Wynn Resorts Financial Analysis - Essay Example

Wynn Resorts financial summary Business enterprises use accounting to keep track of their financial resources. Financial accounting for instance involves identification, recording, classification, and summarizing financial information for communication to relevant stakeholders. This paper discusses Wynn Resorts financial reports for the years 2010 and 2011 with the aim of demonstrating the knowledge of identifying financial statements from annual reports, and an understanding of their components. Part 1: Financial statement research The following is an excel output of the company’s income statement for the years ended 2010 and 2011 2011 2010 Revenue 5,269.79 4,184.70 Other Revenue, Total 0 0 Total Revenue 5,269.79 4,184.70 Cost of Revenue, Total 3,310.03 2,699.62 Gross Profit 1,959.76 1,485.08 Selling/General/Administrative Expenses, Total 422.83 429.05 Research & Development 0 0 Depreciation/Amortization 398.04 405.56 Interest Expense (Income), Net Operating 0 0 Unusual Expense (Income) 130.65 93.21 Other Operating Expenses, Total 0 0 Operating Income 1,008.24 557.26 Interest Income (Expense), Net Non-Operating 0 0 Gain (Loss) on Sale of Assets 0 0 Other, Net 3.97 0.23 Income Before Tax 805.57 337.04 Income Tax - Total -19.55 20.45 Income After Tax 825.11 316.6 Minority Interest -211.74 -156.47 Equity In Affiliates 0 0 U.S. GAAP Adjustment 0 0 Net Income Before Extra. Items 613.37 160.13 Total Extraordinary Items 0 0 Net Income 613.37 160.13 Total Adjustments to Net Income 0 0 Basic Weighted Average Shares 124.04 122.79 Basic EPS Excluding Extraordinary Items 4.94 1.3 Basic EPS Including Extraordinary Items 4.94 1.3 Diluted Weighted Average Shares 125.67 123.94 Diluted EPS Excluding Extrordinary Items 4.88 1.29 Diluted EPS Including Extraordinary Items 4.88 1.29 Dividends per Share - Common Stock Primary Issue 6.5 8.5 Dividends per Share - Common Stock Issue 2 0 0 Gross Dividends - Common Stock 812.8 1,058.25 Interest Expense, Supplemental 229.92 222.86 Depreciation, Supplemental 398.04 391.7 Normalized EBITDA 1,541.38 1,046.63 Normalized EBIT 1,138.89 650.47 Normalized Income Before Tax 936.22 430.25 Normalized Income After Taxes 910.03 404.15 Normalized Income Available to Common 698.29 247.68 Basic Normalized EPS 5.63 2.02 Diluted Normalized EPS 5.56 2 Amortization of Acquisition Cost 0 0 Amortization of Intangibles 4.45 4.45 (Investing, p. 1) The following is a copy of the company’s balance sheets as at end of the 2010 and 2011 accounting periods. 2011 2010 Assets     Cash and Short Term Investments 1,384.65 1,258.50 Total Receivables, Net 238.49 187.46 Total Inventory 72.06 86.85 Prepaid Expenses 31.25 28.33 Other Current Assets, Total 0 0 Total Current Assets 1,726.45 1,561.14 Property/Plant/Equipment, Total - Net 4,865.33 4,921.26 Goodwill, Net 0 0 Intangibles, Net 35.75 40.21 Long Term Investments 95.88 4.23 Note Receivable - Long Term 0 0 Other Long Term Assets, Total 176.08 147.67 Other Assets, Total 0 0 Total Assets 6,899.50 6,674.50 Liabilities and Shareholders Equity     Accounts Payable 171.61 168.14 Payable/Accrued 0 0 Accrued Expenses 306.21 298.72 Notes Payable/Short Term Debt 0 0 Current Port. of LT Debt/Capital Leases 407.93 2.68 Other Current Liabilities, Total 694.14 418.4 Total Current Liabilities 1,579.89 887.93 Total Long Term Debt 2,809.79 3,264.85 Deferred Income Tax 54.29 76.88 Minority Interest 134.43 142.64 Other Liabilities, Total 232.07 64.25 Total Liabilities 4,810.47 4,436.55 Redeemable Preferred Stock 0 0 Preferred Stock - Non Redeemable, Net 0 0 Common Stock 1.38 1.37 Additional Paid-In Capital 3,177.47 3,346.05 Retained Earnings (Accumulated Deficit) 36.37 9.04 Treasury Stock - Common -1,127.04 -1,119.41 ESOP Debt Guarantee 0 0 Unrealized Gain (Loss) 0 0 Other Equity, Total 0.84 0.89 Total Equity 2,089.02 2,237.95 Total Liabilities & Shareholders’ Equity 6,899.50 6,674.50 Total Common Shares Outstanding 125.08 124.6 Total Preferred Shares Outstanding 0 0 (Investing, p. 1). The sources are reliable as they show corresponding figures with the company’s published statements. The following table shows an excel output for the company’s sales, cash and cash equivalents, cost of sales, total current assets, gross profit, long term debt, net income (loss), total equity, inventory and total assets for the years 2012 and 2011. The output also shows changes and percentage changes in the items over the two peariods. Excel output for the balance sheet and income statement items, their change and percentage change 2010 2011 change percentage change sales 4184.7 5269.79 1085.09 25.92993524 cash 1258.5 1384.65 126.15 10.0238379 cost of sales 2699.62 3310.03 610.41 22.61096006 total current assets 1561.14 1726.45 165.31 10.58905671 gross profit 1485.08 1959.76 474.68 31.96326124 long term debt 3164.85 2809.79 -355.06 -11.21885713 net income (loss) 160.13 613.13 453 282.8951477 total equity 2237.95 2089.02 -148.93 -6.654751 inventory 86.85 72.06 -14.79 -17.02936097 total assets 6674.5 6899.5 225 3.371039029 The investigated items shows an increment in values except for long term debt, total equity and inventory that decreased from the year 2010 to the year 2011. Part 2: Financial statement analysis Financial statement analysis involves application of rations to develop an in depth understanding of the financial statement. The following ratios are analyzed for the company’s performance. Current ratio Current ratio compares current assets and current liabilities and shows an organization’s ability to meet its short-term obligations as they fall due. It is given by the formula Current ratio = current assets/ current liabilities Inventory turnover Inventory turnover refers to the average rate at which an organization coverts its inventory into sales. It is an activity ratio and is detrmined by the fomuular, Inventory turnover = cost of sales/ average inventory (Carlberg and Carlberg, p. 168- 171) Debt to equity ratio Debt to equity ratio defines the ratio of an entity’s capital that is contributed by third parties to owner’s equity. It is an instrumental tool to potential investors and lenders as it indicates levels of certainty of the entity’s continuity. It is determined by the following formula, Debt to equity ratio= total liabilities/ total equity (Pinson, p. 116) Profit margin Profit margin is a profitability ratio that compares profit to sales. It can either calculate gross profit margin, operating profit margin or net profit margin based on the following formulas, Gross profit margin = gross profit/ sales Operating profit margin= operating profit/ sales And net profit margin= net profit/ sales (Siegel and Shim, p. 254) Return on investment Return on investment is a profitability ratio that compares the profit performance to the investment made towards that profit. It is fundamental to investors as users of financial statements. It is obtained from the formula, Return on investment= earnings before interest and tax/ total assets The following excel output shows the above ratios for Wynn resort for the periods ending 2010 and 2011. The industry’s values are however not available. ratios fomula 2010 2011 Current ratio current assets/ current liabilities 1561.14/ 887.93= 1.76 1726.45/1579.89= 1.09 inventory turnover cost of sales/average inventory 2699.62/ 86.85= *31.08 3310.03/ 79.455= *41.66 debt to equity ratio total liabilities/ total equity 4436.55/ 2,237.95= *1.98 4810.47/ 2,089.02 = 2.30 gross profit margin (gross profit/ sales)*100 (1,485.08/ 4,184.7)*100= 35.5% (1,959.76 / 5,269.79)*100= 37.2% operating profit margin (operating profit/ sales)*100 (557.26/ 4,184.7)* 100= 13.32% (1,008.24/ 5,269.79 )* 100= 19.13% net profit margin (net profit/ sales)*100 (160.13/ 4,184.7)* 100= 3.83% (613.37/ 5,269.79 )* 100= 11.64% return on investment (EBIT/Total assets)*100 (557.26/ 6,674.5)* 100= 8.35 % (1,008.24/ 6,899.5)*100= 14.61% (Guilding, p. 66). Part 3: Interpretive analysis Question 1 Liquidity refers to an institution’s ability to have cash or cash equivalents from which it can meet its short-term obligations. A firm that has readily available cash or current assets that can be easily converted to cash, such as inventory that can be sold or debtors that can pay to boost the entity’s cash reserve, is therefore said to be more liquid than one with less cash equivalents. Liquidity is further evaluated with respect to short-term obligations. A firm with higher current assets than current liabilities, hence a high current ratio is for instance more liquid that one with a smaller current ratio (Khan and Jain, p. 6- 40). The company’s liquidity decreased from the year 2010 to the year 2011 with values of 1.76 and 1.09 respectively. This meant, on a short-term basis, that the company’s operations relied more on short-term debts, as compared to its current assets, in the year 2011 than in 2010. It also means a lower probability of acquiring short term debts hence strained short-term performance (Khan and Jain, p. 6- 40). Question 2 The gross profit margin defines a measure of an organization’s products profitability. The company experienced an improvement in its gross profit margin that increased from 35.5 percent in the year 2010 to 37.7 percent in the year 2011. The change in gross profit margin has the impacts of motivating the organization’s management towards working harder to even yield better profitability results in the short run, the following few years. It also has the effect of attracting both long term and short-term investors. This has the long-term impacts of expanding the company’s assets base through either injected capital or available lending due to perceived profitability and stability. This consequently has the effects of increased operational activities due to available resources (Ostring, p. 79). Question 3 Debt to equity ratio measures the percentage contribution to an organization’s resources by sources that are either owners or third parties. It specifically measures the third parties’ share of contribution as compared to owners. The company’s debt to equity ratio worsened from the year 2010, when it was 1.98/1, to the year 2011, when it was 2.3/1. This means that the company is less likely to secure long-term debts towards its long-term investments. The change therefore affects long-term operations, but not short-term operations (Pinson, p. 116). Question 4 Inventory and inventory turnover rate affect liquidity by determining the organizations’ ability to convert its cash equivalence, in inventory, into cash. Availability of inventory for example means that more resources can be converted to cash and therefore increases liquidity. Higher inventory turnover rates also means that the available inventory can be easily converted to cash towards meeting short-term obligations. The company’s inventory turnover increased from the year 2010 to the year 2011. In 2010, the inventory turnover was times 31.08 while the value was times 41.66 in the year 2011. This means that inventory conversion into sales was higher in 2011 (Elmaleh, p. 92). Works cited Carlberg, Conrad, and Carlberg, Conrad. Business analuysis with Microsoft excel. New Jersey, NJ: Que Publishing, 2002. Print. Elmaleh, Michael. Financial accounting: A mercifully brief introduction. Union Bridge, MD: Epiphany Communications, 2005. Print. Guilding, Chris. Financial management for hospitality decision makers. Woburn, MA: Routledge, 2012. Print. Investing. WYNN Resort Ltd. MSN Money. 2012. Web. October 8, 2012. < http://investing.money.msn.com/investments/stock-balance-sheet?symbol=wynn > Khan, M, and Jain, P. Financial management. New Delhi: Tata McGraw-Hill Education, 2007. Print. Ostring, Pirkko. Profit focused supplier management: How to identify risks and recognize opportunities. New York, NY: AMACOM Div American Mgmt Assn, 2004. Print. Pinson, Linda. Anatomy of a business plan: The step by step guide to building a business and securing your company’s future. Tustin, CA: aka associates, 2008. Print. Siegel, Joel, and Shim, Jae. Accounting handbook. New York, NY: Barrons Educational Series, 2006. Print. Read More