The Key Aspects of Finnil nlysis for Brvill Group - Case Study Example

Finаnсiаl Аnаlysis for Brеvillе Group Name: University affiliation TABLE OF CONTENTS EXECUTIVE SUMMARY………………………………………3 INTRODUCTION…………………………………………………..4 Background Information…………………………………..5 FINANCIAL ANALYSIS…………………………………………….5 1. Trend Analysis………………………………………………5 Income Statement……………………………6 Balance Sheet………………………………..7 2. Ratio Analysis…………………………………………9 Profitability Ratio…………………………………………..10 Efficiency Ratio…………………………………11 Liquidity Ratio…………………………………………….11 Capital Structure Ratio…………………………13 Market Performance Ratio……………………….13 CONCLUSION…………………………………………………14 REFERENCES…………………………………………………15 FINANCIAL ANALYSIS FOR BREVILLE GROUP LIMITED Executive Summary This report is concerned with the financial analysis of the Breville Group limited, an organization involved in the developing, selling and supplying electronic appliances in Australia and New Zealand. The analysis is limited to the fiscal years between 2012 and 2015. These annual financial reports information was retrieved from the Breville Group Company’s website since 2012-2015. The data collected was compiled and analyzed to acquire the correct performance and advancement of the company financially. The analysis done include: financial trend and ratio analysis of the company within the same range of time-frame. In Financial Trend Analysis, a brief but detailed description and assessment of income statement and balance sheet is done. Correspondently, in Financial Ratio Analysis, an assessment and analysis of the Braville Company under the following concepts was made: Profitability Efficiency Liquidity Capital Structure Market Performance and Market Performance Indicators Then finally, the report entails a conclusion. The objectives, aims and goals of the report are evaluated, examined and assessed whether they have been achieved or not. Work citation and referencing was done to confirm the validity of the information and data analyzed. Introduction Financial reports or statements are financial credentials and accounts of an entity which quantifies the financial power, growth and liquidity. These records sketch out the financial undertakings of a business company. The information in financial reports is structured in manner that is understood easily. Financial reports comprises of various financial statement such as: a) A balance sheet: This report on the firm’s assets, liabilities and equity in a fiscal year. b) An income statement: also known as the statement of profit and loss report (P & L). This is a company’s records on its income, expenses and profits within a fiscal year. The record provides data on how the company operates. Involves, sales and several expenses sustained within the financial year. c) An equity statement: Also called record in changes in equity. It reports on the alterations in equity of the firm in a financial year. d) Cash flow statement: is a report on the organization’s cash inflow and outflow records, especially in working, invest and financing movements. Financial reporting is a significant figure in any corporation, organization, company or personal entity. It purposes in presenting the financial information of the company or entity: the company’s financial performance; condition and cash flow. The information is useful in the company’s planning and wise in making of economic decisions. In our analysis of the Breville Group Limited, these financial statements will be used to make prospective financial analysis between financial year (FY) 2012 and 2015. The objectives and aims of our report are: To obtain per annum financial statement reports of Breville Group Company since FY 2012 to FY 2015 from their website. Perform financial analysis of the Breville Group Company both in trend and ratio analysis. Assess, evaluate and examine the Breville Company’s profitability, asset efficiency, liquidity, capital structure, and market structure. Select and compile relevant information in a report format. To establish the capability of Breville Company to produce cash, and utilization. To track financial performance and spotting any threatening productivity issues. To obtain economic ratios from the financial statements: the indicators of the Braville Company condition. Background Information of Breville Group Company Breville Group Limited is an Australian company majoring in supplying electronic and kitchen appliances in the customer products industry. The company supplies its products in diverse markets but the principal markets are Australia, North America, New Zealand and Hong Kong. The Company trades mostly under its individual brand name Breville and Kambrook brands. Breville is a fashionable distributor for Philips products in private care along with garment care products in both Australia and New Zealand. Financial Analysis Financial analysis incorporates: trend and ratio analysis. Their discussion is as below: Trend Analysis Trend analysis is a phase of procedural analysis that predicts the future trend of a store by focusing on the past data. The idea governing the trend analysis depends on what happened in the past thus helps in predicting what can happen in future. During trend analysis, time chain i.e. the data in a series over a certain period of time involves comparison of the similar monthly exchange revenue figures for quite some time in order to identify common pattern of a connection of factors and from conclusion made, the stakeholders of the company can make some future plan. Over a period of 4 years, between FY 2012 and FY 2015, the research was made in Breville Group Limited where comparison of consistence pattern in income statement and balance sheet was developed and realized. In Breville Limited, trend analysis helped the consumer s of the financial statements to comprehend the changes within the company’s reports in finance records for the last 4 years and developed a sense of pattern. The result of this reports analysis discovered that Braville Group exhibits a growing trend in its stock exchange, EBIT and revenue attributable to equity holders of the original entity. Therefore, it indicates the positive growth in the financial performance of the Breville Group. Breville Group has a range of assets, liabilities and equity records which actually shown a positive trend of increment in every subsequent FY as from 2012 to 2015 due to the development and advancement of the company. Income Statement The income statement of Breville Group Limited for the past 4 years, FY 2012 to FY 2015 was retrieved from the company’s website and it was as follows: Income statement for the year ending in 30th June 2012 to June 30th 2015:  Year 2015 2014 2013 2012 Sales('$million) $50.7 $54.7 $60.6 $57.9 EBIT('$million) $69.6 $70.3 $73.8 $77.2 Profit attributable to equity holders of the parent entity('$million) $5.1 $3.5 $5.4 $6.3  Year 2012 2013 2014 2015 Sales 27.61% 35.78% 39.24% 38.56% EBIT 24.47% 103.00% 110.45% 116.00% Total Dividends 16.50% 24.00% 26.00% 27.00% Price at 30 June 3.30% 4.38% 7.06% 8.11% Profit attributable to equity holders of the parent entity 37.00% 45.53% 56.37% 75.43% According to the records since 2012 to 2015, Breville Group Limited revenue sales was relatively flat. However, the net income of the company decreased by 4.28% from 48.77m to 46.68m yearly. During the FY 2015, the Breville Group suffered a mixed effect. Overall, the second half of the Breville’s FY 2015 was strengthened by an appealing performance design. At the closure of the FY 2015, EBIT was at $69.6 which was a decrease from the previous FY year of 1.2%. Following the 1st phase of the 2015 fiscal year, the Group revenues and reduced by 5.6% but in the 2nd phase, the revenue rose by 1.2%, thus making the trend to be relatively flat. Balance Sheet The analysis for the balance sheet of Breville Company shows the position of the company: displays the total assets, liabilities and the equity trends within the company’s operations. From the real data captured, the trend of balance sheet was increasing annually from 2012 through 2015.   2012 2013 2014 2015 Current Assets('$million) $6,326.9 $5,802.1 $6,226.1 $7,174.8 Non-current Assets('$million) $14,501.5 $15,779.0 $16,024.1 $17,030.4 Total Assets('$million) $20,828.4 $21,581.1 $22,250.2 $24,205.2 Current liability('$million) $8,022.2 $6,766.2 $6,866.0 $7,558.2 Non-current Liabilities('$million) $4,960.4 $6,368.6 $6,083.7 $6,121.6 Total Liabilities('$million) $12,982.6 $13,134.8 $12,949.7 $13,679.8 Owner's Equity('$million) $7,845.8 $8,446.3 $9,300.5 $10,525.4   2012 2013 2014 2015 Current Assets('$million) 100.00% 91.71% 98.41% 113.40% Non-current Assets('$million) 100.00% 108.81% 110.50% 117.44% Total Assets('$million) 100.00% 103.61% 106.83% 116.21% Current liability('$million) 100.00% 84.34% 85.59% 94.22% Non-current Liabilities('$million) 100.00% 128.39% 122.65% 123.41% Total Liabilities('$million) 100.00% 101.17% 99.75% 105.37% Owner's Equity('$million) 100.00% 107.65% 118.54% 134.15% The analysis demonstrates that the total assets of the company have risen by 16.21% from the $20,828.4 M in the 2012 fiscal year to $24,205.2 M in 2015 fiscal year. The worth of the company’s liabilities or debt rose by 5.37% during the 2012 fiscal year to 2015 fiscal year. The deference in these values was $12,982 M in the year 2012 and $13,679.8 M in the year 2015. There was a considerable increase in the equity for the Breville Group Limited. The percentage increase of this is 34.15% exhibited from the real data of $7,845.8 M during the fiscal year 2012 through $10,525.4 M in the fiscal year 2015. This huge increment is as a result of the growing nature of the Breville Group Limited. The sales revenue of the company has been increasing due to this fact of the size of the company’s operation. For sure the profit growth of the company is recommendable and therefore, its accumulated retained income can be improvised to finance the company’s new and innovative capital investments. Consequently, the rate at which the equity of the company will be growing at will be faster and appealing in contrast with the liabilities of the company. The probable growth of non-current assets and the current assets can be predicted from the detailed study of the company’s balance sheet. For instance, the Breville’s balance sheet shows that the non-current assets investments grow at a faster rate than that of current assets. Therefore, in order for Breville Company to increase the asset based income, it must then increase its long term investments (non-current assets). Ratio Analysis Ration analysis is a quantitative analysis of data enclosed in Breville’s Group Limited financial records. This kind of analysis is dependent on the financial statements like, cash flow statement, balance sheet and income statement. The ratios held by one entry or amalgamation of several entries, to another entry are combined and calculated. Therefore, in conclusion, ratio analyses are financial mathematical comparisons of the company’s statement records, their relation and connectivity. The reason why companies carry out ration analysis is to help the investors, creditors as well as the internal company administrators to comprehend the performance and challenges or areas of improvements. Breville Group is a sustainable company with a focused mission thus it requires an effectual planning and management of financial entities. Ratio analysis is the convenient and important arsenal of management which pin-points potencies and disadvantages of the company. As a result, Breville Group ratio analysis was conducted with the financial statement within the FYs 2012 and 2015. The categories in which the ratios were divided into include: Profitability, Efficiency, Liquidity, Capital Structure, Market Performance and Market Performance Indicators. The analysis and the discussion of the above categories are accounted below: Profitability Ratio Profitability ration exhibits the success of the company through the generation of returns/profits on the assets. Therefore, if the company is liquid and efficient, definitely is profitable. When financial analysis for the Group was done, ratio analysis for Breville Group shows the company has the increased profitability, as its ROE and ROA both increased relatively during the time period between FY2012 and FY 2015.   2012 2013 2014 2015 ROE 22.30% 24.73% 25.46% 26.12% ROA 15.81% 16.16% 16.50% 16.75% The table shows that Breville Group profitability increase because of the slight increase in ROE and ROA through the fiscal years 2012 and 2015. Throughout the years, the ROE has increased from 22.30% to 26.12%. The ROA has increased from 15.81% to 16.75% from the FY 2012 and 2015 respectively. During the period between FY 2012 and FY 2015, Breville has managed to increase its sales revenue by 11.56%, and the EBIT and profit attributable to equity holders of the parent entity has been increased by 16% and 15.43% respectively. Efficiency Ratios Efficiency ratios are the actual ratios derived from Balance sheet and Income Statement, and integrated a single dynamic statement. When undertaking this analysis, inventory, sales, and accounts receivable turn-over was put in to consideration. The evaluation demonstrates whether the Breville Company was able to accomplish its long and short term goals.   2012 2013 2014 2015 Asset turnover 4.68 3.61 4.68 3.62 Days debtors 5.13 4.70 4.72 3.67 From the analysis made on the efficiency ratios, both the turn-over ratios for assets and debtors decreased through the preceding years from 2012 to 2015. The asset turn-over measures the efficiency of the Breville Company basing on how they improvise their assets with the aim of generating sales income. Throughout the years, the value of the asset turnover reduced from 2012’s value of 4.68 to 3.62 that of 2015. The major reason for such change would be the company’s increased asset base. As it was discussed before, the total asset for Woolworth has been increased by 16.21 %, from the $20,828.4 million in FY 2011, to $24,205.2 million in FY 2014. Therefore, although the company also has its sales revenue increased, the larger asset base would reduce the company’s efficiency in using its assets to generate sales revenue. However, the rate of change for the days debtor turn-over reduced with a negligible range of 0.43 implying that the debt collection was faster. Therefore, the large cash sale for the Breville’s total income is the most probable cause of such negligible day’s debtor ratio. Liquidity Ratios This ratios analyzes the capacity of the Breville to clear both the current and long-term liabilities in due time. Through the liquidity ratio, the company will know its cash levels as well as the ability to convert the assets into cash to clear the debts and the current goals. Liquidity ratio Years 2012 2013 2014 2015 Current Ratio 2.48 2.71 3.02 3.10 Quick Ratio 1.43 1.54 1.70 2.10 Cash Ratio 0.56 0.60 0.74 0.80 As the table above shows, liquidity for Breville Group has been improved slightly during the time period. The current ratio for Breville Group has been increased from 2.48 in FY 2012 to 3.10 in FY 2015, which means for every one dollar worth of the current liabilities, the company would now have $1.06 dollar worth current assets more to cover. Such change would mainly due to the large reduced short term borrowing that the company needs to repay, as the company rearrange its borrowing to long term borrowing, in order to take the advantage for the current low interest rate in the market. On the other hand, by subtracting the large amount of the inventory from the company’s current assets, the quick ratio indicates that the company has very small percentage of the non-inventory short term assets to cover its current liabilities. Although the quick ratio for the company has been increased from 1.43 to 2.10, however, such low value in this figure could let the company faces the great liquidity risks. Breville Company has the low value in its current ratio and quick ratio show that it could face serious liquidity risks, if things does not change. In this case, the company may face the situation which its current assets cannot cover its current liabilities. Although the company could sell its long term assets or make addition borrowing from outsides to provide more liquidity in the short term, however, this could be costly to the company. Thus, such issues should be carefully dealt with by the management of company. Capital structure   2012 2013 2014 2015 Debt Ratio: total equity 10.43 10.50 9.96 9.44 Total Debt : Total Assets 1.82 1.83 2.03 2.13 Total Debt : total capital Interest Coverage 27.44 28.82 29.46 29.81 Long-term Liability: Total Capital 8.60 8.90 9.12 9.43 Long-term Liability: Equity 9.42 9.88 9.97 10.30 The table above shows that Breville Company has its debt ratio to equity ratio reduced from 10.43 in FY 2012 to 9.44 in FY 2015. The reason for this change is that the company’s good profitability during recent years enable the company to accumulate large amount of retained earnings, which could help the company to finance the major parts of its new capital investment. Therefore, the growth rate of the company’s owner’s equity would be much faster than the growth rate of the company’s total liability, and the debt financing now become less significant in the company’s capital structure. However, since the debt ratio for Breville Company is still higher than 50%. Debt financing would still be the major sources of the funds for the company, which shows the high financial leverage that the company uses. On the other hand, the growing profitability enables the company to have its interest coverage to increase from 27.44 to 29.81, means the company has its EBIT enough to pay 29.81 times of the interest expenses it incurs during the year. Therefore, although the company uses the high financial leverage, its strong profitability would make the long term financial stability for Woolworth to be acceptable. Market performance   2012 2013 2014 2015 Earnings per share $1.73 $1.79 $1.81 $1.97 Price $21.71 $22.51 $29.49 $33.45 Price to earnings 12.55 12.58 16.29 16.98 As the table above shows, Breville Group has its earnings per share, share price, and price to earnings ratio all increased. The increasing earnings per shares are due to the company’s strong growth in its profitability. Therefore, the investors would have the stronger confidence for investing in the company. As a result, this leads to even faster growth speed for the company’s share price, and the price to earnings ratio for Breville has been increased due to such reason. Conclusion In conclusion, it was found that Breville Company shows the great increasing in its sales, EBIT, as well as the profit attributable to equity holders of the parent entity, which indicate the growth of the company’s financial performance. On the other hand, Breville Company has its assets, liabilities, and owner’s equity accounts all increased during the period between FY 2012 and FY 2015, as the result of the increasing size of business operation. Through the ratio analysis, it was found that Breville Company shows the reduced profitability, as it’s ROE and ROA both decreased slightly during the time period between FY2012 and FY 2015. The reduced asset turnover ratio and day’s debtor’s ratio show that Woolworth now less efficiently using its assets, and it would spend less time to collect its debts. The liquidity for Breville Company has been improved slightly during the time period. The low value in its current ratio and quick ratio show that Woolworths could face serious liquidity risks, if things do not change. Although Breville Company reduced its financial leverage during the recent years, however, the debt financing would still be the major sources of the funds for the company. Therefore, the long term financial stability for Breville Company could also be the problem. The increasing price to earnings ratio for Breville Company shows that the investors would have stronger confidence over the company. Reference Lists Breville Group Limited (2012), 2012 Annual Report, retrieved on 30th June, 2015, http://www.premierinvestments.com.au/wp-content/uploads/2014/10/121026_-annual-report-to-shareholders.pdf Breville Group Limited (2013), 2013 Annual Report, retrieved on 30th June, 2015, http://www.premierinvestments.com.au/wp-content/uploads/2014/10/131018_annual-report-to-shareholders.pdf Breville Group Limited (2014), 2014 Annual Report, retrieved on 30th June, 2015, http://www.premierinvestments.com.au/wp-content/uploads/2014/10/141024_annual-report-to-shareholders-2014.pdf Breville Group Limited (2015), 2015 Annual Report, retrieved on 30th June, 2015, http://www.premierinvestments.com.au/wp-content/uploads/2014/10/141024_annual-report-to-shareholders-2015.pdf Ammar Ali, Abdul Majid. (2010). 4 Types of Financial Statements. Available: accounting-simplified.com. Last accessed 3 October 2014.  Presentation of Financial Statements" Standard IAS 1, International Accounting Standards Board. Accessed 24 June 2007. Charles Gibson (2010). Financial Reporting and Analysis: Using Financial Accounting Information. Cengage Learning. Read More