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Ainsworth Game Technology (Step 3/4 Draft)

When I opened the ‘Find Your Company’ spreadsheet to see what company I would have the pleasure of investigating their Annual reports, my heart sunk when I saw Ainsworth Game Technology (AGT) next to my name. I had no idea what this company does nor do I have any interest in gaming. However, I later learnt that they were in fact a slot machine company, so technically gambling. To my dismay, I downloaded the firm’s Annual Reports and began to see if a company that produces slot machines h­­as anything intriguing and/or unusual in their reports. But first I had to fully comprehend what my company in fact produces.

Who is Ainsworth Game Technology?

Founded in 1995 by Len Ainsworth, AGT’s vision is to “deliver excellence in Global Gaming Solutions” (AGT, 2017) and now in 2017 have 6 directors (LH Ainsworth, GJ Campbell, MB Yates, DE Gladstone, CJ Henson and HA Scheibenstock). Being in the slot machine industry, they design, develop, assemble, sell and service their own slot machines.

However, this wasn’t the first company Len Ainsworth’s had founded. In 1953 he founded Aristocrat Leisure Ltd, which coincidentally enough, is also another gaming company who produces slot machines (Forbes, 2017). Nevertheless, he left Aristocrat in 1994 due to a cancer scare. It was then a year after this Aristocrat had a new competitor (Kruger C, 2016).

The Annual Reports:

Domestic Revenue vs International Revenue

The first thing I noticed on their 2016 annual report was that they had made a profit for 2016, which is a good start. As I continued scrolling through the pages, a key point that struck me was that even though this is an Australian company,  it stated that, “gains in the key market of the America have assisted in increasing the contribution of revenue from international markets from 61% in 2015 to 71% in the current year”. Thus, the main revenue for this Australian company is actually from other countries outside of Australia, such as America and New Zealand. “Domestic revenue” for Australia only was 29% in 2016. This was interesting for me, as even though this is an Australian company their focus should be, and is on, their markets in other countries.

This point was further confirmed when on 22nd September 2016 the company opened a new headquarters in Las Vegas (i.e. the hub of gambling). The success of this expansion however won’t be fully confirmed until the 2017 Annual report.

Future Developments for 2017

The firm stated in their report (for 2014, 2015 and 2016), that ‘further investments in research and development will assist the ongoing expansion’. In August 2015 the firm launched a new slot machine, the A600 at the Australasian Gaming Exhibition (AGE), which they are planning to release in international markets this year.

They are also aware of the increase in social media and online technology and are targeting and executing strategies within these segments, both real money and social gaming. Consequently, they invested in 616 Digitial LLC and in February 2015, AGT launched its new online casino “Players Paradise Slots”. It is available through Facebook and on the Android and Apple iOS store and since its launch has had over 1 million downloads (Google Play, 2017).

Interesting points in the Company Spreadsheet

Attached below is AGT’s spreadsheet. In this document, a few values should be highlighted. Please note that the figures stated are in thousand of AUD. Firstly, in the Statements of Movements in Equity, whilst they had been making a steady profit, increasing roughly $10,000 every year, in 2016 ($55,703) they actually made less than 2015 ($70,353). Why is this so? Further investigation into their accounts revealed the following:

AGT Company Spreadsheet

  • In the Balance Sheets, from 2014 their cash and cash equivalents asset has decreased from $71,999 (2014) to $43,300 (2015) and then to $26,433 (2016). That is a $45,496 decrease within a 2-year time frame. So where did this money go?
  • Looking then at their non-current assets, there has been a significant increase in their property, plant and equipment; $55,279 (2015) to $109,493 (2016) and also their intangible assets; $33,090 (2015) to $74,124 (2016).
  • Non-current liabilities increased significantly with loans and borrowings from $421 (2013) to $67,777 (2016).
  • There was also a substantial increase of $13,100 in their sales, service and marketing expenses from $27,516 (2013) to $52,028 (2016).

As indicated above, there were major changes from the year 2015 to 2016 that wasn’t in trend with AGTs previous figures in 2013 and 2014. I believe this is a reflection of their company business direction to open their headquarters in late 2016. AGT has significantly invested funds and goodwill into this overseas expansion.

This would be evidenced by their investment of cash and cash equivalents asset into a new building, thus increasing their property, plant and equipment and intangible asset. It appears this expansion has also required additional loan facilities to assist in the development, hence the increase in loans and borrowings liability. The increase in sales, service and marketing expenses is potentially a result of the new launch of a product, as discussed earlier, with their launch of their new A600 at AGE in August 2015.

I have drawn these conclusions based purely on the financial reports provided. Please advise your thoughts. What suggestions do you have for the significant changes in the accounts? 

Areas of Difficulty Understanding in Firms Financial Report

Within the annual report, I was confused with the Earnings per share, as if my company is expanding overseas and presumably doing well, why would have its share price dropped from $0.22 in 2015 to $0.17 in 2016?

AGT Annual Reports:

Year Ended- 30 June 2016
Year Ended – 30 June 2015
Year Ended – 30 June 2014

Sources:

http://www.agtslots.com.au
http://www.smh.com.au/business/cbd/len-ainsworths-family-have-billion-reasons-to-thank-aristocrat-boss-jamie-odell-20161130-gt0ttd.html
https://www.forbes.com/profile/len-ainsworth/
https://play.google.com/store/apps/details?id=com.pokiemagic.playersparadisecasino&hl=en

My Top 3 Blogs

Danielle: Be Audit You Can Be

Dani’s commitment and dedication to this unit is something I admire and strive to resemble. She is always posting on her blog, whether this is her draft or ways to help the rest of us (i.e. the step 3 checklist). Additionally, her analysis of her firm is quite thorough, she has really developed a deep understanding of her firm, I mean she is so up-to-date with her company that she even commented on how Cyclone Debbie is going to impact her firm! Keep up the amazing work Dani, you are setting the bar quite high and definitely an inspirations for the rest of us to strive for!

Dani’s Blog: https://daniellecqu.wordpress.com

Amie: Spreading the Numbers

Amie’s blog set up is very clean, professional and makes I quite easy for the reader to easily navigate through her different posts. Furthermore, her writing flows nicely and is also personal which gives a great reader – writer relationship. Likewise, she also provides an in-depth analysis of her company like Dani and again her dedication is admirable.

Amie’s Blog: https://spreadingthenumbers.wordpress.com

Sarah: Sarah Z’s Blog

My final blog in my top 3 is Sarah Zillmann’s, her blog is a perfect combination of professional, personal and informative. She has made her blog a reflection of her journey throughout this unit, from not only just simply posting the steps for each part of her assignment (like most of us), but adds posts about her personal life and her own thoughts and concerns. Again, she gives an amazing reader-writer connection, and when reading her blog you feel as though you have been friends with her for ages, not just a fellow peer.

Sarah’s Blog: https://sarahzillmann.wordpress.com

Overall, these blogs are exceptional and setting the bar high for the rest of us! Keep it up everyone!

 

Step 5 Draft Ready for Feedback

Chapter 2

When reading Chapter 2, the main topic that was intriguing to me was accrual accounting. I found this concept applicable to my current life at the moment, as I had always been wondering why it is that when a customer purchases a gift card from my work it is not included in our daily sales. It is not until the customer uses the gift card to purchase a physical item from the store that it is recorded into our daily sales. It wasn’t until I read the example of the bus card that my curiosity made sense. This is how I now understand the situation at my work:

  1. When a customer purchases a $50 gift card, the company receives cash (an asset), which is debited.
  2. The account that is then credited is the liability (unearned revenue), as the company has an obligation to give an item of $50 to the customer when they use the gift card.
  3. When the customer uses their $50 gift card, it then is recorded into daily sales, therefore, crediting revenue.
  4. Then, as per double entry accounting, we have to balance this, so the company then debits the liability account unearned revenue. This is because the liability now no longer exists as the gift card has been used.

Therefore, my work doesn’t account for this to be a “sale” until we exchange value (i.e. giving something in return for their $50 gift card). The company uses accrual accounting. This was fascinating to learn, as I was able to relate it to my current work and now I understand what concept goes on behind the POS system.

Chapter 3 (Sections 3.1 and 3.2)

It is interesting to know that firms use their annual reports as a marketing document but also makes sense if I were to put myself in their shoes. If I had to make my firm’s annual reports public to both my current shareholders and investors, but also potential shareholders and investors, I would not want to state or point out any issues or losses in the firm. I would also want to talk about the positive aspects of the business and try to hide these issues behind this happy façade. However, numbers cannot lie, so perhaps that is why the financial statements are multiple pages into the report (Ainsworth’s was not until page 33)?

Additionally, the concept of cash and the importance of a firm having this asset were interesting to me. Cash, in a sense, is like the universal language for business. No matter what country you are in, you can use cash and negotiate items for cash. Whereas with the other assets listed in my firm’s balance sheet, such as inventories (this most likely being poker machines), it is unlikely that I could go somewhere and pay using this asset. This is because not everyone wants a poker machine or sees the value in it, whereas cash will always have value in everyone’s eyes. So it makes sense that if this asset were to run out my firm would go into liquidation. But why can’t a business sell their other assets (such as my firm’s poker machines) for cash? Is this because the value of my firm’s inventory becomes of no value once cash runs out?

Welcome

Hi All!

My name is Paige and I am currently studying a Bachelor of Accounting/Bachelor of Business, majoring in Management. I graduated in 2015, but decided to defer my tertiary education to this year, as I spent the majority of 2016 working and travelling overseas to places such as Canada and Alaska. Travelling and going straight into the workforce from school was exciting, but I am now ready to expand my knowledge. So this blog is dedicated to one of my current units I’m studying: ACCT11059 (Accounting, Learning and Online Communication).

Hope to chat to you all soon,

Paige 🙂