Financial Ratio Analysis Of Firms

Overview of Event Hospitality and Entertainment Limited

Dsicuss about the Financial ratio analysis of firms.

It is identified from the analysis that the company operates through the following sectors – Entertainment New Zealand, Entertainment Australia, Entertainment Germany, Thredbo Alpine Resort, Property and Other Investments and Hotels and Resorts. Analysing the income statement of the company it is identified that total revenue of the company over the last 4 years are in increasing trend and the total expenses of the company including the finance cost over the last 4 years are in increasing trend. However, the net profit of the company till the year 2016 was in increasing trend and it reduced by almost 15% in 2017. Overall profit earning capability of the company in the year 2017 has been reduced as compared to the year 2016 as all the profitability ratios like return on equity, return on assets and net profit margin were in decreasing trend. The overall liquidity position of the company has been significantly reduced from 2017 to 2016 as both current ratio as well as quick ratio of the company has been significantly reduced in 2017 as compared to 2016.

Event Hospitality and Entertainment Limited is the Australian company that is engaged in the operation of hotels, resorts and cinemas in Australia, Germany and New Zealand. Initially the company was known as Amalgamated Holdings Limited. It is the proud Australian company that is carrying on its operation for more than 100 years and set an amazing example with regard to the leisure, hospitality and entertainment. The company operates as the holding company and provides services through the subsidiaries for providing tourism, hospitality and entertainment services. The company operates through the following sectors – Entertainment New Zealand, Entertainment Australia, Entertainment Germany, Thredbo Alpine Resort, Property and Other Investments and Hotels and Resorts. The segment of Entertainment Australia offers the cinema exhibition that is operated in Australia, state theatre and technology equipment servicing and supply. Further, the Entertainment New Zealand sector offers cinema exhibitions that are operated in Fiji and New Zealand. The resorts and hotels sector offers the management, ownership and operation of the hotels in overseas and Australia (Event Hospitality & Entertainment, 2018). The strategic plan of the company includes includes the future expansion that is depended on the political, economic and industrial conditions, expected impact of the global events, available capital and financial performance of the company for the upcoming years. it is expected that the strategies of the company will continue to change and evolve the responses of the factors and therefore, there may be no absolute assurance that will be achieved through the strategies of the company.

Trend Analysis

From the trend analysis of the income statement of the company for the year ended 2014, 2015, 206 and 2017 and taken the year 2014 as the base year it is observed that the total revenue of the company over the last 4 years are in increasing trend and the revenue has been increased from $ 109,71,38,000 to $ 129,42,69,000 over the years from 2014 to 2017 (Carraher & Van Auken, 2013). Further, it is found that the total expenses of the company including the finance cost over the last 4 years are in increasing trend and the expenses have been increased from $ 988,259,000 to $ 113,96.32,000 over the years from 2014 to 2017. However the net profit of the company till the year 2016 was in increasing trend and it reduced by almost 15% in 2017. The main reason behind this is that the percentage of increase in expenses was more as compared to the percentage increase in revenues. The profit of the company increased from $ 78,563,000 to $ 110,819,000 over the period from 2014 to 2017 (Hoyle, Schaefer & Doupnik, 2015). The major expenses of the company during the last 4 years were the employee expenses, occupancy expenses and the expenses related to hiring the film and other expenses related to film. The employee expenses increased from $ 250,636,000 to $ 308,536,000, the occupancy expenses increased from $ 241,713,000 to $ 256,145,000 and the expenses related to film increased from $ 223,777,000 to $ 244,231,000 over the last 4 years period from 2014 to 2017. Therefore all the major expenses of the company for the last 4 years were in increasing trend (Minnis & Sutherland, 2017). However, it can be stated that the profitability position of the company was strong and stable as the net profit percentage has been increased to 141.06% over the last 4 years.

Analysing the income statement of the company for the year ended 2017 it is observed that the total operating expenses of the company including the finance cost was 88.05% of the total revenue. Out of the total expenses of the company the major expenses hat is the employee expenses was 23.84% of the revenues, occupancy expenses was 19.79% of the total revenue and film hire and film related other expenses was accounted for 18.87% of the total revenue (Brooks, 2015). The profit before tax for the company was 12.16%. Further, the tax expenses of the company for the year ended 2017 was 3.59% of the revenue that led to net profit of 8.56% for the year 2017.

Vertical Analysis of Profit and Loss Statement

Analysing the balance sheet of the company for the year ended 2017 it is observed that out of the total assets of the company, 10.89% is current assert and 89.11% is non-current assets. Major component of non-current asset is the plant, property and equipment and it is accounted for 75.64% of company’s total assets. Out of the total liabilities of the company 33.36% is current liability and 2.46% is non-current liability (Klettner, Clarke & Boersma, 2014). That is to say out of total liabilities and equity 35.81% is liabilities and 64.19% is equity. Major component of current liabilities is loans and borrowings that are accounted for 19.89% of company’s total equity and liabilities. It is further found that the current liabilities of the company is more as compared to the current assets that signifies that the current assets of the company is not sufficient to pay off the short-term obligations (Gitman, Juchau & Flanagan, 2015). However, the company is financially stable as the total liabilities of the company are less than its equity that signifies that the company is lower leveraged.

• Return on equity – this is the income returned percentage on the equity of the shareholders (Han, Yang & Zhou, 2013). It states the ability of the company to generate profit with the investment of the shareholders. It can be observed that the ROE of the company is in decreasing trend and it is reduced to 10.74% from 13.19% over the years from 2016 to 2017.
• Return on assets – it signifies the efficiency of the management in generating earnings through using its assets (Wahlen, Baginski & Bradshaw, 2014). The ROA of the company is in decreasing trend and it decreased to 7.09% from 9.22% over the years from 2016 to 2017.
• Net profit margin – it states the profit of the company generated from the sales after paying off all the operating expenses and interest and tax expenses (Weygandt, Kimmel & Kieso, 2015). It is identified that the net profit margin of the company is in decreasing trend and it has been reduced to 8.87% in 2017 from 10.17% in 2016.

Therefore, it can be stated that the overall profit earning capability in the year 2017 has been reduced as compared to the year 2016.

• Current ratio – current ratio states the ability of the company to meet the short-term obligation when they become due with the available short-term assets of the company like cash, receivables and inventories (Babalola & Abiola, 2013). It is identified that the current ratio of the company significantly reduced to 0.33 in 2017 from 0.96 of 2016.
• Quick ratio – like the current ratio this ratio also measures the liquidity position if the company (Delen, Kuzey & Uyar, 2013). The only difference among the 2 is that quick ratio does not take into consideration the assets that take quite sometimes to get converted into cash like the inventories. It is identified that the quick ratio of the company significantly reduced to 0.29 in 2017 from 0.82 of 2016.

Therefore, the overall liquidity position of the company has been significantly reduced from 2017 to 2016.

Reference

Babalola, Y.A. & Abiola, F.R., (2013). Financial ratio analysis of firms: A tool for decision making. International journal of management sciences, 1(4), pp.132-137.

Brooks, R. (2015). Financial management: core concepts. Pearson.

Carraher, S., & Van Auken, H. (2013). The use of financial statements for decision making by small firms. Journal of Small Business & Entrepreneurship, 26(3), 323-336.

Delen, D., Kuzey, C. & Uyar, A., (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.

EVENT Hospitality & Entertainment. (2018). Home – EVENT Hospitality & Entertainment. [online] Available at: https://www.evt.com/ [Accessed 12 May 2018].

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.

Han, Y., Yang, K. & Zhou, G., (2013). A new anomaly: The cross-sectional profitability of technical analysis. Journal of Financial and Quantitative Analysis, 48(5), pp.1433-1461.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.

Klettner, A., Clarke, T. & Boersma, M., (2014). The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.

Minnis, M., & Sutherland, A. (2017). Financial statements as monitoring mechanisms: Evidence from small commercial loans. Journal of Accounting Research, 55(1), 197-233.

Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Nelson Education.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.

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