Identify the key accounting drivers

Reference no: EM132991600

Economic Profits:

Have a look at the and the questions related to Michael Hill's accounting drivers below:

Based on the image below, the firm's Economic Profits decrease to a (-) negative value in 2018 and 2020, what is causing them to be negative? (Explain briefly.)

The firm's Economic Profits are (+) positive numbers in the year 2017 and 2019 according to the image attached, what is causing them to be positive? (Explain briefly.)

What is causing the firm's fluctuated Economic Profits (decrease greatly in 2018, increase again in 2019 but decrease again in 2020)?

The firm's Economic Profit numbers are smaller in comparison to the the Free Cash Flows, what is causing them to be so small?

Note:

The key drivers of the firm's (Michael Hill) economic profit are Return on Net operating assets (RNOA), cost of capital or WACC (the firm's WACC is 8%) and Net operating assets (NOA).

The two key accounting drivers of RNOA are Profit margin (PM) and Asset turnover (ATO).

Free Cash Flow:

Based on the image below, the firm's Free Cash Flows are all (+) positive throughout the past 4 years, what is causing them to be positive? (Explain briefly.)
What is causing the firm's fluctuated Free Cash Flows (decrease in the year 2018 and 2019 then increase in 2020)?
The firm's Free Cash Flow numbers are larger in comparison to the the numbers of Economic Profits, what is causing them to be so large?
Note: The key drivers of Free Cash Flow (FCF) are: Comprehensive Operating Income after Tax (OI) and Net Operating Asset (NOA).

Key Accounting Drivers of Economic Profits & FCF (Free Cash Flow):

Identify the key accounting drivers or what is driving your firm's Economic Profit and Free cash flow. Which drivers are the most important or critical? (Explain thoroughly.)

Reflections:

What insights have you gained by 'breaking into bits' or analysing your firm's (Michael Hill) financial statements to identify the "accounting drivers"? And what did you not gain? (Briefly explain.)

Attachment:- Ratios.rar

Reference no: EM132991600

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