For analysing the profit and loss statement of Crown Resorts Limited, a horizontal and vertical analysis is been performed for the year 2016 and 2017. From the items of the statement, the figures for sales, EBIT, and net income is been analysed first to know about the financial performance of the company. From the below graph, it can be observed that both the operating profit and net income of the firm has risen over the two years while its revenue has been decreased. The reason for this downfall was the 48.9% decline in the revenue of VIP program play and weakness in the Perth economy. In addition to that, the flooring game revenue decreases by 1.4% which impact the overall sales of Crown Resorts (Crown Resorts. 2017).
Despite the increase in the operating expenses the EBIT rises in 2017 as compared to 2016. This was due to a significant increase of 38% in the operating income of the firm. Along with this, the net income of the company also rises from $948 million to $1866.1 million showing an upsurge of 97%. This was basically due to the high profits generated from the proceeds of the Crown's interest in MRE that resulted in a net gain of $1.7 billion (Crown Resorts. 2017).
Apart from this, talking about the EBITDA of the company reduces from $861.4 million to $790.3 million, reflecting a downfall of 8%. Reason is the reduction in revenue of VIP program and the challenging economy of Perth.
The statement of financial position of the company shows the balance of all the assets and liabilities of the company along with the amount of equity. When analysed it was observed that the total assets of Crown Resort reduce by 4% over the past two years. The same goes for the liabilities of the firm. They have also shown a decrease of 3% in 2017. However, the equity capital of the company rises, reflecting a 3% increase as a whole. This was due to a significant upsurge in the retained earnings of the company. Apart from this, the non-current liabilities and long-term debt of Crown Resorts has also reduced over the year, making the company less risky (Crown Resorts. 2017).
The ROA indicates the amount of income generated by the companies from their assets. The below graph shows the returns made by Crown resort and SkyCity over the past five years. It can be observed that the ROA of CWN increases initially and then declines rapidly for the next three years. In 2014, the ratio was 13% which falls to 7% in 2017. On the other hand, SKC's ROA also reduces but it was more than Crown Resort. In 2013, it was 14% which falls to 9% in 2017. This is because of the assets and net income of SkyCity increase over the five years, unlike CWN (Gibson, 2011). Moreover, the proportion of the EBIT and total assets of SkyCity is lower than the proportion of Crown’s assets and EBIT.
The return on sales of CWN has shown many fluctuations over the past five years whereas ROS of SKC remains almost stable. The ratio reduces from 17% to 9% in the case of Crown Limited due to the noteworthy decline in its net profit. In addition, the revenue of the company has shown a significant fall in the last year, resulting in reduced ratio. On the other hand, the net income of SKC remains almost the same over the years and its ROS was also the same from the last two years.
The Asset turnover ratio shows the efficiency of the companies in making revenue from its total assets. From the below graph it can be interpreted that Crown resorts ATR has shown a continuous decrease in its ratio from 0.48 to 0.38 times in the past three years. Similarly, the SkyCity’s ATR has also reduced from 0.52 to 0.41 times, still more than that of Crown Limited. The reason for such reduction was the change in total sales of CWN is less than the change in its total assets which reduces the ratio (Higgins, 2012). Furthermore, the sale reduces last year along with the reduction in the company's total assets.
The current ratio of CWN has shown a sudden increase in 2017 as compared to the previous years. On the other side, the CR of SkyCity reduces continuously from 1.12 to 0.36. This was due to the upsurge in the current liabilities of SKC. Whereas the assets of CWN rises which were enough to meet its current liabilities (Godwin & Alderman, 2012). It is also noticed that the change in the current assets of Crown last year is significantly more than the change in its liabilities. As a result, the ratio gets boosted.
Debt to equity ratio measures the portion of debt taken by the firm against its portion of equity. The D/E ratio of Crown resorts was less than SkyCity reflecting that the company's most of the assets are financed through equity rather than debt. Moreover, the ratio reduces due to the low debt component of CWN as compare to its equity (Jenter & Lewellen, 2015). In 2017, the ratio was 0.65 which was less than the ratio of 0.72 in 2016. This was because of the downfall in liabilities of CWN against its equity. On the other hand, the debt component of SkyCity is more than its equity which increases its ratio from 1.03 to 1.13, making the company riskier.
The similar trend is been noticed in Asset to Equity of Crown when compared to SKC. The company has low ratio indicating less debt financing. The amount of Crown’s total assets is very much higher than its total equity which reduces its ratio (Kimmel, Weygandt & Kieso, 2010). Furthermore, the ratio reduces from 1.72 to 1.65 last year due to a minor increase in the equity of the firm.
The P/E ratio of Crown Limited has been continuously increased after facing a downfall in 2014. The ratio rises from 13.2% to 27.5% in 2017. This upsurge was due to an increase in the share price of the company over the years. On the other hand, SkyCity's share price was very much lower than that of Crown resorts which makes its P/E lower (Lee, Lee & Lee, 2009).
However, the reverse trend has been noticed in the P/B ratio where SKC's ratio was higher than Crown Resort's ratio. Though both companies' ratio has been reduced over the past five years but the proportion of SkyCity's share price and net asset per share is less than Crown Resort, which makes the ratio to increase. For SKC, the ratio was 2.08 in 2017 whereas Crown Resorts reported the same at 1.64 during the same year.
Talking about the dividend yield, CWN has declared stable dividends in the initial three years, which then rises to 72.50 cents and 143 cents in 2016 and 2017 respectively. Due to this increase, the dividend yield of the Crown Resort also rises in the last year. However, SKC has declared low dividends during the past five years and its share price was also less than its competitor. This causes a reduction in the company's dividend yield.
It is an extended calculation of ROE which includes the determination of asset turnover, net profit ratio, and financial leverage. Comparatively, the ROE of CWN reduces drastically from 13% to 6% in the past five years. On the other hand, SKC tries to maintain its ROE and has also improved it in 2015 as compared to other years. The reduction was due to the decline in net profits of Crown Resorts (Nikolai, Bazley & Jones, 2009).
Gibson, C. H. (2011). Financial reporting and analysis. USA: South-Western Cengage Learning.
Godwin, N., & Alderman, C. (2012). Financial ACCT2. USA: Cengage Learning.
Higgins, R. C. (2012). Analysis for financial management. New York: McGraw-Hill/Irwin.
Jenter, D. & Lewellen, K. (2015). CEO preferences and acquisitions. The Journal of Finance, 70(6), pp.2813-2852.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2010). Financial accounting: tools for business decision making. New Jersy: John Wiley & Sons.
Lee, A. C., Lee, J. C., & Lee, C. F. (2009). Financial analysis, planning and forecasting: Theory and application. Singapore: World Scientific Publishing Co Inc.
Nikolai, L. A., Bazley, J. D., & Jones, J. P. (2009). Intermediate Accounting. USA: Cengage Learning.