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Task Information

You have been assigned by your department leader to analyse various financial aspects of the company you work for and prepare a report of your findings to present to your team. The goal of this analysis is to provide your team with information that will help them to later make decisions about how your department can increase the financial position of the company. This will require you to interpret the pre-prepared ratio analysis, prepare and interpret a vertical analysis, come to a conclusion about the overall performance of the company and make two recommendations that would increase the financial performance of the company.

Your company name is listed on blackboard in the excel spreadsheet ‘Company Allocation’. Company allocations are made based on the enrolment data we have been provided with on USC Central. If you enrolled into the course just prior or after the semester commenced, we may not have your name on the list. If this is the case for you, please email Kirsty Dunbar ASAP to be allocated a company.

Task 2 Requirements

Requirement 1 (approx. 150 to 200 words):

Provide a brief overview of your company which includes information that will help you to make decisions regarding the company’s financial situation (e.g., when it was established, what industry/s are they in, what type/s of product/s do they sell or what service/s do they perform).

Requirement 2 (approx. 300 to 400 words):

(a) Explain what vertical analysis is and how it is useful in analysing a company’s financial performance.
(b) Prepare a vertical analysis for your chosen company for 2016, and 2017 using the following income statement items (a link to your company’s website is in the spreadsheet):
• Sales revenue (also written as Revenue or Income)
• Cost of sales (or Cost of goods sold) excluding Depreciation & Amortization (D & A)
• Gross profit (also written as gross income) (if not shown on the income statement, it will need to be calculated, i.e. Sales revenue less Cost of sales)
• 3 expense categories of your choice
• Profit/(loss) after tax (PAT or NPAT)
c) Analyse the results of the vertical analysis and explain what they say about your allocated company’s financial performance. Provide comments about whether there is enough information to make an informed decision about the company’s financial performance.

Requirement 3 (approx. 120 to 180 words per ratio):

(a) The ratios below have been calculated for your allocated company for the 2016 and 2017 financial years:
Profitability: Return on equity
Asset efficiency: Asset turnover
Liquidity: Quick ratio
Capital structure: Debt to equity ratio

Given the nature of some ratios, some figures are taken from the current and previous financial years. You will discover this when you research the literature to address requirement 3, part b.

(b) Provide a description of the meaning and purpose (i.e. how it is used, what ratio it is and what it calculates) of each ratio followed by an analysis of the results of each ratio to explain what they say about your allocated company’s profitability, asset efficiency, liquidity and
capital structure. To help explain the results of each individual ratio, refer to 2 of the following benchmarks (you can read about benchmarking in the course required text):

A comparison of the ratio over time (i.e. compare 2016 results to 2017 results)
A comparison of the entities ratio to other entities operating in the same industry
A comparison of the entity’s ratio with arbitrary standards (if any)

You can use any 2 benchmarks for each of the ratios (i.e. they do not need to be the same 2 benchmarks for each of the ratios).

Requirement 4 (approx. 100 words):

Provide two recommendations which could lead to an increase in your chosen company’s financial performance in the future.

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