Asciano Company Analysis - Financial Position, Changes in Equity, Statement of Profit or Loss - Example

ASCIANO COMPANY ANALYSIS Prepared by (Student’s Name) University Name Course Name Professor’s Name Date 1.1 Overview And Background Information AIO-Asciano Ltd is an Australian-based company that engages in both freight and port services. The firm operates under three business units; Pacific National, Terminals & Logistics and, also Bulk & Automotive Port Services (Yahoo Finance, 2015). It serves such sectors as Agriculture; consumer goods; forestry and general cargo. It was demerged from Toll Holdings in 2007. It trades at the Australian Stock Exchange and noted as ASX 50 Company. It is headquartered in Melbourne Australia and currently employs approximately 7,642 workers. According to Yahoo Finance (2015) the company’s market capitalisation stands at USD 8.57B. The Pacific National unit of the company is engaged in interstate containerized freight as well as bulk freight. The Terminals & Logistics unit is tasked with the provision of container stevedoring and, also associated import/ export container’s supply chain; it has container terminals in such areas as Brisbane, Sydney, and Melbourne (Yahoo Finance, 2015). The Bulk & Automotive Port Services business unit is engaged with the provision of port services as well as integrated supply chain solutions. The company’s five-year historical price chart is shown as below; The company’s five-year historical dividend’s chart is shown as below; 1.2 Financial Statements 1.3 Statement of Financial Position/ Statement of Changes in Equity Asset Section: The main assets of the company include; property, plant and equipment that stands at $4,465.3M in 2015 up from $4,306.7M in the previous year of 2014. Another major asset of the company lies in its intangible assets that currently stand at $2,796.2M in 2015 (Asciano, 2015). These assets are certainly enormous given the nature of the business operations of the company; port and freight services. The company has invested heavily especially in property as can be noted in its efforts to acquire the remaining part of the property in Queensland from Toll Group as well as development of the oil and gas floating support platform in Dampier; Patrick Marine Facility(Asciano, 2015). The current year-2016- the range of the capital assets is set to include the full acquisition of new cranes that will operate in Port Botany as well as the Adelaide freight Terminal. Equity Section Analysis The company’s contributed equity is composed of ordinary shares as well as treasury shares. There has been insignificant level of changes in the level of the component over the years and this is as a result of the insignificant level of acquisitions as most of them are expected to be completed in full in the coming years. Contributed equity for the company is mostly composed of ordinary shares; which contributes about $8,606.1M of the total equity (Asciano, 2015). The reserved losses for the company for the two-year period decreases slightly as a result of significant changes in relation to profits being transferred from retained earnings and dividends paid within the same operational period. There was an increase in the amounts related to retained losses for the two-year operational period from $(189.3M) to $(312.6) M in 2014 and 2015 respectively. The decrease is attributed to a significant increase in the amounts of profits transferred to profit reserves within the period from a low of $(144.2M) to a high of $(312.6M) in 2014 and 2015 respectively (Asciano, 2015). Dividends Section Analysis: The company paid dividends to all ordinary shareholders. It paid an interim dividend of 8.25 cents per share that amounted to $80.5M in 2015 and a final dividend of 8.50 cents per share in 2014 amounting to $82.9M. All of these dividends were all franked at a tax rate of 30% (Asciano, 2015). 1.4 Statement of Profit or Loss Revenues Analysis: Asciano Ltd access revenues from three fundamental sources that include; First, revenues: from services rendered like rail haulage, which basically involves movement of containerized as well as bulk freight; stevedoring, which is concerned with the loading and unloading of containerized and bulk freight between land and sea transportation; and other logistics like processing, storage and movement of freight in regards to import and export of supply chains that is placed between wharf and the client particular origin or even destination for that matter as shown in the snap chat below; Secondly, other income streams; that include the overall net gains garnered from the sale of property and equipment; lease rental income as well as other. Consequently, share of net profits of joint ventures that are listed in the snapshot below; Cost of Sales Disclosure: The company does not disclose the cost of sales figure because it is not involved in the manufacturing or thereby the production of commodities but rather is focused on providing services. Companies in the service sector do not generate product thus do not have incur costs associated with the creation of goods like direct labor cost. Largest Expense Items: The three main largest expense items include; employee benefits standing at $1,255.7M; rail access, which amounts to $441.5M in the current financial period; and fuel, oil and power expenses that is currently standing at $323.9M in 2015 as shown in the snapshot below; Considering the fact that the company is operating under the service sector; it is an expectation that the employee benefits and related expenses forms the major expense item given that they are the main cash generating units. The company is expected to pay heavily for their level of skills and expertise that is needed for generating revenues. Since the company also operates rail services; it is expected to pay for the licenses needed in operating certain rail networks while the expenses related to power and fuel is also a significant portion of the overall expense since it conducts its operations using sophisticated equipment that require expensive fuel types and components. 1.5 Statement of Cash Flows It is important for a business to prepare and maintain a cash flow statement since it provides information that pertains to the inflows and outflows of cash resource for a given operational period. Consequently, it assists with the identification of sources for cash resource and the manner for which it has been utilized within the period. It is used by the management for aspects related to proper cash planning and harmonizing between cash inflows and outflows. It also focuses on portraying the efficiency of a given entity in the course of producing cash inflows from its underlying regular operations. It certainly reports on the amount of cash that is received in the course of a given operational period like financing-related activities of shares, debentures and long-term borrowings. The profits after tax for the company stood at $360.8M in 2015 while the net cash flows from operations stood at $623.6M within the same operational year (Asciano, 2015). The two items have different figures within the same year since the cash flows from operating activities is computed as a sum of the overall net income that is adjusted for non cash expenses as well as changes in the working capital. Cash flows from operations are composed of specific items that are certainly treated in a different manner within the income statement. Noncash expenses like depreciation and share-based compensation are all included in the course of calculating the net profit after tax but these costs do not, in any way, decrease the amounts related to amount of cash companies produces in a given period. The largest form of cash inflows to the company is mainly receipts from the customers. These receipts are definitely the total revenues posted in the course of completion of service provision. Notably, the payments made to both suppliers and employees form the major form of cash outflow from the entity. As noted earlier, the company’s main skilled asset remains to be the existing knowledgeable and experienced staffing personnel that should be paid at premium compensation packages. It also has to me sufficient payments to suppliers of the numerous sophisticated equipment as well as rail resources needed for generating service-based revenues. The net financing cash flows decreases significantly within the two-year operational period from a high of $234.8M to $(146M) in 2014 and 2015 respectively (Asciano, 2015). This significant change in the amount is attributed to increased level of proceeds from AUD and GBP bond issuance, net of possible transaction costs. 1.6 Linking the Statement of Financial Position or Statement of Changes in Equity with the Statement of Profit or Loss The level of profit after tax for the two operational period increases from $257M to $360M in 2014 and 2015 respectively. This is linked to the increase in the amounts of equity attributable to owners of Asciano Limited from $3,698.8M to $3,949M within the same period. Subsequently, the increase in the amounts related to total assets from $8,176M to $8,876.7M in 2014 and 2015 respectively is highly linked to the improvements seen the level of revenues posted within the same. The statement of changes in equity is linked to both the income statement and statement of financial position because it provides pertinent information related to opening and closing balances for such crucial items like profit after tax and contributed equity, which are significant items in the statement of profits and loss and statement of financial position respectively. 1.7 Calculation of Financial Ratios A. Profitability Ratio Ratios 2014 2015 ROA= net income/total assets 257/8,176.2=0.0314*100%, 3.14% 360.8/8,876.7=0.0406*100% 4.06% ROE= net income/total equity 257/3,716.2=0.0691*100%, 6.91% 360.8/3,968.5= 0.0909*100% = 9.09% Profit margin=net income/revenues 257/3,795.4=0.0677*100% 6.77% 360.8/3,926.1= 0.092*100% 9.2% Profitability Analysis The company’s return on assets increases within the period from 3.14% to 4.06% in 2014 and 2015 respectively meaning that the management team has continued to improve on the efficiency of utilizing the existing asset-base and especially wharf and rail facilities to post significant amounts of profits. The same can be said with the return on equity ratio that increases from 6.91% to 9.09% within the same period; an indication that the management is also utilizing the shareholders equity in an optimal manner to generate favorable profit amounts. Profit margin also increases within the period from 6.77% to 9.2%; an indication that the management has ensured to devise ways of ensuring maximum increase in earnings with the underlying total revenues posted. B. Liquidity Ratios Ratios 2014 2015 Current ratio= current assets/ current liabilities 659.6/813= 0.81 802.9/1,259.3=0.64 Quick ratio=cash + marketable securities + accounts receivable/current liabilities 167.3+429.2/813 = 0.73 127.3+444.6+51.7/1,259.3 =0.99 The company’s current ratio decreases slightly from 0.81 to a low of 0.64 in the two-year period between 2014 and 2015 respectively. On the contrast, the quick ratio increases within the two-year period from 0.73 to 0.99 in 2014 and 2015 respectively. Despite this increase; the ratios are poorly positioned in comparison to different standard ratios meaning that Asciano is unfairly positioned to effect any possible short-term obligations as and whenever the fall due. The ratio is considered to be unfavorable especially because the company engaged in extensive short-term borrowings and loans that increased the amounts related to current liabilities while current assets growth was relatively insignificant in proportion to this liability development within the two-year periods. C. Financial Stability Ratios Ratios 2014 2015 Debt ratio=total debt/total assets 0.6+3,370/8,176.2 =0.41 519.5+3,426.5/8,876.7 =0.44 Capitalisation ratio=Long-Term Debt / (Long-Term Debt + Shareholder’s Equity) 3,370/(3,370+8,609.3) = 0.28 3,426.5/(3,426.5+8,604.5) =0.28 Asset turnover ratio=net sales or revenues/ total assets 3,795.4/8,176.2 =0.46 3,926.1/8,876.7 =0.44 Times interest earned=EBIT/Interest expense 584/191.9 =3.04 711.5/188.8 =3.76 Analysis The company’s debt ratio increases slightly from 0.41 to 0.44 in 2014 and 2015 respectively. The increase is an indication that the total value of assets that is financed by debt has increased within the period. The capitalization ratio remains stable at 0.28 within the two-year period meaning low risk attributed to repayment of loan on time. The asset turnover ratio further decreases within the period from 0.46 to 0.44 in 2014 and 2015 respectively. The decrease indicates that there has been a laxity in how management has chosen to generate the level of sales using the existing asset-base. In fact, it might mean that Asciano’s Ltd management policies in relation to wear and tear is ineffective resulting to inefficiency in using such facilities as those engaged in stevedoring and rail. Times interest earned ratio increases slightly within the period from 3.04 to 3.76 in 2014 and 2015 respectively. The increase indicates that Asciano has now been able to post enough level of income needed for paying-off possible interest expenses as and whenever they fall due. In overall, it can be stated that even though the company has adopted debt funds in financing its asset acquisition projects; it still enjoys significant level of financial muscle to pay off interest costs associated with borrowings whenever the fall due. D. Cash Sufficiency Ratios: Ratios 2014 2015 Cash flow adequacy ratio= (Cash Flow from Operations) / ( Long-term debt paid + Fixed assets purchased + Cash dividends distributed) 606.8/ (715+701.2+117) = 0.39 623.6/ (650+581.6+163.4) =0.45 The company’s ratio increases slightly from 0.39 to 0.45 within the two-year period. Despite this increase the ratio still falls below a recommended standard ratio of 1 meaning that it is facing insufficient cash resource needed for meeting current business commitments. E. Cash Efficiency Ratio Ratios 2014 2015 Cash flow to revenue ratio = free cash flow/revenues 234.8/3,795.4= 0.06 146.5/3,926.1=0.04 Operations index=cash flow from operations/income 234.8/257=0.91 146.5/360.8=0.41 Cash flow return on asset= cash flow from operations/total revenues 234.8/3,795.4 =0.06 146.5/3,926.1 =0.04 The cash flow to revenues ratio decreases slightly from 0.06 to 0.04 within the two-year period. This is an indication that Asciano’s capability to translate revenues into cash resource has weakened within this period. The same decreasing pattern is further witnessed in operations whose ratio decreases from 0.91 to 0.41; and, also cash flow return on asset, whose ratio decreases and remains way below the industry recommended averages-an indication that it is not generating enough cash resource from the existing revenue-base. 1.8 Profit Announcements According to the above publication made in “The Sydney Morning Herald” released on December 2015; it is noted that the entity’s group’s earnings were 5% below the expected budget level. The target statement was made immediately after the Brookfield’s takeover cash and stock bid that had been formally been allowed to investors. The report puts much emphasis on earnings before interest taxation, depreciation and amortization. The article stipulates that Brookfield was in the process of trying to purchase Asciano through a direct takeover offer that followed the emergence of a consortium that was being facilitated by the logistic firm: Qube. Despite this release; the share volumes of the entity remained steady and was trading at $ 8.67 within that particular period- a mitigation move taken by the company’s management to avoid possible investor panic. References List Asciano. 2015. 2014/15 Annual Report. Print The Sydney Morning Herald. 2015. “Asciano Quarterly Earnings 5 Per Cent below Budget; Says Grant Samuel”. Retrieved on April 20, 2016 from http://www.smh.com.au/business/asciano-quarterly-earnings-5-per-cent-below-budget-says-grant-samuel-20151211-gll664.html Yahoo Finance. 2015. Asciano Ltd: Profile. Retrived on April 20, 2016 from https://au.finance.yahoo.com/q/pr?s=AIO.AX Read More