Financial Analysis Of Tasfoods Ltd For Investor Decision Making

Overview of Tasfoods Ltd

Discuss about the Financial Analysis of TasFoods.

The present report is developed to conduct the financial analysis of Tasfoods Ltd for facilitating the investor for decision-making. In this context, the report is developed to provide advice to a potential investor seeking to make an investment in the firm. The financial analysis has been carried out on the basis of the annual report to facilitate the investors in their decision-making process. The report has covered the following aspects to provide a solid base for decision-making of the investors. This includes providing an overview of the selected company and its operations, critical analysis of its corporate social responsibility reporting, calculation of the results of financial statement ratio analysis and providing an interpretation of the ratios for guiding the investor in decision-making.

TasFoods Limited is an ASX listed entity that is extremely focused on production of cream, butter and dairy products.  It is also actively involved in processing, manufacture and sale of agricultural and food products. The company consists of following major segments that are, dairy cream segment, poultry segment and other segments. The company vision is to create a reputable source of high quality and innovative food products for achieving customer satisfaction. Its mission statement is to become a global leader in providing Tasmanian sourced food products. The company has developed a competent team of business leaders having wide range of experience in the agriculture and food sector. The company is involved actively in making investments and has acquired Meander Valley Dairy branded food products business in the year 2015. The company’s strategic intent is to acquire and develop a portfolio of premium branded food products. It aims to achieve its strategic priorities by gaining expansion into new product categories, developing innovative products and expanding its business in the domestic and international level (TasFoods Limited: About the Company, 2018).

The competitive advantage of the company is developing premium quality product and meeting the customer demand for fresh food products. It is aiming to sustain its competitive advantage by developing an efficient and agile business process and systems. The company in order to attain this is actively promoting capital investment in improving the process efficiency and ensuring food safety. It is also actively seeking investment in management expertise for promoting the development of food safety systems. It also strives to provide quality products and services for the customers and is actively involved in identification of new sales opportunities to increase the product sales. It also aims at developing innovative agriculture and food products by continuous investment in research and development. Also, the company places emphasis on developing a work culture that aims to attain employee empowerment and to provide the best place to them for working in agribusiness (TasFoods Limited : Annual Report, 2018).

Corporate Social Responsibility Reporting

The company has adopted a continuous disclosure policy in order to provide relevant information to the stakeholders about its financial and non-financial performance. The non-financial performance of the company includes information in relation to social and environmental performance. The company has developed adequate policies and procedures for promoting the welfare of its employees, contractors and other people. The Code of Conduct of the company has adequate policies within the workplace for ensuring that adequate safety laws are undertaken by the company for ensuring work safety. The Board is highly committed for developing a workplace that places emphasis on maintaining a diversity that helps in achieving the growth and development of the company (TasFoods Privacy Policy, 2018). TAS has became a B Corporation in the year 2013 which means it has certified effectively with the rigorous standards of social and environmental performance, accountability and transparency. The company is also listed on the Social Venture Exchange (SVX) that can be regarded as a platform for establishing a link between the investors and the social and environmental performance. It has become one of the initial 12 companies on SVX for the purpose of providing in-depth information relation to the company social and environment concerns to the investors.

The company is attributed to be major supplier of Coles and Woolworth and as such places large emphasis on development of long-term relationship with the suppliers and the consumer. The food products produced by the company are regarded to be fundamental part of the lives of broader social communities in Australia (TAS: Social Impact, 2018). It’s Food and Nutrition Policy is developed mainly for achieving the objectives and challenges that aims at promotion of food as a valuable export commodity by ensuring its access to healthy and affordable local food supply. It has also obtained Food Safety and Quality Accreditation for ensuring that its food products are safe for the consumers. As such, the company is highly committed for the production of quality, healthy and safe food as per the sustainable policies in order to promote the healthy and well-being of population of the country at large. The company has implemented 100% green energy with Bullfrog Power for reduction in the power consumption in its head office and also for minimizing the pollution.  The energy is mainly generated from the use of wind and hydro facilities that are certified with EcoLogo. It is an environmental standard verification program that was mainly developed by Environment Canada for ensuring that the company is acting as per the standard environment rules and regulations (TasFoods Limited: Environment, 2018).

Financial Statement Ratio Analysis

In order to make the financial analysis of Tasfoods it has been decided to conduct the ratio analysis for the last three years. Ratio analysis refers to the quantitative analysis of the financial information present in the financial statements of the company. The main purpose of the ratio analysis is to evaluate the various aspects of a company financial and operating performance like profitability, solvency, liquidity, operating efficiency and market efficiency. Ratio analysis can be done of same companies for different years and also comparison can be made of two companies belonging to same industry. In this report ratio analysis of Tasfoods Limited will be done has been conducted for year 2015, 2016 and 2017.

(Annual report 2015, 2016 and 2017: TasFoods Limited)

Profitability ratios refer to the application of financial metrics that helps to assess the business ability to earn the revenue as compared to expenses and other costs. Profitability is measured for a particular period say one year. To measure the profitability of a company, ratios like net profit ratio, return on assets, return on equity and gross profit ratio are being calculated. Profitability measurement of Tasfoods Limited has been done and results are shown in above table.

• Net Profit Margin: This ratio is also called as return on sales as it measures the amount of net income that has been earned on each dollar of sales. It is calculated in percentage through comparing the net income and net sales occurred in same period. Net profit reflects the ability of company to use resources for earning the enough revenue that covers all the expenses occurred in the company. On looking at the above table it has been found that Tasfoods has suffered a net loss in all three years. So it can be said that profitability of the company was not sufficient to meet the requirement of the company (Brigham and Michael, 2013).
• Return on Assets: Return on assets is also known as return on total assets as it provides profitability percentage on total assets. This ratio tells the amount of net income produced by the company using the total assets of the company. It is calculated through comparing the net income to the total assets of the company. The return on assets of Tasfoods Limited was negative 62.48% in year 2015 and in years 2016 & 2017 there was some improvement but still return on assets was negative in last two years (Annual report 2015, 2016 and 2017: TasFoods Limited).
• Return on Shareholder’s Equity: Return on equity is the most important profitability ratio form the investor point of view. It measures the ability of a company earn the revenue using the shareholders investment made in the company. It can be seen that TasFoods has been going through bad times as there has been net loss in last three years. In year 2015, company has reflect negative 75.73% return on equity that has turned down by some percentage but still it was in year 2016 and 2017.

Recommendation to Investor: On the basis of overall profitability of the company during the last three it is highly advised to not invest in TasFoods Limited. It is because company has been suffering from heavy loss and it is continuously increasing.

Efficiency ratios are mainly used to analyse how company is using assets and liabilities to generate the revenue. It shows the ability of the company on how efficiently it utilizes its resources to earn the required revenue. Some of the important efficiency ratios are asset turnover ratio, inventory turnover ratio and receivable turnover ratio (Damodaran, 2011).

• Asset Turnover ratio: Asset turnover ratio is type of efficiency ratio that is used to measure the company’s ability to generate the amount of sales using the assets of the company. This ratio tells the investors how efficiently company uses its assets to earn the desired sales revenue. Asset turnover ratio of TasFoods was 0.37 times in year 2015 that indicates company earned utilized only some part of assets to earn the sales and rest assets are remained unutilized. Asset turnover ratio in year 2016 was 0.41 and it got increased to 0.76 in year 2017 but it was not sufficient to prove that company is utilizing its assets in effective manner.
• Inventory Turnover Ratio: This ratio shows that how effectively company manages its inventory to turn them into cost of goods sold. This ratio is calculated by comparing cost of goods sold with average inventory for a particular period. In short it can be said that this ratio tells how many times company has sold average inventory dollar amount during a period. Inventory turnover ratio of TasFoods was very high in year 2015 as company has very less inventory in year 2015 while it was less in year 2016 and 2017 as inventory has increased significantly in these years (Annual report 2015, 2016 and 2017: TasFoods Limited).
• Receivable turnover ratio: Receivable turnover ratio is type of efficiency ratio that measures the number of times business turns the accounting receivable in cash. This ratio tells how many times business collects average account receivable in a period. It shows efficiency of company to collect the credit sales from the customers. On looking at the above table it was found that accounts receivable turnover of TasFoods has been increasing in years 2015, 2016 and 2017. In year 2017 it was 11.12 times that indicates that company is not able to collect the cash from their customer very efficiently (Davies and Crawford, 2011).

Recommendation to investor: The efficiency ratios of TasFoods are not favorable and it shows company has not been working very efficiently. So, investors are informed that they should invest in this company until the company made required changes to be efficient enough.

Short term solvency ratios are also called as liquidity ratios. Liquidity ratios measure the ability of company to meet the short term expenses or liabilities. It can be said that these ratios help to find out whether company is going through the financial distress in short run or not. Some of the important solvency ratios are current ratio and quick ratio.

• Current Ratio: Current ratio measures the ability of the company to meet the short term liabilities through using the current assets. This ratio reflects that how company will meet their short term obligations that will arise in next year. Current ratio of TasFoods was 3.92 times in year 2015 that reflects very strong liquidity position or it can be said that company has not been using current assets to generate the required funds. In year 2017, this ratio has been decreased to 2.56 times that indicates that company has still enough assets to meet the short term liabilities but presence of enough current assets creates the potential financial distress on company performance and proves that it fails to convert the available assets into sales revenue that causes them to suffer a major loss in last three years (Firer, 2012).
• Quick Ratio: This ratio is important measure of liquidity position of the company but it does take into consideration assets that are not easily convertible into cash and cash equivalents. This ratio measures the company ability to meet the liabilities through using only quick assets. Quick assets refer current assets less prepayments and inventory as they cannot be converted into cash and cash equivalent easily. It has been found that TasFoods maintains very high quick ratio in last three years that give a clear indication that company has not been able to collect the account receivable on time and it is accumulating year by year. Still company maintains enough cash resources to meet the short term obligations arising next year (Annual report 2015, 2016 and 2017: TasFoods Limited).

Recommendation to Investor: Tasfoods has very good liquidity position during the last three years that indicates that company can meet the current liabilities on time. One thing that investor must focus on it is that account receivable has been accumulating year by year which cause increase in current assets.

Long term solvency ratios are used to measure company ability to meet the long term debt. These ratios mainly provide the capital structure position of the company to fund the assets of the company. If company maintains very high debt capital as compare to equity capital than it mean company is highly leverage and depends on other funds to buy required assets.

• Debt to Equity ratio: This ratio measures amount of debt capital against the equity capital. Tasfoods has no debt in year 2015 and it completely depends upon owners funds to finance the assets of the company. Company has raised some debt capital in year 2016 and 2017 but amount raised was very low as compared to equity capital (Higgins, 2012).
• Debt to total Assets: This ratio shows proportion of assets acquired using the debt capital as the source of funds. It is calculated as debt capital divided total assets. On the basis of analysis it has been found that Tasfoods used very minimal amount of debt capital to finance the assets (Annual report 2015, 2016 and 2017: TasFoods Limited).

Recommendation to Investor: Long term solvency position of Tasfoods has been highly strong as company uses very little debt capital as the source of funds and mainly dependent on the equity capital to finance the assets required.

Market analysis reflects how company represent themselves in the market. Ratios like earnings per share, dividend yield, price earnings ratio and earning yield helps to find out company position in the market.

• Price/Earnings ratio: This is market prospects ratio that calculates the market value of a stock as compared to the earnings of the company. It helps the investors to seek the fair market value of the company and also helps in making the effective investment decision. As company has suffered a major loss during the lasts three year it is not right time to make invest in the company (Deegan, 2013).
• Dividend Yield: Tasfoods has paid dividend in year 2015 and provided a dividend yield of 30.51%. It shows that company’s market position is not strong enough to attract the investors for investment purpose (Annual report 2015, 2016 and 2017: TasFoods Limited).

Recommendation to investors: It has been suggested to investors to not to invest in this company as it very poor market condition.

Conclusion

It can be concluded from the overall analysis of financial performance carried out for TasFoods Ltd that the investors should not select to invest in the company. This is because it is predicted on the basis of its present poor financial performance that it’s potential of future growth and development is not good and so it is doubtful that it will provide good financial returns in the future context.

On the basis of overall ratio analysis it is right to say that TasFoods is not the right choice to make investment as company has been suffering losses and it fails to provide returns to their investors.

The major drawback of the method of financial ratio analysis is that financial statements provide financial results on the basis of historical information. As such, the financial outcomes realized does not depict the actual financial position of a company and therefore not useful for future prediction. It is also not possible to compare the financial performance of two companies on the basis of ratio analysis if they are of different size and nature. The financial results achieved by the use of ratio analysis do not provide a complete picture of the financial performance of a company (Brealey, Myers and Marcus, 2009). This is because the interpretations obtained from the ratios are not considered in context of other factors such as government policy, economic conditions and availability of resources.

References

Annual report 2015: TasFoods Limited. [Online]. Available at: https://www.tasfoods.com.au/reports/ [Accessed on: 18 May 2018].

Annual report 2016: TasFoods Limited. [Online]. Available at: https://www.tasfoods.com.au/reports/ [Accessed on: 18 May 2018].

Annual report 2017: TasFoods Limited. [Online]. Available at: https://www.tasfoods.com.au/reports/ [Accessed on: 18 May 2018].

Brealey, R., Myers, S.C. and Marcus, A.J., 2007. Fundamentalsof Corporate Finance. Mc Graw Hill.

Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage Learning.

Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Firer, C. et al. 2012. Fundamentals of Corporate Finance. 5th Edition. McGraw-Hill Companies, Inc.

Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

TAS. 2018. Social Impact. [Online]. Available at: https://www.tasdesignbuild.com/social-impact/ [Accessed on: 18 May 2018].

TasFoods Limited. 2018. Annual Report. [Online]. Available at: https://www.tasfoods.com.au/reports/ [Accessed on: 18 May 2018].

TasFoods Limited. 2018. Environment. [Online]. Available at: https://www.tasfoods.com.au/#the-strategy [Accessed on: 18 May 2018].

TasFoods Limited: About the Company. 2018. [Online]. Available at: https://markets.ft.com/data/equities/tearsheet/profile?s=TFL:ASX [Accessed on: 18 May 2018].

TasFoods Privacy Policy. 2018. [Online]. Available at: https://docs.google.com/gview?url=https://www.blackmarketing.online/downloads/tasfoods/TasFoods_Privacy_Policy.pdf&embedded=true [Accessed on: 18 May 2018].

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order