This report deals with analysis of the financial statements of Broo Limited which is an Australian company. Further, the changes in the year 2016 from the year 2015 shall also be analyzed. The overall performance of the company shall be evaluated by calculating the key financial ratios. Moreover, the future prospects of the company shall also be highlighted.
Broo Limited is a leading company of Australia that is into the business of producing and selling packaged beer (Broo.com.au.2017). This company is operating in the beer industry since the year 2009 (Broo.com.au.2017). It has been producing varieties of beer since the year 2009 and has been able to get substantial market share since its inception (Broo.com.au.2017). In the year 2011 it has received Telstra Business Award under the People’s Choice Award category for its rapid growth from a small sized business to a medium sized business (Broo.com.au.2017). Presently, it is focusing only in beer industry in order to increase its market share (Broo.com.au.2017). The consolidated financial statements of Broo Limited include the results of the following subsidiaries in which the company has 100% holding (Broo.com.au.2017).
The following are the major financial highlights and the changes that have occurred from the year 2015 to the year 2016.
Ratio analysis is a method that enables to analyze the financial and operating efficiency of an entity. The pattern of these ratios is observed to gain an idea whether the entity is improving or deteriorating (Brigham and Daves 2012). The key financial ratios of Broo Limited is calculated and the results are given below.
Liquidity ratios enables to evaluate the capability of a company to repay its debts. This includes current ratio, acid ratio and cash ratio.
This ratio measures of the ability of the entity to pay its short term and long term obligations (Delen, Kuzey and Uyar 2013). Any entity that has a current ratio below 1 implies that the Current liabilities of the entity are more than its current assets the financial health of the company is not very good. It is calculated by the formula given below.
The current ratio of Broo Limited is given below.
|
Current Ratio |
2016 |
2015 |
|
Current Assets |
978783.00 |
1386321.00 |
|
Current Liabilities |
928393.00 |
1171847.00 |
|
Current Ratio |
1.05 |
1.18 |
(Broo.com.au. 2017)
It can be seen in the table given above that the current ratio of Broo Limited has declined in 2016 as compared to 2015. However, as the ratio is still more than 1, it can be said that the company has a strong current ratio and it will not face much problems in clearing its debts.
This ratio indicates that whether a company has enough short-term liabilities to pay its immediate liabilities. This is comparatively more accurate than current ratio as it completely ignores assets, which cannot be liquefied easily. Ideally, ratio more than 1 is considered to be good. It is indicated by the formula given below.
|
Acid Ratio |
2016 |
2015 |
|
Current Assets excluding prepaid expenses and inventory |
882875.00 |
1328779.00 |
|
Current Liabilities |
928393.00 |
1171847.00 |
|
Acid Ratio |
0.95 |
1.13 |
(Broo.com.au, 2017)
As it can be seen in the table given above that that the quick ratio of the company has declined in 2016 from 2015. The current assets of the company have also fallen considerably from the 2015. As the ratio of the company has fallen below 1, it clear indicates that the come might face cash shortage in the near future. The company needs to work in so that it does face cash constraint in the times to come.
This category of ratios measures the capability of a company, to generate profits in relation to its expenses and other costs during a specified period. The profitability ratios of Broo Limited are calculated below.
This ratio indicates the profitability of the company relative to its assets. The higher this ratio the better it is. It is calculated by the following formula.
|
Return on Assets |
2016 |
2015 |
|
Net Income |
516334.00 |
727993.00 |
|
Total Assets |
1372093.00 |
1632392.00 |
|
Return on Assets |
0.38 |
0.45 |
(Broo.com.au, 2017)
It can be seen in the table given above that the return on assets of the company is quite low in 2015 as well as 2016. Moreover, the return on assets of the company has also declined in 2016. This decline in the ratio is a matter of concern for the company which requires immediate attention of the company.
The ratio shows the amount of net income as a percentage of shareholder’s equity. A high return on equity is considered good. It is calculated as given below.
|
Return on Equity |
2016 |
2015 |
|
Net Income |
516334.00 |
727993.00 |
|
Shareholder’s Equity |
259800.00 |
444997.00 |
|
Return on Equity |
1.99 |
1.64 |
(Broo.com.au, 2017)
The table given above shows the return on equity. The return on equity of the company has increased in 2016. However, this increase does not indicate that the financial health of the company is good. This is because the results of the other ratios show adverse results.
This ratio indicates the capital structure of a company. It indicates the proportion of debt a company has with respect to equity. The debt equity ratio of the selected company is given below.
On the overall assessment of the financial statements of the company it can be seen that the performance of the company is not satisfactory. Although the company has gained popularity in the market and has been able to grow from a small to a medium sized firm in a short span of time, still the ratios and the losses incurred by the company indicate that the company needs work towards improving its figures. The company should frame adequate strategies in order to reduce its losses.
After analyzing the changes that have occurred in 2015 since 2016, it can be said that the losses of the company have increased in 2016 from 2015. Moreover, most of the ratios hint towards the poor financial position of the company. The company needs focus on reducing the losses so that the overall performance of the company improves. This will also enable to improve the results of the ratio. Further, from an investment point of view, this is not a suitable company for investment purposes as the company is consistently incurring losses and the company might not be able to repay its debts and shareholders if the company goes into liquidation.
Conclusion
It can be concluded from the above discussion that the financial results of two years can be compared and idea can be obtained about the overall financial condition of the company. Further, ratio analysis is also an important tool in to form an idea the about the financial health of an organization. It helps an entity to know its overall position and the areas that require attention. It helps the investor as well as it enables to take various investment related decision. The application of these tools in the analysis of the financial statements of Broo Limited has led to the conclusion that the financial health of the company is not that sound.
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