ACCT13017 - Assignment Two - Step Two

Chapter Seven – How to Predict the Future to Eternity

The main point that was reiterated early in this chapter is that we do not know what lies ahead for our firms, or really, for anything in life. Predicting the future and guessing seems to go hand in hand with one another as nothing is ever really certain. We can only speculate and guess about what we think may happen, but we will never know for sure until we arrive at that time in the future which would then prove our prediction as either having occurred or not.

It is becoming clear to me that when calculating risk and forecasting the future there can be many different outcomes. For example, one of the larger risks my company, QANTM, took in the 2019 financial year was the attempted merger with another company, Xenith. This merger fell through and QANTM not only lost acquisition costs that they were not able to recoup, but they also lost the future growth that the merger would have provided. Had this merger been successful, there are many different outcomes that could have happened. The merger could have failed horribly and not been what the shareholders thought it would be, or the merger could have been very successful and given QANTM the mechanics to continue dispersing into the overseas market. From reading the QANTM directors report, it appears that they do plan to expand overseas more as that is where they see the largest business coming from and higher profit margins. For QANTM, and other intellectual property groups in Australia, it appears that the growth comes through acquisitions more significantly than genuine new business. Also with regard to risk, it is quite possible that in the future the intellectual property market will have greater automation and their services will not be as highly required as they are now. On to the final chapter…

Chapter Eight – Going Forward

We are now at the last chapter of this study guide. I simultaneously feel that I have learnt so, so much in this unit yet I also feel that I have learnt not nearly enough. Some parts of these chapters have gone completely over my head (with the many, many acronyms not helping my, at times, confused brain), while other parts I have connected with well and understood. This last chapter was a fantastic recap on what we have learnt over these past few weeks and months. I really do hope that in the future I am able to apply what we have learnt here and actually understand a firm itself, rather than just understand their financial statements, and (somewhat) successfully predict where they are headed to in the future.

One of the first questions I had when reading through this chapter was regarding the discounted dividend (DD) approach. Can this approach still be used if a company does not pay out dividends? Or if they do, but infrequently? I also understand that the favoured approach in finance is the discounted cash flow (DCF) approach. Why is this? Would one approach work ‘better’ than the others for QANTM?

Another thought I had is why are we forecasting five years into the future for our firms? Why not two or three years? Or even ten years? Already knowing that you can never accurately predict what will happen to a firm in the future, looking five years ahead is a very daunting task. There are so many variables that could affect the company, some of which you may never even be able to think of, let alone predict (take COVID-19 as a perfect example – I don’t think that would have been predicted by too many people at all).

I am very much looking forward to completing the rest of this assessment piece. I am sure that once I actually delve further into QANTM and apply the ratios we have been discussing, they will make more sense to me. I still occasionally look back at ‘FitBug Holdings/KinWellness’ (the company given to me in ACCT11059) and see what they have been doing over a past few years. It has been interesting to see 1. FitBug go from a company that sold activity trackers, 2. to going completely broke, being acquired by Kin Wellness and being branded as an overall ‘wellness centre’, and 3. as of 2018, going bust again and re-branding to Bidstack Group which now is a video game-focused software company. I can see myself following QANTM occasionally over the next few years to see if any of the predictions I have made in this assessment piece have come true or not.