Review And Evaluation Of Property, Plant & Equipment Of Vision Investments Limited - Essay.

Review and evaluate the company’s Property, Plant & Equipment in the Balance Sheet.

What is the company’s total carrying amount for property, plant and equipment at the end of the reporting period?

How have these assets been valued? Is it in line with the relevant accounting standard? Provide details of acquisitions, derecognitions or revaluations made by the company during the current financial period.

Provide a conclusion supported by your analysis above whether the company is a good investment opportunity.

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Discussion and Analysis

The company, which has been selected for analysis, is Vision Investments limited. It is one of the companies situated out of Fiji and is listed on the South Pacific Stock Exchange. The company has had a presence of many years in Fiji and the Pacific and is one of the most reputed companies and the market leader in electrical, consumer electronic, furniture and other durable home goods and the company is into consumer finance sector. It is also into Tier 1 motor business and produces many industrial products (Bizfluent, 2017). The company has four major divisions and brands namely courts, vision motors, MIF Mahogany Industries and Vision Finance.

The company’s vision includes being best in the business and doing the business in the right way and investing in great opportunities. Its values include focusing on the customer needs and acceptances, creativity and innovation to the core, leadership and superior performance through personal excellence, encouraging teamwork and maintaining integrity and reputation of the shareholders or the owners of business.

In this section of the report, the financial analysis for the given company has been done using the most recent financial statements and the ration analysis, wherever the same is reqd.

The cash flow position of the company can be assessed from the changes in the cash and cash equivalents over the years, which is evident from the balance sheet of the company and the cash flow statement (Dichev, 2017). Both of these have been enclosed below:

From the above analysis, we can see that the balance of the cash and cash equivalents has remained almost the same at the beginning as well as at the end of the year. At $ 2.76 Mn. The cash inflow in terms of customer receipts has declined as compared to the last year from $173.6 Mn to $ 172.1 Mn (Choy, 2018). On the other hand, the cash payment to the suppliers has decreased drastically by more than 14 Mn and this is the main reason why the cash flow from operating activities has increased from $3.1 Mn in 2017 to $ 15.5 Mn in 2018. The income tax expenses have remained more or less constant but the interest paid has increased from $1.7 Mn to $2.3 Mn. In terms of cash flows from investing activity, the procurement of property, plant and equipment has decreased as compared to last year from $ 5.5 Mn to $ 3.9 Mn and there is a minor increase in the proceeds from the sales of PPE, this again has helped in improving the cash outflow from investing activity from $5.2 MN in 2017 to $3.3 Mn in 2018. Finally, in terms of investing activity, the company had drawn a loan of $ 4 Mn in 2017, which was not the case in 2018, furthermore, the repayments of borrowing increased marginally and the payment of dividend was almost the same. All this has resulted in decrease in cash outflow as compared to the last year (2018: $ 10 Mn, 2017: $1.1 Mn). Thus, it can be said that the cash position of the company has improved marginally.

Evaluation of the cash flow position

As can be seen from the balance sheet above, the receivables of the company has increased both in terms of current assets (from $8.3 Mn in 2016 to $ 9.95 Mn in 2018) as well as non-current assets (from $48.76 Mn in 2017 to $54.29 Mn in 2018 (Félix, 2017)).

This goes to show that the company has been under performing in terms of receivables collection has there has not been a major increase or improvement in overall business the same is indicated from the above ratio analysis where the receivable turnover ratio has dropped to 2.81 times from 3.16 times last year. This is well below the industry trend as the receivable days is 130 days and therefore improvement in the same is required (Knechel & Salterio, 2016).

For payables, the trade payables of the company has increased from $ 5 Mn in 2017 to $ 5.89 Mn in 2018. The other payables has also increased from $7.6 Mn to $ 11.4 Mn. This will definitely improve the cash cycle but will deteriorate the liquidity and current ratio of the company. As can be seen above from ratio analysis, the payable days has increased from 43 days in 2017 to 57 days in 2018. This may have an impact on the company in terms of penal interest in case the vendors charge the same. The possible factors from the same may be the cash crunch with the company and the ineffective internal control management of receivables and the payables (Linden & Freeman, 2017).

Below shown is the extract of the annual report with respect to the property, plant and equipment and changes in them throughout the year. It shows that the company’s total carrying value at the end is $ 12,343,798 at the end of 2018 (2017: $ 14,534,639).

As per the policy of the company, the property and plant are being valued at historical cost less accumulated depreciation until date (Das, 2017). The costs do include all the costs attributable to the acquisition of the assets and the same is being depreciated over the useful life. Furthermore, the assets are being reviewed for useful life and the impairment year on year and the same is in line with the relevant accounting standards. The different classes of the asset and the rates of depreciation has been shown below for the company in discussion:

Furthermore as per the policy of the company, any gain or loss on the disposal of the assets is being recognised in the profit and loss account under the heads “other income” (Visinescu, et al., 2017).

In terms of changes during the year, additions of $ 6,038,052 (2017:  $ 8,318,330) were made out of which the major acquisitions were in leased vehicles and some of it was in work in progress, the disposal during the year was 3,967,182 (2017: $ 3,037,003) out of which $ 3,238,551 was attributable to the leased vehicles. The depreciation charge during the year was $ 4,205,161 in 2018 as against $ 4,424,160 in 2017. Thus, it shows that there is a decrease in depreciation expenses as well (Jefferson, 2017).

Conclusion

From the in depth analysis above on the various sections of the annual report of the company, it can be concluded that though the company has improved both in terms of revenue as well as profitability, also the assets position and the cash and liquidity position of the company looks promising but the internal control of the company has been an issue and it is indicated from the fact that the receivables as well as payables turnover ratio has declined for the company. The property, plant and equipment status of the company has improved and the company has also been compliant of the accounting laws and standards while reporting and giving disclosures in the books of accounts. Thus, considering all these factors and the market leadership of the company, it can be mentioned as a good investment avenue and opportunity.

References

Bizfluent, 2017. Advantages & Disadvantages of Internal Control. [Online]
Available at: https://bizfluent.com/info-8064250-advantages-disadvantages-internal-control.html
[Accessed 07 december 2017].

Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, p. 145.

Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.

Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.

Félix, M., 2017. A study on the expected impact of IFRS 17 on the transparency of financial statements of insurance companies. MASTER THESIS, pp. 1-69.

Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland. Technological Forecasting and Social Change, pp. 353-354.

Knechel, W. & Salterio, S., 2016. Auditing:Assurance and Risk. fourth ed. New York: Routledge.

Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.

Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.