Business valuation is a set of processed and methods which is used by the financial managers, financial analyst, investors and other stakeholders of the business to identify the economic value and actual worth of the equity in the business (Vogel, 2014). Business valuation and analysis could be done through various tools such as economic value added, cash flow analysis, ratio analysis, trend in the financial performance etc. This report has been prepared to identify the business value of Blackmores limited. To identify the performance of the business, the ratio analysis study has been done and the various expenses which affect the performance of the business has been studied along with the performance of the cash flow analysis of the business to identify the overall position of the business in the industry.
Balckmores limited is an Australian company which develop markets and sells the natural products related to the health of human and animals. The main market are of the company is Asia, Australia and New Zealand. Mainly, the company offers the herbal, mineral and vitamin nutrition product and supplements to its customers. Company also offers various other products for the cold, flu, joint pains, bones, muscles, brain health etc. the company also offers the product for the betterment of its customers (Bloomberg, 2018).
Financial analysis is a process which collects the financial statement of a business and conducts various valuation models on the company to identify the financial status and performance of the business (Moyer, McGuigan, Rao and Kretlow, 2011). In the report, the financial ratio analysis method has been applied on Blackmores financial statement to identify the changes and the performance of the company.
Ratio analysis method is one of the most used and easier method of financial analysis technique. This method collects and records the main data of the company in order to reach over the conclusion about the financial status of the business. The ratio analysis study of the company is as follows:
Return on equity is major ratio analysis method which is used to identify the profit generation capabilities of the business against the total owner’s equity of the business which is maintained by the business to run the operations (Brigham and Daves, 2012). The return on equity position of the company expresses that the ROE level of the business was 25.14% in 2014 which has became 63.81% in 2016 and again reduced to 37.20% in 2018. The current position of the business express that the ROE level of the company is enough competitive and company should manage the same level. The performance in the year of 2016 was extra ordinary which has taken place due to sudden demand of the products of the company.
Return on net operating assets (RNOA) is calculated by the financial analyst and other stakeholders of a business to identify the profit generation capabilities of the business against the net assets of the business which is maintained by the business to run the operations (Brigham and Houston, 2012). The return on net operating assets position of the company expresses that the RNOA level of the business was 16.02% in 2014 which has became 49.35% in 2016 and again reduced to 27.08% in 2018. The current position of the business expresses that the RNOA level of the company is still better and the level is enough competitive in the industry to manage the profitability level of the business.
Profit margin is one of the common ratio analysis methods which are used to identify the profit generation capabilities of the business against the total turnover of the business (Baker and English, 2011). The profit margin position of the company expresses that the PM level of the business was 10.02% in 2014 which has became 16.89% in 2016 and again reduced to 11.96% in 2018. The current position of the business expresses that the profit margin level of the company is average. Company should make few changes into its strategies to improve the position of the business.
The profit margin position of the company further has been studied and it has been found that the better the profit margin of the business would be, the better the business would be able to manage the market performance:
|
PM:7.00% |
||||
|
PM ratio |
share price |
Δ share price change |
||
|
Optimistic |
10% |
7.70% |
192.90 |
15.50% |
|
5% |
7.35% |
179.96 |
7.75% |
|
|
0 |
7.00% |
167.01 |
0.00% |
|
|
Pessimistic |
-5% |
6.65% |
154.07 |
-7.75% |
|
-10% |
6.30% |
141.12 |
-15.50% |
(Ahrendsen & Katchova, 2012)
Asset turnover ratio is calculated by the business to identify the total turnover of the business against the available resources of the business. The reformatted sales and net operating assets of the business have been calculated to identify the ATO level of the business (Madura, 2011). The asset turnover position of the company expresses that the various changes have occurred into the asset turnover of the business because of the fluctuations in the assets level.
The asset turnover position of the company further has been studied and it has been found that the better the ATO of the business would be, the better the business would be able to manage the market performance:
|
ATO |
|||||
|
2018-19 |
2020-2022 |
||||
|
1.77 |
2.12 |
share price |
Δ share price change |
||
|
Optimistic |
10% |
1.95 |
2.33 |
176.91 |
5.93% |
|
5% |
1.86 |
2.23 |
172.43 |
3.24% |
|
|
0 |
2.12 |
167.01 |
0.00% |
||
|
Pessimistic |
-5% |
1.68 |
2.01 |
161 |
-3.60% |
|
-10% |
1.59 |
1.91 |
154.93 |
-7.23% |
Financial leverage expresses the relation among the various available resources of the business along with the owner’s equity of the business. The financial leverage position of the company expresses that the debt level of the company is quite higher and due to which the financial leverage position of the company has been lowered against the past years. It briefs better position of the company in terms of managing the capital structure level.
Net borrowing cost defines the total cost of the business against the borrowing of funds of the business. It expresses that how much of the expense could be managed through the borrowings of the company (Ahrendsen and Katchova, 2012). On the basis of the net borrowing cost evaluation of the company, it has been found that currently around 29.05% expenses are managed from the borrowings of the business. Earlier, the level was higher.
The overall ratio analysis of Balckmores limited brief better performance and financial position of the business. Various fluctuations have occurred into the financial performance of the business due to which the stability has been hampered but the financial strategies and policies have helped the business to become more competitive in the market.
The study further has been conducted on those expenses of the company due to which, the profitability position of the business have been hampered a lot:
The raw material and consumable goods are the main expenses of the business as it includes all the purchases of the business (Brigham and Ehrhardt, 2013). In the year of 2018, the raw material expenses of the business are 38.61% of total revenue which has been reduced from last year. However, it affected a lot on the overall profitability position of the business.
Further, the employee benefit expenses of Blackmore have been studied as this is the second largest expenses of the business. The employee benefit expenses have been reduced from 24.41% to 22.79% in 2018. Though, the impact of employee benefit expenses of the company is still higher and due to which the profit position of the company has been lower.
Lastly, the Selling and marketing expenses of Blackmore have been studied as this is the third largest expenses of the business. The Selling and marketing expenses have been reduced from 10.03% to 9.84% in 2018. Though, the impact is still higher and due to which the profit position of the company has been lowered.
The company has controlled on the overall expenses a lot and still few changes would improve the profitability level lot.
The trend in the ratio performance of the company has been studied further and it has been found that various fluctuations have occurred into the financial performance of the business due to which the stability has been hampered but the financial strategies and policies have helped the business to become more competitive in the market. The return on equity, return on net operating assets and the profit margin ratio express about better profitability level of the business and the forecasting also brief better position of the company. Further, the other ratios of the company are also briefing competitive level of the business.
The cash flow of the company has been evaluated further to recognize the cash flow management level of the business and the overall performance of the cash in the business.
Liquidity ratios brief the management of short term debt against the short term assets of the business. Short term assets of the business must be higher to manage the liquidity level of the business (Higgins, 2012). The below graph explains few changes into liquidity position of the company in last 4 years. Through the evaluation, it has been found that the liquidity risk and the cost of the business is average in current scenario. Company should maintain the same level so that the risk can’t affect the performance and cost of the company could also be minimal.
Cash flow ratios of the company have been studied further to evaluate the management of the cash in the company. The below graph explains that the operating cash flows of the company has been lowered against the total liabilities of the business because of changes into the credit policies of the business.
Solvency ratios brief the management of long term debt against the total assets and the owner’s equity of the business (Gibson, 2011). The liabilities, assets and equity level of the business must be managed in better way to improve the performance of the business and reduce the risk and cost level.
On the basis of the various ratios and financial position of the business, it has been found that the Blackmores limited has changed into its strategies and policies a lot in last few years to improve the performance of the business. Due to which, the profitability, liquidity and solvency position of the company has been improved and associated risk of the company has been lowered. But the changes into credit strategy have affected the cash position of the company which must be focused by the company.
Conclusion:
To conclude, the business valuation and analysis is important way to identify the risk, cost, and return and investment level of a business. Through conducting the report on Blackmores limited, it has been found that the performance of the company has been fluctuated a lot in last 5 years. Though, the current risk level of the company is lowered and thus the investment position of the company is quite strong.
References:
Annual Report. 2018. Balckmores limited. [online]. Available at: file:///C:/Users/lenovo/Downloads/Blackmores%20Annual%20Report%202018_web%20final.pdf [accessed 17/9/18].
Annual Report. 2017. Balckmores limited. [online]. Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BKL_2017.pdf [accessed 17/9/18].
Morningstar. 2018. Balckmores limited. [online]. Available at: https://www.morningstar.com/stocks/XASX/BKL/quote.html [accessed 17/9/18].
Annual Report. 2016. Balckmores limited. [online]. Available at: https://blackmores2016.annual-report.com.au/system/files_force/downloads/blk_annual_report_2016.pdf [accessed 17/9/18].
Annual Report. 2015. Balckmores limited. [online]. Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/B/ASX_BKL_2015.pdf [accessed 17/9/18].
Bloomberg .. 2018. Balckmores limited. [online]. Available at: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=878534 [accessed 17/9/18].
Ahrendsen, B. L., & Katchova, A. L. (2012). Financial ratio analysis using ARMS data. Agricultural Finance Review, 72(2), 262-272.
Baker, H. K., & English, P. (2011). Capital budgeting valuation: Financial analysis for today’s investment projects(Vol. 13). John Wiley & Sons.
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.
Brigham, E., & Daves, P. (2012). Intermediate financial management. Nelson Education.
Gibson, C. H. (2011). Financial reporting and analysis. South-Western Cengage Learning.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Madura, J. (2011). International financial management. Cengage Learning.
Moyer, R. C., McGuigan, J., Rao, R., & Kretlow, W. (2011). Contemporary financial management. Nelson Education.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
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