Financial Analysis Of Automotive Holding Group Limited

Ratio Analysis

The company that has been chosen for analysis is Automotive Holding Group Limited. The company is listed on Australian Stock Exchange and is engaged in the business of automotive retailing in Australasia. The principal business activity of the company consist of automotive retail, refrigerated logistics and other logistic. The automotive retail segment of the company has more than 190 motor vehicle franchises which is at more than 110 dealership locations operating both at New Zealand and in Australia. The second segment which is refrigerated logistic segment is operating in cold storage and transport operations. The company operates in other range of business like truck and trailer body building, transport and storage etc. The company is trading on exchange at $ 1.55 on 18^th January, 2019. The 52 week high of the company is $ 3.87 and 52 week low of the company is $ 1.39. The company is headquartered Perth, Australia. (Reuters.com, 2019)

For the purpose of analysing the investment prospect of the company, the results of the company for the last financial year has been analysed along with computation of ratios for all the years. The details of Profit and Loss Account and Financial Statement of the company for the past four years has been presented here-in-below:

Automotive Holding Group Limited
Income Statement
Sl No Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Particular	30-06-2018	30-06-2017	30-06-2016	30-06-2015
1	Total Revenue	6474053	6106064	5625999	5245789
2	Cost of Revenue	4977948	4651737	4190744	3928948
3	Gross Profit	1496105	1454327	1435255	1316841
4	Operating Expense
a.	Research development
b.	Selling general and administrative	1212607	1176435	1128715	1020438
c.	Non-recurring
d.	Others	97780	79241	84782	85688
e.	Total Operating Expenses	6343124	5955611	5447862	5076689
f.	Operating income or loss	130929	150453	178137	169100
5	Income from continuing operations
a.	Total other income/ expenses net	-78602	-60459	-40988	-39072
b.	Earnings before interest and taxes	130929	150453	178137	169100
c.	Interest expense	-44584	-41447	-36580	-33576
d.	Income before tax	52327	89994	137149	130028
e.	Income Tax expense	14535	28901	40263	35913
f.	Minority Interest	20011	14914	24928	23299
g.	Net Income from continuing operations	37792	61093	96886	94115
6	Net Income	32639	55539	90071	88091
7	Net income applicable to common shares	32639	55539	90071	88091

Automotive Holding Group Limited
Balance Sheet
Sl No	Particular	30-06-2018	30-06-2017	30-06-2016	30-06-2015
1	Current asset
a.	Cash and cash equivalent	73046	95035	108593	69862
b.	Net receivables	416570	356957	333614	318586
c.	Inventory	1110746	899796	828111	732030
d.	Other current asset	44981	51023
e.	Total Current Asset	1645343	1401911	1304866	1149645
2	Long Term Investment	8355	8316	5076	7375
3	Property Plant and Equipment	376524	401130	359041	349174
4	Goodwill	233738	222565	209277	186614
5	Intangible Asset	305430	290605	252983	205427
6	Other Asset	68701	60866	60192	58847
7	Deferred Long term charges	68701	60866	60192	58847
8	Total Asset	2638091	2385393	2191435	1957082
9	Current Liabilities
a.	Accounts Payable	186494	137435	96371	102769
b.	Short/ Current long term debt	4352	5125	17363	12986
c.	Other Current Liabilities	199163	173143	163357	167925
d.	Total Current Liabilities	1503207	1224557	1099341	959236
10	Long Term Liabilities	225461	224438	265632	197243
11	Other liabilities	40931	43836	38340	35737
12	Minority Interest	20011	14914	24928	23299
13	Total Liabilities	1861577	1583050	1471932	1261439
14	Total Stock Holder equity	756503	787429	694575	672344

On the basis of above data, fundamental analysis has been carried out on the basis of analytical tools like ratios. The ratios that have been computed for analysis has been presented here-in-below:

• Gross Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting the direct expenses of production. The higher the gross margin of the company, the better the company is performing. It is used for analysing the health of the company.(InvestingAnswers Inc, 2019) The formula for computation of Gross Profit Margin has been presented here-in-below:

Gross Profit Margin: Gross Profit earned/ Sales.

The result of the company for the past three years have been presented here-in-below:

Gross Profit Margin
Sl. No	particular	Gross Profit	Sales	Gross Profit Margin
1	2018	1496105	6474053	23.11%
2	2017	1454327	6106064	23.82%
3	2016	1435255	5625999	25.51%

On perusal of the above data, it can be seen that gross profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost and slow rise of prices and competition in market. Thus, the gross margin of the company has shown a downward trend for the year.

• Operating Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting the operating expenses of the company. The higher the operating margin of the company, the better the company is performing. It is used for analysing the health of the company. The formula for computation of Operating Profit Margin has been presented here-in-below:

Operating Profit Margin
Sl No	particular	Operating Profit	Sales	Operating Profit Margin
1	2018	130929	6474053	2.02%
2	2017	150453	6106064	2.46%
3	2016	178137	5625999	3.17%

On perusal of the above data, it can be seen that operating profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost and slow rise of prices and competition in market. Thus, the operating margin of the company has shown a downward trend for the year.

• Net Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting all the expenses of the company. The higher the net profit margin of the company, the better the company is performing.(InvestingAnswers, Inc. , 2019) It is used for analysing the health of the company. The formula for computation of Net Profit Margin has been presented here-in-below:

Net Profit Margin
Sl. No	particular	Net Profit	Sales	Net Profit Margin
1	2018	32639	6474053	0.50%
2	2017	55539	6106064	0.91%
3	2016	90071	5625999	1.60%

On perusal of the above data, it can be seen that net profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost along with indirect cost and slow rise of prices and competition in market. Thus, the net margin of the company has shown a downward trend for the year.

• Net Income from continuous operations Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting all the expenses of the company. The higher the net profit margin from continuous operations of the company, the better the company is performing. It is used for analysing the health of the company. The formula for computation of Net Profit Margin from continuous operations has been presented here-in-below:

Gross Profit Margin

Net Income from continuous operation Profit Margin
Sl No	particular	Net Profit from continuous operation	Sales	Net Profit Margin
1	2018	37792	6474053	0.58%
2	2017	61093	6106064	1.00%
3	2016	96886	5625999	1.72%

On perusal of the above data, it can be seen that net profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost along with indirect cost and slow rise of prices and competition in market. Thus, the net margin of the company has shown a downward trend for the year.

• Current Ratio This is one of the significant liquidity ratio and is used for the purpose of analysing the liquidity of the company and measuring the solvency of the company in the short term. It represents the working capital position of the company. It is used for analysing the health of the company. The formula for computation of Current Ratio has been presented here-in-below:

Current Ratio
Sl. No	particular	Current Asset	Current Liabilities	Current Ratio
1	2018	1645343	1503207	1.09
2	2017	1401911	1224557	1.14
3	2016	1304866	1099341	1.19

On perusal of the above, it can be see that current ratio of the company is downward trending which signifies that company is not able to actively manage its working capital management of the company. Thus, the same is showing a downward trend. (CFI Education Inc., 2019)

• Quick Ratio This is one of the significant liquidity ratio and is used for the purpose of analysing the liquidity of the company and measuring the solvency of the company in the short term. It represents the working capital position of the company. It is used for analysing the health of the company and consider only those asset which can be immediately converted to cash to pay off the debt. The idle ratio is 1:1.The formula for computation of Quick Ratio has been presented here-in-below:

Quick Asset: Current Asset- Inventory

Quick ratio
Sl No	particular	Quick  Asset	Current Liabilities	Quick Ratio
1	2018	534597	1503207	0.36
2	2017	502115	1224557	0.41
3	2016	476755	1099341	0.43

On perusal of the above, it can be see that quick ratio of the company is downward trending which signifies that company is not able to actively manage its working capital management of the company and does not have much quick asset to repay debt . Thus, the same is showing a downward trend.

• Total Debt-Equity Ratio:  This is one of the significant leverage or capital structure ratio and is used for the purpose of understanding the degree of leverage of the company. It is used for analysing the health of the company The idle ratio is 2:1.The formula for computation of Total Debt- equity Ratio has been presented here-in-below:

Total Debt-Equity Ratio
Sl No	particular	Total Debt	Equity	Total Debt-Equity Ratio
1	2018	229813	756503	0.30
2	2017	229563	787429	0.29
3	2016	282995	694575	0.41

On perusal of the above, it can be seen that the debt to equity ratio of the company has seen a downfall which is good for the company as the amount of debt is reducing for the company compared to equity. However, the company shall not be able to reap the benefit of trading on equity.

• Debt-Equity Ratio:  This is one of the significant leverage or capital structure ratio and is used for the purpose of understanding the degree of leverage of the company. It is used for analysing the health of the company The idle ratio is 2:1 and consider only long term debt. (CFI Education Inc., 2019)The formula for computation of  Debt- equity Ratio has been presented here-in-below:

Long Term Debt-Equity Ratio
Sl No	particular	Long Term Debt	Equity	Debt-Equity Ratio
1	2018	225461	756503	0.30
2	2017	224438	787429	0.29
3	2016	265632	694575	0.38

On perusal of the above, it can be seen that the debt to equity ratio of the company has seen a downfall which is good for the company as the amount of debt is reducing for the company compared to equity. However, the company shall not be able to reap the benefit of trading on equity.

• Cash Conversion Cycle: This is one of the significant tool used to analyse the period in which the company is able to convert its investment in the inventory and other resources into cash flows from sales. Further, the shorter the cycle the better is for the company. The formula for computation of cash conversion cycle has been presented here-in-below:

Cash Conversion Cycle: Receivable Days+ Inventory Days- Payable Days.

Cash Conversion Cycle
Sl No	particular	Receivable Days	Inventory Days	Payable Days	Cash Conversion Cycle
1	2018	21.81	56.68	9.13	69.35
2	2017	20.64	51.64	6.99	65.30
3	2016	21.16	50.61	6.46	65.31

On perusal of the above, it can be seen that the cash conversion cycle of the company is increasing which represent poor efficiency of the company to convert sales into cash. Thus, the cash conversion cycle is showing an upward trend.

The common size statement analysis of the company helps in analysing the items in financial statement comprising Profit and loss Account as percentage of sales of that respective year.  It allows analysis and comparison between companies of between different time period for the same company. The statement is very useful in analysing the performance of the company over the year in terms of percentage profitability, controlling expenses and checking the increase or decrease in expenditure of individual item of financial statement. The common size financial statement for Automotive Holding Group Limited has been presented here-in-below:

Automotive Holding Group Limited
Income Statement
Sl No	Particular	30-06-2018	%	30-06-2017	%	30-06-2016	%	30-06-2015	%
1	Total Revenue	6474053	100%	6106064	100%	5625999	100%	5245789	100%
2	Cost of Revenue	4977948	77%	4651737	76%	4190744	74%	3928948	75%
3	Gross Profit	1496105	23%	1454327	24%	1435255	26%	1316841	25%
4	Operating Expense
a.	Research development
b.	Selling general and administrative	1212607	19%	1176435	19%	1128715	20%	1020438	19%
c.	Non-recurring
d.	Others	97780	2%	79241	1%	84782	2%	85688	2%
e.	Total Operating Expenses	6343124	98%	5955611	98%	5447862	97%	5076689	97%
f.	Operating income or loss	130929	2%	150453	2%	178137	3%	169100	3%
5	Income from continuing operations
a.	Total other income/ expenses net	-78602	-1%	-60459	-1%	-40988	-1%	-39072	-1%
b.	Earning before interest and taxes	130929	2%	150453	2%	178137	3%	169100	3%
c.	Interest expense	-44584	-1%	-41447	-1%	-36580	-1%	-33576	-1%
d.	Income before tax	52327	1%	89994	1%	137149	2%	130028	2%
e.	Income Tax expense	14535	0%	28901	0%	40263	1%	35913	1%
f.	Minority Interest	20011	0%	14914	0%	24928	0%	23299	0%
g.	Net Income from continuing operations	37792	1%	61093	1%	96886	2%	94115	2%
6	Net Income	32639	1%	55539	1%	90071	2%	88091	2%
7	Net income applicable to common shares	32639	1%	55539	1%	90071	2%	88091	2%

On perusal of the common size statement, it can been seen that company performance has seen a down trend on year on year basis as the major profitability ratio of the company has undergone a downfall and the total operating expense of the company has seen an increase over an year on year basis. Thus, on the basis of period on period basis it shall be seen that companies performance has seen a downfall. Thus, the signs are negative for the company.

Conclusion

On the basis of above discussion, it can be seen that company has not been performing well on year on year basis. Further, the prices of the stock of the company are trading at near about 52 week low. The financial performance has seen a downfall on year on year basis which does not actively support the investment climate. However, one needs to see the performance of competitor during the same period. Thus, on the basis of ratio analysis and common size statement it is advised that investor shall not invest in such company.

References:

CFI Education Inc. (2019). What is the Current Ratio? Retrieved January 20, 2019, from corporatefinanceinstitute.com: https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-formula/

CFI Education Inc. (2019). What is the Debt to Equity Ratio? Retrieved January 20, 2019, from corporatefinanceinstitute.com: https://corporatefinanceinstitute.com/resources/knowledge/finance/debt-to-equity-ratio-formula/

InvestingAnswers Inc. (2019). Gross Profit Margin. Retrieved January 20, 2019, from investinganswers.com: https://investinganswers.com/financial-dictionary/ratio-analysis/gross-profit-margin-2076

InvestingAnswers, Inc. . (2019). Net Profit Margin. Retrieved January 20, 2019, from investinganswers.com: https://investinganswers.com/financial-dictionary/financial-statement-analysis/net-profit-margin-2233

Reuters.com. (2019). Automotive Holdings Group Ltd (AHG.AX). Retrieved JAnuary 20, 2019, from www.reuters.com: https://www.reuters.com/finance/stocks/company-profile/AHG.AX