Discuss about the Analysis of investments Tassal Group Limited.
The report has been prepared on Tassal group limited. The report concentrates on the markets and the financial statement of the company to evaluate the performance of the company. It has been observed that the financial performance of the company has been affected through various internal and external changes. Being a financial analyst, the first work which has been done is the reformatting of the financial statement of the company which has been putted in appendix. Secondly, the trend of the company in last 5 years has been evaluated on the basis of ratio analysis of the company. The ratio analysis has been conducted on the basis of reformatted financial statement of the company. The analysis has been done on the ratios and it has been valuated that why these changes have taken place into the performance of the company. Lastly, cash flow of the company has been analyzed through using the liquidity, cash flow ratios and solvency position of the company.
The financial statement of the company has been reformatted by using the last 5 years’ final financial statement of the company which includes income statement, balance sheet, changes in equity shareholder of the company and the cash flow statement of the company (Madhura, 2011). The main items and the figures of the financial statement of the company are as follows:
|
2017 |
2016 |
2015 |
2014 |
|
|
AUD $ (m) |
AUD $ (m) |
AUD $ (m) |
AUD $ (m) |
|
|
Net Operating Assets (NOA) |
481.0 |
429.0 |
398.0 |
356.0 |
|
Net Financing Obligation (NFO) |
-57.0 |
25.0 |
26.0 |
14.0 |
|
Book Value (Common Shareholder Equity) |
538.0 |
404.0 |
372.0 |
342.0 |
|
2017 |
2016 |
2015 |
2014 |
|
|
AUD $ (m) |
AUD $ (m) |
AUD $ (m) |
AUD $ (m) |
|
|
Net Operating Profit After Tax (NOPAT) |
38.0 |
30.0 |
35.0 |
30.0 |
|
Net Financing Expense (NFEat) |
10.5 |
9.1 |
8.4 |
6.3 |
|
Net Income (Clean Surplus Profit) |
27.5 |
20.9 |
26.6 |
23.7 |
|
Free Cash Flow (FCF) |
10.0 |
2.0 |
-48.0 |
6.0 |
(Morningstar, 2018)
Ratio analysis is a part of financial statement analysis. It is a tool which is used by the companies and the financial analyst to evaluate the position of the company and the changes into the company from last few years. It is usually analyzed by the analyst to identify the trend. Ratio analysis study is used by the managers, investors, analyst, future shareholders and other stakeholders of the company to make a decision about the investment in the company and evaluate the efficiency of the company (Higgins, 2012). It is also used by the financial manager of the company to predict the future. It offers a good base to the managers to compare the financial performance of a company with other. Here, the ratio analysis study has been conducted to evaluate the performance of Tassal group limited.
Return on equity (ROE) is a profitability ratio which is used widely to recognize the profit generation capability of the company. It is calculated on the basis of net operating profit before tax and average shareholder equity of an organization. It explains about the total % of equity which is returned back to the company as income. In general terms, 15-20% return on equity is considered as good ratio.
Titman and Martin, (2014) explains that the return on equity is a product of asset turnover ratio, profit margin and financial leverage. It explains that there are various factors which could affect the ROE of an organization. In the case of Tassal group limited, it has been found that the ROE of the company was 7.28% in 2013 which has been reduced to 7.06% in 2017. The calculations explain that the difference is not major. Though, the differences have taken place due to lower NOPAT position and the Book value of the equity has also been raised. However, the current position of the company is quite better in terms of last 5 years (Annual Report, 2015).
Return on net operating profit (RNOA) is a profitability ratio which is used to recognize the profit generation capability of the company against the operating assets of the company. It is calculated on the basis of net operating profit before tax and operating assets of an organization. It explains about the total % of operating assets which is returned back to the company as income (Brown, 2012).
The return on net operating profit is a profitability ratio which briefs about the total generation capabilities of the company. In the case of Tassal group limited, it has been found that the RNOA of the company was 3.45% in 2013 which has been reduced to 2.09% in 2017. The calculations explain that the differences have occurred due to huge operating expenses of the company in last 3 years (Gibson, 2011). The company has also enhanced the level of property, plant and equipment which has reduced the level of RNOA. However, the company is required to maintain a good position of operating profit to manage the performance of the company.
Profit margin (PM) is a profitability ratio which is used to recognize the profit margin of the company against the total revenue of the company. It is calculated on the basis of net profit after tax and total sales revenue of an organization. It explains about the total % of sales which is returned back to the company as net income (Annual Report, 2016).
In the case of Tassal group limited, it has been found that the profit margin of the company was 8.65% in 2013 which has been reduced to 8.54% in 2017. The calculations explain that the differences have occurred due to high operating expenses of the company in last 3 years (Brooks, 2015). Though, the level of sales revenue has also been enhanced and it has managed the profit level of the company. However, the company is required to maintain a good position of net profit to manage the performance of the company.
Asset turnover ratio (ATO) is an efficiency ratio which measures the ability of an organization to generate the sales from its assets. It is calculated on the basis of net profit sales and average total assets of an organization. It explains about the organization that how efficiently a company could use its assets to manage and generate the revenue.
In the case of Tassal group limited, it has been found that the asset turnover ratio of the company was 0.64 in 2013 which has been enhanced to 0.71 in 2017. The calculations explain that the position of the company has been enhanced because of huge investment of the company in its assets (Brigham and Houston, 2012). Though, the level of asset turnover ratio of the company is still not high. The company is required to make few changes for a better efficiency position of the company.
Financial leverage (FL) is a tool which assists an organization to acquire more assets through using the debt funds. It is calculated on the basis of average net financial obligations and average shareholder’s equity of an organization. It explains about the organization that how efficiently a company could use its debt and equity funds to manage the performance of the company (Brigham and Ehrhardt, 2013).
In the case of Tassal group limited, it has been found that the financial leverage ratio of the company was 0.31 in 2013 which has been reduced to 0.17 in 2017. The calculations explain that the position of the company has been decreased because of huge equity funds of the company (The wall street journal, 2018). The company has invested more funds in the assets through equity. Though, the level of financial leverage ratio of the company is required to be better and the company should focus on the debt funds to invest into the assets.
Net borrowing cost (NBC) is a tool which assists an organization to evaluate the borrowing capability of the organization. It is calculated on the basis of net financial expenses and net financial obligations of an organization. It explains about the debt obligation of an organization which involves financing fees and interest payments.
In the case of Tassal group limited, it has been found that the net borrowing cost of the company was 45% in 2014 which has been reduced to -18.42% in 2017. The calculations explain that the position of the company has been decreased because of negative financial obligations of the company. The current borrowing obligations of the company have also been lower due to it.
Cash flow analysis is a different tool to analyze the performance of an organization. It is mandatory for all the public limited companies in Australia to produce the cash flow statement. Tassal group limited releases the cash flow statement in its annual reports every year. It is one of the important final financial statements of an organization which explains about the cash flow position of the company (Brigham and Daves, 2012). Cash flow analysis explains that whether the cash inflow of the company is better than cash outflow or not. Better cash inflows are more important and crucial for a business than its profit. Profits could be manipulated by the companies as amortization, depreciations and provision expenses but cash flow statement offers a clear mage about the performance of the company. The evaluation on the Tassal group limited explains that the NOPAT and the cash flow position of the company are quite different in last 5 years. The differences have occurred due to tax expenses and the depreciation amount.
Liquidity ratio evaluates the ability of a company to pay its short term debt obligations. In the process of identifying the liquidity position of a company, current assets of the company are divided by the current liabilities of the company. The better the liquidity ratio of a company, the better the position of the company would be in terms of paying the debt amount.
The liquidity ratios of the company explain that the current ratio of the company is 3.6 which explain that the company could pay all its short term liabilities 3.6 times if it liquidates (Bloomberg, 2018). However, it is not possible for an organization to liquidate the inventory and expenses at the time of liquidation thus quick ratio are a better choice. In 2017, the ratios have been decreased because of payable amount.
Solvency ratio evaluates the ability of a company to pay its long term debt obligations. In the process of identifying the solvency position of a company, noncurrent liabilities of the company are evaluated in context with liquid assets of the company. The better the solvency ratio of a company, the better the position of the company would be in terms of paying the long term debt amount.
The solvency ratios of the company explain that the various changes have taken place into the long term liabilities of the company. The current solvency ratios explain that the position of liabilities of the company has been enhanced from last few years. The solvency ratios explain that the interest payment ability of the company has also gone down as well as the debt ratio has also been lowered (Bloomberg, 2018). The main reason behind this lower position is interest rate of the country.
|
Solvency Ratio |
||||
|
2017 |
2016 |
2015 |
2014 |
|
|
Liabilities to Equity ratio |
60.41% |
133.03% |
194.59% |
188.35% |
|
Debt to Equity Ratio |
7.81% |
83.04% |
122.44% |
125.65% |
|
Debt to Capital Ratio |
7.81% |
45.37% |
55.04% |
55.68% |
|
Interest Coverage Ratio (Earning basis) |
0.01 |
29.39 |
20.27 |
19.78 |
Cash flow ratio evaluates the ability of a company to manage its cash inflows and outflows of the company. In the process of identifying the cash flow position of a company, inventory position, receivable position etc has been evaluated.
The cash flow ratios of the company explain that the various changes have taken place into the cash flows of the company. The current cash flow ratios explain that the position of cash inflow of the company has been lowered from 2014-2015. The company is required to make few changes into the receivable policies to manage the performance.
References:
Annual Report. 2015. Tassal Group Limited. (Online). Available at: https://www.tassal.com.au/wp-content/uploads/2015/09/150678-Tassal-AR-2015_web.pdf (accessed as on 23rd April 2018).
Annual report. 2016. Tassal Group Limited. (Online). Available at: https://www.tassal.com.au/wp-content/uploads/2016/08/FY2016-Annual-Report-Appendix-4E.pdf (accessed as on 23rd April 2018).
Bloomberg. 2018. Australian rates and bonds. (Online). Available at: https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia (accessed as on 23rd April 2018).
Bloomberg. 2018. Tassal Group Limited. (Online). Available at: https://www.bloomberg.com/quote/TGR:AU (accessed as on 23rd April 2018).
Brigham, E. and Daves, P., 2012. Intermediate financial management. Nelson Education.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.
Brooks, R., 2015. Financial management: core concepts. Pearson.
Brown, R., 2012. Analysis of investments & management of portfolios. Pearson Higher Ed.
Gibson, C.H., 2011. Financial reporting and analysis. South-Western Cengage Learning.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Madura, J., 2011. International financial management. Cengage Learning.
Morningstar. 2018. Tassal Group Limited. (Online). Available at: https://financials.morningstar.com/income-statement/is.html?t=TGR®ion=aus (accessed as on 23rd April 2018).
The Wall street journal. 2018. Tassal Group Limited. (Online). Available at: https://quotes.wsj.com/AU/XASX/TGR/company-people (accessed as on 23rd April 2018).
Titman, S. and Martin, J.D., 2014. Valuation. Pearson Higher Ed.
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