239.Write 2000words individual financial statements analysis.

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Individual Assignment Part A
Ratio analysis provides potential users with a thorough summary of the most important details
in a financial statement. The most focused ratio includes Return on equity which offers an
indication of a company’s performance. ROE is a percentage of net income returned in
comparison to shareholder’s equity. Figure 2.4 in the appendix, shows the ROE of
Blackmores from 2013 to 2016. Blackmore’s experiences a slight decrease in ROE in 2014
however, increases considerably to 63.8% in 2016. This is a positive sign for Blackmores’ as
it suggests that the company has an increasing ability to generate profit within needing much
Profit Margin: (refer to figure 1.0)
The Profit margin ratio allows users to see the percentages of sales that is left over after the
business has paid for all of their expenses. It is a measure of how effectively a company is
able to convert their sales generated into net income. It is necessary for this ratio to be high as
investors and creditors rely on a company’s ability to make payments for their loans. If the
profit margin ratio is low, it suggests that the company is inefficient at converting sales into
net income and therefore need to cut expenses and budget their capital. As seen in figure 1.1,
there is a decrease in profit margin from 2013 to 2014 by 0.3%, however in the following
years it began to increase. Leading towards 2016, Blackmores’ sales amplified by more than
double from 2013 whilst expenses did not increase as much. Factors associated with
Blackmores’ increase in sales includes the expansion of the company into Asian countries
especially China. It’s expenses also increased proportionately in order to sustain the rapid
Through the analysis of Blackmores’ three most material accounts in accordance with the
profit margin we are able to identify that there is an inverse relationship between the three
accounts and the profit margin ratio. As profit margin increases, the expense to revenue ratio
decreases vice versa. In a company, a lower expense to revenue ratio means that they have
accumulated less expenses and therefore will result in accumulating a higher profit margin.
Changes in inventories:
Between 2012 to 2015, there was a decrease in the amount of changes in inventory expenses
from $3422 to $1809. This caused an increase in changes in inventory as a percentage of total
revenue. The ratio then decreases in 2016 due to a decrease in the number of changes in
inventories of finished goods to $O.
Raw materials and consumables used:
Between 2012 to 2016, there was an exponential increase in number of raw materials used.
There was an average of 19.9% when calculating the number of raw materials and
consumables used as a percentage of total revenue.
Employee benefits:
Between 2012 to 2016, there is an increase in employee benefit expenses from $54910 to
$94353. Although this is the case, total revenue increased at a greater proportion as compared
to the increase in employee benefit expenses which presented a continuous growth in profit
Asset turnover: (refer to figure 2.6)
Another vital ratio which companies use to assess for efficiency includes the asset turnover
ratio. This ratio compares the revenue generated by a company relative to the values of its
assets in order to determine the amount of revenue per dollar of asset. Company’s always aim
for a high asset turnover ratio as it provides them with a better image. Blackmores’ asset
turnover almost doubled from 1.91 in 2014 to 3.48 in 2016. This implies that in comparison to
other competitor, Blackmores’ is more superior at using its assets in order to produce more
Return on Net Operating Assets: (refer to figure 2.1)
Return on net operating assets shows an indication of how well a company creates profits
through the use of its operating assets. The higher the RNOA ratio, the more likely investors
will be attracted to the company. Blackmores’ has experienced an increase in RNOA from
2014 to 2016 however, there was a slight decrease in 2014. Although this is the case, the
RNOA Blackmores’ has obtained, is still a high level.
Liquidity: (refer to figure 2.5)
Liquidity ratios are incorporated in analysis of financial statements in order to measure
whether or not a company is able to repay its debts to creditors. It also helps to give a clear
indication of a company’s cash flow positioning. The four liquidity ratios performed on
Blackmores’ includes Current, Quick, Cash and Operating Cash Flow ratio.
Current Ratio- Measures a company’s ability to repay short term obligations. This ratio
should stay greater than 2.0 to indicate to creditors that the company is able to repay their
current liabilities using their current assets. In Blackmores’ case, we can see that from 2013 to
2015, the current ratio was >2.0. The ratio then dropped to 1.65 in 2016 which gives a
negative indication on Blackmores’ ability to repay debts.
Quick Ratio- Measures a company’s ability to meet short term financial liabilities. The quick
ratio measures how much liquid assets are available for every dollar amount of current
liabilities. Between 2013 to 2016, Blackmores’ had an average of $1.62 for every dollar
amount of current liabilities it had incurred.
Solvency: (refer to figures 2.3)
Solvency ratios are used to measure a company’s ability to meet long term liabilities. It gives
an indication as to whether or not a company’s cash flow is sufficient enough to repay
liabilities. Company’s want to have a low solvency ratio due to the fact that a greater ratio
indicates that the company is likely to not be able to meet its obligations. When referring to
figure 2.3, It is evident that Blackmores’ solvency ratio reached a peak of 80.4% in 2014 and
dropped to 33.4% in 2016. This is one of the factors behind the high profit margin in 2016
and dip in 2014.
Financial Leverage: (refer to figure 2.2)
Financial leverage refers to the degree in which companies use fixed-income securities such
as debts to acquire new assets. As the company increases its debt financing, financial leverage
also increases. This is not beneficial for the company as this type of financing requires high
interest payments which can further conclude in a negative impact on the company’s earnings
per share. There is an increase in financial leverage for Blackmores between 2013 and 2016.
Although this is the case, Blackmores is able to still incur sufficient amounts of income in
order to repay these debts.
Figure 1.0
Blackmores Ltd’s Profit Margin
Figure 1.1
Figure 2.1
Figure 2.2
Return on Net Operating Assets (RNOA)
NPAT / Equity
Figure 2.3
NFO / Equity (%)
Figure 2.5
Short Term Liquidity
Current Ratio
Quick Ratio
Figure 2.4
Solvency:NFO / Equity (%)
Cash Ratio
Operating Cash Flow Ratio
Figure 2.6
Adelaide Brighton Limited
Name: Xin Yang
Student No. 12638464
Financial Statement Analysis Group Assignment
Macroeconomic Analysis
The global prospect of the economy
The World Gross product for some time now has exhibited a gradual annual increase of
more than 3.4 percent after a financial crisis that occurred a decade ago. It’s evident since 2008,
2017 experienced slow pace in economic output while compared to the other years. However,
some of the factors that have seen positive growth include low inflation, increased world trade
growth, increased productivity, and gradual wage growth. When compared 2008, 2017 gross
world product was higher with more than 0.3 percent (Addis, 2015). Despite the positive factor
mentioned the economy as well, has experienced losses as a result of an increase in conflicts,
reduced commodity prices and increase geographical tension in different parts of the world.
Despite the slow economic growth which has been experienced for a long time now,
projections indicate that there will be an increase in economic growth, especially to the
developed economies. Though financial incentives can be used as one way of boosting the
economic growth modestly, there stands a risk of the economy facing a downside tilt due to
uncertainty in policy heightening and more so the disruption in the financial markets.
Nonetheless in developing countries commodity exporters are forecasting more in the
stabilization of commodity prices and reduced inflation pressure by cutting down the depression
that experienced exchange rates ( Addis, 2015). Similarly, the gross world product is expected to
go up by more than 2.7 percent in 2019 and 2.7 in 2020. With this moderate improvement, it’s
evident that there will be stabilization in the over a global economy which provides a positive
signal for growth.
2. Regional economies
2.1 Australia
In the financial year 2014 – 2015 the Austrian GDP went up with more than 2.9% from
the previous years. The growth was a result of cutting down the mining investment, an increase
in fiscal retention and a notable increase in the consumer expenditures. After the impact
experienced in the global economy which was negative as a result of increased threat to the
financial status and declining commodity prices ( Addis, 2015). The RBA so it wise to bring
down the interest rate by more than 20 points in 2013 It was until the beginning of 2014 that the
growth rate went lower with more than 25% which was below the all-time lows in the economy.
The move went to the favor of construction and dwelling prices which eventually saw a positive
turnover in the housing market. From the data provided by ATO 2013 June CPI was at 1000.4
which were below the target set. The inclining fuel prices also saw an increase in inflation during
the third quarter; however, before ending the year the price declined significantly as a result of
the direct drop in carbon prices ( Addis, 2015). Despite the unpredictable economy during that
year Adelaide Brighton Limited was able to make good sales during that period.
The Australian GDP in 2015 went significantly up due to the rising household spending
and exports. However, it was pulled down by the drop experienced in business investments and
the fall experienced in government investment that year. The year that followed The GDP
increased slightly however the inflation rate grew with a 0.5% which was lower than its
projection (Mohammadi, & South, 2016). Nonetheless, during this financial period of 20162017, the interest rates remind the same. Cutting interest rate usually gives the consumers
increased money volume which normally has an impact it their spending willingness (Abernethy,
2010). The fact that economy experienced a positive impact this boosted Adelaide Brighton
Limited sales with a more than $90000 during the financial period.
As a result of the retraction of the mining investment experienced prospects indicate that
the Australian economy is expected to go up by more than 2.5 % in the next financial year. On
the other hand, there is a huge risk to the GDP due to a reduced growth rate expected to the nonmining investment ( Addis, 2015). However, if the trend doesn’t change 2018- 2019 real GDP
may go down more than the already forecast of 0.5%. In 2016- 2017 financial period prices went
down all year round. The unemployment rate is expected to continue decreasing just like it has
been going down since 2014. The trend is expected to remain on a downside until 2020. From a
general scope, the Australian economy has been growing significantly since 2015 (Mohammadi,
& South, 2016). The positive growth rate has been replicating it Adelaide Brighton Limited sales
where there has been an annual growth rate. With the bright forecast expected to the economy,
Adelaide Brighton Limited will continue enjoying the positive growth, if the company’s
managers develop and maintain goods strategies.
Figure 2 – Adelaide Brighton Limited operations and markets
Figure 3 –
2.2 East Asia and Pacific
2.2.1 China
From the estimated national output of 6.7 percent in 2016, the output reduced
significantly from the period financial year. It has been projected that Chinas economy growth is
expected to reduce steadily and possibly hit lows of 6.7 percent by 2017-2019. From several
years of being negative, the producer inflation price has now changed eventually which has been
a result of the recovery of raw material prices ( Addis, 2015). Similarly, the low inflation rate
and financing rates are some of the direct factors which have seen strong domestic demand in the
Figure 5 Real debt and real GDP in China
Figure 6 Inflation in China
As a result, China has placed varied accommodative policies which have been put in
place to support the economy (Carnegie, & Walker, 2007). Some of the policies include cutting
down on the different interest rates as they did in 2015. Similarly, China capital outflows have
helped to keep a steady finical growth rate; the growth rate has been at 4% per every quarter
since the last quarter in 2016 ( Addis, 2015) . Nonetheless, from 2011-2014 there has been a
sizeable increase in increase too.
Chinas foreign reserves have continued to drop in the year ended 2016 the depreciation
was at $3 trillion which was higher than the previous year ( Addis, 2015). In comparison to 2016
and 2017, the Renminbi has continued to devalue against the Austrian dollar hitting lower of
0.19 for a chines Yuan during the last four quarters.
2.2.2 Rest of the region
The East Asia and Pacific Regions have maintained a growth rate of 4.8 percent in the
economy. The key factors that have led to external demand have been a result of the offset
brought about by the domestic demand. The low inflation in the region has enabled regional
central banks to have strong monetary policies. The East Pacific region has seen a growth in the
rate of importers of commodities.
For instant in Malaysia, there has been reduced demised revenue that’s a result of energy
exports. There has been reduced account surplus, but there has been an increase in the domestic
demand which has gone up significantly. On the other hand, Indonesia has a huge
accommodative monetary policy which has seen the increase of domestic demand which in turn
has seen the growth of the Indonesian economy by 5.8 percent.
During the last quarter of the quarter of the year, most of the region’s currencies have
been renewed and gained strength ( Addis, 2015). For instance, the Malaysian Ringgit has
continued to rise which implies that there has been intensified world volatility which has seen the
deficiency of stimulated measures which as a result there has been foreign market liquidity.’
Business Strategy Analysis
3.1. Key success factors
Adelaide Brighton Limited in 2017 experienced a huge marginal growth in profits some
of the strategies which helped the company achieve marginal increase involve consumer-centric,
product leadership, Asia growth, and operational effectiveness.
Consumer centricity
Adelaide Brighton Limited has been receiving high-quality raw material which offers the
company the best chance to pick on the best ingredients (Carnegie, & Walker, 2007). Despite
the continued increasing demand, the Adelaide Brighton Limited is committed to continuing
producing quality products. The firm has integrated both lime producing and construction
materials for the huge market in construction, infrastructure, engineering and the resource sector.
However, the main operating divisions include concrete, cement, lime, and masonry products.
Operational effectiveness
Being able to redirect and reduce cost is one way the management can concentrate on the
business. During the last quarter of 2017, the organization recorded reduces operating cost. For
the organization to develop their products which include concrete, cement, lime and masonry
products the organization is looking forward for more mergers
The threat of substitute products
A service or a product can meet similar customer’s needs in different ways, the
profitability of industry will suffer. These products offer a threat to the industry. In case
Adelaide Brighton Limited in tackling substitute products, it should understand the
customers and their core needs when coming up with a product rather than what is bought by the
customer. Rather than just being product oriented, the company should also be service oriented.
The customers’ switching costs should also be increased.
There are different risks of substitution for cement and lime industry. According to the
engineers, Adelaide Brighton Limited in operates in three business operations; concrete and
aggregates, cement and lime, and concrete products it is a cement producing asset to the people
of southern Australia and to the group itself. The industry produces approximately 1.3 tonnes per
4.1 Key buyers
The bagged cement from the manufacturers is sent to the Victorian and South Australian
markets. New entrants or substitute products in the industry brings innovation. Putting pressure
on Adelaide Brighton Limited through doing things in new ways, through reducing the costs,
lower pricing the products, and giving the customers new value propositions. To deal with these
issues of substitute products and new entrants in the cement industry is by; lowering the fixed
costs per unit by building economic scales, innovating new services and products. This new
services and products will bring new customers to the industry and also give the normal
customers reasons to buy products from Adelaide Brighton Limited. Through spending money
and building capacities on developments and research, Adelaide Brighton Limited will regularly
define its standards and substitute products are not likely to enter into a dynamic and established
The bargaining power
4. 1 Bargaining power of buyers
Buyers are always demanding. Most of them want to use the minimum cost to get the
best products available. In the long run, this will put pressure to Adelaide Brighton Limited.
These customers are always powerful, and it’s upon the cement industry to offer discounts due to
the customers’ high bargaining power. To deal with these powers of bargaining from the
customers, it can be done through increasing the number of the customers. This will give an
opportunity to the cement industry to streamline its production processes and sales and also
reduce the bargaining power of the old customers. New products innovation will force customers
to seek offerings and discounts on the new products so if the cement industry Adelaide Brighton
Limited keep on establishing a new product; it will limit the buyers bargaining power.
Establishment of new products to the market from the industry will reduce the defection of the
old customers (Carnegie, & Walker, 007). In bargaining power of buyers, the cement industry
supplies their products directly to the consumer that is usually in bulk ( Addis, 2015). The price
of the manufactured cement and lime depends on whether the Adelaide Brighton Limited has a
strategy of switching costs. Moreover, the importance of the manufactured cement an also be put
into consideration on whether i …
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