Emma RizemanStudent ID: 12107229

Blog Link: https://accrualintentions.home.blog/ Moodle Profile: https://moodle.cqu.edu.au/user/view.php?id=85354&course=11667

STEP 3

I had been really hoping to be allocated an Australian firm who I was already familiar with, or at the very least, a firm who did something “exciting”, so when I saw that I had been given a computer software company from the UK, my initial reaction was rather uninspired.

When I perused the firms other students had been given, I have to be honest that I felt more than a little envious. I would have much rather been given a firm such as Woolworths (who we are all familiar with), Buderim Ginger (a local company here on the Sunshine Coast), or Diageo (an alcohol distributor who can thank me for at least part of their success).

However, as I started reading about RM plc, I found myself becoming surprisingly interested in who they were, especially as I learnt that they predominantly provide technology, software and play-based resources to the education sector. This interests me on multiple levels – my husband is a teacher, my son is a prep student, and I am now a university student. So, education based software is at least something that I feel that I can relate to.

RM plc (formerly Research Machines) are a UK based firm who were founded in 1973.

The group is made up of three distinct companies:

RM ResourcesRM Resources supplies schools and nurseries in the UK with curriculum and education resources. They have two key brands – TTS and Consortium. TTS have a lot of the “fun” learning resources like what you often see in classrooms here in Australia, such as building blocks and magnetic letters. They also have other unique products, such as large foam numbers, which are designed for learning math in the outdoors. Consortium, “the education supply people” are a recent acquisition for RM plc. They seem to have more stationery and essential supplies, such as glue and pencils, rather than teaching resources. Both brands appeared to include a wide variety of high quality products.

RM ResultsRM Results provide technology and software which allows for exams to be marked electronically. Specifically, they have developed the market leading e-marking platform RM Assessor, which is used to mark around 160 million exam pages each year.

The following short video entitled “What is e-marking?” explains clearly how their software works.https://vimeo.com/168306296

RM EducationRM Education provide a wide variety of technology-based solutions to thousands of schools throughout the U.K. These include products and services such as charging trolleys and mounting options, RM Accounts – accounting software specifically designed for the education system, audio visual, cloud backup, desk top and laptop computers, device management, tuition software, web filtering, print services, flexible IT support, teaching and learning apps and essential infrastructure hardware.

They are also the UK’s only dedicated educational internet service provider for schools.

To further highlight their position as a market leader in the area of technology, have a quick read about one of their recent staff development events, where they explored the potential development of products such as robots and AI assistants for classrooms, and using facial recognition software to mark attendance!

https://www.fenews.co.uk/press-releases/27365-edtech-athon-at-rm

Reading through RM plc’s website, it seems that the Department of Education in England is one of their biggest customers, as they provide services to over 7000 schools nationally. However, I was surprised to notice that ACCA (Association of Chartered Certified Accountants) is also listed as a client.

If anyone is interested in reading the case study, it can be found here:

https://rmresults.com/case-studies/acca-doubles-exam-capacity-with-rm-assessor

The 2018 Annual Report

The annual report begins well, by highlighting the achievements of the 2018 financial year. I was interested to see that their reports all referred to the Year Ended 30 November 2018. Initially, I had taken this to mean that the financial year in the U.K. also ended on this date. However, through discussions with other students who also had been allocated U.K. based companies, we discovered that we actually did not all have the same date on our company reports.

A quick google search informed me that the financial year in the U.K actually ends on 31 March for government and on 5 April for personal income tax. I could still not work out when it ends for business, or why businesses would choose to complete their financial reports based on different periods.

The highlights of the report included

Revenue growth of 19% International revenue growth of 30% Good progress in all three divisions Adjusted operating profits increased 29% Free cash flow of £13.8m Full year proposed dividend increased by 15% to 7.60p

My initial thoughts were that the company appears to have experienced a lot of success over the last 12 months and are certainly in a period of growth! Comparing the figures in the income statements with previous years also seems to confirm this. In the 2016 financial year, the total comprehensive income was actually a negative number, whereas it is now over £30m.

Something which really impressed me about this firm, was that they seem very transparent as an organisation about who they are and what they are trying to achieve. They are proud of their successes, however they are also very upfront about the risks and challenges which the firm faces, or potentially could face. Alongside this, they also discuss the risk management systems they have in place, to help mitigate these risks.

A detailed risk register is maintained, in which risks are categorised as either political, strategic, operational or financial risks. For those interested, this can be read in detail on pages 19-21 of the 2018 annual report which can be found here:

http://www.rmplc.com/reports

One of the key challenges which stood out to me was the possibility of Brexit.

I am the first to admit that I don’t know anything about politics (I literally just asked my husband last night which party is currently in power in Australia), and very intentionally avoid watching the news because it depresses me, however one cannot even read an informative article about Married At First Sight without seeing headlines somewhere on the page about Brexit!

My understanding from the little bit I’ve read is that the UK is (possibly?) leaving the European Union. I still can’t figure out whether this means the entire UK (England, Ireland, Scotland, Wales) or just England. I’m also not sure why this is important to business. As from my understanding, England already has a separate currency to the rest of Europe.

However, I’ve been hearing about it a lot, and the annual report comments on it as a main challenge they are facing, so I’m going to trust the people who seem to know what they are talking about in this instance!

The report states that the Group has undertaken a review of the potential changes resulting from the UK’s exit from the EU, including in the event of a ‘no deal’ scenario.

This review focused on the principal risk areas of customers and markets, supply chain, people, treasury, legal, data and regulation and customs and tax. Following this review, although they believe the likely impact to be unfavourable, they continue to believe that it will not have a materially adverse effect on the Group as a whole, whilst assuming that the UK government does not fundamentallychange its approach to education funding.

I was fortunate enough to be able to have a discussion with another student who had also been assigned a UK company. What we both found interesting was that where RM plc seem to perceive the impact of Brexit to be unfavourable, his company’s founder seems to be all for it, stating that Brexit will result in a huge gain for UK businesses as a whole. This would be mainly due to the ending of invisible tariffs charged on non-EU products. I found it interesting to consider that two different businesses operating in the same country would be affected in such different ways by the same political event, and that the management of the businesses would perceive the same event in such different ways.

It seems that in the above-mentioned area of education funding the Group would be at the total mercy of the Government, so to speak. If the UK government were to change their policies on how schools were funded, this could certainly affect the ability of their key customers to purchase their products. However, the same could be said of many industries who are affected by government regulations. That is not something that is necessarily unique to this business.

My initial thoughts were that this would be something that the Group would have very little control over, however after reading their risk mitigation strategies in more detail, I noticed that they do actively monitor the education policy environment, and also ensure to build strong relationships with education policy makers. Hopefully this would ensure that they are able to have a certain degree of influence over this!

I also understand that Brexit could affect the Group in terms of currency fluctuations, which would in turn affect their profit levels. The Group has European sales of £12.4m.This risk is managed through currency hedging against exchange rate movements, typically 9-12 months into the future.

I had to google to find out what hedging means!

https://www.commsec.com.au/support/learn/choosing-investments/what-is-currency-hedging.html

If I’ve understood this correctly, they are agreeing on the exchange rate with their customers ahead of time, and the transaction will be made based on this exchange rate, regardless of the market exchange rate at the time. Readers can feel free to correct me if I am wrong on this!

When discussing the group as a whole, the CEO stated that they continue to expect that tight budgets and funding uncertainty will keep the UK market subdued. However, improved margins, good cash generation and a strong balance sheet mean they are well placed to enable the Group to deliver long-term shareholder value.

As I read through the statements from the CEO, CFO and the chairman, something that really stood out to me is that while the three different companies within the group have similar target markets, and are all affected by the broader economic challenges as previously discussed, they still are operated rather autonomously and have unique strategies for growth, underpinned by the overall group strategic themes of intellectual property and technology development, international growth, innovation and efficiency and simplicity.

RM ResourcesRM Resources’ strategy is to grow its market share in the provision of resources to schools, early years and special educational needs markets via online sales, a direct sales force and direct catalogue, both in the UK and internationally.

It seems like they are already a major market player in the UK, and the main avenue for them to achieve further growth would be to expand internationally. The report stated that growth in international sales to overseas resellers and international schools is expected to continue.

According to the chairman’s statement, RM Resources and each of the two brands, TTS and Consortium, delivered revenue growth in the year. The international business in RM Resources was strong and grew by 41%. The board has approved an investment to consolidate the five distribution centres into a single automated facility by the end of 2021, which will deliver operational and financial benefits.

I feel like a company who already possesses such capability in the areas of software and technology should be able to do this very efficiently. I was just reading in my economics textbook about how Bunnings has done this very successfully and reduced expenses due to less overheads.

I read that RM Resources actually design their own products, and map these very closely to the curriculum. As my husband is a primary teacher, and I now also have a son in prep I know how important this is!

In recent years an “Australian Curriculum” has been implemented by the Departments of Education in the various states, which means that all school students nationwide should be learning the same material. I imagine that they would have a similar system in the UK, especially as, as far as I know they do not have state governments there.

RM ResultsRM Results’ strategy is to grow the e-assessment business through expanding the scope of solutions to existing customers and to win new customers in both the UK and overseas markets.

RM Results have four specific target markets – language testing, professional bodies, general exams and higher education.

RM Results won seven new contracts in the year, six of them with international customers. They also renewed several contracts with long-term customers.

During the year the e-marking software, RM Assessor3, won in the digital category at the London Design Awards and is being rolled out successfully across their customer base.

RM EducationRM Education’s strategy is to build on its strong presence and brand pedigree in UK schools and colleges, where it delivers ICT software and services to a high standard.

Though revenue decreased in RM Education, they have won over 100 new managed services customers. They also agreed a new five year contractual relationship with the largest customer in the Connectivity business. Renewal rates continue to be high, in addition to which, they are investing more heavily in increased sales and marketing capability to help drive improved new customer acquisition. In the year, a restructuring removed significant run rate costs enabling the Division to improve margins.

Revenues in the Division declined by 4% to £67.6 (2017: £70.6m) driven primarily by the planned contract completion of several long-term contracts. Their adjusted operating profit increased to £7.8m (2017: £6.6m).

One question I have is, what is an adjusted operating profit? And how is this different to a profit?

Financial Statements

RM plc have 5 different consolidated financial statements. Perusing these has certainly got me thinking and has raised many questions for me.

A question I initially had, was the difference between the consolidated and the company financial statements. I have since learnt that the consolidated financial statements represent the activity of the entire group and it’s companies, whereas the company financial statements represent the activity of the parent company only. This also makes me wonder what the parent company actually does? As all the operational activity, if I have understood correctly, would take place within the separate subsidiaries?

I thankfully am finding the income statement quite easy to understand, as I have some experience with profit and loss statements. I have previously created profit and loss statements for my own businesses, and also for clients of the tax accountant who I work for. This actually seems to be a much more simplified version, as it just shows the totals of each category, without all the individual transactions.

The Earnings per share part of it is slightly more confusing. I have heard the term before, however this is not something I actually have any prior experience with. I am guessing that you would calculate this by dividing the total cash flow by the number of shares, however I have not done any research to confirm this. I am hoping that this is something that I will learn as we progress through this course.

The statement of comprehensive income is rather more confusing. Mainly because I don’t understand the headings involved.

Eg. Defined Benefit Pension Scheme remeasurements, Exchange loss on translation of overseas operations, Fair value gain/loss on hedged instruments, Tax on items that will not/are/maybe reclassified subsequently to profit or loss.

None of this actually makes sense to me, and another question I have is that if they are still part of the income or expenses of the business, why are they just not included on the regular income statement? Why do they have to make it so complicated?

Another question I had is why are their finance costs higher than investment income? Does this mean that they are making a loss on their investments? Are the finance costs the interest on their debts? Or something else entirely?

The balance sheet seems like a lengthy version of the accounting equation, as I can see that it includes the now familiar terms of assets, liabilities and equity. However, I still have many questions that I would like answered to enable me to understand this fully.

What is the difference between current and non-current assets and liabilities?

What exactly is goodwill? I have heard of this many times but don’t quite understand how this would be measured or calculated.

What are intangible assets? I understand the concept of an asset, and I understand the meaning of intangible to be something you can’t see or touch. However, I can’t think of an asset that would meet this definition. This is something I would like to understand further.

I am finding the Statement of Changes in Equity to be very confusing! Literally the only concept on there that I understand is the dividends. I have grasped from reading the study guide that it represents the transfer in value between the shareholders and the company itself. Though how this actually occurs is something I am struggling to get my head around!

I don’t understand the cash flow statement very well yet, although since reading chapter 3 of the study guide, I am able to understand why it is such an important tool to use when valuing a business. I see that there is a positive cash flow figure at the end of the 2018 financial year, compared to negative the year before, so I’m hoping that means things are improving!

The total dividend for the year was 7.6 pence and at the time of writing this, the company’s share price is 232.48GBX . This is approximately a 3.3% return. I would personally not invest in this company, as I choose my shares based on at least 7% return, however it is still slightly more than an ING savings account. I’m not sure of current interest rates in the UK or whether they have franking credits, so I may view things differently if I lived there.

Reading back through my many questions surrounding the financial statements, I am confronted with just how little I know about the topic at this stage. Right now, I feel like the more I learn, the more I realise that I don’t know! I have also acquired a huge amount of respect for accountants, who would (I imagine) be able to look at these and read them as easily as I would read a children’s book! I hope that will also be me by the time I graduate!

My Top 3 Blogs

I have appreciated the opportunity of being able to interact with others in the unit as a part of this assignment. As a distance student who had been expecting to “go it alone”, being able to view and discuss others’ work via their online blogs has been surprisingly enjoyable.

With two beautiful children who need me, I have not had the time to peruse as many blogs as I would have liked to, however of those I have had the privilege of reading, I now present to you my official “Top 3”:

In first place is Lisa O’Neill’s blog: https://imaccountingonyou.home.blog/I found that I could really relate to Lisa, as we are close in age, and both have 2 children. We have also both had experience in admin and book-keeping for our husband’s businesses. Therefore, I was suitably impressed to read that Lisa has taken on a full-time workload of 4 subjects. I am only doing 2 this semester, and certainly would not have been able to cope with anymore. I appreciated Lisa’s raw honesty as she shared some of her past struggles, as well as the struggles of balancing uni and family life. I felt like her blog allowed me to genuinely get to know part of who she is.

In second place is Paul Feasey’s blog: https://beingheldtoaccount.home.blog/I actually intentionally searched out Paul’s blog, as I recognised him as a regular contributor to the

Facebook discussions, and was keen to see what he had to say. Paul certainly did not disappoint. I really enjoyed his writing style, which manages to convey relevant points about the subject matter, all while showing his sense of humour. I liked the way he shared personal touches about his family as well. He did a good job of keeping me engaged as a reader. It was also great to see that Paul follows a lot of other blogs. The links on his page were very beneficial to me in helping me find and read the blogs of other students.

In third place is Maitland Bezzina’s blog: https://maitlandbezzina.home.blog/Maitland does a great job of communicating interesting information about his company, however to be honest, I enjoyed this one purely due to Maitland’s sense of humour. I found myself laughing out loud while reading his posts, and I love the fact that he is so committed to only posting while he is on the Route 301 bus!

I have also commented on each of these blogs to let them know that they are in my Top 3, and to let them know the reason/s why.

Studiosity

I really do think that Studiosity is a great service, however I did not have the best experience of it this time around.

Firstly, there was a word limit of 5000 words. This meant that in order to have my entire assignment reviewed, I had to separate it into two documents and submit them separately. It only took a few minutes extra, but it was still annoying.

The feedback I received from there was mainly around my writing style and the fact that it is too casual. In this assignment, I actually felt that a more casual writing style was more appropriate, as we were asked to show something of ourselves, to summarise key concepts in our own words and to relate them back to our own experiences.

I understand that the team at Studiosity were more just reviewing my actual writing, but it seemed that without having a knowledge of the task, it was hard for them to critique accurately. In saying that, I know from chatting with others that they had a much more positive experience, so perhaps I am just being too harsh?

I may still use Studiosity again in the future, as this kind of feedback could be more beneficial for academic writing pieces, however I did not find it overly helpful in this instance.

STEP 4Company Financial Statements – please refer to separate excel file

STEP 5Wow! If you are reading this, it means that I eventually managed to complete Step 5 of my assignment, which is to write down some of my ideas, reflections and reactions to reading Chapter 2 and 3 in the Study Guide. I have spent the better part of this week feeling totally overwhelmed by everything that I need to accomplish, a feeling which has unfortunately resulted in a lot of procrastination.

I’ve also been really struggling with the fact that there are not clear-cut “rules” on how to complete this assignment. I am the kind of person that if you tell me how you want something done, I will do it. However, when left to my own devices, I can become so overcome by anxiety and indecisiveness, that I end up doing very little at all.

Nevertheless, I am choosing to become inspired by the wise words in one of Martin’s Facebook posts:

Employers are increasingly looking for people able to act in future unknown contexts rather than simply reproduce knowledge... constant adaption and adoption through learning and uncertainty is an inherent trait of professional contexts of the future - particularly for accountants, the most digitally disrupted profession.

I am optimistic that if I continue to step outside of my comfort zone and challenge myself, the lifelong skills I will gain from doing this will provide me with far greater benefits, both professionally and personally, than what I would gain from “just” learning how to read financial statements.

As I start reading chapter 2, I immediately am greeted with the concept that, other than those managing a firm, there can be many other people with a genuine interest in a firm’s economic and business performance.

I understand this to mean that there are far more stakeholders in a business than one may initially consider.

The fact that there are so many different stakeholders makes a lot of sense to me. My husband and I used to have a mould removal business. Initially, one could be forgiven for thinking that the only ones affected by the performance of this business were my husband and me. Even though this was a relatively small business, there were still many different people who were interested in our performance.

Our suppliers – as our success directly affected whether or not we would need to re-order product in the future.

Our customers – as we provided a warranty, it was important to them that we would still be around in the future.

The tenants of the properties we treated (who were often not our direct customers) Our insurance company was interested in our turnover as this had an impact on our premium The ATO Our subcontractors

I can easily imagine that with this many stakeholders in our small business, there would be so many more in the case of large companies.

However, unlike large companies, while these stakeholders certainly had a vested interest in our performance, we were under no obligation to provide them with our financial statements. (Even the ATO and our insurance broker were only given total figures).

This meant that I did not have to follow the “rules of the game” and creating a simple profit and loss statement in Excel was enough to assist me with meeting our reporting obligations with the ATO.

I felt excited about the prospect of learning the rules of accounting, and when I first saw that there are Generally Accepted Accounting Principles (GAAP) as well as other Accounting Standards, I was ready to knuckle down and learn.

But of course, it was not much further down the page that I started to read other crazy things such as:

“These rules also keep changing”“There is no way any one person can know all these rules. And these written rules are not even all the rules”“There are many unwritten rules in accounting”“You can’t have a rule for everything”

What the?

I’m starting to see very quickly that accounting is not a subject, nor an industry, where simply learning the facts or the rules will suffice. The accounting “rules” are not necessarily as black and white as I would have initially expected (or hoped) them to be. This is why learning “for real” is so important in this industry.

If one were just to engage in surface learning, ie. be able to regurgitate “the rules”, they would only be able to perform successfully in very limited, standard situations. However, when one gains true understanding, their education changes them, and they are able to construct their own knowledge in a way that can also be applied to those “out of the box” situations as well. They are then able to apply their genuine knowledge and understanding to tackle the uncertain and the unknown.

I am able to relate this back to many years ago when I worked as an insurance underwriter. We had rules that we had to follow when deciding whether or not to insure someone. One of these rules was to not insure an under 25 driver who had previously lost their licence. However, there were also certain brokers who we were generally not allowed to say no to. So, what was I to do when one of our top brokers had a son who had lost his licence multiple times, and he wanted an insurance policy for his son’s car? If I had not a genuine understanding of the industry, or the underlying reasons for our guidelines, this would have prevented me from being able to make a prudent decision, as I would have become too caught up in the rules.

I like the idea that even though the rules for accounting are not always clear cut, we do have a clearly defined conceptual framework to work within. The qualities of information which I feel that I personally value the most are faithful representation, understandability and comparability.

Faithful representation would have to be the most important, because if what I am reading is not actually correct or accurate, then it is of no use to me at all.

I feel like understandability could be quite a subjective measure, as it would depend upon the person who is reading the financial statements. And I am mindful of the fact that what may not be understandable to me right now, will hopefully be understandable to me by the end of this unit. Nevertheless, I do believe that firms have a responsibility to structure their financial statements in a way that all potential investors can understand in at least basic way, even if they do not have an accounting background.

As I have an interest in the share market, comparability is also important to me. Sometimes the only decision is “Should I purchase shares in this firm or not?” Whereas other times it’s “should I purchase shares in Firm A or Firm B”. I would argue that the second decision is more difficult, as it relies on not only interpreting the financial data of each firm, but also being able to compare it with another. This task

becomes much easier, when the firms use a similar method of reporting, and the performance of each can easily be compared with the other.

I am somewhat familiar with the concept of accrual accounting, and had in fact been doing this long before I knew what it was called. When my husband and I had our mould removal business, I found it easier to put our income into the profit and loss statement as soon as I created the invoice. This was mostly due to simplicity and so that I knew I wouldn’t forget to do it. It was only when I started working for a tax accountant recently that I learnt this had a name! It also felt reassuring to have this included in the study guide for this week, and to know that at least one concept was not relatively new to me!

As I moved onto chapter 3, I was excited to see that we would be now starting to focus on the financial statements themselves. Especially when I read that we will be focussing on equity investors as one of the groups of people with a genuine interest in using financial statements.

Due to my own personal interest in the share market, this definitely piqued my interest!

The study guide mentions the four general purpose financial statements some businesses are required to provide: The Balance sheet, Income statement, Statement of changes in equity and Statement of cash flows.

I enjoyed the way that Martin likened this to meeting someone at a party. We will often meet someone and pretend that we know them because we know their names; we may even know superficial information about them. I am feeling a little like this with some of the financial statements at the moment! One of the first things I did when I began this assignment was to input the data from my financial statements into the spreadsheet. Understanding them though is an entirely different matter. Kind of like if I met someone at a party who talked to me about science or politics. I would have lots of information about them but none of it would make sense.

I could really relate to the statement that the annual report is a marketing statement, as I had already been having these thoughts when researching my company. Both the website and annual report for RM plc are very slick, with a very consistent message and branding across all mediums. The same key information was highlighted on their home page, and at the beginning of the report. The same key achievements were commented on by the CEO, CFO and the chairman. They wanted to make sure people knew how well they were doing!

I also noticed that the report was well-presented and easy to understand. They used very simple language, as opposed to the financial jargon I was expecting. It seemed that they wanted the information to be understood by a wide range of people. As RM plc’s main clients are other large organisations, I imagine people in these organisations would be researching the company well before making a decision, however these people may not necessarily have a good level of financial or accounting knowledge.

This links back to what we read in chapter 2 about an organisation having many different stakeholders. Customers, or at the least potential customers, are certainly one of these.

I was relieved to read the explanation of the difference between consolidated financial statements and company financial statements, as this was one of the questions I had when I first viewed my company’s annual reports. I now understand this to mean that the consolidated financial statements represent the activities of the group as a whole, including all it’s subsidiary companies, whereas the company financial statements represent the activities of the parent company separate to it’s subsidiaries.

I did not see any non-controlling interests or minority interests in my firm’s balance sheets, which tells me that the subsidiaries are wholly owned.

A question I still have is what does the parent company actually do? As it seems that all the operational activities and customer interactions take place within the subsidiaries. Are functions such as human resources and payroll retained within the parent company? Or does each subsidiary company operate these divisions autonomously?

I feel like I now understand the concept of the balance sheet somewhat well, as I am able to link it back to the accounting equation. It’s great to see it “come to life” in a real format, instead of just an abstract formula.

Though I’m still struggling to get my head around how items such as “goodwill” would be valued, or the difference between current and non-current assets and liabilities. I’m hoping that I will learn this as I progress through the unit.

Straight after I typed this, I read Martin’s comments about the footnotes. I checked the footnotes of my firm’s annual report and, sure enough, there was an entire page dedicated to goodwill, (which took up only 1 line on the balance sheet). I must say, I am feeling relieved by Martin’s further comment about not trying to understand the footnotes just yet, but to just have a quick look at them. Phew, some of the pressure is off for now at least!

I am familiar already with income statements, as I understand this within terms of profit and loss. I have completed profit and loss statements previously, both for my own businesses, and for clients of the tax accountant I work for. Though I must say, it’s annoying that the financial statements are not always called the same thing! Two weeks ago, if you’d asked me what an income statement was, I would have said that I had no idea! Yet, if you’d asked me about a P&L, I could have described this easily!

However, even though the income statement seemed comfortingly familiar, I struggled with those items included as part of the Comprehensive Income Statement, as well as the Statement of Changes in Equity. I’m not even sure what my specific questions are at this stage, just that I don’t really understand it!

I’m excited to see that the chapter discusses share ownership in terms of the dividends to be received. Even though I personally am very interested in the stock market, I definitely still have a lot to learn. In the past, I have attempted to approach this more as a “trader” with the hope of quick capital gain. I recently achieved this, selling Mortgage Choice (MOC) shares with a 25% gain in the space of a month, though this is actually quite rare.

My usual approach now is to select shares in the hope of giving me a long term return via dividends, so I’m excited by the thought that this unit may help me to do that better. My current strategy is to select shares who payout a total dividend of at least 7% of the current share price, and which are also fully franked.

I guess that in a sense, this is my own personal version of the Discounted Dividend model. Though this method has the disadvantage of hoping that companies continue to payout dividends of the same amount as what they have in the past, which does not always happen. So, I’m definitely keen to learn any methods which may enable me to better understand the companies I am researching and to make better investing decisions.

I am really trying to understand the Cash Flow model of valuing businesses, as I feel that this is very important. I understand from reading the study guide that it is essentially the net amount of money generated by a business after allowing for expenses, including both operating expense and capital expense. So, whereas capital expense may be depreciated over a number of years on an income statement, it still is effectively paid by the business upfront in that income year.

So, I can see that this is more of the “real” profit of the business for that year, before adjustments are made due to the Australian Taxation laws.

And I can see why the dividend paid should be based on this amount. As this effectively divides the “real profit” between all the owners of a business.

However, in reality, a share price does not reflect the actual value of a firm. In fact, (and correct me if I’m wrong), this is more affected by the economic principles of supply and demand than it is by a firm’s real value. An investor who is looking for capital gain may look more to whether a firm is over or undervalued, however an investor who is looking for dividend returns may not even care, as long as the dividend payout is (what they believe to be) a higher percentage of the share price than what they would potentially earn if they put the same amount of money in the bank.

It also makes sense now why the cash flow statement would also be important to look at, regardless of what kind of investor you are – as if we want to assume that dividends will continue into the future, they can’t continue to pay dividends forever if they are making a loss! Whereas just looking at the recent dividends paid could be quite misleading. I also found it an interesting comment that the statement of cash flows eliminates the judgment aspect of accrual accounting. With the cash flow statement there can be only one correct answer – I like this one! A bank balance is a bank balance!!

I actually feel now that doing this step of the assignment has been very beneficial to me. Sometimes when I need to process how I feel about something in order to make a decision, I will discuss it with my husband, my Mum or a close friend. This is not necessarily because I want their advice, but often just that talking things aloud helps me work out what I want to do.

A similar process has occurred for me in regards to the cash flow statement method of valuing a company. I initially started typing this out without really “getting it”, however as I persevered with the task, I felt that something “clicked” for me.

I am really looking forward now to learning to understand the financial statements even further, and am looking forward to the future units!

STEP 6Please see the following copies of feedback that I have provided to other students:

PEER FEEDBACK SHEET: ASS#1

Feedback From: Emma Rizeman

Feedback To: Sonia Elizabeth Gomez Lopez .

My Comments

Step 1

KCQs

I thought this was very well written. I liked the way that you were very honest about your strengths and weaknesses, and that you demonstrated a real willingness to step outside your comfort zone, and use technology more, even though this was something you were

not overly familiar with. I also think you are more capable than what you think you are so don’t sell yourself short! You said that you often forget what you have learnt very quickly, but later in your writing, you were able to relate the accounting terminology back to what you learnt in school! That sounds like a good memory to me! 😊

Step 2 I enjoyed reading your introductory words on your moodle profile, they helped me feel like I was getting to know you a little. New beginnings are always exciting! You’ve chosen a lovely photo, and I thought the description “ready” was a great word to choose when embarking on something new. The blog link worked properly also.

Introductory words in Description box

Photo and description

Link to your blog/Set up blog

Step 3 I enjoyed reading about your company, Hays. I found it interesting as this was a company I have heard of in the past, however I did not realise that they were a worldwide company or that they were as large as what they are. You did a good job of explaining their main goals and achievements, and I also liked the way that you used visuals throughout the report.

Something to maybe look at changing would be the layout of the paragraphs (mainly in the introductory section). Some of the lines have different indents to others, which makes it look less neat. The content, however, was great! You did a great job of summarising the Annual Report in “layman’s terms” which made it easy for the reader to understand, and also were honest about those areas which you were finding it hard to grasp.

Background information on company

Comments/KCQs

Comments on other’s blogs

Step 4 Not available

Input company’s financial statements

Step 5 I felt that this was a good discussion piece. You took your reader on a journey with you, which gave an insight into your mind as you went through the readings in the study guide. You asked thoughtful questions and then pondered what these questions meant, in a way which sometimes then led you to the answer. I also thought you did a good job of relating your own experiences to help you understand new concepts, such as that of accrual accounting.

KCQs

Step 6 I really appreciated the feedback that you gave me. You put a lot of thought into your comments, and I found them really helpful.

Individual feedback with others Reading through the feedback you gave others, I can see that you put the same amount of thoughtfulness and effort into those also.

Thank you!

Overall ASS#1 Overall, I thought you did a great job! The content is good. You have provided detailed information about both your company and the concepts within the study guide. You have also asked excellent and thoughtful questions. I like the way that you write in a way that takes me on a journey through your mind as you ponder the concepts. I did notice that some of the sentences were not 100% grammatically correct, so it may be worth having someone proof read it for you, who is able to make changes, however these were only minor – they did not affect my understanding of your assignment at all.

Great job! 😊

PEER FEEDBACK SHEET: ASS#1

Feedback From: Emma Rizeman

Feedback To: Jayson Blackford .

My Comments

Step 1

KCQs

I enjoyed the introduction you gave about yourself. Kudos to you for giving uni another go – moving interstate to help you complete your degree shows a lot of commitment – I’m sure you will do well! I was also impressed with the fact that you have created a calendar to help you remember all your assignment due dates – this is definitely something that I should look at doing! You showed a lot of thoughtfulness and insight as you reflected on the concepts from the study guide. I really liked the way that you used your experience at Domino’s to help you understand the importance of accounting in the business world.

Step 2 I was able to read the introductory words about yourself on your Moodle profile, and it was also great to see that you had a link to your blog. However, you have not uploaded a photo to your profile yet. Introductory words in Description box

Photo and description

Link to your blog/Set up blog

Step 3 I am very envious of the fact that you were given a familiar company! You did a good job of explaining the company based on firstly your own experiences, and then also what you learnt about them from reading the annual report. I also thought Breville only made kitchen appliances!

Your sentences are structured well and are very easy to read.

I also thought it was a great touch, and showed initiative, that you not only read the annual report, but you took the time to research the company further by looking at the customer reviews they receive. You showed concern about the negative reviews, however just remember that dissatisfied customers are much more likely to contact a company and provide feedback than what satisfied customers are!

Background information on company

Comments/KCQs

Comments on other’s blogs

Step 4 The information appears to have all been entered correctly, and the spreadsheet has been formatted well. I liked the way that you put extra lines between the sections in the balance sheet and income statement. This made it easier to read!

Input company’s financial statements

Step 5 I thought that you had good content and demonstrated a good level of understanding of the various concepts. You were also able to use examples from your own life (eg. HECS) to help increase your level of understanding. Your writing flowed well, however I did think it needed a bit more proofreading, eg. In the correct use of their vs there, and using apostrophes, eg. government’s.

KCQs

Step 6

Individual feedback with others

At the time of reading this, you had not yet included copies of your individual feedback templates into your draft. However, the feedback sheet you emailed to me was extremely valuable. I appreciated your well-written and thoughtful comments, and I really hope that Martin likes my assignment as much as you did!

Overall ASS#1 Overall, I thought you did a great job! The content is good. You have provided detailed information about both your company and the concepts within the study guide. You did a good job of explaining the concepts in your own words. The examples that you gave in order to relate the concepts to your own experience were good, though I did think you may need to include more of these.

Great job! 😊

PEER FEEDBACK SHEET: ASS#1

Feedback From: Emma Rizeman

Feedback To: Stuart Henschke

My Comments

Step 1

KCQs

I liked your writing style. Your sentences flowed and were easy to read. You explained the concepts well, and were able to clearly articulate them using your own words. Whilst it was good to see that you explained your understanding of the concepts, I thought it would have been good to see you relate it to your own experiences more.

Step 2 I enjoyed reading your “about me” section in your blog. I am enrolled in the Financial Planning major as well!

I got an error message when trying to view your profile on Moodle, so cannot comment on this. However, I can see that you have uploaded your profile pic.

Introductory words in Description box

Photo and description

Link to your blog/Set up blog

Step 3 I found your step 3 to be an informative and easy read. I found it interesting to note that your prior knowledge of your company did not really give you an advantage when it came to analysing their financial statements. This was reassuring to me, as I had been given a company I had never heard of before! It was clear that you put a lot of thought into your questions that you had about the company. I really liked the way that you included questions that you had about your firm and it’s report, but then updated it with the information later when you found out the answer. You did a good job of relating the information that you learnt about the firm back to your own experiences. I also thought you made intelligent comments about the on-market share buy back. Thank you also for your explanation on the “other comprehensive income”. This was something I had been struggling to understand myself and your explanation made a lot of sense!

Background information on company

Comments/KCQs

Comments on other’s blogs

Step 4 The information appears to have all been entered correctly, and the spreadsheet has been formatted well.

Input company’s financial statements

Step 5 This is very well written. You’ve done a good job of explaining the

concepts in your own words, and then also relating them to examples from your own experiences to help explain them further. Reading your step 5 has helped to enhance my own understanding of the subject matter, so thank you!

KCQs

Step 6

Individual feedback with others

At the time of reading this, you had not yet included copies of your individual feedback templates into your draft. However, the feedback sheet you emailed to me was extremely valuable. I appreciated your well-written and thoughtful comments.

Overall ASS#1 Through reading through both your assignment draft and your blog, it is evident that you have put a great deal of effort and thought into your work. I was impressed that you took the initiative to survey other students and to publish the results. This was certainly going ‘above and beyond’ with the online communication aspect of this subject. I found your assignment to be well-written, interesting and I enjoyed learning more about your company.

Well done 😊

I also was fortunate enough to receive feedback forms from 4 different students. I enjoyed this process much more than I thought I would. Receiving their positive comments was very encouraging – I can only hope that Martin thinks just as highly of my assignment!! Their constructive criticism was also very helpful and highlighted areas I needed to change in my assignment. I had not realised that I had not included a link to my Moodle profile in my assignment until this was pointed out to me by one of my peers (you will note that this is now included on the title page). The feedback from my peers also encouraged me to post company information on my blog (this had been previously in my assignment only).

In addition to receiving the 4 peer feedback sheets, 1 student said the following to me on Facebook:

Hi Emma Rizeman, I found your blog to be so creative! And reading your steps 3-6 above had me hooked as the more I read, the more I wanted to know. I was interested in the company you were given which also had me reading more. I love the information you summarised and was surprised how Brexit could be a positive to one company and not another! I am Following you and all the best for your studies :)

Another student commented the following on my blog:

Your blog name is genius. I liked your summary of your companies because I was not familiar with them. I also really appreciated the way you summarised the annual reports, it’s quite easy to read that way. It’s interesting the way you integrated Brexit into it as well. And there’s no shame in Googling what you know, so that’s useful too. I do think Step 5 is a bit long, but perhaps that’s just me, so it makes it harder to follow. But overall, it’s insightful!

I actually took it as a real compliment when other students took the time to read my work and comment on it; this was a very rewarding experience.

However, I actually found the most useful task to be providing feedback for others, as it required me to read other people’s work in detail. Through reading other people’s KCQ’s, how they put things in their own words, and related them to their own life experiences; this helped me to understand some of the concepts I was learning a lot better (in particular the comprehensive income statement) and this has been very beneficial to my learning.