Financial Statement Analysis Of SEEK Ltd: Ratio Analysis And Cash Flow Analysis

Overview of the Company

The main purpose of this assignment is to conduct a financial statement analysis of SEEK Ltd and such analysis will be utilizing techniques like ratio analysis, trend analysis and various graph for the same. The analysis of the different components such as expenses, assets and liabilities of the business which affect the net profit of the business will also be considered in the analysis of the report (Ehiedu 2014).

Overview of the Company

SEEK ltd is a company which is engaged in online employment Industry which is currently operating in New Zealand and Australia. The company has a variety of business operations such as online employment, education and volunteer industries. The company is in its growth phase which can be established from the fact that the business has expanded successfully in 14 countries. The major markets for SEEK ltd from where the management of the company earns major portion of revenues is china which comes to about 30.2% of the total revenue as per recent estimate.

The expenses of the business are shown in the statement of profit and loss account of the company. The income and expenses of the company which is shown in the statement of profit and loss account depicts the financial performance of the company for that particular time period (Brochet, Jagolinzer and Riedl 2013). The expenses of the company comprise of direct cost related to services, employee benefit expenses, marketing related expenses, technology and product development expenses, operation and administration expenses, depreciation, transaction costs and impairment losses. The major expenses which affect the profitability of the company which can be identified are given below:

1. Marketing related expenses: These refers to the expenses which are incurred by the business for marketing the products of the business. In other words, the products which are manufactured by the business are promoted by incurring certain amount of marketing expenses. Such market activities involve advertisement, promotion cost, media advertisement and similar other activities which are related to the marketing area of the business. The marketing expenses of the business shows a decreasing trend from 2012 to 2017. This can be due to the fact that the product which the business is offering is already established in the market or the business is trying to reduce their costs so that they can earn more net profits for the business(Kotler 2015). The marketing related expenses was maximum in 2015 which was about $ 288 million and this falls drastically to 99.8 million in 2016 (Appendix, Figure 2). This shows that the business is trying to reduce the overall cost of relating to marketing of the products of the business. The marketing related expenses for the year 2017 amounts to $ 110.2 million. The net profit of the company has decreased from the previous year figure of $ 399.4 million to about $ 362 million(Appendix, Figure 2). The marketing expenses forms a major part of the expenses of the company and therefore affects the profit of the business.
2. Operation and Administration expenses: These refers to those expenses which are incurred in the operational activities or administrative activities of the business. In other words, such relates to different expenses which are incurred in the manufacturing process of the business. The operational activities of the business comprise of manufacturing business, maintenance of different departments, production related expenses and similar types of expenses(Yu, Ramanathan and Nath 2014). The administrative expenses of the business comprise of different expenses which are related to office and staff maintenance. The operations and administrative expenses of the business has increased from the previous year’s figures which was $ 105 million. The operation and administrative expenses for the year 2025 has been highest (Appendix, Figure 2). The expenses show an increasing trend which shows that as the sales of the business increases so that the operating costs as such are closely related to the revenue generation process of the business.
3. Employee Benefit expenses: These refers to expenses which are incurred by the business for the general benefit of the employees of the business. The employee benefit expenses are incurred so that the employee of the company is provided with extra facilities which can provide them motivation to perform better and drive towards excellence. Such types of expenses may include additional benefits to employee, medical perquisites to employees, insurance claims for the employees, better working conditions for the employees(Liapis and Thalassinos 2013).  As per the reformatted income statement of the SEEK ltd, the company has recently introduced such a policy as such expenses have only been incurred from 2016 onwards. The expenses are recognizable as the company have expended a significant amount of money on such a policy. The expense which incurred by the business in 2016 is $ 326.9 million and the same increases in 2017 to about $ 354.7 (Appendix, Figure 2). The amount which is expended by the business is of significant amount and it will definitely lower the net profit of the business drastically. The expenses which the business has incurred for employee benefit expenses forms around 46% approx. of the total operating cost of the business.

The assets of the business are the basis o which the company generates profits. The more the number of assets shown in the balance sheet, the more favorable it looks for the business. The assets are generally divided into two categories which are Current assets and Non-current assets (Shi 2015). The only difference between the two is the nature of the useful life of the asset. As per the Reformatted Balance Sheet of SEEK ltd, the asset of the company includes plant and equipment, cash and cash equivalents, trade receivable, other receivables, intangible assets and deferred tax assets (Storey 2016). The three significant assets which has affected the turnover of the business affecting the asset efficiency are discussed below in details:

1. Plant and Equipment: These refers to the assets which are used by the business for the purpose of running the operation of the business. These assets are generally fixed by nature and forms part of the non-current assets of the company(Wirtz and Lovelock 2016). An annual amount of depreciation is charged in order to record the wear and tear caused to the asset of the company. As per the balance sheet of SEEK ltd, the plant and equipment figure for the year 2017 is shown at $ 29.1 million which has increased from previous year’s figure which suggests that the company has made some purchases for the assets of the business (Appendix, Figure 1). In other words, the increase in the value of the assets suggest that there has been certain addition made to the value of the assets. The increase in the asset is a positive financial indicator for the performance of the business, however the company needs to further improve on the same.
2. Trade and other receivables: These represents the cash which can be collected from the debtors of the business. The trade receivables arise generally when the business offers credit sales to the customers of the business(Cui, Meyer and Hu 2014). The debtor’s turnover ratio suggests the minimum time which is taken for a business to collet its debts from the debtors. In the case of SEEK ltd, the number of debtor have increased for the business which in turns means that the credit sale of the company has increased. It also suggests that the company has less amount of cash in hand. The debtor turnover ratio of the company indicates the financial stability of the business.
3. Cash and Cash Equivalents: These refers to the cash reserves which the business has which considers both cash in hand and cash at bank. This indicates the liquidity position of the business. Cash and Cash Equivalents forms part of the current assets of the company dur to their liquid nature. In the cash of SEEK ltd, the cash and cash equivalent balance has increases from previous year which was $ 504.9 million in 2016 and it became $ 652 million in 2017(Appendix, Figure 1). The cash balance of the company has shown an increasing trend from the year 2012 onwards which shows that the company is maintaining its cash reserves and this is a positive indicator for the business.

1. Return on Equity: It can be defined as the return which is expected on the investments which is made on equity share capital(Heikal, Khaddafi and Ummah 2014). The return on equity for the company is 17.75% which is more than the ROE achieved by the business in 2016 which was 15.21% (Appendix, Figure 4). The ROE of the business was highest in 2012 and since then the company is trying to maintain the ROE of the business. This suggest that the company is improving as it is one of the performance indicators of the company which every shareholder look for (Innocent, Mary and Matthew 2013). The economic factors are responsible for changes which takes place in return on equity which is one of the reason due to which the trend is falling as shown in the chart below.

 

Figure 1: (Chart showing ROE)

Source: (Created by Author)

1. Profit Margin: The profit margin of the company as per 2017 is 36.03% which has reduced from previous year estimate of 43.50% (Appendix, Figure 4). The decrease in profit margin is to be considered by the company and all efforts should be made to improve the profitability of the company. The profit margin of the company is also considered to be one of the performance indicators of business therefore the business needs to improve the same(Sharan 2015). The profit margin of the business has decreased significantly due to the cost increase and the cost factors which affect the business.

1. Assets Turnover Ratio: The assets turnover ratio of the company shows that the ratio has decreased from the estimates of 2015 which was 0.418 and the same has decreased to 0.398 in 2017. There has been a major decrease in the asset turnover ratio of the company. Higher assets turnover ratio is more favorable as it then shows that the business is using the assets effectively(Delen, Kuzey and Uyar 2013). In the case of SEEK ltd the asset turnover ratio suggests that the business is not using the assets of the company effectively. The assets turnover ratio depends on the companies performance internally.

1. Return on Net Operating Assets: The net operating assets of the company show that there has been a serious fall in the estimates as in 2017 the estimate was 14.35% which is lower than the results of previous year (Appendix, Figure 4). Considering the trend lines there has been drastic fall as shown in the chart below.

Analysis of Expenses

 

Figure 2: (Chart showing RNOA)

Source: (Created by Author)

1. FLEV: The ratio results show that the business has a high financial ratio as per 2017 estimate which is shown at 36.90 which as per trend analysis is about an increase to 153% approx. This is not a good indicator as the business is dependent on the dept capital.

1. NBC: This financial ratio depicts the net borrowing cost of the business of the company. As per the analysis shown in the calculations, the net borrowing costs of the business has decreased from previous year which was 3.06% in 2016 and the same has fallen to 2.45% in 2017. This signifies that the debt of the company has reduced some what from previous years and hence the net borrowing costs has reduced. The trend analysis also makes it clear that there has been a decrease in net borrowing cost from previous year.

The figure of cash and cash equivalents of the business has improved a bit over the years and it suggest that the company is in its path for improving the liquidity condition in the organization. The liquidity of a company can be determined with the analysis of the liquidity ratio associated with the company (Disatnik, Duchin and Schmidt 2013). The current ratio of the company shows that the results for 2017 is 1.531 which is more than that of the previous year which shows that the company is not facing any liquidity situations and have enough cash to meet their current obligations of the business. The current ratio is one of the performance indicators of the business. In the case of SEEK ltd the results are favorable.

The liquid ratio or acid test ratio also shows a favorable result for the company and has a result of 1.215 in 2017 which is much more than the results of 2016. The liquid ratio is an extension of the current ratio of the company and the sane is showing favorable results as well.

The cash flow ratio, operating cash flow ratio and Solvency ratio all show a favorable result for the company which is a positive fact for the company. It can therefore be said that the company is not facing any problems relating to liquidity risks and has ample cash to meet the current requirement of the business.

References

Brochet, F., Jagolinzer, A.D. and Riedl, E.J., 2013. Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research, 30(4), pp.1373-1400.

Cui, L., Meyer, K.E. and Hu, H.W., 2014. What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms. Journal of World Business, 49(4), pp.488-501.

Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.

Disatnik, D., Duchin, R. and Schmidt, B., 2013. Cash flow hedging and liquidity choices. Review of Finance, 18(2), pp.715-748.

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Heikal, M., Khaddafi, M. and Ummah, A., 2014. Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), p.101.

Innocent, E.C., Mary, O.I. and Matthew, O.M., 2013. Financial ratio analysis as a determinant of profitability in Nigerian pharmaceutical industry. International journal of business and management, 8(8), p.107.

Kotler, P., 2015. Framework for marketing management. Pearson Education India.

Liapis, K. and Thalassinos, E., 2013. A Comparative Analysis for the Accounting Reporting of “Employee Benefits” between IFRS and other Accounting Standards: A Case Study for the Biggest Listed Entities in Greece. International Journal of Economics and Business Administration, 1(1), pp.91-116.

Sharan, V., 2015. Fundamentals of Financial Management, 3/e. Pearson Education India.

Shi, S., 2015. Liquidity, assets and business cycles. Journal of Monetary Economics, 70, pp.116-132.

Storey, D.J., 2016. Understanding the small business sector. Routledge.

Wirtz, J. and Lovelock, C., 2016. Services marketing: people, technology, strategy.

Yu, W., Ramanathan, R. and Nath, P., 2014. The impacts of marketing and operations capabilities on financial performance in the UK retail sector: A resource-based perspective. Industrial Marketing Management, 43(1), pp.25-3