Analysis Of Domino’s Pizza, G8 Education, And Navitas Limited Financial Statements

Domino’s Pizza Enterprise Limited

Domino’s Pizza Enterprise Limited is involved in operation of the retail foods and franchise services. Different segments of the company include New Zealand, Australia, Japan and Europe. The entity is the franchise for Domino’s Pizza brand all over the world. Various menu served by the company are prawn and chicken pizza, pizza mogul, traditional pizza, crusts, pizza chefs, chef’s best and gluten free pizza. Further, the customers are availed with the facility of ordering online. It operates in 7 nations from more than 2000 stores (Dominos.com.au 2019).

G8 Education Limited is largest child care centre that is listed under ASX and operates in Australia. The company aims to be the leading provider of the high quality educational and developmental service centre for child care. The company was established in the year 2006 and it brought together the team with dedicated professionals that drive high quality educational and developmental child care services in Australia (G8 Educatio 2019).

Navitas Limited offers the educational services for the professional and students of Australia, Asia, United Kingdom, Asia, Canada, United States and globally. The company operates its business through the University partnership, industry segments and careers. The university partnership segment provides pre-university, university courses and managed campus. Industry and career segment provides wide range of programs related to higher education in different fields of the study including film, audio, animation, design and gaming (Navitas.com 2019). 

Domino’s Pizza Enterprise Limited – various components of equity are as follows –

• Issued capital – issued capital is that part of the authorised share capital that is issued to the shareholders. In other words, shares allotted to the shareholders or the shares held by the shareholders are known as issued capital
• Reserves – reserves are that part of the profit that is generated by the entity in normal business course. Reserves are kept aside for using in future for some specific purpose. However, the reserves can be segregated into the general reserves too.
• Retained earnings – it is the cumulative net earnings that can be in negative or positive. If the retained earnings figure is positive it creates lot of rooms for the entity management or business owners for utilizing surplus amount (com.au 2019).  

Changes in equity are as follows – 

Reserves amount changed as the company used it for payment of dividend to the shareholders. Retained earnings amount changed due to changes in the amount of net earnings.

G8 Education Limited – various components of equity are as follows –

• Contributed equity – this is the stock value that is purchased by the shareholders directly from issuing entity. Component of the contributed equity is the direct listing, initial public offerings, secondary offerings and direct public offerings and the issues of the preferred stock (G8 Education 2019).
• Reserves – Explained above for Domino’s Pizza Enterprise Limited
• Retained earnings – Explained above for Domino’s Pizza Enterprise Limited

Changes in equity are as follows – 

Retained earnings amount changed due to changes in the amount of net earnings. Reserves amount changed as the company used it for payment of dividend to the shareholders.

Navitas Limited – Various components of equity are as follows –

• Issued capital – Explained above for Domino’s Pizza Enterprise Limited
• Foreign currency translation reserve – when the integral foreign operationof the reporting entity is categorized as the non-integral foreign operation the exchange difference generated on translation of the non-monetary assets on the reclassification date is accumulated in foreign currency translation reserve.
• Cash flow hedge reserve – it is utilised while the entity looking for reducing or eliminating exposure that generates from the changes in cash flows or the financial asset or the liability owing to the changes in the specific risk like floating rate of the debt instrument or risk of interest rate (com 2019).
• Retained earnings – Explained above for Domino’s Pizza Enterprise Limited

Changes in equity are as follows –

Retained earnings amount changed due to changes in the amount of net earnings. Amount in cash flow hedge reserves is changed due to changes in the rate of interest.

Domino’s Pizza Enterprise Limited – various components of equity are as follows –

• Trade and other payable – it is the amount due for payment to the suppliers for purchased made or for serviced availed. Trade payables includes short-term payables those are payable within the period of 1 years and long term payables those are payable after 1 year period.
• Borrowings – borrowing is raising fund for business operation from the banks and other financial institution in exchange of interest payment.
• Current tax liability – current tax liability is the tax obligation of the company that is payable on the current period’s earning that is taxable (com.au 2019).
• Provisions – provision is the amount kept aside for meeting future estimated liability for which the obligation is yet to be certain. The amount kept aside as provision to meet the uncertain obligation if it becomes certain.

Changes in liability are as follows – 

Changes in the amount of trade and other payables were there due to payment of old payables and arising of new payables. Borrowings amount has been changed due to raising of new borrowing and repaying the old borrowing.

G8 Education Limited

G8 Education Limited – various components of liability are as follows –

• Trade and other payable – Explained above for Domino’s Pizza Enterprise Limited
• Borrowings – Explained above for Domino’s Pizza Enterprise Limited
• Provision – Explained above for Domino’s Pizza Enterprise Limited

Changes in liability are as follows – 

Borrowings amount has been changed due to raising of new borrowing and repaying the old borrowing. Changes in the amount of trade and other payables were there due to payment of old payables and arising of new payables.

Navitas Limited – various components of equity are as follows –

• Trade and other payable – Explained above for Domino’s Pizza Enterprise Limited
• Current tax payable – Explained above for Domino’s Pizza Enterprise Limited
• Deferred revenue – it is the liability as it refers to the revenue that has not yet been earned and it represents the services and products owed to the customers. As the service or products yet to be delivered over time, it is reported as deferred revenue (Weygandt, Kimmel and Kieso 2015).
• Borrowings – Explained above for Domino’s Pizza Enterprise Limited
• Provision – Explained above for Domino’s Pizza Enterprise Limited

Changes in liability are as follows – 

Changes in the amount of trade and other payables were there due to payment of old payables and arising of new payables. Borrowings amount has been changed due to raising of new borrowing.

Debt –equity amount – 

From the above it can be identified that Domino’s Pizza and Navitas Limited is majorly dependent on debt for its fund whereas G8 Education is majorly dependent on debt for its fund.

Debt-equity percentage – 

Debt equity component of the capital structure is analysed by the analyst to measure the leverage of the company which in turn indicates the entity’s solvency position. If the entity is highly dependent on debt finance its leverage position will be high which in turn will question its long term solvency (Maaloul and Zéghal 2015). Looking into the above table it can be stated that Domino’s Pizza’s capital structure includes 63.36% debt and 36.64% equity and Navitas Limited’s capital structure includes 82.72% debt and 17.28% equity. Hence, these companies are highly leveraged as major component of capital structure is debt. On the other hand, G8 Education Limited’s capital structure includes 33.08% debt and 66.92% equity. Hence, Novatis is lower leveraged as major component of capital structure is equity. Hence, it can be stated that the in leverage context, G8 Education Limited is in best position among all 3 entities. 

Cash flow statement of all the entities selected above are segregated into 3 segments – cash generated or used for operation, cash generated or used for investing and cash generated or used for financing. Cash flow statement as a whole represents the cash position of the entity that is the amount of cash generated and used during the specific period of time (Marshall 2016). Detail explanation of each segment is as follows –

• Cash generated or used for operation – it represents the net cash flows reported in the 1^stsection of the cash flow statement. This section focuses on the cash generated or used from the core activities of the entity and includes adjustments for the non-cash expenses like depreciation, adjustments for changes in working capital, money received from customers and money paid to suppliers.
• Cash generated or used for investing – it represents the net cash flows reported in the 2^ndsection of the cash flow statement. This section focuses on the cash generated or used for purchasing long term and fixed assets like plant, equipment and property and the proceeds received from selling of the long term and fixed assets (Watson 2015).
• Cash generated or used for financing – it represents the net cash flows reported in the 2^ndsection of the cash flow statement. This section focuses on the cash generated or used for repurchasing of company stocks, payment of the dividends, repayment of the debt, sale of the stocks and issuance of debts like bonds. 

Changes for the cash flows statement items –

Domino’s Pizza Enterprise Limited – cash from operation for the entity has been increased from $ 128,472 thousand. Increase was due to the amount received from the customers. Amount used for investing activities reduced from $ 263,968 thousand to $ 88,260 thousand. The reduction was due to less payment made towards repayment for intangible assets and payment for plant, equipment and property. Cash used for financing has been reduced from $ 150,541 thousands earnings to $ 52,625 thousands usage. Reduction was due to borrowing receipts and repayment of borrowing (Melloni, Lai and Stacchezzini 2018).   

Navitas Limited

G8 Education Limited – cash from operation for the entity has been reduced from $ 108,583 thousand to $ 92,011 thousands. Reduction was due to the amount paid to the suppliers. Amount used for investing activities reduced from $ 107,149 thousand to $ 86,212 thousand. The reduction was due to less payment made towards payment for plant, equipment and property.

Navitas Limited – Amount used for investing activities reduced from $ 107,149 thousand to $ 86,212 thousand. The reduction was due to less payment made towards payment for plant, equipment and property. Cash used for financing has been reduced from $ 150,541 thousands earnings to $ 52,625 thousands usage. Reduction was due to borrowing receipts and repayment of borrowing (Narotzki 2017).   

Domino’s Pizza Enterprise Limited –

Cash from operating activities have increasing trend whereas cash from investing activities and financing activities have no specific trends over the years from 2015 to 2017.

G8 Education Limited –

Cash used for investing activities have reducing trend whereas cash from operating activities and financing activities have no specific trends over the years from 2015 to 2017 (Pavlovi? and Bogdanovi? 2013).

Navitas Limited –

Cash used for investing activities, operating activities and financing activities have no specific trends over the years from 2015 to 2017.

Insights gained from the comparative analysis of the cash flow trends of the above entities it can be stated that all the companies’ generated cash from operating activities and cash used for the purpose of financing as well as investing activities (Chang et al. 2014). 

Domino’s Pizza Enterprise Limited – following items included under the OCI statement –

• Items that may subsequently be classified to the profit or loss account – it includes loss or gain from net investment hedge, loss or gain from cash flow hedge, income tax associated with OCI components and exchange difference from foreign operation translation.
• Items that may not subsequently be classified to the profit or loss account – it includes re-measurement of the obligation related to defined benefit and income tax associated with OCI components (Jordan and Clark 2014).

G8 Education Limited – following items included under the OCI statement –

• Items that may subsequently be classified to the profit or loss account
• Items that may not subsequently be classified to the profit or loss account
• Effective part of changes in the fair value of the cash flow hedges
• Reclassification of income statement for the prior period hedges (Warren and Jones 2018)

Navitas Limited –  

• Items that may subsequently be classified to the profit or loss account
• Items that may not subsequently be classified to the profit or loss account
• Net difference from currency translation
• Movement in fair value under hedge instruments

Items reported under the OCI are of extraordinary nature and hence, if it is reported under the income statement it will over-report or under-report the income or loss for the period reported under the income statement. Items included in OCI includes loss or gain from net investment hedge, loss or gain from cash flow hedge, income tax associated with OCI components and exchange difference from foreign operation translation. These items cannot be reported under income statement and for enhancing the transparency and clarity of financial report these items are reported under OCI (Khan and Bradbury 2016).

For Domino’s Pizza Enterprise Ltd total comprehensive income reduced from $ 131,215,000 to $ 80,554,000. Reduction was due to unfavourable exchange difference from foreign exchange operation. For G8 Education Limited total comprehensive income increased from $ 75,209,000 to $ 82,479,000. Increase took place due to no amount reported as reclassification of income statement for prior period hedge (Reid and Myddelton 2017). For Navitas Limited total comprehensive income reduced from $ 97,641,000 to $ 83,342,000. Reduction was due to unfavourable exchange difference from foreign exchange operation.

Components of Equity and Liability

Different items included under OCI like loss or gain from net investment hedge, loss or gain from cash flow hedge, income tax associated with OCI components and exchange difference from foreign operation translation require management’s ability to plan and estimate the values of assets and liabilities. As these items play important role in analysing the ability of the entity regarding future obligation it shall be considered while analysing the performance of the managers (Sarfaty 2015).

• Domino’s Pizza Enterprise Limited – $ 44,876,000
• G8 Education Limited – $ 37,200,000
• Navitas Limited – $ 50,072,000

Effective tax rate is calculated through dividing the income tax expense by the amount of earning before tax (Sethi 2016)

• Domino’s Pizza Enterprise Limited – $ 44,876,000 / $ 150,680,000 = 29.78%
• G8 Education Limited – $ 37,200,000 / $ 117,781,000 = 31.58%
• Navitas Limited – $ 50,072,000 / $ 130,941,000 = 38.24%

Hence, the highest effective tax rate is for Navitas Limited at 38.42%

• Domino’s Pizza Enterprise Limited – amount of deferred tax assets reduced from $ 14,754,000 to Nil and deferred tax liabilities reduced from $ 49,741,000 to $ 48,115,000 over the years from 2016 to 2017.
• G8 Education Limited – amount of deferred tax assets increased from $ 15,415,000 to $ 16,220,000  and it did not reported any deferred tax liabilities
• Navitas Limited – amount of deferred tax assets reduced from $ 47,549,000 to 32,616,000 and it did not report any deferred tax liabilities.

DTL or DTA are reported by the entity for recognising the timing differences generated due to accrued tax ad tax paid. DTA or DTL is reported by the entity if there is certainty that the entity will have future profit to adjust the temporary differences of the company (Laux 2013).  

Domino’s Pizza Enterprise Limited – deferred tax assets reduced from $ 14,754,000 to Nil and deferred tax liabilities reduced from $ 49,741,000 to $ 48,115,000 over the years from 2016 to 2017.

G8 Education Limited – amount of deferred tax assets increased from $ 15,415,000 to $ 16,220,000  over the years from 2016 to 2017 and it did not reported any deferred tax liabilities

Navitas Limited – amount of deferred tax assets reduced from $ 47,549,000 to 32,616,000 over the years from 2016 to 2017 and it did not report any deferred tax liabilities.

Cash tax is computed through adjusting the amount of deferred tax liabilities and deferred tax assets with the book tax that is reported as tax expenses in the statement of profit and loss (Titman, Keown and Martin 2017).    

Cash tax is highest for Navitas Limited and lowest for G8 Education Limited.

Cash tax rated is calculated through dividing the adjusted cash tax by the earning before tax, interest and amortisation. 

Cash tax rate is highest for Navitas Limited and lowest for G8 Education Limited.

Book tax rate is the rate that is reported in the profit and loss statement of the company. On the contrary, the cash tax rate is the rate at which the companies pay tax to the federal government. Hence, there is a difference in cash tax rate and book tax rate (Waddock 2017).

Conclusion 

Above discussion regarding the 3 entities leads to the conclusion that the companies presented the items of equities, cash flows, liabilities, taxes and other comprehensive income items clearly in their financial statements. Liabilities include items like provisions, borrowings and trade payables. Equities includes items like share capital, reserves and retained earnings. Cash flow of the companies has 3 segments – cash from operation, cash from investments and cash from financing 

Reference

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