Accounting Financial Analysts

Question: Discuss about theAccounting for Financial Analysts. Answer: Introduction: Business operation in any country is very crucial and critical as the same depends on lot of external and internal factors of the business. Regulatory framework is one of such factors. Australia is considered to be very investment friendly country and investors often tend to invest in various ventures headquarter or incepted in the country. However, it has been identified that there have been few instances where the business grew in Australia and subsequently went into liquidation in a time span of 10 to 15 years. This essay considers the case of DickSmith Holding Limited (DSH) which went through similar situations that is to say the inception of the company, its growth, expansion, gradual problems and lastly the demise of the organization. In other words, the current study attempts to evaluate Dick Smiths history and formation with its initial success drivers and achievements. The study also explores the changes in companys structure, cause of the companys demise and its impact on t he society. This essay discusses about the brief history of the company and how it was formed. It also throws light on the key initial success drivers, financial milestones or achievements of the company. Also, major changes in its structure over the corporate life are also talked about. This essay also shows how the company managed to enter into various deals of mergers or demergers. Furthermore, this also depicts the generally accepted reasons that caused the liquidation of the firm and its consequential social impact, both internally on staffs and externally, across the wider business community and society in general. Lastly, this essay ends with a summary of the lessons learned and recommendations. Dick smith is a public company that was founded in the year 1968, and owned by Dick Smith and his wife till the year 1982. Dick Smith is a retailer of consumer electronic products. The company specializes in four broad categories: office, mobility, entertainment and other services. Dick Smith has two segments: Dick Smith Australia and Dick smith New Zealand. The companys network of stores consist of approximately 393 stores across Australia and New Zealand. In the year 1982 Woolworths Limited purchased Dick Smith. The company was later sold to Anchorage Capital Partners in the year 2012. In January 2016, Dick Smiths share price has fallen 80% in the Australian Stock Exchange (ASX) as a result a halt in trading was requested and on July 25th 2016 Dick Smith was liquidated. Considering the previous content, Abdel-Kader Luther (2008) claimed that, due to the devaluation of Dick Smith Companys shares; it was forced to sell its rights to Kogan.com in May 2016. Dick Smith Holding Limited (DSH) was started in the year 1968 with initial capital of AU$610. The business was established in a rented premise of a car parking space. The founder, Dick Smith, named the company after his own name. In the words of Zhang (2011), Dick Smith introduced the concept of self serve shopping, which was included free in the popular magazine Electronics Australia and Electronics Today International. Dick Smith gained its profit majorly from the sales of CB radio during 1970s. Dick Smith took the advantage of exploding sales of personal computer; as a result the company established electronic components and kit lines. Dick Smith gained popularity with the sale of Dick Smith Cat (Apple II clone), which was highly successful in the production line. The company also gained popularity from the sale of VZ-200 and VZ-300. Dick Smith sold personal computers with brand name Commodore VIC-20 and Commodore 64. Dick Smith and Electronics Australia magazine entered a joint v enture to develop the Super-80 computer kit in the year 1981. Dick Smith was the fastest growing retailer of consumer electronic product in Australia, with the largest number of stores spread across the country. As per opinion of Block (2008), to put Dick Smiths initial success into consideration, the fact can be stated that, two years after listing in the Australian Stock Exchange with a valuation of $520 million, the company had a profit of $37.9 million. Dick Smith had a sale base of $1.3 billion and debt of just $40 million. In this context, Blndal (2011) stated that Dick Smith had an aggressive growth program. Dick Smith in its initial business days added 75 new stores, after initial public offering. The network of Dick Smith expanded at the rate of 25%. On the other hand the company launched new formats and brands in the market, entering in the category of small appliances. The company aggressively increased its offering in private label. The inventory base of Dick Smith grew from $171 million to $293 million. It was a major leap for Dick Smith, as its sales base grew over 70%, compared to a growth of just 10% in the last two years. Dick Smiths achievement was contributed majorly by its range of private label electronics during 1980s. In the year 2007, Dick Smith Electronics used its brand on a broad range of products, which included DVD players, set-top boxes, Television aerials, AV receivers and amplifiers, NiCd and NiMH rechargeable batteries, alkaline and lithium batteries, speakers, digital cameras, etc. In the initial days, the main activity of the business was installation and providing repair servicing of taxi radios. Gradually the business expanded to car radios. Few months later, the business grew more. The owner opened new line of service which is Dick Smith Wholesale. During 1970s and 1980s, the business expanded its product range further and sold products like answering machines, cordless phones, computer games etc. By 1980s, the company managed to open 20 stores. Dick Smith sold off 60% of the companys share to Woolworths Limited in 1980 and in the year 1982, Woolworths Limited acquired the balance share of the business. In this way, Woolworths Limited became the primary owner of the business against a total payment of AUD$25 million. In 1990s, Dick Smith Electronics Powerhouse was formed in New South Wales. This Powerhouse was established to provide products and services in the field of audio-visual and amateur radio areas. Booth Andrew (2011) stated that in the year 2003, the Powerhouse concept was rebranded to target the home appliances market such as kettles, coffee makers, toasters etc. In the year 2007, DSH introduced PowerSquad. It was a home installation service to install items such as television, computers and other electronics appliances for household. In the year 2012, Woolworths Limited announced that the business would close down approximately 100 Dick Smith stores across the country and sell off the business. Dick Smith, at that point of time, was still associated with the business against a very minor interest in the enterprise. The deal ultimately took place between Anchorage Capital Partners, an Australian investment firm, and Woolworths Limited under the supervision of Dick Smith. Value of the deal was AUD 20 million. Anchorage Capital Partners converted DSH into a public limited company by floating the shares of the firm in the market. At that time, the total market capitalization of the firm was around AUD 520 million. In 2013, business of Dick Smith allied with David Jones whereby Dick Smith acquired around 30 retails stores in the country and online. One year after, the business bought MAC1, an authorized apple service center and reseller. This deal was proved to be beneficial for Dick Smith. Also, in the words of Breal ey et al. (2013), an alliance with Trade Me platform further strengthened the market share of Dick Smith as millions of customers using online platform of Trade Me was able to purchase directly from Dick Smith stores. In the early 2016, the disaster occurred. Share prices of Dick Smith Holding Limited (DSH) dropped by more than 80% in the Australian Stock Exchange (ASX). This had lead to a trading halt for the business. The very next day, the company went into receivership. National Australia Bank (NAB) and HSBC Bank Australia were primary creditors of the company and administrators cum liquidators were appointed by them only. Few months later, it was reported that Kogan.com, an online retailer, acquired the business of DSH. In July 2016, creditors of the company placed the company in liquidation. It was assessed that the creditors of the company would lose around AUD 260 million. Bushman Smith (2011) inferred that the primary reasons of the failure of DSH were almost in line with a dynamics of a competitive economy. It is a well known fact that if the business does not utilize the economic resources efficiently as the way the competitors are using the same, the business may fall down. The same situation happened in case of DSH also. Secondly, the method of accounting followed by the Woolworth Limited was also not accepted by Anchorage Capital Partners. In this context, Charupat et al.(2012) stated that these two companies were in disagreement with respect to the valuation of inventory. Anchorage wrote down the value of inventories of Dick Smith. This artificially inflated the profit position of the firm. Same policy was followed by the Anchorage in case of property, plant equipment. Investors got more attracted to the business. However, when these assets and inventories were sold off, these were not worth of the price these assets were shown at. Besides, Re bate based purchase also put negativities on the business profit. Choo Tan (2012) opined that due to the presence of profit, profit increased in the month of purchase. However, the profit remained flat in the month of sale. This impacted the general business transaction cycle adversely. The one of the most important and primary reasons of failure of Dick Smith Holding was the intention of Anchorage Capital Partners to reap of the benefit out of the said business as quickly as possible. Comment Jarrell (2011) stated that Private Equity firms (PE) in Australia are not much compliant with the regulatory provisions and hence the act of the PE firms often goes unnoticed and unregulated in the cou8ntry. This was one of the important considerations for the Australian Government after the massacre of DSH. According to Deegan et al. (2006), it was interesting to note that the financial statements of Dick Smith were audited by the auditors and no adverse findings were noted by the auditors. It might be understood that the auditors missed to identify any loopholes around the inventory. Since inventory is one of the most crucial factors in any retail business system, inventory management should have been one of the primary areas of interest for the auditors. Based on the clean chit provided by the auditors, stakeholders continued to keep maintaining faith in the management of the Dick Smith in the operations. As per the opinion of Degtiareva (2012), The impact of the gradual demise of the organization was adverse on the internal and external environment of the enterprise. Customers, who bought the gift cards for Christmas 2015, were intimated that the cards could not be used. Employees were given notice of retrenchment. Dick Smith had around 3,300 plus employees before the firm went into liquidation. The liquidation resulted in huge negative repercussion among these employees. Moreover, Dick Smith had borrowing of about AUD 140 million to NAB and about AUD 30 million to Macquarie group. These amounts proved to be bad. Conclusion: From the above discussion, it is inferred that the incorporation of a business does not need much of initiatives. However, a lot of plans and strategies are needed for the sustenance and growth of the business. According to Paramasivan Subramanian (2009), regulatory changes should be made in such a way so that the business acquisitions, financial accounting and reporting methodology are monitored and controlled by the regulators. Private Equity firms and other houses such as banks and financial institutions should also be brought under the regulatory umbrella. References: Abdel-Kader, M. Luther, R. (2008) The impact of firm characteristics on management accounting practices: A UK-based empirical analysis. 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