Analysis of all the statements published by CTI Logistics Limited namely the balance sheet, profit and loss account.
A company’s financial position as on a particular date and its income statement for the year ended states how a company has performed during the year in question and what is its financial position as on a particular date with regards its assets and liabilities position and shareholder’s funds. Various ratios when compared with the previous years figures makes it clear what changes has taken place and whether it is for the benefit of the company as a whole or not. The income statement shows how well the company has performed a compared to its last year’s profitability figures and how much earnings per share it has been abe to contribute to its stakeholders (CTI Logistics Limited, 2015). The cash flow statement states the changes that has taken lace in the cash and cash equivalents of a company through various kinds of activities such as cash flow from operating activities, investing activities and financing activities. And lastly the equity position which clearly shows how much of shares have been added to the fund. CTI Logistics is a transportation company also providing logistics and business services, listed in the Australian Stock Exchange. The company also has the largest A1 grade security monitoring system located in Western Australia and is the leader in the supply of commercial alarms, cctv cameras and various other security access control devices. Thus the said company has a varied number of areas to work (Damodaran).
The current year’s performance as compared with its performance in the year 2014 has been disappointing. Profits per se it saw an almost 50 percent downfall in its profits as compared to last year. A detailed analysis of the financial position, income statement and cash flows is as stated below (CTI Logistics Private Limited, 2016).
The financial position of an entity is determined by the balance sheet. It clearly discloses the position of the assets and the liabilities of an entity as on a particular date. It reflects the summary of all the account balances such as that of inventories, debtors, creditors, short term borrowed funds and so on at the end of a reporting period. It is basically the tool to show the equity position of an organization which is a difference between the assets and the liabilities shown (Bajkowski, 1999).
On analysing the financial position of the company as at 30th June 2015 the following are the requisite data that has been derived:
The Current asset position has bettered as compared to last year. The liquidity position is better in the current year as it is clear from the statements that the position of cash and cash receivables has improved 1.71 times as compared to the previous year. The company has less inventory to carry which is also a positive sign as it lead to less stock obsolescence and it clearly shows that not much money is stuck in the stock (NACVA, 2012).
Company’s non current position has been positive enough with additions in land and buildings, plant and equipments and motor vehicles with some minor disposals which is very insignificant. The significant addition in the plant and machinery ha been due to the acquisition of a subsidiary company by CTI Logistics. The company has also declared a land and building for sale The sudden increase in the value of the intangible assets is due to the acquisition of a subsidiary company which led to addition to its goodwill value. However CTI Logistics has taken huge amount of bank loans this year which has an interest bearing expense on the income statement .Its loan position has almost doubled as compared to its previous year’s figures(Nissim, & Penman, 2003).
Type of Ratio 2015 2014
Liquidity Ratios
Current Ratio 1.08 1.54
Cash Ratio 0.19 0.13
Solvency Ratios
Debt to asset ratio 0.61 0.47
Debt to capital ratio 0.52 0.39
Debt to equity ratio 1.58 0.91
Interest Coverage Ratio -12.2 times -6.1 times
Capital Gearing Ratio 0.58 0.45
On analysing the above mentioned ratios the financial position of the company is clear. The company is in a safe liquidity position presently. An ideal current ratio is that of 1, and the company has reported that of 1.08. This is a clear indication to the fact that the company has enough assets in its kitty so as to pay off its liabilities on demand. CTI’s current ratio is not to high also so as to hurt the company’s bottom line (Kothari, 2004).
Cash ratio is generally not used for the analysis of the company’s health however some investors may even calculate this ratio on a conservative approach even thought eh same is not very reliable. The cash ratio has improved from 13% to 19% which may be a carrot in the stick to attract the conservative investors to invest in CTI Logistics Limited (Gill, & Chatton, 2001).
Company’s ability to meet its long term liabilities is measured via the solvency ratios. It provides the investors with an overview of the fact that whether the company has abilities to pay its interest and other fixed expenses on a consistent basis without facing much problems. The most basic ratio is that of debt to asset ratio which shows how much of asset the company owns via its debt funds (Elliot, & Elliot, 2011). The same has increased by a good 15 percent from last year to the present year in discussion. This makes it clear that the company has acquired some new assets from which it has used its debt funds. Thus the company’s financial leverage has increased though still at a decent level to attract the investors to invest in the company (Jun, 2013).
Capital dilution is very important aspect. More issue of equity shares dilutes the ownership of a company, thus lowering the earnings per share component. Thus a higher debt capital ratio clearly states the percentage of total capital of a company via debt funds. CTI Logistics Limited’s debt to capital ratio has increased from a 39 percent to 52 percent however the increase is not too significant to hurt the financial position of the company or lead to much dilution of ownership. However the dividend amount is hurt a bit due to an increase in the interest expense component. But the same ratio makes it attractive enough for the present investors to continue with their investment in the company as well as welcome new entrants as investors (Liston, 2014). However even though the above two mentioned ratios show a positive sign for the investors yet the company’s debt equity ratio of 1.58 currently reveals a very sad position of the company that creditors have claims on all the assets of the company and even after the same their total claim will not be met. This forces the potential investors to take a back step while putting in their money and also a driving factor for present investors to withdraw. The same was better last year. Thus the entity should try to minimize usage of its debt funds and if required issue more shares in the market to improve its debt equity position. Last years position was still good enough at 0.90 versus this years position. Also its interest coverage ratio is in red which portrays a very sorry picture for the lenders. This ratio is calculated to show how well the company can meet its interest expense, which has deteriorated further in the current year . This is the biggest yardstick to hold back the investors from chipping in their money (Lan, 2012).
The important data derived from the income statement which would enable to provide how well the company has performed as compared to its last year are as under:
Particulars 2015 (in $) 2014 (in $)
Total Operating revenues 10905518 15918662
Cost of Goods Sold 1052571 855463
Total Profit 8647989 14090456
Non-Operating gain or loss 9909 4486
Earnings per common share 9.25 15.50
On looking at the income statement the same does not seem to be too lucrative. The operating income has fallen down by a good 30 percent dipping the profits and the EPS also by 40 percent. The fall in the EPS has been mainly due to a fall in the profits as there has not been any significant issue of new shares. Apart from this certain ratio analysis will give a better picture to decide upon the performance of the company (McClure, 2014).
Type of Ratio 2015 2014
Profitability Ratio
Gross Profit Margin 20 13.52
Operating Profit Margin 1.84 1.62
Net Profit Margin 1.46 1.43
Return on Assets 0.037 0.089
Return on Equity 0.095 0.18
Te above mentioned ratios of the two years ending 30th June 2015 and 30th June 2014 clearly shows the dip in the profits of the company. Although the gross profit margin has increased by a good 50 percent but the over all operating profit has dipped and so has the return on assets and equity. In the current year the company has not been able to utilize its asset base to its full so as to get adequate returns a compared to last year’s ROA figures. Also the amount of income that the shareholders expect from the company has also shown a downfall of around 45 percent which is eye catching and alarming as well. Though even in such a situation the company has declared dividends to keep the investors interest growing (Grimsley, 2003).
Cash flows for the year ended 30th june 2015
On studying the cash flow position of CTI Logistics Limited the following data is extracted:
Particulars 2015 2014
Net Cash flow from Operating Activities 13087868 11614905
Net Cash Flow from Investing Activities (33085249) (13757380)
Net Cash Flow from financing Activities 23846753 (47047)
Cash flow per share 0.20 0.18
It has to be well understood that a cash flow statement does not show the profitability of a company. It simply shows how the cash and its equivalent has been utilized by the company in various activities such as operating, financing and investing. Therefore presentation of this statement helps the users to find some answers to its questions like has the company been able to generate enough cash from its operating activities to meet its daily expenses and make timely payments to its creditors , does the company generate cash for expanding its business in the future and lastly can it pay dividends to its investors (Das, 2010). Cash from operations shows how much liquid cash the company has been able to generate from its day to day operations Cash from investing activities shows what kind of investments the company has made which would enable to generate revenues in future. For example a decision to buy any fixed asset such as an equipment or plant and machinery is an investing activity as the investment in such areas will generate benefits for the entity in future. Thus a negative cash from investing activity is preferable. Lastly cash from financing activity shows how much cash the entity has generated by borrowing more funds or through the issue of shares as well as the amount of outflow incurred in paying off debts, buybacks or distribution of dividend (www.wiley.com, 2013).
CTI Logistics has reported an increase in the operating cash flow of 13 percent which is a positive sign. It clearly shows that the day to day activities of the company has enabled generation of adequate liquid cash balance for the company The cash flow per share shows how much the company can fund using its internal money than depending upon the external debt funds. Thus the cash flow per share shows an increase though minimal but this is a positive sign. It has acquired a new business towards end of the financial year which is a positive sign too as the revenues from the said investment is expected to be seen in the current year which may help to boost the performance of CTI Logistics (Quinn, 2010). As compared to last year’s investing activity the current year has seen a robust investment policy in place. A total increment of 1.4 times has been published and the results of such investments are likely to be felt in the upcoming years. The current year has shown a huge amount of borrowings which has put an interest expense pressure on the entity’s financials which is not a good sign. Last year there was more of debt servicing hence reducing the expense on the interest portion (Shelton, 2012).
Stockholder’s equity section
The shareholder’s equity fund of CTI Logistics shows a positive trend. Compared to last year’s equity balance the current year’s position shows an increase in the equity by 6 percent thus the company has not diluted much of its ownership this year as compared to its last year. There has been a dip in the retained profits amount because of a dip in their distributable profits. The company even though published profits lower by 40 percent as compared to the previous year’s performance still it distributed adequate dividends to its investors. This practice forced it to borrow more funds and increase the debt as well as interest burden for the company (Robinson et.al. 2009). Thus although the investors are happy with the dividends but looking at a long term scenario this can be negative for the organization. They should have retained and ploughed back the profits which would have enabled CTI Logistics to utilize more of own funds than borrowed. The number of outstanding shares for the year ended 2015 has been 65830691 and that for the year 2014 has been 63746681, thus only a 0.03 percent increment which is instrumental to the fact that the company has prevented much of dilution of ownership in the current year. It basically connotes the net of asset and liabilities of a balance sheet that belong to the stockholder’s of an organization. CTI’s stock position in the current year has not been lucrative enough to attract new investors or to make the current investors happy. Distribution of dividend is taken as an optimistic approach through a lay man’s eyes otherwise in such a situation where the company has reported less profits , it should not have distributed the same as dividends and saved that amount for further investment in the company and thus saved on the finance costs (Fridson, & Alvarez, 2011).
Conclusion
However on a detailed analysis of all the statements published by CTI Logistics Limited namely the balance sheet, profit and loss account, cash flow statement and the stock holder’s equity statement it is very clearly visible that the company’s shares are still very lucrative. The acquisition of Logico Operations Group Limited and its wholly owned subsidiary G.M. Kane & Sons Pty Ltd in June 2015 will surely yield good profits for CTI in the present year. The increase in the financing activity of the concern has put tremendous pressure on its interest coverage ratio as is visible above yet the same may be fruitful in the year 2016. The solvency ratios above portray a very dismal picture of the company but on studying the kind of acquisitions CTI Logistics Limited has made makes it a good investment option. The solvency ratio does not depict the company moving towards insolvency , it just shows that the present scenario is risky. It doesn’t seem that the organization would have any liquidity crunches in the near future as per the result of the cash from operating activities and its current ratio position. Seeing its past performances it can also be relied upon the fact that the investments made in the current year would be in income generating assets which would justify the increase in the financing activities. Thus on reviewing the present performance and its past records, the stock has become risky but at the same time investors can think about pitching in their money for CTI Logistics seeing its current scenario.
References
Accounting Information: Chapter 13, The Cash Flow Statement and Decision, pp. 492-535.
CTI Logistics Private Limited, 2016, viewed 28th April 2016..
CTI Logistics Limited, 2015, Annual Report 2015, viewed on 23rs May 2016..
Liston, H., 2014, How to read and analyse an Income Statement, viewed on 23rd May 2016.
Quinn, M., 2010, How to Understand an Income Statement, viewed on 23rd May 2016.
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