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Accounting Principles Apply To Business (Case Study)

1729 words - 7 pages

Tara Wu had recently received $5000 from her grandmother as a gift. She wants to invest this money in shares. Therefore this preliminary investigation on Hallenstein Glasson Holdings Ltd is provided to her better investment option for that sum of money. Hallenstein Glasson Holdings Limited is the merger of the Hallensteins and Glassons retail brands in 1985. The main activity of the group is retailing women's and men's clothing. Up to 01- Aug- 2005, there are 18 stores located in Australia and 77 stores locate in New Zealand, consisting of Hallenstein menswear stores and Glasson womenswear stores. (Annual report, 2005) Hallensteins and Glassons seem to supply clothing as well as develop ...view middle of the document...

3. Does Hallenstein Glasson have any retain earnings or reserves? Retained earnings are important for businesses since this money is used to fund growth and buy fixed assets. Dividing the investment by the value of the company will give the percentage of ownership shares the investor will get. In order to find out the retain earnings or reserves, we should look at the equity of shareholders. 4. Have more funds used in the business been supplied by the shareholders or outsiders? Owner's equity and liabilities are the sources of the funds for the business. Hallenstein Glasson, which is the large company publicly, can not only raise fund by selling the more shares, but also obtain finance by making loans. Through the equity ratio, we can know the proportion of the business assets which were funded by the insiders' investment or by the outsider's investment in the business. 5. Is this profitable? Is it growing? How fast? The investor is looking for ways to invest their money intelligently and profitably, we need evidence that the investment opportunity will an ideal return which will overcome those risks from their investment. As well as looking at the net profit from sales, we can get an idea of a certain level of profit which can be produced from the amount of sales. 6. Does the company have an efficient management team? As Investors, we are interested in the past track record about management team, the present s skills of management team and the company's competitive position and preparing for the company's future growth. Background information including Sales During the year ended 31st of July 2005, sales at Hallenstein Glasson were $183,653 thousands. This is an increase of 1.72 % versus 2004, when the company's sales were $180,543 thousands. This was the fifth consecutive year of sales increased at Hallenstein Glasson and since 2001, sales have increased a total of 14.5 %. (Annual report. 2005) Through Hallenstein Glasson is headquartered in New Zealand, total sales in Australia increased 23.3%. All Hallensteins and Glassons store numbers in New Zealand remained the same, while in Australia an additional 3 stores were added during the year. (Hallenstein Glasson Lifts Profit and Dividend. 2006) According to this graph, it is reasonable to conclude that the credible achievement on Hallenstein Glasson is the result of strong management together with the successful market strategy. Profitability Analysis On the $183.653 millions of sales reported by the company in 2005, the cost of goods sold was 49.8% of sales. The gross profit was 92,261 thousands, or 50.2% of sales. This gross profit margin is slightly higher than the company achieved in 2004, when gross profit was $88. 737 millions or 49.1%. The company's earnings before interest, taxes, depreciation and amortization (EBITDA) were $ 28.899 millions, or 15.7% of sales. [pic] (IRD 2006) Proportion of assets This balance sheet summary of Hallenstein Glasson shows that current assets, in 2005,...

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