You are required to calculate key financial ratios for an ASX listed company and its competitor and interpret this information in the context of your allocated competitor company over time. You will be allocated two ASX listed companies to study for this assessment.
Imagine you work for the FIRST of these companies. The second is one of your company’s competitor.
Your boss has asked you to calculate and assess the company’s key (your boss’s opinion) ratios relative to that of its competitor and provide recommendations for improvement if required.
The key ratios you need to calculate for your company and your competitor are net profit margin, asset turnover, current ratio, quick ratio and debt ratio. Your boss also wants you to calculate the cash cycles. All workings for ratios and the cash cycles are required.
You focus your analysis on the companies’ 2016, 2017 and 2018 ratios mentioned above firstly in terms of their trend changes and also in comparison to your competitors ratios and benchmarks wherever possible.
In making your assessment consider potential differences between your company and its competitor that could explain divergent results. Where relevant, these should be noted. (For example, although the companies may compete in some of the same markets, they may also have different areas of business).
The aim of the report is to compare the financial performance of A.P. Eagers Limited (APE) Ltd and comparing it with its competitor Automotive Holdings Group Limited (AHG) Ltd. Performance of the companies will be compared through computing various ratios like net profit margin, debt ratio, current and quick ratio, assets turnover and cash cycles. A.P. Eagers is the oldest automotive retail group listed in Australia. Major activities of the company includes sale and distribution of the accessories, parts, servicing and repair of vehicles, car care products, provision of the extended warranties, leasing of motor vehicles and ownership of the investments and properties (AP Eagers 2019). On the other hand, its competitor Automotive Holdings Group Limited is engaged in automotive logistics and retail businesses. It offers passenger vehicles from various brands that include Bentley, Audi, Chrysler, Fiat, Holden, Ford, Honda, Kia, Hyundai, Mazda, Mitsubishi, Porsche and others (Ahgir.com.au 2019).
Once the financial statement of any entity is prepared it needs to be analyzed through using various tools like ratio analysis. It assists the shareholders in making better decisions with better sense of the accounts and better understanding of the company’s fiscal position (Damodaran 2016). Various ratios conducted for comparing the performance APE Ltd with its competitor AHG Ltd of and their interpretations are as follows –
It is concluded from the above analysis of both the company’s performance for the period under consideration it can be stated that performance of both the companies over the years have been deteriorated. However, if both are compared it can be stated that the over performance of APE Ltd is better as compared to its competitor AHG Ltd. However, it is recommended to APE Limited that to increase the liquidity position it must pay off the debt obligations and to improve the cash cycles it shall allow short credit terms to its debtors and ask for more credit terms from its creditors.
Ahgir.com.au., 2019. Corporate & Investor Information | AHG Limited. [online] Available at: https://www.ahgir.com.au/ [Accessed 5 Jan. 2019].
Amran, N.A. and Aripin, N., 2015. Financial ratios: A tool for conveying information and decision making. Global Review of Accounting and Finance, 6(1), pp.151-164.
AP Eagers., 2019. A.P. Eagers Limited | Automotive Group | Australia. [online] Available at: https://www.apeagers.com.au/ [Accessed 5 Jan. 2019].
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
Edwards, A., Schwab, C. and Shevlin, T., 2015. Financial constraints and cash tax savings. The Accounting Review, 91(3), pp.859-881.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage learning.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York: Springer.
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