Study Guide Chapter 3: KCQ's

Key concepts:

·         The beginning (the quote from the Great Gatsby) kind of confused me, and made me think - what does this have to do with introducing financial statements? After reading through the whole chapter and going back to the quote – I was still a little confused about the relevance.

·         While going through my firm’s annual report - the different names of the balance sheets did really confuse me, mostly getting confused between the difference of a normal and a consolidated balance sheet. However throughout the course I began to understand the difference between the two – that one is a parent company, and the consolidated is the group.

·         Learning and reading about the definitions of the balance sheet, and what it specifically shows, helped me gain more understanding on not only this assignment, but accounting in general. I also learned the definition of present value which was a term I had been confused out during the course for a while. I found reading the sections on cash flow and dividends quite confusing, and no matter how many times I read it I didn’t seem to get the concept of it.

·         I agree with the fact that we better understand something when we can connect prior knowledge to it, as I find I can connect and relate myself to the situation and therefore really understand the meaning behind it – like most of us would.

·         “The focus of our analysis of our firm’s financial statements should be on understanding the

connections and relationships between key elements of the financial statements and the key drivers of the economic and business realities of a firm.” Reading this in the chapter helped me gain an insight of what exactly this assignment is about, and how I can help myself understand more what my firm is really about, and how they operate.

·         I was surprised to hear that the financial statements are really just a marketing document, although when I think twice about it, it’s really not too surprising.

·         'Business is not about sitting still on the sidelines.' This is an accurate description of the way I have always perceived business life to be like. I have always pictured it as a lot of work, a lot of constant change, almost like you get no free time at all! But despite this, it doesn’t change my interest in going into the business industry.

·         I'm not going to lie, I'm still trying to get a grasp and understanding of the terms revenue, expenses, assets, liabilities, credits, etc. However reading the footnotes on my firm’s balance sheet did assist me in gaining more of an understanding of what some of these confusing terms meant.

Key Questions:

·         What subsidiary companies does China Lilang own?

·         What is the definition of economic entity?

·         What is ratio analysis?

·         Why would a company not have any party owned subsidiaries?

Study Guide Chapter 1: KCQ's

Key Concepts:

• The whole idea of studying accounting seemed and still does seem daunting to me, I've never really been good with numbers. And it didn't help that I felt like everyone else was one step ahead of me, knowing the majority of others in the course would've studied accounting in High School and I didn't. I felt like I was behind, still trying to understand and grasp the smallest details of it all that everyone else would've already had under their belts from at school (or previous courses and past knowledge, even). So I'm not going to lie, a few parts of this study guide for me was like almost reading another language, and I found myself having to re-read over certain paragraphs to try and drill the meanings into my head. But overall, this reading has helped me learn, grasp some of the basics of accounting, and most importantly, make me feel a little better about undertaking this whole course, even if I’m still having a little trouble understanding a few things. I believe this whole chapter hits home that accounting is more than just focusing on the numbers, and recording a whole lot of transactions of a business. It's more helping us connect to reality, to understand what is really going on in a firm.

• Reading and understanding the whole accounting equation and idea of assets, liabilities, credits and whatnot, felt like it was making my brain explode. Although, by reading thoroughly, I did get a great idea of what these terms really mean. It was interesting to read the definitions behind what a firm’s profit and loss is, and how exactly they are calculated and figured out.

• The other day while waiting in line in a café at Emu Park, I thought to myself - Wow, someone came up with the idea and the money to make this whole place happen, and there would be accountants behind it, as well. Then I thought of all the other shops in the area, and about how all of these would have the exact same aspects. This made me realise just how much business in involved in our day-to-day lives, most of the time without us even acknowledging it. This helped me realise just how much we are surrounded by business, and made me wonder - where would we be without it? Where would we be without these people's ideas? Where would we be without the accounts? There really are businesses everywhere we look, and all around us.
• From this reading, I started to gain an insight and understanding that business really does have a lot to do with accounting. Having it as a compulsory subject for my Diploma of Business degree, I really wasn't sure exactly why I had to study this accounting course. However, I now know that accounting can hinder us in creating value in business and in our investing activities - as well as it being a powerful way of viewing business. It was interesting to read that so many people involved with business have accounting degrees, making me understand just the extent to how accounting has a role in business.  
• I can understand the idea of double-entry accounting. When I was working for the elections at the Yeppoon Courthouse, it was a very precise and lengthy process in which we had to record the votes on both an excel spreadsheet and also on a piece of paper, which relates to the idea of recording the same 'transaction' twice. Although not the exact same method as double-entry accounting, I can understand the importance of safekeeping the information. In fact, the whole description of what a bookkeeper does, reminds me a lot of the process I had to do while undertaking that job.
• I believe that computers are truly a blessing, however biased that may seem from someone in the 'digital native' generation - but really, it's scary to think about a life without computers, or the internet. And it's even scarier to think of a time where quills are paper were considered 'hi-tech'. Reading about this digital side of accounting in this chapter engaged me more into the reading, being the tech-savvy queen that I am. It really came to a surprise to me that I actually had no idea of the real reason behind the design of the keyboard, which I found really interesting! However, there is something I disagree with, and that is the idea of voice recognition taking over typing in the next decade. I have the feature available on both my laptop and iPhone, and I've never felt the need to use it. I don't know if that's just because I'm a fast typer or because I get sick of my own voice, but I just don't like the idea. And I'm not sure if it's just me, but the idea of a bunch of university students taking down notes in either a library or lecture room, by each individual talking out loud to their device - seems a bit odd, and even a bit annoying, to say the least.

Key Questions:

• What are accounting software packages and what do they do?
• What is the definition of proprietor?
• What is an entity concept?
• Why is the term still referred to as 'bookkeeping'?
• What exactly are input markets, product markets and capital markets?

China Lilang: Assets, Liabilites, Equity

Three assets:

1. Net Receivables 
These are shares that are owned by the company.

2. Inventories
This is the inventory or stock that the company has available.

3. Cash and Cash Equivalents
This is the cash on hand, and cash equivalents such as cheques received but not yet deposited, that the company has at the time.

Three liabilities:

1. Accounts Payable
This is the money which a company owes to vendors for products and services purchased on credit.

2. Short/Current Long Term Debt
This shows the portion of long-term debt that the company must pay in the next 12 months.

3. Long Term Debt
This is the amount owed for a period exceeding 12 months from the date of the balance sheet.

Three items of equity:

1. Retained Earnings

This is the income that the company retains rather than distributing to shareholders.

2. Treasury Stock

This is the stock repurchased by the issuer and intended for retirement or resale to the public.

3. Redeemable Preferred Stock

This is a type of preferred stock that has a callable provision that allows the issuing company to buy back the stock at a fixed price after a specified period of time.

China Lilang: Background Information

China Lilang is one of the leading PRC menswear enterprises. As an integrated fashion enterprise, the group designs, sources, manufactures and sells high-quality business and casual apparel for men under its core brand 'Lilanz' and a sub-brand 'L2.' Their products are sold across an extensive distribution network, covering 31 provinces, autonomous regions and municipalities in the PRC.

Established by Wang Dongxing, Wang Liangxing and Wang Congxing in 1987, Lilanz Group was the first in China to advocate the design concept of “business and leisure” for men’s clothing. After over two decades’ development, it led the way of business men’s clothing industry in China with the integration of design, R&D, production and marketing, and was listed as one of the “Small-Medium Enterprises with Most Potential in China” by Forbes in 2007 and 2008. Now there are brands such as Lilanz and L2 (sub-brand) under the Group.

The design philosophy of “Simple Yet Sophisticated” is also the core value of Lilanz that has been interpreted and displayed in the past over twenty years. To date, Lilanz has changed its design philosophies from “wisdom lies in making comprise” to “less is more”, then to “Infinite World, Infinite Heart”, and finally to “Simple Yet Sophisticated”. In such persistent search, compromise and innovation, Lilanz with typical Chinese wisdom brings businessmen all over the world a new experience with brand value.

Lilanz started its globalization strategy in 2008 by changing its trademark LILANG to LILANZ and designing its logo simpler, grander and more international. As a Chinese top men’s clothing manufacturer, Lilanz succeeded in going public in Hong Kong and entered the international capital market in 2009, starting the capital upgrading of China's men’s clothing industry. After that, Lilanz enhanced its multi-brand operation and fostered new growth points by promptly exploring the huge market of medium-grade men’s business and leisure clothing with brand L2. In the future, Lilanz will enhance its management, marketing channel and brand strategy, play an active part in the fashion events, participate more frequently in the world-class fashion fairs and strengthen the right to say in the international fashion circle, so as to build its image and establish its position among the fashion circle of the world.

China Lilang: Random Facts and Figures

• As of 31 December 2012, the number of distributors and sub-distributors of “LILANZ” were 64 and 1,472 respectively, operating a total of 3,227 “LILANZ” retail outlets, of which 1,069 retail outlets were directly operated by distributors and 2,158 retail outlets by their subdistributors. The retail outlet network comprised 2,295 stand-alone stores and 932 concession counters in department stores.

• China Lilang has received a number of industry honors as recognitions of its efforts in enhancing design and brand image. Several awards were given to our core brand “LILANZ”, including the “8th China National Garment Association Award — Public Award ”, “2012 China Branding Award — Best Creative Design Award”, “Top 10 China Most Valuable Private Menswear Brands”, “Top 100 China Most Valuable Private Brands” under the Hurun Brand List, and “The 7th Asia’s 500 Most Influential Brands of the year 2012”.

• In view of the uncertainties facing the industry, the Group will postpone the construction of the proposed new headquarters in Jinjiang, Fujian until macro-economic environment improves.

KCQ's: China Lilang

Key questions:

1.      What are China Lilang's strategies?

"As one of the leading menswear enterprises in China, we strongly believe that a prominent brand image is integral to our corporate core value as it enables the Group to thrive in the rapidly changing market environment and withstand market changes." – Chairman of the Board.

• During 2012, China Lilang launched various promotional activities to strengthen its brand imagine, including increased spending on advertising on CCTV during UEFA European Football Championship final tournament held in June and the Olympic Games held in July/August. To maximise brand exposure and enhance brand awareness, China Lilang also used billboard advertising at the Shanghai Hongqiao International Airport and the Bangkok airport in Thailand, targeting frequent travellers with high spending power.

•  In view of the increasing popularity of online sales in the China Market, China Lilang paid extra attention to the development of the E-Commerce channel. During 2012, China Lilang continued to make use of its online sales platform to sell ‘Lilanz’ and ‘L2’ products.

• China Lilang places great emphasis on recruiting and training quality personnel. They recruit talents from universities and technical schools and provide preemployment and on-going training and development opportunities to their staff members. The training programs cover areas such as sales and production, customer services, quality control, sales fairs planning, workplace ethics and training of other areas relevant to the industry.

• China Lilang continues to make every effort to strengthen the day-to-day control over its sales channel. China Lilang embarked on developing software systems with late 2009 for accessing the sales and inventory records of each retail outlet online. By the end of 2012, all retail outlets except those in department stores – were connected online. This enables the company to obtain point of sales data accurately and in a timely manner so that it can address specific problems promptly, and also help the research and development of products meeting market needs better.

  

2. How does China Lilang plan on further improving their sales and marketing profits and techniques?

• China Lilang will continue to enhance its brand image and product design, and improve the management of its retail channels and their inventory. These measures will aim at consolidating China Lilang’s leading position in the challenging market. The Group has geared up for long-term and healthy development in order to realize sustainable growth and reward its shareholders, employees and customers for their support.

• In 2013, the objectives of China Lilang are to enhance the competitiveness of its brands and ensure the viability of its sales channels. China Lilang will also continue to invest in research and development and strengthen its supply chain management to further improve its product quality and produce products which are better value for money to gear up for long-term development.

• In order to provide the best services and products for consumers, China Lilang will continue to arrange training on retail management for distributors, and to allocate more resources to product research and development. Specifically, it will add more staff for fabric research and development and will strengthen cooperation with suppliers.

3. What are China Lilang's challenges are how are overcoming these challenges?

• 2012 had been a challenging year for the development of menswear industry in China. The debt crisis facing by many of the world’s leading economies continued to cloud the global economy and created great challenges for China’s economic development. In the same year, China’s economy grew at its slowest pace in 13 years, easing to 7.8% for the year.

• China Lilang will continue to set its pace for store opening according to market conditions. To reduce the risk of excessive store expansion, China Lilang will not aggressively increase the number of stores until there is obvious improvement in the macroeconomic environment. 

• Under such challenging economic environment, sales channel management is more important than ever. During the year, China Lilang conducted intensive training for the distributors and their management teams. The training programs covered retail management, franchise and chain stores business management, and methods of coping with the dynamics of the changing market, in order to improve and enhance the management of the retail channels.

• The unfavourable weather such as a rainy spring and summer and a short autumn also significantly decelerated the sales growth of menswear in 2012. The aggressive discount offered by some of the menswear brands during the year impacted China Lilang’s turnover. As a result, China Lilang cancelled some of the winter orders after discussion with its distributors. In addition, the Chinese New Year came in February in 2013, later than in 2012, and thus postponed the festive shopping season. More winter products were delivered in January 2013, affecting the sales of 2012. The overall performance was below expectation.

  

• In 2012, China Lilang promptly and prudently adjusted their operating strategy to cope with the abrupt changes in the market. In view of the uncertain prospects, China Lilang revised the ordering arrangement with the distributors earlier in the year and duly adjusted its annual store opening plan as precautions to control risks, in particular, to reduce the risk of overstocking in the sales channel, and flexibly coped with market changes together with distributors.

Key concepts:

• China Lilang is dedicated to providing new designs and high quality to our consumers, so as to enhance its brand image and add value to its products.

• The slowdown of turnover growth was attributed to the impact of the macroeconomic situation and weather factors on the sales of China Lilang’s products.

• In spite of such a challenging economic environment, China Lilang still attaches great importance to brand positioning and the profitability of the distributors and thus insists on maintaining a consistent pricing and retail discount policy.

• Turnover of “L2” for the year went up by 50.5% to RMB194.1 million due to a low base figure for the previous year.

• Despite the difficult business environment, China will stay on track for economic growth and its accelerating urbanization will continue to increase the people’s income. These developments will support the steady growth of the country’s domestic consumption. The demand for fashionable and branded high-quality products will remain robust. As a leading business casual menswear enterprise in China, China Lilang is still confident about the long-term growth potential of the menswear industry in China.

• The improvement in the gross profit margin was mainly attributable to China Lilang’s measures to streamline supply chain including the selection of more cost-efficient OEM suppliers, requiring more OEM suppliers to purchase from designated fabrics suppliers and the change of suppliers’ payment terms. These successfully reduced the cost of sales and improved gross profit margin. During the year, stable raw material cost also helped to improve gross profit and gross profit margin.

• Eastern China and Central and Southern China regions, which were two main contributors of China Lilang’s turnover, accounted for 52.9% of the total number of stores.

  

• One of the most valuable assets of China Lilang are their brand names. Prominent brand image and unique brand identity add value to the brand names and products of the Group, which would help to consolidate the leading position of China Lilang in the business casual menswear market in China.

• China Lilang believes that product design and quality are the keys to a successful brand, and thus always attaches great importance to product style and quality. Adhering to this philosophy, China Lilang has committed to achieving excellence through continuous research, design and development of new products over the years, focusing on fashionable and simple style with innovative product designs to become the trend-setter in the business casual menswear market in China. In addition, China Lilang also strives to enhance the products’ value for money by improving the garment fabrics used in its products.

China Lilang: News Article

Lilang plans overhaul after profits drop 12.8pc

Sijia Jiang PUBLISHED : Tuesday, 13 August, 2013, 12:00am

  

An actor comes on in full costume of Beijing Opera during a men's wear show by Chinese brand Lilang in Milan. Photo: Xinhua

Menswear firm China Lilang plans to reorganise existing stores, after reporting poor first-half results yesterday.

The company's earnings during the period fell 12.8 per cent to 242.3 million yuan (HK$304.6 million) as turnover dropped 13.2 per cent to 1.09 billion yuan on weak retail sales amid a slowing economy. Lilang cited high inventories from last year as a drag on performance.

"As China's macroeconomy slowed, many apparel companies suffered sales decline in 2012, making overstocking a prevalent issue in multiple categories," an AT Kearney report said.

Total retail sales of garments, hats, footwear and knitwear on the mainland rose 11.9 per cent year on year in the first half, 5 percentage points lower than the growth seen in the previous year.

Lilang's flagship brand Lilanz accounted for 92.7 per cent of the company's total turnover. L2, its other brand targeting younger consumers, contributed 7.3 per cent. Overall, Lilang maintained a net profit margin of 22.2 per cent, an increase of 0.1 percentage point, helped by stable material costs and supply chain improvements, chief financial officer Brenda Ko said.

It closed 26 Lilanz stores and manufactured in-house, instead of outsourcing, 44.6 per cent of its products in the first half - 7.5 percentage points more than last year, Ko said. More store closures are planned.

Same-store sales rose an average 3.5 per cent in the first half and touched 5.5 per cent last month, said Zhang Yufeng, head of sales and marketing.

Lilanz's autumn orders have shrunk 26 per cent and winter orders are down 16 per cent.

Wang Congxing, vice-chairman and executive director, said: "As we bring inventory back down to a healthy level, we are confident same-store sales will stay at 5.5 per cent for the rest of the year."

Lilang has 3,201 Lilanz stores and 276 L2 outlets on the mainland.

Article at: http://www.scmp.com/business/china-business/article/1296198/lilang-plans-overhaul-after-profits-drop-128pc