Describe about the Financial Analysis of Greencross for Leading Retailers.
Greencross is one of the leading retailers of pet food in Australian market. In addition to that, the business of Greencross Limited deals in pet related products. By considering the business operations of the firm, the corporate business of Greencross includes the largest veterinary services in the Australian territory. The retail services of pet food of Greencross Limited have been operated under the brand name of Petbarn and City Farmers in the markets of Australia and New Zealand. There are 200 stores of the organisation to offer services to the clients. Currently, the contemporary business structure of the business has consolidated on the veterinary services providing the largest veterinary practices in the Australian market (“Greencross Limited”, 2016). By offering specialists, medicine and pet care facilities, the enterprise has promised to go a long way in the business field. Herein, the financial analysis of the organisation has been presented to discuss the performance and productivity of the group in the past three years.
The review of the financial analysis can determine the budgetary efficiency and business position of the firm. Through the identification of significant data and business patterns of Greencross Limited, analysis of balance sheet, horizontal and vertical trend analysis, and current income statement have been presented in the study paper for further consideration. By utilising the financial data of the last three years, important financial ratio’s such as profitability, capital structure, liquidity and efficiency of business of the organisation have been calculated (Palepu, Healy, & Bernard, 2010). By identifying the trend and financial data analysis, the financial position of the organisation and market sustainability can be evaluated (Napier, 2011). In the following section, financial analysis of Greencross Limited has been described providing profitability measures, efficiency measures, liquidity measures and capital structure measures of the organisation. Also, income and loss analysis of the farm have been analysed in the review paper to provide a substantial knowledge on trend, horizontal and vertical analysis. Significantly, the review of the financial status has included the industry and competitors analysis for in-depth analysis standpoint.
In order to analyse the financial position of Greencross Limited, it is important to observe the income statement, balance sheet and cash flow statement of the company that are presented in appendix A, appendix B and appendix C respectively. The income statement presents the income and expenses of the firm and its profitability amounts. On the other hand the balance sheet presents the assets and liabilities of the company. It can be seen from last three years financial statement of Greencross Limited, that the company has incurred a huge loss in the year 2014 due to certain inadequate decisions. It can be seen that the impairment of assets that led to an expenditure of $130,000,000 led the company to a loss in the year 2014. Along with that, it can be seen that the assets figures of the company has grown in the last three years. Hence, to understand the financial position and growth of the company several ratios measures have been used such as profitability measures, efficiency measures, liquidity measures and capital structure measures.
Through the identification of the income statement provided in appendix A, a clear position on profitability of the organisation can be drawn. As per the income statement, in 2013 the revenue of the organisation was $261,517,000 whereas in 2014 in was revised to $370,445,000 showing the improvement in the business. In 2015, the revenue figure was increased more as the revenue data was registered as $645,016,000 (“Greencross Limited Annual Report”, 2016). From the revenue point of view, higher numbers have shown the positive business environment (McLaney & Atrill, 2012). The comprehensive income statement’s standpoint, some negative numbers has been posted by the firm as in 2014 the income was registered as in negative figure down by 1477% from 2013. Meanwhile, in 2015, the comprehensive income of the owners of the group has been revised to $22,143,000 up by 259% from 2013 (“Greencross Limited Annual Report”, 2016). As far as ratios are concerned the liquidity and profitability ratios have shown that ROA, ROE and Gross Profit Margin are significantly declined from 2013 to 2015 though the net profit margin has remained unchanged as shown in appendix G.
The efficiency measures helps to analyse the efficiency of the organisation in using its liabilities and assets. Furthermore, it helps to observe the amount of revenue that the company is capable of earning using a certain amount of investment. The asset turnover ratio is used to analyse the amount of revenue earned by the company over the invested assets. Looking at the financial statements, it can be seen that the asset turnover ratio of the company has gradually decreased in the last three years from 1.6 to 0.79. Hence, it presents a poor performance of the company. On the other hand, the number of days for inventory turnover has also increased in the last three years. Greencross Limited has also evident a fall in the inventory turnover from 4.05 to 3.42. Hence, it can be seen that the efficiency of the company has declined in the last three years. The efficiency ratios are presented in appendix G for further consideration.
The liquidity measure is used to analyse the ability of Greencross Limited to pay the current liabilities of the firm (Revsine, Collins, & Johnson, 2015)s. Looking at the current ratio, it can be seen that the Greencross Limited is quite capable of meeting its current liabilities with a positive current ratio. Now, when the quick ratio is considered, it can be seen that the company will not be able to meet its current liabilities without selling its inventories. The cash flow to sales ratio shows poor operating cash generated by the company over the total revenue. Hence, it is important for the company to improve its liquid cash by maintain a proper working capital to carry on with its activities (Gowthorpe, 2008). The liquidity ratio measures are presented in appendix G for further consideration.
The capital structure of the company presents the proportion of equity as compared to the total debt of the firm. It is important for an organisation to maintain equal proportion of equity and debt to increase shareholders value (Hickman, Lester, & Hickman, 2016). It can be seen from the capital structure measures that the debt to equity ratio of the company has fallen in the recent three years. It shows that the amount of equity has increased as compared to the debt. Hence, the company has earned a better positioning in the share market (Robinson, 2009). Considering the debt ratio and equity ratio, it can be seen that the proportion of debt verses equity in the company has developed in the last three years that increases the shareholders value and helps the company to gain better reputation in the share market (Horrigan, 2008). The capital structure measures are presented in appendix G for further consideration.
The income and loss analysis of Greencross Limited has included horizontal, vertical and trend analysis to identify the revenue standards and productivity out of the business in the previous three years such as 2013, 2014 and 2015 respectively. Herein, detail analysis of the income and loss structure of the organisation has been presented providing supportive data and appendices.
The trend analysis of Greencross Limited has shown significant improvement in the revenue on year on year basis. As shown in appendix E, in 2013 the recorded revenue was $261,517,000 and in 2014 the revised revenue has been registered as $370,445,000. Conclusively, the revenue figure has been up by 142% showing the strength of the retail business of Greencross Limited within the target market. In 2015, the revenue is up by 247% as the revenue was recorded as $64, 5016,000. Also, the profit before income tax expenses was $35,215,000 in 2015. The comprehensive income statement of the firm has showed some negativities as in 2014 the income was registered as in negative figure down by 1477% from 2013. Meanwhile, in 2015, the comprehensive income of the owners of the group has been revised to $22,143,000 up by 259% from 2013 (“Greencross Limited Annual Report”, 2016). Currently, the trend analysis of the firm has delivered a substantial status of the current financial position of the enterprise.
The horizontal analysis helps to observe the year wise growth of financial performance of the Greencross Limited. It helps to examine the budgetary articulations for a given period (Marshall, 2008). It can be seen that the company has performed well in the financial year 2014-15 and compared to the financial year 2013-14. It can be seen that the impairment of assets was the primary reason for loss that has been incurred by the company in the year 2014. Greencross Limited has effectively recovered the impairment expenses and has gained a positive figure in the financial statement. Furthermore, it can be seen that the expenses of the company has increased at a higher rate in the financial year 2014-15 as compared to 2013-14. Hence, it is important for Greencross Limited to cut down the expenses by taking necessary steps and implementing new financial strategies. The horizontal analysis of the income statement is presented in Appendix D for further consideration.
The vertical analysis is used to identify the proportion of the cost as compared to the revenue earned through the operations of the company (Vilcox & Mohan, 2007). It can be seen through the vertical analysis of the income statement that the gross profit of the company has increased in the last three years. But, when net profit is considered, a constant net profit margin can be seen at 3 percent in the year 2013 and 2015. On the other hand, the company has incurred a huge amount of loss in the year 2014. Furthermore, it can be seen that the employee benefit expenses has increase in the last three years from 17.18 percent to 26.04 percent. The other expense of Greencross Limited had remained constant at a particular level. Hence, it is important for the company to cut down the rising expenses on employee benefit to increase profitability. Furthermore, Greencross Limited needs to cut down other expenses to raise profitability and grow in the market (Jenner, Silvester, & Atrill, 2011). The vertical analysis of the income statement is presented in Appendix F for further consideration.
In the contemporary business scenario, Greencross Limited has created a monopoly business structure in the Australian market creating massive futuristic opportunities. The retail stores and veterinary services and facilities provided by the firm have provided substantial competitive edge over the competitors (DesJardins & McCall, 2010). Primarily, Greencross’s retail and services business has one primary challenger such as National Vet Care. The closest vet competitor of the veterinary services of Greencross Limited has made significant growth in the last few years or so providing significant facilities and services towards the clients (Vilcox & Mohan, 2007). Due to the presence of National Vet Care, a strong competition has to be dealt with. Under the current market scenario, the NVC’s Board of Directors have applied for merger and acquisition tactics to become the second largest market player in the veterinary services industry (Rosenbach, Taylor, & Youndt, 2012).
In the current financial position, NVC has a revenue figure of $53.2 million in 2016. At the same time, $9.6 million EBITDA has been expected showing the financial strength of the competitor. According to the financial reports of NVC, the market cap of the organisation has been achieved to $50.7 million creating opportunities to buy new veterinary clinics in the target market. Understandably, Greencross Limited’s market value of $650 million must be compared to the nearest market challenger to show the monopolistic operating business of Greencross Limited. Under the given scenario, the Australian retail market for pet food and veterinary services have been expanded at a considerable pace (Palmer, 2013). Thus, it is high time for Greencross Limited to identify the real scopes within the market for further growth. Probably, new services and clinics will be the best options to improve the margin of revenue and profitability.
Conclusion
The current financial analysis of Greencross Limited has shown the financial strength and income status of the company. The impressive revenue figure and income standards of the organisation have also voted for the productivity scale of the business. The effective ratios of the financial analysis have also determined a strong financial position of the group. Undoubtedly, the operating business of the firm can achieve new financial positions in the upcoming future as the services and facilities will reach new locations. The liquidity and profitability ratios have shown that ROA, ROE and Gross Profit Margin are significantly declined from 2013 to 2015 though the net profit margin has remained unchanged.
References
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Greencross Limited. (2016). Greencrosslimited.com.au. Retrieved September 2016, from https://www.greencrosslimited.com.au/about/greencross-limited.aspx
Greencross Limited Annual Report. (2016). Greencrosslimited.com.au. Retrieved September 2016, from https://www.greencrosslimited.com.au/Investor-Relations/Downloads.aspx
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