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Trend Analysis Of Financial Statements

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Question:

Discuss about the Trend Analysis of Financial Statements.
 
 

Answer:

Introduction

This report is presented to demonstrate the reliability and efficiency of accounting and financial reporting over the company. As ASX listed company, Blackmore’s financial statements are evaluated with reference to financial reporting. Information is presented in reliable and transparent manner to represent the actual financial performance of company. It also includes the financial ratios analysis to support the efficiency of financial statement which creates a clear picture for the performance of business.     

Slide 1: Accounting and Financial Reporting

Slide 2: Table of Content    

Slide 3: Presentation Introduction   

Slide 4:  Company Background: Blackmores

Blackmores limited is the one of the top brands in the category of the natural health in Australia. It deals in various products such as minerals, herbal, vitamin and nutritional supplements. It provides more than 250 varieties of vitamin, herbal, minerals and nutritional supplements. Maurice Blackmore established the Blackmores limited in 1930 (Blackmores (2017). The headquarter of Blackmores limited is in New South Wales, Australia. The Blackmores limited manages its business in various countries such as China, New Zealand, Singapore, Malaysia, Japan, Thailand, Korea, Cambodia, United States, and Macau. Since last 8 years, the Blackmores has been winning most trusted brand in the Australia for vitamins and supplements.

Slide 5: Company Background  

Share price is also indicator for the financial performance of the company based on the trend in the stock price and the management decisions the stake holders decide to stay or exit from an investment. The good profits results to increase in the share price of a company on the other side it can be said that high share price of a company indicated increased profits of the company. From year 2013 to year 2015 the company was performing average due to several takeover decisions. But its profits increased suddenly in 2015-16 due to its entry in Asian market. So the share price is at peak of AUD $217.18 in this period of time and the decisions of the management is having direct impact on the share performance as stakeholders depends on the financial and accounting information of a company (BKL AU, 2017).

 

Slide 6: Financial Performance Evaluation of Blackmores  

From the observation of balance sheet, it can be stated that there is a huge difference between the asset of 2016 and 2015 as AUS$2,94,624 and AUS$1,87,844 which can influence the decisions of stakeholders. On the other hand, current liabilities of company is measured as AUS$2,53,430 in year 2016 which can also a point that the liabilities over the companies are also increasing that also have adverse impact over the stakeholders to judge the stability of company in perspective market. On the other hand, the liabilities and assets both are increasing with huge turn so, it can be derived that the market capture strategy brought the impact over the financial data of Blackmore. In terms of equity, it can be inferences that reserve funding of business has reduced from AUS$8063 to AUS$5252 M. On the other side it is also assessed that the total equity of company has also increased with reference to year 2015 to 2016.      

Further, over the income statement observation, it can be said that the sales of company has jumped in turbulent manner. With this, net revenue for the Blackmore has also increased so it shows the satisfactory performance for the stakeholders to take the affirmative decisions. Profit and loss data indicates the good performance of company in year 2016 as compare to 2015. It is also reviewed that the income tax burden over the company has increased as it might taken the loan from the financial institutions; it can affect the position of company adversely.

Slide 7: Financial Performance Contd.

Over the looking of cash flow, it is captured that good amount of cash has been generated from the operating activities but most of it would be adjusted in the payment of employees and suppliers. On the other hand, the investing and financing activities have generated negative cash flow over the year 2016. It is positively noted that cash and cash equilent has also been generate at lower rate as AUS$2191 and increased up to the AUS$37653. Overall, it has generated $100 million profit for the financial year 2016 and it has stumbled the growth as 115% in relation to last financial year performance. These data are indicating the good financial position left out interest on activities. Along with this the, market cap values for the company has also tapped as AUS$1,757,380,000 which is also experienced the significant market capture at this time.

On the basis of above performance, it is reviewed that the shareholder’s equity has increased with rapid changes. At the same time, the gear ratio has dumped in year 2015 but the year 2016 has experiencing good positive reflection over geared ratio of Blackmore as the figures are indicating.  

Slide 8: Financial Performance Contd.

The above cited graph is indicating the gearing ratio of Blackmore as it had downward in year 2015 where, it was above 40 and it got down by 10 which is not good for the company. As the movement of ratio from the year 2016 it is upward which signs the increasing movement of company’s gearing performance ratio.

 


Slide 9: Measurement of Key Factors

Impact of Convention over Accounting: Accounting conventions have significant impact over the accounting assessment as it influences by its rules and regulations of standards to follow while creating financial report of performance of business. Assets is influenced by the conventions as the company has shown the higher assets that it can create challenges for the stakeholders to found the actual asset for company as Blackmores has shown huge difference between the asset of 2015 and 2016 which can affect the management also to present the evidence to the financial reporting authority in order to prove the asset management. At the same time, the shareholders and owner’s equity should be separate from the business transactions.  

In concern to the convention, management should produce the real and reliable information for the external stakeholder’s to intake decision while investing in business because the data derives the real picture for the performance of business (Needles, et. al, 2013). At the same time, owner’s equity should be treated separately from the business to assess the position of business. Along with this, the convention of consistency should be taken into accounting while preparing the financial statements as it essential to follow the principles and procedure to present the accounting information in effective manner.       

Managerial Judgment: Materiality convention is directly linked to the management judgment that enforces the accountant management to consider the standard while assessing and presenting the information in real manner.   

Relevance of Information: It is important to consider the relevancy of information with the performance of business as the shown graph indicates about the significant performance of business, it should be related to the exact information because it might dilutes the stakeholders such as sales of business has increased (V. 2011). Faithful Presentation: Faithful presentation of financial performance leads to the reliability of company’s presence in perspective market. So, following the accounting standards, it should not make any error and omission to evaluating the viability of company.

Slide 10: Financial Ratio Analysis

Profitability ratios: These types of ratios indicate the financial performance of company with respect to the sales of company and how much profit is generated by firm. Financial ratio analysis is as follows

Gross  Profit Margin = Gross Profit/Revenue (Tracy, 2012)

= 143411/599485*100 = 23.92%

Net Profit Ratio= Net profit/ Revenue = 100020/599485*100 = 16.67%         

Efficiency ratios: This financial ratio measures the efficiency of company to manage the differentiation ratio that predicts the cost of goods sold and average inventory

Inventory Turnover = Cost of Sales/Average Inventory

= 272917/47852 = 5.70% 

Total Asset Turnover = Net Sales ÷ Average Total Assets (Brigham and Houston, 2012)   

= 495468/363715 = 1.36%               

Liquidity ratios: Liquidity of firm is assessed over the current ratio and quick ratio evaluation. Assess the ability of the firm to manage working capital and its ability to pay its short-term debts without running.

Current ratio = Current asset/Current Liability = 294,624 / 192,279 = 1.53%

Acid test ratio = Current asset –Inventories / Current Liabilities = 294624-116,486/192279 = 0.93%

(Drake and Fabozzi, 2012)

 


Gearing ratios: Assess the long-term capital structure of the business

 Debt ratio = Total debt/Total asset        

= 17,793/434,023 = 0.041

Equity ratio = Shareholder’s funds/Total asset    

= 1,78,263/434023 = 0.41 or 41%

In terms of the relative quantities of debt and equity capital

Investor ratios: This type of ratio indicates the shareholders about the performance of company to equate the debt to equity and market debt of company within specific time duration.

Earnings per share (EPS) = Net income –Preferred dividends/Share issued outstanding

= 100,020 –6285 /17225

= 5.44

Price-Earnings Ratio = Market Price per Share ÷ Earnings per Share

= 119.57/5.76 =20.72%

The above analyzed ratio indicates the good financial position of company over the performance of Blackmores in year 2016 as compare to the year 2015.

 


In concerned to the horizontal analysis of company, it is presented to measure the financial performance of company with reference the Bellamy's Australia Limited which also deals in the consumer staples (Businessinsider, 2017). 

Over the comparison of horizontal analysis of Blackmore and Bellamy, it can be concluded that the both of companies are growing with rapid growth after year 2016 and triggered the sales above AUS$100 million.

Financial statements are comparing in relation to the performance of businesses (Accontingformanagement., 2017). Over the income statement analysis, the Blackmores has shown the historical growth in the year 2016 as compare to Bellamy, it earned AUS$100 million and the net profit of comparative company is very lower for the same year.

Conclusion

It is concluded that companies needs investments from shareholders and investors. Stakeholders depend upon the financial reporting and financial steps of a company so it becomes vital for the companies to have transparency and full disclosure of information. Following accounting standards and principles will results to build trust and confidence of the all related factors towards the companies.

 

References

Accountingformanagement, (2017). Horizontal or trend analysis of financial statements. Available at: https://www.accountingformanagement.org/horizontal-analysis-of-financial-statements/ (Accessed: August 25, 2017).

Annualreports, (2016). Annual Report of BELLAMY’S 2016. Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BAL_2016.pd (Accessed: August 25, 2017).

BKL AU (2017). Bloomberg markets. Retrieved from: https://www.bloomberg.com/quote/BKL:AU

Black mores (2016). Annual report 2016. Retrieved From: https://blackmores2016.annual-report.com.au/  

Blackmores (2017). About us. Retrieved from: https://www.blackmores.com.au/about-us

Brigham, E. and Houston, J. (2012). Fundamentals of Financial Management. USA: Cengage Learning.   

Businessinsider, (2017) 2 ways to analyze an income statement. Available at: https://www.businessinsider.com/horizontal-and-vertical-analysis-of-income-statements-2017-3?IR=T (Accessed: August 25, 2017).

Drake, P. and Fabozzi, F. (2012). Analysis of Financial Statements. UK: John Wiley and Sons.

Needles, B., Powers, M. and Crosson, D. (2013). Principles of Accounting. USA: Cengage Learning.

Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyze Any Business on the Planet. USA: RatioAnalysis.Net.

R. (2011). Financial Accounting. India: Pearson Education.

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