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Schedule(s) of relevant ratios and other useful calculations The detailed calculation of relevant ratios and other useful calculations should be included, as one appendix, prepared using Excel. An example template is provided under the assessment 2 information, 
- You will be advised by your facilitator as to which ratios to calculate.
- You are advised to show the formulae used in determining particular ratios and other figures.


2. A written report
The written report is the main element of this assessment. A sample template is provided under the assessment 2 information, FINA6017 Assignment Suggested Layout  Blank.doc.
The written report should:
- Explain what is revealed by the ratios and other calculations, in the context of the company’s profitability, asset efficiency, liquidity, capital structure, and market performance.
- In particular, any important changes over the two financial years should be identified, discussed and, where possible, explained.
- Provide an overall assessment of whether the company, over the recent financial year, has been better than the previous financial year, in the perspective of existing equity investors (shareholders).


In preparing this report, you should:
- analyse the financial statements of the business;
- identify key ratios and apply ratio analysis;
- argue the case of why the organisation may or may not succeed in the future and what the business should be doing to help it succeed;


- discuss relevant ethical considerations when an organisation becomes insolvent;
- include external factors that need to be taken into consideration and the likelihood of a merger or acquisition;
- provide a recommendation, that is, would you invest in this company after your own analysis or under what circumstances would you buy/save the business.

Company background

In today’s highly competitive business world, Financial Management is regarded as one of the major success factors. Financial management can be considered as a mechanism for effective and efficient management of the money of the businesses for achieving the organizational goals and objectives. It needs to be mentioned that the investors are needed to consider the financial analysis of the business entities at the time to make investment decisions as this process provides them with the necessary understanding about the financial standings of the companies.

The main aim of this report lies in the analysis of the financial performance of one of the major Australian companies, Coca Cola Amatil. Major parts of this report involves in the analysis of the financial performance of the company through the analysis of latest annual report and the key financial ratios.

            Coca Cola Amatil Limited (CCA) is regarded as the largest manufacturer of beverages in various regions of Australia; and the major source of income of the company is the manufacturing as well s distribution of soft drinks. The company was founded in the year of 1904 and it is headquartered at Coca-Cola Place North Sydney, New South Wales, Australia. The presence of the name of CCA can be seen in Australian Stock Exchange (ASX) (ccamatil.com, 2018). It needs to be mentioned that CCA has obtained exclusive Australian bottling rights for the range of beverages of the Coca Cola brand.

CCA has the right for the manufacturing and distribution of their products in the exclusively licensed territories of Australia, New Zealand, Fiji, Indonesia, Samoa and Papua New Guinea. It is also required to be mentioned that CCA operates in the soft dring manufacturing industry of Australia through the division of Australian beverage. This particular division of CCA involves in the production as well as distribution of a range of carbonated soft drinks, energy and sports drinks along with other functional beverages. The names of some of the brands under CCA are Coca Cola range, Sprite, Fanta and Lift. The involvement of CCA can be seen in the production of some other products like Kirks, Monster, Powerade, Glaceau Vitaminwater and others (ibisworld.com, 2018).

2 Company Analysis 

2.1 Financial Statement, Current Financial Performance and Economic Outlook

            Earlier discussion shows the importance of financial analysis of the organizations; and the investors can gain all the required financial information from the annual reports of the companies. There is not any exception of this fact in case of CCA as the company has published all four major financial statements in their 2017 Annual Report. These statements are Consolidated Income Statement, Consolidated Statement of Change in Equity, Consolidated Balance Sheet and Consolidated Statement of Cash Flows. These statements are analyzed below.

Financial statement analysis

            The consolidated income statement of CCA contains financial information about revenue, expenses and profit. The 2017 Income Statement of CCA shows that there is decrease in revenue as well as gross profit of the company in 2017 as compared to 2016. However, CCA has registered increased profit for the year of 2017 as compared to 2016. At the same time, 2017 also registered increase in earnings per share as compared to 2016. According to the statement of change in equity of 2017, there is a decrease in the total comprehensive income of CCA as compared to 2016 (ccamatil.com, 2018).

However, CCA has provided their shareholders with more dividends in 2017 as compared to 2016 due to the increase in net profit for the year. It can be observed from the 2017 consolidated balance sheet of CCA that there is a decrease in the total asset position of the company from 2016. At the same time, slight decrease is there in total liabilities of CCA in 2017 as compared to 2016. Minor decrease can be seen in the borrowings of CCA in 2017. Most importantly, significant decrease can be seen in total equity in 2017 as compared to 2016. According to 2017 consolidated statement of cash flows, decrease in the cash inflow from net operating activities in 2017 is evident for CCA as compared to 2016. At the same time, decrease in cash and cash equivalent can also be seen in 2017 (ccamatil.com, 2018).

            It can be observed from the above discussion that CCA has been struggling to increase their business revenues due to the presence of consumer preference, price competition long with external competition. It has been forecasted that there will be decline in the revenue of the beverage industry at an annualized 4.9% rate over the coming five years to reach $1.9 billion. This indicates towards the underperformance of the whole Australian beverage industry due to the presence of the struggling performance of the main company of the industry, CCA (ibisworld.com, 2018).

The negative effects of steady decline in volume as well as price pressure can be seen on the revenue of the company. At the same time, the negative effects of competitive pressure, increasing marketing cost and competitor price discounting can be seen on the declining profit margin of CCA. In this situation, the support from energy drinks companies like Mother and Monster has provided CCA with a source of growth in the segment of energy drink. At the same time, increase in revenue per unit can be seen in a smaller portion of cola products of the company (ibisworld.com, 2018).   

Ratio analysis

 Ratio Analysis 

3.1 Profitability and Market Ratios

(see appendix for calculations)

2017

2016

Industry average

Return on assets

7.36%

3.97%

10%

Return on equity

22.19%

11.31%

12%

Net profit margin

9%

5%

12.33%

Gross profit margin

38%

38%

54.21%

Net Interest Income

-

-

-

Expense ratio/Cost to Income ratio

25%

30%

19%

Cash return on sales

12%

15%

8%

Earnings per share

$59.8 per share

$32.2 per share

-

Price earnings ratio

0.1423 times

0.3168 times

1.2 times

Earnings yield

7.02%

3.18%

-

Dividends per share

$26

$25

$

Table 1: Profitability and Market Ratios

(Source: as created by author)

Discussion

Return on Assets (ROA): This particular ration helps in measuring how effectively a company cans earn return in investment in assets (Heikal, Khaddafi & Ummah, 2014). As per the above table, increase in ROA can be seen in CCA in 2017 as compared to 2016. It implies that CCA has been efficient in converting the money invested for purchasing assets to income or profit.

Return on Equity (ROE): ROE helps in measuring the firm’s ability in generating profit from the shareholders’ investments and higher ROE is preferable (Bowman et al., 2014). As per the above table, there is an increase in ROE for CCA in 2017 from 2016; and it is also higher than the industry average that is a good sign for.

Net Profit Margin: The above table shows that CCA has increased net profit margin in 2017 as compared to 2016; and the increase in the net profit of the company is the main reason for this increase. However, it is below the industry average (Todorovic, 2013).

Gross Profit Margin: It can be seen that CCA has same gross profit margin in 2017 and 2016; and it is below the industry average (Khaldun & Muda, 2014). The downturn of the beverage industry has stopped the increase in revenue for CCA and for this reason; there is not any increase in this ratio for CCA. It indicates the inability of CCA to use materials and labors for making profits.

Expense Ratio: This ratio helps in showing the cost of the companies in relation to their incomes; and a lower expense ratio is good for the companies (Almazari, 2013). The above table shows that CCA has been able in decreasing this ratio in 2017 as compared to 2016; but it is still above the industry average. However, decrease indicates that CCA has been able in decreasing the operating expenses in relation to sales.

Cash Return on Sales: This ratio is largely used for measuring the efficiency of the companies and it shows how much the company has obtained in cash from sales. Decrease in this ratio for CCA can be seen in 2017 from 2016; and it is also above the industry average (Brooks & Mukherjee, 2013).

Earnings per Share (EPS): EPS shows the amount of net income earned per share outstanding. It can be observed there is increase in EPS of CCA in 2017 as compared to 2016. It indicates towards the efficiency of the company in using the invested money of the shareholders (Talamati & Pangemanan, 2015).

Profitability and market ratios

Price Earnings Ratio (PE Ratio): This ratio helps to measure that how much the investors are willing to pay for the shares of particular company based on their earnings (Arslan, Zaman & Phil, 2014). As per the above table, there is decrease in this ration in 2017 as compared to 2016. It indicates that the investors are not willing to pay high for the shares of CCA and the recent financial downturn can be the major reason for this.

Earnings Yield: The results of this ratio help the investors in evaluating whether gained returns commensurate with the risk of investment (Berge, Consigli & Ziemba, 2016). As per the above table, there is increase in this ratio for CCA in 2017 as compared to 2016. It implies that the investors are happy with their return and the increase in net profit is a major reason for this.  

Dividend per Share (DPS): It is regarded as a measure of the dividend payout per share of the common stock (Sarwar, 2013). As per the above table, CCA has increased DPS in 2017 as compared to 2016; and the increase in the net profit of the company in 2017 can be regarded as the main reason for increased dividend payment.

3.2 Efficiency Ratios

(see appendix for calculations)

2017

2016

Industry average

Asset turnover

0.787 times

0.7840times

0.720 times

Cash return on assets

0.097 times

0.120 times

1 time

Fixed Asset turnover

1.515 times

1.507 times

1.3 Times

Table 2: Efficiency Ratios

(Source: as created by author)

Discussion

Asset Turnover: This ratio measures the organization’s ability in generating sales from its assets and higher asset turnover ratio is more acceptable (Agha, 2014). As per the above table, the asset turnover ratio of CCA almost same in 2017 and 2016; and is slightly higher than the industry average.

Cash Return on Assets: This ratio helps in measuring the proportional net amount of cash spun off as the result of owning a group of assets (Al Nimer, Warrad & Al Omari, 2015). As per the above table, decrease in this ratio can be seen in CCA in 2017 as compared to 2016; and it is way lower than the industry average.

Fixed Assets Turnover: This is an efficiency ratio that helps in measuring the return of the companies from their fixed assets (Liang et al., 2016). It can be seen from the above table that there is increase in this ratio for CCA in 2017 from 2016; and it is almost near to the industry average. It indicates CCA’s efficiency to use their fixed assets for the generation of profit.

Efficiency ratios

3.3 Liquidity Ratios

(see appendix for calculations)

2017

2016

Industry average

Current ratio

1.523:1

1.685:1

2:1

Quick ratio

1.158:1

1.318:1

1:1

Receivables turnover

18.242 Days

18.974 Days

25 Days

Average collection period

73.802 Days

70.215 Days

52 Days

Table 3: Liquidity Ratios

(Source: as created by author)

Discussion

Current Ratio:  This ratio helps in measuring the ability of a company to pay off its short-term business obligation with its current assets (Zygmunt, 2013). The above table shows the decrease in this ratio for CCA in 2017 as compared to 2016. However, CCA has current ratio more than 1 and it shows the ability of the company to pay off its current liabilities with current assets.

Quick Ratio: This ratio measures the ability of the companies in meeting the current business obligation with quick assets (Khidmat & Rehman, 2014). As per the above table, there is a decrease in the quick ratio of CCA in 2017 as compared to 2016. Moreover, this ratio of CCA is more than the industry average. However, quick ratio more than one is good for the company.

Receivable Turnover: This ratio helps in measuring the ability of the companies in converting their accounts receivable into cash during a specific period (Ehiedu, 2014). It can be seen from the above table that receivable turnover of CCA almost same in 2017 and 2016; and it is below the industry average. It indicates that CCA should convert their accounts receivable into cash more often.   

Average Collection Period: It measures the average number of days required for a company to collect invoiced amount from customers (Alagathurai, 2013). There is an increase in this period in 2017 as compared to 2016 for CCA; and it is higher than the industry average. It indicates towards the inability of the company in collecting their invoiced amount from customers in quick time.

3.4 Gearing Ratios

(see appendix for calculations)

2017

2016

Industry average

Debt to equity ratio

102.62%

86.16%

43%

Debt ratio

32%

30%

42%

Equity ratio

31%

35%

50%

Cash debt coverage

14%

18%

15%

Interest cover ratio

6.498 times

4.060 times

8 times

Table 4: Gearing Ratios

(Source: as created by author)

Discussion

Debt-to-Equity Ratio: This ratio shows the percentage of company financing comes from loans and equity shares (Campbell, Galpin & Johnson, 2016). Increase in this ratio can be seen in 2017 from 2016 for CCA; and it is higher than the industry average. It indicates that the company is highly leveraged with borrowing that is risky for the business.

Debt Ratio: This ratio helps in the measurement of a company’s total liabilities as a percentage of its total assets (Pescatori, Sandri & Simon, 2014). From the above discussion, it can be seen that CCA has almost same debt ratio in 2017 as 2016. Moreover, it is less than the industry average that is good. It implies that CCA has only around 30% debt as compared to assets.

Equity Ratio: This ratio helps in measuring the amount of assets financed by the owner’s investment by comparing the total equity (Kijewska, 2016). As per the above table, there is a decrease in debt ratio in 2017 as compared to 2016; and it is less than industry average. All these figures indicate towards the fact that that the assets of CCA are financed by debts rather than the investors.   

Cash Debt Coverage: This ratio helps in the measurement of the ability of the businesses to pay off their debts from its operations (Rasoolpur, 2014). According to the above table, there is decrease in this ratio in 2017 as compared to 2016. It implies that CCA is only able to pay off 14% of debt with the help of their cash inflow from operating activities.

Interest Coverage Ratio: It is considered as a financial ratio for the measurement of the ability of the companies in making interest payment on its debts in the timely manner (Cheng et al., 2016). According to the above table, there is an increase in the interest coverage ratio of CCA in 2017 as compared to 2016. It implies that in the year 2017, CCA had made 6.498 times more earnings that their current payment for interest. This is a positive aspect for the company.

4 Recommendation and Overall Assessment

            The above discussion involves in the financial analysis of CCA for the year 2017 and 2016. According to the ratio analysis portion, it can be seen that there has been decrease in the financial performance of CCA in most of the cases in 2017 as compared to 2016. It can be seen from the analysis of profitability ratios that the net profit ratio increases in 2017 where the gross profit ratio decreases in 2017 as compared to 2016. For this reason, there is increase in both dividend payment and earnings per share. Decrease in both the current as well as quick ratios can be seen in 2017 as compared to 2016. On the overall basis, it can be seen that there is decline in the financial performance of CCA in 2017 as compared to 2016.

However, it needs to be mentioned that CCA has all the prospects to be successful in the future. In order to be successful, the management of CCA needs to consider the development of effective business as well as financial strategies. One of such strategies can be considered as the option to merge with another company or the acquisition of other companies. For example, CCA can consider the adoption of the strategy to merge with companies like Mother and Monster in order to revive their declining financial performance.

            In this context, it is suggested to CCA that they should adopt the strategy to develop effective business as well as financial strategies in order to become successful in the near future. At the time of the development of the business strategies, it is needed for the management of CCA to consider the impact of all external business environmental factors for the development of business strategies. For example, the management of CCA needs to consider external environmental factors like political factors, economic factors, social factors, technological factors and others. At the same time, it is needed to mention the fact that the existing as well as potential investors are needed to consider the declining financial performance of CCA at the time of making the investment decision-making process.

For this reason, the recommendation for the investors is to conduct the detailed analysis of all necessary financial information of CCA. For example, the investors should not only considered the key financial parameters of CCA while making investment decisions. They are needed to take into consideration the analysis of the financial information of the major reportable segments. This process will provide the investors with the detailed view of the current financial condition of the company. At the same time, the investors are needed to take into account the present financial struggle of CCA with the analysis of the major financial ratios. In this manner, they will be able in making the correct investment decision related to the investment in CCA.

References

Agha, H. (2014). Impact of working capital management on Profitability. European Scientific Journal, ESJ, 10(1).

Al Nimer, M., Warrad, L., & Al Omari, R. (2015). The impact of liquidity on Jordanian banks profitability through return on assets. European Journal of Business and Management, 7(7), 229-232.

Alagathurai, A. (2013). A nexus between liquidity & profitability: a study of trading companies in Sri Lanka.

Almazari, A. A. (2013). Capital Adequacy, Cost Income Ratio and the Performance of Saudi Banks. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(4), 284-293.

Arslan, M., Zaman, R., & Phil, M. (2014). Impact of dividend yield and price earnings ratio on stock returns: A study non-financial listed firms of Pakistan. Research Journal of Finance and Accounting), ISSN, 2222-1697.

Berge, K., Consigli, G., & Ziemba, W. T. (2016). The predictive ability of the bond stock earnings yield differential model. World Scientific Book Chapters, 93-123.

Bowman, A., Ertürk, I., Froud, J., Johal, S., & Law, J. (2014). The end of the experiment?: From competition to the foundational economy.

Brooks, R., & Mukherjee, A. K. (2013). Financial management: core concepts. Pearson.

Campbell, T. C., Galpin, N., & Johnson, S. A. (2016). Optimal inside debt compensation and the value of equity and debt. Journal of Financial Economics, 119(2), 336-352.

Cheng, B., Cui, L., Jia, W., Zhao, W., & Gerhard, P. H. (2016). Multiple region of interest coverage in camera sensor networks for tele-intensive care units. IEEE Transactions on Industrial Informatics, 12(6), 2331-2341.   

Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies: the financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.

Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), 101.

Khaldun, K. I., & Muda, I. (2014). THE INFLUENCE OF PROFITABILITY AND LIQUIDITY RATIOS ON THE GROWTH OF PROFIT OF MANUFACTURING COMPANIES A STUDY OF FOOD AND BEVERAGES SECTOR COMPANIES LISTED ON INDONESIA STOCK EXCHANGE (PERIOD 2010-2012).

Khidmat, W., & Rehman, M. (2014). Impact of liquidity and solvency on profitability chemical sector of Pakistan. Economics management innovation, 6(3), 34-67.

Kijewska, A. (2016). Determinants of the return on equity ratio (ROE) on the example of companies from metallurgy and mining sector in Poland. Metalurgija, 55(2), 285-288.

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

Market Research Reports | Procurement Research Reports | IBISWorld US . (2018). 

Our Company – Coca Cola Amatil. (2018). Ccamatil.com. Retrieved 16 August 2018, 

Pescatori, A., Sandri, D., & Simon, J. (2014). Debt and growth: is there a magic threshold? (No. 14-34). International Monetary Fund.

Rasoolpur, G. S. (2014). Impact of Cash Flow Coverage, Debt Service & Current Ratio on Capital Structure Decisions: Empirical Evidence from the Indian Corporate Sector. Journal of Research in Marketing, 3(1), 232-238.

Sarwar, M. S. (2013). Effect of Dividend Policy on Share Holders Wealth: A Study of Sugar Industry in Pakistan. Global Journal of Management And Business Research.

Talamati, M. R., & Pangemanan, S. S. (2015). The Effect Of Earnings Per Share (EPS) & Return On Equity (ROE) On Stock Price Of Banking Company Listed In Indonesia Stock Exchange (Idx) 2010-2014. Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis dan Akuntansi, 3(2).

Todorovic, I. (2013). Impact of corporate governance on performance of companies. Montenegrin Journal of Economics, 9(2), 47.

Zygmunt, J. (2013, March). Does liquidity impact on profitability. In Conference of informatics and management sciences, March (pp. 38-49).

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