The information about the company is depicted from the financial statements of the company which has been prepared with an intention of showing overall performance and position of the company. It helps the users of financial reporting to assess the
The position and performance of every company is judged by having the financial statements of the company. It is because of the fact that the financial statements contain the figures which are useful for the managers of the company to take the efficient and the effective decision. The financial statements consist of the balance sheet and the profit and loss account which helps the managers of the company to assess the financial position and the financial performance of the company.
For the purpose of furtherance of the report, the company – Sky network television Limited has been selected and accordingly the analysis has been made. The report has started with the determination of the nature of the business of the company and the relevant composition of the management of the company. Then the financial ratios have been calculated for the last two years under the five major broad heads. The analysis has been done with reference to each of the ratios. Then the fluctuation in the share price over the last two years have been discussed as to which have led the share price of the company to fluctuate. Along with this the events have been traced which have led to the fluctuation in the share price of the company. Then the weighted average cost of capital has been calculated and analyzed with the given figures. Apart from the financial ratios, more emphasis has been placed on the debt ratio. After that the dividend policy of the company in the current as well as the previous year has been discussed and lastly the report has been ended with the appropriate conclusion and the letter of recommendation.
The company which has been selected for the purpose of the report is Sky Network Television Limited. It is the company listed in the recognized stock exchange of New Zealand and is one of the top hundred listed companies. The headquarters of the company is located at Auckland, New Zealand. The company has been into the work since the year of 1987 when it was known by the name of the Sky Media Limited. The new name of the company is Sky Network Television Limited (Sky Network Television Limited, 2017). The company is engaged into the four sectors namely television subscription, Online streaming, rental of the DVD’s and timely and accurate broadcasting. The company has grows rapidly from the last so twenty years as since the date of its incorporation. The earlier aim of the company is to navigate the sports programming into the clubs and other various similar places and that too using the satellite dishes of only four meter. But thereafter the company has paid attention towards the television which was identified as to be very successful. The first subscriber of the company has been the speaker of the house of the representative of the New Zealand which has in turn created the demand for the product leading to the company as one of the largest company dealing in this area (Sky Network Television Limited, 2017).
The development that the company has made from the past so many years has created the actual picture of the company as to be in the mining and the exploration sector.
The ownership governance structure is referred to the composition of the governing members who governs the management of the affairs of the company. In other words, the structure which owns the governing function of the company is defined as the ownership governance structure. The governance structure shall be maintained in the proper manner because if the governance structure is not as per the needs and the requirements of the company then the structure so made will be futile and will serve no purpose of the organization (Zimmerman, 2015). The structure of the ownership governance of the company plays very significant role in assigning the roles and responsibilities of each and every present therein like the role and responsibility of the chairman and chief executive officer of the company and the composition of the board members and majorly the shareholders of the company having more than twenty percent share. Thus, the structure shall be formed and operated in the defined and effective manner.
Substantial shareholders of the company are those shareholders of the company which have more than twenty percent share in the share capital of the company. These shareholders can participate in the voting rights of the company and can have the effect of passing or non passing of the resolution at the general meeting of the company. The main substantial shareholders of the company are:
Company will not be treated as family company as no sister concern are there in which the directors relatives are involved and will thus be treated as non family company.
In the governance of the company, people involved are those people which manage the affairs of the company in the efficient and effective manner. In case the people involved in the governance are not in accordance with the nature and size of the business of the company then the work of the company will be in total mismanagement of the affairs of the company which in turn will affect the company very badly and may even result to the closure of the company. Thus, the people involved in governance shall be with requisite experience and knowledge. In the given case of Sky Network Television Limited, following persons are involved in the governance and the name of them has been reproduced below:
No the above mentioned names as required in accordance with the governance structure does not contain any person having the surname of the substantial shareholders of the company. None of the Members with more than 5% share capital is involved in the firm governance.
It ensures that the decision taken by the board members in the meeting is totally independent and is not affected by the personal bias or prejudice. On the other hand, if the answer would have been positive then there may be the likelihood that the company better decisions would have been taken keeping in view their concern as he or she will be representing the all of the substantial shareholders of the company and also being the part of the board of members.
In this manner, the company is maintaining its structure of governance.
The ratios are the accounting or the financial ratios which help the management of the company as well as the users of the company to have an understanding as to how the company is functioning in the market, whether the company would be able to survive in the future, whether the company is working as per the needs of the industry, whether the company has been able to achieve its obligations in time and many more situations. These ratios have been divided into major five categories – short term solvency, long term solvency, asset utilization, profitability and the market value (Horngren, 2012). All these ratios have been calculated and arrived for the last two years ending on 2017 and 2016 and has been in the separate excel sheet. All these ratios have been analysed below one by one.
Each of the ratios has its own significance and overall the company is not working effectively and there is reasonable doubt to believe that the going concern assumption will be affected.
The share price of the company has been obtained from the reliable source for the last two years and the same has been maintained in the separate excel sheet. The graph has also been plotted in excel sheet. Excel sheet has detailed the open price, high price, low price and the closing price. On the plain reading of the share prices, it has been observed that there has been very much difference as the share price is ranging from 45 cents to 1 cent but when it has been checked in the graph, it is depicted that the share price of the company is highly volatile in nature. For instance, share price on 17th May 2018 is 0.01 and on 30th March 2018 are 0.009. It exhibits that the share price of the company is highly volatile it keeps on changing very frequently and is very sensitive to the external environment.
One significant event that has occurred during the year and has been properly noticed and reported is about the higher net loss from the continuing operations to the tune of $10715180 along with the net cash outflow from the operating activities to the tune of $10912327. It has been mentioned as the key audit matters in the independent auditors report. It states that with this loss the going concern assumption of the company has come into doubt where there are reasons to believe that there exists the material uncertainty in the future which can affect not only the share price of the company but also will affect the working of the company. Along with this decrease the company has been into the relinquishment of various projects. For instance on the basis of the review, the company has relinquished the project of Nabberu tenements and in Mc Arthur river project no work has been carried out since the past so many years. (Premnath, 2012).
Thus, in this manner, the share price is affected by the impairment of Big W segment.
The beta has been calculated in the separate excel sheet and 0.33 beta has been calculated.
Under the CAPM mode, required rate of Return = Rf + β (Rm – Rf) = 4% + 1.07(6% – 4%) = 4% + 2.14 = 6.14%
Yes, as per the financials of the company and the analysis that has been done earlier, the company is regarded as the conservative investment for the investors. It is because it ensures the dividend to their equity shareholders of the company. Secondly if the dividend is later on paid by the company then also the principal is considered as the safest investment in the sense that the principal amount invested by the investor does not gets eroded. It will keep on adding irrespective of the fact of low risk and less return.
The Weighted Average Cost of Capital has been identified using the annual report of the company for the year ending two thousand and seventeen. It is the average of cost of company’s source of finance. The calculation has been made below:
WACC = {Equity divided by Total value multiplied by Cost of Equity} + {Debt divided by Total value multiplied by Cost of Debt multiplied by (1 – Tax Rate)}
Cost of Equity = 0 /0.010 = NIL %
Cost of Debt = 0 /0 = NIL% and After tax Cost of Debt NIL.
|
Heads |
Amount |
W |
C |
WACC |
|
Equity |
1410082 |
1.00 |
6.14% |
6.14 |
|
Debts |
0 |
0.00 |
0.00% |
0.00 |
|
Total |
1410082 |
6.02 |
In this manner, the WACC has been calculated and arrived at 6.14%.
WACC will provide the best results as required by the management as the required rate of return is higher than the WACC.
In case the WACC is higher than the present value of the inflows for the evaluation of the projects, WACC will help in covering other costs and generating the higher revenue.
The debt ratio for both of the past two years has been arrived and these are 0.00 in the year of 2017 and 0.01 in the year of 2016.
No, it does not appear to be stable. It is because it has been decreased from the year of 2016 to the year of 2017. To evaluate the debt equity ratio it is stated that higher the ratio, lower will be the chance of making the defaults and accordingly here the company has the high chances of making the default in repayments.
The company has not done anything in this matter but as per the ratio and its analysis the company shall try to expand the business and avail loan from the banks or any other financial institutions (Kaviyani, 2011).
The dividend policy that the company has adopted is to pay out the divided to the shareholders of the company. Along with that some amount shall also be infused into the business of the company. But as per the annual report of the company, the company has not paid any dividend for the last three consecutive years due to which the investors have also lost their interest and as on date the company does not have funds borrowed from the banking or the financial institutions.
Conclusion
The financial statements are the one of the pillar which helps the investors including the other stakeholders in taking the decision. Managerial accounting has provided various tools as to how the same shall be analysed. Analysis through the financial or the accounting ratios is the part of that. In report, the major emphasis has been placed on the working and the operations of the company. Through the accounting ratios and other parameters the working of the company has been depicted and accordingly modified. In order to conclude the report, the deep analysis of the annual report of the company – Sky Network Television Limited (Former Name – Sky Network Television Limited) has been checked and detailed.
In accordance with the detailed analysis that has been made of the company – Sky Network Television Limited (Former Sky Network Television Limited), it has been observed that though the company will not be able to improve some of its accounting ratios like current ratio, debt equity ratio, etc. but have adopted the measures which will persuade the investors to make the investment in the company.
Secondly as the company has been into the business for the last so many years, the chances of getting it closed are very less and chances for its very growth. Although it is apparent from the annual report of the company that in case the company does not functions well than the company will soon be closed or will be liquidated. Therefore, keeping in the view of these developments in the financial matters of the company, it is recommended for the investors including the potential investors and other stakeholders to not to invest in this company as per the current scenario.
References
Horngren, C. T, (2012), ”Introduction to Management Accounting”, Chapters 1-17. Prentice Hall.
Kaviyani M, (2011), “A Theory to Analysis of Annual Report ”, Research Journal of Finance and Accounting, Vol 10, No. 15, pg 192-202
Premnath S, (2012), “Analysis of the Financial Statements”, International Journal of Accounting and Finance, Vol20, Issue 17, pp 24-42.
Sky Network Television Limited, (2017), “Annual Report 2017”, available on https://www.sky.co.nz/ accessed on 17-05-2018.
Zimmerman, (2015), “Accounting for Managers” Issues in Accounting Education, 35, 77-99.
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