BUSN 6070 - Management Accounting. Group Project. Julian Warden. Ahmed Kamal Chanchal Malhotra

8/19/2019 BUSN 6070 - Management Accounting. Group Project. Julian Warden. Ahmed Kamal Chanchal Malhotra

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BUSN 6070 Management Accounting Julian Warden Ahmed Kamal

Chanchal Malhotra

Project Work Com!an" Anal"#i#

The objective of this report is to explain and analyze the performance of Se-Education Public Company Limited from a managerial accounting perspective andoer recommendations for improvement! This study "ill incorporate an overvie" of the company and competitive landscape# a "ider environmental analysis and adeeper loo$ into the %nancial results and company architecture!

Se-Education Public Company Limited

The largest distributor and second largest Thai publisher the company can bedivided as a boo$ and magazine !u$li#her "ith sales volume sold through localboo$stores across the country# a di#tri$utor supplying local boo$stores "ith both

local and international product# and a chain $ook#tore o%ner "ith &'( branchesand highest sales volume in Thailand since )***! Se-ed is also the main#hareholder o& PlearnPattana School# a private school "ith )#+'' studentsranging from $indergarten to secondary and the o"ner of Se'ed (earning Centre#a chain of +, franchise private language schools# teaching maths# science andEnglish!

nnual Sales. /0P ))+ million! Employees. +#,&1 20oo$ center sta )#,&13

4ision. 56a$e Thais Smarter7 through the provision of easy and convenient accessto $no"ledge!

0oo$s. Publish )#&''! 8istribute 9''' from 9,+ publishers!

Com!etiti)e (and#ca!e

Se-Education is the largest boo$ distributor# boo$ retailer and second largestpublisher! There is no competitor "ith an exact matching portfolio of products andservices! :o"ever# $sorn Education# a schools publisher# ta$es %rst place inpublishing volume "ith Patana$hunnapab"icha$arn 2P;3 Co!#Ltd in third place!


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Close retail competitors include n +')) the company joined the Collective nti-Corruption# a group of seven leadingorganizations including the Thailand >nstitute of 8irectors! Every employee isre?uired to ac$no"ledge the internal 0usiness Ethics /uidelines! To limited thepossibility of underhand transactions# very fe" employees are able to carry cash asschools and other customers remit cash through the Se-ed "ebsite!

+rgani,ational Structure -Pro.t and Co#t Centre#/

The pro%t and investment centres are managed by the managing directors and theexecutive committee 2blue3! Arom the belo" chart# it is clear that the )9 divisionsbelo" are allocated as individual cost centres "here divisional management are


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given objectives based on activity targets! There is no o"nership of PL at divisionallevel!

Sel&'intere#ted Beha)ior and Agenc" Co#t#

Three directors# B! @uncgsrithong# @! Chamrongraithan and T Chitisoraruth o"n atotal of +D of shares! >t is noticible that @! Chamrongraithan# at only +( years ofage and )+D o"nership# has no corporate post!

>t is also noticeable that at least )( directors have been "ith the company %fteenyears or more and the Ainancial 8irector has been employed for +9 years!

The ssistant 6anaging 8irector of the Se-ed 0oo$ Centre is the "ife of the6anaging 8irector and# to avoid internal conict# reports to the 8eputy 6anaging8irector! The ne" divisional manager of the eboo$ division# reporting to thessistant 8irector in Purchasing and eCommerce is the 6anaging 8irector7s son!

distinct number of directors graduated Engineering from Chulalon$orn Fniversityincluding the 8irector of @ecruitment and @emuneration# the Company Secretary#the 8irector of :uman @esources# the 8irector of Logistics and the 6anaging8irector! >t is important to consider "hether directors are selected on job suitabilityor on an overemphasis on compatibility and common interest!

Gf the fourteen divisions# three are managed by the 8eputy 6anaging 8irector# t"oby the ssistant 6anaging 8irector of Sales and 8istribution and nine by thehusband 2683 and "ife 2683 team!

>t "as reported that in +')9 the company lost T:0 * million on the exchange rate!;ith annual import product sales totaling T:0 1'' million# it "as surprising to


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employees that this function "as not managedH suggesting that lac$ of internalspecialist $no"ledge at director level impacted business - as no position existed tomanage the exchange rate and the timing of vendor payments to minimize negativebusiness impact!

The 8irector or :uman @esources is also the 8irector of the Se-ed Learning Centre

8ivision# suggesting elements of empire building considering the separate s$ill setnecessary for eective management of the t"o divisions!

Lac$ of alignment among divisions leading to goal incongruence "as noticeable in+')) "hen the Se-ed Learning Centre 8ivision chose to purchase a soft"are licensefrom an obscure company in Tai"an called Live ABC# instead of using classroommaterials from Gxford Fniversity Press# a publisher exclusive to Se-ed! Therelationship soured# "ith GFP revising do"n the list of exclusive products to Se-ed in+')+!

Princi!le Agent +$#er)ation#

6oral hazard issues have occurred in the past due to lo" level corruption bet"een

sales representatives and decision ma$ers and purchasing sta at universities!:o"ever# one major concern is the fact that employees reportedly rarely approachdirectors "ith issues and recommendations!

+rgani,ational Architecture

Concerning the concept of the three legged stool# decision rights do seem to bepartitioned "ith the 6anaging 8irector actively involved in the recruitment of allmanagers and all pricing decided at director level! Gnly the 8irector# 6anaging8irector and 8eputy 8irector can sign on behalf of the company! :o"ever# there isno internal system to re"ard performance based on individual or divisional goals!

The bonus for all employees is related to total company pro%tability and very loosemeasurements# often based on manager recommendations# are tied to the follo"ing

year7s salary increase!

Through the C@6 portfolio# employees are given healthcare# exi-time# help "ithpersonal debt reduction and incentives to save money for retirement! 8espite theseincentives# sta turnover in the retail business is high! Sta are given a "elcomeparty upon joining but little in terms of formal training!

inancial 1etail# and Per&ormance

Ahmed 2 Plea#e gi)e o)er)ie%


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>n +')9# the Company continues to be aected by economic slo"do"n! 8ue to adecrease of net purchasing po"er# increasing household debt# and technologicalchanges# especially in digital device# consumers "ere more cautious in theirspending and changed their buying behavior! >t had resulted in the decline of theCompany7s sales all over the country# complying "ith the conditions of retailbusiness in general!

(!*9D of the total revenues of SE-E8 is generated by retail and )&!,)D from the"holesale# collectively these t"o accounts *&D of the total revenues! Gnly &D ofthe revenues are generated from magazines# publishing services and educationalfee and services "hich is ?uite a lo" percentage if "e compare it "ith retail and"holesale!


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Ahmed 2 Plea#e !ro)ide commentar" on the $elo% ratio#

(i3uidit"

Current and ?uic$ ratios are improved in +')9 as compared "ith +')1 "hich meansSE-E8 has more cash this year to pay debts than before!

ccount receivable turnover and average collection period sho"s that SE-E8 ismanaging its credit more eIciently from the previous year reducing its chance tolose money from credit sales!

>nventory turnover decreased this year because of less sales as compared "ith+')1 and causes excess of inventory due to economic slo"do"n and decrease innet purchasing po"er# average selling period increased resulting more days toconvert inventory into cash and "e $no" cash is $ing the less the company haveability to generate cash eIciently the more it got problems "ith li?uidity!

>ncrease in payable turnover and decrease in average payment period indicate thatSE-E8 is paying its suppliers earlier than before to get advantage of early paymentdiscount and also suppliers are demanding very fast payment term because of theeconomic do"nturn and political situation!

Cash cycle indicates that it ta$es fe"er days to convert investment into inventoryand inventory into cash by SE-E8 in +')9 2&1 days3 as compared "ith +')1 2&(days3!


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Pro.ta$ilit"

/ross pro%t margin ratio increased in +)'9 ho"ever sales "ere decreased

overall# amounted T:0 )#,(,!)& million# decreased by T:0 &)!) million or1!''D! :o"ever# gross margin in +')9 "as 19!)+D# increased by )!&(D fromlast year! 8ue to a decrease of )'!')D in retail sales of )'!'D in foreignboo$s sales and an increase in boo$ distribution# especially course boo$s forinstitutions!

Gperating pro%t ratio increased in +)'9 by '!)D "hich means the companyis ma$ing enough money from its ongoing operations to pay for its variablecosts as "ell as its %xed costs!

Cash to earnings ratio decreased gradually from the previous t"o years tillpresent "hich means SE-E8 is consistently decreasing in its tendency toconvert cash into inventory and inventory into cash eIciently because

decrease in sales and trend in mar$et!


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branches! Employees7 expenses reduced in accordance "ith the decreasednumber of closures!

@eturn on e?uity increased by '!,*D in +)'9 "hich means management isutilizing its e?uity base eIciently and SE-E8 is in a position to provide betterreturns to the investors!



45cienc"@eturn on ssets 2@G3 "as 9!,(D# increased by )!'*D according to betteroperation results# gaining higher margin from course boo$s and other goods fromretailing and "holesale businesses!

SE-E8 is eIciently using its assets to generate reasonable pro%ts from them! pro%tsfrom the assets justify the amount invested in these assets!


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@eturn on %xed assets decreased by 9!1*D in +')9 as compared "ith +')1! SE-E8opened ne" "arehouse "ith the investment of T:0 9+)!)1 million in %xed assets!

sset turnover ratio decreased because SE-E8 is not utilizing its assets eIciently togenerate reasonable sales# the ratio decreased by '!+)D and one of the reason ishuge investment in construction of "arehouse "hich may increase the eIciency of

assets to generate sales but at present it sho"s negative eect!

inancial Polic"

8ebt to E?uity @atio increased by '!), times# due to long term loans from %nancialinstitutions 2Construction of ne" "arehouse3

>nterest capability ratio decreased alarmingly 9*!+ times in +')1 and !'1 times in+')9 "hich means SE-E8 is losing its capability to pay interest expenses out of their

before tax income because of huge loans from %nancial institutions especially forexpansion!

8ebt service coverage ratio improved a little 2!'& times3 in +')9 as compared "ith+')1 but overall it is not a good situation! The companyJs net operating pro%ts are"ay belo" to pay its debt service obligations and SE-E8 has less cash to pay and incase it "ill use its savings "hich "ill aect the shareholders and investors!

8ividend payout ratio of SE-E8 do not sho" a sustainable trend# increased in +')1and decreased by )'!(D in +')9 revealed that the company has less savings andnot generating reasonable pro%ts or cash o"s to support its operations! This isalarming situation for investors and shareholders that the company can no longeraord to pay reasonable consistent dividends!

A com!ari#on %ith Amarin Printing Pu$li#hing Pu$lic Com!an" (imited andinter!retation 08 data #et# onl"

(i3uidit"

>t is noticeable that Se-ed ta$es 1( days to sell inventory compared to merin "hichta$es (+ days! >n addition there is a large comparison bet"een the current ratio of


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the t"o companies# "ith Se-ed not being able to pay current liabilities opposed tomerin "ith a current ratio or 9!',# putting merin in a stronger position in terms of credit rating!

Concerning accounts receivable# Se-ed collects money in 1* days compared tomerin# "ho collect money in *' days! Se-ed ta$es )1( days to pay debters

compared to merin "hich pays "ithin 9( days! This could be due to the fact thatretail consumers# ma$ing up 'D of Se-ed7s revenue pay immediately!

Se-ed has a negative cash cycle of minus ,) days 2opposed to "hat is presented inthe %nancial report at 2&(3 days3 and merin has positive cash cycle of )), days!

This indicates high li?uidity# eective inventory management and eectivemanagement of resources for Se-ed! Even a retail giant# such as mazon 2FS3 has anegative cash cycle of )9 days! This sho"s that Se-ed has a good reputation in theindustry "ith longer payment terms agreed# as Se-ed dictate terms! The contract"ith Se-ed and Gxford Fniversity Press# for example# has payment terms of )'days!

Pro.ta$ilit"

Concerns arise "hen loo$ing at the operating pro%t for Se-ed# "ith a ratio result ofonly )!(, compared to merin at )(!)9! This could be the result of the negativeconse?uences of the boo$shop business# Se-eds &'( shops ta$ing longer toimplement changes that merins ),1 retail outlets! The return on e?uity for Se-edis !)) compared to merin at )9 "hich tell us that# through merin pays a lesserperentage of dividends# that merin is more pro%table overall!

45cienc"

@eturn on assets# for Se-ed# runs at 1!& compared to merin at ))!1,# sho"ing thatSe-ed is not managing its assets as eectively as merin! This could be the resultof do"ntrend in the retail business! Se-ed7s assets turn over +!'& and merin is

'!1 per annum# due to Se-ed7s larger depreciation on assets and lesser eIcientutilization! This could be due to soft"are upgrades to manage both the "arehouseand retail chains!

inancial Polic" *atio

8ebt to e?uity for Se-ed is )!, compared to merin at '!+1 sho"ing that Se-ed is%nanced almost e?ually by debt and e?uity# "heras merin %nanced 9!1 times bye?uity compared to debt! This sho"s that merin is more mar$et driven!

Concerning dividends# Se-ed pay out *(!&D of net pro%ts as dividends# the majorityof shares being o"ned by directors as a major possible reason for such as highpayout! merin paid out ,!&,D in +')1 in comparison# also high suggesting that

this is a family o"ned operation!

merin Printing and Publishing Public Company Limited


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Co#t Accounting

-i/ +!!ortunit" Set

Se-Education diversi%es ris$ through generating business through a portfolio ofproducts and services# including distribution# publishing# retail outlets# a school andthrough the provision of educational fees! (!,D of revenue is generated from the

retail business! :o"ever# retail trends are dependent upon consumer trends andthe "ider eects of the economy# compared to the education business# "hich is lessimpacted by the economy! ;ith dierent strategies evaluated in terms of bahtspent to revenue generated and consistency "ith long term trends# the internalopportunity set can be re-evaluated in terms of deciding "here to invest! >f "ecompare the percentage revenue trends among divisions "e can see that the"holesale boo$ business has increased# most li$ely through the increased supply ofeducational materials to schools# though the dierence bet"een other divisions isrelatively stagnent! Se-ed must consider if they are capable of change to matchmar$et re?uirements and remain competitive in the segments they operate in!

Co#t 1ri)er#

;ith the retail business ma$ing up (D share of annual turnover# cost driversassociated "ith this function are retail rental space and human resourceK staIngcosts! pproximate retail costs for Central /roup# a business partner of Se-ed thatallocates space is T:0 xxx per m+! >n addition# there are commission costsassociated "ith partnering "ith a retail development company!

Aor production# paper and printing costs are $ey! The company does not o"n anyprinting machinery to ta$e advantage of mar$et forces as individual printers


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compete for business# but does purchase paper to allocate to printers to controlvariable paper costs!

1eath S!iral

Economic# social and technological factors are contributing to the decrease of salesin the retail division# as consumers loo$ for alternative digital options to replacepaper products! Considering# the economic environment# operating margins arebeing s?ueezed as publishers# both local and foreign# are increasing net prices toSe-ed# but this cost cannot be passed to the end user for fear of defection! >nternal

data points to the annual number of boo$s purchased by customer from eight to t"o2?uote Boy3! Products sold in the boo$centres are being diversi%ed through astrategic decision to prop up pro%tability! :o"ever# it is unli$ely that previousrevenue generated from boo$s can be replaced by alternative products! Short term#cost control activities are being implemented! :o"ever# "e may see an occurrenceof a death spiral as the cost of boo$s increases! Arom the belo" overall sales data#a bell curve could be predicted as the industry goes into decline!

Co#t Control

There is not eIcient management of currency! >n +')9# T:0 * million "as lost dueto /0PK FS8 currency issues! Considering that the import boo$ business is of T:01''million in value# lac$ of strict control caused loss in this area!

)( Exectutives# large for such as company!

To manage the ever uctuating paper mar$et# paper rolls for printing are purchaseddirectly by the company# and allocated to third party printers to decrease ris$!


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Social

9echnolog"

;ith trends pointing to"ards consumers spending more time and money on socialmedia# the number of people reading boo$s has dropped! :o"ever# the intricateproblems "ith Thai script ma$e the production of eboo$s more complex# delayingthe number of eboo$s on the mar$et in Thai language# enabling strong sales ofexisting paper products!

ccess to digital media itself has diversi%ed among the range of hard"are includinglaptops# des$ tops# mobile phones and tablets# enabling more reading habit choicefor the consumer and negatively aecting the sales of print magazines andne"spapers! e6agazines are seeing explosive gro"thM

*ecommendation#

External advisors be employed# especially for %nancial management!

Expand the e-commerce department and spend money on both researching mar$ettrends# research and development and building the professional capabilities of sta!

Though extensive investment has been spent on


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BUSN 6070 - Management Accounting. Group Project. Julian Warden. Ahmed Kamal Chanchal Malhotra