The present study is based on the analysis of financial as well as non-financial ratios of the two companies namely; Main Freight Limited and Spark New Zealand Limited in order to make a viable investment decision for the amount of $3 million received through LOTTO. The study aims to critically evaluate the financial ratios and interpret the financial progress and performance by making use of statistical measures while conducting the non-financial analysis by considering the overall performance of both the companies.
MainFreight Limited has been listed on the New Zealand Logistics, it is considered as the leading freight company in New Zealand, US and other main countries. Its headquarters are located in Auckland. The company’s growth is unstoppable and is continuing to expand gloablly7. Being an international supply chain business with more than 250 branches throughout the world, the company is engaged in offering classy logistics solutions across the most developed economies in the world (MainFreight Limited, 2018). It provides warehousing, global air and water freight forwarding services and local distribution services. The company has major business operations in more than 240 branches in more than 20 nations in and around the world.
Spark New Zealand is a telecommunication company based in New Zealand offering fixed line telephonic services, mobile networks, internet services and key ICT provider to New Zealand businesses. It is said as the leading company in terms of value on the NZX with the operations as a trading company publicly (Bloomberg, 2018). The company is engaged in offering telecommunication services and offers data, mobile and internet networking, as well as wireless networking services. It offers domestic national and global telephone and data services, and has operations through three key segments namely; Spark Connect, Spark Home Mobile & Business and Spark Digital.
By considering the trend analysis of both revenues and nets assets of Mainfreight Ltd increasing trend can be noticed in previous financial years. Net income had recorded growth of 6.27%, and sales growth is approximately twice of profitability which shows improvising financial performance of the overall business.
Comparison of Key Profitability ratios of Mainfreight Limited with industry shows that the performance of the company is far better from trading efficiency to overall operating efficiency. However, in five-year prospect, there is a slight reduction in profitability ratios, but it is still higher than the industry statistics.
Comparison of investment ratios of Mainfreight Ltd with industry shows that the efficiency of the company is better than the industry as they are generating higher ROA and ROI. Although, return on equity of the company is significantly lower in comparison to the industry figure, but this adverse factor is mitigated by the overall operational efficiency of Mainfreight Ltd. With the 5-year average ROA and ROI stability in the overall performance of the company can be noticed and provided return is almost twice the industry statistics. This factor shows that the company is performing better than industry measure and consequently they are generating higher returns.
Cash flow statement analysis (Amount in million)
|
2015 |
2014 |
2013 |
2012 |
|
|
Cash flow from operating activities |
113.65 |
120.38 |
83.17 |
77.14 |
|
Cash flow from investing activities |
-132.5 |
-62.28 |
-58.74 |
-280.44 |
|
Cash flow from financing activities |
27.56 |
-43.98 |
-17.59 |
193.43 |
|
Foreign exchange effects |
1.16 |
-2.65 |
-0.72 |
-3.22 |
|
Net change in cash |
9.87 |
11.46 |
6.12 |
-13.09 |
Cash flow statement reflects the changes held in income and accounts of the balance sheet that impact the cash and cash equivalent and conducts the breaking of analysis into operational, investment and financial activities.
The above cash flow statement of MainFrieght shows that cash generated from operating activities are effective, and the company payments are showing an increasing trend which means the company is seeking to make its payments on a timely basis so as to strengthen its position and be free of payments. The table shows that the cash receipts of the company are also increasing, which means the company is generating higher revenue and is accounting the same strategically (Mainfreight Ltd (MFT), 2018). The cash tax of the company is showcasing fluctuations but is increasing anyway, stating that the company is good on paying tax on the generated revenues. On the other hand, the interest paid on cash is not stable but is performing effectively which shows that the company is providing interest on bank loans to reduce its outer debts while solidifying its financial position.
The investing activities of the company are showing a negative trend, asserting that the company is making more and more of investment in fixed assets for improving its financial performance and keeping the base of asset strong simultaneously. The company is investing in PPE higher to smoothen the operations and functions of management. The investing activities of the company show that the company is investing in long terms as fixed assets, indicating managed credit and optimal fund management.
However, the financing activities of the cash flow statement are also showing a negative pattern, as the company is making investments in the dividend factor, so as to appeal shareholders and keep them loyal with more of returns. In addition, the liability of the company is also decreasing stating that the company is making optimal payments on external debts for maintaining the strong financial base. The financing activities of the company are reflecting the minus trend, because the company is spending to repurchase the issued ones, and pay off the debt and interest as well as making a dividend payment to attract shareholders.
By considering five years net income of the company, fluctuating trend can be noticed, but mostly there is positive fluctuation in performance. On the other hand, total assets of the company are constantly increasing which reflects the increasing financial strength of the company. The trend of fluctuating net income make the investment risky, but on an overall basis, there is constant growth in revenue which assures that proposed company for investment is a suitable option. Further, with the increasing worth of the company, in long-term management is able to generate higher returns for their investors.
As per the above image, it can be noticed that gross profits of the company are lower than the industry average, but same is compensated by a higher operating margin and net margin. Therefore, by considering the overall analysis, it can be noticed that the selected company is performing better in comparison to industry standards as their net profit margin is 10.48% while industry in generating negative returns. This factor shows that the company is able to provide returns to the shareholders even in a situation where there is the downfall for the industry. Further, the similarity of annual returns with the 5-year average shows the consistency of performance of company which ensures regular revenue returns.
Comparison of investment ratios of Spark New Zealand Ltd with industry shows that the efficiency of the company is better than the industry as they are generating a higher return on assets and return on investments. However, the return on equity is comparatively lower but the same is mitigated by the operational efficiency of the company. Over the years, the company had maintained their efficiency as annual ROAis similar to the 5-year average ROA. Further, return on investment is also showing a similar trend but over the years average ROI of the industry is reduced, but the average ROI of the company has been increased.
Cash flow statement analysis (Amount in million)
|
2018 |
2017 |
2016 |
2015 |
|
|
Cash flow from operating activities |
777 |
717 |
716 |
630 |
|
Cash flow from investing activities |
-484 |
-380 |
-488 |
-456 |
|
Cash flow from financing activities |
290 |
-337 |
-256 |
-304 |
|
Foreign exchange effects |
– |
– |
– |
2 |
|
Net change in cash |
3 |
– |
-28 |
-128 |
By considering the above table, it can be noted that the operating activities of the company show effective and affirmative financial performance entirely, the cash receipts of the company show plus trend and is increasing year on year, as the collection policy is optimally managed by the company. Along with this, the rising cash recipes of the company can improve liquidity in business further the higher cash resources will assist the company in reducing their short terms loan and can avail cash discounts as they will have a fewer requirement on trade credit. On the other hand, the cash payments are also showing increasing trend buttressing that the company is making eventual payments to the outer sources and reducing its liability to make the financial base stronger (Spark New Zealand Ltd (SPK), 2018). As the company is receiving the cash, it is moving the same to pay its expenses and payments, but it can be noticed that company revenue is higher in comparison to the payments, that means the profit collection is good.
However, the cash flow statement of investing activities asserts that the fixed investment provides more consideration by the company. The company is making higher contribution n monetary efforts in the financial resources and is conducting more of capital expenditures for increasing its operation, paying off the short terms loan and giving returns to the shareholders. The capital expenditure is increasing tremendously, as the company is thriving to purchase higher PPE, this will help in increasing the overall business worth and market value. By considering the ROI of company increase, capital expenditure will lead to higher return as the company is able to maintain the percentage over the years. Therefore, it can be expected that with the increase in capital expenditure there will be significant benefits to shareholders and company investors.
The cash from financing activities is also stating the minus trend, which means the company’s overall performance is good and is well-going at paying short terms loans and effective at providing the expected returns to the shareholders. The total cash dividend is increasing year on year, which reflects that the company is giving good response and benefits to the shareholders in return for purchasing the shares. This initiative is taken by the company to maintain financial position, higher market value and shares.
Main Freight has maintained an effective financial performance all over, by considering its operations revenue, sales and client satisfaction. It has kept up with the responsibility management, CSR activities and sustainable practices. Sustainability is the way for the company to conduct their key activities based on logistics and supply chain. The company is highly aware of the impacts by social and economic aspects on their and prevent the same by taking effective social responsibility measures by performing business conducts from an economic point and also including social as well as ecological factors while making decisions (Main Freight Limited, 2018). The company aims and consider the areas in the entire CSR program and activities; special consideration is given towards education and safety measures for future development. Along with this, traffic safety is maintained and supported with the help of information campaigns. In addition initiatives such as campaigns and donations are promoted especially where the company has left its footprint.
The effective financial and internal business results of the company shows significant growth and the first time Main Freight has crossed the net profit valued at 100 million. This incredible growth and satisfactory results, with greater contributions made by the company, are outstanding and reflects successful business and financial performance (Petty, Titman, Keown, Martin, Martin and Burrow, 2015). Additionally, the sales revenue has also been increased for the year ended; this outcome continues the pattern of the company on generating optimal financial performance on a yearly basis.
The company also has an ambition to support a clean, secure and green environment for each and eve person involved. They aim to surpass the minimum standards of the environment as practically as possible. Thus, they are also now realizing the significance of the triple bottom line which is economical, environmental and social effects and considering the same in decisions regarding planning and operations.
Spark New Zealand Limited (SPK)
The Spark New Zealand Board is highly committed to assuring the Spark New Zealand Group for maintaining better standards of corporate governance and effectively complies with the ethical standards. Further, Spark finances have operations in the corporate governance protocols, procedures and practices of the Group of Spark New Zealand. The company is focused towards the enduring growth, CSR activities and sustainability in business (Spark Annual Report, 2017). The company builds a relationship by cultivating an overall diversified workplace and involves more and more people. The Spark Foundation is also supported for encouraging generosity while building a more developed future for the involved people. The key is sustainability while considering the innovative aspects of Spark; it makes investments in energy efficiency which further makes a reduction in electric consumptions. The company fulfils its commitment and ensures customer satisfaction by making use of technology and innovation to make a reduction in factors that impact the environment, and thereby allows an environmentally friendly and sustainable practices by ICT (Spark New Zealand, 2017)
Moreover, the company has introduced the Supplier Code of Conduct and rooted the same in its management with the application of best governance practices. The community practices of Spark are fulfilled through education as it attempts to provide an opportunity to all to uncover their potentiality and succeed in the digital economy (Giglio, Kelly and Pruitt, 2016).
Conclusion
In accordance with the present study, conclusion can be drawn that selected shares of Mainfreight Limited (MFT) and Spark New Zealand Limited (SPK) is a viable decision for the purpose of investment. It is because, both the companies are providing better performance than the industry benchmarks which shows that both the selected investments are able to provide returns to the shareholders even in a situation where there is a downfall in their respective industry. Selected investments also have a growing trend which will assure great revenue returns as well as appreciation in initial capital amount. Apart from the financial prospects, non-financial indicators of both the companies are also showing positive aspects which reflects sustainability in terms of performance and brand image. Therefore, selected investment is viable for long-term perspective to generate a good return in comparison to the industry average.
References
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., (2015). Financial management: Principles and applications. Pearson Higher Education AU.
Giglio, S., Kelly, B. and Pruitt, S., (2016). Systemic risk and the macroeconomy: An empirical evaluation. Journal of Financial Economics, 119(3), pp.457-471.
MainFreight Limited, (2018). Anything is Possible. Retrieved from < https://www.mainfreight.com/global/en/global-home/about-us.aspx >. Bloomberg, (2018). Company Overview of Spark New Zealand Limited. Retrieved from < https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=122668>.
MainFreight Limited, (2018). Sustainability New Zealand. Retrieved from < https://www.mainfreight.com/nz/en/nz-home/about-us/sustainability.aspx>.
Spark New Zealand, (2017). Sharing playing creating building living caring Retrieved from < https://investors.sparknz.co.nz/FormBuilder/_Resource/_module/gXbeer80tkeL4nEaF-kwFA/doc/FY15-Corporate-Social-Responsibility-Report.pdf>.
Spark Annual Report, (2017). Unleash. Retrieved from <https://www.sparknz.co.nz/content/dam/SparkNZ/pdf-documents/SPARK_ESG_Report_2017.pdf>.
Mainfreight Ltd. MFT (New Zealand: NZX), 2018. Retrieved from <https://quotes.wsj.com/NZ/MFT/financials>.
Mainfreight Ltd (MFT), (2018). Retrieved from <https://in.investing.com/equities/mainfreight-ltd-ratios>.
Spark New Zealand Ltd. SPK (Australia: Sydney), (2018). Retrieved from <https://quotes.wsj.com/AU/XASX/SPK/financials>.
Spark New Zealand Ltd (SPK), (2018). Retrieved from <https://au.investing.com/equities/telecom-corp-of-new-zealand-ltd-ratios>.
Spark New Zealand Ltd (SPK), (2018). Retrieved from <https://au.investing.com/equities/telecom-corp-of-new-zealand-ltd-cash-flow>.
Mainfreight Ltd (MFT), (2018). Retrieved from < https://in.investing.com/equities/mainfreight-ltd-cash-flow>.
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