Step 2

Step 2

I really struggled with Step 2 of the assignment – restating the three financial statements.  I did ask for some help on the forum with classifying some of my company’s activities and got a reply so that was great (I’ve attached that conversation separately).  Even though I did what Martin said to do and print off the statements and put and O and F next to each activities, I still struggled working out the classifications as my company uses language I have never heard of before and I had trouble searching it online.  I have had a go at the restating but even though I have spent weeks looking over the tutorials, seeing how other students went about it – I even asked the advice of an accounting secretary I knew and my book keeper and neither knew how to do it, that’s a bit scary!!

In particular I spent countless hours of lost sleep over restating the comprehensive income/income statements.  I then got to a point where I thought something uploaded is better than nothing at all, it’s just frustrating as I know they are not right but I can’t work out how to fix them.  The other major problem I had was that my company’s income revenue changed dramatically in each two year period ie 2011/2012 report on Group income statement is Revenue 2011 – 11,035   2012 – 10,896, then on the 2012/2013 report we have 2012 now at 9,966   2013 – 10,118 and moving on to the 2013/2014 statement we have 2013 – 8,852 and 2014 – 8,793???? And that was just in the sales revenue.  So I feel I have been defeated after much trying – very annoying!  I did find the documents explaining for these changes but I just couldn’t get the figures to flow from one year to the next.

I did find the UK tax rates for each year - Tax Rates for UK - 2014- 21%       2013 -23%      2012- 24%     2011 - 26%

This is what happened to my study area when I tried to restate the income statements

Step 3 & 4

Products in Balfour Beatty                                           

1.       LaserSweep

 LaserSweep incorporates a variety of  features including an on-site software functionality,  setting out downtime, the ability to add track geometry to structure measurements, plus a  platform marker gauge.

  

Estimated Selling Price  £  5,452                                Estimated Variable Cost  £  3,258

Contribution Margin (CM)           = Sales Revenue (S)  –  Variable Costs (VC)

                                    

(CM)                                                      = (S) £  5,452 – (VC) £  3,258

(CM)                                                      = £  2,194

2.        Ultrasonic Rail Flaw Testing

The 8000SXTM system employs rolling search units, A and B scan visualisations, and highly developed signal processing facilities. This provides very accurate detection and discrimination of rail faults and ensures the highest Probability of Detection with the Lowest False Call Rate.

 Estimated Selling Price   £ 24,326                             Estimated Variable Cost   £ 18,778

Contribution Margin (CM)           = Sales Revenue (S)  –  Variable Costs (VC)

                                    

(CM)                                                      = (S) £ 24,326 – (VC) £ 18,778

(CM)                                                      = £  5,548

 

3.        LaserFlex

LaserFleX™ solutions provide accuracy and configurability with high productivity. Solutions are available for a range of vehicle platforms, from trolley through roadrail vehicle to train mounted at speeds up to 120km/h.

Estimated Selling Price   £ 15,693                              Estimated Variable Cost   £ 11,257

Contribution Margin (CM)           = Sales Revenue (S)  –  Variable Costs (VC)

                                    

(CM)                                                      = (S) £ 15,693 – (VC) £ 11,257

(CM)                                                      = £   4,436

Products

	LaserSweep	Ultrasonic Rail Flaw Testing	LaserFlex
Selling Price	5452	24326	15693
Variable Costs (VC)	3258	18778	11257
Contribution Margin (CM)	2194	5548	4436

*GBP - Pound

Although Balfour Beatty has numerous products and services, the three Balfour Beatty products chosen are used within the same market, being the rail industry. 

In the case of these three products there is a positive affect from the contribution margin and we see the (CM) is contributing to lowering fixed costs and therefore increasing profits. 

I found this really challenging as Balfour Beatty has so many products and services probably due to the fact they have been around over 100 years and are the largest construction contractor in the UK.

I spent several hours trying to find real sales prices for the three products I chose however in the end I had to use sales prices from competitive companies.

Constraints

An example of possible constraints for Balfour Beatty - A recent report released by ReportLinker indicates that the residential construction sector is expected to dominate the global precast/prefabricated and modular construction market between 2015/2020. The precast/prefabricated wall segment is projected to hold the largest market share among all product types during the forecast period with the largest market being dominated by the Asian-Pacific region.  If Asia-Pacific are focusing on producing mass quantities of products  for their own use (as the report indicates), the same products that Balfour Beatty have previously relied on as a cost effective alternative for some of their major residential projects, then one may wonder if the availability could become  limited causing the price to increase.

Step 4 - All Feedback is uploaded on the Assignment 2 Forum/students blog pages

Step 1

Chapter 4 – Analysing Financial Statements

How Firms Add Value

Wow this chapter really gets straight into the depth of the topic.  I have to say I was a terrified when I turned the first page and abbreviations jumped out at me all over the page – aaahhh (FCF), (C), (FCF), (DCF) and so on.  My first impression was am I going to be able to do this assignment, self doubt started setting in.    My brain shut down just from seeing all of those abbreviations, as I knew they would lead to equations, which will no doubt test me.  I knew at that point, that I would be challenged by this chapter. 

Big breath, let’s just do this!  The questions start….Key Questions- What does ‘transfer’ of value regarding cash flow in a firm mean? Regarding Capital markets, why would you trade in something that you know may never happen? If equity investment involves predicting the future, what tools does one need to do this? Discounted cash flow?  Economic profit frameworks? I NEED A TUTOR!!!

I would have really liked to see a physical example in this section with arrows pointing to show the flow, I found I had to read and then re read to make some sense of the topics being discussed.

I forced myself to keep reading and just as my brain was beginning to switch off, stumbled across something that finally made sense, yeah!

Key Concepts - I really connected with the author when he said ‘To understand the value of the equity of a firm we need to engage with the economic and business realities of a firm that are actually driving the creation of value by the firm for its equity investors” and then later compared the true cost of investing capital to our own lives.  All of these equations and abbreviations suddenly had some relevance to me.

Key Concepts - I found immense value in this comparison as I am currently planning the future model of my working career, still however with some grey areas to iron out until I have complete clarity.  Weighing up the cost of studying part time to complete my degree and further my working ability at an older age was one I took very seriously.  I have to see this journey as an ‘investment’ in my mind to ensure I stick with it.  It could also be compared to, if someone was suddenly diagnosed with a serious but fixable illness.  I had a friend who was diagnosed with diabetes and extremely high blood pressure and the doctors wanted him to immediately take medication as he was a prime candidate for a heart attack or stroke.  When he weighed up the ‘cost’ to his body of being on such high doses of medication and their known side effects, he decided to make changes naturally.  Three months later with normal blood pressure and a healthy sugar level, the doctors were amazed at the transformation.  When they asked what he did, he said I wrote a list of pros and cons to reflect fixing myself with medication and I worked out I could fix this with diet and exercise.  The ‘cost’ therefore was that he could no longer have his afternoon teas at the coffee shop devouring pieces of chocolate cake smoothed in rich icing.   

I can personally reflect on this concept as I spent quite a lot of time weighing up the ‘cost’ of studying, to further my career.  The added pressure to my already filled plate was not something I took lightly and serious changes have had to be made.  Five children, one being a baby (who is full time at home with me) and a demanding job where you are only paid when you perform (by commission) is not easy at the best of times.  When I weighed up the ‘costs’, I realised I could only physically study part time.   At this stage a slow part time.  The realisation I have to say was quite depressing as the thought of years of studying to gain completion felt very daunting. 

Originally I took on two modules. The thought of six years of getting up at all hours of the day and night was not one I took lightly and of course there is still an amount of unknown at the end ie will this actually give me what I need for my job, what if I change direction on the way, six years is a long time and there is a high possibility that change will occur in that time. 

I soon realised that I could only handle one module at a time and then I had to reassess the ‘cost’ again to our lives of me studying.  By weighing this up, I confirmed to myself that the future is always unpredictable and that I need to make decisions based on the future as I see it currently.  I guess this could be compared with how capital markets work and why people trade in something that involves predicting the future.  Even though you take in as many possible scenarios as you can think of, you still have to weigh it up on the current realities, what has and hasn’t worked in the past and the direction in which you are aiming for.  I believe this would be no different for a company.  A company would use the reality of the information in front of them, the information relating to where they have been and the goals for the future, to create the direction.  They would use all of these things to weigh up the ‘cost’ of going in the direction they were currently planning.

I am a person who likes to challenge the ‘norm’ on a daily basis and cannot stand people telling me, “You cannot have your cake and eat it”.  Why?  Why can’t we have our cake and eat it.  If you know clearly what is important to you, what you are willing to sacrifice and not sacrifice, and then all you have to do is find the right path that leads you to your goal. 

When I had my youngest daughter Victoria, I weighed up the pros and cons of continuing work and ‘costs’ to the household, little Victoria and myself and I came up with three choices which I presented to my boss,  I can work from home, I can work from the office with Victoria or I can leave. These were my only three choices, as I had already weighed up the ‘cost’ of child care and the emotional separation for myself and Victoria. 

My bosses reply was, “I don’t care what you do as long as you do your job to the same standard”.  So I tried to work in the office.   I was not about to give up on being the best Mum I could possibly be to our young daughter all because I had to earn a living, so I breastfeed my baby at work.  I shut my office door and breastfeed my baby.    It was a struggle I have to admit.  I was exhausted from having a new baby at work, no sleep and trying to do all and be all.  I survived and you’ll be glad to hear so did the baby!  I then had to weigh up again the ‘cost’ of doing things the way I was doing them and I decided to work from home – I now do most of my work in my pj’s, my Mum comes to help a couple of days.  I take fifteen minutes to get ready for an appointment now, where I used to be perfectly groomed and take an hour.  Most days the heels are traded for flats as I often have to do a hand over with the baby somewhere along the way.  My Lancel handbag now carry’s nappies and wipes and Victoria has been to numerous appointments to list properties, sign contracts and talk to developers. 

I decided to dump all clients who don’t like the new style of working me and only deal with people who didn’t care that I was wearing a baby attached to my back.  I do my job, when I cannot physically do my job which is not very often, I am honest and say – Victoria is unwell can we meet on a different day or time etc, I weighed up the’ cost’ of losing those clients compared to caring for my daughter and, Victoria always wins.  When you know what you will and won’t compromise on it creates the foundation for direction.  It also makes decision making fairly simple.  Weighing up family to money has been something that regularly pops its head up in the work I do.  I have lost countless number of ‘the big deals’ which I have had to hand to someone else because I will not sacrifice being a Mum.  I have been wealthy and I have also been very poor when my ex husband made me chose between money and my children. 

Weighing up ‘cost’ is a daily occurrence in everyone’s lives.  It is not something to be ashamed of, in fact it should be embraced, as it makes us, whether personally or in business, take responsibility and forces direction. I believe it is a good thing; it makes us stop, reflect and dream for a better future and the path to get there.  It also makes us dig deep into our own selves and creates a strong willpower; it’s the willpower that gets us to our end goal.  I believe a focused CEO of a company would use these same concepts to create a successful direction for the company they work for. 

By reflecting  on what  has worked in the past and what hasn’t, comparing the negatives and benefits, by way of weighing up the pros and cons of going in the direction being considered,  shows the true ‘costs’  to a company and can help them  make well thought out informed decisions for the future.

In my situation, I had to weigh up the ‘cost’ and reality of completing my degree part time.  If it takes me six/seven years to complete this degree how will this impact my work schedule and household?  Understanding the realities that are involved in a situation are important as they these realities provide the clarity and are what you will use when you actually go through the process of weighing up the ‘cost’ of what you are considering. 

 In my case, the realities are, I know at the half way mark I can approach companies to gain on the job experience (you need to have completed half of your degree as even with a degree, I will still need two years work experience to become a qualified valuer).  I gave thought to how this would affect my energy levels which are already low from having to deal with a few family problems and having a baby later in life which caused a magnesium and iron deficiency.  So to add something further to my plate I had to start investing in my health by transforming my diet and exercise regime, a direct ‘cost’ of making a decision to be able to add a further workload to my days. 

As stress is a major factor of our undoing and feeds the negativity that tells us that we can’t do something I had to face these realities also.  To want to do more, I had to then be more.  More exercise, a better diet, stress management and so forth, all of the ‘costs’ of making this decision.  As too much stress especially could be my undoing, I had to find some time to investigate how to manage the possibility of further stress.

The reality was that to do so I had to first understand what triggered stress and how I could combat this quickly so my goal direction could continue with minimal interruptions.   I found short yoga bursts, walking and short intervals of intensive exercise, distress and reboot my energy levels.  Little bits of constant exercise fit into my crazy days.  Changing my mind set on how I view my body was also essential.  I now take note of what I put in my mouth as in, is it refuelling my body or harming.  My nightly glass or two of red wine my biggest hurt ‘cost’ as there is nothing like having a glass or two of wine while watching the sunset over the ocean to end the evening with my husband.  However I soon noticed that we enjoyed the time so much that we sporadically enjoyed more then we should and the affect was, I woke feeling tired and irritable.  I cannot afford to be tired at the start of a day, so we banned wine during the week replacing it with camomile tea instead, and the ‘cost’ actually made no difference as it was the habit of sitting and chatting and watching the sunset that we actually enjoyed.  Another example of having your cake and eat it.   

Just like a firm’s goal is to add value to its equity investors, so is it the same for myself, investing in completing this degree is furthering my employment opportunities.  The ‘cost’ of completing this degree is definitely worth the outcome as it adds value to my household and the growing costs of my family.  There are other added benefits that are invaluable compared to the costs of being time poor from studying.  My children are still with me every day and they also see what I am doing and why I am doing it and the long term investment I am making for the future of us all as a family. 

So when I say to the children , “No friends today I am behind on an assignment but you can have them once I am finished”, they understand the importance of co operating without argument, as long term they see the expenses of their education etc and how by me getting more qualified helps pay for a stronger future for them.  So in a way the children also weigh up the ‘costs’.  They see that the goal is a good one which ‘value adds’, benefiting all. 

Operating and Financial Activities

Key Questions - I struggled getting my head around why one would bother restating financial statements in the first place.   I found the only way I could digest this chapter was to go back and highlight key points and then reflect on those points.  I did this to help find the words the author was using that I could connect with directly and help create understanding when my brain kept telling me, switch off/shut down, too hard. 

From this passage I gained the understanding of the importance to separate operating and financial activities.  By dissecting this chapter in which I originally found difficult, this way, made it all seem less daunting.  The author had made the key point’s very straight forward and the nuts and bolts of his work were actually very easy to interpret.  I wish I had thought of doing this to the previous chapters I read.  I guess that is the value of learning, you can always learn something new.

Key Questions - As I read the reason why we need to identify all of the firm’s earnings, I wondered to myself if all companies do this, separating financial and operating activities?  If it isn’t mandatory by law to be included in financial statements and I’m assuming most share holders have never thought to do this before, do all companies do this?  I get the feeling it is not something they want everyone to know in case the real figures are exposed and the ‘naked’ results of the company are on show. 

Key Concepts - I enjoyed the author’s comparisons to a Kinder Surprise chocolate when explaining the difference between financial and operating activities; it was a great way to simplify the two.  It makes sense that it is easier to add value to equity investors through operating activities instead of financial. I never really thought before how difficult it must be as a company to keep both wheels spinning. 

Restate Two Key Financial Statements

For someone who had never really thought too in depth about individual financial statements before, I felt the author used explanation language that created clear understanding.

As I read through this section I realised I would encounter several problems when I must restate my company’s financial statements as some of the wording in my company statements I found difficult to interrupt. 

Profitability and Efficiency

Key Concepts - I like the analogy Martin used regarding his son and how he would take things a part and then go through the process of putting them back together  while being compared to how a company goes about restated their financial statements.

Conclusion

I struggled with this chapter from the very beginning and found the topics discussed hard to digest.  There was just so much information to take in.   I found in the other chapters I had read so far I could relate more to the readings.  I guess all of the nuts and bolts of financial statements had to be discussed eventually and the author did an impressive job of fitting so much complex information into one chapter, simplifying terms as much as possible.  I found the best way not to become overwhelmed with what I was reading was to go back and highlight the key points and re read those.

The understanding I took from this chapter was, if you want to see what is really happening in a company to determine a goal path, then you need to not only separate the operating and financial activities, but you also need to look at the past history, opportunities for the future and when you have weighed all of those things up you can determine what ‘costs’ would be involved in moving towards that goal with at all times making sure that value is being added for equity investors. 

My connection to this chapter came from one sentence that the author said that “The true cost of everything we do in life is the alternative things we could have been doing with our time energy and resources”.  This sentence really resonated with me.  It was my “Oh I get it moment”, the reason for restating these financial statements.  Understanding the finance and operating activities of a firm in its current state, allows one to compare it to its past activities, to create a future.  Before a future can be created, the ‘cost’ of going forward must be thoroughly investigated.  

Assignment 1 - Better Late then Never!

Program – CF56 Bachelor of Property

Using Accounting for Decision Making – ACCT11059

Assignment Stage 1 – ASS#1

GETTING STARTED

Student – Melissa Gaultier

Lecturer – Martin Turner

Extension Due Date – Thursday 24^th December 2015, 11:00am

Step 1 – Personal Profile

Hi 

A brief ‘about me’ can be found in the personal profile description box on Moodle

https://moodle.cqu.edu.au/user/profile.php?id=36520

You can also access my blog link either, through the blog links forum

https://moodle.cqu.edu.au/mod/forum/discuss.php?d=93927

or by clicking below for direct access to my blog

http://theceomum.blogspot.com.au/p/blog-page.html

Step 2 – My Company

I have really enjoyed investigating my assigned company, Balfour Beatty, including trying to understand their yearly financial reports – please see ‘Full Financial Reports’ below

Exploring Balfour Beatty

Balfour Beatty is a public company listed on the stock exchange with over 100 years experience as a leading international infrastructure group based in the UK, creating and caring for vital assets that enable societies and economies to grow: road, & rail; airports, seaports, tunnels & bridges; health & education facilities; heat, light, power & water; places to live & places to work.

Balfour Beatty operates across the full infrastructure ‘lifecycle’.  They not only develop and construct, but also finance, design, project manage, operate & maintain assets.  Although they primarily operate in the UK & US, they also have developing businesses in Canada, the Middle East and South East Asia.

The business is reported in three performance segments:

·         Infrastructure Investments

·         Construction Services

·         Support Services

Full Financial Reports

2014

http://www.balfourbeatty.com/media/1167/ar2014.pdf

2013

http://www.balfourbeatty.com/media/29042/ar2013_interactive.pdf

2012

http://www.balfourbeatty.com/media/29041/ar2012_interactive.pdf

Know Your Company

http://www.balfourbeatty.com/

The company has technologically emerged in the way they display and explain data over the past three years, evidence can be seen clearly in the massive changes in their online presence.  The revolutionising  of Balfour Beatty on the internet appears to have commenced in 2013 with particular notability in this last year, 2015 at the hands of new CEO, Leo Quinn.  Outstanding material is being displayed for their investors, subcontractors & the like.  Viewing was actually quite enjoyable with their choice of cleverly designed and marketed campaigns.  I could honestly say it was the first time I have ever found myself immersed in a Chairman's or CEO's address. 

The influx of short feel good You Tube videos relevant to Balfour Beatty's core business and their clear future goals are cleverly delivered in a manner easily absorbed.  I can only assume that the marketing of this company has had a huge overhaul.  With a recent 300 million pound loss of income in their construction services sector, one would assume it was code red for this company, as in leave no stone unturned in catapulting Balfour Beatty's image into the 21st Century.

I found their website easy to read and follow, however it's funny how simple little things make a difference, like a home button so you don't have to flick around the place to get back to the start.  I ended up working out that if you click on their name it takes you back to the beginning.  To the GEN Y this might have been common sense, but considering that there could be still be quite a number of older investors researching this site, I think the technology geeks should remember the simple basics like a home button.  I know for sure if my Uncle or Mother is investing and there are several companies to choose from and the basics are too annoying, they will just move onto another company.  Which makes me wonder how many companies out there are losing customers and therefore money because they have over thought their websites and made it too complicated?  

I know in the property market we have something like 9 seconds to capture someone’s attention, if a customer has to spend their 9 seconds trying to find the home button, then they probably wouldn't be a customer for too long.  Particularly if the company is being researched for share investment.

In saying all of this I have really enjoyed researching this company.  Balfour Beatty like all company's has had its ups and downs, however, as it is such an old established company, the leaders of Balfour Beatty have proven that they will take any drastic measures to stay one of the world's leading infrastructure groups.  

The 2011/2012 Reports show to counteract the US & UK construction problems the CEO continued on with of the 'Cost Efficiency' Program which commenced in 2010 in what appears to date in 2015, a successful way of helping recoup loss from past projects which weren’t so successful.    This is one of the aspects I really like about this company, this mind set of we have been here already for over 100 years, we will not be going broke anytime soon.  They started it in 2010 & had plans to reach a massive target of 80 million pound annual savings by 2015, this apparently has been achieved.  This program helps to identify where the weaknesses are in the construction core of the business and sell off any non viable projects.  Focusing on instead a strategy that embraces the over 100 years of local presence in the infrastructure industry with end to end asset knowledge & skills across infrastructure assets as an investor and developer creating a niche in the market.  Key areas they planned to target were transportation, power, energy, water, mining and the emerging geographies & resources driven economies where they see potential growth.  

Taking a look at some other emerging problems for Balfour Beatty, we see in the 2013 report even though the 'Cost Efficiency Program' showed much success and on track, a new issue emerged in risk management when five employees of contractors lost their lives while working on Balfour Beatty projects.  The company needed to once again evolve.  However the core goals of the company - local presence, asset knowledge the companies skills as an investor developer continued to be the focus.  Sustainability also became of great importance for Balfour Beatty with a goal to achieve sustainability by 2020 in three key areas - profitable markets, healthy communities & environmental limits.

The 2014 Reports show Health & Safety back in the spotlight with the worrying news that six workers lost their lives across the Group. In the Chairman's address he outlined the renewed focus on fatal risks and health and safety targets which had been revised. The primary KPI for safety changed to Lost Time Injury Rate, which is a more thorough indicator.  From 2015, the Group redoubled efforts on Zero Harm programs.

Looking to the future - The move through 2015 saw Balfour Beatty implementing the 'Built to Last Program' focusing on the Group’s performance as it affects all stakeholders – customers and supply chain, employees and subcontractors, investors and communities – by driving continuous, measurable improvement against four goals: Lean, Expert, Trusted, Safe.  They also won an industry award for the construction company taking on the most contracts for 2015, proving the company is well aware that they need to successfully complete as many contracts as possible to financially stabilise the construction sector of their business, while at the same time focus on safety and risk management for all employees, contractors & employees of contractors working on Balfour Beatty projects.

KCQ’s

1.  There are two sets of financial reports for Balfour Beatty in 2012.  I struggled with this until another student helped me find the document that explained what was going on.  The 2012 income statements have been re-represented to classify Rail Germany, Rail Scandinavia, Rail Spain and the UK facilities management business, Balfour Beatty WorkPlace as discontinued operations.

2.   What is a PPP portfolio? - I obviously understood what a portfolio was, but had no idea what -PPP stood for.  I eventually got to the bottom of it when I was uploading information from the balance sheets and I discovered in 2011/2012 that recorded under current liabilities, borrowings being PPP non - recourse loans, but in 2013/2014 just stated non- recourse loans, so I had no choice then to go hunting, or Googling to be exact.  All it took was - what does Balfour Beatty mean by PPP and up pops....Public-Private Partnerships - Balfour Beatty explains it perfectly! Why didn't I do that in the first place - aaahhh!!!

What are PPPs?

PPPs are a long-term, performance-based approach for procuring public infrastructure such as highways, hospitals, schools and military housing. Through this approach, the infrastructure project is funded and operated through a partnership between a public sector agency (federal, state or local) and the private sector. They enable the public sector to use the services of private sector entities to share infrastructure development costs and risks from initial design and planning, to full lifecycle operations and maintenance.   

3.  This discovery of what PPP meant and why do two years of financials state, PPP non-recourse loan, while the other two years did not, lead me to another question.  Does Balfour Beatty only do non-recourse loans for PPP's? The majority of them yes, but not entirely is the answer.  I decided to run with the most current statement which had dropped the wording PPP in regards to the non-recourse loans, as when I compared the statement that had a duplicate, I discovered even though they had changed their wording the figures were exactly the same

4.  In the 2012 Balfour Beatty reported 9 million pound in Goodwill, without sounding naive I was under the impression that in this economic day and age, Goodwill was a thing of the past. - Goodwill continues throughout their four year reporting period?

5.  Balfour Beatty has three core streams of income - construction services, support services & infrastructure and investments.  Of the three the one that has been taking its financial toll on the company has been the construction services sector.  To recover a loss of $300 million pound the company has set up a revolving credit facility of $400 million pound and won quite a number of contracts in 2015 to bail out the previous loss.  The realisation for me I guess was that when I followed the reports over the years showing the company trying to recover lost money by dropping projects, starting cost cutting programs, rearranging their board, changing their image, pushing marketing, winning major awards proving they have won the most contracts, it made me see at this level of business, when you have been around for over 100 years, sometimes there is no other option than to pull out all stops and swim like crazy as there is just too much at stake to fail.  Failing is just not an option to this business level.  There is no option to say, oh I had a shot at this and it didn't work out, but I did try my best, I'm really sorry - NOT POSSIBLE.

Know Your Company In the NEWS –

As reported the 14^th Dec 2015 -UK Balfour Beatty wins the trophy for the construction company winning the most new work in 2015

http://www.theconstructionindex.co.uk/news/view/balfour-beatty-wins-2015-contracts-league?

My thoughts – If construction appears the weakest commodity for this company as clearly outlined over the past three financial statements and by the Chairman’s own declarations, while at the same time winning a major award that claims itself to be the ‘most transparent construction award’ as it is based on mathematics for the most new builds in 2015, then has this company simply poured much of its energy and finances into its weakest area to bail it out.  Have they had to purposely take on as much work as possible to pay back the investors losses of the previous projects that failed?  My question to the company would be how you will continue to manage risk with subcontractors under such a workload, considering that five employees of subcontractors lost their lives in 2013 while working on Balfour Beatty projects.

As reported 10^th Dec 2015- Balfour Beatty expecting good results from the ‘Built to Last Program’ designed to turn things around.

http://www.construction.co.uk/construction-news/207511/balfour-expects-results-as-business-turnaround-continues?

My thoughts- The implementation of the 'Built to Last Program' including refinancing of the existing financial facilities/loan costing in reality a total of $700 million pound - $300 million pound lost last year and the $400 million pound to refinance is quite a lot of money to recover, hence the only way to do this is to dive into as much work as possible.  The revolving credit facility will allow them to move swiftly from one job to another without lengthy delays from banks, valuers and the like.  I do think these measures that CEO Leo Quinn has implemented, make good financial sense.  Balfour Beatty could not afford to let the construction side of the business fail so badly.  The only obvious way to bail it out is to go quite further in, taking on as many profitable contracts as possible –although there is no room for risky new investment contracts.  The question then would be, is Balfour Beatty spending enough on a well executed risk management system.  I fully understand that decision makers need to save the company financially by pouring the construction side of the company into as many projects as possible, so that the projects can be turned over as quickly as possible to recoup lost funds, but nothing or no one can buy back a life or the bad publicity the company will get if the numbers of deaths increase. 

Managing the financial clean up and risk management of the company simultaneously is going to be paramount for a successful future for Balfour Beatty.  It appears at a glance if the company could clean up the loss or most of the loss from their construction side over a period of time, they should then run a business plan alongside the clean up to start cutting back on physical construction, diversifying further and moving into the infrastructure investments & support services in which they appear so strong in.  Working out the magic percentages of focus for each area of expertise I feel will be the way of the future for Balfour Beatty. 

At a glance- Balfour Beatty cannot afford over the long term to drop construction as a core of the business entirely or it would lose touch with the 'physicality' of the industry that Balfour Beatty's company model has steamed from.  It appears that the company's strengths in infrastructure investments and support services comes from the stability of over 100 years in the construction industry, so the absence of this aspect of business over generations would deteriorate the strengths in the areas of infrastructure investments and support services which have grown successfully from the knowledge of being so long in the physical construction industry.  An idea to combat this problem would be to look to the future of technology in the construction area and develop this area into two categories - physical construction and construction technology.  The new Balfour Beatty business model could look like the following - 35% Infrastructure Investments, 35% Support Services, Construction - (15% Physical Construction & 15% Construction Technology).

You Tube Video Released 28^th October 2014 -

Titled – Zero Harm – Make Safety Personal

https://www.youtube.com/watch?v=Ab_8t2iup64&list=PLIp19DQ9YjK1IR043UB-W-JAJuamavvoM

My thoughts – Fantastic video, I was really impressed and inspired by this video.  Very cleverly executed and in the 4 mins and 13 sec it takes to play it, it dissolves all of my previous concerns on whether or not this company is going to make safety of human life a prime concern.  The answer is ‘Yes’!  Let's hope they continue to make risk management a focus.

 You Tube Video Released 16^th April 2013 –

Titled – Sustainability Next Generation Stakeholders Panel

https://www.youtube.com/watch?v=n7hC3QvMP2w&list=PLIp19DQ9YjK0MSmOh7a7mFi9M1gPeFUf9

My thoughts – Clever marketing department in this company!  Obviously the ideas are filtering down from the CEO and leaders of Balfour Beatty to the marketing department; however the simple execution is nothing short of ingenious.  Nerd to Normal information and the use of making a Next Generation Panel whether it was because the company was actually interested in their views or whether Balfour Beatty  just wanted to use the fact that this panel meet to use as a form of advertising. Either way it was very clever.  Since the next generation is who excels at internet marketing, twitter, face book, Linked In etc, I think this will prove a successful marketing ploy.  The use of You Tube is proves a clever strategy as it is a cost effective viral way to distribute the company's marketing campaign & message. It is also a great way to show that Balfour Beatty nearly a 107 year old company can still power through the generations by focusing on new blood.

Before I start with my favourite Blog’s – I would like to make mention of my favourite helper & her blog- Beverley deserves the ‘Most Helpful Blogger’ Award! Maybe this could be a new category Martin – the blogger who you connected with the most. You can meet her here at her blog – Accounting Insight Blog

Or actively helping on forums or via email xx

https://accountinginsightsblog.wordpress.com/2015/11/17/my-company-medical-australia-limited/

My Top Three Blogs!

Top 3 Blog’s – as you can see my brain does not clearly operate in an accounting order (that’s why I’m studying property) It does say you have to rate the blogs, but I can’t see anywhere it says – “rank” them, so I feel my choices are all ten out of tens!  Snap shot –

Matt’s Blog– I like this young guy’s writing style & his go go go – priceless these days…conquer the world who said you can’t approach.

Renae’s Blog – ‘Nerd to Normal’ – people like me NEED this to survive in all these sheets of paper.

Cam’s Blog – CLARITY – I hear choir bells. Cam has the art of clarity!

10/10

http://myblog-mattlyons.blogspot.com.au/

I don’t know if I like Matt’s blog more because it’s easy to read or I like the fact that he seems to have it all together at such a young age.  He has a clear direction of how to get there, even what to wear! Love it!  Such a clever field to go into for an employable future and to carry out his own ambitions long term, I’m sure this young man will be very successful.  I think Matts company Hutchison Whampoa Limited should partner with mine to bring Balfour Beatty a head in technology.  I also enjoy Matt’s style of writing for someone who claims to “at first be extremely unexcited about participating in blogging”; he sure did a great job! (And um Matt, you actually sound like you like it a teeny tiny bit now).

http://ladyofledgers.blogspot.com.au/

10/10

If this blog didn’t make my list, then there would be clearly something wrong with me.  It’s so sparkly, I feel like a bower bird while looking at it, I want to pick it up and take it home.  Where did she get the time to do this?  On a serious note – Renae is obviously passionate about accounting hence the degree and the ornate art of being able to translate ‘Nerd to Normal’.  The blog is easy to read and very informative, I was especially impressed with the interesting and flowing layout.  Renae shows how you can still have a personality while developing the concepts of accounting.

10/10

http://camwithaccounting.blogspot.com.au/

As much as order doesn’t come naturally to me, I enjoy other people’s practicality and Cam has a fantastic way of making you focus on everything you need to know without being boring. The blog is crazily easy to read.  I particularly like his layout in Assessment 1- step 2 on his blog, well done!  This was actually one of the first blogs I read and I noticed his talent in clarity from the get go.  After watching the video Cam chose in his assignment, I would agree with him that it is quite lengthy but it is informative.   I don’t know if it was the urgency in the voice over or the blue tubes that you follow, but it does seem to have you fixated on them, proves an interesting marketing approach from his company Hunting PLC.

Step 3 – Financial Statements uploaded with this file

Step 4 –

Chapter 1 – A way of viewing Business

I found myself pondering over Martins first question, the one at the very bones of this whole course – what is accounting?  We have all heard about accounting, have an assumption of accounting as a facility, but to ask what it is, I found annoyingly difficult to answer. 

An answer did actually come to me quite swiftly, but I quickly dismissed it as it had nothing to do with mathematical accounting, my answer – a way to make sense of chaos.   I then asked myself, why would this be my first thought and I realised it was because to me personally that is what accounting truly is.  ‘A way to make sense of chaos. ‘

In a previous time and place there were businesses I owned, investment properties, shares etc.  I acquired all of these things because that’s what we are taught to do as an adult out in the world. 

Yet we aren’t taught the importance of the fundamentals of understanding ‘numbers’ and the relationship they have in our world both personally and in business, which is exactly why Martin is asking.  What is accounting? 

For example, I see countless numbers of people being stitched into SMSF deals that have been over inflated.  The marketing team who sells this ‘system’ of acquiring property through SMSF, also sell the concept of a one stop shop, luckily for the client the marketing group also has a solicitor on board, finance broker and accountant.  That was sarcasm with the ‘luckily’!  Let me just add at this point that buying property in a SMSF is not at all a bad thing, it’s how some of these companies pray on naive people and sell them over inflated houses in the wrong structures and then simply dump the client when the company has spent the clients money, which is a bad thing.   At no time has the client asked themselves the question before us – what is accounting or made some attempt to understand the figures.  Before too long they have just signed themselves into a debt of say $450,000 and they still have not thought about what accounting means to them!

This client then comes to me to sell the same house they have just bought at a loss (as the original purchase price was actually over inflated) because they in reality cannot afford the repayments and the structure and identity that the marketing company set the clients house up in is actually not legal and therefore must be sold.  Time and time again I hear the same words; it all made sense when someone who claims to be an expert tells you it all makes sense.  We all really need to have a fundamental understanding of the basics and then seek the advice of professionals.  A big lesson for these clients is, second opinions count.  We simply must understand the realities of costs to make well thought out decisions on where either our money goes or the money of the company we are working on, or at goes.

 

Hence my answer – ‘A way to make sense of ciaos’.  There is of course so much more to accounting then cleaning up messes.  Knowledge through understanding, why we use systems in accounting and how they apply to our businesses, is definitely the key to not creating a mess in the first place.

We need to be able to therefore connect the realities when looking at a particular company or investment.  Once this connection is made then one can make the best decision for the company to move forward, whether that be a plan to cut costs over a period of years to recoup losses or whether it is to make a decision on how to best spend profits in the coming years.  Each decision can be made clearly as it is based on facts and figures, or the realities and how they connect to the business.

Martin affirms this with a clear explanation.  That accounting is about using information to help us connect to the business realities of a firm.

I enjoyed Martins practicality throughout this chapter to the point of where he took photos of business signage to concrete in our minds that businesses are truly everywhere.  Each day we walk past hundreds of businesses without giving them too much thought, but I find this exercise made me actually walk with my eyes open.  Now I catch myself wondering about particular businesses.  Some I think, how are they so successful when they aren’t in the centre of town, while others I wonder if they are struggling with the lease of the main street and what they do to combat this expense, especially when you see for example a small hairdressing salon in the main street and you know the lease prices for that area are extremely high.  How do they keep afloat or profitable?  Are they just working for a wage?  I have found myself walking past various businesses with these questions floating around in my mind.

The section on keeping records hit a sore point with me as I had previously bought an inexpensive business in the past, as pretty much a tax right off under the advice of my ‘previous accountant’.  Let’s just say that you simply MUST treat every business with the same importance, whether you own Disneyland or the local mower repair shop, if you DO NOT KEEP your records up to date and in order, as in all book work, journals, ledgers everything, you will fail!  If you do not understand how and why these systems are important to your business, you will fail!  If you don’t understand, hire someone who does to help you and guide you.  Not all accountants are the same, find an accountant who specialises in the area you need help in.

Chapter 1 summarises well all of the fundamentally important aspects we must know about accounting and basic business structures.  I still to this day do not have a great grasp on many accounting concepts, but now I pay an accountant to keep things up to date and explain to me what the realities are.

I would have liked to see examples in the section with the accounting equations as many of us are dabbling with these concepts in everyday life and don’t realise it.  As we all absorb information differently, it would have been good to have some examples for us ‘visual learners’ to better absorb the information.

I had still many unanswered questions in this section – can we work through this section of accounting equations with some real life scenarios?  Will we get to explore these concepts first hand?

Obviously understanding numbers is essential to being a CEO of a company but surely there is much more to it?  I have this image of accountants or people from a finance background as smart but with no people skills – wow that’s mean isn’t it (I can’t believe I actually put that in words) but if we are going to be honest about our thoughts, then I feel I must put that out there so someone can tell me why I’m wrong.  My theory cannot possible be correct anyway or how could you run a Fortune 500 company with no personality and there are many of CEO’s from Fortune 500 companies who were previous accountants or came from a finance background.

‘Nerd to Normal” I like to call it.  Are we going to make sense of all of these equations by practically working on them?

Chapter 3 – Introducing Financial Statements

Wow opening with the Great Gatsby, huge move by the author.  I just read the title – Introducing financial statements & then was allowed to be mesmerized by an extract from the Great Gatsby? My first thought, how will the author tie these two together?

Reading on – The relevance, of course comes from the comparison of ‘it’s like meeting someone at a party’!

A first meeting, you know their names but nothing about them, until you allow yourself to get to know them.

Take away – to really get to understand concepts and facts about financial statements, it is essential to be able to recall information. Once we understand the relevance of how something connects to our lives and our prior learning it suddenly makes sense and we can remember it.

I noticed when reading through my company’s annual reports there is quite a lot of length to the documents before you get to the actual figures.  In the case of Balfour Beatty over the past few years this is a good thing because I am sure investors who have invested in this company would be very curious on the huge losses they incurred and why.  This documentation gives plenty of information on why things have happened and how the company intends to fix these things going forward, before one is faced with figures that scream a 300 million pound loss in ie the construction area of the business.

I really liked the explanation of ‘balance sheets’, I had never really thought about how clever they are before.  Basically at any given time, you can look at the balance sheet of a business and it can tell you on that date what is actually happening with a company’s figures, pretty clever.

I enjoyed comparing the difference between the financial statements the most in this chapter and picking out key words that could help me retain the difference between them.  Like Income statements showing, ‘change’ over a period of time and the statement of equity showing ‘changes’ in ‘shareholders equity’ in a period of time and of course the fourth financial statement, the cash flow statement.  The opening cash balance at the beginning of a period – cash ‘flowing’ in and out over that period and of course the closing balance.

I found focusing on key words helped me differentiate between the four statements and therefore see the grounding to now move on to learn more about them!

I feel completely ashamed to have never heard of the book ‘Elements’ before now especially if it is the world’s second most translated and circulated book to the bible.  Wow those Greeks really knew their ratios.  It really amazed me that some of the theories that we used today date right back to 300BC.

Overall I found this chapter interesting and easy to read, bringing to light some terms we use in everyday business life and make sense of them.

My questions are few in this chapter except for – will we get to spend some more time on dividends, cash flow statements & changes in equity statements?  These are areas I would like to spend more time exploring in practical scenarios.

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Reference: Balfour Beatty Website, http://www.balfourbeatty.com/, December 10th 2015