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Answers:
Enero Group Limited
Introduction

Enero is a company providing joined services of marketing and communication. The services include advertisement, media planning, research, public relations, direct marketing and design and event management (Bloomberg, 2017). It mainly operates from Sydney, London and New York, and many other locations (Enero, 2017). Enero group limited is based in Pyrmont, New South Wales, Australia. The CEO of the company is Matthew Melhuish. The most recent share price is A$ 1.04 (date 30.06.2017) and the dividend per share is 5 cents (date 26.06.2017). Independent auditor of the company is KPMG. Their opinion on the company’s financial statements is that Enero group limited has prepared its financial statements for the year ended 30 June 2017 in accordance with Australian Accounting standards and the Corporations Regulations 2001.

Industry Situation and Company Plans
  • Enero Group limited has strong clients across the industry and sector group validates expansion of revenue. It has been observed that largest client represents only 13% of the total net revenue. Further the company has more than 700 client relationships.
  • This company has awarded with an 84 industry awards across the group.
  • The future plans of the company are as follows:
  • Fetch additional new resources.
  • Discover new sectors to sell the services
  • Expand the business in new geographies for the purpose to enhance the networked clients.
  • Looking forward to connect the bigger client teams for the motive of acquisition.
  • Last but not the least integrate the services for the better public relations.

 

Financial Statement Analysis
  • Statement of financial performance

 

Particulars

2017 (AUD’000)

2016

(AUD’000)

2015

(AUD’000)

Gross Profit/ Net revenue

100,172

113,488

110,347

Net income

1930

8115

-1615

Income from operations

3436

10073

576

(Source: Annual Report, 2017;2016;2015).

Comment:

  • Gross Profit: It has been observed from the above table that in 2017 gross profit is least among previous two years (2016 and 2015). 

 

  • Net Income: It has been observed from the above table that in 2017 the net income is very less from 2016 but more than 2015. The net income is highest in 2016 which shows that the profitability position is sound in 2016 in comparison to 2017. 

 

  • Income from operations: It has been observed from the above table that in 2017 the income from operations is very less from 2016 whereas more than 2015. Thus, income from operations is highest in 2016 among three years. 

 

  • Common Size analysis

Particulars

Amount (AUD $' 000)

2017

%

2016

%

2015

%

Gross Revenue

180666

180.36%

213632

188.24%

212332

192.42%

Directly attributable cost of sales

-80494

-80.36%

-100144

-88.24%

-101985

-92.42%

Net revenue

100172

100.00%

113488

100.00%

110347

100.00%

Other income

207

0.21%

206

0.18%

206

0.19%

Employee expenses

-71382

-71.26%

-79085

-69.69%

-81070

-73.47%

Occupancy costs

-8036

-8.02%

-8082

-7.12%

-8345

-7.56%

Travel expenses

-1244

-1.24%

-1515

-1.33%

-2034

-1.84%

Communication expenses

-2038

-2.03%

-2252

-1.98%

-2184

-1.98%

Compliance expenses

-1434

-1.43%

-2114

-1.86%

-2114

-1.92%

Depreciation and amortisation expenses

-3758

-3.75%

-3060

-2.70%

-4225

-3.83%

Administration expenses

-6518

-6.51%

-7426

-6.54%

-7271

-6.59%

Incidental acquisition costs

-156

-0.16%

0

0.00%

0

0.00%

Contingent consideration fair value loss

-2303

-2.30%

0

0.00%

0

0.00%

Loss on disposal of subsidiaries

0

0.00%

0

0.00%

-2644

-2.40%

Net finance (costs)/ income

-149

-0.15%

170

0.15%

65

0.06%

Profit before income tax

3361

3.36%

10330

9.10%

731

0.66%

Income tax expense

-1431

-1.43%

-2215

-1.95%

-2346

-2.13%

Profit/(loss) for the year

1930

1.93%

8115

7.15%

-1615

-1.46%

(Source: Annual Report, 2017;2016;2015)

  1. Enero group recognises revenue when it is reliably measured and future economic benefits will flow to the group.
  2. Revenue from services recognised according to the stage of completion method.
  3. Interest income is recognised according to the effective interest method.
  • Statement of financial Position

As at 30 June 2017

Particulars

AUD $'000

2017

2016

2015

Assets

 

 

Cash and cash equivalents

32512

37620

25812

Trade and other receivables

19994

24305

27852

Other assets

4251

4630

4335

Income tax receivable

70

0

273

Total current assets

56827

66555

58272

Receivables

0

0

21

Deferred tax assets

1735

1715

1887

Plant and equipment

6899

4942

7034

Other assets

156

338

427

Intangible assets

83134

75502

84545

Total non-current assets

91924

82497

93914

Total assets (A)

148751

149052

152186

Liabilities

 

 

Trade and other payables

26568

32237

31561

Contingent consideration payable

4512

0

0

Interest-bearing loans and borrowings

1352

9

27

Employee benefits

2772

2166

2356

Income tax payable

512

994

748

Provisions

18

163

220

Total current liabilities

35734

35569

34912

Contingent consideration payable

5631

0

0

Interest-bearing loans and borrowings

1915

11

0

Employee benefits

661

599

480

Provisions

1853

1614

1276

Total non-current liabilities

10060

2224

1756

Total liabilities

45794

37793

36668

Equity

 

 

Issued capital

96389

491576

491509

Other reserves

-13609

-7106

4800

Profit appropriation reserve

12443

0

0

Retained profits/(accumulated losses)

7030

-375243

-383615

Total equity attributable to equity holders of the parent

102253

109227

112694

Non-controlling interests

704

2032

2824

Total equity

102957

111259

115518

Total Liabilities + Total Equity (B)

148751

149052

152186

check point

OK

OK

OK

(Source: Annual Report, 2017;2016;2015)

  • Common Size analysis

Enero Group limited

As at 30 June 2017

Particulars

AUD $'000

2017

%

2016

%

2015

%

Assets

 

 

 

 

Cash and cash equivalents

32512

21.86%

37620

25.24%

25812

16.96%

Trade and other receivables

19994

13.44%

24305

16.31%

27852

18.30%

Other assets

4251

2.86%

4630

3.11%

4335

2.85%

Income tax receivable

70

0.05%

0

0.00%

273

0.18%

Total current assets

56827

38.20%

66555

44.65%

58272

38.29%

Receivables

0

0.00%

0

0.00%

21

0.01%

Deferred tax assets

1735

1.17%

1715

1.15%

1887

1.24%

Plant and equipment

6899

4.64%

4942

3.32%

7034

4.62%

Other assets

156

0.10%

338

0.23%

427

0.28%

Intangible assets

83134

55.89%

75502

50.65%

84545

55.55%

Total non-current assets

91924

61.80%

82497

55.35%

93914

61.71%

Total assets (A)

148751

100.00%

149052

100.00%

152186

100.00%

Liabilities

 

 

 

 

Trade and other payables

26568

17.86%

32237

21.63%

31561

20.74%

Contingent consideration payable

4512

3.03%

0

0.00%

0

0.00%

Interest-bearing loans and borrowings

1352

0.91%

9

0.01%

27

0.02%

Employee benefits

2772

1.86%

2166

1.45%

2356

1.55%

Income tax payable

512

0.34%

994

0.67%

748

0.49%

Provisions

18

0.01%

163

0.11%

220

0.14%

Total current liabilities

35734

24.02%

35569

23.86%

34912

22.94%

Contingent consideration payable

5631

3.79%

0

0.00%

0

0.00%

Interest-bearing loans and borrowings

1915

1.29%

11

0.01%

0

0.00%

Employee benefits

661

0.44%

599

0.40%

480

0.32%

Provisions

1853

1.25%

1614

1.08%

1276

0.84%

Total non-current liabilities

10060

6.76%

2224

1.49%

1756

1.15%

Total liabilities

45794

30.79%

37793

25.36%

36668

24.09%

Equity

 

 

 

 

Issued capital

96389

64.80%

491576

329.80%

491509

322.97%

Other reserves

-13609

-9.15%

-7106

-4.77%

4800

3.15%

Profit appropriation reserve

12443

8.36%

0

0.00%

0

0.00%

Retained profits/(accumulated losses)

7030

4.73%

-375243

-251.75%

-383615

-252.07%

Total equity attributable to equity holders of the parent

102253

68.74%

109227

73.28%

112694

74.05%

Non-controlling interests

704

0.47%

2032

1.36%

2824

1.86%

Total equity

102957

69.21%

111259

74.64%

115518

75.91%

Total Liabilities + Total Equity (B)

148751

100.00%

149052

100.00%

152186

100.00%

check point

OK

 

OK

 

OK

 

(Source: Annual Report, 2017;2016;2015). 

  1. Plant and equipment are computed at cost less accumulated depreciation less impairment losses.
  2. Depreciation is charged as per straight line basis.
  3. Goodwill amount is measured at cost less impairment losses. Goodwill carrying amount has increased from 2016 due to acquisition of East wick Communications.
  4. Other intangible assets other than goodwill amortised as per SLM basis over its useful lives.
  • Statement of cash flows

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Net income

1930

8115

-1615

Operating cash flows

9840

17000

6993

(Source: Annual Report, 2017;2016;2015).

Comment: It has been observed from the above table that net income is very low as compared to operating cash flows. In other words, overall cash generated from operations is very high although profit after tax is very less because of incidental expenses occurred during the year.

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Net cash used in investing activities

-7532

-1071

-2625

(Source: Annual Report, 2017;2016;2015).

Comment: In year 2017, it has been observed that Enero group has acquired a business of AUD $ 6328000 and thus the amount of acquisition is highest among the three years.

  • The most important source of financing is “interest bearing loans and borrowings”. The reason being that the amount has increased tremendously in 2017 from 2016. Further the group has paid dividend to equity shareholders due to which net cash used in financing activities has increased considerably.
  • Overall cash and cash equivalents has decreased in 2017 in comparison to 2016 but had increased from 2015.
Ratio Analysis
  • Ratios
  • Liquidity Ratios
  1. Working capital/ current ratio:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Current Assets

56827

66555

58272

Current Liabilities

35734

35569

34912

Working capital ratio/current ratio

1.59

1.87

1.67

                        (Source: Annual Report, 2017;2016;2015).

 Comment: It is seen from the above calculation that current ratio or working capital ratio of year 2017 is lowest than 2016 but more than 2015. In other words, group can easily pay off its current debts from short-term assets. Hence, liquidity performance of Enero group limited is sound. The trend is downward sloping in 2017.

Receivable turnover ratio:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Net credit revenue

100172

113488

110347

Average accounts receivable*

22054

26013

27074

Receivables turnover

4.54

4.36

4.08

* Average accounts receivable = (opening accounts receivable balance + closing accounts receivable balance)/2

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is upward sloping. Higher ratio is favourable. Higher ratio determines the efficiency of the company to collect its receivables more frequently.

Average days’ sales uncollected:

Formula = 365/ Receivables turnover

Particulars

2017

2016

2015

Average days’ sales uncollected

 

80.40 days

83.72 days

89.46 days

(Source: Annual Report, 2017;2016;2015). 

Comment: It is seen from the above calculation that the trend is downward sloping which is good. Further it shows that in 2017 amount was collected from the customers much early than in 2016 and 2015. Therefore, it indicates a positive sign.

Inventory turnover:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Cost of sales

80494

100144

101985

Average Inventory

-

-

-

Inventory turnover

-

-

-

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above table that Enero group has no inventories.

  • Profitability Ratios
Profit margin:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Net profit

1930

8115

-1615

Gross Revenue

180666

213632

212332

Profit Margin

1.07%

3.80%

-0.76%

(Source: Annual Report, 2017;2016;2015)

Comment: It is seen from the above calculation that profit margin is less from 2016 but more than 2015. Trend is downward sloping. Further, the profitability position is not adverse but it is satisfactory.

Asset Turnover: 

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Gross revenue

180666

213632

212332

Average total assets

148901.5

150619

146846

Asset Turnover

1.21

1.42

1.45

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping which is adverse. This means that the Enero group is not using its assets efficiently.

ROA:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Net profit

1930

8115

-1615

Average total assets

148901.5

150619

146846

ROA

1.30%

5.39%

-1.10%

 (Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping which is adverse. Thus, company is not earning effectively on its assets.

ROE:

Formula as per Du Pont Equation= Net profit margin * Asset turnover ratio * financial leverage ratio

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Average total assets

148901.5

150619

146846

Average total Equity

107108

113388.5

109511.5

Financial leverage ratio

 

1.39

1.33

1.34

(Source: Annual Report, 2017;2016;2015).

Particulars

2017

2016

2015

Profit Margin

1.07%

3.80%

-0.76%

Asset Turnover

1.21

1.42

1.45

Financial leverage ratio

 

1.39

1.33

1.34

ROE

1.80%

7.17%

-1.48%

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping which is adverse. Thus the company is not effectively meet its financial obligations. Thus, capital structure of the group should be taken into consideration.

  • Long-term solvency ratios
Debt to Equity Ratio:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Debt

45794

37793

36668

Equity

102957

111259

115518

Debt to Equity Ratio

 

0.44

0.34

0.32

(Source: Annual Report, 2017;2016;2015). 

Comment: It is seen from the above calculation that the trend is upward sloping which is adverse because it is considered as risky position. Thus, investors do not fund its capital due to bad performance of the company.

Interest Coverage ratio:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

EBIT

3436

10073

576

Interest Expense

74

87

90

Interest Coverage ratio

46.43

115.78

6.4

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping which is adverse. This means that group is making interest payments in 2017 but not better than 2016. The situation is average.

  • Cash Flow Adequacy
Cash Flow Yield:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Cash flows from operations

9840

17000

6993

Share Price

1.04

1.25

0.78

Cash Flow Yield

9461.54

13600

8965.38

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping but it is considered as average. This means that group is average in generating cash from operations.

Cash Flows to Sales:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Cash flows from operations

9840

17000

6993

Gross Revenue

180666

213632

212332

Cash Flows to Sales

0.054

0.080

0.033

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping which is categorized as unsatisfactory. This ratio determines the effectiveness of the company to transform company’s revenue into cash.

Free cash flows to assets:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Cash flows from operations

9840

17000

6993

Total assets

148751

149052

152186

Free cash flows to assets

0.066

0.114

0.046

(Source: Annual Report, 2017;2016;2015) 

Comment: It is seen from the above calculation that the trend is downward sloping which is categorized as unsatisfactory. This ratio determines the effectiveness of the company to transform company’s assets into cash.

Free cash Flow:

Particulars

2017

(AUD $’000)

2016

(AUD $’000)

2015

(AUD $’000)

Cash flows from operations

9840

17000

6993

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that the trend is downward sloping which is categorized as unsatisfactory. This means that the group is not efficiently generating cash from its operations.

  • Market Strength ratios
Price/earnings per share:

Particulars

2017

2016

2015

 

Price Per share

1.04

1.25

0.78

Earnings Per share

2.2

8.0

-3.4

Price/earnings per share

 

0.47

0.16

0.23

(Source: Annual Report, 2017;2016;2015). 

Comment: It is seen from the above calculation that the ratio is improving which is a positive sign. This ratio determines earnings covered from per share price.

Dividends Yield:

Particulars

2017

2016

2015

 

Dividend per share

5 cents

-

-

Price Per share

1.04

1.25

0.78

Dividends Yield

4.81

-

-

(Source: Annual Report, 2017;2016;2015).

Comment: It is seen from the above calculation that dividend is declared only in 2017 which is a positive sign.

Conclusion

According to the analysis, the performance of the company is average in 2017 as compared to 2016. The profitability position is satisfactory. Therefore, the Enero group limited is not a strong performer.

Bibliography
Enero Group Limited. 2016. Annual Report. Retrieved on 13 September 2017 from
https://enero.com/images/enero/annual-reports/Enero_Annual_Report_FY16.PDF.
Enero Group Limited. 2017. Annual Report. Retrieved on 13 September 2017 from
https://enero.com/images/enero/annual-reports/Enero_Annual_Report_FY17.PDF.
Bloomberg Markets. 2017. Enero Group Limited. Retrieved on 13 September 2017 from
https://www.bloomberg.com/quote/EGG:AU.
Bloomberg. 2017. Company overview of Enero Group Limited. Retrieved on 13 September 2017 from
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=11190588.
ASX. 2017. Enero Group Limited. Retrieved on 13 September 2017 from
https://www.asx.com.au/asx/share-price-research/company/EGG.
ASX. 2017. Enero Group Limited. Retrieved on 13 September 2017 from https://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode=EGG&timeframe=D&period=M6.
Enero Group Limited. 2015. Annual Report. Retrieved on 13 September 2017 from https://www.enero.com/images/enero/annual-reports/Enero_Annual_Report_FY15.pdf.
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