Discuss about the Financial Analysis and Valuation Method for Dick.
With the increasing ramification of economic changes and complex business structure, Dick smith holding, a major electronic retailer comes up with initial public offer in the market. This company was engaged in consumer retails of electronic items in Australia and New Zealand and collapsed in several parts due to manipulation in the financial statement and fraudulent accounting and reporting practice. In this report, study has been conducted on the brief history of Dick smith holding, a major electronic retailer and critical evaluation of valuation of Dick smith holding and its initial public offers has been taken into consideration. Afterward, valuation of company’s share and financial evaluation has been made after when Dick smith holding, a major electronic retailer entered into strategic alliance with Anchorage capital partner.
Brief summary of Dick smith holding, a major electronic retailer
Dick smith holding, a major electronic retailer acquired by Anchorage capital partner. This company paid AUD$ 115 million for acquiring Dick smith holding. After the acquisition of this company by Anchorage capital partner, this company got listed on Australian stock exchange with a view to expand its business with a rapid growth (Anchorage capital, 2017). After that, it was evaluated that if company did not make proper level of disclosure and reflects falsified accounting in its financial statement. It is reflected that company would not keep up long and went into liquidation (Adelopo, 2016). The main reason behind the liquidation was company’s falsified accounting and reporting framework. In the brief history of acquisition of Dick smith holding by Anchorage capital partner, it is reflected that that company was sold by Woolworth to Anchorage capital partner for an initial cash payment of AUD$ 20 million and ultimately Anchorage capital partner has to pay AUD$ 115 million for acquiring Dick smith holding. However, at the time of listing of Dick Smith company market capitalization of company was valued AUD$ 520 million. However, Anchorage capital partner made several changes in compliance and financial functions of organization but all went in vain and dick smith had to go under the liquidation process due to reflects falsified accounting in its financial statement. After evaluation of annual report of Dick smith holding, it is evaluated that in 206 the share price value of Dick smith holding went down by 80% (Bahadir, DeKinder & Kohli, 2015) this has shown that Anchorage capital partner has faced high amount of loss by entering into strategic alliance with the Dick smith organization. However, the main problem arises when it was noticed that company has followed wrong accounting and reporting framework (Malley, 2016).
Critically evaluation of valuation of Dick smith holding when this company was acquired by Anchorage capital partner
It is evaluated that dick smith holding was acquired by Anchorage capital partner by paying USD$ 115 million to Woolworth. It is considered that after acquisition of company by the Anchorage capital partner, shares of Dick smith holding company get listed and resulted to market capitalization of company valued AUD$ 520 million. As per the annual report of Dick smith holding company, it is considered that company issued share value of USD$ 7682980 in the market. However, at the time of initial public offer, shares of company were sold in the market at premium rate. Nonetheless, auditors report and other disclosures made by company had contradictions and it reflected that company has not complied with the international financial reporting standards. Dick Smith Company had reflected high amount of profit and increased value of its total assets and showcased less amount of profit earned (Tomasi, Bottomley and McQueen, 2002). This manipulation of profit has been done by company by reflecting wrong value of inventories and reserve in its balance sheet. In addition to this, there were several changes after completion of initial public offers such as Anchorage capital partner initially retained only 20% of shares in the Dick smith company but eventually it had fully divested its holding to other shareholders. However, due to its non-effective legal compliance and failure of company to comply with the applicability with international financial reporting standard in accounting and reporting frameworks, Dick Smith Holding and its shares in the capital market had fallen by more than 80% in 2016 as compared to the time when they were listed on Australian stock exchange in December 2013. This level of destruction in the share price value and loss of business of company resulted to failure to may payment to creditors (Ferraro, 2017). All the creditors such as national Australian bank and HSBC Bank Australia took the company into liquidation (Tomasic, Bottomley, and McQueen, 2002). This resulted to closer of various units of Dick Smith Company and share value of company went down by 80% and resulted to destruction of business on international level. After that, Kogan.com an online retailer acquired the Dick smith at undisclosed price. Therefore, it could be inferred that value of shares issued by Dick Smith had gone down throughout the time. Nonetheless, in the starting, when IPO was issued by the Dick smith, it had market capitalization around USD$ 520 which is quiet high amount for the newly listed company. After that due to its non-efficient legal compliance and non-compliance of IFRS rules and regulations, company fails to create trust in shareholders and investors in the market. The valuation of shares of Dick Smith Company could be determined by using market value method, intrinsic value method and joint methods. However, it could be inferred that in the starting period when the shares of Dick Smith company was sold as initial public offer all the shares of company were sold at the premium price (Leow, 2009). Throughout the time, in secondary market, when shareholders lost their confidence in the reporting and accounting frameworks of Dick Smith company due to falsification in recording financial data in its financial statement. Therefore, after evaluating the annual report and details shown by the security exchange board of Australia, it could be inferred that Initial public offer of Dick Smith Company was done by complying with all the rules and regulations of corporation act. However, in the starting when the shares were firstly issued by Dick Smith Company, all the investors flooded with the money to buy shares of company and created AUD $ 520 million market capitalization on the listed stock exchange (Drazba, E., 2015).
Assessment of ethical dilemmas facing two separate set of people (Anchorage capital partner in context with the flotation of Dick Smith business and directors and executive Ethical dilemma
Ethical dilemmas is related to the concern when organizations or person caught in a situation where both the situation in either right or wrong. In this case, ethical dilemmas has aroused while depicting the financial statement of Dick Smith Company to its stakeholders. It is evaluated that company had to create its financial statement on the basis of falsified accounting and financial results. However, Auditors of Dick Smith Company had to give unqualified audit report to the company on the basis of facts and documents shown by company. In the starting of this process, all the stakeholders believe the facts and financial statement shown by Dick Smith Company in its reporting frameworks. The main ethical dilemma which is faced by Anchorage capital partner was related to disclosing the financial details to its stakeholders. After acquisition of Dick Smith Company by Anchorage capital partner, it was observed by executive and directors of Anchorage capital partner that it has not complied with the accounting and international financial reporting standards while reporting its all assets and liabilities. This resulted to destruction of transparency and true and fair view of financial statement of organization. After collecting data from secondary sources, it was analyzed that Anchorage capital partner was having idea from the beginning but never disclosed the same details with the stakeholders. The executive and key managerial persons of Anchorage capital partner was having clear idea that if they disclose the complete details of company related to accounting and financial information then it will cause high amount of loss in its business functioning. However, Anchorage capital partner was not having any facts and complete back up to showcase the problems of financial statement of Dick Smith Company (Knapp, 2016).
Directors and senior executive of Dick Smith Company and their ethical dilemma
These are key managerial persons who take all the strategic decisions of Dick Smith Company. It is considered that these persons knew from the beginning that company had failed to comply with the proper level of IFRS rules and regulations and reflected falsified details and values in its annual report. However, they had idea that if they disclose the complete level of information regarding company’s detail then it will destruct the brand image of company and market capitalization of company on international level. They are the drivers of company and they have fiduciary liabilities to work in the best interest of organization. As per the statement and data shown by Dick Smith Company in its annual report in 2014 that company has shown all the inventories and assets value wrong and falsified with a view to misguide its stakeholders and showcasing less amount of profits (AASB 102. 2009). Another ethical dilemma was related to the failure of these key managerial persons to comply with their commitment. It was considered that Dick Smith Company in the annual report of 2014 announced the purchase of MAC21 an authorized service center. However, due to the company’s failure and its acquisition by Anchor capital investment, it had to change it decisions and resulted to failure to comply with the made commitment. This level of failure was the biggest ethical dilemma for directors and key managerial persons of Dick Smith Company but comply with the same was also very hard. Therefore, it could be inferred that ethical dilemma Anchorage capital partner in the flotation of business was to make proper level of disclosure which should be made by company for the best interest of general public at large.
In this report, it is reflected that there were several problems and dilemmas which had resulted to destruction of Dick Smith Company on international level. It is considered that Dick Smith manipulated its all the financial figures and inventories with a view to reflect profitable business and good financial health. This level of framework was done by company with a view to raise funds from the investors. In addition to this, company had market capitalization of USD $ 520 which was created by company due to its falsified reporting and accounting frameworks. All the shareholders and investors invested in Dick Smith Company on the basis of falsified information shared by company. Eventfully, when the proper information was depicted by auditors and other reporting authority, market capitalization went down very drastically and resulted to liquidation of business. Now in the end, it could be inferred that if company showcase wrong or falsified information to its stakeholders then it could create short term benefits but in long run it has to face loss or wind up of its business.
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