Discuss about the Business Accounting Methods and Uses.
The financial analysis gives an insight into the strengths and weaknesses of the company which is crucial for investors to make investment decision. Most of the vital information which is being used to make out an investment decision is contained in the three primary components of the financial statements. These three primary components of the financial statements are income statement, statement of financial position, and cash flow statement (Stickney et al., 2009). Further, ratio analysis technique is used to make the information more relevant for decision making. The investors look for the ratios such as earning per share, price to earnings ratio, return on equity, dividend yield, and net assets value per share. These ratios provide crucial information to the investors to make an investment decision (Tracy, 2012). In this context, a report has been presented here which deals with the financial analysis and stock price analysis of Boardroom Limited. This report aims at finding out major strengths and weaknesses and provides a recommendation in regard to investment in the company’s stock.
The Boardroom Limited, listed on Singapore stock exchange, is a company engaged in providing business services. The service portfolio of the company includes secretarial services, consultancy, advisory, and support services. The company was incorporated in the year 1968 and has grown significantly since then (Yahoo Finance, 2017). At Present, the company is headquartered in Singapore with operations spread out in many countries abroad. In this report, financial analysis of the company for the latest financial years such as 2015 and 2014 has been conducted with the help of ratios. The ratios opted for financial analysis of the company have been discussed and interpreted as below:
The earning per share signifies the net income available to the equity shareholders of the company on per share basis. This means that the amount of income attributable to the equity owners for one share they hold. It is computed by dividing the net income available to the equity shareholders with the number of share remained outstanding during the year. The analysis of earning per share is crucial because it reveals the company’s capability to generate income for the investors (Tracy, 2012). In regard to Boardroom Limited, the analysis of EPS for the two latest financial years i.e. 2014 and 2015 has been presented below:
Figure 1: Analysis of EPS of Boardroom
From the chart presented above, it could be observed that the EPS is showing declining trend. The earnings per share of the company were $0.07 in the financial year 2014 which reduced to $0.03 in the year 2015. The reason for this heavy downfall in the EPS is the combined effect of reduction in the earnings and increase in the number of shares outstanding. The net profit of the company fell down from $10,205,345 in 2014 to $6,722,000 in the year 2015 (Appendix-3). Further, the number of shares outstanding increased from 145,582,668 in 2014 to 205,565,749 in 2015.
The price earnings (PE) ratio is computed by dividing the current market price with the earnings per share of the company. The PE ratio is considered to be the most crucial in conducting valuation of the company’s stock and finding out that whether the stock is undervalued or overvalued. The investors can work out the fair value of the stock by multiplying the industry average PE ratio with the current earnings per share of the company (Tracy, 2012). In respect of Boardroom Limited, the analysis of PE ratio is conducted as under:
Figure 2: Analysis of PE Ratio
From the data presented in the chart shown above, it could be observed that the price to earnings ratio of the company is enhancing in the year 2015. In the previous year i.e. 2014, the company had a PE ratio of 8.13 times which increased to 18.35 times in the current year. It could be observed that the stock’s price did not change by a big margin as it was $0.57 in 2014 and remained at $0.60 in 2015 (Appendix-3). However, despite this fact, the PE ratio increased substantially. This was mainly due to decrease in the EPS of the company. The EPS went down from $0.07 in 2014 to $0.03 in the year 2015.
The dividend yield is computed by dividing the dividend paid out to the investors (per share basis) with the market price of the stock. This implies the dividend received as a percentage of market prices of the stock. The dividend yield is also one of the most crucial considerations for the investors in regard to investment decision. The dividend yield represents a part of the return on investments made by the investors (Tracy, 2012). In respect of Boardroom Limited, the dividend yield has been presented in the chart given below:
Figure 3: Analysis of Dividend Yield
The chart presented above shows that the dividend yield of the company has gone down in the current year as compared to the previous year. In the year 2014, the company provided a dividend yield of 8.77%, however, it reduced significantly to 3.33% in the year 2015 (Appendix-3). The reason for downfall in dividend yield has been identified as the combined impact of reduction in dividend per share and increase in the market price of the stock.
Net assets value is computed by deducting the total assets from the total liabilities possessed by the business. Further, to get net assets value per share the difference of total assets and liabilities is divided by the number of shares. The net assets value represents true worth of the business. Further, another way it also shows the worth of the company’s stock. However, it is computed based on the historical values of the assets disregarding the market value and future expectations, therefore, the investment decisions can not be solely based on the net assets value (Tracy, 2012). In respect of Boardroom Limited, the analysis of net assets value per shares is presented in the chart given below:
Figure 4: Analysis of Net Assets Value per Share
It could be observed that the net worth of the company has reduced in the year 2015 as compared to the year 2014. It decreased from $0.48 per share in 2014 to $0.35 per share in the year 2015. The decrease in the net assets value of the company is a negative sign. The primary reason for decrease in the net asset value per share has been identified as increase in the number of shares. In the year 2014, the number of shares was 145.58 million which increased sharply to 205.57 million in the year 2015 (Appendix-3).
Apart from analyzing the fundamental aspects, it is also crucial to carry out a technical analysis of the stock. The technical analysis assists in identifying the trend in the stock’s price and comparing it with the overall stock market (Edwards, Magee, and Bassetti, 2012). The investors can be made aware of the demand of the stock in the market by conducting technical analysis. The technical analysis also depicts the investor’s confidence in regard to investment in a particular stock (Edwards, Magee, and Bassetti, 2012). Considering these essential aspects, the technical assumes a great importance in the investment analysis. In respect of Boardroom Limited, the technical analysis of its stock’s price has been conducted as depicted in the chart shown below:
Figure 5: Stock Price Analysis of Boardroom and SES
The chart presented above shows trend in the returns earned on the Boardroom’s stock and the overall market (represented by Singapore Stock Exchange). It could be observed that Boardroom has been more stable than the overall market. In regard to boardroom, the trend line shows that the movements in the stock’s price are gradual. However, the trend of market shows movement at a big scale. This indicates that Boardroom is less risky than the overall market which is also confirmed from the analysis of standard deviations of the two. The standard deviation of Boardroom has been found to be 2.38% while that of overall market is 3.65%. Further, since the stock is less risky its return is also lower than the overall market. The average annual return for 2015 has been found to be 7.15% on the stock of Boardroom which is lower than 14.57% of the overall market (Appendix-4). However, the returns are lower on the stock of Boardroom, but the positive sign is that these are stable. The stability in return is the most crucial factor which the investors seek while analyzing a stock for investment. Thus, from that view point, it could be inferred that the stock of Boardroom could be a good choice for the investors and in particular for the risk-averse investors.
The company is operating with $107.76 million assets which depicts that it has a strong resource base (Appendix-3). Further, the company is looking endeavored to reduce the liabilities so that debt burden could be lowered. This shows a good sign that the company is striving to be independent. Further, the stock price analysis shows stability in the movements which shows confidence of the investors in the company. The confidence of the investors is one of the most crucial strengths that the company has at the moment. However, there some weaknesses also observed from the analysis. The most concerning thing in this regards is the fall down in profitability. In the current year, the company lost profits by a big margin.
Conclusion and Recommendations
An analysis into the financial performance and stock’s price has been conducted in this report. The facts and findings of the analysis depicts that the financial performance of the company has not been so good in the current year. The profits of the company slopped downward from $10.21 million to $6.72 million causing reduction in earnings per share and dividend per share. The dividend yield of the company also went severely down. However, the company managed to position it well by reducing the long term liabilities. Due to reduction in long term liabilities, the net worth of the company increased. Further, the stock price also showed stability indicating less risk. The overall conclusion of the analysis is that though the financial performance of the company has not been good, but the company is equipped with all the resource to make a turnaround. Based on this conclusion, few recommendations for the company and its investors are drawn as under:
References
Boardroom. 2015. Annual report of Boardroom Limited for 2015. [Online]. Available at: https://www.boardroomlimited.com.au/forms/AR/Boardroom%20Annual%20Report%202015.pdf [Accessed on: 04 February 2017].
Stickney, C.P., Weil, R.L., Schipper, K., and Francis, J. 2009. Financial Accounting: An Introduction to Concepts, Methods and Uses. Cengage Learning.
Tracy, A. 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. RatioAnalysis.net.
Yahoo Finance. 2017. Profile: Boardroom Limited (B10.SI). [Online]. Available at: https://finance.yahoo.com/quote/B10.SI/profile?p=B10.SI [Accessed on: 04 February 2017].
Edwards, P.D., Magee, J., and Bassetti, W.H.C. 2012. Technical Analysis of Stock Trends, Tenth Edition. CRC Press.
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