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1a.

Introduction
Retail Food Group Limited (RFG) is one of Australias largest retail food franchisors and
intellectual property owners, with two main operational divisions being franchising operations
and Wholesale/Retail operations. It develops and manages
Donut King
, Brumby's Bakeries
, bb's
Cafe, Michel's Patisserie
, Pizza Capers
, Crust and Big Dads Pies brands throughout Australia and
across other ten countries. The company was established in 1989, was listed on ASX in 2006
and
was elevated to the S+P/ASX200 in 2013.
Now the group makes
more than 10 million pizzas
annually, roasts more than 1.42m kilograms of coffee annually and with more than 105 million
customer visits each year.
Last financial year, there was $36.9 million net profit after tax
(NPAT), which was a 15.2% increase compared to FY13. The companys FY14 interim dividend
saw a 11.4% increase over FY13.
1b. Introduction
Sirtex Medical Limited (SRX) is an ASX listed company which specialises in biotechnology and
advanced medical devices. the company manufactures and distributes liver cancer treatments
utilizing small particle technology to approved markets in Asia Pacific, Europe, Middle East and
America. SIR Sphere microspeheres, one of the most successful product of the company, are
targeted radioactive treatment used in both liver cancer treatments. During the last financial
year, the companys revenue and net profit after tax saw growths of 33.7% and 30.6%
respectively. The number of doses (unit sales) however, only increase 17.3%, suggesting that
the companys revenue and profit growth originated from increase in unit price.

2a. How does the company define cash and cash equivalent in preparing the statement of cash
flows?
RFG defines cash and cash equivalent as cash on hand and demand deposits having a maturity
of three months or less at the date of acquisition. Demand deposits are short-term, highly liquid
investments that are readily convertible to known amounts of cash, which are subject to an
insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current
liabilities in the balance sheet
(REG page
46). For the purposes of the statement of cash flows,
cash and cash equivalents includes cash on hand and in banks and investments in money
market instruments, net of outstanding bank overdrafts. (
REG 2014 Annual Report page 7
7) The
total cash and cash equivalent balance at the end of FY14 is $11.559 million.

2b. How does the company define cash and cash equivalent in preparing the statement of
cash flows?
Cash and cash equivalent was defined as any cash in hand (petty cash), cash in bank, and also
any short term deposits with any financial institutions / short term instruments. The short term
deposit was also defined as any term deposits with maturity date lesser than 90 days from date
of inception. According to the 2014 report, the effective interest rate on these short term
deposits was 4.06% and had an average maturity of 51 days on reporting date (SRX p64). Cash
assets with restriction are not categorized as cash and cash equivalent assets (p59).

3a. Cash Flows from operating activities.


Cash flow from operating indicating the money a company brings in from ongoing, regular
business activities,
RFGs generated $29.944 million cash flows from operating activities for FY14
, compared to $31.1 million in FY13. Cash inflow includes $175.53 million of receipts from
customers. Cash outflow includes $124.886 million of payments to suppliers and employees,
$5.439 million of interest and other costs of finance paid as well as $15.261 million income
taxes paid (
REG page
43)
.

3b. Cash Flows from operating activities.


SRX has net cash flow from operating activities of $32.2 million, up from $24.3 million in
the previous year (p55). The positive cash flow indicates cash inflow from the businesss
core operation. The net cash flow constituted of $125.1 million of cash received from
customers, $90.5 million of cash paid to both suppliers and employees for the operation
of the business, $1.8 million of cash received as interest for funds stored in financial
institution, and approximately $4.2 million of cash paid for income tax.

4a. Cash Flows from investing activities.


Total amount of can flows from investing activities for RFG for FY14 is -$26.529 million,
indicating there were more cash spent on investment than received. Cash inflow were
mainly from two sources: $0.289million interest received and $32 thousands proceeds
from sale of property, plant and equipment. While cash outflow in FY 14 for RFG
included $7.791 millions of amounts advanced to other entities, $15.363 million
payments for property, plant and equipment, and $1.696 million payment for intangible
assets (RFG page 43).
4b. Cash Flows from investing activities.

SRX has net cash flow from investing activities of -$23.0 million, up from -$12.2 million in the
previous year (p55). The negative cash flow from investing activities indicate that there is a cash
outflow rather than inflow of cash. Out of the total of $23.0 million cash outflow, $6.2 million
was spent on purchase of plant and equipment for the operation of the business, $18.9 million
was spent on research activities categorized as internally generated intangible assets, and an
offsetting cash inflow from short term deposit investment of $2.0 million.
5a Cash Flows from financing activities.
Cash flow from financing activities shows investors the companys financial strength. For
RFG, the net cash used in financing activities for RFG is 8.678 million. The major sources
of cash inflows for RFG in FY14 are proceeds from financing are $58,575 million from
proceeds from issue of equity security and $23.500 million from proceeds from
borrowing.
Cash outflow are $1.909 millions of payment for share issue costs,
$63.500 million repayment of borrowings and $25.344 million of dividends paid
repectively (RFG page 43).
5b. Cash Flows from financing activities.
SRX has net cash flow from financing activities of -$6.7 million, up from -$5.5 million in the
previous year (p55). The negative cash flow from financing activities indicate that there is a cash
outflow rather than inflow of cash. All of the cash outflow of $6.7 million was used to pay
dividends to shareholder in the financial year (p55).
6a Free Cash Flow
FCF = net operating cash flow - capital expenditure - cash dividends
Capital expenditure for RFG = payment for property, plant and equipment+payment for
intanfible assets+payment for business=$15.363 million+$1.696 million +$ 2 million=$19.059
million
For RFG: FCF = $29.944 million $19.059 million $25.344 million = -$14.459 million

6b. Free Cash Flow


Free Cash Flow (SRX) = $32.2 million - $6.2 million - $18.9 million - $6.7 million = $ 0.4 million
Free cash flow (FCF) represents the cash that a company is able to generate income after laying
out the money required to maintain or expand its asset base and after subtracting dividend
paid to shareholders. To be specific, FCF is the cash remaining of income generated from clients

and customers, income used to reinvest in necessary assets, income used to reward the
business shareholders.
FCF shows real money that the company can be used to
develop new
products, make acquisitions, pay dividends out to their shareholders and reduce debt
. With
more spending money in the bank account, companies with higher FCF have the cash
to pursue
opportunities that enhance shareholder value. However, a negative cash flow does not mean
that the company is experiencing difficulty. It may be contributed by putting large amount of
money on investment, therefore when this investments generate high return it will also
contribute to the enhancement of sharesholder value.
7a
For RFG, it generated a net cash and cash equivalents of $5.263 million, which means that the
amount of cash and cash equivalent dropped by 5.263 million, from $16.822 million in FY13 to
$11.559 million in FY14 . (RFG page 41).
Net cash and cash equivalent has cash flow from operating activities, investing activities and
financing activities three components. Firstly, it can be seen from the table that cash flows from
operating activities dropped as the amount paid the suppliers and employees increased, even
though receipts from customers increased the income taxes paid increase as well. Secondly, a
significant decrease in cash flows from financing activities was seen, which was due to the $63
million payment of borrowings. Overall, the company used more cash than it generated for
FY14, therefore there is a decrease in cash and cash equivalents compared to FY13.
7b
The amount of cash and cash equivalent increased by $2.4 million in 2014, from $20.1 million in
2013 to $22.5 million in 2014.
The cash equivalent component accounts for $2.0 million out of $2.4 million increase in the
cash and cash equivalent. In 2013, SRX had $12.0 million investment in short term deposits
whilst in 2014, the short term investment increase to $14.0 million by year end.
While net cash flow from operating activities has increased by almost $8.0 million, the increase
in capital expenditure and dividend payments have offset the cash inflow, causing the net cash
flow to increase by only $2.4 million.
8
The profit after tax figure in the income statement was calculated based on accrual accounting,
considering expenses that have been incurred but not paid and sales that have been made but
not received. It also considers depreciation where there was no physical cash that changes
hands and other non cash accounting treatments. Therefore in accrual accounting, there is

generally a mismatch between the time when a transaction is recorded on the books and when
physical cash change hands. In contrasts, the net cash flow considers only the cash receipt and
payments that occur throughout the financial year. The physical cash must be received or paid
in order to be considered in the cash flow statement. Moreover, accounting entries which do
not involve cash such as depreciation are reversed. Therefore, the profit figure can be thought
as an indication of the businesss performance whilst the operating cash flow shows the total
cash inflow from the businesss core activities.
9
Efficiency of cash flow could be measured by cash flow ratios that include three main ratios
being days inventory, days receivable and days payable. Days inventory implies how long it
takes for the business to sell its inventory. Days receivable indicates the days of collecting
payments from customers. Days payable indicates how long it takes for the business to pay its
suppliers. An efficient cash flow management can be shown as short days inventory, short day
receivable and longer days payable. Thus, the business would require the minimum amount of
cash on hand for everyday business and could make the best use of cash on hand.
RFG

Days Inventory

Days Receivable

Days Payable

FY14

95

49

48

FY13

71

46

78

RFGs inventory management efficiency has decreased. This may be indication of poor forecast
of sales and/or over-stocked by the management. RFGs days receivable is found to experience
a decreasing trend, indicating an increasingly longer days for RFG to collect trade receivables
from customers, as a possible result from decreasing disposable income. RFGs days payable
decreased from 78 in FY13 to 48 in FY14, suggesting that it accelerated paying its suppliers. This
may indicate that RFG may be forced to use external funds to finance its working capital in the
future.
Reference
http://www.gurufocus.com/term/DaysSalesOutstanding/ASX:RFG/Days%2BSales%2BOutstandi
ng/Retail%2BFood%2BGroup%2BLtd
SRX

Days Inventory

Days Receivable

Days Payable

FY14

30.1

71.5

53.4

FY13

35.1

75.1

53.3

The days receivables and days payable were calculated using total revenue and total expenses
respectively as the firms account payable and receivables also reflect future payments or
receipts from expenses and other sources of revenue as well. The days inventory however was
calculated based on the inventory of the firm. In general, there was improvement in all 3 ratios
which implies better cash efficiency for the firm. The firm was able to sell its products and
collect payments much faster whilst holding off payments to supplier for an average of 53 days.
10.
RFG:CashConversionCycle(CCC)=daysreceivable+daysinventorydayspayable=pigsheyi

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