Actions of Actinogen Company - Report Example

RАTIО АNАLYSIS MОDЕL By Student’s name Code+ course name Professor’s name University name City, State Date Table of Contents Table of Contents 2 Introduction 3 Purpose 4 . Ratios 4 (c) Probable Reason(s) 11 ACTINOGEN LTD COMPANY Introduction Actinogen Ltd Company now deals with the treatment of Alzheimer’s disease and Mild cognitive impairment. Actinogen limited isolates environmental bacteria (actinomycetes) which is a bacteria found in the Western sides of Australia. Actinomycete is used to grow crops and plants in salt affected environments, these crops and plants are used in anti-fungal, antibiotics, antiviral and anti-cancer agents (Patent, Mark 2014). The company is working on a novel drug to be used in the treatment of Alzheimer’s disease and also age-related diseases, for example, neurodegenerative diseases. This report is based on the financial analysis of Actinogen Ltd Company. To compile this financial analysis I have dealt with ratio analysis, this is based on two parts, these are, performance and financial position (Driver, Beiser, Kreger 2012)... The goal is achieved with the support of liquidity ratio, profitability ratio, and solvency ratio. Liquidity ratio can be defined as the ability of a company to pay its short-term debts obligations. If the margin of the ratio is high, then a company can comfortably pay short-term debts. Common liquidity ratios include; the operating cash flow ratio, the quick ratio and the current ratio. Profitability ratio, on the other hand, can be defined as the ability of a company to generate earnings when compared to its expenditures (Minsky 2015). When monitoring the progress of a company, a high ratio or one similar to the previous one indicates that the company is doing well. Some typical examples of profitability ratio are; return on equity, return on assets and profit margin. Solvency ratio is defined as the ability of a company to meet its obligations and debts. It is a clear indication of a business’s ability to meet its long-term and short-term liabilities. The lower the solvency ratio of a company, then the higher the probability that it will default on its debt obligations. Purpose This financial report is meant for two group of people; that is the management team and investor. For the managers, with the help of this financial report, they can easily tell where the company is making wrong expenditures. Therefore, this report is critical when it comes to decision-making within the company. Better decisions very useful to maintain the sustainability of the company thus making sure it does not become bankrupt. For the investor, through observing the statistical information provided by the report, they can predict whether investing the money in Actinogen will lead them to loses or if it is a good venture to try (Driver, Beiser, Kreger 2012)... . Ratios Liquidity Ratios These are a set of financial calculations which are done with the purpose of try to understand how the company can be able to meet its short-term debts. It reveals the company’s ability to pay its short-term debt (Minsky 2015). 3.1. Current Ratio (a) Calculation The current ratio measures a firm's ability to pay their current debts. The greater extent to which current assets exceed current liabilities, the easier a company can meet its short-term obligations (Brigham, Daves 2012). Current Ratio = [Current Asset / Current Liabilities]   2013 2012 Year on Year Change Current Ratio 1.69 2.40 -29.58% (b) Interpretation The current ratio of Antinogen Ltd was 2.40 in 2012. These mean that the ability of Actinogen Ltd to pay short-term debts is 2.40. This ratio decreased to 1.69, which means that the company’s position is less liquid in 2013 as compared to 2012 (Patent, Mark 2014). These can be confirmed from negative change by 29.58% in the ratio. That implies Antinogen Ltd is able to pay off its current liability by 1.69 times with its current asset. (c) Probable Reason(s) 2013 2012 YoY Total Current Assets 137,692 285734 -51.81% Total Current Liabilities 81,319 118809 -31.55% As seen above the total current asset has gone down with about 51.81% from the year 2012 to the year 2013. The current liabilities also decreased by 31.55%.This has resulted in the negative change in the current ratio. These mean that the ability of the company to meet the current obligation has reduced from the year 2012 to the year 2013. 3.2. Acid test (Quick) Ratio (a) Calculation The Acid Test Ratio (Quick Ratio) is very similar to the Current Ratio except for the fact that it excludes inventory, deferred tax asset (current portion) and prepaid expenditure. For this reason, it's also a more conservative ratio (Brigham, Daves 2012). Acid test = (Cash + Short term investment +Net receivable) / Current Liabilities 2013 2012 Year on Year Change Acid test (quick) Ratio 1.38 1.71 -19.29% (b) Interpretation Actinogen Ltd had $1.38 of Cash and Receivable combined for each dollar it owes to its financiers and suppliers in the year 2013. The quick ratio has gone down by 19.29% which means Actinogen’s ability to pay off its short-term debt with its most liquid assets has been decreased by about 19%. (c) Probable Reason(s) Decrease or increase in the inventory usually has no effect on the quick ratio. Sometimes it may be observed that although the current ratio may go up quick ratio may either go up or down. The current ratio has decreased by 29% as compared to the quick ratio that has dropped by about 19%. The reduction in the inventory has caused the disparity between the two ratios. 3.3. Receivable Turnover Ratio (a) Calculation The Accounts Receivable Turnover measures the number of times Accounts Receivable were collected during the year.  This is also a measure of how well the company collects sales on credit from its customers, just as Average Collection Period measures this in days. Here Average Net Receivable is taken for the ratio calculation (Brigham, Daves 2012). Average Net Receivable is calculated by averaging the beginning and ending balance of net receivable. The net receivable is the amount of receivable at a point after deduction the allowance for bad debt. Receivable turnover = (Net credit sales / Average Net Receivable) Net Credit Sales = Credit sales – Returns Net receivable = Account receivable – Allowance for Bad Debt Average Net Receivable = (Ending Balance of Receivables + Beginning Balance of Receivables)/ 2 2013 2012 Year on Year Change Receivable turnover 0.47 1.28 -63.28% Revenue is assumed to be credit sales as there is no segregation between cash and non-cash sales. Average Net Account Receivable Calculation: 2013 2012 2011 Net Account Receivable 25176 81999 45645 Avg. Net A/C Receivable 53587 63822 (b) Interpretation The receivable turnover of Actinogen Ltd was 0.37 and 1.28 respectively in 2013 and 2012. These articulates that the company receivable has been collected 0.37 times during the year of 2013. This rate has significantly reduced by 63.0 %. These show the process of collecting company receivable is not stable over the years (Patent, Mark 2014). (c) Probable Reason(s) The general observation shows that the cycle of the Actinogen Ltd receivable is not that stable in the last two years (Minsky 2015). The 63.28% change in the negative is a great change which show there no stability in the two years.' 3.4. Inventory Turnover (a) Calculation This widely used ratio tells how fast the inventory is moving. It is an indicator of the liquidity of inventory. It says, how many times in a period (a year in this case) inventory was sold and replaced. It also implies the rapidity with which the inventory is turned over into receivables through sales. Again, in this case, we have to take the average inventory, which is the mean of beginning and ending balance (Brigham, Daves 2012).. Inventory Turnover = (Cost of goods sold / Average inventory) Here, Average Inventory = (Ending Balance of Inventory + Beginning Balance of Inventory) / 2 2013 2012 Year on Year Change Inventory Turnover 0.10 0.46 Average Calculation:   2013 2012 2011 Ending Inventory 15170 38495 25345 Average Inventory 26832 27920 -78.26% (b) Interpretation Inventory turnover ratio in the year 2013 was 0.1 which mean that inventory was sold and replaced 0.1 times in the year 2013. In 2012, the inventory was about 0.46 times. Negative 78.26% show bad performance for the company (Patent, Mark 2014).. It an indication of inefficiency in inventory conversion in 2013 compared to the year 2012. c) Probable Reason(s) The ending inventory in 2013 has gone down by 60.69%; this might be the most predictable reason for the dreaded inventory turnovers ratio from the year 2012. This inventory turnover is going down same time the revenue of Actinogen Ltd is going down. These pose a danger to the future of the company as it is continuing to perform badly in its finances. This is a suggestion that the Actinogen Ltd need to do something about their sales. Overall liquidity position Actinogen Ltd is at its better shape as it has less liability compared to its current assets (e.g. cash, accounts receivables, inventory etc). These implies that the company can meet its short-term debts using its current assets (Wisner, Tan, Leong 2015). Lower liquidity could put a company in financial difficulties like meeting its short-term demands and obligations. This significantly higher ratio may suggest that Actinogen Ltd is not efficiently using its funds. Thus, these tests may also be used to determine how best the company is using the available funds. The overall liquidity position of Actinogen Ltd seems safe; however, it is keeping a lot of its asset idle. The possible solution of this can be many. However, liquidity has to be maintained for many reasons (Patent, Mark 2014).. Usually, there are covenants set by lenders to maintain certain liquidity position as safety measure. On the other hand, inventory has gone down in line with sales, which is normal. However, Inventory is up by slightly higher percentage than its sales (Hitt, Hoskisson 2012). Profitability Ratios 3.5. Profit Margin These are a set of financial calculations that try to reveal how the company is performing in its profitability. They are very paramount in determining the level of the profit or the loss (Brigham, Daves 2012).. (a) Calculation This ratio indicates the relative efficiency of the firm after taking into account all expenses and income taxes, but not extraordinary charges. It is a widely reported figure (Bragg 2012). Profit Margin = (Net Income / Net sales) * 100% 2013 2012 Year on Year Change Profit Margin -1.60 -0.83 92.77% (b) Interpretation Actinogen has made a $1.6 of net loss for every $100 of sale it made in 2013 which is an increase in net loss from the year 2012 which was at a profit margin of 0.83%. These are poor performance as the company continues to make more losses (Hitt, Hoskisson 2012). (c) Probable Reason(s) It is observed from the statement of comprehensive income that the value of revenue has gone down too much. The net loss has also gone down very much. The main reason is the expenditures. If the expenses had gone down may be the revenue would have gone up. 3.6. Asset Turnover Ratio (a) Calculation The ratio stipulated the amount of revenue generated for each dollar value of assets that company is holding. Average asset, instead of ending balance of assets, is taken into consideration to match with the concept of sales happening throughout the period (Brigham, Daves 2012).. Asset Turnover = (Net sales / Average assets) Here, Average Assets = (Ending Balance of Assets + Beginning Balance of Assets) / 2 2013 2012 Year on Year Change Asset Turnover 0.0071 0.024 -70.41% Calculation of Average Assets 2013 2012 2011 TOTAL ASSETS 275672.00 465799.00 1140807.00 Avg, Total Asset 370735.50 535535.30   b) Interpretation Asset turnover ratio for Actinogen Ltd is 0.0071 in 2013. These represent a 70.41% decrease from the last year 2012 which was 0.024. These means that in the year 2013 for each dollar of asset Actinogen Ltd generated $0.0071 sale (Patent, Mark 2014).. (c) Probable Reason(s) The sales of the Actinogen have decreased while the asset has increased also. This positive asset turnover shows a better utilization of Actinogen Ltd in the year 2013 which is reduced by 70.41% (Damodaran 2012). 3.7. Return on Assets (a) Calculation Return on Assets, popularly known as ROA, indicates how efficiently the assets are being used. However, numerous problems with this ratio have developed in actual use including motivating managers to look to the short-term rather than investing for the long-term (Brigham, Daves 2012).. Return on assets = (net income / Average assets) Here, Average Assets = (Ending Balance of Assets + Beginning Balance of Assets) / 2 2014 2013 Year on Year Change Return on Assets -0.44% -0.34% 29.41% (b) Interpretation Actinogen Ltd made 0.44% of the loss by utilizing its assets in 2013. This is worse compared to the year 2012 with a decrease of 29.41%. (c) Probable Reason(s) The entire asset base generally went down. This was combined with the net income going down. These have resulted to decrease in returned on assets. 3.8. Return on Common Stockholders' Equity (a) Calculation This ratio is calculated by dividing the net profit after taxes (net earnings) by the net worth (stockholders' equity) (Damodaran 2012). This shows the earning power on shareholders' book investment and is often used to compare two or more firms in the same industry (Brigham, Daves 2012).. Return on Common Stockholders' Equity = (Net Income - Preferred Dividends) / Average Common Shareholder's Equity Here, Average Common Shareholder's Equity = (Ending Balance of Shareholder's Equity + Beginning Balance of CSE)/ 2 Nike doesn’t have any preferred stock therefore Preferred Dividend = 0 (Nil) 2014 2013 Year on Year Change in % Return on common stockholders' equity -0.18% -2.12% -91.51% (b) Interpretation Return on common stockholders’, it is often referred to ROE of Actinogen Ltd stood at -0.18% in 2013. There is a slight decrease from previous year. These mean that common shareholders made a $0.18 for each dollar of investment (Patent, Mark 2014). This is a gradual positive growth from year to year. (c) Probable Reason(s) The Actinogen Ltd return on common stockholders’ equity has been performing negatively due to a decrease in the total asset. The asset has greatly depreciated thus the decrease in its equity (Bragg 2012). Overall Performance in profitability The overall performance of the Actinogen Ltd is very bad at the current period. It poses a future risk. Actinogen Ltd massive increase in current asset mostly by cash that do not generate any return is a huge problem for future profitability. The proportion of its equity is going to decrease the cost of capital. This will undoubtedly pose a significant challenge to hold up the future return on the common shareholders’ equity and overall profitability. Solvency Ratio These are a set of calculations that shows how best the company can be able to meet its long-term debt using the available assets (Brigham, Daves 2012).. 3.9. Debt to Total Assets Ratio (a) Calculation This summarizes how the company is financed, or the portion of finance came from Debt. Debt to Total Assets Ratio = (Total Debt / Total Asset) 2013 2012 Year on Year Change Debt to total assets Ratio 0.29 0.26 11.54% (b) Interpretation The debt to total asset ratio of Actinogen Ltd is 0.29 in 2013 meaning that it is financed by 29% of debt and rest by equity (Patent, Mark 2014). Debt to total asset ratio has been increased by 11.54% from the year 2012 to the year 2013. (c) Probable Reason(s) The major portion of this company debt is consist of current liability. The current liability decreased from $118809 to about $81319.The company is mostly financed by the common equity rather than creditors (Bragg 2012). Conclusion Actinogen Ltd has shown a good liquidity and solvency. However, profitability is doing quite very bad. There is much need for change in the capital structure of the company (Brigham, Daves 2012). However, these change may bring rise to more challenges in the cost of its capital. The company is still holding a huge current asset that defies any return at all (Driver, Beiser, Kreger 2012). References Bragg, S. M. (2012). Business ratios and formulas: a comprehensive guide (Vol. 577). John Wiley & Sons. Brigham, E., & Daves, P. (2012). Intermediate financial management. Cengage Learning Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (Vol. 666). John Wiley & Sons. Driver, J. A., Beiser, A., Au, R., Kreger, B. E., Splansky, G. L., Kurth, T., ... & Wolf, P. A. (2012). Inverse association between cancer and Alzheimer’s disease: results from the Framingham Heart Study. Bmj, 344, e1442. Hitt, M., Ireland, R. D., & Hoskisson, R. (2012). Strategic management cases: competitiveness and globalization. Cengage Learning. Minsky, H. P. (2015). Can" it" happen again?: essays on instability and finance. Routledge. Park, A. J., Australasia, P., Patent, L. A., Mark, T., Australia, A., Diagnostics, A., ... & Australia, C. (2014). Corporate, institute and associate members of AusBiotech. Australasian BioTechnology, 24(1). Wisner, J., Tan, K. C., & Leong, G. (2015). Principles of supply chain management: a balanced approach. Cengage Learning. Hi s Read More