Classifying CTI Logistics: Peeling Back the Layers
- Kristy Hixon
- Apr 30
- 3 min read
Welcome back to my learning ledger! I am currently tackling Step 2 of my second assessment, which involves the meticulous task of classifying every line item in CTI Logistics Limited’s financial statements as either Operating or Financial. This process provides a powerful way of viewing the business by sharply distinguishing between what the firm does (operations) and how it is funded (financing).
The ‘Golden Rule’ I followed is that Operation (O) items involve trading with customers and suppliers, while Financial (F) items involve how the firm raises capital or stores excess value in the capital markets. Please see below my spreadsheet and my reflections on this classification journey.
Navigating the 'Business Engine'
Some items were straightforward to classify because their names gave them away – for instance, Revenue is clearly the core ‘engine’ at work. However, several items required me to ‘deep dive’ into the Annual Report notes to be certain.
Other Investments (F): This was a challenge initially. In the Consolidated Statement of Financial Position, I found ‘Other Investments” under Non-Current Assets. By checking the Notes, I discovered these are ‘Level 1 equity securities’ (shares in other companies). Because these assets generate finance income (dividends) rather than operating revenue from logistics, they are a way for CTI to store value in the capital markets rather than being used in the daily ‘business engine’.
Investment Property (O): I at first thought this might be financial, but CTI’s specific structure changed my perspective. CTI has a dedicated ‘Property’ segment that specifically includes the ‘rental of investment property’ as a business operation. Since these properties are leased to customers to generate rental income, they are a core part of their operating activities.
Impairment/Reversal (O): Found in the Consolidated Statement of Profit or Loss, impairment refers to a permanent from in an assets value. The ‘Key Audit Matters” section of the 2024 and 2025 Annual Reports clarifies that this is typically relates to CTI’s Property, Plant and Equipment (PPE) or Goodwill – the very tools and reputation of their logistics engine. Much like depreciation, it reflects a loss in the value of operating assets.
Connecting to the Chapter 4 Equations
Reflecting on this task, I am so grateful I spent time ‘getting to know’ CTI Logistics during Assessment 1. That prior research made it much easier to understand the context of their ‘Property’ segment or the nature of their ‘Other Investments”. The purpose of this classification process is to help us see the firm as two distinct halves, allowing us to use the analytical framework introduced in Chapter 4:
Net Operating Assets (NOA) – Net Financial Obligations (NFO) = Total Equity
By accurately separating the ‘logistics engine’ from the ‘money moving’ activities, I can eventually see if CTI is adding value through its actual trading or if its performance is being influenced by financing decisions.
Moving Past the Intimidation
This step has been enlightening rather than frustrating. It forced me to stop seeing the financial statements as a wall of numbers and start seeing them as a model of business reality. Understanding that accounting is an ‘abstraction’ of complex activities has given me a lot of confidence as I continue through my assessment. I’m beginning to see that once you understand the why behind a classification, the spreadsheet itself starts to make perfect sense.
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