Profitability
Discuss about the Contemporary Environmental Accounting Issue Concept.
The current report is based on drawing a comparative analysis of Tamawood Ltd, KS Corporation Ltd, Orbital Group and Yowie Group Ltd. The report would be placing focus on the profitability, liquidity, asset efficiency and gearing ratio for the four companies and a conclusive evidence would be drawn to provide appropriate recommendations on investment. The report would also be providing limitation of the analysis.
Profitability ration can be defined as the ratio that are regarded as the financial metrics to evaluate the ability of the business to derive earnings in comparison to the expenditure and other relevant costs that are incurred during the particular period of time (Scott, 2015). Under the profitability ratio for the Orbital Group gross profit margin ratio has been considered where the profit margin for the over the period of three years stood negatively except for the year 2016 where the company reported a profit of 10%.
The profit margin for the KS Corporation Ltd stood better as company reported a positive profit margin throughout the three-year span. Yowie group reported a strong net profit during three-year span. The profit margin for the stood relatively lower as the company reported profit of 7.11% and 7.40% in the year of 2016 and 2017 respectively. Based on the on the overall analysis of the profitability of the four listed companies the profit for the Yowie group stood relatively strong. Throughout the three year span the net profit margin stood 51.9% and 37.47% respectively which signifies that Yowie Group has better managed its operating costs.
The liquidity ratio can be defined as the ratio that is used to compare the current asset of the company with the current liabilities in order to determine whether the company has sufficient amount of funds to meet its short term debt obligations (Schaltegger & Burritt, 2017). The current ratio is considered as the most liberal form of ratio to gauge into solvency position of the company. The current ratio reported by the Orbital group stood strong over the span of three years as the ratio represented a rising trend in three-year span. The current ratio for the orbital group stood 3.81 and 3.07 during the financial year ended 2016 and 2017 respectively.
Comparatively the current ratio for the KS Corporation stood low during the three-year span as the company reported a current ratio of 0.74 and 0.80 respectively for the year 2017 and 2018. The current ratio for the Tamawood stood Ltd stood 2.56 and 2.47 during the financial year of 2016 and 2017 which represented that the company has sufficiently met its debt obligations both in the long run and short run.
Liquidity
The Yowie Group on the other hand reported much strong current ratio than its peers. As evident the current ratio for the Yowie Group stood 13.22 whereas for the financial year of 2017 the current ratio for the company stood 11.91%. This signifies that the company has sufficient amount of fund to meet its solvency position both in the long run and in the short. On a conclusive note it can be stated that the current ratio of Yowie group stood relatively higher than the other three companies that are taken for comparative study.
The efficiency ratio can be defined as those ratios that is used to assess how better the organization has been using its assets and liabilities internally (Williams, 2014). The efficiency ratio is largely used to measure the ability of the company to use its assets and administers its liabilities effectively. Under the efficiency ratio the asset efficiency ratio is used to gauge into the efficiency position of the firm. As evident a comparative analysis of the ratio is conducted among the four companies to arrive at the conclusion as to which company has better used its assets in comparison to its liabilities.
The orbital Group reported an asset turnover of 23% during the financial year of 2015 which subsequently increased to 24% in the year 2016. The ratio gained significantly in the following year to stand at 34%. On the other hand, asset turnover ratio for KS Corporation Ltd stood relatively lower as the company reported an asset turnover ratio of 1.40 in 2016 while in 2017 the ratio gained marginally to stand at 1.62. The asset turnover for the Tamawood Ltd represented a declining trend over the period of three-year span as the ratio for the company stood 5.17 during the year 2015 which subsequently declined to 4.81 in the 2016. However, in the following year of 2017 the ratio gained marginally to stand at 4.87%.
Moving on to the Yowie Group the asset turnover ratio for the company stood 17.79% during the year 2015. The asset turnover ratio for the Yowie Group over the three-year span reported a significantly rising trend as the ratio has gained significantly than its peers. This represents that sales revenue that is generated by the Yowie Group is relative to its assets. On conducting a comparative analysis of the asset turnover ratio it can be stated that Yowie group has reported a higher current ratio than KS Group, Orbital and Tamawood. The asset turnover ratio for Yowie is significantly on the higher side reflecting that the company has better ability to generate sales revenue from its total assets.
Asset Efficiency
The gearing ratio can be defined as the ratio that is used to perform the fundamental analysis of the ratio in comparison to the long term debt of the company in respect to its capital employed (Warren & Jones, 2018). The gearing ratio can be defined as the point when the amount of debt of the organization is undertaken in contrast with its equity. the debt to equity ratio is mainly used as the performance analysing tool under the gearing ratio. A business that has gearing ratio of 50% is traditionally held as the highly geared business with appropriate capital structure. Under the gearing ratio debt to equity ratio has been computed to understand capital structure employed. Under the debt to equity ratio the debt to equity ratio for the four companies have been undertaken.
The Orbital group reported a debt to equity ratio of 1.17 during the financial year of 2015 while in the following year of 2016 ratio stood evenly balance as the debt to equity ratio stood 0.57. However, in the following year of 2017 the debt to equity ratio increased to 0.90. The debt to equity ratio for KS Corporation stood 0.82% while in 2016 the ratio increased to stand at 1.23. In the following year of 2017 the debt to equity ratio further increased to stand at 1.37 for the KS Group. An assertion can be bought forward by stating that the structure of capital is not evenly balanced as the company has higher proportion of debts than the capital employed. Tamawood Ltd on other hand reported a debt-to equity ratio of 0.80 for the year 2016 while in 2017 the ratio marginally increased to 0.85.
Yowie Group Ltd reported a relatively lower debt to equity ratio over the span of three years. The ratio for the company of 0.09% in 2015. While in the following year the ratio reported by the Yowie Group ltd stood as low as 0.06% and 0.07% respectively. The capital structure of the company does not represent a strong trend.
Based on the comparative analysis an assertion can be bought forward by stating the gearing ratio for the Tamawood Ltd stood relatively better than its peers. As in the final year of 2017 the ratio stood 0.85 while other companies reported relatively higher amount of debt.
The information that is used in the analysis was derived from the historical and actual results. This does not signify that the same would be carry forward in future. The limitation lies in the information presented in the balance sheet is based on current costs while certain elements on the balance sheet might be stated on the historical costs. Such disparity results in uneven results of ratio. Other factors such as inflation are ignored which means that the numbers might not be comparable across the period.
On a conclusive note a recommendation can be provided by stating that Yowie Group Ltd is relatively better than the three other company as the company reported strong liquidity, profitability and asset efficiency ratio. Though Tamawood Ltd reported strong gearing ratio but the overall performance of the Yowie Group stood relatively strong from the perspective of investment.
Conclusion:
On a conclusive note the findings from the result represents that the Yowie group from the perspective of investment is regarded as the better company to make investment. The ratios computed provides a conclusive evidence that the company has better managed its assets and in proportion to its liabilities. In terms of profitability the gross profit of the company stood stronger than its peers with relatively higher net profit margin. Furthermore, the asset turnover ratio stood higher reflecting that the company has better ability to generate sales revenue from its total assets. Therefore, investing into the shares of Yowie Group Ltd would provide the investors with better opportunity for making a stronger portfolio.
Reference List:
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.
Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.
Williams, J. (2014). Financial accounting. McGraw-Hill Higher Education.
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