Financial Analysis Report for Universal Truckload Service - Example

Financial Analysis Report for Universal Truckload Services Name University Executive Summary Financial analysis is a very important concept to any company in any industry. It is used to determine the financial status of a firm in order to help the various participants in the industry in decision making i.e. investors, financers, management etc. In this study, an investigation was done into the transport industry, the highest growing industry globally. Under this study, analysis for universal truckload, a corporation in the transport industry, which serves the US, Mexico and other cities was done. In this case, data was collected both from historic and available financial reports about Universal truckload. This data was used in creation of a simplified financial statements and an analysis of the financial statements in both the comparative analysis and common size analysis format was done. In addition to that, the financial statements were analyzed using the financial ratios. In this case, each financial ratio was explained what it meant. Through this analysis, suggestions were given such as increase in dividend payout to attract more investors and motivation of current stakeholders. Table of Contents Executive Summary 2 Chapter One: Profile of the Universal Truckload Services Company 5 1.1 Industry of Study 5 1.2 Company History 5 1.3 Financial Profile of the Company 6 Chapter Two: Introduction 7 2.2 Purpose of Study 7 2.3 Scope of Study 7 2.4 Objectives of the Study 7 2.5 Methodology 8 2.6 Data Collection 8 2.7 Tools 8 2.8 Limitations 9 Chapter Three: Project Overview 10 3.1 Introduction of Financial Statements 10 3.2 Meaning and Concept of Financial Analysis 11 3.2.1 Purpose of Financial Analysis 11 3.3 Types of Financial Analysis 12 3.4 Procedure of Financial Statement Analysis 12 3.5 Methods and Devices of Financial Analysis 12 3.5.1: Horizontal and Vertical Analysis 13 3.5.2 Use of Ratios 13 3.6 Overview of Ratio Analysis 13 3.6.1 Profitability ratios 13 3.6.2 Liquidity Ratios 14 3.6.3 Leverage Ratios  14 3.6.4 Efficiency Ratios 15 Chapter Four: Analysis and Interpretation 16 4.1 Comparative Balance Sheet and Income Statement 16 4.2 Common Size Analysis of Balance Sheet and Income Statement 20 4.3 Ratio Analysis 23 4.3.1 Well-being of common stakeholders 23 4.3.2 Wellbeing of Short-Term Creditors 23 Chapter Five: Findings and Suggestions 25 5.1 Findings 25 5.2 Suggestions 26 References 27 Chapter One: Profile of the Universal Truckload Services Company 1.1 Industry of Study This study will major on the transport industry majorly those who offer trucks for hire or supply building materials and other services such as excavation services. It deals with transport of cargo for both short and long distances. The study will deal with financial statements of companies in the transport industry. 1.2 Company History Universal Truckload services, is a transport company in the US which was incorporated in December 2011. It is a provider of transport and logistics solutions throughout the United States, Canada, Mexico and Colombia. It works using various agents in both short term and long-term contracts. General transporters to provide professional and accountable services to their clients formed the company. The company conducts its operations itself and through its subsidiaries. The main companies operations are aggregated towards the transportation segment. Services in this segment include dry van, heavy haul, flatbed, refrigerated, shuttle and switching operations, as well as full service domestic and international freight forwarding, house brokerage services. The logistics segment offers other value adding services that include; material handling, returnable container management, re-packing, warehousing etc. It also has other operating segments that consist of the companies’ subsidiaries that provide support services such as equipment leasing, shop maintenance to other subsidiaries and owner operators. 1.3 Financial Profile of the Company Initial capital of the company came from owners’ contributions and thereafter the company started selling shares privately and getting more money from investments. It also uses loans to finance some of their assets purchase. Throughout its lifetime, universal truckload has acquired various firms such as great America in 2004 and Cavalry Logistics in 2010. This acquisition has helped it to offer more services using its subsidiaries. Chapter Two: Introduction 2.1 Introduction of Study Various companies operate without proper bookkeeping or preparation of financial statements. This is majorly because they fail to know the importance of keeping proper books of accounts. They are also ignorant on how much they can conclude about the company status by simply using prepared financial statements. This study seeks to show various ways of preparing financial statements, ways of financial analysis and their importance 2.2 Purpose of Study This study was conducted to show various ways of preparing financial statements, their importance and ways of financial analysis. Financial statements were analyzed to show the status of the company and its implications to its users. 2.3 Scope of Study This study was limited to one-company i.e. Universal Truckload services. We limited the study to 2014 financial records of the last quarter of the year. 2.4 Objectives of the Study The general objective of the study is to evaluate the various financial statements of Universal Truckload services limited. The specific research objectives of the study are; 1. To assess various ways of presenting financial statements 2. To evaluate different ways of financial analysis 3. To discuss different ways of interpreting financial data 2.5 Methodology The study involved collecting of data to be used from financial records of the company. The data was collected from the company’s website and google finances. Interviews were also conducted and use of a questionnaire as a guideline to know more about the company. Thereafter computing ratios was done using the internationally recommended standards 2.6 Data Collection In this research I used primary data and in particular use questionnaires to collect data. Primary data is preferred since it has the following advantages; Targeted issues are addressed, data interpretation is easier and recency of data. I personally visited their offices where I asked more about them. Secondary data was also used by visiting their website to collect more data about the company, services, and the products they offer. 2.7 Tools Tools used to collect data were: A questionnaire it contained both open and close-ended questions. Laptop 2.8 Limitations During the study I was faced with various limitations such as Inadequacy of data needed since most of their financial record was confidential. Some company’s financial records were private and confidential only open to the members. Time was also a constraint thus; I was not able to dig as deep as I would have loved into the study. Chapter Three: Project Overview 3.1 Introduction of Financial Statements A financial statement is a official/ formal record of the financial activities and position of a business or other entity. The basic financial statements include; Statement of financial position of a company. It reports on a company's assets (fixed and current assets), liabilities (short and long-term liabilities) and capital / ownership equity at a given point. Income / profit and loss statement. It reports on a company's profits, income and expenses over a period. This can be done quarterly or even annually. Equity Statement that is also known as Statement of changes in equity. It reports on the changes in company’s ownership equity during the stated period. Statement of cash flows which reports on a company's changes in the entity's cash flows i.e. investing and financing activities. 3.1.1 General rules for determining operating, investing or financing activities. Operating activities are daily activities the business engages in. It includes the production, sales, and delivery of the company's product as well as collecting payment from its customers (Kimmel, Weygandt, & Kieso, 2011). Investing activities are the non-operating activities that a firm engage in including purchases or sales of an asset (assets can be property and plant, marketable securities, etc. Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. 3.2 Meaning and Concept of Financial Analysis Financial statement analysis involves the identification of Trends and Proportion analysis for a company's financial statements over a series of reporting periods. Trend lines can be created to show an entity’s performance over a period of time while an array of ratios can be used in discerning the relationship between the size of various accounts in the financial statements e.g. between incomes and expenses (Boundless, 2015). 3.2.1 Purpose of Financial Analysis Financial statement analysis is therefore of great use and importance to various users. These include; Creditors. To determine the ability of an entity to pay back the debt. Investors. To determine viability of investing in such an entity and to learn about a company's ability to continue issuing dividends. Management. To monitor the performance of an entity by comparing to the projected performance and also for decision making. Employees. To determine their job security. Regulatory authorities. To see if its statements conform to the various accounting standards and the rules and also determine the taxes payable. 3.3 Types of Financial Analysis There are various types of financial analysis used. These included; External analysis: this is done on already published financial statements by third parties who lack access to the accounting information. Internal Analysis: accounting and finance department do this. It provides information that assist in decision making to the top management. Short term Analysis:  It involves the working capital analysis of both current assets and current liabilities, so that the cash position is determined. 3.4 Procedure of Financial Statement Analysis Procedure of financial statement analysis involves the following steps; i.) Determine the objectives of financial analysis. ii.) Data collection for financial analysis from different sources iii.) Process the collected data i.e. preparing financial statements. iv.) Conduct analysis on processed data and interpret the results v.) Develop recommendations in the light of inferences drawn from analysis conducted and take up corrective measures.  3.5 Methods and Devices of Financial Analysis Analyzing of financial statements may be done using horizontal or vertical analysis and use of ratios 3.5.1: Horizontal and Vertical Analysis Horizontal analysis also known as comparative analysis involves comparison of financial information for various reporting periods Thus, horizontal analysis is the review of the results of multiple periods. Vertical analysis on the other hand is the proportional analysis of a financial statement, where each item on a financial statement is listed as a percentage of another item (base number). It is the review of the proportion of accounts to each other within a single period. 3.5.2 Use of Ratios It involves use of ratios to determine the relative size of one number in relation to another calculated ratios can then be compared to the same ratio calculated for a prior period. 3.6 Overview of Ratio Analysis Ratio analysis is also used to examine a different aspect of a company's performance (Bamber, Braun, & Harrison, 2008; Garrison, & Noreen, 1997 ). The general groups of ratios are: 3.6.1 Profitability ratios They are used to show the wellbeing of a company in terms of profits they earn from their operations. These ratios include; Breakeven point- is the point where sales level is equals to cost of sales. Contribution margin ratio Shows indicates profits left after deducting variable costs from sales. Gross profit ratio Shows gross profit as a proportion of sales Margin of safety determines the amount by which sales must drop before the breakeven point of company reached. Net profit ratio it calculates profit after deducting taxes and all expenses from net sales Return on equity is the profit of a company as a percentage of equity Return on net assets. Is the profit of a company as a percentage of fixed assets and working capital Return on operating assets is the profit of a company as percentage of assets utilized. 3.6.2 Liquidity Ratios These ratios measure the ability of a company to remain in business. They include Current ratio- it measures liquidity available to pay for current liabilities Quick ratio- it is the same as current ratio but excludes inventory Cash coverage ratio is indicates cash available to pay interest. 3.6.3 Leverage Ratios  They measure degree of protection of long-term creditors. They also aid in determining the ability of a firm to raise additional debt. They include; Debt to equity ratio- Shows the extent to which management is willing to fund operations with debt, rather than equity. Debt service coverage ratio - shows the capability of a company to pay its debts commitment. Fixed charge ratio demonstrates the capability of a company to pay for its fixed costs. 3.6.4 Efficiency Ratios They show the management’s ability to control expenses and to earn returns from resources committed to the firm’s operations. They include Accounts payables turnover ratio, Accounts receivables turnover ratio, Inventory turnover ratio, Sales to working capital etc. Chapter Four: Analysis and Interpretation 4.1 Comparative Balance Sheet and Income Statement A comparative financial statement is a statement that compares financial data from different periods. The comparative statement lines up a section of the income statement, balance sheet or cash flow statement with its corresponding section from a previous period. It can also be used to compare financial data from different companies over time, thus revealing the trend in the financials (Kieso, Weygandt, & Warfield, 2001). The following shows the comparative and common size balance sheets and income statement for Universal Truckload Services. Universal truckload services Statement of financial position for the period ending 28th June 2014 &2015   28/6/2015 28/6/2014 ASSETS $ '000000' $ '000000' $ '000000' $ '000000' Fixed assets         Property plant and equipment 173.61   161.43   Goodwill 74.48   75.49   Intangible assets 49.24   57.45   other long term assets 5.46   6.59       302.79   300.96 Current assets         cash and cash equivalent 7.71   8.11   short term investments 15.12   12.41   Trade receivables 162.84   163.75   prepaid expenses 26.59   22.51   other current assets 24.36   20.77       236.62   227.55 Total Assets   539.41   528.51           Equity and Liabilities         Equity         common share capital 30.86   30.77   Additional paid in capital 2.61   1.07   retained earnings 119.54   87.23   Total Equity   153.01   119.07           Non current Liabilities         long term debt 209.43   234.83   capital lease obligation 1.49   2.49   Deferred tax 44.8   40.4   other liabilities 3.51   4.52     259.23   282.24   Current liabilities         accounts payable 69.32   71.85   accrued expenses 12.92   16.53   Current capital lease 13.21   8.98   other current liabilities 31.72   29.84   Total current liabilities 127.17   127.2   Total liabilities   386.4     Total Equity and liabilities   539.41   528.51           universal truckload services Profit and Loss Statement For the period ending 28th June 2014 & 2015   2015 2014   $ '000000' $ '000000' $ '000000' $ '000000'           Revenues 295.01   307.55   Cost of revenues 202.83   211.3   Gross profit   92.18   96.25           Less Expenses         salaries, admin, general expenses total 31.29   32.73   Depreciation 8.87   8.02   other expenses 29.1   31.08   Total Expenses   69.26   71.83 Net income   22.92   24.42 other net income   0.56   0.12 Profit before interest & Tax   23.48   24.54 Interest on Loans   1.9   2.47           Profit before Tax   21.58   22.07 Taxation   8.3   8.44 Profit after Tax   13.28   13.63 Universal Truckload Services Profit and Loss Statement For the period ending 28th June 2014 & 2015   2015 2014   $ '000000' $ '000000' $ '000000' $ '000000'           Revenues 295.01   307.55   Cost of revenues 202.83   211.3   Gross profit   92.18   96.25           Less Expenses         salaries, admin, general expenses total 31.29   32.73   Depreciation 8.87   8.02   other expenses 29.1   31.08   Total Expenses   69.26   71.83 Net income   22.92   24.42 other net income   0.56   0.12 Profit before interest & Tax   23.48   24.54 Interest on Loans   1.9   2.47           Profit before Tax   21.58   22.07 Taxation   8.3   8.44 Profit after Tax   13.28   13.63 4.2 Common Size Analysis of Balance Sheet and Income Statement Common-size financial statements are statements that are presented as percentages of a base number. For instance revenue and expenses being presented as a percentage of the net sales. Universal Truckload Services Statement of financial position for the period ending 28th June 2014&2015   28/6/2015 ASSETS $ '000000' $ '000000' % Fixed assets       Property plant and equipment 173.61   32.19% Goodwill 74.48   13.81% Intangible assets 49.24   9.13% other long term assets 5.46   1.01%     302.79 56.13% Current assets       cash and cash equivalent 7.71   1.43% short term investments 15.12   2.80% Trade receivables 162.84   30.19% prepaid expenses 26.59   4.93% other current assets(inventories) 24.36   4.52% Total current assets   236.62 43.87% Total Assets   539.41 100.00%         Equity and Liabilities       Equity       common share capital 30.86   5.72% Additional paid in capital 2.61   0.48% retained earnings 119.54   22.16% Total Equity   153.01 28.37%         Non current Liabilities       long term debt 209.43   38.83% capital lease obligation 1.49   0.28% Deferred tax 44.8   8.31% other liabilities 3.51   0.65%   259.23   48.06% Current liabilities       accounts payable 69.32   12.85% accrued expenses 12.92   2.40% Current capital lease 13.21   2.45% other current liabilities 31.72   5.88% Total current liabilities 127.17   23.58% Total liabilities   386.4 71.63% Total Equity and liabilities   539.41 100.00%         Universal truckload services Profit and Loss Statement For the period ending 31st December 2013 & 2014   2015   $ '000000' $ '000000' %         Revenues 295.01   100.00% Cost of revenues 202.83   68.75% Gross profit   92.18 31.25%         Less Expenses       salaries, admin, general expenses total 31.29   10.61% Depreciation 8.87   3.01% other expenses 29.1   9.86% Total Expenses   69.26 23.48% Net income   22.92 7.77% other net income   0.56 0.19% Profit before interest & Tax   23.48 7.96% Interest on Loans   1.9 0.64%         Profit before Tax   21.58 7.32% Taxation   8.3 2.81% Profit after Tax   13.28 4.50% 4.3 Ratio Analysis As discussed earlier ratios can be used by various people for different use in financial analysis. In Universal truckload services, I analyzed ratios on the well-being of common stakeholders, short-term creditors, and long-term creditors. Using the 2015 June quarter financial statements i.e. statement of financial position and income statement, the given earnings per share of 0.44 and dividends of 0.07 and making the following assumptions i.) The book value per common share $0.54 ii.) Market value of share is $1 iii.) All shares are ordinary shares there are no issued preferred shares. 4.3.1 Well-being of common stakeholders 1. 2. 3. 4. 5. 4.3.2 Wellbeing of Short-Term Creditors 1. 2. 3. 4.3.3 Wellbeing of the long-term creditor 1. 2. Chapter Five: Findings and Suggestions 5.1 Findings From the research and calculations, it was found that: 1. Investors and current stakeholders could consider holding to their shares or even purchasing more since there was a good prospective of earning good dividends as shown by; a. Earnings per Share Indicated that each share of common stock outstanding earned $0.40. b. Price Earning Ratio of 2.5 times indicates that the company has 2.75times more opportunity for growth which is a good indicator to stakeholders. c. Dividend Pay out Ratio of 17.5% shows that only 17.5% of current earnings were paid-out in dividends the rest 82.5% is retained earnings. d. Dividend Yield Ratio shows the returns in terms dividends, on the current market price of the shares. In this case it was 0.4 times. 2. The Current ratio of Universal Truckload services was 1.86:1. This shows that the Company has high ability pay current debts as they become due and thus short-term creditors can finance the company with surety. 3. Times Interest Earned Ratio shows that the firm has ability provide protection to the long-term creditor 4. The Debt to Equity ratio of 0.25:1 indicates the amount of finance provided by creditors universal truckload is using to finance its assets relative to the amount of shareholders’ equity. 5.2 Suggestions Financial analysis indicates that the company is doing well. However, the following suggestions could be considered. Universal truckload should consider other ways of financing other than borrowing. This may be in terms of selling more shares or even giving more Right issues. It should also consider issuing more dividends to shareholders as a way of motivating the shareholders and attracting more investors. In conclusion, financial analysis is important to any company. Through the analysis of the financial statements, right decision are made based on this analysis and as a result of this, next course of action is taken at the right time to prevent the organization under consideration from being bankrupt. References Bamber, L. S., Braun, K. W., & Harrison, W. T. (2008). Managerial accounting Upper Saddle River, N.J: Pearson Prentice Hall. Boundless. (2015). “Activities of the Business: Financing, Investing, and Operating.”  Garrison, R. H., & Noreen, E. W. (1997). Managerial accounting. Chicago: Irwin. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2001). Intermediate accounting, New York: Wiley Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision-making Hoboken, N.J: Wiley. Moore, C. L., & Jaedicke, R. K. (1972). Managerial accounting Cincinnati: South-western Pub. Co. Read More