one is instructions,Financial data, analysis and ratios from part A of this assessment.This includes data on share price, dividends etc.

The company'scash flowandsegmentinformation.

Financial and/or non-financial information contained in the company's annual reports.

Te Hoe Pakihi Department of Business Bachelor of Applied Management New Zealand Diploma in Business Assessment Two: Assignment One, Part B Intermediate Financial Accounting AMFA601 Financial Accounting NZDB601 / DAB601 Semester Two 2017 Due date: Tuesday 26 September 2017 Time: 4.00 pm Instructions: See page two. Students can choose to do this assignment in pairs or individually. TOPIC MARKS Financial Analysis and Interpretation 50 TOTAL MARKS 50 Student Name/ID ................................................................................................... Student Name/ID ................................................................................................... Ara Institute of Canterbury and its division members reserve the right to use electronic means to detect and help prevent plagiarism. Students agree that when submitting this assignment, it may be subject to submission for textual similarity review to Turnitin.com. If an assessment is handed in late without an extension, a penalty of 10% per day will apply, up to a maximum of 50%. If an assessment is received more than five days after the due date, it will not be marked. If a student has a justifiable reason for non-submission of the assessment, they have seven days following the due date to submit an aegrotat application. Should a student wish to appeal any decisions they may do so in writing to the Head of Department within ten days of receiving the decision. This assessment is worth 15% of the total marks for this course. This paper has 5 (5) pages including the cover sheet. Education and Applied Research Division Department of Business INSTRUCTIONS: This assignment may be done in groups of two (2) or individually. Please ensure you clearly name all members of your group when submitting. If you are working in a group of two, only one assignment per group needs to be submitted. Your report should be word processed. Use Arial, 11pt font 1.5 line spacing. Print on one side only and staple in the top left corner. This is a formal report to an external user, you must ensure that your report meets the external user's needs and is of a high quality in terms of spelling, grammar, sentence construction and paragraphs. Ensure the language used is appropriate for a typical investor and does not contain too much technical accounting jargon. This assessment covers Learning Outcome Four. ASSIGNMENT REQUIREMENTS: You are an investment advisor who has been asked to consider The a2 Milk Company Limited as an investment option. Using a range of techniques you are required to research information related to this company and write a report that analyses and interprets both the financial and non-financial information of this entity. You are to present this information in a formal report and formulate a conclusion as to whether this is a sound investment opportunity. In this assignment you are required to interpret and analyse a broad range of financial data regarding the financial performance and risks of The a2 Milk Company Limited for the 2014, 2015 and 2016 financial years. You will need to use the financial analysis-ratios completed in Part A of this assignment. Please ensure you use the financial analysis-ratios provided in the model answers. You are also required to undertake research on other financial or non-financial aspects relevant to this company as supporting evidence to present a report recommending whether the investor should invest in The a2 Milk Company Limited. Your recommendation must fully explain why you have made this decision. Your report will be structured as follows; 1 Title page 2 Executive summary The executive summary is a stand-alone section of your report1. It summarises your report in such a way that the potential investor can rapidly become acquainted with the main contents of your report without having to read it all. It should contain a brief statement of the purpose of the report, background information, concise analysis and main conclusions. (3 marks) 1 The heading 'Executive Summary' should not be numbered 5afa06ea05b9277aaf3a1e1f582ee92717138a05.docx 4/09/17 Ara Institute of Canterbury Page 2 Education and Applied Research Division 3 Department of Business Introduction The introduction section should start with a description of the company including its history and main economic activities. You are also required to explain the objectives, scope as well as any limitation(s) of the report. You should outline the structure of the report subsequent to the 'Introduction' section. This page should be numbered as page 1. (3 marks) 4 Findings and Discussions 4.1 External environment and corporate strategy This section documents the main findings and discussions incorporating interpretations of The a2 Milk Company Limited's non-financial information under the following headings: Macro-environment; The political, macro-economic, social, and technological characteristics of New Zealand by using 'PEST' analysis framework. You should also discuss factors which influence the international markets in which The a2 Milk Company Limited operates. Competitive dynamics in the industry; and The dynamic forces driving competition in the industry by using the Porter's Five Forces analysis. The competitive strategy. The competitive advantages and strategies that The a2 Milk Company Limited pursues. Your discussion should include but not be limited to assessing and commenting on the above factors and their implications on the performance and the risks of The a2 Milk Company Limited. (15 marks) 4.2 Financial Analysis This section documents your findings and discussions incorporating interpretations of The a2 Milk Company Limited's financial information under the following headings: Profitability Liquidity Leverage Asset utilisation Share market related performance 5afa06ea05b9277aaf3a1e1f582ee92717138a05.docx 4/09/17 Ara Institute of Canterbury Page 3 Education and Applied Research Division Department of Business In making your interpretations you should consider using and interpreting: Financial data, analysis and ratios from part A of this assessment. This includes data on share price, dividends etc. The company's cash flow and segment information. Financial and/or non-financial information contained in the company's annual reports. Other relevant financial and/or non-financial information relating to the company and its economic activities. You may want to tell the story behind the financial data including: o Strategic decisions the company has been involved in during the period that produced the financial results. o Strategic decisions the company has been involved in during the period that will have an impact on the company's future financial position and performance. o Causes for particular financial results. o Evidence that the company is/is not profitable, well managed, and financially stable / will provide a good return for shareholders. o Evidence that the company is/is not committed to a sustainable growth. You are encouraged to reflect your analyses on the information you provided in the previous section(s) to support your discussion in financial analysis. However, you are not expected to make comparison between The a2 Milk Company Limited and other companies. (20 marks) 5 Recommendation Make a statement about the recommended investment decision. Include a summary of significant findings (evidence) you have covered in the previous sections to support this recommendation. (4 marks) 5afa06ea05b9277aaf3a1e1f582ee92717138a05.docx 4/09/17 Ara Institute of Canterbury Page 4 Education and Applied Research Division 6 Department of Business References You should: Use correct in-line referencing techniques according to academic standards using the APA method of citation. Identify a list of references you have directly referred to as either quotes or paraphrased in completing your report. Follow the document of APA Referencing a Guide for Ara Students. This document can be downloaded from Ara Library Website and the course Moodle site. This guide is based on the 6th edition of the Publication Manual of the American Psychological Association (2010). You should include a list of appendices if necessary. (2 marks) 7 Presentation Your report aims to inform, as clearly and succinctly as possible, therefore you are required to: Use formal style as well as neat and professional layout. Use numbered headings and sub-headings. Carry out careful proof-reading. Number each page. Use consistent and appropriate formatting. Use formal language. You should avoid: The inclusion of unreliable, inaccurate data or conflicting data. The inclusion of outdated or irrelevant data. Inconsistency in formatting, style and conclusions between different group members. Unsupported arguments, conclusions and recommendations. Excessive emphasis on appearance (for instance including excessive amount of graphs and charts) but lacking of insight in contents and analyses. A lengthy report which is longer than 12 pages. (3 marks) 5afa06ea05b9277aaf3a1e1f582ee92717138a05.docx 4/09/17 Ara Institute of Canterbury Page 5 Te Hoe Pakihi Department of Business Bachelor of Applied Management New Zealand Diploma in Business Assessment Two: Assignment One, Part A Intermediate Financial Accounting AMFA601 Financial Accounting NZDB601 / DAB601 Semester Two 2017 Due date: Monday 11 September 2017 Time: 4.00 pm (strictly no extension) Instructions: See page 2. Students can choose to do this assignment in pairs or individually. TOPIC MARKS Financial Analysis - calculations 80 TOTAL MARKS: 80 Student Name/ID ................................................................................................... Student Name/ID ................................................................................................... Ara Institute of Canterbury and its division members reserve the right to use electronic means to detect and help prevent plagiarism. Students agree that when submitting this assignment, it may be subject to submission for textual similarity review to Turnitin.com. If an assessment is handed in late without an extension, a penalty of 10% per day will apply, up to a maximum of 50%. If an assessment is received more than five days after the due date, it will not be marked. If a student has a justifiable reason for non-submission of the assessment, they have seven days following the due date to submit an aegrotat application. Should a student wish to appeal any decisions they may do so in writing to the Head of Department within ten days of receiving the decision. This assessment is worth 5% of the total marks for this course. This paper has 4 (4) pages including the cover sheet. Education and Applied Research Division Department of Business Instructions: This assignment may be done in groups of two (2) or individually. Please ensure you clearly name all members of your group when submitting. Your calculations should be presented in tables. This assignment should be typed. Round all calculations to two (2) decimal spaces. Only the printed copy handed in will be marked but you must also submit an electronic copy via the Moodle drop box. Only one member of the group needs to submit the electronic copy. This assessment covers Learning Outcome Four. Financial ratios to be supplied are listed on the last two pages of this document. These ratios are covered in chapter 10 of the text book; Smart, M., Awan, N., & Baxter, R. (2011). Financial Accounting: A New Zealand Perspective (3rd ed.). Auckland: Pearsons. Assignment Requirements: Obtain the The a2 Milk Company Limited annual reports for the 2014 and 2016 financial years. Please use the 2015 comparative figures in the 2016 annual report for 2015 figures. Available at https://thea2milkcompany.com/investor-centre/results/ Complete a table using common size analysis for the Income Statement and Balance Sheet for the 2014, 2015 and 2016 financial years using total revenue for the common base for the Income Statement and total assets for the Balance Sheet. Complete a table to calculate the percentage change analysis for the 2014, 2015 and 2016 financial years. This can be presented on the same table as the common size analysis. Complete a table to calculate the financial ratios or financial information described on pages 3 & 4 for the 2014, 2015 and 2016 financial years. abd37d367b1e52d284fec4be08039c9b9fa14418.docx 9/4/17 Ara Institute of Canterbury Page 2 Education and Applied Research Division Department of Business Selected Financial Ratios (formulae) Profitability 1 Gross profit margin = Gross margin Sales 2 Mark-up = Gross margin Cost of sales 3 Net Operating Margin= Earnings before interest tax(EBIT ) Sales (Interest expense for 2014 is $40,000, 2015 and 2016 amounts are disclosed in the 2016 annual report) 4 Gross profit Revenue Profit margin on sales = Net profit before taxes Sales Net profit for the period Revenue 5 Return on total assets = Net profit before taxes Total Assets Net profit for the period Total assets 6 Return on equity = Net profit after taxes Shareholder funds Net profit for the period Total Equity Liquidity 7 Working capital = current assets - current liabilities 8 Current ratio = Current assets Current liabilities 9 Liquidity ratio (quick ratio) = Liquid assets C urrent liabilities Cash , cash equivalentshort term deposits current liabilities Leverage 10 Debt to total assets ratio = Total liabilities Total assets abd37d367b1e52d284fec4be08039c9b9fa14418.docx 9/4/17 Ara Institute of Canterbury Page 3 Education and Applied Research Division 11 Department of Business Debt to equity ratio = Total liabilities Total equity 12 Cash flow to debt ratio = Cash flow operations Total liabilities Net cash flow ( statement of cash flows ) Total liabilities Assets Utilisation 13 Days' sales in inventory = Ending inventories Cost of sales/365 14 Average collection period (days) as disclosed in annual reports 15 Property, plant & equipment (PPE) turnover = Sales Property , plant equipment 16 Total asset turnover = Sales Total assets Share market related ratio 17 Basic earnings per share (EPS) as disclosed in annual reports 18 Share price at balance date; 2016 $1.83, 2015 $0.71, 2014 $0.69 19 Price/earnings (P/E) Ratio = share price(last trading day closing price) Earnings per Share 20 No dividends have been paid by The a2 Milk Company Limited in the 2014, 2015 and 2016 years. 21 Weighted average number of ordinary shares for EPS calculation. Disclosed in the annual reports 23 Net tangible asset backing per share (NTA) = Shareholder fundsIntangible assets Number of ordinary shares abd37d367b1e52d284fec4be08039c9b9fa14418.docx 9/4/17 Ara Institute of Canterbury Page 4 THE A2 MILK COMPANY 1 (THE A2 MILK COMPANY) (Students Name) (Institutional Affiliation) (Course Name/Number) (Instructors Name) THE A2 MILK COMPANY 2 Executive Summary A2 Milk Company was founded by Dr Corran McLachlan in the year 2000. He discovered that milk from cows produced proteins A1 and A2. The Company initially focused on producing milk having protein A2 only. The Company officially obtained agreement with famers in the fiscal year 2003 to produce milk with protein A2. During this establishment, the Company experienced stiff opposition from Fonterra Co-operative group in New Zealand. A2 Milk Company distributed its milk in countries such as United States, New Zealand, Australia and United Kingdom. The Company operates under legislation from the New Zealand government therefore this forms the political environment of the Company. A2 Company maintains an effective social environment by keeping a considerable number of highly trained employees to boost the efficiency of its day to day activities. These employees share a common social environment and as a result promoting smooth running of critical components of Companies' operation. A2 Milk Company utilized technological concepts to boost its production. The Company achieved this through integration of DNA principles with other scientific knowledge to ensure that the Cows produced milk with A2 proteins. A2 Milking Company engages in international trade with targeting countries such as United States and United Kingdom among others. These are several factors influencing international market of A2 Milk Company and they include; Emergence of few retail groceries and political differences between these countries. The Competitive dynamic of A2 Milk Company can be assessed using the porters' five forces. This analysis enables Companies' management to explore financial position and opportunities arising within the market. The Competitive strategy applied by A2 Company is effective since the Company differentiates its products within the market. Product differentiation is achieved by producing milk rich in protein 2A therefore increasing its worthiness to consumers. In order to remain profitable, the A2 Company should expand its production activities in order to maintain its profitability. It is also recommended that A2 Company should increase its expenditure on assets so as to improve ability of the Company to finance liabilities using debt. The Company should initiate a compensating program for its shareholders in form of dividends. The A2 milking Company should emphasize highly on its growth and development to achieve a self sustaining financial stability. THE A2 MILK COMPANY 3 3. Introduction The a2 Milk Company was founded in the year 2000 by Dr Corran McLachlan while at Cambridge University in New Zealand. The discovery following the establishment of this Company was that milk proteins have different impact on peoples. He discovered that the beta casein proteins produced by Cows were A1 and A2. Dr Corran found non invasive and safe way of identifying cows to ensure that he delivers natural and high quality a2 Milk obtained from A1 protein to consumers. The a2 Corporation initially focused on economic activity of developing breeding program for herds with a principle objective of producing a2 milk only. In the year 2003, the Company obtained agreements of launching its a2 milk brand with enough number of farmers. When launching a2 milk, the Company aimed at eliminating the health effects associated with A1 beta-casein. The main limitation was that a2 milk Company experienced constant opposition from Fonterra Co-operative group limited in New Zealand. The Company distributes its products in New Zealand, USA and Australia based on consumer demand. THE A2 MILK COMPANY 4 4. Findings and Discussions 4.1 External environment and Corporate Strategy The political environment of a2 Milk Company consisted of production legislations and restrictions under the New Zealand law. The law comprised of approximately 98% of New Zealand farms seeking to protect their contracts. As a result of this, Peterson sued Fonterra Company demanding adoption of warnings to conventional milk it produces. New Zealand government initiated favorable laws facilitating growth and development of this Company and they include Employment relations act therefore ensuring definite working hours according to section 67C of New Zealand constitution. Such legislation improved people confidence when working with a2 Milk Company (Maheshwari, 2016). The a2 Milk Company has grown and developed under effective social environment with educated employees and efficient cultural values. Emergence of common social environment within the Company has led to improvement of social responsibility from the top management to the junior employees. The social environment of a2 milking Company allows employees to interact favorably to promote smooth running of critical components of Companies' structure. The Company focused predominantly on patents, research and technological factors to promote its growth. Application of Information Technology principles forms part of DNA for a2 milk. The Company integrated these technological concepts with intellectual property licenses and trademarks. The technological advancement formed a critical formation point of a2 milk Company. The Corporate strategy reformed between the fiscal year 2004 and 2004 whereby the Company became significantly bound to assortment of technological and scientific knowledge. There are several factors influencing international market of a2 milking Company such as; Emergence of limited retail grocery chains around different countries (Hirschey, 2015). International market has emerged between New Zealand, Australia, United Kingdom and United States of America. Limited retail groceries affect expansion of the Company therefore restricting expansion and development of the Company. Domestic restriction of international trade and THE A2 MILK COMPANY 5 political differences between involved countries are among factors influencing international market of a2 milk Corporation. Competitive dynamics in the industry The dynamic forces leading to competition within the industry of A2 Company can be effectively assessed using the porter five forces that include; the threat from substitute services or products, Threat of new entrants, Rivalry among the existing players, bargaining power of suppliers and the bargaining power of buyers. These forces enable the Company to discover profitable opportunities such as in Tobacco, food and beverage other than focusing on strategic position alone (Crabbe, 2002). Threat of Substitute services or products The a2 milk producing Company should focus predominantly on meeting consumer needs and becoming services oriented rather than product based. The a2 milk Company differentiates its products by producing milk with A2 protein. This action ensures existence of unique a2 milk products therefore preventing substitute from other emerging substitute products. Threat of new entrants Emergence of new innovative ways of operating Tobacco, Food and Beverages leads to more stress on A2 limited Company products by facilitating low pricing. The Company is hence obliged to adopt new measures aimed at reducing these challenges to safeguard its competitive edge of the market. This can be achieved by allocating research and development funds, increasing economies of scales and inventing new services and products. Examples of threat to new entrants are innovative products and services adopted by other Companies that can adversely affect the competitive edge of A2 Company. Rivalry among existing competitors THE A2 MILK COMPANY 6 The A2 milk Company operates under a high competitive industry due to existence of many competitors. This stimulates the prices to decrease and therefore reducing profitability of Company in the long run. The Company can reduce this competition by expanding its operations, establishing a stable differentiation and collaboration with other industry competitor to expand size of the market. Bargaining power of suppliers There are many suppliers existing in A2 Corporation industry and all the competitors purchase their products from different suppliers. The suppliers of A2 Company are farmers and Companies having large herds that produce only protein A2. Powerful suppliers can use their powers to set high prices for A2 Company and as a consequence affecting profitability and market share the Company can earn significantly. The Company can limit the bargaining power of suppliers by establishing a supply chain with many suppliers therefore leading to emergence of dedicated suppliers whom the business can rely upon. Bargaining power of buyers The buyers are usually associated with the tendency of expecting high quality products within the market and paying low prices for them. This has an impact of limiting profitability of A2 Milk Company. The lower the number of customers within the market, the higher the bargaining power they exercise in an attempt to seek best prices and discounts. The A2 milk Company can limit power the bargaining power of buyers by expanding its customer premises and innovating new products rapidly. By assessing the porter five competitive forces, the dynamic change in profitability of the Company can be appropriately identified in order to explore emerging opportunities within their competition edge. The A2 Company management should these five forces completely in order to shape them in favor and forward progress of the Company. 4.3 The Competitive Strategy THE A2 MILK COMPANY 7 Based on competitive analysis of a2 Milk Company, the top competitors are Forefront corporate services, Bellamy's organic, DeNa and Zynga Corporate. The a2 Company applies favorable competing strategy and as a consequence achieving high estimated revenue of $20.6 million in the fiscal year 2016. The a2 Milk Company originates selectively from cows producing a given protein type known as A2 beta casein therefore the marketing differences has played a principle part in securing approximately 9% of milk market in Australia. The Company experiences stiff competition from the emerging Chinese free trade zones since they can import products free from regulatory disruption and tariffs. This poses stiff competition to a2 Milk Company therefore reducing its market share. 4.2 Financial Analysis Profitability Profitability is a metric applied to measure the extend of Companies' profitability relative to its size. Profitability of a Company is measured using Profitability ratios and they are; Return Assets and Return on Equity. We shall calculate Companies profitability using Return on Assets Ratios. Return on Assets In 2014, Formula = Net Income Average Total Assets = 10,000 74,907,000 = 0.13 THE A2 MILK COMPANY 8 In 2015, 2,092,000 = 25.2 74500,000 In 2016, 30,000,000 = 0.02 149,500,000 Liquidity Liquidity Ratios The measure the relationship of a Company to apply its liquid assets to settle liabilities and they include; Quick and Current Ratios. We shall calculate Liquidity of A2 Milk Company using Current Ratios. Current Ratio = Current Assets Current Liabilities In 2014, $51,000,000 $26,000,000 = 1.96 THE A2 MILK COMPANY 9 In 2015, $61,000,000 = 2.18 $28,000,000 In 2016, $182,000,000 = 6.5 $28,000,000 Leverage Leverage Ratios These ratios show extend on which the Companies' capital is financed by debt. These ratios include; Debt Equity Ratio, Debt Ratio and Equity Ratio. We shall apply Debt - Equity ratio to measure leverage of A2 Milk Company. Formula (Debt - Equity Ratio) = Total Liabilities Stockholders' Equity In 2014, $18,000,000 $59,000,000 In 2015, = 0.31 THE A2 MILK COMPANY 10 $30,000,000 = 0.51 $59,000,000 In 2016, $77,000,000 =0.58 $133,000,000 Asset utilization These ratios are used to calculate the net revenue received for each dollar of assets owned by a Company. Assets utilization can be analyzed using Asset Turnover, Accounts Receivable Turnover and Inventory Turnover. We shall use Asset Turnover ratio to assess asset utilization of A2 Milk Company. Formula = Total Sales Total Assets In 2014, $111,000,000 $77,000,000 = 1.44 In 2015, $155,000,000 $89,000,000 = 1.74 In 2016, $353,000,000 $210,000,000 = 1.68 THE A2 MILK COMPANY 11 Share market related performance Share Market related to performance of A2 Milk Company can be analyzed using market value ratios. We shall use Price/Earning (PE) Ratio (Choudhry, 2015). Formula = Net Income Total Outstanding Shares In 2014, $10,000 723 = 13.83 In 2015, $2,000,000 = 2,766 723 In 2016, $30,000,000 = 41,494 723 Recommendation The Company should expand its operating activities to increase profitability and ensure that the Company is not exposed to future financial crisis. A2 Milk Company should increase purchase more assets to ensure that the Company does not experience challenges when settling its liabilities using assets. A2 Milk Company should initiate dividend program for its shareholders since the Company did not issue any dividend to shareholders in the fiscal year 2014, 2015 and 2016 respectively. THE A2 MILK COMPANY 12 References Financial statements, A2 Company. (2013). London: BPP Learning Media Ltd Hirschey, M. (2015).Analysis of Financial Statements. Australia: SouthWestern/Cengage Learning. Maheshwari, Y. (2016). Financial Management. Place of publication not identified: Prentice-Hall Of India. THE A2 MILK COMPANY 13 Financial analysis. (2006). Reston, VA: DECA Images. Crabbe, L. E., & Fabozzi, F. J. (2002). Corporate management. New York: J. Wiley & Sons. Choudhry, M. (2015).A2 Milking Company. London: Financial Times Prentice Hall. Cairns, A. (2004). Financial Analysis of New Zealand Industries. Princeton, NJ: Princeton University Press. THE A2 MILK COMPANY 1 (THE A2 MILK COMPANY) (Students Name) (Institutional Affiliation) (Course Name/Number) (Instructors Name) THE A2 MILK COMPANY 2 Executive Summary A2 Milk Company was founded by Dr Corran McLachlan in the year 2000. He discovered that milk from cows produced proteins A1 and A2. The Company initially focused on producing milk having protein A2 only. The Company officially obtained agreement with famers in the fiscal year 2003 to produce milk with protein A2. During this establishment, the Company experienced stiff opposition from Fonterra Co-operative group in New Zealand. A2 Milk Company distributed its milk in countries such as United States, New Zealand, Australia and United Kingdom. The Company operates under legislation from the New Zealand government therefore this forms the political environment of the Company. A2 Company maintains an effective social environment by keeping a considerable number of highly trained employees to boost the efficiency of its day to day activities. These employees share a common social environment and as a result promoting smooth running of critical components of Companies' operation. A2 Milk Company utilized technological concepts to boost its production. The Company achieved this through integration of DNA principles with other scientific knowledge to ensure that the Cows produced milk with A2 proteins. A2 Milking Company engages in international trade with targeting countries such as United States and United Kingdom among others. These are several factors influencing international market of A2 Milk Company and they include; Emergence of few retail groceries and political differences between these countries. The Competitive dynamic of A2 Milk Company can be assessed using the porters' five forces. This analysis enables Companies' management to explore financial position and opportunities arising within the market. The Competitive strategy applied by A2 Company is effective since the Company differentiates its products within the market. Product differentiation is achieved by producing milk rich in protein 2A therefore increasing its worthiness to consumers. In order to remain profitable, the A2 Company should expand its production activities in order to maintain its profitability. It is also recommended that A2 Company should increase its expenditure on assets so as to improve ability of the Company to finance liabilities using debt. The Company should initiate a compensating program for its shareholders in form of dividends. The A2 milking Company should emphasize highly on its growth and development to achieve a self sustaining financial stability. THE A2 MILK COMPANY 3 3. Introduction The a2 Milk Company was founded in the year 2000 by Dr Corran McLachlan while at Cambridge University in New Zealand. The discovery following the establishment of this Company was that milk proteins have different impact on peoples. He discovered that the beta casein proteins produced by Cows were A1 and A2. Dr Corran found non invasive and safe way of identifying cows to ensure that he delivers natural and high quality a2 Milk obtained from A1 protein to consumers. The a2 Corporation initially focused on economic activity of developing breeding program for herds with a principle objective of producing a2 milk only. In the year 2003, the Company obtained agreements of launching its a2 milk brand with enough number of farmers. When launching a2 milk, the Company aimed at eliminating the health effects associated with A1 beta-casein. The main limitation was that a2 milk Company experienced constant opposition from Fonterra Co-operative group limited in New Zealand. The Company distributes its products in New Zealand, USA and Australia based on consumer demand. THE A2 MILK COMPANY 4 4. Findings and Discussions 4.1 External environment and Corporate Strategy The political environment of a2 Milk Company consisted of production legislations and restrictions under the New Zealand law. The law comprised of approximately 98% of New Zealand farms seeking to protect their contracts. As a result of this, Peterson sued Fonterra Company demanding adoption of warnings to conventional milk it produces. New Zealand government initiated favorable laws facilitating growth and development of this Company and they include Employment relations act therefore ensuring definite working hours according to section 67C of New Zealand constitution. Such legislation improved people confidence when working with a2 Milk Company (Maheshwari, 2016). The a2 Milk Company has grown and developed under effective social environment with educated employees and efficient cultural values. Emergence of common social environment within the Company has led to improvement of social responsibility from the top management to the junior employees. The social environment of a2 milking Company allows employees to interact favorably to promote smooth running of critical components of Companies' structure. The Company focused predominantly on patents, research and technological factors to promote its growth. Application of Information Technology principles forms part of DNA for a2 milk. The Company integrated these technological concepts with intellectual property licenses and trademarks. The technological advancement formed a critical formation point of a2 milk Company. The Corporate strategy reformed between the fiscal year 2004 and 2004 whereby the Company became significantly bound to assortment of technological and scientific knowledge. There are several factors influencing international market of a2 milking Company such as; Emergence of limited retail grocery chains around different countries (Hirschey, 2015). International market has emerged between New Zealand, Australia, United Kingdom and United States of America. Limited retail groceries affect expansion of the Company therefore restricting expansion and development of the Company. Domestic restriction of international trade and THE A2 MILK COMPANY 5 political differences between involved countries are among factors influencing international market of a2 milk Corporation. Competitive dynamics in the industry The dynamic forces leading to competition within the industry of A2 Company can be effectively assessed using the porter five forces that include; the threat from substitute services or products, Threat of new entrants, Rivalry among the existing players, bargaining power of suppliers and the bargaining power of buyers. These forces enable the Company to discover profitable opportunities such as in Tobacco, food and beverage other than focusing on strategic position alone (Crabbe, 2002). Threat of Substitute services or products The a2 milk producing Company should focus predominantly on meeting consumer needs and becoming services oriented rather than product based. The a2 milk Company differentiates its products by producing milk with A2 protein. This action ensures existence of unique a2 milk products therefore preventing substitute from other emerging substitute products. Threat of new entrants Emergence of new innovative ways of operating Tobacco, Food and Beverages leads to more stress on A2 limited Company products by facilitating low pricing. The Company is hence obliged to adopt new measures aimed at reducing these challenges to safeguard its competitive edge of the market. This can be achieved by allocating research and development funds, increasing economies of scales and inventing new services and products. Examples of threat to new entrants are innovative products and services adopted by other Companies that can adversely affect the competitive edge of A2 Company. Rivalry among existing competitors THE A2 MILK COMPANY 6 The A2 milk Company operates under a high competitive industry due to existence of many competitors. This stimulates the prices to decrease and therefore reducing profitability of Company in the long run. The Company can reduce this competition by expanding its operations, establishing a stable differentiation and collaboration with other industry competitor to expand size of the market. Bargaining power of suppliers There are many suppliers existing in A2 Corporation industry and all the competitors purchase their products from different suppliers. The suppliers of A2 Company are farmers and Companies having large herds that produce only protein A2. Powerful suppliers can use their powers to set high prices for A2 Company and as a consequence affecting profitability and market share the Company can earn significantly. The Company can limit the bargaining power of suppliers by establishing a supply chain with many suppliers therefore leading to emergence of dedicated suppliers whom the business can rely upon. Bargaining power of buyers The buyers are usually associated with the tendency of expecting high quality products within the market and paying low prices for them. This has an impact of limiting profitability of A2 Milk Company. The lower the number of customers within the market, the higher the bargaining power they exercise in an attempt to seek best prices and discounts. The A2 milk Company can limit power the bargaining power of buyers by expanding its customer premises and innovating new products rapidly. By assessing the porter five competitive forces, the dynamic change in profitability of the Company can be appropriately identified in order to explore emerging opportunities within their competition edge. The A2 Company management should these five forces completely in order to shape them in favor and forward progress of the Company. 4.3 The Competitive Strategy THE A2 MILK COMPANY 7 Based on competitive analysis of a2 Milk Company, the top competitors are Forefront corporate services, Bellamy's organic, DeNa and Zynga Corporate. The a2 Company applies favorable competing strategy and as a consequence achieving high estimated revenue of $20.6 million in the fiscal year 2016. The a2 Milk Company originates selectively from cows producing a given protein type known as A2 beta casein therefore the marketing differences has played a principle part in securing approximately 9% of milk market in Australia. The Company experiences stiff competition from the emerging Chinese free trade zones since they can import products free from regulatory disruption and tariffs. This poses stiff competition to a2 Milk Company therefore reducing its market share. 4.2 Financial Analysis Profitability Profitability is a metric applied to measure the extend of Companies' profitability relative to its size. Profitability of a Company is measured using Profitability ratios and they are; Return Assets and Return on Equity. We shall calculate Companies profitability using Return on Assets Ratios. Return on Assets In 2014, Formula = Net Income Average Total Assets = 10,000 74,907,000 = 0.13 THE A2 MILK COMPANY 8 In 2015, 2,092,000 = 25.2 74500,000 In 2016, 30,000,000 = 0.02 149,500,000 Liquidity Liquidity Ratios The measure the relationship of a Company to apply its liquid assets to settle liabilities and they include; Quick and Current Ratios. We shall calculate Liquidity of A2 Milk Company using Current Ratios. Current Ratio = Current Assets Current Liabilities In 2014, $51,000,000 $26,000,000 = 1.96 THE A2 MILK COMPANY 9 In 2015, $61,000,000 = 2.18 $28,000,000 In 2016, $182,000,000 = 6.5 $28,000,000 Leverage Leverage Ratios These ratios show extend on which the Companies' capital is financed by debt. These ratios include; Debt Equity Ratio, Debt Ratio and Equity Ratio. We shall apply Debt - Equity ratio to measure leverage of A2 Milk Company. Formula (Debt - Equity Ratio) = Total Liabilities Stockholders' Equity In 2014, $18,000,000 $59,000,000 In 2015, = 0.31 THE A2 MILK COMPANY 10 $30,000,000 = 0.51 $59,000,000 In 2016, $77,000,000 =0.58 $133,000,000 Asset utilization These ratios are used to calculate the net revenue received for each dollar of assets owned by a Company. Assets utilization can be analyzed using Asset Turnover, Accounts Receivable Turnover and Inventory Turnover. We shall use Asset Turnover ratio to assess asset utilization of A2 Milk Company. Formula = Total Sales Total Assets In 2014, $111,000,000 $77,000,000 = 1.44 In 2015, $155,000,000 $89,000,000 = 1.74 In 2016, $353,000,000 $210,000,000 = 1.68 THE A2 MILK COMPANY 11 Share market related performance Share Market related to performance of A2 Milk Company can be analyzed using market value ratios. We shall use Price/Earning (PE) Ratio (Choudhry, 2015). Formula = Net Income Total Outstanding Shares In 2014, $10,000 723 = 13.83 In 2015, $2,000,000 = 2,766 723 In 2016, $30,000,000 = 41,494 723 Recommendation The Company should expand its operating activities to increase profitability and ensure that the Company is not exposed to future financial crisis. A2 Milk Company should increase purchase more assets to ensure that the Company does not experience challenges when settling its liabilities using assets. A2 Milk Company should initiate dividend program for its shareholders since the Company did not issue any dividend to shareholders in the fiscal year 2014, 2015 and 2016 respectively. THE A2 MILK COMPANY 12 References Financial statements, A2 Company. (2013). London: BPP Learning Media Ltd Hirschey, M. (2015).Analysis of Financial Statements. Australia: SouthWestern/Cengage Learning. Maheshwari, Y. (2016). Financial Management. Place of publication not identified: Prentice-Hall Of India. THE A2 MILK COMPANY 13 Financial analysis. (2006). Reston, VA: DECA Images. Crabbe, L. E., & Fabozzi, F. J. (2002). Corporate management. New York: J. Wiley & Sons. Choudhry, M. (2015).A2 Milking Company. London: Financial Times Prentice Hall. Cairns, A. (2004). Financial Analysis of New Zealand Industries. Princeton, NJ: Princeton University Press