Critical Analysis of Annual Report of Stockland Corporation Limited

The present report is developed to provide an understanding of the process of general purpose financial reporting followed by business corporations within Australia. In this context, it has undertaken an analysis of the annual report of an Australian ASX 100 listed corporation and has examined its adherence to AASB, true and fair, conceptual framework and corporations law. The business entity selected for the purpose is Stockland Corporation Limited, an Australian property development company listed on ASX. The financial performance of the company is also compared with another entity listed on the ASX. The company selected for the purpose is Scentre Group, an ASX listed real estate investment and development entity. At last, it provides an analysis of the investment decision within the company on the basis of examining the annual report information.

Critical Analysis of Annual Report of Stockland Corporation Limited

Stockland Corporation Limited, an Australian property development company traded on ASX and is involved in developing of residential communities, shopping and industrial centers. The company is listed on ASX and therefore develops its annual reports as per the accounting policies and standards of AASB (Australian Accounting Standards Board). The financial report of the company has included a statement of compliance for ensuring that the financial statements are developed as per the AASB and IASB standards.

AASB has directed all the ASX listed entities to comply with the IASB standards for reporting of their financial information. IASB requires the business entities to adopt the conceptual framework of accounting for reporting of the financial information (Stockland: Annual Report, 2017). The conceptual framework of accounting has provided the qualitative characteristics that the business corporations need to comply during preparation of their financial reports. The fundamental qualitative characteristics are relevance and faithful presentation of information while the enhancing characteristics are comparability, verifiability, understandability and timeliness. As such, Stockland Corporation also needs to follow these principles of conceptual framework of accounting in order to comply effectively with AASB standards (Conceptual Framework for Financial Reporting, 2018).

As per the relevance characteristic of the conceptual framework of accounting, the company needs to disclose relevant information to the end-users that is able to guide them in their decision-making process (Stockland: Annual Report, 2017). The financial information can said to be relevant when it has both predictive and confirmatory value. It is predictive if it is able to make future predictions based on the past and present financial information and confirmatory that represents the confirmatory position of a firm.

The company has adopted the use critical accounting estimates and judgments for predicting the value of key financial items that are based on past information ad adjusted as per the current market conditions. The confirmatory value is depicted with the use of key accounting policies to representing their real and fair value that is disclosed in the notes to financial statement section (Gaffikin, 2003).

The company as per the faithful presentation of information has included the auditor’s declaration for ensuring that it is complete, neutral and error-free as depicted below:

Comparison of selected corporation with other corporation listed on the ASX

The company according to the enhancing characteristic of understandability has adequately disclosed the relevant accounting policies and methods adopted for measuring the value of key financial items in the notes section as depicted below:

The financial information presented in the annual report of the company is also comparable with that of the previous year as per the comparability characteristics of the conceptual framework of accounting (Alexander and Archer, 2008). This will help in analyzing the percentage financial growth realized by the company in comparison to the previous year as depicted below:

Also, the company has developed its financial reports as per the timeliness characteristics of the conceptual framework of accounting as it is disclosed to the end-users on an annual basis regularly (Stockland: Annual Report, 2017). This ensures that the financial position of the company as reflected from its general purpose financial statements represents the current financial condition for guiding the investors in taking the right decisions.

Therefore, it can be stated that the company has followed effectively the obligations of conceptual accounting framework for development of its financial reports (Mackenzie et al., 2014). As such, it can be said that the company has followed the accounting theories of stakeholder and agency theory. As per the stakeholder theory, the company is acting in the direction of maximizing the value for stakeholders by presenting them all the necessary information that facilitates them in decision-making. Also, as per the agency theory the company has adopted transparency in its financial reporting for ensuring that the business managers are acting towards maximizing the value for the principals, that are the stakeholders (Jones, 2015).

In addition to this, the company for ensuring that the material information presented in the financial report is true and fair and developed as per the AASB and corporations law have also included the statement of declaration from directors as depicted below

As stated by the statement of director’s declaration, the company has followed the Corporations Act 2001 and the IFRS standards in development of the financial reports. The financial information presented through the report is true and fair and depicts the actual financial position of the company (Carmichael and Graham, 2012).

Comparison of selected corporation with other corporation listed on the ASX

In order to compare the performance of Stockland Corporation with any other company listed on ASX, Scentre Group has been selected. Scentre Group has been listed on ASX100. The companies listed on ASX uses Australian Accounting Standards as the basis for preparation of financial statements that helps in comparing one corporation with another corporation easily. In this section performance of Stockland has been compared with the performance of Scentre Group. In order to compare the performance there must be similarity that both companies have applied same accounting standards for measurement of revenues, expenses, assets, liabilities and equity as all these elements of financial statements help to judge the performance of any company (Brigham and Michael, 2013).

To compare the performance of Stockland with Scentre Group, it is essential to compare financial performance of both companies. Financial performance can be evaluated through applying ratio analysis approach for both selected corporations.

In ratio analysis there will be analysis of profitability, liquidity, efficiency and market performance of the company for year 2017.

Net profit ratio: This ratio determines the profitability performance of the company as it shows percentage of net profit earned on net sales. This ratio is calculated as net profit divided net sales.

(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)

On the basis of above table it can be said that profitability position of Scentre Group is much better than Stockland as in year 2017 net profit earned by Scentre Group was 171.34% which was far better than the net profit of 43.55% earned by Stockland. The main reason why the net profit ratio of Scentre Group was higher than sales is because of revaluation of fixed assets. The good profitability position helps the company to continue for longer period and give tough competition to their competitors.

Asset Utilization Ratio or asset turnover ratio: Asset turnover ratio helps to evaluate the efficiency position of the company as it provides sales generated through use of applied assets of the company. It is calculated by dividing total turnover by total assets.

(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)

Through looking at above ratios it has been analyzed that Stockland has been able to utilize its assets in much better way as compared to the Scentre Group. This can be articulated because only 6.60% of total assets have been converted into sales by Scentre Group while Stockland has converted more than 15% of assets into sales.

Current Ratio: Current ratio determines the liquidity position of the company as it reflects company position to pay the current liabilities through using the current assets. It is calculated as current assets divided current liabilities.

(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)

On the basis of above table it can be said that liquidity position of Stockland is better than Scentre Group but overall liquidity position of both companies are not up to satisfactory level.

Earnings per share (EPS): This ratio helps investors to determine what return they have earned on their overall investment in the company. This ratio tells income earned by the shareholders on each common share.

(Scentre Group: Annual Report, 2017 and Stockland: Annual Report, 2017)

EPS of Scentre Group was better than the Stockland that indicates market performance of Scentre Group has been better than Stockland.

Conclusion

On looking over the compliance on reporting requirement of corporations listed on the ASX, it can be said that Stockland has been successful as it presented its general purpose financial report on the basis of AASB and conceptual framework. The critical analysis of annual report of Stockland indicates that company has been true and fair in presenting its financial statements in their general purpose financial report. Analysis of each element of financial statement and accounting policies used to recognize them indicates that Stockland has made compliance with all the relevant Australian Accounting Standards and conceptual framework.

The detailed disclosures have also been provided for each item of financial statements and for any significant transaction taken place during the year. As company is successful in providing all the relevant material to its stakeholders it can be said that company has satisfied the stakeholders theory as management at Stockland have working for best interest of their stakeholders (Damodaran, 2011).

The comparison of financial performance of Stockland with performance of Scentre Group it can be said that Scentre has much stronger position in the market. But there is need to consider the other factors that indicate that Stockland is also a very good option for investors to make their investment. As both these companies belong to real estate industry it vital to consider the factor of revaluation of fixed assets that certainly helps to increase net profit of company drastically.

The share price of Stockland has gone under major change during the last two years. The historical share price data at yahoo finance indicates that there has been great fall in share price of company. The share price was $4.760 on 1 September 2016 and it was $ 4.180 at the starting of August 2018 that clearly indicates major downfall in the share price of the company (Historical Price, 2018).

On the basis of critically analysis of financial statements of Stockland it can be said that it not worth to invest $10,000 in the company as shareholding period return will reduce over the time. It has been said because share price had decreased a lot during last two years and EPS was also not good as compared to other companies in the same industry.

References

Historical Price. 2018. Yahoo Finance: Stockland Stapled Securities (SGP.AX). [Online]. Available at: https://in.finance.yahoo.com/quote/SGP.AX/history?period1=1472581800&period2=1535653800&interval=1mo&filter=history&frequency=1mo [Accessed on: 31 August, 2018].

Scentre Group: Annual Report. 2017. [Online]. Available at: https://www.scentregroup.com/getmedia/a06dc91f-7127-447d-a5e0-727dd6d2c28a/Annual_Financial_Report_2017.pdf [Accessed on: 31 August, 2018].

Stockland: Annual Report. 2017. [Online]. Available at: https://www.stockland.com.au/investor-centre [Accessed on: 31 August, 2018].

Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage Learning.

Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.

Conceptual Framework for Financial Reporting. 2018. [Online]. Available at: https://www.ctcp.gov.co/_files/documents/1522788672-5065.pdf [Accessed on: 31 August 2018].

Jones, S. 2015. The Routledge Companion to Financial Accounting Theory. Routledge.

Carmichael, D.R. and Graham, L. 2012. Accountants’ Handbook, Financial Accounting and General Topics. John Wiley & Sons.

Mackenzie, B. et al. 2014. Wiley IFRS 2014: Interpretation and Application of International Financial Reporting Standards. John Wiley & Sons.

Alexander, D. and Archer, S. 2008. International Accounting/Financial Reporting Standards. CCH.

Gaffikin, M. 2003. Corporate Accounting in Australia. UNSW Press.