Aristocrat and Ainsworth Financial Analysis - Example

Aristocrat and Ainsworth Financial Analysis Name: Institutional Affiliation: Aristocrat and Ainsworth Financial Analysis Introduction Financial Ratios Financial Ratios refers to ratios that are used to evaluate the financial position of a company. These ratios allow for greater comparison between companies and through time they also help the companies to identify their strengths and weaknesses [Bra02]. Profitability Ratios Profitability ratios are used to assess the ability of a firm to generate revenue compared to the expense and costs incurred by the business. The profitability ratio further helps measure a company’s performance and the ability to generate profit [Hod08]. Some of the profitability ratios include; Profit margin, Return on Assets and Return on Equity. Profit Margin Profit Margin = Gross Profit/ Net Sales We are going to analyze the values of both companies from 2011 to 2013. Ainsworth Game Technology Limited Profit Margin = Gross Profit/ Net Sales 2013 Profit Margin = 130,611 / 198,147 = 0.66 Profit Margin = 66% 2012 Profit Margin = 101,794 / 150,647 = 0.68 Profit Margin = 68% 2011 Profit Margin = 63,445 / 97,963 = 0.65 Profit Margin = 65% 2010 Aristocrat Leisure Management 2013 Profit Margin = 435,294 / 808,682 = 0.54 Profit Margin = 54% 2012 Profit Margin = 305,087 / 581,808 = 0.52 Profit Margin = 52% 2011 Profit Margin = 384,935 / 704,302 = 0.55 Profit Margin =55% From the analysis above, Ainsworth Game Technology Limited has experienced higher profit margins compared to Aristocrat Leisure Management. Unlike Aristocrat Leisure Management, Ainsworth Game Technology Limited has had an average of 66.33% value of profit margin which is higher than an average of 53.67%. Gross profit Margin tells us the percentage of a company sales that would remain after deducting the cost of sales. The profit Margin also helps in gauging the production efficiency. Return on Assets Ainsworth Game Technology Limited Return on Assets = Net Income/ Total Assets 2013 Return on Assets = 52,202 / 246,076 = 0.21 Return on Assets = 21% 2012 Return on Assets = 64,275 / 192,255 = 0.33 = 33% 2011 Return on Assets = 23,121 / 113,101 = 0.20 Return on Assets = 20% Aristocrat Leisure Management 2013 Return on Assets = 107,200 / 873,284 = 0.12 = 12% 2012 Return on Assets = 46,551 / 724,787 = 0.06 = 6% 2011 Return on Assets = 66,899 / 761,488 = 0.09 = 9% From the Figures above, the Ainsworth Gaming Limited has a higher return on assets compared to Aristocratic Leisure Management. This is therefore implies that the Ainsworth Gaming Limited effectively uses its assets to generate sales. Return on Equity Return on Equity = Net Income / Total equity Return on Equity measures the management ability to utilize the owners' equity so as to generate returns. Ainsworth Game Technology Limited 2013 Return on Equity = 52,202 / 204,418 = 0.26 Return on Equity = 26% 2012 Return on Equity = 64,275 / 161,524 = 0.40 Return on Equity = 40% 2011 23,121 / 38,692 =0.60 Return on Equity = 60% Aristocrat Leisure Management 2013 Return on Equity = 107, 200 / 375,429 = 0.29 = 29% 2012 Return on Equity = 46,551 / 276, 524 = 0.17 17% 2011 66,899 / 252,144 = 0.27 = 27% The Ainsworth Gaming Limited has a higher value of return on equity compared to Aristocratic Leisure Management. Thus it can be inferred that Ainsworth Gaming Limited utilizes their owner’s equity effectively. Liquidity Ratio Liquidity ratios are used to determine the company’s ability to meet its short term financial obligations. Investors are always keen on the liquidity ratios when performing the fundamental analysis on a firm [Bul08]. This is because a company that is finding it hard to meet its short-term debt is at a very high risk of bankruptcy. Some of the major liquidity ratios are; Current ratio, Quick ratio and Cash ratio. Current ratio Current ratio = Current Assets/ Current Liabilities Ainsworth Game Technology Limited 2013 Current Ratio = 177,226 / 40,608 = 4.36 2012 Current Ratio = 123,477 / 29,713 Current Ratio = 4.16 2011 Current Ratio = 54,714 / 27,021 Current Ratio = 2.02 Aristocratic Leisure Management 2013 Current Ratio = 464,120 / 216,905 = 2.14 2012 Current Ratio = 354,384 / 139,693 Current Ratio = 2.54 2011 Current Ratio = 365,155 / 205,164 Quick ratio Quick ratio is also referred to as acid-test ratio and measures the ability of a firm to use its “quick assets” to clear its current liabilities as fast as possible. Quick assets refers to those assets that can easily be converted into cash. Quick ratio is determined by dividing the (Current Assets less Inventories) by the (current liabilities) [Bra02]. A firm with a quick ratio value of less than 1 is not able to meet its current liabilities. Ainsworth Game Technology Limited Quick ratio = Current Asset- Inventories / Current Liabilities 2013 Quick ratio = 177,226 – 29,931 / 40,608 = 3.63 2012 123,477 – 16,522 / 29,713 = 3.6 = 3.6 2011 54,714 – 13,392 / 27,021 = 1.53 Aristocrat Leisure Management 2013 Quick ratio = 464,120 – 64, 808 / 216,608 = 1.84 Quick ratio = 1.84 2012 Quick ratio = 354,384 – 69,067 / 139,693 = 2.04 Quick ratio = 2.04 2011 Quick ratio = 365,155 – 81,603 / 205,164 Quick ratio = 1.38 From the values above, Ainsworth Gaming Limited has a better quick ratio value in the past 3 years compared to Aristocratic Leisure Management. However, it is important to note that all the companies have a good quick ratio values since they are all greater than 1. This further implies that the companies are able to meet their current liabilities. Cash Ratio Cash ratio is the ratio of cash and other cash equivalents to the current liabilities. This is at times referred to as extreme liquidity ratio since only the cash and cash equivalents are compared to the current liabilities. Ainsworth Game Technology Limited Cash ratio = Cash + Cash Equivalents / Current Liabilities 2013 Cash ratio = 40,135 / 40,608 Cash ratio = 0.99 2012 Cash ratio = 22,928 / 29,713 Cash ratio = 0.77 2011 Cash ratio = 15,377 / 27,021 Cash ratio = 0.57 Aristotle Leisure Management 2013 Cash ratio = 29, 689 / 216,905 Cash ratio = 0.14 2012 Cash ratio = 22,612 / 139, 693 Cash ratio = 0.16 2011 Cash ratio = 29,354 / 205,164 Cash ratio = 0.14 Both companies have very poor cash ratios since both companies have cash ratios that are less than 1.0. This has negative impacts on the performance of the company and therefore means that the company is not liquid enough. Asset Efficiency Under this section we will utilize the asset utilization ratio to determine the asset efficiency in both companies. Asset utilization measures the extent to which a firm uses its assets effectively to generate revenue [Van09]. These ratios include; Total Assets turnover ratio and Inventory turnover ratio. Total Assets Turnover Ainsworth Gaming Limited 2013 Total Assets Turnover = Net Sales/ Total Assets Total Assets Turnover = 67,536 / 29,931 Total Assets Turnover = 2.26 2012 Total Assets Turnover = 48,853 / 16,552 Total Assets Turnover = 2.95 2011 Total Assets Turnover = 34,508 / 27,021 Total Assets Turnover = 1.28 Ainsworth Leisure Management 2013 Total Assets Turnover = 373,388 / 64,808 Total Assets Turnover = 5.76 2012 Total Assets Turnover = 276,721 / 69,067 Total Assets Turnover = 4.01 2011 Total Assets Turnover = 319,367/81,603 Total Assets Turnover = 3.91 The total asset turnover ratio measure the extent to which a company utilizes its total asset to generate revenue. The ratio is always determined by dividing the Net sales by the Total Assets. In this case, the Aristocratic Leisure Management had a better total asset turnover than the Ainsworth Gaming Limited. Inventory Turnover ratio The inventory turnover ratio measures the number of times stock is sold in a time period, usually one year. To determine the Inventory Turnover, the cost of goods sold is divided by the Inventory. Inventory Turnover = Cost of goods sold / Inventory 2013 Inventory Turnover = 67,536 / 29,931 Inventory Turnover = 2.26 2012 Inventory Turnover = 48,853 / 16,552 Inventory Turnover = 2.95 2011 Inventory Turnover = 34,508 /27021 Inventory Turnover = 1.28 Aristocratic Leisure Management 2013 Inventory Turnover = 373,388 / 64,808 Inventory Turnover = 5.76 2012 Inventory Turnover = 276,721 / 69,067 Inventory Turnover = 4.00 2011 Inventory Turnover = 319,367 / 81,603 Inventory Turnover = 3.91 Aristocratic Leisure Management has a better inventory turnover than the Ainsworth Gaming Limited. The inventory turnover shows how effective the organization uses its inventory to generate sales. Leverage Ratio Leverage ratio, also referred to as gearing ratios measures the financial risk of a firm and the ability of a firm to pay its debt. The bigger the debt a firm has,, the higher financial risk. A high gearing ratio represents a high proportion of debt and equity whereas a low gearing ratio represents a low proportion of debt to equity [Bul08]. Some of the leverage ratio include Debt ratio, Debt Equity ratio and coverage. Total Debt Ratio Ainsworth Gaming Limited 2013 Total Debt Ratio = Total Debt – Total Equity / Total Assets Total Debt ratio = 246,076 – 204,418 / 246,076 Total Debt ratio = 0.17 * 100% = 17% 2012 Total Debt ratio = 192,255 – 161,524 / 192,255 Total Debt ratio = 0.16 * 100% = 16% 2011 Total Debt ratio = 113,101 – 38,692 / 113,101 = 0.66 *100 = 66% Aristocratic Leisure Management 2013 Total Debt ratio = 873,284 – 375,429 / 873,284 Total Debt ratio = 0.57 * 100% = 57% 2012 Total Debt ratio = 724,787 – 276,524 / 724,787 Total Debt ratio = 0.62 * 100% = 62% 2011 Total Debt ratio = 761,488 – 252,144 / 761,488 Aristocratic Leisure Management has a higher Total Debt Ratio compared to Ainsworth Gaming Limited thus implying that Aristocratic Company has a higher percentage of their company’s capital financed by the non-owner funds. Therefore, the firm should maintain the values at manageable levels since the higher the ratio, the higher the financial risk. Total Debt ratio = 0.67 Total Debt Ratio = 67% Debt-Equity ratio Debt-equity ratio = Total debt / Total Equity Ainsworth Gaming Limited 2013 Debt-equity ratio = 246,076 / 204,418 Debt-equity ratio = 1.20 2012 Debt-equity ratio = 192,255 / 161,524 Debt-equity ratio = 1.19 2011 Debt-equity ratio = 113,101 / 38,692 Debt-equity ratio = 2.92 Aristocratic Leisure Management 2013 Debt-equity ratio = 873,284 / 375,429 Debt-equity ratio = 2.33 2012 Debt-equity ratio = 724,787 / 276,524 Debt-equity ratio = 2.62 2011 Debt-equity ratio = 761,488 / 252,144 Debt-equity ratio = 3.02 The value shows the ratio of the Total Debt to the total Equity funds. This figure shows that a greater value of capital is actually funded by Debt in both years. This values show that the Aristocratic Leisure Management has a higher debt to equity ratio compared to its competitor. Coverage Ratio Coverage ratio = EBIT + Depreciation / Interest Ainsworth Gaming Limited 2013 Coverage ratio = 63,091 + 0 / 88 Coverage ratio = 716.94 times 2012 Coverage ratio = 50,321 + 0 / 6,128 Coverage ratio = 8.21 times 2011 23,050 + 0 / 9, 9259 = 0.23 times Aristocratic Leisure Management 2013 Coverage ratio = 150,904 + 0 / 16,904 Coverage ratio = 8.93 times 2012 68,592 + 0 / 15,934 Coverage ratio = 4.30 times Coverage ratio = 113,715 + 0 / 28,258 Coverage ratio = 4.02 times The coverage ratio value of the company is consistent and shows that the company is able to meet its debt responsibilities. The greater the value, the easier it is for the company to access debt. In the case above, the Ainsworth Gaming Limited is very likely to get debt faster and easily compared to Aristocratic Leisure Management. Management Assessment Under this section we analyze the quality and leadership capabilities using ratios such as ROE, ROA, EPS, and Revenue Growth. Return on Equity The figures of the ROE have been discussed been calculated and analyzed above. From the analysis above, both companies have a very good Return on Equity and thus indicated that both companies utilize their equity effectively. The Return on Equity values is used to determine how the equity invested in a company, is utilized. Return on Assets The return on assets value is used to determine the how effective the company utilizes it assets so as to generate revenue. From the analysis above, it was identified that the Ainsworth Gaming Limited had a better Return on Equity value. Thus showing that utilizes the company uses its assets effectively Earnings per Share Earnings per share can be defined as the section of the organization’s profit that is allocated to each of the outstanding share of the common stock. It is determined by the formula shown below; EPS = Net Income – Dividends on the Preferred Stock / Average Outstanding Shares Ainsworth Earnings per Share Growth 2012 = 0.22 2013 = 0.16 Growth 0.16 – 0.22 / 0.16 = 0.375 -37.5% growth. It is important to realize that the company experienced a decline in the value of the EPS Aristocratic Leisure Management 2012 = 8.3 2013 = 19.5 Growth = 19.5 – 8.3 / 8.3 = 1.349 Growth = 134.9% The value of the earnings per share increased by more than 100%, which is a very good value and indication to shareholders. Ainsworth Market Capitalization Market Capitalization = the capitalization figure is detrained by multiplying the price per share and the number of outstanding shares. The market capitalization value is 979.59 [Ain14]. On the other hand, the marketing capitalization for Aristocratic Leisure management is 4,151. Aristocrat Leisure Management figures The table above shows the latest performance of the Aristocrat Leisure Ltd. Thus this will be able to give us a clear picture on the present performance of the company. It is important to note that the closed the day with a stock value of about 6.9 Australian dollars as at 24th October 2014. The company experienced an increase in the value of the share price since the previous day’s closing value was 6.44 Australian dollars. Ainsworth Present Performance The figure above also provides us with latest performance of the Ainsworth Game Technology Limited and present share price as at 24th September 2014 =3.0400 which was a 0.65 drop from the previous day’s value where the share price was at 3.06 [Blo14]. Aristocrat Leisure Limited SWOT analysis After a proper analysis on the company’s financial performance, it is therefore easy to determine some of the strengths and weaknesses of the company. The company enjoys certain strengths especially with regards with the profitability performance and asset utilization. However, it is important the company streamline sits performance with regards to the capital structure. The company also has a lot of opportunities to invest in so as to expand its sales value and improve the general performance of the company. Ainsworth Game Ltd SWOT Analysis The company portrayed very good performance in comparison to the competitors. In most times had better Profitability and Liquidity ratios and these are very important values that assist the normal running of the organization. However, the company should effectively utilize its assets so as to generate revenue. This is very important for the future performance of the organization. References Bra02: , (Bragg, 2002), Hod08: , (Hodge, 2008), Bul08: , (Bull, 2008), Van09: , (Vance, 2009), Ain14: , (Bloomberg L.P., 2014), Blo14: , (Bloomberg L.P., 2014), Appendix Profit Margin = Gross Profit/ Net Sales Return on Assets = Net Income/ Total Assets Return on Equity = Net Income / Total equity Current ratio = Current Assets/ Current Liabilities Quick ratio = Current Asset- Inventories / Current Liabilities Cash ratio = Cash + Cash Equivalents / Current Liabilities Total Assets Turnover = Net Sales/ Total Assets Inventory Turnover = Cost of goods sold / Inventory Total Debt Ratio = Total Debt – Total Equity / Total Assets Debt-equity ratio = Total debt / Total Equity Coverage ratio = EBIT + Depreciation / Interest EPS = Net Income – Dividends on the Preferred Stock / Average Outstanding Shares Read More