Introduction to Company Annual Report and Financial Statements
Part 1 – Question 1: (related content – topic 2)
Write a background summary of your assigned company. You may like to use some of the following prompts in your summary:
- When and why did your company first commence operation?
- What is the main or core business of the company?
- Some companies are diversified and have investments in other industries, for example, Wesfarmers has diverse business operations that cover supermarkets, department stores, home improvement and office supplies; coal production and export; chemicals, energy and fertilisers; and industrial and safety products. Is your assigned company diversified? What industries does the company operate in?
- Does your assigned company operate solely within Australia or does it operate internationally? Identify the operational locations.
Orbital Corporation limited has started its business in 1989. It has been started by Ralph Sarich. The head office of the company is in Balcutta, Western Australia. The main aim of the business is to offer clean engine technologies and other fuel systems along with lesser environmental impact. The company has diversified its business into energy industry, propulsion system, technology licensing and automobile industry to grab more market share. The company is operating and running its operations at international level (Home, 2018).
Part 1 – Question 2: (related content – topic 2)
Briefly list the information included in the company’s corporate governance report. Does this information differ from the corporate governance information covered in the content and required reading for topic 1? (Note, if not presented in the Company Annual Report, review the Company website).
The corporate governance report of the company briefs that the ASX corporate governance principles and suggestions are followed by the company and the company is managing and maintaining the highest corporate governance standards. The board of the company has reviewed and approved all codes, policies and charts of the company and briefed that the corporate governance of the company is quite better (Corporate governance, 2018).
Part 1 – Question 3: (related content – topic 2)
What position was held and what was the composition and total remuneration of the highest paid board member? (Hint – try the Directors’ Report.)
The highest revenue has been paid by the company to Geoff P Cathcart who is the chied technical officer of the company. The total revenue of Geoff is $ 3,32,142 (Bloomberg, 2018).
Part 1 – Question 4: (related content – topic 2)
How many “subsidiary companies” or “controlled entities” are in the group? (Hint; try looking towards the end of the financial statements, near the end of the report). Are the subsidiaries/controlled entities located domestically and or internationally? Identify where they are located. This will give you insight into how widespread the company’s operations are and may assist you with your background information.
According to the annual report of the company, it has been found that the various controlled entities are in the group of the companies. Currently 14 companies are working under the company and out of them, 10 entities are located at Australia and rest 4 is located at USA and UK. It explains that the company is operating its business at international level (Annual Report, 2017).
Part 1 – Question 1
Part 2 – Question 1 (Balance Sheet): (related content – topic 4)
What is the amount invested by the company in net assets for the current year? (Hint use total assets less total liabilities). How does this amount differ from the value of net assets for each of the previous three years? Can you identify any reason for the changes? (Hint: look at the individual amounts that make up both the total assets and total liabilities, are there any changes to individual items over this three-year period? Alternatively, you could perhaps look at the notes to the financial statements in the annual report to see if there are any changes in the breakdown of individual items in the reports.) Discuss.
The company has invested $ 1,91,83,000 amounts in the net assets of the company in current year. Further, it has been found that the net assets of last 2 years are $ 2,19,42,000 and 3,12,68,000 respectively which express about lesser investment in this year. The main reason behind these changes is higher total current assets and investment of the company (Annual Report, 2016).
Part 2 – Question 2 (Balance Sheet): (related content – topic 4)
How much was the total equity for the current year? How does this differ from the total equity in each of the previous three years? Can you identify any reason for changes in the individual equity items over the 3-year period? Discuss.
The total equity of the current year is $ 1,91,83,000. Further, it has been found that the total equity of last 2 years are $ 2,19,42,000 and $ 3,12,68,000 respectively which express about lesser investment in this year. The main reason behind these changes is higher retained earnings and reserves of the company (Annual Report, 2016).
Part 2 – Question 3 (Balance Sheet): (related content – topic 4)
How much was the total current assets for the current year and what are the components classified under this heading? Is there any difference in the value of total current assets for each of the previous three years? Can you identify any reason if there are any changes? Discuss. (Hint: you may need to refer to the notes to the financial statements in the annual report to review more detailed information.)
The total current assets of the current year is $ 2,95,10,000 which includes Cash, accounts receivable, prepaid expenses, inventories, NCA held assets, investments and other current assets. Further, it has been found that the total current assets of last 2 years are $ 1,63,08,000 and 3,65,63,000 respectively which express about lesser investment in this year (Annual Report, 2015). The main reason behind these changes is lesser cash and inventories of the company in the current year.
Part 1 – Question 2
Part 2 – Question 4 (Balance Sheet): (related content – topic 4)
What are the items listed under non-current liabilities? Are there any new non-current liabilities in the current year that were not there in the previous three years? (Hint: you will need to look in the notes to the accounts to see the breakdown of non-current liabilities).
According to the balance sheet of the company, noncurrent liabilities of the company are Account payable, long term debt, provisions and other current liabilities of the company. No new current liabilities have been entertained by the company in the current year.
Part 2 – Question 5 (Statement of Profit or Loss): (related content – topic 5)
How much was net profit for the current year? How does this compare to the net profit for each of the previous three years? Can you identify any particular revenues or expenses that may have led to changes in the profit figures over the three-year period? Discuss.
According to the income statement of the company, net profit of the company is -1,22,51,000 which explains about the loss position of the company. Though, the net profit of last 2 years is 12,15,000 and -47,29,000 respectively. It explains that the company is required to make few changes into its operations. The difference among profit and loss of current and last year have occurred due to lesser total revenue in current year and higher operating expenses (Annual Report, 2016).
Part 2– Question 6 (Statement of Profit or Loss) (related content – topic 5)
Is the total revenue in the current year greater or less than the total annual revenue recorded in each of the previous three years? Discuss.
The current year revenue of the company is $ 1,76,95,000 which includes operating revenue and other revenues. The last year revenue of the company is $ 2,30,84,000 and 1,48,45,000 in 2016 and 2015 respectively. The revenue amount of the company is highest in 2016.
Part 2 – Question 7 (Statement of Cash Flows): (related content – topic 6)
How much was the cash flows from operating activities for the current year? What was the largest inflow item and the largest outflow item in the operating activities section? Does this differ from the previous three years? Discuss.
The cash flow statement calculations brief that the operating cash flow of the company is $ -48,53,000 in current year. In the current year, the largest operating inflow of the company was from receipts from customers and largest operating cash outflow was payment to customers.
Part 1 – Question 3
Part 2 – Question 8 (Statement of Cash Flows): (related content – topic 6)
How much was the cash flow from investing activities in the current year? Has the company had any new investing cash flows in the current year compared to the previous three years? If they did, list the activities (Hint: it may be necessary to look in the notes to the accounts).
The cash flow statement of the company briefs that the investing cash flow of the company in current year is $ -19,09,000. The investing cash inflow of the company is “sale of investments”. No new investing cash flows have taken place into the company in last 3 years (Annual Report, 2017).
Part 2 – Question 9 (Statement of Cash Flows): (related content – topic 6)
What was the net change in cash flows in the current year? How does this change compare to the previous three years? Discuss.
The cash flow statement of the company briefs that the net cash flow of the company in current year is $ -74,79000. On the other hand, in 2016 and 2015, the net cash flow of the company was 1,73,74,000 and 54,16,000. These changes in current year have taken place due to high cash outflow in current year.
Part 3 – Question 1 (Profitability): (related content – topic 7)
Has the profit margin changed over the past three years? Is this a good result for the company? Briefly discuss what the change indicates. (Hint:you may like to review your calculations after you have prepared the horizontal and vertical analysis of the Statement of Profit or Loss (Income Statement) and Balance Sheet to assist in your analysis of this ratio.)
The profit margin of last 3 years of the company is -85.94%, 10.45% and -49.50% in 2017, 2016 and 2015 respectively. It briefs that the current profit margin of the company is in negative. It explains that the profitability level of the company is worst in current year and it is required for the company to make few changes into its operations to enhance the revenue and reduce the expenses of the company.
Part 3 – Question 2 (Profitability): (related content – topic 7)
Can you identify a trend in the return on equity ratio over the past three years? Comment on the trend. Briefly discuss possible reasons for this trend.
The return on equity of last 3 years of the company is -48.57%, 4.57% and -22% in 2017, 2016 and 2015 respectively. It briefs that the current return and profitability position of the company is in negative. It explains that the profitability level of the company is worst in current year and it is required for the company to make few changes into its operations to enhance the revenue and reduce the expenses of the company (Annual Report, 2016).
Part 1 – Question 4
Part 3 – Question 3 (Asset efficiency): (related content – topic 7)
Identify if the asset turnover ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.
The asset turnover ratio of last 3 years of the company is 0.3327, 0.2405 and 0.2242 in 2017, 2016 and 2015 respectively. It briefs that the asset turnover of the company has been enhanced in current year. This is not a good result for the company as from now, extra working capital would be required by the company for its daily operations as well as the efficiency of the company would also be hampered.
Part 3 – Question 4 (Asset efficiency): (related content – topic 7)
Has the receivables turnover changed over the past threeyears?Is this a good result for the company? Briefly discuss what the change indicates.
The receivable turnover ratio of last 3 years of the company is 2.39, 1.88 and 1.58 in 2017, 2016 and 2015 respectively. It briefs that the receivable turnover of the company has been enhanced in current year in comparison of last 2 years. This is not a good result for the company as from now, extra working capital would be required by the company for its daily operations as well as the efficiency of the company would also be hampered (Annual Report, 2017).
Part 3 – Question 5 (Asset efficiency): (related content – topic 7)
Has the inventory turnover changed over the past threeyears?Is this a good result for the company? Briefly discuss what the change indicates.
The inventory turnover ratio of last 3 years of the company is 3.79, 5.02 and 5.14 in 2017, 2016 and 2015 respectively. It briefs that the inventory turnover of the company has been reduced in current year. This is a good result for the company as from now, less working capital would be required by the company for its daily operations as well as the efficiency of the company would also be enhanced.
Part 3 – Question 6 (Liquidity): (related content – topic 7)
Has the current ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.
The current ratio of last 3 years of the company is 3.07, 3.81 and 2.04 in 2017, 2016 and 2015 respectively. It briefs that the current ratio of the company has been enhanced in current year. This is not a good result for the company as it indicates about minimum utilization of maximum resources as well as high working capital of the company (Annual Report, 2018).
Financial Statements
Part 3 – Question 7 (Liquidity): (related content – topic 7)
Has the quick ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.
The quick ratio of last 3 years of the company is 2.73, 3.36 and 1.99 in 2017, 2016 and 2015 respectively. It briefs that the quick ratio of the company has been lowered in current year. Though, this is not a good result for the company as it indicates about minimum utilization of maximum resources as well as high working capital of the company
Part 3 – Question 8 (Liquidity): (related content – topic 7)
Has the cash flow (to current liabilities) ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.
The cash flow ratio of last 3 years of the company is -0.50, -.053 and -0.42 in 2017, 2016 and 2015 respectively. It briefs that the cash flow ratio of the company has been lowered in current year. Though, it is not a good result for the company as it indicates about losses and negative cash flows of the company.
Part 3 – Question 9 (Capital structure/Gearing): (related content – topic 7)
Has the debt to assets ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.
The debt to assets ratio of last 3 years of the company is 47.46%, 36.43% and 53.85% in 2017, 2016 and 2015 respectively. It briefs that the debt to assets ratio of the company has been enhanced in current year from last year but has been lowered from 2015. This is a good result for the company as it indicates about lesser risk of the company (Annual Report, 2017).
Part 3 – Question 10 (Capital structure/Gearing): (related content – topic 7)
Has the debt to equity ratio increased or decreased over the past three years? Is this a good result for the company? Briefly discuss what the change indicates.
The debt to equity ratio of last 3 years of the company is 0.903, 0.573 and 1.167 in 2017, 2016 and 2015 respectively. It briefs that the debt to equity ratio of the company has been enhanced in current year from last year but has been lowered from 2015. This is a good result for the company as it indicates about better management of capital and lesser risk of the company.
Part 2 – Question 1
Part 3 – Question 11 (Horizontal Analysis): (related content – topic 8)
Conduct a horizontal analysis of the Income Statement for the past 4 years. Comment on any trends.
The horizontal analysis on income statement of the company briefs that the operating revenue of the company is enhancing currently but the level of other revenues is getting lower day by day. The expenses position of the company briefs about various negative levels of the company as the expenses level of the company is getting higher and due to it, the net profit of the company has been -318%, -16.96%, 291.68% and 171.65% in last 4 years. The trend explains about worst condition of the company in current year from last 4 years. It explains that the company is required to manage the great performance.
Part 3 – Question 12 (Horizontal Analysis): (related content – topic 8)
Conduct a horizontal analysis of the Balance Sheet for the past 4 years. Comment on any trends.
The horizontal analysis on balance sheet of the company briefs that the total current assets of the current year is getting lower due to changes in the cash and inventory of the company. On the other hand, the level of total assets of the company has also been lowered. Further, the total liabilities of the company are explaining about decreasing level of liabilities of the company from last 2 years. It further explains about the various negative changes into the balance sheet of the company (Annual Report, 2015).
Part 3 – Question 13 (Vertical Analysis): (related content – topic 8)
Conduct a vertical analysis of the Income Statement for the past 4 years. Comment on any trends.
Vertical analysis on income statement of the company explains about the changes into the operating expenses, EBITDA, EBIT, interest expenses etc of the company. It indicates that the operating revenue of the company has been lowered from last year whereas the operating expenses of the company has been enhanced due to which the net profit position of the company has been hampered.
Part 3 – Question 14 (Vertical Analysis): (related content – topic 8)
Conduct a vertical analysis of the Balance Sheet for the past 4 years. Comment on any trends.
Vertical analysis on balance sheet of the company explains about the changes into the total current assets, total assets, total noncurrent liabilities, total equity etc of the company. It indicates that the various changes have occurred into the financial position of the company from last 4 years. Level of total current assets has been enhanced whereas total current liabilities have been lower from last 4 years. It further explains about the few changes into the noncurrent liabilities and the equity of the company.
Note: Horizontal and vertical analysis can be used as a point of reference to assist in identifying percentage changes of individual items that appear in the financial statements. When conducting ratio analysis, over a period of time, you may find it easier to not only identify the change in the numerator and denominator of the formula, but to also use horizontal and vertical analysis to identify the individual components that make up the numerator and denominator of the formula.
Part 3 – Question 15 (Trend Analysis): (related content – topic 8)
Conduct a trend analysis of Revenue and Net Profit after Tax and Abnormals in the Profit and Loss Statement for the past 3 years. Comment on any trends.
The trend analysis on income statement of the company briefs that the revenue of the company has been lowered currently and it has affected the entire functions of the company. The net profit after tax and abnormal of the company briefs about various negative levels of the company as the net profit of the company has been lowered by -1108.31% from last year. The trend explains about worst condition of the company in current year from last 4 years.
References:
Bloomberg. (2018). Orbital Corporation. Retrieved as on 2nd April 2018 from: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=325915.
Annual Report. (2018). Orbital Corporation. Retrieved as on 2nd April 2018 from: https://www.orbitalcorp.com.au/asx_announcements/2017-annual-report/.
Annual report. (2016). Orbital Corporation. Retrieved as on 2nd April 2018 from: https://www.orbitalcorp.com.au/wp-content/uploads/2018/02/orbital_annual_report_30_june_2016-2.pdf.
Annual Report. (2015). Orbital Corporation. Reterived as on 2nd April 2018 from: https://www.orbitalcorp.com.au/wp-content/uploads/2018/02/orbital_annual_report_30_june_2015-2.pdf.
Annual Report. (2017). Orbital Corporation. Retrieved as on 2nd April 2018 from: https://www.orbitalcorp.com.au/wp-content/uploads/2018/02/2017-Annual-Report.pdf.
Corporate Governance. (2018). Orbital Corporation. Retrieved as on 2nd April 2018 from: https://phx.corporate-ir.net/phoenix.zhtml?c=81036&p=irol-govHighlights.
Home. (2018). Orbital Corporation. Retrieved as on 2nd April 2018 from: https://www.orbitalcorp.com.au/.
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