Financial Statement Analysis - Ardent Leisure - Case Study Example

Name: Tutor: Course: Date: Financial Statement Analysis Question one There are various Australian key tourism drivers that point towards the direction of the tourism future. Recent research according to Tourism Research Australia show that the demographic profile of visitors coming to Australia has changed in the past 50 years. In 2005 Australia received 5.5 Million visitors (Argent, Neil, et al, 2010). This number has grown to 7.4 million by 2015. Over the past few years tourism industry in Australia has experienced very difficult demand conditions showing a combination of factors that include high exchange rate, slow economic conditions in important exchange markets, slow rate of growth in spending by households domestically and downturn in business travel in the aftermath of resource investment boom in the mid of 2012 (Cummins, 2016). However, the trends in the international market are positive towards growth and profitability of the tourism industry. The future of Ardent Leisure with regard to profitability and growth is not cast in stone. The tourism industry is very volatile and anything can happen to change the fortune of the company for the better. Whereas Australian tourism output is majorly composed of domestic tourism activity, the overseas visitors’ expenditure in Australia represents a key share of Australia’s export receipts as well as is the fastest growing component in demand. Ardent Leisure has to capitalize on some of these aspects. Growth in international receipts can be an avenue that the company can venture into instead of relying heavily on domestic tourism which is still experiencing slow growth (Ecker, Saan, et al, 2010). The company has to focus on the international market that involves Main Events that have been already rolled out in the US. Increase in international tourism provides Ardent Leisure with an opportunity to expand its operations beyond Australian borders. There is surge in demand for events in regional areas across various event types and hence the potential of promoting interstate and intrastate trips. The domestic tourism is likely to get a boost from such events. There is growth of leisure tourism from China and Ardent Leisure can take advantage to of this to expand its market. The foreign students also form part of the tourism driving factor since many people come to Australia to see the students. The people end up being tourists fascinated by the beautiful scenery in Australia and various flora and fauna. Chinese students travel domestically in the course of their studies and form an important medium of marketing Australia as a travel destination to the rest of the world. Chinese tourism market growth has cushioned Australian tourism industry from declining visitors from Japan. Visitors from Japan have been declining over a long period of time. The conditions surrounding tourism in Australia are getting better although the business travel sector will continue to experience problems (Burgess, Parish & Alcock, 2011). The depreciation of the exchange rate is an avenue of supporting leisure tourism market in Australia and companies like Ardent Leisure stand to benefit from increased visitors from abroad. Australia will be an attractive tourist’s destination owing to exchange rate depreciation. Ardent Leisure has only to work on its consumer confidence to attract more visitors and assure people of their safety throughout their activities. Question two There is Expectations of future growth of Ardent Leisure according news stories in Australia despite the difficult times. Ardent leisure is experiencing a challenging time by the new media stories that have been featured recently. Deborah Thomas, Its executive officer, has been under pressure following the dismal performance of the company and incessantly calls for her to resign. She vehemently insisted severally that she was not going anywhere. In 2016 the company announced a half-year loss of $50 million (Korporaal, 2017). According to recent new stories the chief executive of Ardent Leisure, Deborah Thomas, resigned from the company to oversee the recovery of the struggling Dreamworld theme park. Ardent Leisure reported that the change in leadership was prompted by Thomas after reviewing the global growth strategy of the company. The ASX-listed firm has a vision of becoming a committed global entertainment focusing on the US market. Thomas intends to become chief customer officer at Ardent Leisure and Australasia’s chief operating officer from 1st July 2017 (Korporaal, 2017). She will oversee Dreamworld revitalization as well as its other businesses in Australia, AMF and White Water World bowling centers. Ardent Leisure operates about thirty Main Event centers in the United States that features alleys, bowling, laser tag, eateries and bars, and is in the process of opening another 8 in the following financial year. The Main Event brings about 60 percent of earnings at Ardent Leisure. Thomas replacement will be the former Nine Entertainment Co chief operating officer as well as chief financial officer Simon Kelly (Cummins, 2016). Kelly departed from Nine Entertainment in January of 2016 and has previously held senior positions at Goodman Fielder, Virgin Australia and Aristocrat Leisure who develop power machines. Despite Thomas remaining a director on the board, the company will miss his hands on leadership. Thomas oversaw unprecedented levels of reorientation as well as change and positioned Ardent Leisure for future growth (Cummins, 2016). The management assurance does not mean it will be an easy walk for Ardent Leisure, there is a lot to be done to put the company back on the track towards profitability. The company also got another blow following the resignation of Richard Johnson who was the company’s chief financial officer. Johnson is going back to his family in the United Kingdom (Whitford & Ruhanen, 2014). Nevertheless, the projection from the financial statement shows a bright future for Ardent Leisure. For instance, cash flow from operating activities has been increasing over the years covered in the financial statements. It was 56 Million AUD in 2012, 70.6 Million AUD in 2013, 86.6 Million AUD in 2014, 104.4 Million AUD in 2015 and 119.5 Million AUD in 2016. From these figures there is an upward trend that shows that cash from operating activities will increase in the subsequent years. The trend has been the same for investing and financing where there has been increase over the five year period. The financial ratios show a mixed fortune for Ardent Leisure. Return on equity has fluctuated over the five year period. It was all time low in 2012 being posted at 3.05%. It was 7.97% and 9.87% for 2013 and 2014 respectively showing tremendous improvement from 2012. It declined in 2015 and 2016 being quoted at 5.92% in 2015 and 5.53% in 2016 (Korporaal, 2017). This shows that the owners are not getting return on their investment at a stable rate and the trend seems to be so unpredictable. The following years could be worse for Ardent Leisure following a change in management and the difficulties being experienced in the Australian tourism industry. Return on assets ration has also depicted the same unpredictable trend as return on equity. Seeming 2016 was not a good year looking at the values of various ratios in the financial statement. The fluctuating in return on assets shows ineffectiveness in using the assets of the company for profit. The quick ration lingered around 0.3 from 2012 to 2015. It only improved to 0.7 in 2016. The assets that the company possesses must be sufficient enough to fund its daily operations. The current ratio is ideally expected to be more than one (Assaf & Josiassen, 2012). A current ratio of less than one means the company is unable to deal successfully with its current liabilities. Unfortunately for Ardent Leisure, the current ratio has been less than one throughout the five year period save for 2016 when it was 1.3. Things are looking up for the company following the news of Gary Weiss’s Ariadne fund buying into it. Ariadne increased its stake in Ardent to 7.9% (Cummins, 2016). Outside investors still have faith in the company making good use of its assets to come out of the difficult situation. The share prices moved upward from $1.98 to close at $2.04 at close of business following Ariadne move (Cummins 2016). Seemingly investors have faith in the incoming chief executive in turning around the fortunes of the company. The incoming CEO at Ardent has a strong operational and financial background. He was chief financial officer at a company called Aristocrat Leisure. Question three There are Key challenges and exposures facing Ardent Leisure now and into the future and it has to deal with them. It is true that the tourism sector is quite unpredictable especially companies faced with the type of tragedy that happened to Dreamworld in 2016. In the course of this fatal tragedy four people were killed on the Thunder River Rapids rise on the Gold Coast (Cummins, 2016). Two of the victims were thrown off the ride following malfunctioning and the others were trapped inside. Dreamworld suspended its operations to work with the police as well as emergency services in establishing facts about the incident (Korporaal, 2017). Ardent Leisure being a parent company to Dreamworld is also faced with its own challenges and exposures that may shape its future operations. First, the company will have to deal with a new CEO coming in after the departure of Thomas. The new chief officer will take some time to settle in and craft the strategies needed to move the vision of the company forward. Ardent Leisure has a big challenge of convincing investors that it is on the right track to recovery considering posting losses and the tragedy that befell dreamworld. Dreamworld tragedy communicated a massage about the safety of clients of Ardent Leisure and competitors may take advantage of the situation to increase the message about safety in their advertising (Korporaal, 2017). Ardent Leisure has come out and assure both clients and investors that the systems of the company are still working and safety of clients is paramount. The management has to turnaround the fortunate of the company from making losses to being profitable in order to attract more investors. Otherwise if the current situation persists, it will be difficult to raise money for the operations of the company. The profitability, liquidity and efficiency ratios have indicated that the company is struggling. Ardent Leisure is also faced with the challenge of building customers’ confidence in Dreamworld following the 2016 tragedy (Korporaal, 2017). The deaths of four people will still haunt anyone who will try to engage in any activities related to Ardent Leisure Company. The company must have a strategic plan for safety and elaborate emergency services in case of an incident of the purpose of reassuring doubting customers. Ardent Leisure has to consider diversifying its business into other sectors like hospitality in order to provide food and accommodation for tourists. Expanding the Main Events to the United States provides the company with an opportunity to grow its base internationally and not concentrate on the domestic market in Australia (Burgess, Parish & Alcock, 2011). Regional tourism within Australia across state and within states will provide an avenue for the growth of domestic tourism for the benefit of companies like Ardent Leisure that can grab the opportunity to increase its customer base. References Argent, Neil, et al. "Amenity-led migration in rural Australia: a new driver of local demographic and environmental change?." Demographic change in Australia's rural landscapes. Springer Netherlands, 2010. 23-44. Assaf, A. George, and Josiassen Alexander. "Identifying and ranking the determinants of tourism performance: a global investigation." Journal of Travel Research 51.4 (2012): 388-399. Burgess, Lois, Parish Belinda, and Alcock Carole. "To what extent are regional tourism organizations (RTOs) in Australia leveraging the benefits of web technology for destination marketing and ecommerce?." Electronic commerce research 11.3 (2011): 341-355. Cummins Carolyn, ‘Ardent Leisure to update Dreamworld future this week,’ The Sydney Morning Herald, Nov 9th 2016. Ecker, Saan, et al. "Drivers of regional agritourism and food tourism in Australia." Canberra: Australian Bureau of Agricultural and Resource Economics–Bureau of Rural Sciences (2010). Korporaal, Glenda, ‘Nightmare ride that led to Deborah Thomas’s Ardent Leisure fall’, The Australian: Business Review, 27th April, 2017. Whitford, Michelle, and Ruhanen Lisa. "Indigenous tourism businesses: An exploratory study of business owners' perceptions of drivers and inhibitors." Tourism Recreation Research 39.2 (2014): 149-168. Read More