high.

Red Flags and Accounting Analysis Implementation

NPAT versus CFFO

To implement accounting analysis, a comparison between firm's accounting profit and its Cash Flow from Operating (CFFO) should be carefully reviewed to identify any potential red flags. Generally speaking, there is a consistent relationship between Net Profit after Tax (NPAT) and CFFO due to accrual accounting. Some current accruals, such as credit sales, may result in NPAT to be greater.

The relationship between NPAT and CFFO is affected by the current assets such inventory and receivable as well as current liabilities such as account payable (Palepu, 2008, p5-26). However,

CFF&NPAT of EBT (Source: EBT annual reports 2005-2008)

	2005	2006	2007	2008	2009
CFFO	329,000	1,934,000	1,361,000	2,262,000	6,939,000
NPAT	-606,000	1,747,000	857,000	-158,000	1,526,000

Table 7: CFFO vs. NPAT of EBET

Source: Fin Analysis

Figure2. CFF&NPAT of EBT from 2005 to 2008

Source: Fin Analysis

From Figure 2, it is clear that the relationship between CFFO and NPAT is unusual. The CFFO is much higher than NPAT from 2008, especially 2009. Because some details are not disclosed in the Annual Reports, it is hard to find out why this happen in EBET. However, in the Profit & Loss statement of EBET (2009), it states that, the EBITDA is $5.06 million, but the Depression and Amortisation is $3.02 million. That implies the Depression and Amortisation part may contain some accounting distortions. So next, the tests will be conducted to find the potential problems in Depreciation and Amortisation.

Depreciation/ Gross Property, Plant and Equipement (PP& E)

Some data are collected from Fin Analysis, and the results are shown below.

Figure 3 shows that the Depreciation/ PPE rate of EBET and its competitors in 2009. From Figrue 3, it is clear that the Depreciation/ PP& E rate of EBET is significant higher than the other competitors.

Figure 3: Depreciation/PP&E in 2009 [3]

Source: Fin Analysis

In Figure 4, the average Depreciation/PP& E rates from 2005 to 2009 of these companies are calculated. Obviously, the rate of EBET is higher than the others. The Figure 5 shows the Depression/ PP& E rate of EBET from 2005 to 2009. From Figure 5, it indicates that the Depression/ PP& E rate of EBET was abnormal from 2007.

Figure 4: Average Depreciation/PP&E from 2005 to 2009

Source: Fin Analysis

Figure 5: EBT Depreciation/PP&E from 2005 to 2009

Source: Fin Analysis

Considering the sales of EBET from 2005 to 2009, EBET increased the rate Depression/ PP & E may because the managers want the numbers on the Financial Reports look stable. When the sales were increased, EBET chose increase depression. So when the external environment is bad, the sales is decreased, but at that time the Accumulated Depression is high, so the ROA and some other ratio will stay in the same range as in the good economic environment.

On the other part, the Amortisation expense of EBET is very high too. But consider the nature of EBET, it develops the software of gambling, so its D & R may high than the other competitors. Although few details of its intangible assets, but in this report, it assumes the record of amortisation expense is correct.

Restatement of Depreciation and related elements

As mentioned above, the Depreciation/ PP & E rate needs to be changed. And compared with its competitors, Aristocrat Leisure Limited's (ALL) activities are most similar as EBET. So in the re-statement report, the Depression/ PP& E should be 15%. As in 2005 and 2006, this rate is lower than 15%, it doesn't need any change in these two years. Table 8 is the re-statement of EBET from 2007 to 2009.

	Adjustment
$,000	2007	2008	2009
Balance Sheet
PP&E	+205	+215	+215
Deferred Tax Liability	+61	+65	+65
Equity	+144	+150	+150
Income Statement
Depreciation Expense	-205	-215	-215
Tax Expense	+61	+65	+61
NPAT	+144	+150	+144

$,000	2007	2008	2009
Balance Sheet
PP&E	3.905	4.515	4.515
Total Assets	33,526	34,645	30,418
Deferred Tax Liability	61	65	65
Contributed Equity	50,219	50384	50,384
Total Equity	17,150	17,338	18,901
Income Statement
Depreciation and Amortisation	(1,643)	(2,364)	(2,801)
Income Tax Benefit/(Expense)	(408)	(335)	(127)
NPAT	1,001	(8)	1,676

Table 8: The Re-statement of EBET (2007 to 2009)

Section E- Financial Analysis

In this section, it includes calculation of cost of equity and WACC, ratio analysis, and cash flow analysis. For the ratio analysis, time line analysis and cross section analysis will be both used for measure the performance of EBET. Time line analysis will use four year as estimating period. For the cross section analysis, the industry leader company (TAH) will be chosen to represent as industry benchmark.

Cost of equity and WACC

Cost of equity

To calculate cost of equity, beta, risk free rate, and market return have to be determined. The risk free rate is the same as 10 years government bond rate (From RBA). The market return period is between Jun 2006 and Jun 2009.

For getting beta, a regression model has been run. As the process of calculation of beta (Table 9) includes the financial crisis effects, the beta for that period is 1.1 which higher than the figure 1.03 on Fin analysis. So in order to reflect the really situation of EBET, beta on Fin analysis has been chosen.

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.307424
R Square	0.09451
Adjusted R Square	0.07834
Standard Error	0.160873
Observations	58
ANOVA
	df	SS	MS	F	Significance F
Regression	1	0.151268	0.151268	5.844943	0.018902
Residual	56	1.449289	0.02588
Total	57	1.600557

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	0.049927	0.03172	1.573993	0.121122	-0.01362	0.113469	-0.01362	0.113469
X Variable 1	1.107644	0.458153	2.417632	0.018902	0.189854	2.025434	0.189854	2.025434

Table 9: beta of EBET

In addition, the market return for 2008 and 2009 are not representative because during these years, EBIT did really well and got increase in sales. Thus, it is assumed that the risk premium is 5% in these 2 years. Also, there will be a comparison between ROE and Cost of equity in the Profitability analysis.

r_e = r_f +β [E (r_m) – r_f]

	2006	2007	2008	2009
r_f (10 Year Government Bonds rate)	5.04%	5.82%	5.99%	5.59%
β	1.03	1.03	1.03	1.03
r_m	19.22%	20.50%	-20.80%	-16.10%
*r_e* (cost of equity)	19.46%	19.97%	11.14%	10.74%

Table 10: cost of equity of EBET

Cost of WACC

To calculate the WACC, cost of debt has to be determined. The formula is as follows:

Cost of debt= Interest Expense / (Short-term Debt + Long-term Debt).

($millions)	2006	2007	2008	2009
Net Interest Expense	0.47	0.42	1.09	0.45
Short-term Debt	5.14	7.21	9.01	3.40
Long-term Debt	0.00	3.23	3.02	3.09
Cost of debt	9.14%	4.02%	9.06%	6.93%

Table 11: Cost of debt

To calculate WACC, the following formular is required:

EBET	2006	(E)Adjusted 2007	(E)Adjusted 2008	(E)Adjusted 2009
Re (cost of equity)	19.46%	19.97%	11.14%	10.74%
Kd (cost of debt)	9.14%	4.02%	9.06%	6.93%
E/V	75.82%	62.16%	59.04%	74.44%
D/V	24.18%	37.84%	40.96%	25.39%
Tax Rate	30%	30%	30%	30%
WACC	16.30%	13.47%	9.18%	9.22%

Table 12: WACC of EBET

From the above table, it is easy to find out EBET mainly use shareholders' equity as their major funds source, so the cost of equity influences WACC more than cost of debt. There will be a comparison between ROA and WACC latter.

Measuring Profitability

ROA & ROE

Comparison between EBET and industry leader company-TAH

-Decomposition of ROE

ROE = ROA * Financial leverage

= Net income Ave. Assets

Ave. Assets * Ave. Shareholders' equity

ROA = Profit Margin x Asset Turnover

= Net income Sales

Sales * Ave. Assets

EBET	2006	Adjusted 2007	Adjusted 2008	Adjusted 2009
Net Profit Margin	9.03%	4.71%	5.78%	6.71%
Asset Turnover	74.01%	62.69%	81.23%	83.39%
ROA	6.68%	2.95%	4.82%	5.45%
Financial Leverage	160.27%	195.48%	199.82%	160.93%
ROE	10.71%	5.76%	9.63%	8.77%
TAH
Net Profit Margin	14.31%	11.62%	12.95%	12.41%
Asset Turnover	56.63%	57.61%	65.22%	66.43%
ROA	9.83%	8.50%	10.37%	10.02%
Financial Leverage	200.88%	198.76%	220.94%	193.46%
ROE	16.29%	13.34%	18.66%	15.95%

Table 13: ROA and ROA (EBET vs TAH)

Figure 6: Net profit margin (EBET vs TAH)

Net Profit Margin is an indication of how effective a company is at cost control. The lower the net profit margin, the less effective the company is at converting revenue into actual profit. When comparing to industry leader TAH, EBET got lower net profit margin. But after the decrease in 2007, the net profit margin was in an increasing trend as the company's sales increased rapidly in 2008 and 2009. This current positive profit margin may translate into positive investment quality.

Figure 7: ROE (EBET vs TAH ) Figure 8: ROA (EBET vs TAH)

By decomposing the components of ROE, it can be concluded that the low ROA of EBET is initiated by the low in Net Income contributing to low Net Profit Margin. Although EBET's sales increase 9.1% from a 2006 to 2007, the total asset increase far outweigh of the sales. Thus, the ROA was still decreasing. During the recession period, EBIT did really well in the online gaming segment and the operating revenue increased sharply so that ROA of EBIT was picking up. But overall, comparing with TAH, EBET is still less efficient with its use of equipment in producing goods and services.

From the above table, ROE of EBET are under the 'mean reverting' and decline from 2006 to 2009. But in 2008, due to the large increase of sales, EBET got a little increase in ROE. And in 2009, despite of drop in finance leverage, the expansion of asset turnover had offset the drop and led ROE slightly decrease. The decreasing trend of ROE of EBET and TAH reflects that this industry became more and more competitive, and it has been discussed in industry analysis.

Comparing ROE and Cost of Equity

EBET	2006	2007	2008	2009
ROE	10.71%	5.76%	9.63%	8.77%
Cost of equity	19.46%	19.97%	11.14%	10.74%

Table 14: ROE vs. Cost of equity (EBET)

Figure 9: ROE vs. Cost of equity (EBET)

The return on equity (ROE) can be compared with the Cost of equity to determine whether company managers have worked for the best interest of shareholders by investing in value creating investment projects. In the above table, it is easy to find out that ROE of EBIT is relatively lower than cost of equity, especially during 2006 and 2007. That's indicated the managers didn't manage the shareholders' funds efficiently and the shareholders' funds have not generated high return in the period. But in 2008 and 2009, as the sales of EBET increase sharply it indicates that the managers became more capable to manage the funds.

Comparing ROA and WACC

EBET	2006	2007	2008	2009
ROA	6.68%	2.95%	4.82%	5.45%
WACC	16.30%	13.47%	9.18%	9.22%

Table 15: ROA vs. WACC (EBET)

Figure 10: ROA vs. WACC (EBET)

This figure indicates that EBET's return on their assets was higher than their cost of capital in 2006 to 2009. That is, EBET's ability and efficiency in using its assets to generate returns did not reach at the minimum level that EBET must earn on existing asset base. Therefore, EBET should be concerned with recovering the level of ROA against cost of capital. In conclusion, EBET couldn't cover their shareholders and debt holders' cost very well.

Evaluating Investment management

Working capital management

Working capital management ratios and long term asset ratios are used to assess the degree of utilization of assets of the companies.

- Operating working capital ratio and Operating working capital turnover

		2006	2007	2008	2009
Operating working capital /sales	EBET	3.45%	7.32%	4.31%	6%
Operating working capital /sales	TAH	-11.35%	-11.21%	-11.40%	-13.96%
Operating working capital turnover	EBET	28.96	13.74	23.39	16.70
Operating working capital turnover	TAH	-8.81	-8.92	-8.77	-7.16

Table 16: Operating working capital/ sales (EBET vs. TAH)

Figure 11: Operating working capital/ sales

Figure 12: Operating working capital turnover

EBET's working capital turnover has not been stable from 2006-2009, and it continuing decreasing. But when comparing with TAH it seems EBET's position is not bad. In a general sense, the higher the working capital turnover, the better - it means the company is generating a lot of sales compared to the money it uses to fund the sales. This may due to its successful online gaming system.

By further discussing the elements of working capital, table 17 shows the day's inventory, day's accounts receivables and Days' account payable.

Days inventory	EBET	25.2	36.0	26.8	23.3
Days inventory	TAH	1.43	1.42	1.22	1.24
Days accounts receivables	EBET	69.8	59.7	55.5	49.1
Days accounts receivables	TAH	6.64	9.08	4.6	13.78
Days' account payable	EBET	58.4	77.8	32.2	32.8
Days' account payable	TAH	33.0	35.8	37.2	42.7

Table 17: Day inventory and days accounts receivables/ payable (EBET vs. TAH)

Figure 13: Days inventory (EBET vs. TAH)

Figure 14: Days Accounts payables (EBET vs. TAH)

Figure 15: Days Receivable (EBET vs. TAH)

Figure 16: Days accounts payables & Days' accounts receivables (EBET vs. TAH)

- Days inventory shows the inventory management efficiency of the company. The inventory holding period of EBET is much higher than TAH, it is to say they holding inventory for a long time and may have difficulty selling.

- Day's receivables are relative higher than TAH. That is, EBIT uses more time to get their cash back and they may have less opportunity to invest funds efficiently. Actually, it is because EBET using credit card to collect online gaming receivables, so the receivables seems very large. Also, from 2006-2009, the day's receivables are in increasing trend. It indicates that EBET gets better of managing account receivables and the credit policy becomes more efficient. Also the credit risk will be lower in the company and reduces financial cost. EBET is making improvement in this regards.

- Generally, there is one way to manage the working capital better is to decrease periods of receivables while increase the payables time. For EBIT, during 2006-2009, their payables are almost over their receivables. Only in 2007, day's payables are over day's receivables. Thus, they usually cannot use funds flexibility.

In conclusion, working capital management of EBET is not too bad.

Long-term assets management

Net long asset turnover and Property plant and equipment turnover show how the firms have utilized their long term assets.

Net Long-Term Asset Turnover	EBET	1.13	1.18	1.42	1.09
Net Long-Term Asset Turnover	TAH	0.59	0.60	0.68	0.71
PP&E Turnover	EBET	7.80	9.25	13.43	14.45
PP&E Turnover	TAH	2.54	2.65	2.66	2.69

Table 18: Net long-term asset turnover and PP & E turnover (EBET vs. TAH)

EBET has relatively higher PP&E turnover rate and net long-term asset turnover than TAH. It indicates EBET is more efficient at generating revenue by investing in property, plant and equipment and long-term assets. However, EBET is the company makes gambling software and operating online gambling, so its business activities do not rely on long term asset as much as TAH. Because TAH is an operating casino they need to invest more money on their PPE and long term asset. Overall, EBET utilizes their long term assets well.

Evaluating Financial Management

Generally, optimizing the use of debt in an organization's capital structure can help it to boost the ROE. Also, it is cheaper than equity and interest expense is tax deductible. Actually, too much reliance on debt financing is potentially costly to the firm's shareholder and will increase the company risk.

Analysing the financial leverage will help gauge level of financial risk of the organization and to know its position to meet the short term obligation and long term obligation.

Liquidity Analysis

Current ratio = Current assets / Current liabilities

Quick ratio = (Cash + Short-term investments + AR)/ Current liabilities

Operating cash flow ratio = (Cash flows from operations)/ Current liabilities

		2006	2007	2008	2009
Current ratio	EBET	0.93	1.20	1.00	0.93
Current ratio	TAH	0.80	1.04	0.85	0.73
Quick ratio	EBET	0.83	1.01	0.85	0.73
Quick ratio	TAH	0.29	0.30	0.47	0.56
Operating cash flow ratio	EBET	0.21	-0.11	0.16	0.85
Operating cash flow ratio	TAH	0.79	0.67	1.16	0.96

Table 19: Current ratio, Quick ratio and operating cash flow ratio (EBET vs. TAH)

Figure 17: Current ratio (EBET vs. TAH) Figure 18: Quick ratio (EBET vs. TAH)

EBET has a greater cushion than TAH when looking at its current ratio and quick ratio. Both of the ratios are quite stable during 2006-2009 which indicates that EBET has more capability than TAH when paying for its debt in the short-term. In fact, as EBET is a small company, the total debt is obviously lower than TAH. Also, as mentioned above, they holding inventory for a long time and have less capital to pay their short-term debt. So, it cannot easily conclude EBET has a better position.

Figure 18: Operating cash flow ratio (EBET vs. TAH)

In addition, the above figure (operating cash flow ratio) put EBET in a lower position. The ratios are lower than 1 and even negative operating ratio in 2007, which shows that EBET may not have enough money or exchangeable securities. Because of the low level of operating cash flow ratio, EBET has lower potential to generate cash and they will have lower probability to expand their business range comparing with TAH.

Solvency Analysis

Liabilities-to-equity ratio = Total liabilities/ Shareholders' equity

Debt-to-equity ratio = Short-term debt + Long-term debt/ Shareholders' equity

Debt-to-capital ratio = (Short-term debt + Long-term debt) / (Short-term debt + Long-term debt + Shareholders' equity)

Interest coverage ratio (earnings basis) = (Net income + Interest expense + Tax expense)/ Interest expense

Interest coverage ratio (cash flow basis) = (Cash flow from operations + Interest expense + Taxes paid) /Interest expense

		2006	2007	2008	2009
Liability/Equity ratio	EBET	60.29%	95.10%	98.42%	60.58%
Liability/Equity ratio	TAH	100.24%	98.76%	120.94%	92.89%
Debt/Equity ratio	EBET	31.92%	60.87%	69.38%	34.35%
Debt/Equity ratio	TAH	71.95%	69.16%	81.91%	62.56%
Debt /Capital ratio	EBET	24.18%	37.84%	40.96%	25.56%
Debt /Capital ratio	TAH	40.11%	40.89%	45.03%	38.48%
Interest coverage ratio (earning basis)	EBET	5.32	4.21	1.25	2.85
Interest coverage ratio (earning basis)	TAH	5.98	4.91	2.82	5.84
Interest coverage ratio (cash flow basis)	EBET	5.11	-2.24	3.70	8.51
Interest coverage ratio (cash flow basis)	TAH	6.9	5.9	8.1	6.75

Table 20: Solvency Analysis (EBET vs. TAH)

Figure 19: Liability/ Equity ratio (EBET vs. TAH) Figure 20: Debt/ Equity ratio (EBET vs. TAH)

-Liabilities to equity and Debt to equity ratios

Both of the liability to equity ratio and debt to equity ratio of TAH are higher than EBET throughout the period. It seems that EBET is using less leverage and has a better equity position. In fact as a small company, these ratios are still too high for EBET. Especially in 2008, due to the additional debt taken EBET got 98.42% in liabilities to equity ratio. However, TAH, as a well-established company can push the liability component of their balance sheet structure to higher percentages without getting into trouble.

Figure 21: Debt/ Capital ratio (EBET vs. TAH)

-Debt to capital ratio

The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. The above indicates TAH has using more debt financing their company. But as a well established company, this didn't show the weak financial strength as they can pay off the debt.

-Interest coverage ratio

Figure 22: Liability/ Equity ratio (EBET vs. TAH) Figure 23: Debt/ Equity ratio (EBET vs. TAH)

Interest coverage ratio shows the capacity of the firm to pay for the interest. Higher the interest coverage ratios lower the possibility of the company to face financial distress. Lower the ratio, the more the company is burdened by debt expense. Generally, a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. In 2007, the interest coverage ratio (cash flow basis) of EBET is only -2.24, that means they are incapable to pay for the interest. But after 2007, it began to increase due to the increase in operating cash flows.
In contrast, TAH has higher interest coverage ratios than EBET. It is possibly one of the reasons why TAH has such large borrowings - because in a word, they can. Creditors have a high comfort level with companies that can easily service debt interest payments.

Cash flow analysis

Cash Flow from operation

EBET	2006	2007	2008	2009
Receipts from Customers	18.60	19.04	29.79	28.63
Payments to Suppliers	-16.19	-19.99	-25.95	-21.22
Dividends Received	0.00	0.00	0.00	0.00
Interest Received	0.09	0.07	0.18	0.29
Interest Paid	-0.56	-0.49	-1.08	-0.72
Taxes Paid	0.00	0.00	-0.68	-0.04
Other Operating Cash Flow	0.00	0.00	0.00	0.00
Net Operating Cash flows	1.93	-1.36	2.26	6.94
Add Back Interest paid	0.56	0.49	1.08	0.72
Add Back Dividends paid	0.00	0.00	0.00	0.00
Deduct Interest Received	-0.09	-0.07	-0.18	-0.29
Deduct Dividends Received	0.00	0.00	0.00	0.00
Cash Flow from operation	2.4	-0.94	3.16	7.37

Table 21: Cash flow from operation

From the above table, it is easy to find out the cash flow from operation is not stable throughout this period. In 2006 and 2007, it is difficult to cover their financing purposes. In 2007, the interest they needed to pay was 0.49 million, but the cash flow from operation was negative. However, from 2008, the cash received from customers which increased at a slightly greater degree than the cash paid to suppliers. More explicitly, this higher level of cash received from customers can mitigate the impact from the cash outflow for interest and tax payments. Thus, operating cash flow got a gradual increase.

Free Cash flow analysis

	2006	2007	2008	2009
NPAT	1.75	0.86	-0.16	1.68
Dep & Amor	1.57	1.64	2.3	2.8
Current Asset	8.94	15.59	14.07	7.59
Current Liability	9.59	13	14.04	8.18
Working Cap.	-0.65	2.59	0.03	-0.59
Change W.C	-4.13	3.24	-2.56	-0.62
Capital Expense	1.73	3.55	3.5	5.53
Free Cash Flow	5.72	-4.29	1.2	-0.43

Table 22: Free Cash flow

Figure 23: Free Cash flow

Free cash flow represents the cash that EBET could generate after laying out the money required to maintain or expand its asset base. Free cash flow is vital as it allows EBET to pursue opportunities such as new product development and acquisitions to maximise shareholder value, and reduce the amount of debt.

Free cash flow has been decreasing from 2006 to 2009. Especially, in 2007 and 2009, EBET saw a negative free cash flow. In 2007, the negative free cash flow which was mainly derived from the purchase of subsidiaries. And in 2009, they spent lot of money on property, plant and equipment investment. Actually, it should be noted that the negative free cash flow does not necessarily mean a negative sign as it implies that EBET has made large investments. These investments may pay off EBET later in the long term.

Section F- Forecasting and Valuation

Forecasting with assumptions including sensitivity analysis

Expected

Year	2010	2011	2012	2013	2014
Sales Growth	2.10%	5.11%	7.50%	6.70%	4.20%

Historical

Year	2006	2007	2008	2009
Sales growth rates	15.37%	9.81%	35.93%	-13.56%

Table 23: sales of EBET

EBET engages in developing the gaming system and online gambling in Australian market and other countries, hence its performance has a high correlation with what happens in the market. It is also an industry which is affected by a lot of factors both internal and external to the industry performance.

² Taking a look at historical analysis of sales growth, EBET's sales are not stable, especially in 2008 and 2009. But the sales of 2009 ($24.98 million) is still higher than 2007 ($21.26 million).

² A snap short analysis above can same be applied to the future performance noting that miracles can happen in sales growth figures. After 2009 it is expected sales growth to improve to 2.16% and reach a peak point in 2012 before cooling off to a terminal growth of 4.20% in 2014.

There are a number of factors that support the predicted sales growths under the forecasting part, being a variation from internal and external factors as pretty much as indicated in the Porter's Five analysis. An analysis will be done as below year by year.

2010 [2.10%]

The company's fundamentals haven't change that much, only improving for the better in anticipation of a good year ahead.

Significantly affecting EBET sales in 2009 was the market downturn caused by the sub-prime crisis in the USA, and as in 2009 everything has been improving on a positive note, with markets returning to normalise and GDP of various countries especially Australia and US EBET's main markets showing a greater improvement hence an upsurge in the sales growth is expected.

But at the beginning of 2010, the European Debit Crisis happened, and the effect to the Australian market is not clear. But as current situation, the effect to EBET will be limited.

2011 [5.11%]

2011 is the transition period for EBET. The sales growth rate is expected go up to 5.11%, and there are few reasons for that. First, the GDP growth of Australia and US are 3.25% and 4.2% in 2011 (MFC Global, 2010). Second, EBET still seek the opportunities to enter the Asia Market. Third, the new segment of EBET- Media Department will be in the final stage of setup. And it will operate in 2012.

2012 [7.50%]

It is predicted that 2012 is going to be the most exciting year in EBET's future analysis with the sales growth expected to be on their peak during the 2012 financial year, same applies with the economic turnaround which is expected to be back to normal around end of 2011 implying it will affect the 2012 financial period, hence the predicted peak of the sales growth in 2012.

The GDP growth of EBET's two main markets- Australia and US will reach the peak on 2012. Both these two countries will reach 4% GDP growth in 2012. It is good for EBET's further development. Also, EBET will finally enter the Asian Market in 2012.

EBET Ltd is also involved in a number of acquisitions and expansion of a number of products that it offer in its product mix, hence by 2012 it is expected to have acquired at least 2 products which will be reflected into the sales growth. It is expected to increase the market share by revamping the marketing strategy and be more aggressive throughout the year 2012. The new department of EBET- media will start to make profit for the company.

2013 [6.70%]

After reaching the peak in 2012, it is anticipated the sales growth to start cooling down in line with GDP which is expected to be now increasing at a constant rate. After a revamp in EBET's marketing strategies in 2012, it is expected EBET's market to be near saturation in 2013 hence the penetration rate will have slowed down giving an overall growth rate of 6.70% in 2013.

2014 [4.20%]

It is expected that the growth rate for the company to follow the predicted GPD growth rate for Australia, and this is mainly because Australia is where the main market for EBET. Hence, the expected growth rate is expected to fall to a level of 4.20%. The main contributors are the saturation of the products in the market, slowing down economic growth rates and exhaustion of the product mix. And some new techniques may come to the market, competitive in this market will be increased, the market share may drop.

Assumptions for forecasting purpose:

For the purpose of forecasting the financial statements for EBET, some of reasonable assumptions will apply into the operations of the entity in the future. These include:

² Australian tax regime with not change the corporate tax which will stand at 30% into the future. But in the financial statement of EBET, the income tax (note 4) part is quite unclear. EBET makes tax provision every year, but cannot find out the amount of the provision. From the table below, it is clear that it is hard to predict the tax expense for EBET.

Year	05	06	07	08	09
EBIT	(0.61)	1.00	1.20	1.79	1.59
Tax Exp.	0	0.75	-0.41	-0.34	-0.13

Table 24: tax expense of EBET

In this report, it assumes the tax expense and EBIT are changing in the same way.

² Operating Expense (COGS and SG&A) to Sales ratio will remain at a constant of 80% from now on into the future as a going concern operation, this is reasonable because 80% is the average level for EBET as well as its competitors. Although sometimes SG & A may not be directly related to sales, EBET's COGS contributes most part of its Operating Expense.

² EBIT to Sales ratio will remain at 9.00% into the future, because this is the current level of EBET.

² Current Assets to sales ratio will increase from 30% to 40% into the future because of the economic recovery and business expansion. The working capital will increase slowly in the future, and will be positive in 2011.

² Net Fixed Assets will also grow with sales at a ratio of 4% to sales into the future.

² Net Debt will fluctuate around 1.5 Millions according to the historical data of EBET. Also the equity will increase slightly.

² The Profit Margin will retain around 6%. And NOPAT margin is increased as its sales growth.

Consolidated Income Statement

Reported Year	Reported Year	Forecasted Years
Reported Year	2009	2010	2011	2012	2013	2014
Sales Revenue	24.98	25.50	26.80	28.81	30.74	32.03
Sales Growth		2.10%	5.11%	7.50%	6.70%	4.20%
Expense	-19.92	-20.4	-21.44	-23.05	-24.60	-25.62
EBITDTA	5.06	5.1	5.36	5.76	6.15	6.4
Dep & Amor	-2.80	-2.8	-2.95	-3.17	-3.39	-3.52
EBIT	2.26	2.30	2.41	2.59	2.76	2.88
Net Interest Expense	-0.45	-0.40	-0.30	-0.55	-0.50	-0.47
EBT	1.81	1.9	2.11	2.04	2.26	2.41
Tax	-0.13	-0.25	-0.40	-0.33	-0.45	-0.52
NOPAT	1.582	1.61	1.687	1.813	1.932	2.016
Net Profit	1.68	1.65	1.71	1.71	1.81	1.89

Consolidate Balance Sheet
Current Assets	7.59	7.65	8.55	8.98	9.50	10.05
Current Liabilities	8.18	7.9	8.45	8.76	8.95	9.55
Working Capital	-0.59	-0.25	0.10	0.22	0.55	0.50
Net Fixed Assets	3.72	3.83	3.95	4.06	4.19	4.31
Net Debt	1.55	1.50	1.30	1.59	1.70	1.30
Equity	18.90	20.55	22.26	23.97	25.78	27.67
Free Cash Flow	-0.43	1.14	0.53	0.71	1.25	0.94

Table 25: financial reports 2010-2014 (forecast)

Sensitivity analysis

An addition analysis is made under different scenario.

The sales growth is not as predicted, and in the part, the growth rates are 2% and 10%.

² The sales growth rate=2%

(millions)	2010	2011	2012	2013	2014
Sales	25.48	25.59	26.51	27.04	27.58
NPAT	1.53	1.56	1.60	1.62	1.65

Table 26: Sales and NPAT 2010-2014 (forecast)

² The Sales growth rate=10%

(millions)	2010	2011	2012	2013	2014
Sales	27.48	30.22	33.29	36.57	40.23
NPAT	1.65	1.81	1.93	2.19	2.41

Table 27: Sales and NPAT 2010-2014 (forecast)

Valuation: Free Cash Flow Model and Abnormal Earning Model

Useful data calculated in former sections:

Year	2010	2011	2012	2013	2014
Sales Growth	2.10%	5.11%	7.50%	6.70%	4.20%

Free Cash Flow Model

² NOA is expected growing with the same growth rate as sales.

² Net Financial presented as long-term debt.

	Reported Year	Forecasted Years
	2009	2010	2011	2012	2013	2014
Income Statement
Sales Revenue	24.98	25.50	26.80	28.81	30.74	32.03
NOPAT	1.59	1.61	1.69	1.81	1.93	2.02
Net Profit	1.68	1.65	1.71	1.71	1.81	1.89
Consolidate Balance Sheet
Net Operating Assets	22.17	22.64	23.80	24.90	25.58	26.66
Net Financial Assets	-3.27	-2.09	-1.54	-0.93	0.20	1.01
Equity	18.90	20.55	22.26	23.97	25.78	27.67
Cash Flow Statement
NOPAT	1.59	1.61	1.69	1.81	1.93	2.02
Change in NOA		0.47	1.16	1.10	0.68	1.08
Free Cash Flow		1.14	0.53	0.71	1.25	0.94

² Net income accrues to equity holders and is used to cover dividend and increase shareholders equity; here, dividend is 0 as former recorded in EBET's reports. So, change in equity equals to net profit.

² FCF by indirect method=NOPAT+/-ΔNOA

² WACC=9.22% (calculated in former sections)

Y₁=FCF₁/ (1+WACC)¹=1.14/(1+0.0922)¹=1.0438

Y₂=FCF₂/ (1+WACC)²=0.53/(1+0.0922)²=0.4443

Y₃=FCF₃/ (1+WACC)³=0.71/(1+0.0922)³=0.5449

Y₄=FCF₄/ (1+WACC)⁴=1.25/(1+0.0922)⁴=0.8783

Σ=2.9113

Y₅=0.94/ (0.0922-0.05)ⅹ1/(1+0.0922)⁴=15.6533

Value of firm=18.5646

Less: Market value of debt 3.27

Value of Equity= 15.2946

No. of shares=217.8061

Share price=0.07

In conclusion, with FCF model, the value pre share of eBet is $0.07, which is a little bit lower than the current market price of $0.08. It can be concluded that eBet current share price is overvalued.

Abnomal Earnings Valuation

	Reported Year	Forecasted Years
	2009	2010	2011	2012	2013	2014
Income Statement
Sales Revenue	24.98	25.50	26.80	28.81	30.74	32.03
NOPAT	1.59	1.61	1.69	1.81	1.93	2.02
Net Profit	1.68	1.65	1.71	1.71	1.81	1.89
Consolidate Balance Sheet
Net Operating Assets	22.17	22.64	23.80	24.90	25.58	26.66
Net Financial Assets	-3.27	-2.09	-1.54	-0.93	0.20	1.01
Equity	18.90	20.55	22.26	23.97	25.78	27.67
Abnomal Earnings		-0.0926	-0.1847	-0.3424	-0.4000	-0.4869

² Abnomal Earnings=NP_t-(rⅹE_t+1), r presents cost of equity, equals to 0.0922;

Y₁=1.65-(0.0922ⅹ18.90)=-0.0926

Y₂=1.71-(0.0922ⅹ20.55)=-0.1847

Y₃=1.71-(0.0922ⅹ22.26)=-0.3424

Y₄=1.81-(0.0922ⅹ23.97)=-0.4000

Y₅=1.89-(0.0922ⅹ25.78)=-0.4869

² Existing Book Value: B₀=18.90

Y₁=1.65-(0.0922ⅹ18.90)/(1+0.0922)¹=-0.0848

Y₂=1.71-(0.0922ⅹ20.55) /(1+0.0922)²=-0.1548

Y₃=1.71-(0.0922ⅹ22.26) /(1+0.0922)³=-0.2628

Y₄=1.81-(0.0922ⅹ23.97) /(1+0.0922)⁴=-0.2811

Σ=-0.7835

Y₅=-0.4869/(0.0922-0.05) /(1+0.0922)⁴=-8.1081

Value of Equity=18.90-0.7835-8.1081=10.0084

No. of shares=217.8061

Share price=0.05

In conclusion, with FCF model, the value pre share of eBet is $0.05, which is lower than the current market price of $0.08. It can be concluded that eBet current share price is overvalued.

Sensitive Analysis

Different scenarios are applied in conducting sensitivity analysis, which includes most favorable and least favorable conditions. These conditions affect sales growth rate and eventually impact the value of eBet.

Sales Growth Rate

Share Price under

FCF Model

Share Price under

Abnormal Earning Model

10%

1.08

0.91

0.48

0.32

In best case scenario, with better economic environment and expansion strategy such as offer new product, eBet has a higher sales growth rate 10%. The estimated share price would be $1.08 (FCF model) and $0.91 (Abnormal Earning Model).

For the worst case scenario, the economic keep getting worst, which reduces SRH's sales growth rate to 2%. The estimated share price would be $0.48 (FCF model) and $0.32 (Abnormal Earning Model).

Conclusion

Based on strategy analysis, accounting analysis and financial analysis, the report evaluates that the equity value of EBET showing an application and linkage between financial accounting analysis and business valuation.

The industry analysis shows that the profitability of casino industry is highly competitive as a result of price wars. The profitability of EBET is at moderate level as it highly driven by buyers' and suppliers' bargaining power.

On that basis, accounting analysis was carried out to assure the quality of EBET's financial reports. Potential red flags were identified due to lack of adequate explanations and information disclosures from EBET's reports. And it finds that the depreciation rate is significant higher than its competitors. Thus, adjustments have been carried out to reflect the true situation of EBET.

Based on the above analyses, a forecast has been produced on EBET's condensed financial statements for the next five years. The valuation based on Free Cash Flow Model and Abnormal Earning Model came to the conclusion that EBET's share value should be $0.07 (from FCF Model) or $0.05 (from Abnormal Earning Model), while its current share price on 20^th May 2010 is at $0.08. Thus, EBET's share price is currently a little bit overvalued. From the investment perspective, EBET may be not a good choice for investing.

References

ASX (2010) Corporate Governance, from

http://www.asx.com.au/about/corporate_governance/index.htm

BBC, (2001) Popular Online Casinos in Australia, from

http://thevoiz.com/online-casinos-in-australia.html

Crown Limited annual report (2009) from Fin analysis Database

EBET annual report, (2009) from Fin analysis Database

EBet News, (2010), EPS2 Assist Suite including Tikit+™Approved, http://www.ebetgroup.com/news.php

IBISWorld Industry Report, March 2010, Casino in Australia, from IBIS database

Palepu K.G., Healy P. & Bernard V. (2008), Business analysis & valuation: using financial statements, 4^th edn, Thompson, South Western

Reserve bank of Australia, May 2010, Economic Outlook, http://www.rba.gov.au/publications/smp/2010/may/pdf/eco-outlook.pdf

PKF (2010) PKF Australia, from http://www.pkf.com.au/Pages/Home.aspx

Reserve Bank of Australia, May, 2010, Minutes of the Monetary Policy Meeting of the Reserve Bank Board, http://www.rba.gov.au/monetary-policy/rba-board-minutes/2010/04052010.html

TAH annual report (2009) from Fin analysis

TAH annual report (2008) from Fin analysis

TAH annual report (2007) from Fin analysis

TAH annual report (2006) from Fin analysis

TAH annual report (2005) from Fin analysis

Treasure of the Commonwealth of Australia, (27 January 2010), IMF World Economic Outlook Update, from http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/004.htm&pageID=003&min=wms&Year=&DocType

[1] Technical assumptions include A$ at US$0.91, TWI crude oil price at US$87 per barrel and Tapis crude oil price at US $90 per barrel

[2] Few companies listed in Australia engage in gambling, we only find 11 companies in this industry, so we assume the average of these 11 companies is the average of this industry.

[3] LAS is Suspended in 2009.