Rising prices, holding prices – Primark holds retail prices steady
With some commodity prices on the rise, and continued economic woes, some businesses are holding retail prices and reducing margins. Associated British Foods, which includes the low price high-street retailer in Primark (UK/Ireland and some European countries) is an example. In late April 2011, the company reported it wished to absorb material price increases rather than pass them on to end-consumers. Increasing sugar and cotton prices reduce the company’s margins. However the CEO reported that the company did not want to relent it’s status as a low price retailer in the clothing sector.
Three acounting mistakes made by entrepreneurs
I read an article on entrepreneur.com a few months ago. It recounted the experiences of some entrepreneurs in terms of the common accounting mistakes made. The 3 top mistakes/misconceptions according to this article are:
1. Treating sales as revenue before the product is delivered or service provided. A common mistake actually. For example, if you have agreed to sell goods in March, you cannot record the sale until then. There are some exceptions, but let’s keep it simple.
2. Capital expenditure is not reflected in the accounts immediately. If you buy a new asset, you part with some cash. But in accounting, the cash amount spent is recorded against profits over several years. Sometimes the cash outflow may be too much, so you need to consider the cash situation of the business.
3. Proftit and cash flows are confused. The best way to explain this is to think of selling on credit. If you sell on credit, the sale is recorded, but you don’t get the cash for some time later. So, you could be profitable but have no cash – a bad scenario.
The article gives some real examples, so have a read.
Pension problems
I don’t write very often about economics and politics- not really my thing. However, while on holidays I read a great article in the Guardian about the on-going pension problem/debate in the public and private sector. Have a read, I think it is a great summary of the many issues with our future pensions. Here us the link http://m.guardian.co.uk/business/2011/jul/03/pensions-unions-government-young-sacrificed?cat=business&type=article
Saving money by “greening” buildings.
According to an article in Time (April 18, 2011), a lot of money can be saved by retro-fitting old buildings. I have written a few posts already about this, but this article gives some really good examples of the kind of money that can be saved from some relatively simple initiatives. According to the article, older skyscrapers are one of the worst type of buildings in terms of energy efficiency. Some investment in lighting, heating and insulation can make a huge difference to costs and energy efficiency. For example, the Empire State building spent $13m in 2010 on a retrofit. The result is a 38% decrease in utility bills and a payback period of less than three years. Another example is a re-fit of a federal building in Cleveland, which saves $600,000 per annum. The city of Melbourne, Australia is also mentioned. The city’s Lord Mayor sums up well – “this is not some feel-good environmental initiative. It is a hard-headed economic business decision.
Australia plans to impose carbon tax
Many young Irish people (and other nations too of course) are making their way to Australia to seek employment and/or better their career prospects. The Australian economy seems to be booming based in its natural resources and its closeness to the Chinese markets – who consume huge quantities of these resources. This boom may be affected somewhat by the imposition of a carbon tax from 2012 on all firms emitting more than 25,000 tons of CO2 per annum. This will increase the output costs, which may affect consumer spending. To balance the affect, the Australian Prime Minister has promised some tax reductions. Read the full story here
Bio-diesel from waste food?
Sustainability in business is a big things nowadays. It can mean many things from saving energy, reducing waste and altering product design. Going one better of course is to completely re-use waste to make a new product. I read a great example recently in the Telegraph [London]. The article mentioned a UK company called Greenergy. The company has invested £50m in a plant to make bio-diesel from used cooking oil, which in itself is a great [if not new] idea. But this company has taken things a little further. In partnership with another company called Brocklesby, the company is now processing waste food into bio-diesel. Apparently, fatty foods like crisps, pies and junk food are great candidates as they are full of fatty oils. While the company has started this new process on a small scale, it seems like a great way to make money out of waste. It ticks so many boxes on the sustainable/environmental side too – it reduces waste to land fill, reduces fossil fuel dependency and may even in the future reduce land use e.g. rape seed grown for vegetable oil.
Data centres costs – weather is a key factor
(Image from Economist.com)
A few weeks ago I was listening to the radio in the car. A news item came on about why Ireland is attractive to companies like Google and Microsoft to set up data centres. It wasn’t tax, or our educated workforce. Much to my surprise it was the Irish weather. Well, I suppose all three are important, but with an ambient average temperature well below 20 celsius, the cost of cooling the data centres falls considerably. Here’s a post I read earlier from Babbages’ blog on The Economist. It gives some great detail on the costs of running these data centres Data centres: Social desert | The Economist. I have to say, as a management accountant weather conditions would not be the first thing I’d consider in cost decisions – a good reason to talk to other people in the organisation to find out what’s going on.
Liquidity issues – Apple has more cash than the United States
I read a new report on the BBC iPhone app this morning and just had to write about it. Over the coming months I will be writing a series of posts on analysing businesses. One area I’ll cover is liquidity and solvency. Liquidity is the ability to turn assets into cash, while solvency is the ability to pay debts as they fall due. Now, we have been hearing quite a lot about some European countries and the US having debt problems. Things really come to a head when those debts cannot be repaid, and to repay them, you need cash. According to the report by the BBC, Apple Inc had $76 billion in liquid resources (cash and other assets easily converted to cash) according to its most recent accounts. The report puts the liquid resources of the US $73 billion. When I read this I started to understand why it is so important for the US to raise more cash – hence the need to raise it’s borrowing limit. If the US were a small business, there’s a good chance it would be gone by now, as it would have little cash and no way to raise more. Watch out for more posts on business analysis soon. In these posts I’ll write about some common ways to evaluate and analyse how a business is doing.
Who makes what for the iPhone, and how much does it cost
As a management accountant, I’m always interested in what products cost to make. In today’s global manufacturing economy, it’s even more interesting as product components are sources from all over the world. Time [May 16, 2011] provides a great example, the iPhone. According to the article, the total cost of the iPhone 5 is $179. Of this amount, $61 goes to Japanese suppliers, $11 to US suppliers, $30 to Germany, $23 to South Korea, $7 to China [where the phone is assembled], and $48 goes to other unknown sources. Given that the selling price is around $500, this means that the loins share of the added value in an iPhone about, or $321, stays within the US company. I have to say I was surprised that China contributed so little to the final value.
iPad accounting apps
Yes, there are a few good iPad accounting apps. Most have been available for the iPhone too, but the iPad makes such apps far more suitable for use in real business. Here’s a web report on 3 of the most common accounting apps:
http://www.readwriteweb.com/enterprise/2011/06/4-accounting-apps-for-the-ipad.php
New code for Irish charities
In March 2011, the Irish Times reported on a new voluntary code for charities in Ireland. Yes, it’s a while ago and has been on my “to do” list for quite a while. Following the enacting of the Charities Act 2009, all Irish charities must submit an annual activity report to the Charities Regulatory Authority. Larger charities also have to complete and file audited accounts. The new proposed code aims to make charities more transparent financially, going beyond the requirements of the Act. The five key elements of the code are:
- charities commit to good practice and ensure fundraising activities are open and legal
- a donor charter will be introduced
- a complaints and feedback procedure
- a monitoring group will monitor code compliance
- an annual report and a statement of annual accounts will be publicly available
Fuzzy Accounting Enriches Groupon
You may have heard about Groupon going public. Seems some creative accounting is going on. Read the full article from the New York Times here
Fuzzy Accounting Enriches Groupon – NYTimes.com.
Problems at Honda?
Following the earth quake and tsunami in Japan earlier this year, car manufacturers faced many problems. One I have wrote about previously, namely the fact that supplies of components dried-up after the disaster due to the close-knit just-in-time management systems used. The Economist provided another example from Honda recently. Honda launched their new Civic model in April/May this year. The problem of course was whether or not the company could actually deliver enough cars to meet demand, due to production disruption and supplier problems. Other car manufacturers, particularly US ones, would of course benefit. However, for Honda the short term seems still slightly troublesome
Problems at Honda?
Following the earth quake and tsunami in Japan earlier this year, car manufacturers faced many problems. One I have wrote about previously, namely the fact that supplies of components dried-up after the disaster due to the close-knit just-in-time management systems used. The Economist provided another example from Honda recently. Honda launched their new Civic model in April/May this year. The problem of course was whether or not the company could actually deliver enough cars to meet demand, due to production disruption and supplier problems. Other car manufacturers, particularly US ones, would of course benefit. However, for Honda the short term seems still slightly troublesome
A comparison of taxes and take-home pay
Just a short post today, as I’m enjoying some holidays. We hear a lot about the relative amount of tax we pay (in Ireland) as a portion of our take-home pay. An article in the Economist of May 12 last puts Belgium at the top of the OECD countries in terms of how much of the total labour costs is taken in taxes and social insurance. It’s 55% in Belgium. Ireland is much lower at 29%. The UK stands at 33% and Germany at 55%. These figures are for single persons. Things change a little bit when you look at families, but not too much. This spreadsheet from the OECD’s website provides the full details. Take a look at “Tax Wedge overview” sheet in particular.
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