This morning our groups were announced for our assignment feedback. I have posted below a draft of my assignment and hopefully we will be able to see the drafts of the people in my group soon.
STEP 1: My profile and blog
STEP 2: My Company
HKEx Key Concepts (KC) and Key Questions (KQ)
Hong Kong
Exchanges is a company that operates a securities and derivatives market and the clearinghouses for
them both. They are based in Hong Kong and began trading in 2000, this year
marking its 15th Anniversary. The celebration of this anniversary seemed to be
a huge affair from what they have posted on their website which shows great
improvement within the company and so many tremendous accomplishments,
foremost, they are now one of the world’s largest exchange owners based on the
market capitalization of their shares. In their 15th Anniversary announcements
they showed that their closing price of dividends to share holders had
escalated dramatically from $8.25 in 2000 sky high to $309.40 in 2015.
It also
shows that they have diversified their company over the 15 years, primarily
through their take over of the London Metal Exchange (LME) in 2012 which
already accounts for 16% of their Revenue, which in a multibillion dollar
company is quite a lot.
Their
website seems very forthcoming with all information displayed clearly
which was surprising to me considering they are a Chinese
company. However, considering they are a multi billion-dollar company,
I shouldn't have really been that surprised.
I’ve
started to read through their annual report for 2014 and you can see how well
they are operating their business; almost all of the key aspects of the company
have shown very similar growth. This is both for income and expenses and such.
It’s my view that these both go hand in hand and so their report looks positive
in my eyes so far.
The overall
growth in revenue and income is attributed to higher trading volumes and growth
in their other categories. Whilst the growth in operating expenses was in
direct relation to the former with the higher trading volumes requiring a
higher head count, along with increased legal fees.
If I were
investing in their company, my main focus would be on what I can get from the
company overall and in 2014 with a 12% increase in basic earnings per share and
a whopping 25% increase in dividends per share, I would be more than happy to
see these results.
One of
their biggest strategic achievements for 2014 was the launch of their
Shanghai-Hong Kong Stock Connect program, which involves investors in both
Mainland China and Hong Kong to be able to access each other’s equity markets.
This scheme will also hopefully help the never-ending process of making the
Remnibi (Chinese currency) internationalized and allow the company to continue
expanding.
While
looking over all four years that my annual reports cover, there is a
consistency which is not only good for me as I attempt to interpret these
reports, but also reassuring to the investors that they are continuing to earn
money on their investment.
KQ-
The biggest
question I have continuously popping up in my head is “What does the
internationalization of a currency really mean?” Although this question doesn’t
really have much impact on the financial statements, I feel as though it will
greatly help my understanding of the company if I can figure it out. So this is
my mission over the next couple of weeks, hopefully with some help by my fellow
accounting students.
Overall, I
find the company to be very confusing because of the technical language they
use because I’m unfamiliar with it, but the numbers don’t lie and the company
appears to be flourishing.
Evidence of KCQ’S/Company Discussion with other Students
“”Re: Company discussion
Interesting company you have
there and your company introduction in awesome, very informing and your company
seems to be doing well considering its a stock exchange and stocks have been
down lately. I am very impressed with their share price of $309.40 compared to
my company Medical Australia (Healthcare industry) with a current share price
of $0.06. I Know, l was surprised since the health market is in demand or maybe
they are a lot of competitors, who knows. Which currency is your company using?
I am still reading through my
company's annual reports. The more you read the financial notes, the more you
will understand your company and google helps as well.
Has your company ever made a
loss in the last 4 years? My company has had 3 losses, last financial year they
made a profit.
Re: Company discussion
Oh thank you!
Yeah they are doing so well!!
All I've got left to do on this assignment is the group feedback thing and
throughout all my annual reports and everything, they've never lost money. They
were doing so well back in 2011 as they are now, but still in the BILLIONS.
Yep, Billions! This is actually based on their annual report for 2014, and they
have taken a huge nose dive this year like everyone else but from what i can
see they will be fine!
The currency on my
spreadsheets and actually all over their everything is in USD millions, which
makes it a little easier to wrap my head around than yuen or remnibi.
Yeah, you would think there
is a lot of money in the healthcare industry.. very strange. Are you enjoying
working on that company?
Re: Company discussion
Wow, you are working with
billions! As for me, l am dealing with figures below $15 million. I noticed my
company was restructuring its costs in the 2014 financial year and they made a
small profit of $105 241. What profits did your company make last financial
year? Please Go to my blog and click on the latest post my firm's annual
reports.
I do like to know some
significant things that has occurred in the Honk Kong stock exchange.
Re: Company discussion
Oh thats such a small profit!
My company made $5,138,000,000.. so just over $5billion for year ending
2014.
Just had a look at your
latest financial report and my gosh it is so clear and well explained.
Im so envious of you haha my
reports are dense with all these terms i dont understand.
i haven't posted the links to
my financial reports yet on my blog because I'm not sure its necessary but i
will give you the link so you can have a look and compare the difference. - HKEx
Annual Report 2014
I find it curious that your
company didn't post in their "current liabilities" their payments to
staff and suppliers until the statement of cash flows. It makes the company
look really profitable until you get down to the statement of cash flows and
realise that there is a huge pay out of over $12million and there goes all that
profit.
I wonder if it is meant to be
this way in their statements or perhaps they were trying to hide this from
their investors. “
To Nick Gregory on his blog
Hey Nick!
Your blog looks
great so far. Its great to see how you have outlined all the key parts of the financial
statements with regards to what is relevant to you and identified some key
questions.
I dont know
your company very well but know that usually company benefits will include
things that are over and above the normal wage of the employee such as healthcare,
work cover, leave and so on.
Sounds like
you've got a good little company to work on.
How are you
enjoying it so far?
Feel free to
check out my blog and compare the differences! -
http://christynjade.blogspot.com.au
Have a great
day! “
Open Discussion with peers on Step 2 Forum
“ Our Companies
So I think by now most of us
will have seen our companies by now. How is everyone feeling about theirs?
I feel like my brain is
exploding because i got Hong Kong Exchanges which is a huge stock exchange
company and I know nothing about stock exchange and all their lingo is just so
over my head right now. Hopefully we can all work together to figure everything
out and help each other :D
Re: Our Companies
Hi Christyn,
I just had a look at my
company also, it seemed interesting, I got healthcare so not as hard as yours
Iol, I wouldn't know the first thing about stock exchange. I am having trouble
with my annual reports though 
my company only has 1 annual report available
on their website so that is fun lol. Haven't even started yet and I am already
wanting to pull my hair out arghh!
my company only has 1 annual report available
on their website so that is fun lol. Haven't even started yet and I am already
wanting to pull my hair out arghh!
Re: Our Companies
Oh my gosh! You poor thing! I
just had a look and could also only find one annual report for 13/14.
Maybe email them and request
the other ones?
So stressful! If you need any
help just let me know.. Im not sure how helpful I would be but I could try
haha.
Goodluck!!
Re: Our Companies
Have you contacted Maria to
ask her if perhaps she can assist you to find the other 2? Im sure they would
have double checked it had 3 reports before they allocated the companies. Well
i would assume they did =/
Yeah its stressful! Its a lot
more time consuming (for me at least) that it indicates on the assignment sheet
thing.
Please try to leave your hair
intact. Im sure it'll all be fine. =]
Re: Our Companies
I have contacted Maria and
they had past financial statements there as well, all I had to do was scroll
down :l how I missed that was beyond me 
lol, it must have been the stress and
overwhelming feeling of the assignment.
lol, it must have been the stress and
overwhelming feeling of the assignment.
Re: Our Companies
Hey Christyn,
I'm feeling okay now.
Initially when I looked Monday I was like 'what am I even looking
for/at?'
Now, all i'm worried about is
the fact that I don't know much about the chemical industry.
I got allocated a German
company that is a supplier of gases, a topic I know very little on!
Hope to hear from everyone
else soon!
Re: Our Companies
Oh wow! I wish the companies
were more exciting haha i saw the list from last term and i think someone had
Dior and some cool stuff. Thats obviously all gone now and we are stuck with
boring companies haha
Well at least we are getting
stuck into it all. I managed to pretty much finish inputting my annual reports
into the excel spreadsheet today. No joke, it took me like 6 hours!!! Hopefully
yours won't be so complex/youre smarter than me and you'll be fine =]
Goodluck!! “
Top 3 Blogs
I enjoyed reading Nick’s blog because I feel
like he made a genuine connection to his company and I could see that through
the language he used in the blog, as well as the flow of the blog that was
quite natural. The only thing I think he lacked was reflections to the links he
posted which are great articles on his company but it would have been great to
read about his reactions to those.
The blog was easy to manoeuvre around and
everything was on one page which saved a lot of unnecessary clicking around.
Beverley’s blog was really
interesting to read because she seems very well informed and her reactions
demonstrated a clear understanding of her company. Once I clicked on everything
a million times, I managed to actually view each individual blog entry and
found that much easier to read; the home page shows the blog entries in
collumns which I found very hard to read because there was so much information,
so close together and it was quite overwhelming to view. Once I viewed the
individual blog entries, I was still very interested with her blog and found
her opinions definitely helped me to understand what she was actually writing
about. For example she commented on how the cost of shares for her company was
quite low and she said it was suprising to her because of the type of company.
Usually I would see the $ sign and just breeze past it, but her expression of
opinion actually made me go back and have a look at how much it was and then I
wanted to go and have a look at my share prices and such.
I found Mia’s blog the
easiest to read and follow because the links to relevant information was well
done and the layout of her blog was simple.
Her initial insights of her
company were well thought out and showed everything I would want to know to get
a brief idea of what company she is actually working on. You can see that she
obviously covered a lot of information and summarized the key questions neatly
and it actually made me want to go and look up the answers to those things and
I had a look at my own annual report to see if I would have similar
questions. I think she did the best out
of my top 3 blogs of actually presenting her own personal questions and
concepts and most effectively helped the reader to connect with her and the
journey she is going through with her company.
STEP 3: Inputing data from HKEx Annual Reports into spreadsheet
I will post this in the blog post following this one.
STEP 4: Key Concepts and Questions on Chapters 1 & 3
of the text
Chapter 1 – A way of viewing Business
Key concepts (KC) and Key Questions (KQ)
KC
Chapter 1.1 – It is all about reality
This chapter covers the reason why I decided after a lot of
indecision to study accounting – it is ALL about reality. Accounting is black
and white – generally the answer is correct or incorrect. Accounting is a
reflection on what is actually happening somewhere and this information is
manipulated in whichever ways necessary to fit the prescribed statement or
report and shows the viewer exactly what is going on in the company. There is
of course some grey are, such as when information is withheld or can be presented
in a misleading fashion which can lead to poor decisions by management and I
have personally seen this situation tear down a national restaurant chain. In saying that, management have the right to
request as many documents as they feel necessary to give themselves a sound
understanding of the company’s financial position and explore any areas that
seem “off”.
KQ
1.2 – Keeping records
I found the link between cutting and pasting with touch
typing to double entry accounting difficult to comprehend. In the text it just
seems to be stated that “This is the same with double-entry accounting” without
any support or explanation as to why this is believed to be true.
From my own experience with double entry accounting, it
means that both sides of the accounting equation need to balance, so for
example if I were to purchase a car for myself with my credit card, in double
entry accounting I would debit my assets with the price of the car because the
car is an asset and then equally credit myself in “accounts payable” for the
amount put onto my credit card.
This shows that I have equally added an asset to my life and
also added credit card debt to my life.
From the example in the text, it seems as tho when
typewriters were used and today with modern technology, text would be either
physically or technically “cut” from a document and “pasted” somewhere else.
This in turn means to me that the information “cut” is no longer there and has
just been moved to another location, which is not the same as double entry
accounting at all. I believe if perhaps the information was “copied” and
“pasted” in the correct area then perhaps it would be a more successful
comparison because this would mean that the equal values have been distributed
to the necessary locations.
KC
1.3 – Two sides to everything
After having done the course “Principles of Accounting” last
term, I looked at this chapter and thought I had nothing to learn because I’ve
already covered journals and ledgers and assets and all those things. What I
didn’t actually learn last term that I now realise is incredibly helpful is
what these things actually mean and why they are called their names. Not only
is it interesting to know, but also some of it is actually beneficial because
it helps me to understand the connection between the terms. One I found very
interesting was “Trial Balance”. I didn’t really understand these last term and
think I may have fluffed my way through that section of the course, I really
don’t know but I can definitely say I didn’t know why they were called trial
balances and what purpose they really served. In this chapter I have discovered
that they are called a “trial” because they are essentially a draft balance
used to identify any issues and rectify any imbalances.
It seems unnecessary from the outset to need to understand
the definitions of these words in accounting when its really all about numbers
and equations and spreadsheets but without this knowledge, I would have
continued to think that a “trial balance” was just a random extra worksheet
that was to be completed to satisfy my university lecturer.
KC
1.4 – Five elements of Accounting
Out of all the chapters I have read so far, I’ve found this
one to be the most valuable by far. As a visual learner, I have watched people
create spreadsheets and see the pattern to how they complete them – the order
things must go in and where they usually find the information. Because I have
learnt this way, I don’t think I have gained a good understanding of what I am
actually inputting into the spreadsheet and the relationships between the data.
Reading this section on the elements of accounting has
outlined just what these relationships actually are and how they connect to
each other.
When I first started to study accounting I thought that income
and revenue, along with expenses and liabilities were just two different words
for the same thing. The concept I have learnt in this chapter is that revenue
and expenses are essentially a by-product of assets and liabilities and have a
direct impact on equity.
In this chapter I believe a vast amount of information was
covered and the author is trying to impress on the reader the importance of
understanding the key elements of accounting and what these actually mean. For
instance, I thought that I had a good understanding of accounting in basic
terms but in reading this chapter I realised I had no idea what any of it
actually meant and so with this information, I can know make more informed
connections and have a better comprehension of what is actually being shown in
financial documents.
The key concepts I have taken from this really are all the
definitions that have been given to the elements and equations covered in the
chapter. Whilst these are very basic, they are crucial in my opinion to be able
to fully understand financial documents and comprehend what I’m being shown in
them.
I found the metaphor of the typewriter with the “cut” and
“paste” concept to be very confusing but have twisted it in my own way with
“copy” and “paste” so that it makes sense and actually still improved my
understanding of double-entry accounting. Even though this metaphor confused
me, I found it beneficial to come across this as it challenged my knowledge and
led me to investigate if I really did know what double entry accounting was all
about.
Chapter 3 – Introducing Financial Statements
Key concepts (KC) and Key Questions (KQ)
KC
3.0 – Introduction
The introduction of financial statements is likened to people
meeting for the first time and how it will take time to actually get to know
someone deeper than their name because everyone is different. The same goes
with financial statements because there is no specific rule about how they must
be set out. I have come to realise this while trying to do my assessment 1 step
3 which involves me entering my company’s financial statements into an excel
spreadsheet.
Not only are financial documents different from one company
to the next, but they can also be different each year from one company. I have
discovered this in my company Hong Kong Exchanges (HKEx). I am looking at the
last 4 years of annual reports and attempting to correlate all of this data and
hit a massive roadblock when I got to 2011. It was completely different!! I
never in a million years actually expected to see that they would be different
but in reflection it makes sense that a company would change their format if it
were not creating relevant financial information for the proposed viewers.
KQ
3.0 – Introduction
I am confused as to why it wouldn’t be necessary for a firm
to create a document that outlines all the changes they have decided to make to
their financial statement format. This would at least help with the quality of
comparability which we have seen in Chapter 2 is so important in understanding
a firm’s financial statements.
KQ
3.1 – A View of Business at Rest
What does consolidated mean?
I have seen this all over balance sheets and spreadsheets
and now again in this chapter with reference to financial statements but no
real meaning given. In the context of accounting the definition for
“Consolidate” means (Collin 2007) “to include the accounts of several
subsidiary companies as well as the holding company in a single set of
accounts.”
So in the case of HKEx, this means that their Consolidated
Balance Sheet is including their subsidiary accounts into the one statement.
KC
3.2 – Business on the Move
I found the section on the relationship in the income
statement to be particularly interesting because it’s an area I struggle with.
It says that if a company doesn’t own 100% of the equity in its subsidiary
companies, not all the profit of the group of companies will actually benefit
the equity investors. I found this when looking at the annual reports for HKEx
who deal with stock exchange and have shareholders who also want their “cut” of
the profit, as well as “non-controlling interests”.
KC
3.3 – Making Sense of Financial Statements
It says in a section on ratios that they used to be a way of
assessing in the financial statement if a firm was successful or not by using a
ratio of 2:1 indicating that a company should have twice as many assets as it does
liabilities.
In my mind, this seems like its excessive! From my
experience in management of restaurants, there is a lot of pressure from upper
management for us to present in our monthly report a bare minimum stock count.
When the business is leasing a venue with all of the equipment included, the
main assets that they have are food, beverages and cash at bank. I worked in a
company that went into a voluntary administration and prior to this, management
had been urging us to try to achieve a certain low percentage for our inventory
count. I know personally that I never quite understood why this was so
important until the administrators arrived and did a stock take of every single
little thing and would only allow us to purchase and have on hand, a very bare
minimum inventory. I believe that this is because it is more beneficial to be
able to have cash at bank, rather than stock sitting and losing value each day
and occasionally even being thrown into the bin because it expired. This money we were spending on excess
inventory, could have instead been used to pay off the large debt the company
had and so, reducing their liabilities.
In my view after this experience, assets and liabilities
should be relatively equal but this isn’t necessarily decisive of whether a
firm is successful or not. As is mentioned in the text, we need to use the
financial statements to understand the realities of the firm. For example, the
person who leased the restaurant I work at had to spend over $4000 to a
computer technician over 3 months because the business is quite small. This was
seen each month on the report as a liability with no asset to be seen as a
result. When the technician was done, there was still nothing material to count
as an asset, but what he had done was install a system on the computers that
made our order taking system digital. Instead of us using a calculator and
determining the price of the patrons meals and drinks from our hand written
dockets, we could now enter this all onto a computer POS system and everything
could be done through that. This was a huge asset to us because it saved us
time, looked professional and resulted in less mistakes with service overall.
If someone who didn’t know the business had looked at the
monthly or quarterly report for the business and hadn’t asked questions, they
would simply see that our liabilities outweighed our assets. However, if they
had of looked into the notes and gained an understanding of the realities of
the business, they would be able to see the future assets.
KC
3.4 The Value of Anything
This chapter makes perfect sense to me on many levels.
The example given on whether you would take the $20 now or
in five years time is a great example. I think that you would be foolish not to
take the $20 now for various reasons. First and foremost, you could simply put
that $20 into a savings account in a bank or invest in stable shares and if it
gained 5% interest each year, after five years, you would have an extra $5.65.
With only $20 this doesn’t seem like much benefit, but if that was $200,000
that would be an increase over $50,000 which is roughly the average Australian
income. So indeed, we do value something by what we can expect to receive from
it but as I’ve just gone through, it makes sense that we think this way.
KQ
3.4 The Value of Anything
Scrolling down the text as I read and all of a sudden seeing
“FCF=C-I” and a million other letters equals another letter and my brain
explodes. I find these algebra type examples really confusing, especially I see
them and I already feel “flight mode” kick in.
After resisting the urge to throw my MacBook and this text
into the toilet/off the balcony for my dog to bury deep in the backyard, I
realised that this example isn’t quite as difficult as I initially feared.
The one that confuses me a little is why they would just “I”
as the marker for capital outlays when neither of those words start with “I”. I
am going to assume that perhaps it is because they are investments.
This chapter was a very informative one that outlined how
the balance sheet and income statement work together. It also reflected on how
people have previously interpreted and currently interpret the figures on these
statements and why they are helpful and unhelpful. I feel that the comparison
with past and present was very helpful because you can start to see the
connections as to why things happen the way they do now and things start to
make more sense.
The concept I found the most interesting was “Making sense
of financial statements” purely because they are so confusing to me and its
reassuring to know that many, many people throughout history of accounting have
tried to do just this in various ways and not all successfully. It also made me
more aware of how accounting really does help us see the reality of a business
if we look below the surface of the statements.
My key question that I am still puzzled about it
“Consolidation”!
Although I looked up the definition and managed to
understand it in relation to the company I am studying, I still don’t think I
have enough of an understanding to be able to use it effectively. This will be
something that I need to focus on learning over the next week as I complete my
assignment on HKEx.
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