Financial Report Analysis Essay For 2016-2018.

Based on your analysis of relevant information relating to Super Retail Group, you are required to prepare a structured report (see recommended structure detailed below) with a focus on the  profitability, operating efficiency, liquidity, gearing and cash flows of the company. The profitability,  efficiency, liquidity and gearing of the company should be analysed using the required ratios. Firms are accountable for generating profit with the assets employed. In addition, the firm must pay its  debts as and when they fall due. An analysis of the Statement of Cash Flows is also required.

Use  the data from the financial statements in the annual report to calculate the ratios.  Your report should cover a 3-year period for the years ending June 30 2016 to 2018, and should be sufficiently broad in scope to demonstrate your understanding of findings following the analysis.

See links to Annual Reports below:

2018:

http://media.supercheapauto.com.au/corp/files/documents/Appendix%204E%20&%202018.pdf

2017:

http://media.supercheapauto.com.au/corp/files/documents/Super%20Retaabb2918d.pdf

2016:

http://media.supercheapauto.com.au/corp/files/documents/SRG_AnnualReport20.pdf

2015:

http://media.supercheapauto.com.au/corp/files/documents/SRG_AnnualReport_L.pdf

This report brings out the analysis of Super Retail Group with the help of financial statements of three recent years 2016, 2017, and 2018. For analysing, this report uses financial ratios and evaluation of cash flow statements by looking at the three important cash flow operations, which are operating, investing, and financing activities (Ponikvar, Kejžar, and Peljhan, 2018).

Super retail group is among the famous top ten retailers who is listed on ASX (Australian stock exchange) (SUPER RETAIL GROUP LIMITED SUL, 2018). The company offers automotive accessories, and parts, tools and equipment for marine, motorbike products, handyman items that include car care products, embedded car navigation, lighting, filters, additives, seat covers, footwear, and other performance products. The headquarters of the company is in Brisbane, its network is being extended to more than 670 retail stores, and around 12000 team members are engaged across Australia, China, and New Zealand. Apart from being a largest retailer of Australia, the company includes housing iconic brands such as boating camping fishing, BCF, rebel, super cheap auto, and Macpac with a generation of $2.5 billion as an annual turnover (SUPER RETAIL GROUP LIMITED SUL, 2018).      

The retail sector of Australia is anticipated to be valued at 1010 USD billion by the end of 2024. The retail sector is distributed on the basis of different product categories, market dynamics, and the distribution channels. As the country is blessed with high per capita GDP rate which is valued at USD 50000. The retail sector of the country has noticed lower increase in the wages and increasing household debt. Strong growth supported by low interest rates, housing market, and increase in household credit has affected the customer-spending pattern. Some of the major companies that drive retail industry includes Aldi group, Woolworth Group ltd., Wesfarmers, Big W, JB Hi-Fi ltd, Myer group ltd, and Kmart Australia and Kogan ltd (SUPER RETAIL GROUP LIMITED SUL, 2018).       

Financial ratio is a tool used by the manager to evaluate the company`s performance in order to reflect it to its stakeholders. Here, the calculation has the comparison of three years that is 2016, 2017, and 2018 (Vats, and Patel, 2017).

Liquidity ratios

It refers to the metrics which is used by the company to use it in order to determine the debtor`s ability to pay off its current liabilities. This payment obligation does not include debt obligations that are raised in the name of huge external capital. A high liquidity ratio means that company is liquid enough and is in better conditions top pay off the outstanding debts. Here, to calculate the liquidity, the analysis has used current ratio and quick ratio.

Current ratio

This ratio depicts that how efficient is the company to pay of its current or short-term obligations. It is assumed that the ratio between 1.2 to 2 reveals that the company is capable enough to pay off its current obligations. Whereas, current ratio below 1 means that company does not have enough current assets to cover its short term obligations.    

Introduction of the industry

The above graph indicates that the company has enough funds generated from the current assets to pay off its current obligations. The graph indicates that for all the three years, the ratio is between 1.2 to 2. For 2016, the company has a current ratio of 1.31, for 2017, the company has current ratio of 1.68, and finally it reached to near standard of 2:1 in 2018. This means the company kept increasing its ability to pay off its obligations (Wood, 2016).

Solvency ratios    

This ratio is similar while calculating the risk such as it includes company`s total capital (non-current liabilities + equity). As every ratio, it also has ideal ratio. It indicates a ratio between 35 to 50 %, and a higher leverage depicts high risk. More leverage increases the interest obligations that further reduces EPS. Form the above table it is seen that each year, the company has efficiently engaged debt and to a considerable level that do not hampers the dividend of the shareholders. In 2016, the company maintained 35 percent of gearing ratio and in 2018, gearing ratio increased that means the company has employed more debt. In 2017, the company lended long-term loan as the table indicates that -47 percent (Thornblad, Zeitzmann, and Carlson, 2018).

These ratios are largely used for investment analysis. These undertake to measure the ability of the company whether it earns sufficient return or not.

From the above graph, it can be interpreted that the net profit margin has shown an increase in 2017 and 2018 as compared to 2016. The reasons for such increase is clear such as increase in total sales has increased the profit too or the company has managed to reduce its indirect expenses. As an analysis, the company is performing very well as 2%, 4% and 5% are very less according to the industry. It should at least maintain 10-20 percent of net profit margin. In order to improve, the company should increase its revenue and control its expenses (Kowalik, 2018).   

Return on capital employed measures the returns that is achieved by the business by employing the capital. It should always be of higher percentage as compared to the rate at which it borrows or else any increase in borrowing will lead to reduction in shareholder`s earning. A feasible rate is the one that is greater than the rate at which the company borrows. From the above graph, it can be said that the company gives a considerable return on the capital employed which was nearly 15 percent but it reduced in 2017, as it was only 11 percent that indicates that the rate of borrowing of increased as seen in the cash flow. The company has increased its long-term borrowing that resulted into decrease in return on capital employed. Whereas, in 2018 the company maintained its return with 24 percent (SUPER RETAIL GROUP, 2017).  

Return on equity is the measurement of net return derived from the capital invested by the shareholders. For example- a return on equity of 11 percent means that the company is generating 11-cent return each dollar of net worth.  Moreover, it measures the ability of the management to generate the income from equity available. On the standard basis, ROE of around 15-20 percent is considered good. From the above graph, it can be evaluated that the company`s ROE was not very well in 2016 but it increased to 13 percent in 2017 and further reached to 16 percent in 2018 (SUPER RETAIL GROUP, 2017). 

Liquidity ratios

Return on total assets measures the company`s profit before the interest and taxes in relation to its total assets. A return of around 5 percent or more is considered well. This indicates that how effectively the company uses the assets in order to generate the profits before the contractual obligation are paid. From the above graphical representation, it can be seen that the company has been earning nearly 6 to 7.5 percent in 2017 and 2018 whereas it had just earned 3.5 percent in 2016. The company is effectively operating through its total assets (Liang, Lu, Tsai, and Shih, 2016).      

From the above table, it can be evaluated that the cash flows from operating activities has shown a regular increase in 2016, 2017, and 2018. The cash flows are 159200, 234500, and 308400 for the year 2016, 2017, and 2018. The rise in amount can have many reasons such as increase in the profitability, increase in the change of current assets which is 26600 for 2018, 11800 in 2017, whereas in 2016, It has reduced by 34300 (Tonchia, 2018).

While evaluating the cash flows from the investing activities for all the three years, it can be seen that the company has invested through capital expenditure, which has increased year after year. In 2016, the company invested 79900, in 2017, it invested 102100, and in 2018, it invested 107100 in long-term investments. It is a good sign that company is investing in long-term investments and have long-term visions.    

When evaluating the financing activities, it can be seen that the outflow of cash is more than the inflow of cash. The company rely less on borrowing as in 2016, it borrowed 28000, but in 2017-it lended 25900, which means outflow of cash, and in 2018, the company again borrowed a sum of 36300 (Jacobson, and von Schedvin, 2015).     

Activity ratios         

This indicates measures the rate at which the organisation is turning up to its liabilities and assets. Here to analyse the company ability, inventory turnover, assets turnover, Receivable turnover ratio, and creditor’s turnover ratio.

Inventory turnover

Higher ratio means that investor is sold at fast pace that signals the effectiveness of management in handling the inventory. A unusual rise in inventory turnover indicates that company`s inventory is too lean and it is unable to pace up with increased demand. It is more industry-specific. The above table indicates that in 2016, the company restock its items for 4 to 5 times. It is considered that an ideal turnover can be in between 4 to 6 times. In 2017 and 2018, the number of restocking the items reduced to 3.32 in 2017 and 3.34 in 2018 (SUPER RETAIL GROUP, 2016).

Receivable turnover

This indicates how often the company receives its payment from the debtors. It is estimated that the ideal for this turnover can be 2.05 times. In case of the company, it is seen that company does not get its payment on time, as it was 1.68 in 2016, 0.67, and 0.69, which is less than the ideal (Laitinen, and Laitinen, 2018).

Solvency ratios

Creditor turnover ratio

This indicates the speed at which the company pays its suppliers. Low credit turnover ratio indicates that suppliers are paying slowly. Here, in all the years the company pays for two times that is considerably fine as compared to receivable turnover ratio (SUPER RETAIL GROUP, 2015).

Non-financial assessment and external analysis includes PEST. Political, social, economic, and technological factors affect the company performance.

Political factors- political factors plays an important role in abiding while affecting the operations. Revenue and profitability of the store are affected by governmental policies. Further, certain regulation affect the buying behaviour of consumers, international laws, and the economy too. Australian government encourages FDI and foreign investment. It has promoted the industry to e-commerce segment so that retail leaders can even grab the international market.   

Economic factors- this factor includes inflation rate, GDP, buying capacity of the customer, and personal disposable income. People with more income have more demand. A strong economy also indicates that the investors are interested in the investment criteria and profitability of the retail stores. For 2017, the country has a GDP of 1.32 lakh crores USD and it is predicted that the GDP will keep increasing at a rate of 2 percent each year.    

Social factors- Consumer taste and preferences are the major factors affecting the retail sector. People enjoys to buy bulk and get discount offers. Retailers generally offer certain products after conducting online market research so that it can collect data according to customers. They can easily see which products are purchased by the people and on what product they are leaning or ignoring completely. Then, they shape their offerings according to the market research conducted, which is a never-ending process.  

Technological factors- the Retail sector engages wide variety of technology every day such as point of sales system. To maintain a register for cash incoming and outgoing do not work these days. As technology advances, the company has adopted new systems, software, and hardware. For instance, smaller stores are shifting to computers or iPads at the register, which is fast and easy to use.   

Conclusion

Form the above analysis, it can be concluded that super retail group is performing extremely well as each financial ratio is either near to the standard or ideal ratio or it is better than the ideal ratio. Moreover, the report has analysed the cash flow operations with the help of cash flow statement of three years 2016,2017, and 2018. From the analysis and comparison of all the three years, it is seen that in 2019, the company is performing very well.       

Jacobson, T. and von Schedvin, E., 2015. Trade credit and the propagation of corporate failure: an empirical analysis. Econometrica, 83(4), pp.1315-1371.

Kowalik, M., 2018. Profitability and Financial Liquidity of the Chemical Industry Companies. Finanse, Rynki Finansowe, Ubezpieczenia, (1 (91) Zarz?dzanie finansami), pp.47-58.

Laitinen, E.K. and Laitinen, T., 2018. Financial reporting: profitability ratios in the different stages of life cycle. Archives of Business Research, 6(11).

Liang, D., Lu, C.C., Tsai, C.F. and Shih, G.A., 2016. Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study. European Journal of Operational Research, 252(2), pp.561-572.

Ponikvar, N., Kejžar, K.Z. and Peljhan, D., 2018. The role of financial constraints for alternative firm exit modes. Small Business Economics, 51(1), pp.85-103.

SUPER RETAIL GROUP LIMITED SUL (2018) APPENDIX 4E PRELIMINARY FINAL REPORT. Available on: https://media.supercheapauto.com.au/corp/files/documents/Appendix%204E%20&%202018.pdf [Accessed on 10/02/19]

SUPER RETAIL GROUP, (2015) ANNUAL REPORT 2015. Available on: https://media.supercheapauto.com.au/corp/files/documents/SRG_AnnualReport_L.pdf [Accessed on 10/02/19]

SUPER RETAIL GROUP, (2016) ANNUAL REPORT 2016. Available on: https://media.supercheapauto.com.au/corp/files/documents/SRG_AnnualReport20.pdf [Accessed on 10/02/19]

SUPER RETAIL GROUP, (2017) ANNUAL REPORT 2017. Available on: https://media.supercheapauto.com.au/corp/files/documents/Super%20Retaabb2918d.pdf [Accessed on 10/02/19]

Thornblad, D.B., Zeitzmann, H.K. and Carlson, K.D., 2018. Negative Denominators in Index Variables: The Vulnerability of Return on Equity, Debt to Equity, and Other Ratios. Electronic Journal of Business Research Methods, 16(1), pp.1-10.

Tonchia, S., 2018. Project Cost Management and Finance. In Industrial Project Management (pp. 153-170). Springer, Berlin, Heidelberg.

Vats, S. and Patel, K., 2017. Ratio Analysis of a Private Limited Company with Relevance to Change in Type of Enterprise-A Case Study of Write Fine Products Pvt. Ltd. Umbragam, Gujarat. Journal of Applied Management-Jidnyasa, 9(2), pp.37-43.

Wood, D.A., 2016. Comparing the publication process in accounting, economics, finance, management, marketing, psychology, and the natural sciences. Accounting Horizons, 30(3), pp.341-361.