finance case studies

Question 1

Company Taxation

Answer 1

Apple
● Apple uses transfer pricing to shift its taxable profits from Australia to Ireland. As a result, Apple was taxed less than 2% of its revenue in Australia in 2018
● The ATO audited Apple and added them to a ‘name and shame register’, but found that they hadn’t actually broken any tax laws
● In 2021, Australia and more than 130 other countries agreed to introduce a minimum tax rate of 15% for large businesses regardless of profit shifting (so if they shift their profit to a country with a 5% tax rate, Australia will still collect the remaining 10%)

Question 2

ASIC

Answer 2

Commonwealth Bank
• The Royal Commission in 2018 found that banks guilty of serious and systemic wrongdoing, and that ASIC was too weak in enforcing regulations on banks such as Commonwealth Bank, who had:
- paid commission to staff for forging paperwork to provide loans to people who would be unable to repay them
- paid commission to ‘independent’ financial advisers who recommended their mortgages
- misled customers about their life insurance conditions

• The Government increased ASIC’s powers to issue 15 year prison sentences and up to $525 million penalties for businesses that breach regulations

Question 3

Note to financial statement

Answer 3

Qantas’ financial statements are 5 pages long
… With 55 pages of fine-print explaining them!

Question 4

Cash Flow Management

Answer 4

Cash Flow Management

● Woolworths;
-Woolworths now require suppliers to offer 60 day periods on their accounts payable, triple the average period that Coles requests

-By extending and distributing their payments, Woolworths improved their cash flow and now rarely need short-term credit to cover their accounts payable

● GIO;
-Insurance company GIO sells insurance, including for businesses to insure against damage to property and vehicles
-GIO typically offers discounts of 6-8% for customers who pay their premium up-front annually rather than distributing payments monthly

Question 5

Working Capital Management

Answer 5

Working Capital Management - Qantas
● In recent years, Qantas have needed to free up cash to reduce its need for debt
● They were one of the only airlines in the world to own their own terminals
● In 2019, Qantas conducted sale and lease-back of their Melbourne terminal for $355 million

Question 6

Profitability Management

Answer 6

Profitability Management - Qantas

• In response to the pandemic, Qantas made 6000 staff redundant and stood down most remaining staff on leave without pay to reduce fixed costs
• It also outsourced ground staff (e.g. baggage handlers) and is trialling reduced cabin crews on domestic flights to minimise expenses

Question 7

Exchange Rates and Hedging

Answer 7

Qantas - Exchange Rates and Hedging

• Qantas receives around 40% of its revenue in foreign currency”
• They borrows in the foreign currencies that it receives from foreign sales (such as US$), as a natural hedge that avoids the risk of exchange rate fluctuation
• Qantas also uses derivatives such as forward exchange and options contracts to lock in future costs, including foreign currencies and 95% of its fuel

Question 8

Global Influences on Financial Management

Answer 8

Virgin airlines
The covid-19 pandemic and recession caused a dramatic reduction in demand for flights. Virgin did not have the cash flow to pay for its wages, leased planes and repayments of existing debts. Its losses increased from $315 million in 2019 to $3.1 billion in 2020.

There was a low availability of funds during the pandemic, as banks were not willing to lend to businesses like Virgin that had a high probability of default.

During the pandemic, the Reserve Bank cut the main interest rate in Australia to 0.1%. This partially improved Virgin’s ability to pay its debt.

Due to the poor economic outlook, Virgin filed for bankruptcy and was purchased by the investment bank Bain Capital. The new owners made 3,000 people redundant, shut down the Tigerair brand, and conducted sale and leaseback on two Boeing 787s to raise $230 million.

Virgin is now planning an IPO (new issue) in 2024 to raise funds to expand into more flight routes again.

Question 9

Interdependence

Answer 9

Volkswagen
O-Use of illegal software while manufacturing parts to wrongfully lass tests
40 times over legal chemic emission limit
M- cars marketed as clean
M-loss of reputation
F-shares fell 39%
F- 4.3 bill fine
HR-30 000 jobs lost
HR- many employees criminally charged