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Financial statements

Discuss about the Financial Management System for Theory and Practice.

This report analyzes the financial performance of Helloworld Limited that is a travel service provider in Australia, New Zealand and across the world. Along with this, the report summarizes the business of Helloworld Limited and encompasses the main revenue themes or sources of company. It also includes the current share price of company and the factors affecting its share price.

Financial statements are the report of the financial position and performance of firm at specific time. Financial statements include the different statements in it such as Income statement, Cash flow statement, and Balance sheet statement. This report or statement helps the firm in disclosing the information about the firm’s financial activities that is important for the director, stakeholders, and investors to build the decisions related to future investment. The financial statements of Helloworld Limited for the year 2016 and 2015 are added in appendices.

Helloworld Limited is an Australian based traveling service provider that offers integrated service of retail, wholesale, inbound, and tour and traveling services in Australia, New Zealand, Asia pacific, and South Pacific and across the world (Hello World Limited, 2017). Helloworld limited seeks to provide travel products and services to customers with above expectation customer services, at competitive price level, and at global level. It runs a franchise of travel agents as well.

Helloworld basically operates in three sectors such as travel management, wholesale, and retail. The retail segment of the company consists of Helloworld, Helloworld associates, Hello world for businesses, the My Travel Group, Smart Fares, Qantas Vacations, Harvey World Travel, and The Travel Bookers (Hello World Limited, 2017). Along with this, wholesale business of Hello world offers air, land, and cruise products and services by network of retail travel agencies and inbound travel services. Furthermore, in segment of travel management, company offers services of flight arrangement, car hire, accommodation arrangement, visa facilitation and itinerary planning and management services to corporate customers, small and medium enterprises, and governments.

The revenue of the Hello world comes from three segments include retail segment, travel management segment, and wholesale segment. The main revenue themes of Hello world are sales of the company, interest received, proceeds from disposal of investment, proceeds from disposal of properties, dividend from associates, contribution from minority shareholders, cash from acquisition of controlled entities, and sales of assets (Hello World Limited, 2017).

Summary Of Business And Main Revenue Theme

The financial analysis of Helloworld Limited is given below using financial ratios:

Ratio

Formula

2015

2016

Liquidity Ratio

Current ratio

Current assets/Current liabilities

1.064077356

1.050599728

Current assets

283,035

337,045

Current liabilities

265,991

320,812

Quick ratio

Current Assets-Inventory/Current liabilities

1.06372772

1.050004364

Current assets

283,035

337,045

Inventory

93

191

Current liabilities

265,991

320,812

Profitability Ratio

Net Profit Margin

Net profit/Net sales

-72.03%

0.56%

Net profit

-201,111

1,676

Net sales

279,223

297,923.00

Operating Margin

Operating Profit/Net sales

-71.05%

1.16%

Operating Profit

-198,397

3,450

Net sales

279,223

297,923.00

Capital Structure Ratio

Debt Equity Ratio

Total debts/Total Equity

13.10%

17.32%

Total Debts

23,245

46,352

Total Equity

177,476

267,618

Equity Ratio

Total Equity/Total Assets

0.376730008

0.414527306

Total Equity

177,476

267,618

Total Assets

471,096

645,598.00

Market Performance Ratio

Earnings per share

(Net profit-Pref. Share dividend) / number of ordinary share

-0.00045673

1.52588E-05

Net profit -pref. share dividend

-201,111

1,676

Number of Ordinary share

440,330,198

109,838,418

Dividend per share

Dividend paid / number of shares

7.35811E-07

Dividend paid

324

Number of shares

440,330,198

109,838,418

Activity ratio

Account receivables turnover

Net credit sales / Average debtors

266.26%

221.94%

Debtors and trade receivables

104,869

134,233

Total credit sales

279,223

297,923.00

Total assets turnover ratio

Net sales / Total assets

0.592709342

0.461468282

Total assets

471,096

645,598.00

Net sales

279,223

297,923.00

Interest coverage Ratio

EBIT/ Interest expenses

-77.3249112

2.16830342

 Interest expenses

2,533

2,953.00

EBIT

-195,864

6,403

Source: Hello Wolrd Annual Report (2015, 2016)

The liquidity of company is measured based on current ratio and quick ratios (Babalola and Abiola, 2013). From the above table, it is found that the current ratio of Hello world were 1.06, and1.05 in 2015, and 2016 respectively. It indicates that the liquidity of the company had slight fluctuation. Up and down movement states that liquidity condition of the company may increase or decrease in future as well.  Similar to current ratio, quick ratio had somehow very similar fluctuation that states that liquidity condition of the company cannot be assumed whether it may increase or decrease in future (Delen et al, 2013). The liquidity was decreased in 2016.

Profitability is the profit earned by the company and it is identified based on the net profit, gross profit, and operating profit of the company. (Borowski, 2010). Based on the analysis of net profit margin and EBIT or operating profit analysis, it is found that the operating efficiency of the company was decreased in 2015 but company worked on it and improved its efficiency in 2016 that brought it over from the huge loss. Hello word was suffering from the net loss of 201,111 in 2015. That was converted in profit of 1676 in 2016 that indicates the capability of the company to turn on opportunities. Similarly, the operating profits of the company for 2015, and 2016 were (198,397), and 3450 respectively. Therefore, it can be said that company improved its operational efficiency and management that led increment in the operating profit of the company (Brigham and Ehrhardt, 2013).

From the above analysis, it is identified that both debt equity ratio and equity ratio were increased. The debt ratio was 13.10% in 2015 and it was increased in 2016 up to 17.32%. This indicates that the debt level of the company increased in 2015 and 2016. This increased the liability of company. Along with this, equity ratio of Hello world was reduced in 2015 but increased in 2016. This indicates that the company issued new shares in 2016 to raise the fund to meet its financial requirement (Braun, et al, 2013). Therefore, overall it can be said that debt level of company was higher and need higher working capital to meets its expenses.

Market performance of the company is measured based on the earning per share, dividend per share and other ratios. Both earning per share and earring per share of the hello world was not good in 2015 due to huge loss to the company. Due to capital requirement, numbers of shares were increased in 2015 and 2016 but the divided paid out ratio decreased. The earnings per share was increased in 2016 that indicates that the company improved its performance in 2016 over previous years (Brigham and Houston, 2015). Therefore, it can be said that earning per share ratio and dividend paid out ratio were increased in 2016 that indicates the company had good profit in 2016 and performed better. Higher earnings per share of the company indicate that the company experienced higher market price.

Financial Analysis

Activity ratio assesses the capability of company for converting the assets, liabilities, and capital accounts into cash or sales. This gauges the management efficiency of the company. From the above table, it is found that the trade receivable turnover and asset turnover ratios were decreased in year of 2016. The trade receivable ratios were decreased in 2015 and 2016 that indicates that the management efficiency decreased that led delay in collection of the payment from market (Brigham and Ehrhardt, 2013). At the same time, the asset turnover ratio of Hello world was increased in 2015 but the assets were decreased and the sales also decreased. At the same time, in 2016 the total asset was increased and utilized optimum that increased the sales of the company. However, the ratio was decreased in 2016. Therefore, it can be said that the management efficiency of the company was turned down in 2016 from 2015 (Fridson and Alvarez, 2011). It indicates the incapability of management of firm in using the assets and its resources.

The interest coverage ratio indicates the ability of the company in doing timely payment of interest on its debts (Delen et al, 2013). The interest coverage ratio of Hello world was negative in 2015, which shows that the company was unable to pay its interest on its debt because the firm earned loss during 2015. In 2016, profit was earned that improved the interest coverage ratio. This indicates that hello world became able to pay interest payment in 2016. 

The share price of Helloworld Limited is 4.00AUD at 14 March 2017(ASX, 2017). On basis of current share price of company, I think that the current share price of Helloworld Limited is relatively low or constant at 4.00AUD from the 6 march, 2017 that means there is lesser chance of increasing and decreasing the share price. Along with this, on basis of current share price, it also can be analyzed that investment in the Helloworld shares is not beneficial to get return on investment. The price of company’s share can be increased from the company news as if company declares that they are going to acquire other relative company or in the financial year company distribute the large amount of total profit to its shareholders in the form of dividend. On the other hand, on basis of overall company share price I think that at this time we can sell the shares of company rather than buy as share price of company are relatively low or there is no huge change in share prices.

Apart from this, there are different factors that affect the current share price of company. These different factors are as corporate actions, demand and supply, expectations and speculations, dividend distribution, and company news (Gordon, 2014). If the company distributes the higher dividend to its shareholders than it influence the investors to get the higher return. At the same time, the company news related to acquisition and business expansion also affect the share price of company.

Conclusion:

From the above analysis, it is found that the performance of Hello World Limited have been improved in 2016 over previous year. At the same time, it operates in three segments include retail, travel management, and wholesale. The main revenue themes of the company are its sales, disposal of investment, interest, dividend from associates and others. The share price of the Hello world is constant and relatively low. Company actions, demand and supply, dividend distribution, and news about company may affect the share price of company.

References:

Babalola, Y. A., and Abiola, F. R. (2013) Financial Ratio Analysis of Firms: A Tool for Decision Making. International journal of management sciences, 1(4), 132-137.

Borowski, A., (2010) Financial Management. UK: GRIN Verlag

Braun, K. W., Tietz, W. M., & Harrison, W. T. (2013) Managerial accounting. USA:  Pearson.

Brigham, E. F. and Houston, J. F. (2015) Fundamentals of Financial Management. USA: Cengage Learning.

Brigham, E. F., and Ehrhardt, M. C. (2013) Financial management: Theory & practice. USA: Cengage Learning.

Delen, D., Kuzey, C. and Uyar, A. (2013) Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications,40(10), pp.3970-3983.

Fridson, M. S. and Alvarez, F. (2011) Financial Statement Analysis: A Practitioner's Guide. USA: John Wiley & Sons.

Hello World Limited, (2017) Hello and Welcome [Online]. Available at: https://www.helloworldlimited.com.au/ (Accessed: 15 March 2017).

Hello World Limited, (2016) Annual report [Online]. Available at: https://www.helloworldlimited.com.au/~/media/Helloworld%20Limited/Files/Annual%20Reports/Helloworld%20FY16%20Annual%20Report.ashx  (Accessed: 15 March 2017).

Hello World Limited, (2015) Annual report [Online]. Available at: https://www.helloworldlimited.com.au/~/media/Helloworld%20Limited/Files/Annual%20Reports/FY15%20HLO%20Annual%20Report_FINAL_ASX.ashx  (Accessed: 15 March 2017).

ASX, (2017) Prices and Research [Online]. Available at: https://www.asx.com.au/asx/share-price-research/company/HLO (Accessed: 15 March, 2017).

Gordon, B. (2014) Top 10 Factors Affecting the Stock Market [Online]. Available at: https://www.toptenreviews.com/money/articles/top-10-factors-affecting-the-stock-market/ (Accessed: 15 March, 2017).

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