Discuss about the Corporate Responsibility and Ethics in Accounting.
The first firm is Ramsay Health care whose operation began in 1964 when the founder Paul Ramsay bought a guesthouse in Sydney and converted it into a psychiatric hospital. During the first 14 years of establishment they have been able to expand to 3 more clinics in Australia. They tend to provide healthcare needs which ranges from surgery procedures to high complex surgery, as well as psychiatric and rehabilitation care. They have greatly expanded over the years and operate in countries such as France, the United Kingdom, Malaysia and Indonesia. In addition, they also engage in mental health care industry and surgical industry.
Secondly, there is Toxfree Company whose establishment and listing in the Australian Security Exchange was done in 2000. Over the years, the firm has experienced great growth through acquisitions, new green field developments and the existence of organic growth. The firm is well known for its specialty in waste management which tends to keep all industries in order and ensure there is sustainable environment conditions. The firm further engages in activities such as industrial cleaning, asset maintenance, vacuum loading, high pressure water getting and tank cleaning. The firm’s vision has maintained their consistent growth which is “becoming the leading company in industrial service and waste management industry”.
Abacus property known for its diversification in the real estate industry will be our third focus. Established in 1996 and enlisted in the Australian Stock Exchange in 2002 the property group has greatly spread its wings to specialize in making investment in property opportunities across the commercial property markets located in Australia. Their operation mode includes acquiring property based assets and assists in enhancement of income and capital growth through management of those assets. They have a flat corporate structure and business model supports the synergies across the business. An important factor about them is they operate with the objective of offering investors with increasing returns to shareholders.
As for this report, we will be carrying out an in-depth analysis of these 3 firms in regards to their profitability, liquidity, asset, efficiency and gearing.
Profitability is a general term of a business ability to create profits (Brown & Reilly, 2009). Profits tends to be what is left of the attained revenue after business pays all its expenses which tend to be directly related to the generation of revenue, such as production of a product and expenses relating to business conduction of activities (Madura, 2011). The significance of profitability is that it assists investors in analyzing the best company to direct your investment. Firstly, Ramsey Healthcare profits seem to be increasing over the years. For instance, the growth has been from 16,556,752,743.00 in 2015, 13,989,337,172.00 in 2014 and 7,938,311,588.00 in 2013. In percentage the growth as of 2014 was 76.22% growth compared to 2013. Comparing 2015 profits (16,556,752,743) against 2013 profits (7,938,311,588) the increased profits is 108% increased profits. This shows they have been able to double their profits in a period of 3 years. The reason behind the increased profits is as a results of increase in impairments (land and building) as well as decrease in the expense accounts.
Secondly, Toxfree profitability has varied throughout the years. At financial year 2013, the profitability net margin was 4.78%. It had increased at the financial year 2014 to 5.87%. However the profitability net margin has seen a decrease to 5.34% at the financial year 2015 and finally to 3.21% during the financial year 2016.
Thirdly, there is Abacus property the profit margin of Abacus property is witnessing the declining trend and the percentage has reduced to 91.8% in the year 2016 as compared to 94.3 in the year 2014. However, the return on equity has been facing the increasing trend and this was because of the decreased sales of the company.
Liquidity tends to be a process where an entity pays liabilities in a certain period of time as there is the need of them being settled under the original payment terms (Jeffrey, 2013). The applicability of liquidity on a certain asset means that it’s easy to convert an asset into cash in a short period (Bansal & Hunter, 2003).
Looking at Ramsey Healthcare as of 2014 their liquidity ratio was at 0.97. As of 2015 there was a drop in liquidity this is as a result of current liabilities being greater being greater than current assets, but in 2016 there was additional investments by investors which led to an increase in liquidity to 0.92 but still the current liabilities were still high compared to current assets.
Secondly, Toxfree current ratio appears to be stable throughout 2014 to 2016 financial years. As of 2013 their standings were at 1.51, in 2014 it increased to 1.57 as a result of investors increasing their investments and current assets becoming greater than current liabilities. In 2015, there was a slight drop to 1.46 but in 2016 they were able to propel their liquidity up to 1.71.
Lastly, Abacus property here the current ratio of the company has the declining trend since the year 2014. The ratio stood at 5.56 in the year 2014 and this declined to 2.72 and further to 2.29 in the year 2016. The declining ratio is regarded to be suitable for the company as the company is able to use its current assets in generating the current liabilities. The quick ratio has also witnessed a declining trend and has fallen to 1.15 in the year 2016 as compared to 2.4 and 5.17 in the year 2015 and 2014 respectively. The free cash flow to the net income has also fallen. The free cash flow to the percentage of sales has initially increased and then subsequently decreased.
Asset efficiency ratio tends to measure the efficiency there is in a firm’s ability to utilize assets so as to generate maximum revenue (Breitbarth, 2015).
As for Ramsey Healthcare in 2014 their efficiency was at 1.13 which was a remarkable score for them. In 2015, there was an increase in levels of efficiency which propelled to 1.20, but in 2016 the efficiency fell slightly to 1.08.
Secondly, Toxfree asset turnover ratio has been increasing through the financial year 2013 to financial year 2015. The asset turnover ratio during the financial year 2013 was 0.84, it increased to 0.93 in financial year 2014, and it reached its peak on 2015 with 1.00 asset turnover ratio. During financial year 2016, it has decreased to 0.86.
For Abacus, they have witnessed a declining trend and the ratio has fallen form 0.17 in the year 2014 to 0.9 in the year 2015. The receivables turnover has initially increased and subsequently decreased. The ratio stood at 17.33 in the year 2014 as compared to 21.13 in the year 2016. There was a significant increase in the inventory ratio. The ratio increased from 0.46 in the year 2014 to 2.06 in the year 2016. The lower ratio indicates that the company is not efficiently utilizing the current assets. The balance of the account receivables are increasing faster than the sales of the company.
Based on the gearing aspect, Ramsey debt ratio to asset seems to have an increasing trend. For instance as of 2014 the debt ratio to asset was at 0.62 and at 2015 there was an increase to 0.75. In 2016, the debt ration to asset remained constant as that of 2015.
Secondly, Toxfree debt ratio to asset has an increasing trend where in 2013 it was at 0.72, 2014 witnessed an increase to 0.81 and 2015 the ratio stood at 0.85. In 2016, there was also an increase to 0.90.
Lastly, Abacus property debt to assets ratio has initially reduced and then increased in the year 2016. The ratio stood at 1.52 in the year 2014 as compared to 1.62 in the year 2016. The lower ratio is always considered better and the ratio 1.62 is regarded to be highly leveraged as the company has more assets compared to its liabilities.
The use of ratio analysis tends to have its own limitations which include:
Conclusion
In general, we observe an increasing trend in profitability along the three companies but Abacus Property seems to be the strongest. In liquidity, Abacus Property appears to be the strongest firm and in asset efficiency Abacus Property appears to have better asset efficiency since they have a low ratio indicating that the company is not efficiently utilizing the current assets which could act as a potential for growth. Hence, indicating that Abacus Property can greatly prosper in long run.
It is advisable for the investor to dedicate his investments on Abacus Property compared to the other two firms. The only aspect that he could focus on managers of the firm to work on is debt ratio to assets. Hence, resulting to greater results and higher revenue for the investors’ money.
References
Brown, K., & Reilly, F. (2009). Analysis of investments and management of portfolios. [Mason, OH?]: South-Western.
Madura, J. (2011). Personal finance. Boston [u.a.]: Pearson.
Jeffrey, C. (2013). Research on professional responsibility and ethics in accounting. Vol. 17 Vol. 17. Bingley, U.K., Emerald.
Balmer, J. M. T. (2009). Explicating Corporate Identity. Bradford, Emerald Group Pub.
Breitbarth, T. (2015). Corporate governance: the of international business in journal society : governance and Ratio analysis management in sport.
Wang, S. (2014). Chinese strategic decision-making on CSR.
Hazlett, S.-A., Mcadam, R., & Sohal, A. (2007). Quality management and Ratio analysis. [Bradford, England], Emerald.
Ali, A. J., & Al?Aali, A. (2012). Corporate social responsibility in Saudi Arabia. Middle East Policy, 19(4), 40-53.
Bansal, P., & Hunter, T. (2003). Strategic explanations for the early adoption of Ratio Analysis. Journal of Business Ethics, 46(3), 289-299.
Göbbels, M., & Jonker, J. (2003). AA1000 and SA8000 compared: a systematic comparison of contemporary accountability ratio standards. Managerial Auditing Journal, 18(1), 54-58.
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