Professional Report On An Australian Listed Company – Financial Statement Analysis

Company Name

Every organization needs to use the effective financial management to raise and deploy the funds from the market. It is the process to raise the funds or capital from the market and deploy the same in the business functioning with an objective to create value on the investment. There are several financial tools which could be used to assess the financial performance of company such as ratio analysis, du pont analysis, capital budgeting tool and financial theories. In this report, three years of financial performance of company has been assessed to determine whether company has performed well or negative in market. In the first part of the report, ratio analysis have been used to assess the financial performance of company and after that capital structure of company has been assessed to determine whether company has equilibrium point in its financial leverage and cost of capital. After that, liquidity position of company in the latest financial year has been evaluated to determine whether company would be able to meet its current liabilities or not. In the end, quality of the financial statement has been analysed.

Stockland Corporation is diversified Australian corporation property Development Company which has been running its business on international level.  This company has business in shopping centres, housing estates, industrial estates and retirement vilages. This company has been running its business on international level and all the employees are accustomed to act as per the directions and instruction of its CEO named Mark Steinert. As per the ASX:SGP, the share price of company has gone down and reflected 4.14 AUD −0.035 (0.84%) (Stockland Company, 2017).

Assess the company’s performance over the last three years

The ratio analysis is used to assess the financial performance of company and establish the relation between two financial factors. The below table reflects financial details of company.

Assessment of the financial position of company

This ratio measures profitability of the company. It includes net profit margin, gross profit to sales and return on equity available to equity shareholders of company.  The net profit of company has increased by 3% and resulted to 45% in 2017. It has increased its net profit with the increase in its overall turnover. The gross profit margin has also increased to 19% in 2017 which is 3% higher since 2015. It reflects that company has decreased its overall expenses and increased overall turnover. The return on equity of company has increased to 12% in 2017 which is 2% higher since last three years. It reflects that company has increased overall return available to equity shareholders with the increase in its overall gross profit (Ehiedu, 2014).

This ratio measures company’s ability to deploy its funds in its business activities. this ratio is consists of assets turnover ratio, receivable turnover ratio, inventory turnover ratio and payable turnover ratio (Ehiedu, 2014).

The assets turnover ratio of company has increased by 19 points since last three years which reflects that company has increased its efficiency to deploy funds in its assets to increase the overall turnover. The receivable turnover ratio has increased to 2.90 points in 2017 which is .40 points higher as compared to last three year data. It has reflected that company has created value on the investment. Company has zero level of inventory in its business. Therefore, company has blocked zero investment in keeping the inventory for its business (Stockland Company, 2017).

Company Ticker

The liquidity ratio measures company’s ability to cover its all short term and long term debts out of its available current asset. Company has increased its current ratio to .44 in 2017 which is .15 points higher as compared to last three year data. Stockland company has zero level of inventory in its business which reflects that company has same current and quick ratio (Flannery, 2016).

The capital structure ratio reflects the debt to equity and time interest coverage ratio. This ratio reflects how well company has managed its capital structure to lower down the financial leverage and cost of capital (Grant, 2016).

This ratio reflects how well company has covered its interest out of its earnings before interest and tax. Stockland has increased its time interest ratio to 6.1 points in 2017 which is 3 points higher as compared to last three year data.  It reflects that company has been managing its interest payment very well out of its earning. However, company has to consistently increase its time interest coverage ratio to lower down its financial leverage (Jordan, 2014).

This ratio reflects the debt and equity capital structure of company.  Company has lower down the debt to equity ratio to 76% in 2017 which is 3 % lower since last three years. it has divulge that company has lower down debt portion from its capital structure. It has reflected that company has low cost of capital and high financial leverage in its business (Mwangi, and Murigu, 2015).

Long-term solvency of the company over the last three years

The long term solvency of company determines the sustainability of the organisation in long run. The financial leverage and profitability plays pivotal role in determination of the long term solvency of the company.  It is analyzed that company has kept the debt to equity ratio to 76% in 2017 which reflects that company has kept high debt portion in its capital structure. This high debt capital structure poses high amount of financial leverage to company.  The financial leverage reflects that company might face issue to cover its interest payment out of its available earnings before interest and tax (Stockland Company, 2017).

This reflects that Stockland Company has kept the stable financial leverage which might positively and negative impact the business functioning of organization in long run. It is analyzed that keeping high financial leverage may be profitable for the company if in case it has high profitability in its business. It will be easy for the organization to cover its interest payment out of its high profitable business. Nonetheless, in case of sluggish market condition, Stockland Company might face issue related to covering its interest payment when it would have low amount of profitability from its business since last three year, company has kept its debt to capital ratio near to 79% which has lower down to76% in 2017. In addition to this, financial interest charges of company are also very high in all three years. However, the long term solvency of company is positive due to the increased profitability throughout the time (Baños-Caballero, García-Teruel, and Martínez-Solano, 2014). Therefore, after assessment of these available information, it could be inferred that Stockland company has good long term solvency ratio which reflects that company will survive in long run due to its increased profitability and low cost of capital.  As per the financial leverage theory of company, it is divulged that company needs to establish the equilibrium between its cost of capital, deb portion capital and profitability of company. Managers of Stockland need to identify the point or capital structure at which company could have good profitability, low cost of capital and low financial leverage (Tseng, and Chiang, 2016).

Student Name

Assess the liquidity position of the company as at the latest financial year

The liquidity position of company reflects how well company has been maintaining the liquidity position. It reflects the capital and cash and other cash equivalents which company has been managing in its business. In order to assess the liquidity position of company, there is need to assess the current ratio and quick ratio of company. In addition to this, working capital is also assessed with a view to determine how much capital company has invested in the operating activities of organization (Weygandt, Kimmel, and Kieso, 2015).  The liquidity position of company should be based on the nature of the business, demand and complexity of the undertaken strategies. However, company should keep high liquidity position by investing more capital in its current asset .

It is analyzed that he liquidity ratio measures company’s ability to cover its all short term and long term debts out of its available current asset. Company has kept high amount of investment in its current assets with a view to meet its client’s demand in short term and long term. After assessing the balance sheet of company, there are following information have been extracted (White, Sondh, and Fried, 2015).

This ratio reveals Stockland’s ability to manage its short term and long term debts out of the available current assets. It has been observed that Company has increased its current ratio to .44 in 2017 which is .15 points higher as compared to last three year data.

The quick ratio reflects immediate cash position or liquid cash which company could use to meet its short term and long term debt. It is observed that Stockland Company has zero level of inventory in its business which reflects that company has same current and quick ratio (Delen, Kuzey, and  Uyar, 2013).

This above given calculation has reflected that company has kept high good amount of liquidation in its operation. It is considered that on the basis of last three year data and market factors, company might have high demand of its products and services offered in market. Therefore, keeping the high liquidation in the process is very much required to meet the client’s demand in long run (Williams, and Best, 2014).

After assessing the other details and data of market, it is inferred that company needs to keep its liquidation high by keeping the high investment in its current assets. The working capital of company should be adequate enough which could assist Stockland to meet its current and future demand of clients in long run (Wong, and Li, 2015).

Discuss the quality of financial statement

Stockland Company has been running its business on international level and listed on several stock exchanges. It has been observed that company has been following the IFRS rule and standards while preparing the financial statements of company. Stockland Company has followed international reporting frameworks to report its financial statement with the reporting authorities on international level and kept its business and financial transactions more transparent. It has been assessed that quality of financial statement could be assessed by evaluating the auditors comment and evaluating the auditor’s report on the prepared financial statements (Babalola, and biola, 2013). As per the annual report of company, it is considered that company has created impairment loss of AUD $ 224 million in its business. As per the IAS- 136 of the IFRS rules and standards, it is considered that company has yearly booked the impairment loss in its books of account to match the book value of the assets with its market value. All the financial statements of company have been prepared as consolidated financial statements. The quality of financial statement has been kept high by strengthen the transparency of the all the details and financial statements (Zhang, and Zhang, 2014). The directors and managers are accountable for preparation and authorisation of financial statements and responsible for ensuring the integrity and quality of the financial reporting. In order to strengthen the quality of the financial statement, directors and managers have issued management representation latter with tis financial statements (Brigham, Ehrhardt, Nason, and Gessaroli,  2016).

Ratios

Furthermore, the quality of the financial statements is also based on the shared imperative information in the financial statements. Stockland Company has shared all the required details and imperative information which may be price sensitive to its investors. This type of practice not only curbs the insider trading practice in organization but also lower down the financial fluctuation in its stock price.  Stockland Company has presented all its financial information in accordance with the generally accepted accounting principles. In addition to this, auditor’s plays play important role in improving the quality of the financial reporting. In the latest shared financial statement of company, auditors have given qualified report on the disclosed information in the annual report. It divulges that company has complied with the all the applicable rules and regulations while preparing the financial statement. Nonetheless, in the contrary to its domestic and international regulatory compliance program, company has complied with the IFRS rules and standards while preparing the financial statements. It has not only strengthened the transparency of its business transactions but also increase its overall brand image on international level.  The financial management authority has also cut down the immaterial details from the financial statement of company to increase the quality of its shared financial statement. It is analyzed that the clear, concise, and effective financial information helps investors to make the better-informed investment decisions (Stockland Company, 2017). Therefore, now in the end, it could be inferred that the quality of the financial statement prepared by company is very good and it is already backed by the auditors comment an qualified report.

Conclusion

After assessing the annual report and financial statement of company, it could be inferred that company will have sustainable business practice. It has been observed that Stockland Company has kept the stable financial leverage which might positively and negative impact the business functioning of organization in long run. It is analyzed that keeping high financial leverage may be profitable for the company if in case it has high profitability in its business and if the profitability of company is not adequate enough to cover the interest payment then company may go in winding up. Now in the end, it could be inferred that company should maintain the effective debt to equity ratio and liquidity position should also be adequate enough to cover the market demand of the organization.  The quality of financial statement of company could also be increased if company follow the proper IFRS rules and regulations in its reporting frameworks.

References

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

Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), pp.332-338.

Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment: Theory and Practice, Canadian Edition. Nelson Education.

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

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Flannery, M.J., 2016. Stabilizing large financial institutions with contingent capital certificates. Quarterly Journal of Finance, 6(02), p.1650006.

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Jordan, B., 2014. Fundamentals of investments. McGraw-Hill Higher Education.

Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).

Stockland Company, 2017, Annual report. [Online]., Available at https://www.stockland.com.au/investor-centre/reports-and-presentations, , [Accessed 19^th, July, 2018]

Tseng, F.M. and Chiang, L.L.L., 2016. Why does customer co-creation improve new travel product performance?. Journal of Business Research, 69(6), pp.2309-2317.

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

White, G.L., Sondh, A.C. and Fried, D., 2015. Analysis of Financial Statement. Analysis.

Williams, K.M. and Best, G., 2014. Short study tours abroad: Internationalizing business curricula. Journal of Teaching in Travel & Tourism, 14(3), pp.240-259.

Wong, I.A. and Li, X., 2015. Destination services and travel experience in the gaming Mecca: The moderating role of gambling as a travel purpose among Chinese tourists. Journal of Travel & Tourism Marketing, 32(1-2), pp.80-99.

Zhang, C. and Zhang, J., 2014. Analysing Chinese citizens’ intentions of outbound travel: a machine learning approach. Current Issues in Tourism, 17(7), pp.592-609.

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