Essay: Conditional Conservatism In Accounting Data - Tasmania Food Company.

Organization structure of ownership and governance

Discuss About The Conditional Conservatism In Accounting Data?

The Tasmania food company is regarded as the brand endorser with the help of which the artisan of the company promotes the brand to the wider group of audience. The Tasmanian food company endorses those brands that falls within the business meeting the promise of brand and value that is represented by the company (TasFoods Ltd 2018). The sub-brands under the Tasmanian Food Company will have their effect on their own set of the unique attributes which would meet the needs of the target market. This would enable the Tasmania food company to tell the story of the provenance of their products. It enables the company in developing the new and exciting range of goods categories namely the ethical free range chicken which meet the changing anticipations of the customers.  

Tasmania usually commands the premium brand in the form of place of origin for the food and beverage products (TasFoods Ltd 2018). Tas food limited has positioned the company having head office in Tasmania with senior management team that is connected with the Tasmanian agricultural and food industry in order to obtain the advantage of the brand.

The management team of the Tas Food Ltd is accountable for the strategic direction of the organization. The organization structure is so designed that the team works closely to make sure that the Tas Food Ltd meets the demand of the shareholders however provides the positive, innovative and better working environment for the employees (TasFoods Ltd 2018). The organization structure of the Tas Food Ltd comprises of the non-executive chairman, managing director, non-executive director, chief operating officer, chief financial officer and company secretary. Additionally, the new food production business of the company has the strong quality assurance team responsible for quality assurance management system that provides consistency of system and procedure across the business. Additionally, the organizational structure comprises of the food and quality assurance management system that are subjected to numerous regular audits by the independent certification bodies and regulations.

Taking into the considerations the above stated tabular representation TA is regarded as the total assets while the OE is regarded as ordinary equity. Both the variables can be interrelated with the return that is generated from the asset (ROA) and the return that is derived from the equity (ROE) (Scott 2015). An increase in the return on the asset would ultimately result in making an appropriate use of the asset employed in the business. This would help in reflecting that there would increase in the net income the total asset would be higher. Increase in the value of the asset with income being the same would help in lowering the amount of the debt ratio (Schaltegger and Burritt 2017). The lower amount of the debt ratio would help in higher amount of return on equity. Therefore, the value of the return on equity and return on asset is determined with the help of total amount of asset and equity.

Computation of the Performance Ratios

The computation that has been done above represents that the return on equity that is reported during the year 2014 stood 315.79% while in the subsequent year of 2015 and 2016 have declined significantly with -1135.95 and -110.21% respectively. This helps in reflecting that the proficiency of the firm has declined significantly and insufficient use of the asset employed in the firm (Warren and Jones 2018). For a healthy organization the amount of the total assets generally continues to remain higher than the total amount of equity. This is because the value of the assets that is reported by the firm is higher than the amount of equity when the liabilities of the firm have declined significantly (Robson, Young and Power 2017).

Taking into the account the above stated graph an assertion can be bought forward by stating that the movement in the price of share for Tas Food Ltd has reported significantly in line with the all order index. The price of the share reported by Tas Food Ltd is relatively less volatile except during the month of June and July where the company reported higher stock price movement (Beatty and Liao 2014). The evidences that has been presented from the stock price of Tas Food Ltd suggest that stock price on most of the circumstances have been moderate. Opposing the higher amount of stock price there has been circumstances where the company has reported fall in the stock price and at times it has declined below the all ordinary index (Mullinova 2016).

The share considerations for the Tas Food Ltd comprises of the issue of share of 9.2 million of ordinary shares that are valued at $2.3 million. Having the large market capitalization the investors places the company at the category of the small cap and tends to possess higher amount of beta in respect of the large companies (Macve 2015). One of the most important factor that is associated with the creation of influence on the price of stock is that the company deals in food and of late have strongly faced a wider market shocks. As evident from the above stated analysis an assertion can be bought forward by stating that the fixed asset of the firm have stood negatively which represents that the firm has been insufficient in generating higher return from the assets (Reid and Myddelton 2017). This significantly results in negative amount of beta with -1.27. This represents that the lower amount of fixed assets will be reported on the balance sheet. The reported by the company is significantly on the negative amount.

Graphical representation of the results

Taking into the considerations the rationale for the investment on the Tas Food Ltd needs that the rate of return for the organization is negatively standing -3.52%. On the other hand, the risk free rate for the investment in the Australian bond 4%. With the existence of the largely higher amount of difference in the required rate of return the investors should abstain from investing in the shares of the Tas Food Ltd (Dutta and Patatoukas 2016). The negative amount of data that is reported by the company that the prospect of the investment is less risky and it is less prone to fluctuations after viewing the rate of market index rate.

Equity and debt are regarded as the two sources of financing accessibility of the capital markets. The term capital structure is regarded as the overall composition of the organization funding. Alterations to the capital structure can create an impact on the cost of capital, net income and the leverage ratios along with the liabilities of the publicly listed companies (Waegenaere, Sansing and Wielhouwer 2015).

Wherever there is a higher amount of weighted average cost of capital there is a significant amount of risk which is associated with the operations of the organization. Investors are usually in the need of higher amount of return to the asset to determine the risk. An organization weighted average cost of capital can be put into use in the form of projection of the expected cost relating to the financing of the firm resources (Carlon et al. 2015). This refers to the payment that is paid by the company on the amount of debt or the cost that is related with the debt financing.

Debt ratio represents the financial ratio which reflect the percentage of the organization assets that is provided with the help of debt (Wild 2015). The debt ratio represents the long term debt and short term debt of the firm. Taking into the account important declaration relating to the debt ratio of Tas Food Ltd represents that the debt ratio has been significantly higher. During the year 2015 and 2016 the debt ratio of the firm stood 411.17% and 272.43%. This represents that there is a higher amount debt ratio in proportion to the asset. Taking into the considerations the debt ratio it is noticed that company failed to take any positive initiative of lowering its debt and as a result of this the debt ratio reported by the firm stood on the higher side (Barberis, et al. 2015).

Significant factor influencing the share price of Tas Food Ltd

During the year 2016 in the month of February Tas food ltd issued 22,232,000 ordinary shares at $0.25 per share to the investors. Additionally, taking into the account the gearing ratio for the Tas food ltd it can be stated that the company during the year 2016 reported a gearing ratio of 11.8%. Based on the gearing ratio of the firm an important assertion can be stated that large portion of the capital for the firm comprises of the debt and share capital (Ghosh, Julliard and Taylor 2016). As a result of this there is a higher amount of debt ratio for the firm.

I would like to draw your kind attention towards my recommendations that the performance of the Tas food limited has been very poor in the financial year of 2016. Additionally, it has been understood from the analysis that the company has reported a negative figures of beta this represents that investing in this firm would result the investor suffer losses. The beta of the company stood -1.27 with negative amount of required rate of return standing -3.62. The company reported downturn in the price of share and with highly risky profile the investors faces the risk of suffering heavy amount of loss. The prices of the shares have been on the declining trend and this might not yield a higher return for the investors.

I hope that the above stated analysis and recommendations has been successful in providing the required information to the investors. It would be wise for the investors for abstaining from making an investment in the Tas Food Ltd. I hope that the information that is provided has helped in serving you with the required information relating to the investment decision.

Reference List:

Barberis, N., Greenwood, R., Jin, L. and Shleifer, A., 2015. X-CAPM: An extrapolative capital asset pricing model. Journal of financial economics, 115(1), pp.1-24.

Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.

Callen, J.L., 2015. A selective critical review of financial accounting research. Critical Perspectives on Accounting, 26, pp.157-167.

Campbell, J.Y., Giglio, S., Polk, C. and Turley, R., 2016. Appendix to an intertemporal CAPM with stochastic volatility.

Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N. and Wong, L., 2015. Financial Accounting: Reporting, Analysis and Decision Making. John Wiley and Sons Australia.

Dufour, J.M., 2017. Time series and financial econometrics Multivariate linear linear regression and CAPM Exercises.

Dutta, S. and Patatoukas, P.N., 2016. Identifying Conditional Conservatism in Financial Accounting Data: Theory and Evidence. The Accounting Review, 92(4), pp.191-216.

Editorial, R. (2018). Market Indices | Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/markets/indices [Accessed 30 Jan. 2018].

Fernandez, P., 2015. CAPM: an absurd model. Business Valuation Review, 34(1), pp.4-23.

Fernandez, P., 2017. CAPM: The Model and 307 Comments About It.

Ghosh, A., Julliard, C. and Taylor, A.P., 2016. What is the consumption-CAPM missing? An information-theoretic framework for the analysis of asset pricing models. The Review of Financial Studies, 30(2), pp.442-504.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39" Financial instruments: recognition and assessment" for bank financial accounting. Modern European Researches, (1), pp.60-64.

Reid, W. and Myddelton, D.R., 2017. The meaning of company accounts. Routledge.

Robson, K., Young, J. and Power, M., 2017. Themed section on financial accounting as social and organizational practice: exploring the work of financial reporting. Accounting, Organizations and Society, 56, pp.35-37.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

TasFoods Ltd. (2018). Home. [online] Available at: https://www.tasfoods.com.au/ [Accessed 30 Jan. 2018].

Waegenaere, A., Sansing, R. and Wielhouwer, J.L., 2015. Financial accounting effects of tax aggressiveness: Contracting and measurement. Contemporary Accounting Research, 32(1), pp.223-242.

Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.

Wild, J., 2015. Financial accounting fundamentals. McGraw-Hill Higher Education.

Weighted average of cost of capital: