Posted: September 8th, 2022

comparative analysis essay

Introduction to Real-World Annual Reports

This workbook has been prepared for the following company:

Student Name and Id Number:

 

 

 

 

 

 

 

 

 

Table of Contents:

Overview:………………………………………………………………………………………… 2

Part 1 – Introduction to Company Annual Report and Financial Statements…… 3

Part 2 – Financial Statements……………………………………………………………….. 4

Part 3 – Financial Statement Analysis Tools……………………………………………… 6

Part 4 – Financial analysis essay…………………………………………………………… 10

 

 

Overview:

Assessment Task 2 – Comparative Essay is an assessment item worth a total of 30% of the final grade for this subject.  Note; this assessment is NOT a hurdle assessment; however, students are required to attempt all assessments in order to pass the subject.

The questions in this workbook have been designed to introduce and prompt students to answer questions based on the concepts and principles learned the topic content throughout the study period.   The workbook consists of;

  • Part 1 – develop a background of the company and an overview of the company’s corporate governance principles.
  • Part 2 – familiarise students with the published annual reports and identify differences between results over a period of time.
  • Part 3 – conduct ratio analysis on the company annual report.
  • Part 4 – prepare a comparative essay of the companies assigned to each member of the group, summarise the findings and present with a supporting appendix to the investor.

In your first tutorial class, your tutor will assign you a company for this assessment task.  You will work as an individual on the assignment completing all of questions for parts 1, 2 and 3 in this workbook.  Once census date has passed, your tutor will assign you to a group with a maximum of 4 students.  Each student in the group will be assigned a different company, this means that there will be potentially 4 different companies within each group.  Students may choose members for their group, but each member must be assigned a different company for the purposes of this assessment task.

The purpose of the group work component is to conduct a comparative analysis of all companies in the group, drawing from the information prepared in the workbooks of each member of the group.

Before starting the financial analysis essay, you should read over the marking criteria sheet. The essay should be typed and APA referencing should be used (see http://libguides.jcu.edu.au/apa ).

The comparative  analysis essay will be awarded a mark out of 100, which will in turn be converted to a score out of 30. 

Group Work

The ability to “lead, manage and contribute effectively to teams” is a key JCU Generic skill and an important skill sought by employers. An important function of this assessment is for students to work effectively and on a collaborative basis. To facilitate this process, each group will have its own dedicated BU1002/BU1902 Group site on LearnJCU.  A Group Contract will be provided on LearnJCU. This must be completed and uploaded to the Group site on the group formation.

Establishment of Group Site and Participation:

You will have access to your group site within the BU1002/BU1902 subject site on LearnJCU once the groups have been formed after census date. 

Each Group site on LearnJCU will incorporate links to the following facilities: group Information, file exchange, group discussion, group journal and send emails. The group contract can be used as a prompt to record outcomes from the group meetings. All students are required to use their Group site to document all group activity relating to this assessment, i.e minutes of meetings, responsibilities of each member, completion of tasks etc.  It is also expected that once the group site has been formed, each member of the group will upload the answers for their company to the questions in Parts 1, 2 and 3 of the workbook.  This is a progressive assignment, therefore students will need to continue to prepare answers for their company to the questions in the workbook to be able to complete the comparative analysis.   The academic staff on your campus will provide you with memo stating the due dates when these answers must be uploaded to the group site.

Time will be allocated in classes for group work on the assignment to facilitate and encourage group collaboration.  These tutorial classes will be compulsory for all group members to attend.  The compulsory classes will be listed in the Subject Outline.  However, it is also expected that the group will work on the assessment task outside of formal classes. Please use the group site on LearnJCU to provide supporting documentation i.e. meeting agendas and minutes and use the other facilities to communicate with group members regarding the comparative essay in part 4.

Working in Groups

  • Assessment Criteria and Skills Development: Assessment will be based on the criteria set out in the Subject Outline and or LearnJCU.
  • It should also be noted that the Group site will provide the lecturer with information on the extent of each student’s contribution and how early, late and consistently they engaged with the site. This information may in some instances, where there seems to be an imbalance in contribution levels across a group and / or a formal complaint has been lodged, be used as a basis upon which to rescale the marks awarded to individuals within the group.
  • Team Conflict and Disbandment: Should you have conflict in your group or a group member withdraws from your group or the subject, it is important to advise the lecturer as soon as possible and well ahead of the due date. Failure to upload content by the stipulated timeframes without reason may also be grounds for removal from the group. The lecturer will retain the right (after hearing claims from students and reviewing the Group site) to decide when a group should be disbanded. In exceptional circumstances, individual assessment options are available to students only after a concerted effort has been made to work with other team members. Where a student has been removed from a group, the remaining members will prepare a comparative analysis on the remaining companies.  Students who will be asked to complete the assignment as an individual will be required to complete a comparative assessment of their assigned company with another company provided by the lecturer.  The second company will be provided when the student has been removed from the group.
  • Working in groups, under proper conditions, encourages peer learning and peer support. Individual students who do not collaborate within the specified timeframes may be removed from the group and will be required to complete the assignment as an individual. The comparative analysis will be based on the collaboration of remaining group members.
  • Where a student has been removed from a group and will submit as an individual, the maximum weighting for the assignment will be adjusted to 20% for failure to complete in a group.
  • Sometimes individual members of a group will not contribute equally to the task resulting in some students carrying higher workload in the group. This subject uses a peer evaluation sheet to alleviate student concerns about the contribution of individual group members. The lecturer reserves the right to reject peer and self-evaluations that are deemed inconsistent with the information obtained from the Group site.

Students who do not contribute to the group essay will receive zero marks for this piece of assessment.

 

 

Resources:

Students will be provided with the following information:

  • Company Annual Reports for the past 3 years.
  • Company financial data (excel spreadsheet) – to conduct ratio analysis.
  • Link to the Company website on LearnJCU.

Students are not expected to research beyond these references and the Birt textbook for this assessment item.  The case study contains questions related to weekly study topics for weeks 2 – 7 inclusive.

Part 1 – Introduction to Company Annual Report and Financial Statements

The purpose of part 1 is to begin your exploration of your company’s annual report and corporate governance structure.

Part 1 – Question 1:                                                                                                                         (related content – topic 2)

Write a background summary of your assigned company including the following:

When and why did your company first commence operation?

My company first commence operation was on January 2012. There are sevaral reasons as follows:Hydrix Limited (ASX: HYD) is aimed to be a powerful product innovation company. Hydrix’s purpose is to positively enhance the health, safety, and wellbeing of a billion lives. This is a meaningful cause for the benefit of society.

The company leverages its powerful product innovation capability across multiple growth platforms:

  1. Hydrix Services designs and engineers client products which transform industries;
  2. Hydrix Ventures generates equity returns through investing in high potential companies;
  3. Hydrix Medical brings innovative medical technologies to market.

The ‘Buy, Build, Invest’ strategy continued to transform Hydrix from a product design and engineering services business into a powerful product innovation company.

 

What is the main or core business of the company?

 

The principal business is principally that of providing engineering design and development services to customers in the medical, consumer, industrial, mining and defence industries assisting them to develop and commercialise technologies.

Hydrix is a powerful product innovation company and aspires to positively impact the health, safety, and wellbeing of a billion lives. It is a great time for shareholders to be excited by the potential of the “Buy, Build, Invest’ strategy to generate long term value.  The company is leveraging their product innovation capability to grow the scale and profitability of Hydrix Limited  (collectively ‘Hydrix Group’ or ‘Group’) across multiple growth platforms, including:

  • Hydrix Services – design and engineer client products which transform industries;
  • Hydrix Medical – bring innovative medical technologies to market;
  • Hydrix Ventures – generate equity returns through investing in high potential clients.

These growth platforms provide for distinct revenue stream generation across complementary businesses linked by Hydrix’s core design and engineering capabilities. The Hydrix relationship with AngelMed is a great example of integrated platform synergies generated across the business segments. Hydrix Services is providing input into the design of AngelMed’s next generation Guardian system. Hydrix Medical will commercially distribute the AngelMed Guardian® device into eight countries across Asia Pacific. Hydrix Ventures invested in AngelMed to generate potential equity capital gains from AngelMed’s future global success.

 

Some companies are diversified and have investments in other industries, for example, Wesfarmers has diverse business operations that cover supermarkets, department stores, home improvement and office supplies; coal production and export; chemicals, energy and fertilisers; and industrial and safety products.  Is your assigned company diversified?  What industries does the company operate in?

 

Hydrix Limited is a diversified industrial company with operating in providing engineering design and development services to customers in the medical, consumer, industrial, mining and defence industries assisting them to develop and commercialise technologies.

 

Does your assigned company operate solely within Australia, other countries or does it operate internationally?  Identify the operational locations.

Click here to enter text.

Hydrix Limited is a listed public company limited by shares, incorporated and domiciled in Australia.Over the past year, Hydrix has focused on marketing and promoting its MedTech offering locally and internationally. With a focus on FDA Class III development, Ventricular Assist Device expertise and Regulatory consulting capability, Hydrix have won significant new projects, established relationships and expanded its reach within existing accounts with clients in the US, EU and Asia Pacific.

 

Part 1 – Question 2:                                                                                                                          (related content – topic 2)

What are the headings and sub-headings of the discussion on corporate governance?  Note, if not presented in the Company Annual Report, review the Company website.

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The headings and sub-headings of the discussion on corporate governance are as follows:

Headings :The company’s corporate governance

Sub-headings:

The following statements, policies and procedures set the framework for the company’s corporate governance practices:

Anit-bribery and Corruption Policy

Audit and Risk Management Committee Charter

Board Charter

Code of Conduct

Communications Policy

Constitution

Continuous Disclosure Policy

Diversity Policy

Remuneration and Nomination Committee Charter

Remuneration Policy

Securities Trading Policy

Whistleblowers Policy

Part 1 – Question 3:                                                                                                                          (related content – topic 2)

What are the page references for the discussion on corporate governance?  (Hint – try the table of contents at the beginning of the annual report or review the Company website.) Briefly list the information included in the company’s corporate governance report.  Does this information differ from the corporate governance information covered in the content and required reading for topic 2?

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The information included in the company’s corporate governance report are listed as follows:

Anit-bribery and Corruption Policy

Audit and Risk Management Committee Charter

Board Charter

Code of Conduct

Communications Policy

Constitution

Continuous Disclosure Policy

Diversity Policy

Remuneration and Nomination Committee Charter

Remuneration Policy

Securities Trading Policy

Whistleblowers Policy

This information is same to the corporate governance information covered in the content and required reading for topic 2.

Part 1 – Question 4:                                                                                                                          (related content – topic 2)

What position was held and what was the composition and total remuneration of the highest paid board member?  (Hint – try the Directors’ Report.)

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Chairman: Mr Gavin Coote

Non-Executive  Director: Ms Julie King,Ms Joanne Bryant,Mr Paul Wright

The highest paid board member: Mr Gavin Coote

The total remuneration of Mr Gavin Coote is: $421,401

Part 1 – Question 5:                                                                                                                          (related content – topic 2)

How many “subsidiary companies” or “controlled entities” are in the group?  (Hint; try looking towards the end of the financial statements, near the end of the report).  Are the subsidiaries/controlled entities located domestically and or internationally?  Identify where they are located.  This will give insight into how widespread the company’s operations are and may assist you with your background information.

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Part 2 – Financial Statements

The purpose of part 2 is to not only introduce students to an actual set of financial statements of a publicly listed company, but to also identify information that may be significant for ratio analysis which will be conducted in Part 3.  The financial statements are presented in the financial report section of the company’s annual report.  For this section you may find it easier to refer to the Excel spreadsheets to obtain the financial data.  The Excel spreadsheet will contain the financial information for the past 10 years; however, you will only need to refer the data for the past four years in your spreadsheet, (the past three years and the fourth may be required to create averages for some of the ratios in part 3).  This will make it easier to refer to the financial data for several years in one excel worksheet.

Part 2 – Question 1 (Statement of Financial Position):                                                      (related content – topic 4)

What is the amount invested by the company in net assets for the current year?  (Hint use total assets minus total liabilities).  How does this amount differ from the value of net assets for each of the previous three years?  Can you identify any reason for the changes?  (Hint: look at the individual amounts that make up both the total assets and total liabilities, are there any changes to individual items over this three-year period?  Alternatively, you could perhaps look at the notes to the financial statements in the annual report to see if there are any changes in the breakdown of individual items in the reports.)  Discuss.

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The net assets of current year is: $5709653 (2021)

2020: $2295970  (<2021: $5709653 )

2019: $1136508  ( <2021: $5709653 )

2018: $955879  ( <2021: $5709653)

From 2018 to 2020, net assets have been growing every year. Compared to 2018,2019,2020, due to the increase amount of receivables and cash(Asset) in 2021,  lead to the increase amount of net assets in 2021. Also, in 2021, there was the upward trend in net asset. The reason for that was the decrease of  Long-Term Debt amounts which made up total liabilities.

 

Part 2 – Question 2 (Statement of Financial Position):                                                      (related content – topic 4)

How much was the total equity for the current year?  How does this differ from the total equity in each of the previous three years?  Can you identify any reason if there are any changes?  Discuss.

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The total Equity: $5709653(2021)

2020: $2295970  (<2021: $5709653 )

2019: $1136508  ( <2021: $5709653 )

2018: $955879  ( <2021: $5709653)

From 2018 to 2020, the total equity have been growing every year. Compared to 2018,2019,2020, due to the increase amount of receivables and cash(Asset) in 2021,  lead to the increase amount of  the total equity  in 2021. Also, in 2021, there was the upward trend in  the total equity . The reason for that was the decrease of  Long-Term Debt amounts which made up total liabilities.

Part 2 – Question 3 (Statement of Financial Position):                                                      (related content – topic 4)

How much was the total current assets for the current year and what are the components classified under this heading?    Is there any difference in the value of total current assets for each of the previous three years?  Can you identify any reason if there are any changes?   Discuss.  (Hint: you may need to refer to the notes to the financial statements in the annual report to review more detailed information.)

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Total current assets:$8,502,036 (The current year:2021)

2020: $5,600,514

2019:$7,055,740

2018:$2,292,866

Components:  Cash,Receivables,Prepaid Expenses,Inventories,Investments,NCA Held Sale,Other

– 2018($2,292,866)< 2021($8,502,036): Cash and other current assets 2018  significantly less than that of 2021.

– 2019($7,055,740) < 2021($8,502,036): Cash and cash Inventories 2019 less than that of 2021.

– 2020($5,600,514) < 2021($8,502,036): Cash and other current assets 2020 is less than that of 2021.

 

Part 2 – Question 4 (Statement of Financial Position):                                                      (related content – topic 4)

What are the items listed under non-current liabilities? Are there any new non-current liabilities in the current year that were not there in the previous three years? (Hint: you will need to look in the notes to the accounts to see the breakdown of non-current liabilities).

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Items listed under non-current liabilities :  Account Payable, Long-Term Debt, Provisions, Other.

In 2021, there are not any new non-current liabilities that were not there in the previous three years.

Part 2 – Question 5 (Statement of Profit or Loss):                                                              (related content – topic 5)

How much was net profit for the current year?  How does this compare to the net profit for each of the previous three years?  Can you identify any particular revenues or expenses that may have led to changes in the profit figures over the three-year period?  Discuss.

The reported NPAT after Abnormals for the current year was $-9,778,693. From the financial data, it is noticeable that the reported NPAT after Abnormals for last three years were all negative, which were all loss for the company. In 2021, the loss was greater than previous three years, even nearly tripled of the loss in 2020. Observing the Statement of profit or loss, the decreasing operating revenue might be one of the main reasons that led to the profit changes because the operating revenue in 2021 was only half of the revenue in 2020, which are $14,934,225 and $7,373,601. The sudden decrease of operating revenue can be the results of COVID-19, that restricts the normal operating activities. It explains that the operating revenue were declining every year after 2019.

Part 2– Question 6 (Statement of Profit or Loss)                                                                 (related content – topic 5)

Is the total revenue in the current year greater or less than the total annual revenue recorded in each of the previous three years?  Discuss.

The total revenue for the current year is less than the annual revenue for 2019 and 2020, but greater than the revenue for 2018. According to the 2019 annual report, Hydrix Limited has invested in business development both domestically and internationally, and its engineering team has increased productivity. Therefore, it explains the 201% increase in revenue for 2019 compared to 2018 revenue. In accordance with 2021 annual report, the significant portion of the loss in day-to-day activities is attributable to product development services, which have been significantly impacted – difficult trading conditions caused by pandemic such as customer project delays, funding and budgetary constraints, hard blockades preventing prospecting and face-to-face customer contact, availability of supply chain components and increased lead times, and limited access to product development facilities and clinics – future proofing customer service business development.

Part 2 – Question 7 (Statement of Cash Flow):                                                                    (related content – topic 6)

How much was the cash flows from operating activities for the current year?  What was the largest inflow item and the largest outflow item in the operating activities section?  Does this differ from the previous three years?  Discuss.

Cash flow from operating activities for the current year was -$1,933,245.00. The largest cash inflow item was cash received from customers and the largest outflow was payments to suppliers and employees. This is not different from the largest cash inflows and outflows from operating activities in the previous three years, because the main source of income in the company’s operating activities is the revenue received from serving customers, and the cash outflows are the basic expenses to support the company’s operating activities, so its structure has not changed significantly in the past year. Net cash used in operating activities to support the growth and expansion of the consolidated entity was $1,933,245 compared to $196,954 for the prior year ending 30 June 2020.

Part 2 – Question 8 (Statement of Cash Flow):                                                                    (related content – topic 6)

How much was the cash flow from investing activities in the current year?   Has the company had any new investing cash flows in the current year compared to the previous three years? If they did, list the activities (Hint: it may be necessary to look in the notes to the accounts).

Cash flow from investing activities for the year was -641,563.00. hydrix has new investing cash flow in 2021 compared to the previous three years of -150,040.00. Hydrix Ventures continues to invest in medical technology customers, including orthopedic tools for hip replacement, implantable cardiac alert devices, and non-invasive traumatic brain injury monitoring devices. assault alert devices, and non-invasive traumatic brain injury monitoring devices. Its major portfolio companies are Angel Medical Systems, Inc., Gyder Surgical Pty Ltd, Cyban Pty Ltd and Gyder Surgical Pty Ltd.

Part 2 – Question 9 (Statement of Cash Flow):                                                                    (related content – topic 6)

What was the net change in cash flows in the current year?  How does this change compare to the previous three years?   Discuss.

The net change in cash flows in the current year is the ending cash value minus the beginning cash value, which is (6,647,225.00 – 1,690,194.00 = 4,957,031.00), an increase of 4,957,031.00 in cash on hand at the end of the period compared to the beginning of the period. Hydrix retained more cash and had a much larger change in cash in 2021 compared to the net change in cash in the previous three years. This is because in 2021, Hydrix recapitalized the company, paid off all secured debt, and ended with $6.6 million of cash on hand. at June 30, 2021, the consolidated entity had a cash position of $6,647,225 compared to $1,690,194 at June 30, 2020. The primary uses of cash are to repay borrowings, support key activities of the business, and strategic growth initiatives.

 

 

Part 3 – Financial Statement Analysis Tools

The purpose of part 3 is to introduce students to using financial statement analysis tools covered in topic 7.  Hopefully your answers to questions in part 2 may have flagged monetary differences that you can now compare based on percentages using ratio analysis.  Ensure you include your calculations in your answer and more importantly, try and identify why percentage changes may have occurred.  It is this analysis that is most important in this exercise, trying to identify “why” changes have occurred.  The more analysis provided in the answers to the questions in this workbook, the more information you will have to draw on when preparing your financial analysis essay.

Prepare the ratio calculations first and then attempt to analyse the results. When performing ratio analysis, you should analyse each of the ratios on the basis of:

  1. Describe the change
  2. Explain the change
  3. Suggest a cause

The pre-recorded lecture recordings present each ratio calculation. The supporting demonstration recordings provide a step-by-step process to complete the ratio calculations and the analysis of the exemplar company presents an approach to analyse and explain the ratio results. These recordings may assist you with the analysis of your assigned company.

 

Part 3 – Question 1 (Horizontal Analysis):               

Conduct a horizontal analysis of the Statement of Profit or Loss (Income Statement) for the past 3 years.  Comment on any trends.

The total revenue had a decreasing trend whereas the total revenue increased over 100% in 2019 but loss 41% in 2021. It is noticeable that the EBITDA was continuingly declined that achieved negative 133% from 2019 to 2020 and reached negative 612% from 2020 to 2021. And the EBIT lost the most in 2021, which was loss 3063% more than last year.

Part 3 – Question 2 (Horizontal Analysis):                                                                                                                                     

Conduct a horizontal analysis of the Statement of Financial Position (Balance Sheet) for the past 3 years.  Comment on any trends.

The cash holding on hand was an uptrend, which increased 620% between 2019 and 2020, and following increasing 293% from 2020 to 2021. Therefore, the total asset has an increasing trend as well, but in a slower pace, which increased 48% from 2019 to 2020, and only 2% increasing in 2021.

Part 3 – Question 3 (Vertical Analysis):

Conduct a vertical analysis of the Statement of Profit or Loss (Income Statement) for the past 3 years.  Comment on any trends.

It is worthwhile to note that the operating revenue in 2021 was increasing from 94% in 2019 and 2020 to only 79% in 2021. Therefore, the EBITDA was turned to negative 51% in 2020 from positive 6% in 2020. Moreover, the reported NPAT represented a down trend as well, showing that -30% in 2019 to -105% in 2021.

 

Part 3 – Question 4 (Vertical Analysis):

Conduct a vertical analysis of the Statement of Financial Position (Balance Sheet) for the past 3 years.  Comment on any trends.

The cash receivables over total assets was giving a decreasing trend which showed 45% in 2019 and only 2% in 2021, which is a good thing as the company is able to collect the receivables back gradually. But the current assets over total assets was decreasing from 55% in 2019 to 44% in 2021, which could influence the liquidity of the whole company.

 

Note: Horizontal and vertical analysis can be used as a point of reference to assist in identifying percentage changes of individual items that appear in the financial statements.  When conducting ratio analysis, over a period of time, you may find it easier to not only identify the change in the numerator and denominator of the formula, but to also use horizontal and vertical analysis to identify the individual components that make up the numerator and denominator of the formula.

Part 3 – Question 5 (Trend Analysis):

Conduct a trend analysis of the Statement of Profit or Loss (Income Statement) for the past 3 years.  Comment on any trends.

Using 2018 as the base year, comparing the past three years data, the operating revenue was overall increasing, even though it achieved the highest 279% in 2020, but then down to 138% in 2021. It is noticeable that in 2021, the revenue structure has changed, weighted more in other revenues of 539% increase rather than the operating revenue.Click here to enter text.

Part 3 – Question 6 (Trend Analysis):

Conduct a trend analysis of the Statement of Financial Position (Balance Sheet) for the past 3 years.  Comment on any trends.

The most dramatic change was cash holding on hand in 2020 and 2021, which increased 995% more than the base year in 2020, and 4050% more in 2021 comparing to 2018. The investment was showing a raising trend as well, which increased 8310% comparing to the base year data.

 

 

From the lecture PowerPoint slides and in the exemplar company information, when performing ratio analysis, you should analyse each of the ratios on the basis of:

  1. Describe the change
  2. Explain the change
  3. Suggest a cause

 

Part 3 – Question 7 (Profitability):

Can you identify a trend in the return on equity ratio over the past three years?  Comment on the trend.  Briefly discuss possible reasons for this trend.

Describe the change: the return on equity ratio was lowest at -10.99% in 2021, the ratio was -5.36% in 2019 then increased a bit to -3.98%

Explain the change: In 2019 and 2020, the earnings from continuing operation were increasing and the total equity increased from $78,768,203 in 2019 to $88,954,559 in 2020. But the profit in 2021 has a downturn to $-9,778,693 with a slightly increase of average equity.

Suggest a cause: In 2021, Hydrix issued $162,815,530 worth of stock to support the company’s recapitalization and debt repayment activities. This represents an increase in total equity compared to 2020 when only $79,622,263 of stock was issued. Based on the ROE formula, this could be part of the reason for the decrease in ROE.

Part 3 – Question 8 (Profitability):

Has the Return on Assets changed over the past 3 years?  What may have caused the change?

Describe the change: The return on Assets was -30.87% in 2019 then increased to -20.23%. In 2021, the return on asset dropped to the lowest which was – 50.93%.

Explain the change: The main reason of those changes can be explained by increasing total asset from 2019 to 2020 and it remained the same in 2021, but the EBIT in 2019 and 2020 was increasing, in 2021, the EBIT declined significantly.

Suggest a cause: 2021 Annual report has mentioned the large amount of loss and suggests the cause is due to difficult trading conditions caused by the pandemic, future proofing client services business development-how to cooperate with international clients in the context of pandemic.

Part 3 – Question 9 (Profitability):                                                                                                                                                  

Has the profit margin and gross profit margin, if applicable, changed over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.  (Hint: as mentioned above, refer to your horizontal and vertical analysis of the Statement of Profit or Loss and Statement of Financial Position to assist in your analysis of this ratio.)

Describe the change: profit margins have generally declined over the past three years, it raised from -31.68% in 2019 to -21.56% in 2020, but declined in 2021 more dramatically, down to -132.62% from the previous year. Gross profit margin follows the same pattern that increased at first from 82.15% in 2019 to 89.44% in 2020, then decreased to 76.05% in 2021. * Note that the net profit is extracted from the financial data directly, but the gross profit = operating revenue + revenue expense (project material expense).

Explain the change: Between 2019 and 2020, gross profit was actually going up, but its total revenue was growing at a faster rate, resulting in a lower gross margin. And in 2021, gross profit was almost triple less than the previous year, and total revenue was declined to the half amount of previous, so the gross margin decline was more dramatic.

Suggest a cause: Based on the formula for gross profit, we find that the decline in total revenue is the direct cause of the decline in gross margin in 2021, which has been mentioned several times in the previous section, mostly for external reasons – trading difficulties due to the pandemic.

Part 3 – Question 10 (Asset efficiency):

Identify if the asset turnover ratio increased or decreased over the past three years? Is this a good result for the company?  Briefly discuss what the change indicates.

Describe the change: The asset turnover ratio has decreased very slightly from 0.97 in 2019 to 0.94 in 2020, and then it dropped significantly to 0.38 in 2021.

Explain the change: By comparing the total revenue and total asset across three years, the total asset increased, and total revenue increased at a small rate. in 2021, the total asset has doubled compared with the data in 2018. However, the revenue increased less than 50%.

Suggest a cause: the reason of total revenue decreased has been explained before, the total assets increased mainly due to the recapitalization, generating a large amount of cash holding on hand. Because comparing the items on the statement of financial position, the total non-current assets has not change too much, but the cash and its equivalents increased significantly.

Part 3 – Question 11 (Asset efficiency):

The inventory turnover ratio is only applicable to retail businesses.  If your assigned company is a retail business, has the Inventory turnover changed over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.  Note you might find it useful to also convert to the number of days.

Describe the change: Hydrix is not­ a retail business, it doesn’t have the turnover ratio.

Explain the change:

Suggest a cause:

 

Part 3 – Question 12 (Asset efficiency):

Has the receivables turnover changed over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.  Note you might find it useful to also convert to the number of days.

Describe the change: The receivable turnover has increased over past three years, from 3.43 in 2019 to 4.03 in 2020.

Explain the change: in consistent with the receivable turnover formula, although the revenue has decreased over past three years even though there was a small increase in 2020, the average trade debtors was decreasing in general, from $3,887,451 in 2019 to 1,831,357 in 2021.

Suggest a cause: A low accounts receivable turnover rate is not a good thing. This is because it can be due to improper collection processes, poor credit policies, or customers who are not financially viable or trustworthy. Companies might has re-evaluated their credit policies to ensure timely collection of their receivables to collect back more cash flow to support their operating activities over past three years.

Part 3 – Question 13 (Liquidity):

Has the current ratio increased or decreased over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.

Describe the change: Over the past three years, the current ratio first increased from 0.7 in 2019 to 1.21 in 2020, but there was a small drop back to 0.95 in 2021.

Explain the change: This is because the total current asset is increasing but the total current liability is decreasing from 2019 to 2020. In 2021, total current liability doubles from last year, but total assets only increase from 5.601 million to 8.502 million.

Suggest a cause: from the statement of financial position, the borrowing item has changed most significantly, that increased from $276,664 in 2020 to $1,000,000 in 2021. The annual report has not explained the use of borrowing, but according to the whole report, it might be used to support operating activities.

Part 3 – Question 14 (Liquidity):

Has the quick ratio increased or decreased over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.

Describe the change: the quick ratio followed the same pattern as the current ration between 2018- 2021, where there were increases in 2019 and 2020, then a decline in 2021.

Explain the change: as the total current liability has dropped from 10.073m in 2019 to 4.627m in 2020, and the cash and receivables were increasing in 2020, it reached the highest quick ratio. Although the current liability has doubled in 2021 comparing to 2020, but its cash and receivables were increasing as well.

Suggest a cause: A higher quick ratio signals that a company can be more liquid and generate cash quickly in case of emergency. The increase in cash and receivables are due to the recapitalization, giving Hydrix more cash and equivalents in 2021, and the current liability was increasing because of the borrowings as explained before.

 

Part 3 – Question 15 (Capital structure/Gearing):

Has the debt-to-equity ratio increased or decreased over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.

Describe the change: the debt-to-equity ratio has decreased gradually over past three years, from 1027.29% in 2019 to 239.41% in 2021.

Explain the change: The total debt was increased from 11.68 m to 13.67m between 2019 to 2021 with an increase of 4.57m in equity.

Suggest a cause: The cash generated from recapitalization and issuing shares was used to repay the debt in 2021, causing the decreasing of total debt and the increasing of the total equity.

Part 3 – Question 16 (Capital structure/Gearing):

Has the debt ratio increased or decreased over the past three years?  Is this a good result for the company?  Briefly discuss what the change indicates.

Describe the change: the debt ratio has the same pattern with the debt-to-equity ratio, that decreased from 91.13% in 2019 to 70.54% in 2021.

Explain the change: the increasing debt ratio is because the raising total debt and the increasing capital, especially the significant increased total capital in 2020. But as the total debt decrease in 2021, the ratio has decreased.

Suggest a cause: higher debt ratio is bad. The total debt increasing has been explained as mentioned before that is due to recapitalization, and the total capital is equal to liability plus equity, remained high at 11.684m for the share issued this year and new borrowings generated.

 

 

 

 

Part 4 – Comparative analysis essay

Task: The Group is required to prepare a comparative essay of no more than 4 pages or (2 000 words) analysing and comparing the companies allocated to each member of the group. The group will need to reach a consensus and nominate, with support, which of the assigned companies would provide the best investment opportunity for the investor.

To do this, each group member will be required to complete the workbook questions for their assigned company.  The comparative essay will be prepared by drawing information for each assigned company from the completed workbooks.

AT NO STAGE WILL YOU BE REQUIRED TO SUBMIT THE WORKBOOK, NOTE: DO NOT SUBMIT THE WORKBOOK.

Task Question:

An investor is contemplating a potential investment opportunity in one of four companies. The investor has asked your group to provide a four-page comparative essay discussing the profitability, liquidity, asset efficiency and gearing of the companies assigned to your group and recommend the company that provides the best investment opportunity.

Structure – Financial analysis essay

Your essay should be structured as follows

  1. Introductionapprox. 250 words

Introduce the aim (task) of the paper in one sentence. Next briefly introduce each of the assigned companies and the purpose of the essay.

  1. Body

In the body you should provide a brief comparative analysis of the key factors of each company in separate paragraphs. This is an overall summary drawn from the individual analysis completed by each group member on their assigned company. The group should also identify which company is stronger in each category.

Paragraph 1: Overall Profitability Analysis – approx. 250 – 280 words

Compare the overall profitability of the assigned companies, do not discuss individual profitability ratios unless they are standout results.

Paragraph 2: Overall Asset Efficiency Analysis – approx. 250 – 280 words

Compare the overall asset efficiency of the assigned companies, do not discuss individual asset efficiency ratios unless they are standout results.

Paragraph 3: Overall Liquidity Analysis – approx. 250 – 280 words

Compare the overall liquidity of the assigned companies, do not discuss individual asset efficiency ratios unless they are standout results.

Paragraph 4: Overall Capital Structure Analysis – approx. 250 – 280 words

Compare the overall capital structure of the assigned companies, do not discuss individual asset efficiency ratios unless they are standout results.

Paragraph 5: Limitations of Analysis – approx. 250 words

Identify any limitations encountered in conducting the comparative analysis. This may include things like insufficient or old data sources and so on.

  1. Conclusion – approx. 200 words

Repeat the main findings/analysis of your report in summary format. Very clearly explain the status of all companies.

  1. Recommendations – approx. 180 words

Make a very clear recommendation for the investor. Explain which company is the best option and use the findings you have presented in the body to support your stance.

Page 5: References

Include the bibliographic details of any references you have used. You must use APA 7th format. Check the Library Guides here for correct usage: https://libguides.jcu.edu.au/apa

You can only use appropriate reputable sources such as journals, textbooks, newspaper articles, or published reports. You cannot use online sources such as Investopedia or Wikipedia.

Page 6 onwards: Appendix

The appendix is not included in the word count or page requirements. This means there is no page restriction here. For each area of analysis, you must put screenshots or copies of the data from your Excel Financial Data Spreadsheet of your assigned company and include your analysis for each ratio from part 3 of the workbook. Do not include the whole workbook in the appendix.  You may use the following template to prepare the appendix to support your financial analysis essay.

Include the following opening statement:

This financial analysis essay has been developed based on reference to Birt et al. (2020), the [insert the name of your assigned company] annual reports from 2019 to 2021 and company financial data obtained from the Data analysis Database (Morningstar, 2022).

The individual calculations and analysis for each ratio should be presented for your assigned company as follows:

EACH ASSIGNED COMPANY SHOULD HAVE THE FOLLOWING INFORMATION PRESENTED IN THE APPENDIX:

COMPANY NAME:

PROFITABILITY

Return on Equity:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet, i.e.

Copy your analysis from Part 3 – Q1, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Return on Assets:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q2, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Profit Margin:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q3, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Gross Profit Margin (if applicable):

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q3, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

 

ASSET EFFICIENCY

Asset Turnover:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q4, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Inventory Turnover (days and times p.a):

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q5, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

 

Receivables Turnover (days and times p.a):

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q6, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

 

LIQUIDITY

Current Ratio:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q7, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Quick Ratio:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q8, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

CAPITAL STRUCTURE / GEARING

Debt to Equity Ratio:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q10, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

Debt Ratio and Equity Ratio:

Copy and paste, or take a screen image of the ratio calculations from the Excel spreadsheet

Copy your analysis from Part 3 – Q11, but remove the prompts ‘Describe the change’, ‘Explain the change’ and ‘Suggest a cause’

HORIZONTAL ANALYSIS

Copy and paste, or take a screen image of the horizontal analysis of the Statement of Profit or Loss (Income Statement) from the Excel spreadsheet

Copy and paste, or take a screen image of the horizontal analysis of the Statement of Financial Position (Balance Sheet) from the Excel spreadsheet

VERTICAL ANALYSIS

Copy and paste, or take a screen image of the vertical analysis of the Statement of Profit or Loss (Income Statement) from the Excel spreadsheet

Copy and paste, or take a screen image of the vertical analysis of the Statement of Financial Position (Balance Sheet) from the Excel spreadsheet

TREND ANALYSIS

Copy and paste, or take a screen image of the trend analysis of the Statement of Profit or Loss (Income Statement) from the Excel spreadsheet

Copy and paste, or take a screen image of the trend analysis of the Statement of Financial Position (Balance Sheet) from the Excel spreadsheet

 

 

Submission Requirements:

  • The submission requirement for part 4 is 4 pages or (approx. 2 000 words), with minimum size 11 font and minimum margins of 1.5cm.
  • A group member will be nominated to submit the comparative essay and supporting appendix to the Safe Assignment drop box on the LearnJCU subject site. Email or faxed submissions will not be accepted.
  • A draft safe assignment box will be provided to enable students to check for plagiarism.
  • Assignments received after the submission deadline will be deemed to be “late” and will receive a 5% late submission penalty for each day the assignment has passed the submission deadline.
  • DO NOT SUMBIT THE WORKBOOK AS PART OF YOUR ASSIGNMENT SUBMISSION!!

 

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