Make a thorough research on the above company, identify and briefly explain the sources of finance available for the expansion in the distribution of its line of products and highlight the implications of such sources of finance.
Task 2:
From the above, explain the importance of financial planning for Melaleuca Products and describe the impact of finance on the financial statements.
Task 3:
Obtain a Financial Statements of the company showing its two (2) consecutive latest annual statements. Compute for its profitability and liquidity ratio. Compare and comment on the result of your two (2) years calculation.
Task 4:
Analyze Melaleuca's business environment through its consolidated results as shown in the Financial Statements.
Table of Contents
Contents Page Number
1.0 Introduction 4
2.0 Main Body
2.1 Task 1 5 - 9
2.2 Task 2 10 - 12
2.3 Task 3 13 - 16
2.4 Task 4 17 - 18
3.0 Conclusion 19
Bibliography 20
1.0 Introduction
Introduction to Finance serves to introduce to students the basic elements of finance in business environment and the understanding of its financial impacts in business operation. The basic topics in Introduction to Finance are financial management, financial environment, financial statement analysis, time value of money, discounted cash flow by net present value and internal rate of return, risks and rates of return and also capital asset pricing. The assignment question of Introduction to Finance subject T1 2013 consists of four tasks. A scenario was given about Melaleuca Refugee Centre, Malaysia.
Students are required to complete the tasks according to the annual reports of the company. In task one, the sources of finance of Melaleuca Refugee Centre must be explained. The importance of financial planning and impact of finance on the financial statements are needed to be explained in task two. Whereby, task three is about the calculation of profitability and liquidity ratio. Melaleuca's business environment needs to be analyzed in task four. Below are my answers for the assignment's question according to the tasks given with complete format and information required about Melaleuca Refugee Centre.
2.0 Main Body
2.1 Task 1
Melaleuca Refugee Centre was first established in 1996 as the Torture Trauma Survivors Service of the NT Incorporated. In 2002, it expanded and became well known as the Melaleuca Refugee Centre Torture Trauma Survivors Service of the NT Incorporated (Melaleuca Refugee Centre). Melaleuca Refugee Centre Torture Trauma Survivors Service of the NT Incorporated is a community- controlled and non- profit association operating which heavily relies on support of local community. Sources of finance are ways an organization can obtain money. Sources of finance can be classified into two. The two sources are internal sources which are raised from within the organisation and external sources which are raised from an outside source.
Since Melaleuca Refugee Centre is a non- profit organization, it does not have loans and shareholders as sources of finance. The sources of finance available for Melaleuca Refugee Centre are through funding bodies which provide government grants and also funds. Grant is the money given by the government or local authority to an organization. Grant doesn't need to be paid back and is usually exempt from tax. If a company has a specific issue that it wants or needs to deal with then it could find that there are grants available to help to pay for it. Melaleuca Refugee Centre has a specific issue which provides an environment for resettlement and healing of refugee survivors of torture and trauma, their families and community through high- quality, confidential and holistic services.
The funding bodies for Melaleuca Refugee Centre consist of Australian Government, Northern Territory Government and Foundations which provide grants and funds to the organization. Department of Immigration and Citizenship provide grant for Melaleuca Refugee Centre through the Settlement Grants Program (SGP), an Australian Government grant program. It provides funding to assist humanitarian entrants and migrants settle in Australia and participate fairly in Australian society as soon as possible after arrival. Department of Health and Ageing provide grant programs and provides a large, flexible funding pool for initiatives aimed at aged care service improvement and promoting healthy and active ageing to Melaleuca Refugee Centre.
Whereas, Department of Families, Housing, Community Services and Indigenous Affairs provide funding to Melaleuca Refugee Centre to provide early intervention and intensive support to exposed children and young people affected by mental illness and their families, to identify risk factors or issues which may lead to poor mental health and strengthen protective or positive factors. Besides, Northern Territory Government also provides sources of finance to Melaleuca Refugee Centre. Department of Children and Families provide funds such as for parental support service for the safety and protection to children and their needy family which faces illness and tortures.
Whereas, Department of Chief Minister, Office of Multicultural Affairs provides Harmony Grants which are available to organizations for projects that promote multiculturalism in the Northern Territory for Melaleuca Refugee Centre. Department of Natural Resources, Environment, the Arts and Sport also provides grant to Melaleuca Refugee Company in the form of Community Grant. Department of Justice carry out The Community Crime Prevention Program which includes a number of Grant Programs such as reducing violence against women and their children to Melaleuca Refugee Centre. Other than that, Melaleuca Refugee Centre also receives financial sources from foundations such as Honda Foundation and Deckchair Cinema.
The Honda Foundation will only provide financial assistance to Australian bodies that are approved by the commissioner of Taxation. In particular, The Honda Foundation provides financial assistance to approved humanitarian bodies and approved bodies who focus their activities on the disabled or those suffering from long-term, life threatening illnesses like Melaleuca Refugee Centre. Last but not least, Deckchair Cinema uses the money collected from the screening of the movie 'The Lady' for valuable Community Development programs such as for Melaleuca Refugee Centre. Those are the funding bodies which provide sources of finance and funds to Melaleuca Refugee Centre to support the operation of that organization.
Other than the funding bodies, Melaleuca Refugee Centre also receives financial sources from donations. Donations generally come from individuals, from companies or from charitable trusts and foundations. Donations are a particularly important source of income for charitable and non- profit organizations such as Melaleuca Refugee Centre and can attract tax relief. Everyone is welcomed to donate for Melaleuca Refugee Centre in term of money and funds as the sources of finance to support the organization. Donations are not only expected in terms of financial donation for Melaleuca Refugee Centre. It can also be in terms of physical donations such as toys, books and games. The examples of donors of Melaleuca Refugee Centre are The Bookshop in Galleria, Greenies Wholefoods Shop at Rapid Creek and Martin's Vegetarian Café at Coconut Grove.
However, there are implications of such sources of finance towards the organization. There are positive implications and negative implications. The positive implication on Melaleuca Refugee Centre is that the organization doesn't need to repay the grants. Grants are funding given to businesses for programs or services that benefit the community or public at large. Grants are especially valuable because they don't require repayment, and might be available on a recurring basis. Besides, grants also save Melaleuca's valuable time and resources where government helps in some services and funding through grants. Grants provide huge monetary rewards with just one proposal to Melaleuca Refugee Centre. It is easier to raise money from government grants where it can be prestigious and give the organization instant credibility and public exposure.
Whereas, one of the negative implication is grants come with requirements to spend the funds according to a complex set of regulations and laws. However, it makes Melaleuca Refugee Centre getting these grants after a lengthy process. In addition, grants often come out with a set of rules for who are eligible to apply that can be so specific that Melaleuca Refugee Centre has. Besides, government tends to demand certain activities that must be included in any project to be funded which may increase an organization's expenses. Last but not least, donations from individuals and organizations can quickly drop in times of economic uncertainty. Melaleuca Refugee Centre can predict next year's income using previous years as a starting point, but a dramatic shift in the economy can cause the organization to drastically miss its income targets.
Those are the sources of finance of Melaleuca Refugee Centre and the implications of such sources. It provides Melaleuca Refugee Centre funds to maintain the stability and run the organization successfully according to their mission and goal.
2.2 Task 2
Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Basically, the financial planning activity of an organization involves tasks such as assess the business environment, confirm the business vision and objective, identify the types of resources needed to achieve these objectives, quantify the amount of resource (labour, equipment, materials), calculate the total cost of each type of resource, summarize the costs to create a budget and identify any risks and issues with the budget set. It is the responsibilities of financial planners to ensure the funds are available to support the organization's mission and strategy for growth. However, the financial planning does have its importance for every organizations including Melaleuca Refugee Centre.
The importance of financial planning for Melaleuca Refugee Centre is to manage income more efficiently. Regardless of the amount of income earned, part of the earning will go for tax payment and expenditure such as wages what's left would be the saving. Thus, proper planning of finance is necessary in increasing cash flow. Managing income through financial planning also helps in segregating it into the next monthly expenditures and savings. Besides, financial planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability of Melaleuca Refugee Centre is maintained. It also helps in increasing cash flow as well as monitoring the spending pattern of Melaleuca Refugee Centre with careful budgeting.
In addition, financial planning helps in making growth and expansion programs which helps in long-run survival of Melaleuca Refugee Centre where it will be useful for conducting humanitarian program such as Harmony Day and others. The assets of Melaleuca Refugee Centre are best monitored through financial planning too. Since financial reports hold records of expended, earned and remaining assets, financial planning becomes crucial in keeping an up-to-date record of the company's resources. The financial planning process helps Melaleuca Refugee Centre to identify between the most important expenditures and the less important expenditures of the organization. Last but not least, financial planning is important for Melaleuca Refugee Centre to gain the respect and confidence of funding agencies and beneficiaries where it will help the organization to gain more funds and income.
A good financial planning requires the organization to be conscious and deliberate about planning for both its long term financial goals and immediate financial health. It also helps the organization to be more stable in its position and manage its resources and income successfully. Melaleuca Refugee Centre should have a good financial planning to manage the organization effectively. The vision of Melaleuca Refugee Centre is it is recognised as a leader in facilitating the recovery of refugee survivors of Torture and Trauma. The mission is Melaleuca Refugee Centre provides an environment for resettlement and healing of refugee survivors of torture and trauma, their families and community through confidential, high-quality and holistic services.
Impact of finance of Melaleuca Refugee Centre depends on the finance manager of the organization. Finance manager takes care of the financial management and organizational maintenance with a team of employees. The financial market involved by Melaleuca Refugee Centre is capital market. Capital market is a market in which organizations trade financial securities. Organizations in the public and private sectors also often sell securities on the capital markets in order to raise funds. Non- profit capital market is a way for donors to "invest in what works" and for nonprofits to secure additional funding by "moving money" rather than traditional means of raising money. The objective is to create a virtuous cycle in which Melaleuca Refugee Centre publicize the results they achieve in order to attract greater funding, and greater funding enables nonprofits to further improve their performance.
Banks are also an impact of finance. The funds and donations are banked in to the bank account of Melaleuca Refugee Centre. Besides, banks also act as an intermediaries for Melaleuca Refugee Centre for paying the debt or making payment for their expenditures. Another impact of finance is also the organizations that Melaleuca Refugee Centre works with. It works with Department of Health, Allens Training and also Bumblebee Early Education Centre. The financial planning with impacts gives big changes to Melaleuca Refugee Centre where it can gain a stabile position and can attract more donors and government grants.
2.3 Task 3: Profitability and Liquidity Ratios
Profitability ratios measure a company's ability to generate earnings relative to sales, assets and equity. Examples of profitability ratios are net profit margin, return on total assets, return on equity and gross profit margin. Meanwhile, liquidity ratios are the ratios that measure the ability of a company to fulfill its short term debt obligations. These ratios measure the ability of a company to pay off its short-term liabilities when they fall due. I have obtained financial statements of Melaleuca Refugee Centre showing its two consecutive latest annual statements of the year 2011 and year 2012. Below are the calculation of profitability and liquidity ratio of the centre.
1) Profitability Ratios:
a) Net profit margin = Net profit
Sales
Year 2011 = $ 755,436 = 0.17: 1
$ 4,375,160
Year 2012 = $ 937,325 = 0.18: 1
$ 5,090,820$
b) Return on total assets = Profit available to common shareholder
Total assets
Year 2011 = $ 755,436 = 0.49: 1
$ 1,542,283
Year 2012 = $ 937,325 = 0.36: 1
$ 2,572,861
c) Return on equity = Profit available to common shareholder
Equity
Year 2011 = $ 755,436 = 0.8: 1
$ 949,745
Year 2012 = $ 937,325 = 0.5: 1
$ 1,887,070
d) Gross profit margin = Gross profit
Sales
Year 2011 = $ 0 = 0: 1
$ 4.375,160
Year 2012 = $ 0 = 0: 1
$ 5,090,820
2) Liquidity Ratios:
a) Current Ratio = Current assets
Current liabilities
Year 2011 = $ 1,516,902 = 2.56: 1
$ 592,638
Year 2012 = $ 2,568,059 = 3.74: 1
$ 685,791
b) Quick ratio = Current asset - (Inventories) - Prepayment
Current liabilities
Year 2011 = ($ 1,516,902 - $ 0 - $ 0) = 2.56: 1
$ 592,638
Year 2012 = ($ 2,568,059 - $ 0 - $ 0) = 3.74: 1
$ 685, 791
Net profit margin is a measure of profitability. The net profit margin of Melaleuca Refugee Centre is higher by 0.01 on year 2012 compared to year 2011. This shows that Melaleuca Refugee Centre having a better profit on year 2012 compared to year 2011. This profit will help the centre to conduct its operation smoothly on the following year. Return on total assets is a ratio that measures a company's earnings before interest and taxes against its total net assets. The return of total assets of Melaleuca Refugee Centre is higher by 0.13 on year 2011 compared to year 2012. That shows that the return of total assets in the year 2012 decreased where it can be due to the economic situation such as higher tax rates. Return on equity is the amount of net income returned as a percentage of shareholders equity.
The return on equity of Melaleuca Refugee Centre is slightly lower on the year 2012 compared to year 2011 by 0.3. This shows that the company has a low return on equity where it can be because of the different rate of investment. Gross profit margin serves as the source for paying additional expenses and future savings where the company has the total profit. The gross profit of Melaleuca Refugee Centre is zero where zero for gross profit is not valid in the company. So, Melaleuca Refugee Centre does not has gross profit since it's a non - profit organization.
Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts. The ratio of Melaleuca Refugee Centre of assets is higher than liabilities. This means Melaleuca is in a stable position where its liabilities are lesser than assets. Quick ratio is also known as acid test ratio. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The quick ratio of Melaleuca Refugee Centre is also same as the current ratio. This shows that Melaleuca does not have enough inventories and prepayment in the operations. The profitability and liquidity ratio ensures and shows whether an organization is in a stabile position and can plan the operations of the organization accordingly.
2.4 Task 4
Business environment of an organization is the combination of internal and external factors that influence an organization's operating situation. The business environment can include factors such as clients and suppliers, its competition and owners, improvement in technology, government activities and market, social and economic trends. The upcoming event of Melaleuca Refugee Centre is one of the business environments for the organization. The upcoming events of Melaleuca Refugee Centre are Harmony Day for Under 5 years old, African's Brothers "Cultural Transmision" Workshops, Happy Nawruz Celebration and The Malak Community Shed. The Harmony Day will be conducted for children under 5 years old in the Malak Community Hall, Malak Crescent. The objective is to create a harmony and peace in mind for the children. Activities and games such as Jumping castle & fun bus, balloons, art activities, dress-ups, multicultural performers and many more was conducted.
Besides, the African Brothers "Cultural Transmission" Workshop provides free drumming and dance workshops for African communities only. All ages are welcome in this workshop. It is conducted in the Darwin Community Arts Theatre, Chambers Crescent (Malak Shopping Centre). Happy Nawruz Celebration is invited by the Darwin Persian Association (DPA) to celebrate Persian New Year with Persian dance performances, music and cuisine. The event is conducted in the Cypress Community Centre 30 Batten Rd, Marrara. Last but not least, The Malak Community Shed is a newest DCA project promoting creativity, sustainability, art and culture and a sense of community. Community space located in the underground car park of the Malak Community Square will be run by community members and DCA volunteers. The Community Shed is used for meetings, seminars, cultural exchange, art skills and training. The business environment of Melaleuca Refugee helps the organization to survey their position and conduct more service and activities to help those who are facing torture and trauma.
3.0 Conclusion
The importance of financial planning is directly related to the purpose the organization sees in the time frame. There are various sources of finance available to small businesses, each carrying different benefits and costs. It is important to carefully evaluate the specific requirements and determine which sources of finance are best suited needs of the business. The profitability and liquidity ratio are very important for evry organization to analyze the current situation of the organization and for conducting further planning or investment. The business environment of the company is also important for the deciding of further plans and activities of the organization.
