Ann: Full Year Results Announcement, page-26

Madamswer, I agree with you that this accounting treatment gives a more conservative profit figure but CSL and other companies with R&D spend are actually required by law to expense R&D when incurred rather than capitalising on the balance sheet, it is an Australian Accounting Standard requirement (AASB1011), the exception to this is software R&D.

Another reason for the good result is the improvement in the gross margin on sales. The FY18 gross margin was 53.46% versus 49.68% in FY17. I would attribute this to a combination of volume and price increases in CSL’s products with a hand on costs.

The math is

Sales Revenue = Quantity x Price
Cost of Sales = Quantity x Cost

Quantity is the same for both Sales and COS but that doesn’t limit the number of math permutations: quantity (up / down), price (up / down), cost (up / down)

I could be very WRONG but I argue the following:

As the percentage increase in sales revenue has far exceeded COS, price increases in CSL’s products was a contributing factor to the 14.69% increase in Sales Revenue.

(That is, increases in both quantity and price. It’s possible that the quantity decreased dramatically but was offset by massive price hikes in products or vice versa but I don’t see that happening)

COS was up 6.07% from FY17, I reason that this was a combination of quantity increases with a slight increase in cost. There was almost a full year of Ruide reflected in FY18 and while only adding US $24M to sales I believed it weighed on COS. The Dec 17 half year v Dec 16 half year COS was pretty much flat where only a few months of Ruide was included.



Cheers Porkchop