Assessment 1 Step 7-10

Hi all,

Here is the draft version for Step 7-10 of assignment 1.

your comments and feedback highly appreciated.

I would like to get feedback on Step 7 Inventories more specifically, because my firm Benchmark PLC has not disclosed any inventory counting methods (perpetual/periodic) and costing methods (FIFO/ Weighted average etc) in the financial reports. therefore, it is bit difficult for me to overview its inventory policies.

thank you,




ACCT11081: Assignment 1 Step 3 : Know your firm Benchmark PLC

Assignment 1: Step 3 : KNOW YOUR FIRM: BENCHMARK PLC, UK.

Who loves fish in a dish? My firm is for those who do.


My firm, Benchmark PLC is a UK based company founded in 2000 by  Malcom Pye, Roland Boney and Ruth Layton.

Benchmark PLC works in the field of human food, mainly fish. It develops sustainable methods to help fish farmers (mostly Salmon, Tilapia and Shrimps) to grow their production. The main areas of working are aquaculture, genetics, animal health and knowledge services. Although the company is based in UK, it has large scale production facilities (primarily aquaculture) in 7 countries such as Norway, Scotland, Iceland, Italy, Brazil, US and Thailand supported by Research and Development facilities in additional 20 countries.  Thus, Benchmark PLC has a strong worldwide presence.

Annual reports of Benchmark PLC are as below:

Benchmark PLC 2017

Benchmark PLC 2016

Benchmark PLC 2015

In 2017, though overall revenue of Benchmark PLC has increased from GBP 109.4million (in 2016) to GBP 140.2 million, company has reported the loss of GBP 7.12 million (loss: GBP 18.346 million in 2016).

Performance report for each of Benchmark’s subsidiaries is as below:

Operating Divisions



  Operating Profit

GBP millions


GBP millions

Operating Profit

GBP millions


GBP millions

Genetics 9.5 30.5 20.7 -3.6
Advance nutrition 1.1 83.7 4.5 55.0
Animal Health -13.6 15.1 -6.0 24.8
Knowledge Centre -2.9 13.8 -2.5 2.5


Here is the video where Mr Malcolm Pye and Mr Malcom Plampin summarising the key financial progress of Benchmark PLC.

Firm’s financial statements are an ‘adjusted’ view of its accounting records (Chapter 3, Study Guide). In Benchmark’s strategic financial report (2017), there are revenue adjustments under the heading ‘Like for like’ which are difficult to understand. These adjustments are due to Benchmark’s acquisition of INVE Aquaculture Group and Genetica Spring SAS. In the balance sheet, Benchmark’s current and non-current assets are mostly biological assets such as organic sheep, organic beef, organic hens, frozen milt, Broodstock, fingerlings and eggs. It seems that while determining the valuation and depreciation of these assets not only technical but biological knowledge is necessary as Benchmark Holdings PLC helps food producers take control of their biological environment through the combination of genetics, nutrition, health and knowledge services. It is challenging for Benchmark to get employees with essential skills (aquaculture science) for research and development of new products such as vaccine for salmon. According to the balance sheet, Benchmark PLC holds net assets of worth GBP 358 million (GBP 368 M in 2016). Benchmark is holding inventories worth GBP 20M in 2017 (GBP 23M in 2016). In last term, it was not necessary to examine cash flow statement. While going through cash flow statement, it was found that in 2016, Benchmark used large amount of cash (GBP 211M) for investing activities and GBP 191M were spent for acquisitions of subsidiaries. Is this the reason of adjusted EBITDA and adjusted revenue in financial statements 2017?

As compared to Immuron Ltd (the firm from ACCT11059), Benchmark PLC’s business area is much larger with strong world-wide presence. Immuron Ltd is engaged in manufacture and R&D of Human health related (healthy stomach and fatty liver) products. On the other hand, Benchmark PLC works in food sector which is prime need for humans. Therefore, Benchmark PLC has greater market base and growth opportunities in the field of feeding mankind with better and sustainable food supply. Financial statements for Immuron Ltd are easy to understand with revenue and expenses clearly separated in Income statement and loss for the given year is allocated to Parent company. On the other hand, in the income statement (2017) of Benchmark PLC, there is a loss reported of GBP 7.1 million and positive income of 320,000 GBP is attributed to non-controlling interests. When the firm is facing loses, how can part of ‘other comprehensive income’ can be allotted to non-controlling interests as a profit?

Overall, it is more challenging to study the financials of Benchmark PLC. The firm has many subsidiaries and profit and loss is adjusted according the acquisition period of each subsidiary. Immuron’s financial reports studied in last term were much easier and straight forward. Although, Benchmark PLC’s financials contain a lot more variances with large types of operating, financing and investing activities. I am looking forward to discuss and share the financials of my firms with my fellow peers. From the past experience of studying ACCT11059, it is always beneficial to get constructive feedback from fellow student. This further helps to get clear idea of basic concepts which are initially difficult to understand.



Immuron Ltd – Economic Profit

Economic profit is opportunity cost of the capital invested. To calculate economic profit, I considered cost of capital (WACC) as 10%. Below is the Economic Profit calculated for Immuron Ltd.

years 2016 2015 2014 2013
Economic Profit (4,606,415.7) (3,562,840.1) (2,259,905.9) (3,352,425.8)
CI after Tax (4,380,821) (3,460,532) (2,544,550) (3,539,117)

This Economic Loss of Immuron is increasing from year 2013 to 2016. And to my surprise these figures are approx. same as the loss reported each year. RNOA, cost of capital and NOA are the key drivers for Economic Profit. RNOA is determined by profit margin and asset turn over.

Key driving Factors for Economic Profit:

2016 2015 2014 2013
RNOA -90.97% -1499.67% -334.71% 2246.29%
Profit Margin -359.16% -314.96% -210.16% -2248.62%
NOA 4,561,992 236,001 655,596 (149,910)

RNOA is negative and much less than cost of capital. To generate Economic profit, RNOA should be greater than cost of capital. NOA and RNOA are getting better in 2016 but not more than cost of capital. In my opinion, negative profit margin (loss margin) is driving economic profit to negative numbers. From financial statements, it can be noticed that expenses are much larger in amounts than the sales revenue and generating negative income each year. From the calculations, it can be noticed that lower the asset turnover, lower the economic profit.

In 2013, poor sales figures (AUD 149,755) has resulted in the lowest profit margin. On the other hand, in 2013, there are net operating liabilities rather than net operating assets. Therefore, RNOA is not reflecting real financial picture for the year 2013.

I surprised to see the largest net operating assets in 2016, still the reported losses are in large amounts. In 2016, NOAs are significantly high, though these operating assets are not helping to improve economic loss because of larger inventories held that year. Immuron needs to accelerate its sale, as larger inventories are not helping to achieve better economic growth. Immuron Ltd desperately needs to control its expenses as well, to gain increase in the revenue.

(Note: as RNOA, cost of capital and NOA are key factors driving economic profit and Profit Margin and ATO are key accounting drivers for RNOA. For Immuron Ltd, with large figured economic losses, it is difficult to draw a graph with key driving factors. Therefore, I decided to compare economic loss with NOA and net losses reported each year).


I compared economic profit for Immuron Ltd with Economic Profit of Dods PLC and Medical Development INC.

2016 2015 2014 2013
Immuron EP (4,606,415.7) (3,562,840.1) (2,259,905.9) (3,352,425.8)
Dods EP -£583.4 -£6,583.0 -£3,695.0 -£12,567.8
MDI EP 62.33 -214.51 -991.97 499.27

MDI is showing better economic profit than other two firms. When RNOA is compared of three firms,

2016 2015 2014 2013
Immuron RNOA -90.97% -1499.67% -334.71% 2246.29%
Dods RNOA 6.54% -24.89% -5.25% -42.87%
MDI RNOA 10.44% 8.79% 4.46% 13.02%

Medical Development is showing the most return on operating assets than the other two firms which leading to better economic profit figures. For 2016 and 2013, MDI’s RNOA is greater than cost of capital. Dod’s group is having negative RNOA but shows significant improvement in 2016.


In comparison with other two firms, Immuron management needs to manage the assets more efficiently which will result to positive economic profit. Low sales figures, low revenue and huge corporate and R&D expenses are obstacles to Immuron’s financial growth. Immuron is  trying to launch the medicine IMM124E which is effective in treatment of type 2 Diabetes; hopefully its successful launch in the market will help to boost the sales and earn more revenue leading to positive economic profit.

There is recent announcement on Australian Stock Exchange website that Immuron has completed manufacturing of IMM-529 (C-diff) medicine’ clinical supply for treatment of colostridium difficile infection (CDI).  Further, Immruon has secured AUD1.5MN loan in form of a cash advance against 2017 R&D tax concession refund which will help the firm to carry on clinical trials for type 2 Diabetes drug. Hope, Immuron Ltd will achieve better economic growth in future.



Analysis of Financial Ratios – Immuron Ltd

When I calculated financial ratios for my firm Immuron Ltd, I was not sure if these ratios making any sense. Immuron Limited is not making any profits and I can see the loss calculated in the financial statements and huge expense amounts separated as operating expense in restated financial statements. Most of the ratios are negative. Initially I was confused if I keep the ratios with negative sign or should I change the title of rows e.g. ‘net profit margin’ to ‘net loss margin’, ‘return on assets’ to ‘loss on assets’, ‘economic profit’ to ‘economic loss’ and so on. On the website stated below: it is mentioned that it is irrelevant to calculate the profit margin calculations for loss making firms. On the other hand, we can find out the reasons for losses by looking at the ratio analysis.

Profitability Ratios:

Net Profit Margin

2016 2015 2014 2013
-379.9% -306.8% -243.7% -2363.3%

Net profit margin ratio shows how much of dollars earned for sales of each dollar. Both profitability ratios, for Immuron Ltd are negative and this negative percentage is larger in number. This clearly indicates that there are more expenses than revenue. In 2013, Net loss margin was the highest as the amount of sales was merely AUD149,755. Though, there is increase in sales from 2014 to 2016, the total losses too are increasing.

Comparison with Profit Margin

Profit Margin

-359.16% -314.96% -210.16% -2248.62%

When Net profit margin is compared with Profit margin ratio both are showing similar trend from 2013 to 2106. Both ratios show increasing losses, though negative operating income was the highest in 2013 with minimal sales.

Return on Assets

-45.6% -75.8% -33.3% -140.1%

Return on Assets ratio indicates how efficiently management using the assets of the firm. Total assets contain financial as well as operational assets. The cash in the banks is the key asset for Immuron. In 2014, Immuron Ltd bought Hadasit Medical Research and Development Centre as part of their intellectual property. In 2014, Immuron has better net profit margin and return on assets (though negative) as compared to other time periods.

Comparison with Return on Net Operating Assets

Return on Net Operating Assets:

-90.97% -1499.67% -334.71% 2246.29%

RNOA is much larger and negative as compared to ROA. While calculating RNOA, financial assets like cash are separated. This is clear indication that Immuron’s operating activities are not generating any revenue. In 2013, Immuron is reporting Net operating Liabilities therefore, I am not sure RNOA for 2013 is reflecting any true picture of financial position. It is actually mathematical calculation where negative operating income divided by negative NOA resulting in positive RNOA which is totally unrealistic.

Efficiency (or Asset Management) Ratios

Days of Inventory

1035.65 527.88 267.26 1197.08

Days of Inventory ratio indicates for how many days the firm is holding inventory in hand before it gets sold. Inventory costs represents opportunity costs; therefore, inventory days indicate how good inventory is managed. In the case of Immuron here, inventory days are too high. For 2013 and 2016, days of inventory are almost more than 1000 days. In income statement of 2013, there is revenue by sales AUD149,755 which is very low and there was no cost for sales and marketing or freight charges. I was curious why days of inventory so high in 2013 and asset turnover ratio so low? I found the answer in Annual report 2013 as the company terminated the Nycomed license and distribution agreement which resulted in poor sales. In 2014, inventory performance is better because of company’s implementation of strategy of direct sales to wholesaler distribution and sales model.

Total Asset Turnover Ratio

0.12 0.25 0.14 0.06

Asset Turnover ratio indicates number of dollars generated by one dollar of asset. In 2013 and 2016, ATO ratio is very poor due to low sales. I don’t understand why Asset turnover ratio is too low in 2014 though there are better sales results and inventory days.  Is this because of purchase of Hadasit Medical Research Centre? For this purchase, Immuron spent most of its cash assets and borrowed the funds with issuance of rights.

Comparison with Asset Turnover Ratio

Asset Turnover Ratio:

0.25 4.76 1.59 (1.00)

Asset Turnover ratio is moving in similar way as that of TATO ratio from 2013 to 2106. For 2013, there are no Net Operating assets but Net operating liabilities. There is better ATO in 2015, due to better sales though lesser Net Operating assets.

Liquidity Ratios:

Current Ratio

2.27 3.75 9.01 1.49

Here again, Current ratio is too high in 2014. From balance sheet of 2014, it can be noticed that there are no financial liabilities and cash asset is too high (AUD 6,141,789). And in the same year, Medical research centre form Israel was purchased by the company. The current ratio indicates that Immuron has enough assets to sell out to pay back its short-term liabilities.

Financial Structure Ratios:

Debt/Equity Ratio:

67.7% 36.2% 12.5% 1642.7%

Equity Ratio:

59.6% 73.4% 88.9% 5.7%

Debt Ratio:

40.37% 26.55% 11.08% 94.26%

When I looked at the figures of debt/equity ratio which indicates how much loan the firm is having as compared to owners’ equity, I got surprised to see 1642.7% of debt/equity in 2013. There are large amount of trade payable and financial liabilities while total equity is just 144,986 in 2013. Few key personnel and management members of Immuron resigned or got retired in 2013. This might be the reason for the lowest equity ratio in 2013. Debt ratio is also the highest in 2013.

With the appointment of new key personnel and issue of share rights, the equity ratio is almost 89% in 2014, representing more investment from the owners as equity investors. In 2014, the total number of issued ordinary shares are 2,995,662,120; the largest number of all. From the website:

Equity financing in general is much cheaper than debt financing because of the interest expenses related to debt financing. Companies with higher equity ratios should have less financing and debt service costs than companies with lower ratios.

This might be the reason Immuron is issuing more and more equities to the value of borrowings and most of the time issued rights’ price is much more than current market price.

Market Ratios:

Earning Per Price:

-$0.055 -$0.046 -$0.00085 -$0.0034

Dividends Per Share:

n/a n/a n/a n/a

Price Earning p/e Ratio:

(4.56) (5.00) (5.89) (1.17)

Earnings per share (EPS) shows net income per share. In the case of Immuron, it is loss per share as there is no income. for years 2016 and 2015, the calculations for loss per share are matching to that of financial reports of the company. On the other hand, for year 2013 and 2014, loss per share is different: (0.698 Cents) and (0.152 cents) respectively. When I checked the notes of annual reports, number of equity issued used for loss per calculation is different than the actual total issued capital (Note 18). I don’t understand why this adjustment is done. Share prices are too low in 2013 and 2014: AUD 0.004 and AUD0.005 respectively. There is huge movement in rights or equity issuance due to borrowings and resignation of key management staff in 2013.

Immuron is not paying any dividends.

Price to Earnings Ratio is negative and indicates the poor performance of the firm. Also shows the growing amount of losses from year 2013 to 2016 that means company is losing the money. Though Immuron’s share price is too low, it is risky to buy these shares since management is not doing good job in managing the company, i.e. no dividends and no income for many years.

Ratios based on Reformulated Financial Statements:

Return on Equity

-76.31% -103.58% -37.49% -2441.01%

Return on Equity ratio indicates how efficiently equity investors’ funds are utilised to generate the revenue. For Immuron Ltd, ROE is the lowest in 2013, with equity ratio just 5.7%.  there are net losses reported by Immuron from 2013 to 2016, and cannot expect any positive return on equity.

Net Borrowing Costs

-19.57% 2.54% -5.71% -58.22%

In my opinion, this ratio is not reflecting the real financial picture of Immuron’s borrowings or net liabilities. Immuron is holding larger amounts of cash as financial assets in banks. In restated financial statements, there are net Financial assets not financial obligations. In annual reports 2013, it is clearly stated that there are borrowings of AUD1.4M which may be converted into equity at higher price per share (AUD4.73) and interest is payable on borrowings at a fixed rate 10% per annum (note 16).  NBC is not reflecting this info here. I guess, Immuron management would like to broadcast larger cash holdings as strong financial assets of the firm to attract more investment despite of ongoing losses.

 Return on Net Operating Assets (RNOA)

-90.97% -1499.67% -334.71% 2246.29%

Immuron is reporting losses so this ratio is loss on net operating assets as there is operating loss after tax, not operating income. negative percentage of RNOA indicates Immuron’s operating activities are not generating any profits to cover the expenses. In 2013, there are net operating liabilities rather than net operating assets. But it looks like Immuron is managing to lower the losses from 2014 to 2016.

This is my commentary for Immuron’s ratios. I am thankful to those who provided the constructive feedback. I tried to accommodate their suggestions.

The corresponding spreadsheet is:

Immuron Spreadsheet 2017Step3_1tax

If anyone has similar figures like large negative ratios, it will be great to hear from you. I am specially interested to hear if anyone having NFAs not NFOs and having Net Operating L abilities rather than NOAs.

Thanks, Monal.