The purpose of the report is to conduct financial evaluation of an ASX listed organisation by assessing its financial statements for the previous two years. In this paper, QMS Media Limited is chosen as the firm that provides out-of-home advertising and media services in Australia and other global nations. The financial evaluation is carried out by computing five various financial ratios for obtaining an overview of the present standing of the firm in the operating market of Australia.
In order to widen the scope of the report, the financial condition of QMS Media Limited is compared with its two main rivals, Ooh Media Limited and APN Outdoor Group Limited. Three ratios from the above five ratios are used for ascertaining the best performing company in the market.
Since this report contains only analysis of certain financial ratios computed, such ratios could only tell the past performance of the organisation. It would be difficult to predict the future growth through these ratios, since they ignore the recessionary effects on the global economy, variations in industrial trends and customer preferences. Moreover, the ratios computed are for the past two years only, while consideration of another past three additional years could have improved the analysis further.
Company overview of QMS Media Limited:
QMS Media Limited is one of the leading outdoor media companies in Australia and New Zealand. It specialises in providing its clients and agency partners with new and innovative advertising solutions throughout its premium outdoor media network (Qmsmedia.com 2018). By using its portfolio of outstanding conventional and digital billboards in large formats, offerings of exclusive street furniture along with opportunities of ambient media, it is committed to provide its clients with flexible and tailored outdoor solutions for delivering solutions. Thus, it provides its clients with engaging and inspiring campaigns for their target audiences.
As commented by Barth (2015), current ratio enables the investors and creditors in obtaining an overview of the liquidity of an organisation and its ability to pay off its short-term dues with the existing asset base. An ideal current ratio is considered as 2 and in case of QBS Media Limited; the ratio has fallen from 1.29 in 2016 to 1.19 in 2017 due to the decline in short-term asset base. This signifies that the organisation is struggling to maintain strong liquidity position in the media sector of Australia.
According to Beatty and Liao (2014), quick ratio gauges the capability of a firm in clearing its existing dues and obligations. It is a better version of current ratio, as it offers a rigorous analysis of the capability of an organisation in clearing its existing liabilities. In addition, this ratio does not take into account the most liquid assets like inventories. For QMS Media Limited, decline in quick ratio could be observed from 1.28 in 2016 to 1.17 in 2017. The ideal current ratio in the outdoor media service industry is considered as 1. In this case, it could be observed that the organisation does not place adequate emphasis on increasing its inventory by proper estimation of the prevailing market demand (Bull 2014).
Gross profit margin:
As pointed out by Collis, Holt and Hussey (2017), gross profit margin signifies the profit level of a firm before incurring the overhead costs. The higher value denotes that more cents are earned in each dollar of revenue and this is desirable, since higher profit would be present in order to cover the non-manufacturing cost (Hartley 2014). For outdoor media services, gross margin helps in understanding the pricing policies of the organisation. In case of QMS Media Limited, small decline could be observed from 52.56% in 2016 to 48.08% in 2017. Even though there is decline in the ratio in 2017, aggressive pricing strategy is followed, since it charges higher mark-up the services rendered to the customers.
Return on equity:
With the help of return on equity, it is possible to anticipate the rate of return to be provided to the equity stockholders. From another angle, it ascertains the capability of a firm in providing returns on investment for the shareholders (Haslam et al. 2015). The greater return denotes better return for a business entity. For QBS Media Limited, increase could be observed in the ratio from 7.76% in 2016 to 8.26% in 2017. This denotes that the company has earned adequate profit, which has enabled in providing greater returns to the shareholders.
Return on assets:
The return on assets gauges the efficiency of an organisation in managing its assets for producing profits during a year. Thus, with the help of this ratio, the investors and management could understand the ways the organisation could convert its investment in assets into profits (Hoyle, Schaefer and Doupnik 2015). In case of QMS Media Limited, it could be observed that the return on assets has fallen from 6.76% in 2016 to 5.83% in 2017, which signifies the reduced ability of the organisation to meet off its liability burden with the help of returns generated from assets.
Analysis and comparison of QMS Media Limited with Ooh Media Limited and APN Outdoor Group:
For assessing the financial performance of QMS Media Limited, the results obtained in the above section are compared with those of Ooh Media Limited and APN Outdoor Group, which are the key competitors of the organisation in the Australian market. Both these organisation provide outdoor media services and the following ratios are considered, which are demonstrated as follows:
The above figure clearly inherits the fact that the current ratio for both the organisations have increased significantly for both the organisations A higher ratio above 2 indicates that there is adequate amount of idle working capital and in case of APN Outdoor Group, it has restricted its ability to reinvest in business operations or expansion of capital projects., while Ooh Media Limited is enjoying better position in the market (Warren and Jones 2018).
Gross profit margin:
The above figure clearly states that APN Outdoor Group has the highest profit margin compared to the other two companies due to the adoption of lower pricing strategy and cost of revenue. In addition, such higher margin has enabled the organisation in covering up its overhead expenses effectively.
Return on equity:
As per the above figure, it could be found that the return on equity for Ooh Media Limited has increased, while the ratio for APN Outdoor Group has decreased in 2017. However, the return is still higher in comparison to the other two companies, as the shareholders could earn maximum returns on their investments (Waybright, Kemp and Elbarrad 2015).
Based on the above evaluation, it could be inferred that APN Outdoor Group is the best performing company among the three organisations, as evaluated from the financial analysis. Even though the investors could earn positive return on investment by investing in the shares of QMS Media Limited, the returns might be minimised in future. However, there are certain other factors that need to be taken into consideration before making any investment decision. These factors include inflationary effect, changes in industrial trends, norms and regulation along with changes in tastes and preferences of the customers.
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