Case Study : Analyze The Conceptual Framework

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Financial analysis for A2 Milk Company

Financial analysis is helpful for making the identification of the firm with the help of financial statements. A2 Milk Company is a milk producing company. It produces dairy milk which is purely natural and completely additive free. A2 milk is the milk of the cow that contains A2 kind of beta-casein. Daily Farmers is also a milk producing company of Australia. Dairy Farmers is the third highest milk producing company. The company sells fresh milk and butter products. The effective analysis with the help of financial statements for these firms is discussed. The requirements of AASB standards are also mentioned in this scenario. The critical analysis of these two firms is measured here through annual reports. At last, the recommendations based on the accounting framework of these two companies are discussed. Herein, the topic is about an analysis of conceptual framework which is helpful for meeting the requirements of AASB standards in case of A2 milk and Dairy farmers.

Financial statements based upon AASB standards

The Australian accounting standard board (AASB) is the agency of the government that maintains the financial for both the sectors public as well as private sectors. The financial statement of A2 Company and the Dairy farmers of Australia are based on the AASB standard. As per the AASB standard mostly, A2 milk has followed the requirements. In the case of Dairy farmers few components are not followed for which the effective analysis of conceptual frameworks are not maintained (a2milk.com.au. 2016).

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The A2 Company includes changes in the surplus revaluation as the property of AASB 116 and AASB 138 mentioned. This company also includes re-measurements in the company benefit plans as AASB 119 includes the benefits of the employee. The gains and the losses that arise after translating financial statement is also included as AASB 121 mentioned (Dieckmann and Plank, 2012). The company also includes the gains and the losses that occur from the investment which is designed for fair value in the equity instruments. The A2 Company also includes the changes in the value of forward and spot element. The gains and the losses are measured on financial assets as the AASB 9 states (Healy and Palepu, 2012).

The Dairy farmers company has followed the changes in their surplus revaluation. The company has also followed the gains and the losses that arise after financial statement gets translated. On the contrary, the company has not followed the gains and the losses that occur from investment which is designed at the fair value through comprehensive income. Due to this, the management issues are faced by this company (Hsu et al. 2014). The company has also not designed their liabilities as fair value in the equity instruments. However, the company follows benefit plan in their re-measurements.

In the case of A2 milk, it is seen that the gross profit is for $151000 AUD and for Dairy farmers the rate is for $3000 AUD. With the help of the income statement, it is seen that A2 milk has operating income for $53000. This, the firm has met its requirements through AASB standards. In the case of Dairy farmers, it is seen that the operating loss is for $2000. Thus, the standards are less focused for this company. Hence, the effective information is not maintained through which the mistreatment has been taken place for Dairy farmers (Finance.yahoo.com. 2016).

The conceptual framework in case of including Prudence for keeping the disparity in corporate reporting

Corporate reporting is mainly the set of rules and practices that any organization follows to achieve its objectives. This corporate reporting is framed to maintain the interests of the company and various stakeholders like management, suppliers, and the customers.

The A2 milk company has included prudent follows the codes and conducts stated by the corporate law (Ioannou and Serafeim, 2014). Thus, it has very well framed the company's own policies and ethics. The company presents its conceptual framework by regular supervision on its ethical issues for the development of financial activities. The company board of directors’ role is also vital. It is the board of director responsibility to frame the policy for the company and monitor the financial performance. The training of the directors is also done so that they can perform their duties in a better way. The board remuneration committee has been established in order to determine the packages of the board members (Maditinos et al. 2011). The auditing department and the risk management committee consist of three directors. It is the responsibility of the committee to analyze the scope and review the annual performance. In order to avoid disparity A2 company has defined all the policies and the procedures appropriately (Scott-Clayton, 2011). This is helpful for them to make the relationship between the management and client.

The conceptual framework of Dairy farmers also follows the codes and conducts which are mentioned in the corporate law. The company board directs and monitors on behalf of the members. The board approves the strategic policy to ensure accountability. This company has different business units (Woodford, 2010). The farm product and the productivity unit’s focus on to increase the productivity of the farm whereas trade units focus on to maximize the wealth. This farm also ensures the safety of the food. The company first priority is the food safety. The conceptual framework of Dairy farmers is framed in according to avoid disparity. The regulatory framework of this company ensures safety for its products (Healy and Palepu, 2012). The company has framed sustainability for enhancing the livelihood of their employee and for improving the well-being of the animal. This sustainability is also framed to reduce the impact of the environment.

Explanation of financial statements in case of A2 milk and Dairy farmers

With the help of the financial statement of A2 milk the accuracy of the financial information are collected. The gross profit rate if for $151000 and the revenue rate is $353000. Due to this the operating income also gets raised for $53000 (Dieckmann and Plank, 2012). The rate of net income is $30000. Based upon the income statement the accuracy of the income get framed for this firm. Based upon cash flow statement the depreciation rate is known which is helpful for making the operating activities. The total operating activities of A2 milk is for $21000. However, it is also seen that as the investment rate is higher for that the negative result is seen in the case of the investing activities for $2000. Financial activities are also seen for $44000 (Healy and Palepu, 2012). This is helpful for A2 milk firm for changing the cash equivalents for $63000. With the help of balance sheet, the effective relationship between the assets and liabilities get maintained. The total current assets are for $182000 and for this the rate of total assets are $210000 for A2 milk. This denotes that this firm is in a healthy position. The rate of total liabilities is $77000. These three statements are helpful for A2 milk to identify its financial position in the global market.

However, in the case of Australian Dairy farmers, it is seen that the rate of total revenue is $7000 and the total revenue rate if for $10000. The operating expenses in the income statement are for $12000 (Maditinos et al. 2011). The net income has been found that it is in the loss for $1000. In the balance sheet, the rate of total assets is for $45000. The current liabilities are here less than the assets for $7000. It is seen here that the liabilities are due for which the rate of current liabilities has raised in the case of Dairy farmers (Ioannou and Serafeim, 2014). Cash flow statements in operating activities are in a negative manner for $1000. As a result, the cash equivalents are also in a negative aspect for $12000. Due to this, it can be said that as there is lack of investment activities for that the rate has decreased in a negative manner. AASB standards are measured mainly in case of A2 milk. For this reason, the financial growth rate is higher in A2 milk company.

Identification of the differences between A2 milk and Dairy farmers

AASB standards are deeply followed by A2 milk which is helpful for them to gain more profit in the global market. The rate of total assets is greater in this firm for $210000. Whereas, the Australian Dairy farmers are consists of $45000 total assets. The aspect of total currents liabilities is also greater for $77000 in the case of A2 (Hsu et al. 2014). On the other hand, Australian dairy farmers have $7000 total current assets. The revenue of A2 Milk Company consists of $353000 and the gross profit is for $151000 respectively. However, Australian dairy farmers have a gross profit for $3000 through which the operating expense has raised for $12000 (Au.finance.yahoo.com. 2016).

The net income of A2 Milk Company is for $30000 and Dairy farmers are in a negative position of the net income for $1000. Thus, the operating loss has been seen here for $2000. A2 Milk Company consists of the financial activities of an amount of $44000. Similarly, Dairy farmers have the financial activities for $12000 (Healy and Palepu, 2012). It is seen that the accurate position is maintained in case of A2 Milk Company with the help of the AASB standards. Therefore, the conceptual framework is also handled in this particular firm in an accurate manner. Dairy farmers are also required for meeting the AASB standards (Australiandairyfarmers.com.au. 2016).

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Conclusion

It is concluded that financial analysis is helpful for conducting the conceptual framework. It is seen that A2 Milk Company has followed all the AASB standards whereas Dairy farmers has not followed all the AASB standards. The gross profit rate and revenue rate of A2 Milk Company are higher in comparison to Dairy farmers. The net income of Dairy farmers is low in comparison to A2 Milk Company as it has not followed the entire AASB standard. A2 Milk Company and Dairy farmers have framed their corporate reporting so that disparity can be avoided and prudence can be maintained. The current liabilities of Dairy farmers are increasing in comparison to A2 Milk Company. Further, it has been concluded that conceptual framework is essential for the identification of the financial company so that the performance of the company can be maintained.

Recommendation

Dairy farmers should maintain all the AASB standards so that the farm can meet their financial requirement in the global market. They should also increase its revenue rate and gross profit rate so that the performance can be maintained in an effective manner. The cash flow statement of this firm also should be managed with the help of investing activities. In the case of A2 Milk Company the investing activities also must be focused so that the accounting framework gets maintained. Dairy farmers also must maintain their financial performance so that healthy relationship between the management and the clients of this firm get framed.

Reference list

  • a2milk.com.au. (2016). Milk that’s naturally all A2 - a2Milk™ | Feel the Difference. Available at: https://a2milk.com.au/ [Accessed on 15 Dec. 2016].
  • Au.finance.yahoo.com. (2016). AHF.AX Income Statement | AUSDAIRY STAPLED Stock - Yahoo!7 Finance. Available at: https://au.finance.yahoo.com/q/is?s=AHF.AX&annual [Accessed on 15 Dec. 2016].
  • Australiandairyfarmers.com.au. (2016). Dairy Farmers Australia | Dairy Advocacy Group | Australian Dairy Farmers. Available at: http://www.australiandairyfarmers.com.au/ [Accessed on 15 Dec. 2016].
  • Dieckmann, S. and Plank, T., (2012). Default risk of advanced economies: An empirical analysis of credit default swaps during the financial crisis. Review of Finance, 16(4), pp.903-934.
  • Finance.yahoo.com. (2016). A2M.AX Income Statement | Balance Sheet | Cash Flow | A2 MILK FPO NZ Stock - Yahoo Finance. Available at: http://finance.yahoo.com/quote/A2M.AX/financials?ltr=1 [Accessed on 15 Dec. 2016].
  • Healy, P.M. and Palepu, K.G., (2012). Business Analysis Valuation: Using Financial Statements. Cengage Learning.
  • Hsu, P.H., Tian, X. and Xu, Y., (2014). Financial development and innovation: Cross-country evidence. Journal of Financial Economics, 112(1), pp.116-135.
  • Ioannou, I. and Serafeim, G., (2014). The consequences of mandatory corporate sustainability reporting: evidence from four countries. Harvard Business School Research Working Paper, (11-100).
 
 
 
 
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