Financial Statement Analysis of Crown Limited - Example

Student Name Professor Name Course Name Date Financial Statement Analysis: Crown Limited Step 1: Knowing the Business Crown Melbourne Limited is an Australian-based company that operates in integrated resort business. It is a key performer and contributor to the activities of tourism within the country. The resort business has in fact contributed to the tourism sector in Victoria State where it boosts of a 500,000 square meter resort complex. Statistically, the company has been able to attract over 18 million visitors into the aforementioned resort annually (Crown Limited 45). The property at Victoria is composed of several features that include first-class shopping services, dining services, gaming preferences and extravagant first-hand live entertainment. Above all, the resort is mainly concerned with the provision of six-star luxurious guest rooms. Speaking further, the company is depicted as having secured the largest employment status in the state. Currently, it has employed about 6,500 employees (Crown Limited 36). In respect to revenue performance, the resort records a consistent growth annually. It is important to realize that the company’s revenue performance is largely attributed to additional capital projects conducted at the complex in Victoria and the introduction of VIP Program Play potential customers from within the Chinese market. Step 2: Balance Sheet Financial Review The current assets: are reconciled throughout the years with a steady significant decrease being depicted. It should be mentioned that the current assets are categorized into distinctive accounting items that portray significant decreases. For instance, the overall decrease in the total amount of current assets from a figure of $2,532,646 in 2008 to $381,967 in 2012 is associated with decrease in the amount of inventories. This is an indication that the company is translating inventories into sales revenue at a slower pace than it is expected. This might be caused by higher levels of prices for services provided. The total non-current assets for the company depict a significant increase over the five periods starting in 2008 to 2012. For instance, in 2008 the total non-current assets are reflected as $4,999,680 that increases to $ 5,490,563 in 2012 (Crown Limited 168). The significant increase in these types of assets is largely attributed to the adherence of the company to participation in investment policies. The company has increased its participation in both investment and investment in associates’ activities. The total current liabilities for the company have also increased immensely within the five period starting 2008. In 2008, the value for total current liabilities stood at $418,306 and shoot-up to $579,604 in 2012 (Crown Limited167). The increase in the values of the current liabilities is attributed to huge trade payable items that have been on the increase throughout the years. It is also important to realize that the company has over a substantial period participated in payment of huge interests on bearing loans and borrowings. The totals for the non-current liabilities for the company tend to decrease slightly over the five periods. In 2008, the overalls for this accounting item stood at $2,816,159 and slightly decrease to $1,918,176 in 2012. The decrease of this item is largely attributed to significant reduction in the company’s involvement in paying “other financial liabilities”. However, it should be noted that the interest-bearing on long-term loans and borrowings have increased tremendously over the years. This observation can be attributed to the assumption that the company’s ability to service its loans is unfavorable altogether (Crown Limited 145). The total stockholder’s equity for the company is perceived to be assuming a downward trend. In 2008, the company’s equity position stood at $ 4,298,131 and decreases to 3,374,750 in 2012. The significant level of decrease can be attributed to decrease in the proportion of retained earnings between the period 2008 and 2012. In this regard, the reduced levels of retained earnings can be associated with fewer sales-revenue over the years (Crown Limited 123). Income Statement Financial Review Total (Operating) Expenses Year 2008 2009 2010 2011 2012 Total (Operating) Revenues $387,603 $(938,361) $471,435 $482,659 $733,402 Analysis: from the table above, it can be perceived the total operating revenues for the company have been increasing steadily over the five-year period. This might be attributed to such activities as effective advertising and promotional of the company both locally and internationally and offering services at competitive prices. It might also mean that the company enjoys substantial number of loyal customer-base. Total Expenses Year 2008 2009 2010 2011 2012 Total Expenses $(1,807,029) $(3,112,178) $(1,811,811) $(1,959,351) $(2,214,766) The total expenses for the company depict and increasing trend with huge expenses being posted in the year 2009 at $ (3,112,178). The increase in the expenses might be associated with increased administration costs and other relevant expenses as the year progresses. The increase in expenses does not depict a favorable operational condition for the firm. Non-Operating Gains/ (Losses) Year 2008 2009 2010 2011 2012 Non-Operating Gains(Losses) - $181,506 $ (4,061) $500 $(328) The non-operating gains or losses are derived from such activities as investment in other ventures. The accounting item depicts an unpredictable behavior for the five year period. This might be caused by unfavorable investment markets. Earnings per Common Share Year 2008 2009 2010 2011 2012 Earnings per common share 517 cents (166.89) cents 38.54 cents 44.29 cents 69.78 cents Analysis: the earnings per share for the common shares remain steadily below the $ 1 mark. This means that the company is not performing well in the share market. The company lacks the ability to attract potential investors into purchasing stocks of the company Cash Flow Financial Review i) Cash flow from Operating Activities: The net cash flow operating activities increases from $ 450,969 in 2011 to $ 570,700 in 2012. The increase might be attributed to huge activities of receipts from customers in the course of the years between 2011 and 2012. Notably, there are increased payments made to both suppliers and employees. ii) Cash Flows from Investing Activities The net cash flows from investing activities increases significantly from $(467,146) in 2011 to $(749,650) in 2012. This is attributed to the increased involvement of the company to purchase fixed assets and repayment of loans and other borrowings: both long and short-term borrowings. iii) Cash Flows from Financing Activities The net cash flow from investing activities increases tremendously from $3,904 in 2011 to $ 143,303 in 2012. The increase can be attributed to tremendous increase from proceeds derived from company’s borrowings and repayment of borrowings. iv) Net Cash and Cash Equivalents of the Company The company’s net cash and cash equivalents decreases significantly for the period between 2011 and 2012 from$183,699 in 2011 to $ 149,353 in 2012. This is associated with the effects attributed to exchange rates within the market. Ratio Analysis Gross Profit Margin Year 2008 2009 2010 2011 2012 Gross Profit Margin: Sales minus cost of goods sold/ sales (2,215,930-0)/ 2,215,930 = 1*100%, 100% (2,299,624-0)/2,299,624 = 1*100%, 100% (2,342,248-0)/2,342,248 = 1*100%, 100% (2,409,241-0)/2,409,241) = 1*100%, 100% (2,808,870-0)/2,808,870 = 1*100%, 100% The gross profit margin for the company remains steady across the entire period. The ratio indicates that the company has enough revenues that it can use to pay for expenses and still yield profits. Operating Profit Margin Years 2008 2009 2010 2011 2012 Operating Profit Margin;( earnings before interest and taxes EBIT/Sales 387,603/2,215,930 =0.17*100, = 17% (938,361)/2,299,624 = (0.41*100%) = -41% 471,435/2,342,248 =0.20*100% = 20% 482,659/2,409,241 =0.20*100% = 20% 733,402/2,808,870 = 0.26*100% = 26% Analysis: although the operating profit margin increase throughout the five years period, the increase is insignificant. This means that the company records fewer profits even before taxes and interests items have been affected. This might be caused by poor sales and marketing policies as adopted by the company and significantly lower prices for services offered. Net Profit Margin Ratio Year 2008 2009 2010 2011 2012 Net Profit Margin: (Net income/sales) 137,006/2,215,930 =0.06*100% = 6% (1,197,904)/ 2,299,624 =-0.52*100% =-52% 292,293/2,342,248 =0.12*100% =12% 335,855/2,409,241 =0.14*100% =14% 513,325/2,808,870 =0.18*100% =18% Analysis: the ratio increases insignificantly for the five year period. The company’s after-tax profits for each dollar of sales made increases insignificantly over the years. This can be attributed to possible higher prices that might deter customers from purchasing the company’s service and products. It might also be caused by lower prices of services and products sold hence posting irrelevant profits below the industry average. Receivables Turnover Year 2008 2009 2010 2011 2012 Receivables Turnover: Annual credit Sales/Accounts Receivables 2,215,930/ (146,524+443,202) =3 days 2,299,624/(144,657+236,837) = 6 days 2,342,248/(147,252+128,158) =8 days 2,409,241/ (123,756+131,477) =9 days 2,808,870/ (102,867+201,734) =9 days The receivable turnover ratio for the company increases significantly from 3 days in2008 to 9 days in 2012. This increase depicts that the company’s has increased the period it takes to collect sales made on credit. This can be caused by in-efficient credit control policies made by the company as the year’s progresses. Inventory Turnover Year 2008 2009 2010 2011 2012 Inventory Turnover: sales/inventory of finished goods 2,215,930/11,835 =187 days 2,299,624/15,293 =150 days 2,342,248/16,328 =143days 2,409,241/18,070 =133 days 2,808,870/11,850 =237 days Analysis: the ratio tends to increase in the first four years and then decreases significantly in 2012. This is an indication that the company is holding excessive levels of stock and takes much time to sale its inventories. Asset Turnover Years 2008 2009 2010 2011 2012 Asset turnover: sales/ total assets 2,215,930/7,532,32 =0.29 2,299,624/5,290,955 =0.43 2,342,248/4,969,121 =0.47 2,409,241/5,023,775 =0.48 2,808,870/5,872,530 =0.48 Analysis: the ratio of the company tends to increase insignificantly from 0.29 in 2008 to 0.48 in 2012. The insignificant increases in the ratios indicate that the business is conducting insufficient volumes of business in comparison to the investment of assets. Return on Equity (ROE) Year 2008 2009 2010 2011 2012 ROE: net income/ total stockholder’s equity 137,006/4,298,131 =0.03 (1,197,904)/3,436,330 =0.35 292,293/3,419,30 =0.09 335,855/3,260,360 =0.10 513,325/3,374,750 =0.15 Analysis: the ratio increases insignificantly for the five year period. The insignificant increase is below the industry’s average. This means that there are few profits posted by the huge investments made in equities. Step 3: Given the ever-changing consumer behaviors towards the purchase of certain goods, there is the possibility that with the stringent economic times being witnessed they will shift their participation. The macro-environment for the Australian company is also likely to change with the increase in the establishment of similar businesses. Depending on the level of disposable income of the economy the company is likely to lose customers due to inadequate inability to purchase luxurious services like gaming in casinos and boarding expensive suites. The probable opportunity for the company is the increased level of tourists into the country from international countries. There is also the possibility of the company establishing businesses into such emerging markets as China and Taiwan. The key challenge that might face the company in its effort to establish into the future is inadequate capital structures. This is depicted by its over-dependence on debt financings that might limit its credit points needed in securing further loan resources. The company’s short-term objective and strategy is to penetrate into the emerging markets like China and Taiwan in order to increase on its investment base. Step 4: Recommendations and Conclusion Personally, I will not advise potential investors to desist from planning to invest with the company. This is reflected by its inadequacy to translate stockholder’s equity into enormous levels of profits. The company is also over-dependent on debt financing. This mode of financing has caused immense accumulation of interest-on-bearings loans over the past five year period. There is no chance that the company is going to redeem its revenue in the coming few years given that there is imminent competition in the restaurant market. Works Cited Crown Limited. 2008 Annual Report, (2008).Retrieved from http://newcms.crown.roadhouse.com.au/Assets/Files/ASX%202008%20Crown%20Annual%20Report.pdf Crown Limited. 2009 Annual Report, (2009).Retrieved from http://newcms.crown.roadhouse.com.au/Assets/Files/ASX%202009%20Crown%20Annual%20Report.pdf Crown Limited. 2010 Annual Report, (2010).Retrieved from http://newcms.crown.roadhouse.com.au/Assets/Files/ASX%2010%20Crown%20Annual%20Report.pdf Crown Limited.2011 Annual Report, (2011). Retrieved from http://newcms.crown.roadhouse.com.au/Assets/Files/ASX%202011%20Crown%20Annual%20Report.pdf Crown Limited. 2012 annual report, (2012).Retrieved from http://www.crownlimited.com/Assets/Files/09.26%20-%20Annual%20Report%20-%20FINAL%20-%2019%20September%202012.pdf Graham, J, R. and Campbell R. H. “The theory and practice of corporate Finance: evidence from the field,” Journal of Financial Economics, (2001), 60:187-243 Kootanaee, A, J. A comparison of performance measures for finding the Best measure of business entity performance. Journal of Finance and Investment Analysis, (2012), 1(4): 27-35 Read More