Business Memorandum based on Financial Statement Analysis

Group Assignment (Part B): Business Memorandum based on Financial
Statement Analysis

This part of the assignment constitutes 7% of your final grade in this subject. It is a requirement that
this assignment be completed by students as a group of three (3) or four (4) unless an alternative
arrangement has been formally approved.
All students have been allocated to groups. If you are unable to contact other members of your group,
you must contact the subject coordinator at ara-enquiries@unimelb.edu.au
Submission Details
Due Date: 4pm Friday 18 October 2019
Submission style: A single PDF file including a signed coversheet attached to the front
Submission mode: Turn-it-in Assignment Tool via the ARA subject page on the LMS

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ACCT 10001: Accounting Reports & Analysis
Assignment Two – Financial Statement Analysis
Disclaimer
The information provided in this assignment, including the financial statements, is based on an actual
business. The circumstances of the case study and the names of the parties involved are, however,
entirely fictitious. The business on which this information is based, has no plans to make itself
available for sale to any private investors. Any similarity to actual investment opportunities past or
present, or any people living or deceased, is purely coincidental.
The context
You and your fellow group members are employees of ARA Consulting Services. Ms Annette Mane,
one of your biggest clients has approached ARA Consulting Services to obtain advice on what she
describes as an ‘exciting business opportunity’. Ms Mane’s private company has excess funds to invest
and she is keen to invest in Hair Factory Pty Ltd. She would however, like some reassurance regarding
the financial stability and future prospects of this company prior to making such a large investment
decision. Ms Mane is considering the acquisition of 51% of the shares in Hair Factory Pty Ltd for a cash
payment of $375M.
Hair Factory Pty Ltd is the leading haircare destination for Victorian consumers, offering both haircare
services as well as a Victoria’s largest range of haircare products.
Your manager, Mr. Max Boss, has assigned your team to review and analyse the financial statements
of Hair Factory Pty Ltd. He would like you to prepare a maximum 1,200-word internal memo detailing
your analysis and recommendations as to whether the client should pursue this opportunity.
Required
Prepare a 1200-word business memo to your manager, Max Boss, advising him on whether to
recommend the $375M million acquisition of a 51% stake in Hair Factory Pty Ltd to the client, Annette
Mane.
This part of the assignment is independent of any financial statement information or ratio calculation
relating to Part A of this assignment. Your analysis should be based on the financial statements and
ratios provided hereafter.
Your report should be in the form of an internal business memo, style guidelines for which will be
made available from the LMS and through Academic Skills support resources.
Your report should include your key findings that support your recommendation, followed by your
final recommendation. Your analysis should consider a range of issues, but not all of these will
necessarily be included in your final report.

 

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Your report should not simply quote ratios in narrative form. Rather, the purpose of the report is to
investigate the reasons BEHIND the ratios and financial statements to highlight the underlying
strengths and weaknesses of the company.
A glossary is not required; you can assume that Max has technical accounting skills and strong
knowledge of ratio analysis.
Word limit
The word limit for the body of the memo is 1200 words. This is a strict limit that must be adhered to.
Any information presented beyond this limit risks not being graded. Any tables, diagrams, headings
or charts you wish to include in the body of your report are excluded from the word count.
It should be noted that it is not possible to comment on every aspect, strength and weakness of the
investment opportunity within this word limit. You are to identify the major points and keep your
explanations as succinct as possible. Presenting your analysis in point form is acceptable.
Format
The following requirements should be adhered to in your report:
• Minimum 1.5 line spacing
• Times New Roman font, size 12 for the text of the report (headings may be differentiated)
• Appropriate heading structure, numbering and format
• A minimum of 2.5-centimetre margins all around
• Above all, this is supposed to reflect a business memo, therefore your format, use of headings,
spacing and white space are to reflect this style of report.
In addition to format requirements described above, the first page of the report should be the Faculty
of Business and Economics (FBE) Group Cover Sheet available for download from the LMS.
It is also important to note that this is a single report, not a series of disjointed sections that
amalgamates individuals’ work. Marks may be deducted for noticeable differences in language, style,
format and inconsistencies in argument that occur within your report.

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Background Information
Hair Factory Pty Ltd (hereafter referred to as Hair Factory) commenced as one hair salon established
in the early 2000s by Mr & Mrs Bouff, both hairdressers, in the inner-city suburb of Fitzroy. The Bouffs’
salon was very successful and when the opportunity to purchase another salon in neighbouring
Collingwood arose, they went ahead with the acquisition. The Bouffs found that there were
considerable cost savings in operating both salons concurrently. Therefore, over the next decade
continued to acquire 3 more salons in surrounding suburbs when they came up for sale. They
incorporated the business in 2010 and invited private investment to obtain access to equity funding
to continue their expansion plans. An additional expansion via share offer followed in 2016. This
enabled the company to acquire an additional 9 salons as well as 5 barber shops within the inner
Melbourne suburbs. It also enabled Hair Factory to establish 3 mega stores selling everything a hair
consumer might need – including general hair care consumable products and hair styling appliances.
These stores sell direct to the public but also have large wholesale customers.
Hair Factory decided to expand the retail business with an online presence in 2015 with the
development of a website; www.hairfactory.com.au. This website is an online portal where customers
can order the same products that are available from the Hair Factory retail stores and have them
shipped to their address anywhere in Australia. Although successful, the website hasn’t generated the
level of additional sales initially anticipated, largely due to initial teething problems. Mr & Mrs Bouff
believe that the shift to online sales has great potential if it is given the correct attention and
resources.
The Bouffs have retained control of Hair Factory via their 51% shareholding. Although both highly
skilled hairdressers and competent business owners, they admit that they don’t have the necessary
marketing and IT skills to take the business forward into its next phase of expansion. In addition, Mr
& Mrs Bouff are both reaching age 65, and after 20 years of hard work are looking forward to winding
up their role in the business. They have no family members who are interested in taking on their role.
Therefore, they are looking to sell their 51% share for an asking price of $375M.

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