ASSESSMENT ITEM 2: INDIVIDUAL REPORTThe aims of the report are:
•
•
to develop skills to conduct a vertical, horizontal and ratio analysis of an Australian
listed company.
to develop skills to interpret and explain in written form the two (2) year
performance of a company covering 2021 and 2022 based on the vertical,
horizontal and ratio analysis, and other relevant factors that become evident when
analysing the company’s annual reports.
Important information
•
•
The report has a word limit of 2000 words (excluding appendices and
references).
The analytical report consists of a full financial analysis and assessment of a
company listed on the Australian Stock Exchange.
Instructions:
.
•
•
•
Select a company listed on the Australian Stock Exchange to use as the basis of
your analytical report. Obtain copies of that company’s most recent Annual
Reports. Develop a written report that contains:
An Executive summary (The first page of your report – one page maximum,
double spaced) It is essential that you obtain the JCU resources that describes
what ‘a report’ is, and then demonstrate that you are able to comply with it.
Contents page.
Introduction and explanation of the business and any important contextual
information that assists in understanding the financial data you are analysing and
presenting. (brief but sufficient to provide context).
•
Discussion and critical analysis of financial statements and accompanying
material in the context of the particular business and economy, competitors, and
any other relevant information and data that enhance understanding of the
business’s financial situation. In this section you will draw on the vertical,
horizontal and ratio analysis you have undertaken, details of which will be in the
appendices of your report.
• Conclusion about the financial performance and position of the business, how
you see its likely future performance and any other relevant conclusion supported
by your analysis and discussion.
• An appendix containing details of your analysis. Depending on which analytical
tools you choose to use, this could include vertical and horizontal analysis, and
ratios analysing the business’s liquidity, working capital management, solvency,
capital structure and gearing, profitability and efficiency and market performance,
and other relevant areas that you discuss in the body of your report, trend analysis
and so on.
• An appendix of the two core financial statements for the years that are analysed.
• If helpful, an appendix containing other relevant material that enhances your
analysis and discussion
References used in proper academic format using APA conventions (if you are unsure of
how to do this,
ASSESSMENT ITEM 2: INDIVIDUAL REPORT
The aims of the report are:
•
•
to develop skills to conduct a vertical, horizontal and ratio analysis of an Australian
listed company.
to develop skills to interpret and explain in written form the two (2) year
performance of a company covering 2021 and 2022 based on the vertical,
horizontal and ratio analysis, and other relevant factors that become evident when
analysing the company’s annual reports.
Important information
•
•
The report has a word limit of 2000 words (excluding appendices and
references).
The analytical report consists of a full financial analysis and assessment of a
company listed on the Australian Stock Exchange.
Instructions:
.
•
•
•
•
•
•
•
•
•
•
Select a company listed on the Australian Stock Exchange to use as the basis of
your analytical report. Obtain copies of that company’s most recent Annual
Reports. Develop a written report that contains:
An Executive summary (The first page of your report – one page maximum,
double spaced) It is essential that you obtain the JCU resources that describes
what ‘a report’ is, and then demonstrate that you are able to comply with it.
Contents page.
Introduction and explanation of the business and any important contextual
information that assists in understanding the financial data you are analysing and
presenting. (brief but sufficient to provide context).
Discussion and critical analysis of financial statements and accompanying
material in the context of the particular business and economy, competitors, and
any other relevant information and data that enhance understanding of the
business’s financial situation. In this section you will draw on the vertical,
horizontal and ratio analysis you have undertaken, details of which will be in the
appendices of your report.
Conclusion about the financial performance and position of the business, how
you see its likely future performance and any other relevant conclusion supported
by your analysis and discussion.
An appendix containing details of your analysis. Depending on which analytical
tools you choose to use, this could include vertical and horizontal analysis, and
ratios analysing the business’s liquidity, working capital management, solvency,
capital structure and gearing, profitability and efficiency and market performance,
and other relevant areas that you discuss in the body of your report, trend analysis
and so on.
An appendix of the two core financial statements for the years that are analysed.
If helpful, an appendix containing other relevant material that enhances your
analysis and discussion
References used in proper academic format using APA conventions (if you are
unsure of how to do this, please consult the library
guides) http://libguides.jcu.edu.au/referencing
Report length of no more than 2000 words, not including appendices or
references.
Before starting the report, you should read over the rubric, i.e., the marking criteria sheet
in section 5. You must type the report and use the APA referencing style
(see http://libguides.jcu.edu.au/apa).
The assignment (with student’s signature and date on the coversheet) must be submitted
online by the due date to a Safe Assignment drop box on the LB5212 subject site on
LearnJCU. A word version and editable pdf version of the Group Assignment Cover Sheet
can be downloaded from the Assessment link on LearnJCU. Refer Section 4.4 below for
further Information on Assessment and Student Support.
Return of assessment: The marked assessment and feedback will be available online
through LearnJCU no later than 21 days after the due date.
•
•
please consult the library guides) http://libguides.jcu.edu.au/referencing
Report length of no more than 2000 words, not including appendices or
references.
Before starting the report, you should read over the rubric, i.e., the marking criteria sheet
in section 5. You must type the report and use the APA referencing style
(see http://libguides.jcu.edu.au/apa).
The assignment (with student’s signature and date on the coversheet) must be submitted
online by the due date to a Safe Assignment drop box on the LB5212 subject site on
LearnJCU. A word version and editable pdf version of the Group Assignment Cover Sheet
can be downloaded from the Assessment link on LearnJCU. Refer Section 4.4 below for
further Information on Assessment and Student Support.
Return of assessment: The marked assessment and feedback will be available online
through LearnJCU no later than 21 days after the due date.
GROUP REPORT
LB5212 ACCOUNTING AND FINANCE FOR MANAGERS
1/05/2017 LECTURER:
GROUP MEMBER: ACCOUNTING AND FINANCE FOR
MANAGERS
GROUP REPORT
01/05/2017
LECTURER: JUDITH SPARGO
AHMAD AHMAD
A2 Corporation Limited
GROUP REPORT
LB5212
ACCOUNTING AND
FINANCE FOR
MANAGERS
1/05/2017
LECTURER:
GROUP MEMBER:
Table of Content
1. Executive Summary …………………………………………………………………. 2
2. Introduction ……………………………………………………………………………. 3
3. Income Statement …………………………………………………………………… 4
4. Statement of Financial Position …………………………………………………. 8
5. Cash Flow Statement ……………………………………………………………… 12
6. Financial ratio analysis ……………………………………………………………. 14
6.1. Profitability Ratios …………………………………………………………….. 14
6.2. Efficiency Ratios………………………………………………………………… 16
6.3. Liquidity Ratios …………………………………………………………………. 21
6.4. Capital structure ratios ………………………………………………………. 22
7. Conclusion…………………………………………………………………………….. 24
8. Appendix ………………………………………………………………………………. 26
9. References ……………………………………………………………………………. 40
1
1. Executive Summary
A2 Corporation Limited (A2C) is a dairy company which commercialises dairy products and intellectual
property in regards toA2 milk, which is listed on both Australian and New Zealand Exchange. This report
provides an overall financial review of the company. It includes the financial data, the company
performance, ratios analysis during FY2012 to FY2015.
A2C’s incomes statement, statement of financial positon, and statement of cash flow during the
periodwere assessed and interpreted to outline an overview of A2C’s performance. Ratio analysis
included 20 different ratios which evaluate A2C’s profitability, liquidity, efficiency, and capital structure.
The ratios are compared with ratios of a dairy industry competitor, Bega Cheese Group (Bega).
During the FY2012-2016 period, A2C’s performance can be described as volatile. During the first three
years, A2C ‘s comprehensive profit declinedby $8,710,000. However, between FY 2015 and FY2016,
there was 450% improvementwhich resulted in an impressive$27,095,000 comprehensive profit in
FY2016. Despite growth in sales, strong gross profit margins, andgrowth in its total assets, the
company’s liabilities have tended to grow at a faster rate than its assets, impacting equity and causing
debt to increase, as well as sparking some concerns about the company’s future liquidity and solvency.
Ratio analysis and comparison with an industry competitor, Bega, allowed us to consider these
questions in depth.
Although there are some concerns about the firm’s short-term liquidity, increasing debt, and volatile
profit history, its recent financial report shows impressive results. The company’s behaviour is also
understandable in the context of its strategy to focus on market and product expansion ahead of
immediate profits, and there are now signs that the company is beginning to mature and become more
established as a dairy products producer. A2C’s impressive recent sales growth combined a with a
strong gross profit margin and exciting prospects for future growth and rewards give us confidence in
A2C as a prospect for investment – provided it can provide assurance around plans for controlling its
future cashflows and debt.
2
2. Introduction
A2C supplies its products and intellectual property locally and internationally. Its business started from a
discovery that cows produce different milk proteins that behave differently in people’s bodies. A2C is
focused on milk containing only the A2 protein which is claimed to be easier to digest (The A2 Company,
2016).
In 2008, A2C changed its strategy from a licensing model to a branded product model and has since
been focused on growing its product range and market share both nationally and internationally. Its
products are a2 Milk, A2Platinum Infant Formula, a2Platinum nutritional powder, whole milk powder,
ice cream, and UHT. A2 Milk has been produced and marketed in Australia since 2007 as a joint venture
with Freedom Foods, and manufactured and marketed in the United Kingdom and Ireland since 2011.
Since 2013, A2C has expanded its A2Platinum Infant Formula in Australia, New Zealand, and China since
2013, and by 2015 61% of revenue was from infant formula (The A2 Company, 2016).
A2 Milk also extended its brand into whole milk powder and ice cream in 2015. In New Zealand, A2 Milk
began to produce A2Platinum nutritional powders in 2013 and also launched UHT and fresh milk in
2014. Furthermore, TheA2 Milk Company T-mall global digital store opened in 2015 (The A2 Milk
Company, 2016). A2C launched a2 Milk brands in California in the United States from 2015 (The A2
Company, 2017). A2C also continues its R&D to further develop its portfolio of intellectual property
(The A2 Company, 2017.).
A2C is listed on the New Zealand Exchange as ATM in 2004 (New Zealand Exchange, 2017). The list was
transferred to the NZX Main board in 2012 and was dual listed on the ASX as A2M in March 2015
(Australia Exchange 2017).
A2C seeks continuous growth in particular from infant formula and milk powders in Australia and China
and expansion in the US market. Although there are constant regulatory change dynamics in the China
market, A2C says it is highly aware of the change and well prepared for adapting to the circumstances
(The A2 Company, 2016).
3
3. Income Statement
The primary goal of a business is to generate wealth or profit and the profit generated during a specific
period is the primary concern of many users of financial reports. The income statement measures and
reports how much profit (financial progress or wealth) the business has generated over a period. It also
helps users to gain an impression of how the profit was made. Profit or loss is the difference between
income and expenses. A financial profit indicates an increase in the owners’ equity, while a loss results
in a decrease in equity. Income can be defined as the increase in economic benefits for the accounting
period through inflow of assets and/or reduction in liabilities, which will result in an increase in equity
for the business (Atrill et al 2015).
Figure 3.1 Total Comprehensive Gain/(Loss) for the Years Ending 2012-2016
Total Comprehensive Gain/(Loss) for Financial Years Ending
2012-2016
30,000
25,000
NZ$,000
20,000
15,000
10,000
5,000
0
-5,000
-10,000
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
The Income Statement Summary Table 2012-2016 (Appendix 8.1) compares the income statement of
the A2 Milk Company for 5 financial years 2012, 2013, 2014, 2015, and 2016. During the first three
years studied, total comprehensive profits declinedby $8,710,000. In FY2015 and FY2016 the trend
reversed, however, with a 121% recovery in FY2014-2015 which reduced the loss to $1,137,000 in
FY2015, followed by a 450% increase in comprehensive profit in FY2015-2016 to achieve the maximum
profit for the five years of $27,095,000 in FY2016 (Figure 3.1)
4
Figure 3.2 Sales Revenue, Cost of Sales, and Gross Margin Comparison 2012-2016
200
Sales Revenue, Cost of Sales, and Gross Margin
Comparison
180
Sales
Cost of sales
Gross margin
%
%
%
%
Change
Change
Change
Change
2013
2014
2015
2016
2012
2013
2014
2015
160
NZ$;000
140
120
100
80
60
40
20
0
In a healthy business, ideally the increase in Sales Revenue per year should be greater than the %
increase in expenses including COGS. Using horizontal/trend analysis (Appendix 8.2, Figure 3.2), we see
that between FY2015 and FY2016, Sales Revenue increased by 128%, and this, combined with a slower
growth in the Cost of Sales (COGS), helped to result in a very high, 178%, rate of increase in gross profit
margin from $54,416,000 in FY2015 to $151,006,000 in FY2016. In the FY2014-2015 period, however,
growth in Sales Revenue was a comparatively small 40% and was actually outstripped by the growth in
COGS of 42%. Similarly, the FY2013-2014 data shows a 17% increase in Sales revenue matched with a
17% increase in COGS.
The gross profit margin as a percentage of Sales Revenue (Figure 3.3) was constant at 34-36% from
2012-2015, before shooting up to 43% in 2016. COGS reduced from 64-66% in 2012-2015 to 57% in
2015. In contrast, Bega Cheese Group had a much lower profit margin of 10-13% throughout the same
period and slower growth in sales and gross profit, indicating that Bega’s market share is not rapidly
changing.
5
Figure 3.3. Selected factors as a percentage of the total Sales Revenue
Using vertical analysis (Appendix 8.3, Figures 3.3 and 3.4), we see in 2014 an increase in the proportion
of resources being allocated to Marketing and Administration compared to previous years. In 2013,
Marketing Expenses were $4,529,000, costing only 5% of sales revenue. In FY2014 this expense almost
doubled, increasing to $9,706,000, and costing 9% of Sales Revenue. FY2015 and FY2016 saw similar
figures.
From 2012-2016, the trend has been for freight costs and other operating costs to increase more slowly
than the growth in sales revenue. This is likely a result of the company growing, becoming larger and
more established and therefore being able to increase its efficiency. In 2012,Freight costs were
$4,819,000 and 8% of Sales Revenue. By 2016, Freight costs were $15,521,000, and only 4% of Sales
Revenue. In the same period, Salary and Wage Costs also decreased.
6
Figure 3.4. Other Operating Expenses, Consultancy, Accounting, and Secretarial Fees, Salary and Wage
Costs, and Freight Costs as % of Sales Revenue
9
8
Other Operating
Expenses as % of Sales
Revenue
% of Sales Revenue
7
6
Consultancy, Accounting,
and Secretarial Fees
5
Salary and Wage Costs as
% of Sales Revenue
4
3
Freight Costs as % of
Sales Revenue
2
1
0
7
4. Statement of Financial Position
The Statement of Financial Position, also known as the Balance Sheet,sets out the financial position of a
company at a particular point in time. It shows all of the resources controlled by the entity as well as
the entity’s obligations. (Atrill et al, 2015).
Analysis of the results from FY 2012- FY 2016 show an increase in the company’s assets over the period,
particularly between FY2015 and FY2016, as well as a change in the proportion of current vs. noncurrent assets (Appendix 8.4-8.6, Figure 4.1). In FY 2012, current assets made up 50% of the total assets.
By FY 2016, current assets made 87% of the total, and non-current assets only 13%. This is in large part
due to increases in the proportion of assets used for prepayments and inventories, while proportions
attributable to property, plant and equipment and goodwill decreased.
Figure 4.1. Total Assets, liabilities, and equities comparison
Total Assets, liabilities, and equities comparison
250,000
NZ$,000
200,000
150,000
100,000
50,000
0
2012
2013
2014
2015
2016
Total Assets
49,672
72,404
76,643
88,867
210,152
Total Liabilities
12,324
12,474
17,999
30,238
77,074
Total Equities
37,348
59,930
58,644
58,629
133,078
Total Assets
Total Liabilities
Total Equities
Total Liabilities increased throughout theperiod, from $12,324,000 in FY 2012, to $133,078,000 in
FY2016, largely due to increasingcurrent liabilities from accruals and trade creditors. In FY2012, Accruals
made up 6% of Total Assets, and by FY 2016, this had more than doubled to 13%. Similarly, current
liabilities from trade creditors doubled in this period.As a result, current accounts payable increased
from $7,225,000 in FY 2012 to $66,168,000 in FY 2016 (Figures 4.2-5).
8
This has led to the total current liabilities making up 37% of Total Assets in FY2016. This is high, yet still
comparable to dairy industry standards.Bega had current liabilities of 36% in FY2015, however, in
contrast to A2, Bega reduced its liabilities to 32% in FY2016 (FY2016 Financial Report Bega Cheese
Group).
Figure 4.2. Selected Factors as % of Total Assets (I)
Selected Factors as % of Total Assets
40
% of Total Assets
35
30
25
20
15
10
5
0
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Accruals
6
4
9
12
13
Trade creditors
8
10
11
17
16
TOTAL LIABILITIES
25
17
23
34
37
Trade creditors
Accruals
9
TOTAL LIABILITIES
Figure 4.3. Selected Factors as % of Total Assets (II)
Selected Factors as % of Total Assets
% of Total Assets
100
90
80
70
60
50
40
30
20
10
0
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total current Assets
50
66
67
68
87
Total non-current assets
50
34
33
32
13
TOTAL LIABILITIES
25
17
23
34
37
Total current liabilities
25
17
23
33
37
Total current Assets
Total non-current assets
TOTAL LIABILITIES
Total current liabilities
Figure 4.4. Selected Factors as % of Total Assets (III)
Selected Factors as % of Total Assets
30
% of Total Assets
25
20
15
10
5
0
Prepayments
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
1
3
3
11
7
Inventories
1
1
7
5
25
Property, plant and equipment
22
14
12
10
4
Goodwill
20
13
14
12
5
Prepayments
Inventories
Property, plant and equipment
10
Goodwill
As a result of the company’s increasing liabilities, equity has not increased evenly in proportion to asset
growth throughout the period. In fact, between FY 2013 and FY 2014, equity decreased by $1.27 million
(2.15%) and between FY 2014 and 2015, by $15,000 (0.03%). A retained deficit and an increase in the
foreign currency translation reserve was a factor in these results. Between FY2015 and FY2016, this
negative trend changed direction, with large profits and increase in asset value driving up equity from
$37,348,000 in FY2012, to $133,078,000 in FY2016. A total increase over 5 years of 95.7 million (256%).
Figure 4.5. Change in Total Assets, Liabilities, and Equities (%)
Change in total assets, liabilities, and equities (%)
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
-20%
FY 2012-2013
FY 2013-2014
FY 2014-2015
FY 2015-2016
Change in total assets
45.76%
5.85%
15.95%
136.48%
Change in total liabilities
1.22%
44.29%
68.00%
154.89%
Change in total equities
60.46%
-2.15%
-0.03%
126.98%
11
5. Cash Flow Statement
The statement of cash flows is a summary of the cash receipts and payments over a period and shows
the company’s cash movements for the period in question. We need to examine cash flows in addition
to accrual accounting, as it makes visible potential problems that may lead to cash shortages in the
business. Sometimes companies run into cash flow problems through ‘over-trading’ when they grow
too quickly without managing cash flows well (Atrill et al, 2015). A2 has recently expanded quickly,
increasing its assets and also its debt and liabilities through increases to inventory and prepayments. It
also experienced negative profits in FY 2014 and FY 2015. We are therefore particularly interested in
examining its cash flows for any signs of problems (Appendix 8.7-8.8, Figure 5.1, Table 5.1)
Cash flow from operating activities: Cashflow from operating activities is the net flow from operations
and is equal to the sum of cash receipts from accounts receivable less the sums paid to buy inventory,
pay rent, wages, etc.A2C shows large variability in its operating cashflow: in FY2015 it had a negative
operational outflow of -$8,066,000, before a positive $21,474,000 inflow in FY2016 when receipts from
customers increased by 136%. In spite of the good results in FY 2016, the ability of the company to
consistency generate strong cashflow is concerning.
Cash flow from investing activities: Investment outflows have decreased steadily since 2012 and were $2,054,000 in FY 2016.
Cash flow from financing activities: This ratio is concerned with long-term finance from debt and equity
sources, and excludes short term loans (Atrill et al, 2015).In FY2012/13 there was an increase of 49%,
reaching $16,022,000, in 2013-2015 it declined, and was only $39,000 in 2015.In 2015/2016, however,
there was a significant increase due to the issuing of equity shares. This raised cashflow from financing
activities bya massive 113350%, from $39,000to a total of $44,245,000 – greater than cashflows from
operating activity.
Net cash inflow/outflow: As a result of the company’s cashflow activities, net cash inflow/outflow
increased in FY2013 from negative $869,000 to positive $13,839,000.This positive trend didn’t continue
however: in FY2014 and FY2015,net cashflows were again negative. The company held more cash in
2016, with a largenet increase to $63,665,000. Whilst the most recent financial data from the company
is positive, previous negative net cashflow results are a cause for concern. It is also concerning that
12
cashflows from financing activities outstrip cashflows from operating activities throughout the 5 year
period.
Figure 5.1. Analysis of Cash Flows
Analysis of Cash Flows FY 2012 – 2016
80,000
70,000
60,000
Cash Flow from Operating Activity
50,000
NZ$,000
Cash Flow from Investing Activity
40,000
Cash Flow from Financing Activity
30,000
20,000
Cash & short term deposits at the
beginning of the year
10,000
Cash & short term deposits at the
end of the year
0
Net increase/(decrease) in cash &
short term deposits
-10,000
-20,000
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
$NZ,000
$NZ,000
$NZ,000
$NZ,000
$NZ,000
$NZ,000
FY 2012
88
-12,432
11,475
7,467
6,568
-869
Table 5.1. Cashflow Summary
Cash Flow from Operating Activity
Cash Flow from Investing Activity
Cash Flow from Financing Activity
Cash & short term deposits at the beginning of the year
Cash & short term deposits at the end of the year
Net increase/(decrease) in cash & short term deposits
13
FY 2013
3,647
-5,830
16,022
6,568
20,187
13,839
FY 2014
435
-7,487
2,011
20,187
15,979
-5,041
FY 2015
-8,066
-3,627
39
15,979
6,092
-11,654
FY 2016
21,474
-2,054
44,245
6,092
69,361
63,665
6. Financial ratio analysis
6.1. Profitability Ratios
Return on assets (ROA):ROAgives an idea as to how efficient management is at using its assets to
generate earnings. It is calculated by dividing a company’s EBIT by its total assets. Sometimes this ratio is
referred to as “return on investment”
Profitability ratios (Table 6.1, Figure 6.1,Appendix 8.9-11) showsthe ROAforA2C and Bega between
FY2012 and FY2016.The ROA for A2C dropped from 10% and 8% in FY2013, to a mere 1% in FY2014 and
2% in FY2015.During this period of time, A2C had focused its efforts on the expansion of its product
range and on gaining a footing in new markets rather than on maximising profits from current assets.
The effects of this investment are now starting to become apparent, as we can see by the increase to
35% ROA in FY2016.In contrast, Bega’s ROA did not drop below3% throughout the period, and in its best
year, FY2014, achieved 17%.
Figure 6.1ROA A2C
160,000
40.0
140,000
35.0
120,000
30.0
100,000
25.0
80,000
20.0
60,000
15.0
40,000
10.0
20,000
5.0
0
%
NZ$,000
Return on Assets (ROA) The A2 Milk Company
0.0
FY 2012
FY 2013
FY 2014
Average total assets
FY 2015
EBIT
FY 2016
ROA (%)
Analysis ofthe Return on Equity (ROE) (Figures 6.2-3) finds that ROE dropped as low as 0% in 2014 and 4% in FY2015. In comparison, Bega’s ROE did not drop lower than 4% (Appendix 8.) A2C had the highest
ROE in FY2016 at 32%, compared to Bega’s 23% in FY2014.
14
Figure 6.2 ROE A2C
Return on Equity (ROE) A2 Milk Company
120,000
35
100,000
30
25
20
60,000
15
40,000
10
%
NZ$,000
80,000
5
20,000
0
0
FY 2011
-20,000
FY 2012
FY 2013
PROFIT/(LOSS) AFTER TAX FOR THE YEAR
FY 2014
-5
FY 2015
Average Equity
-10
ROE
Figure 6.3 ROE Bega
Return on Equity (ROE) Bega Cheese Group
350,000
45
40
300,000
35
30
200,000
25
150,000
20
15
100,000
10
50,000
5
0
0
FY 2011
FY 2012
FY 2013
PROFIT/(LOSS) AFTER TAX FOR THE YEAR
15
FY 2014
Average Equity
FY 2015
ROE
%
AUD$,000
250,000
6.2. Efficiency Ratios
Efficiency ratios indicate how effectively a company utilisesits assets, and how a company manages its
liabilities.Efficiency ratios are used to measure a company’s short-term or current performance. Figures
are summarised in the table below (Table 6.2.1, Appendix 8.12)
Table 6.2.1. Efficiency Ratio Summary
The A2 Milk Company
2012
2013
2014
2015
2016
Asset turnover
1.51
1.54
1.48
1.87
2.35
Inventory (av.days)
4.84
4.27
16.30
18.96
51.99
Inventory (turns)
75.37
85.51
22.39
19.25
7.02
Debtors(av.days)
84.38
80.44
85.35
79.34
44.19
Debtors(turns)
Creditors(av.days)
Creditors(av.turns)
4.33
84.81
6.26
4.54
58.35
6.26
4.28
77.77
4.69
4.60
84.62
4.31
8.26
85.99
4.24
Bega
Asset turnover
Inventory (av.days)
Inventory (turns)
Debtors(av.days)
Debtors(turns)
Creditors(av.days)
Creditors(av.turns)
2012
1.91
60.11
6.07
35.27
10.35
55.92
6.53
2013
1.88
67.99
5.37
36.15
10.10
57.44
6.35
2014
1.94
66.62
5.48
35.86
10.18
58.88
6.20
2015
2.02
69.77
5.23
37.10
9.84
55.81
6.54
2016
2.09
67.79
5.38
40.16
9.09
51.66
7.07
Asset turnover(Table 6.2.1, Figure 6.2.1) is useful in evaluating how well a company utilises its assets to
produce its revenues. The higher the ratio, the more sales a company produces based on its assets.
Therefore, a higher ratio tends to be preferred, yet it all depends on industries whether it is a capitalintensive business or low net assets’ business with high revenues.Although A2C’s figures are lower than
Bega until FY2016, the figure grew by 26% and exceeded Bega’s figure in FY2016 to reach 2.35. It means
A2C became more efficient in terms of utilising assets to create its revenues.
16
Figure 6.2.1. Asset Turnover
Asset turnover
400000
2.50
350000
2.00
250000
1.50
200000
%
NZ$’000
300000
1.00
150000
100000
0.50
50000
0
0.00
2012
2013
Average Assets
2014
2015
Revenue
2016
Asset tunover
The Days of inventory (DSI) ratio(Table 6.2.1, Figure 6.2.2) indicates how long it takes a company to sell
off inventories and suggests whether a company is selling products too quickly, or gaining inventory too
fast or too slowly. Although A2C’s DSIs are lower than Bega’s in the 5FYs, it has dramatically increased in
that time. This shows us thatA2Cis retaining larger inventories each year. As A2C is in the dairy industry,
it is understandable to invest in inventories for expansion of its production, in fact, Bega’s figures are
more than 60days on average, and A2C is becoming more like Bega.
Figure 6.2.2. Days of Inventory (DSI) Ratio
250000
60.00
200000
50.00
40.00
150000
30.00
100000
20.00
50000
10.00
0
0.00
2012
2013
Average Inventory
2014
Cost of sales
17
2015
2016
Days of Inventory
%
NZ$’000
Days of Inventory
The Inventory turnover ratio illustrates how many times a company’s inventory is sold and replaced over
a period of time. A decrease in the Inventory turnover during the period (Table 6.2.1, Figure 6.2.3)from
75.4% in FY2012 to 7.0% in FY2016 indicates A2Cis retaining its inventories for much longer and is
keeping larger inventories. In comparison, Bega’s rate was between 5.2% and 6.2% for the entire period.
In other words, A2C’s inventory turnover ratio, like its Days of Inventory ratio, is also becoming more like
Bega’s.Although A2C’s inventory efficiency has declined, this is necessary in order for the company to
increase its volume of inventories to expand its business.
Figure 6.2.3. Inventory Turnover Ratio
Inventory turnover
250000
90.00
80.00
70.00
60.00
150000
50.00
40.00
100000
%
NZ$’000
200000
30.00
20.00
50000
10.00
0
0.00
2012
2013
Average Inventory
2014
2015
Cost of sales
2016
Inventory (turns)
The Debtor Days ratio (Table 6.2.1, Figure 6.2.4) illustrates how long it takes for trade debtors to settle
its bills. It is vital for cash flow management to collect debts efficiently and timely. If a figure is higher
than competitors, it means there may be problems with debt collection or the financial position of major
customers. A2C’s Debtor Days ratio decreased from 80-85% in FY2012-1015 to a drastically reduced
44.2% in 2016. By comparison, Bega maintained a ratio of 35.2-40.1% throughout the period. Compared
with Bega, A2C’s figures indicate that the companyhas not been sufficiently efficient in collecting debts,
however, it’s figures are now approaching the same range as Bega’s.
Figure 6.2.4 Debtor Days Ratio
18
400000
90.00
350000
80.00
300000
70.00
60.00
250000
50.00
200000
40.00
150000
%
NX$’000
Days of Debtor
30.00
100000
20.00
50000
10.00
0
0.00
2012
2013
Average Debtors
2014
2015
Revenue
2016
Debtors(av.days)
Debtor turnover ratio(Table 6.2.1, Figure 6.2.5) is known as receivable turnover ratio. As account
receivable is considered as a part of current assets, it has a direct influence on the liquidity of a
company. Generally, a higher Debtors turnover ratio is better as it means speedy and effective
collection. Lower turnover indicates inefficient and slow collection. A2’s figures illustratethat although it
is not yet as efficient as Bega, it became almost twice as efficient in collecting debts between FY2012
and FY2016, and is now returning similar results to Bega.
6.2.5 Debtor Turnover Ratio
400000
9.00
350000
8.00
300000
7.00
6.00
250000
5.00
200000
4.00
150000
3.00
100000
2.00
50000
1.00
0
0.00
2012
2013
Average Debtors
2014
Revenue
19
2015
2016
Debtors(turns)
%
NZ$’000
Debtor turnover
The Creditor Days ratio(Table 6.2.1, Figure 6.2.6) is similar to the Debtor Day ratio. It estimates the
average time it takes a company to settle its debts with trade suppliers. A2’s results were between 58.486.0% throughout the period. In contrast, Bega’s were a steady 51.7-58.9% throughout the period.
Bega’s figures suggest A2C’s liquidity is not sufficiently utilised to pay off its debts.In fact, there are still
more than 34 days of gaps between A2C’s and Bega’s figures in FY2016.
The Creditor turnover results (Table 6.2.1) also show a reduced ability for A2C to settle its debts. A2C’s
figures are lower than Bega’s and, in fact, declined from FY2012-2016 from 6.3% to 4.2% (or by onethird).This indicates that A2C takes longer to pay its suppliers and this trend is currently worsening.
Although the sales of A2C increased in FY2016, this ratio should be taken into account to assess the
company, especially, the liquidity of A2C.
Figure 6.2.6. Creditor Days Ratio
250000
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
NZ$’000
200000
150000
100000
50000
0
1
2
Average Creditor
3
Cost of sales
20
4
5
Creditor days
%
Creditor Days
6.3. Liquidity Ratios
It is vital for a business to have sufficient liquid resources to meet its obligations. Liquidity ratio analysis
help us investigate the question of liquidity (Appendix 8.13, Figure 6.3.1).
Figure 6.3.1. Liquidity Ratio Summary Tables for A2C and Bega
Liquidity Ratios A2 Milk Company
FY 2012 FY 2013 FY 2014
Current Ratio
2.0
3.8
2.9
Quick Ratio
2.0
3.8
2.5
Cash Ratio
0.53
1.63
0.89
Cashflow to Sales
0.00
0.04
0.00
Cashflow to total debt
0.01
0.29
0.02
FY 2015
2.1
1.9
0.21
-0.05
-0.27
Liquidity Ratios Bega Cheese Group
FY 2012 FY 2013 FY 2014 FY 2015
Current Ratio
1.6
1.7
1.5
1.8
Quick Ratio
0.6
0.7
0.6
0.7
Cash Ratio
0.04
0.13
0.13
0.06
Cashflow to Sales
-0.01
0.06
0.04
-0.02
Cashflow to total debt
-0.04
0.21
0.17
-0.07
FY 2016
2.4
1.7
0.90
0.06
0.28
FY 2016
1.7
0.7
0.05
0.05
0.23
Current ratio, Quick Ratio, and Cash Ratio.The Current Ratio (Current Assets/Current Liabilities)
compares the business’s liquid assets with the short-term (current) liabilities. A ratio of 2:1 for the
Current Ratio is considered good, however the ideal ratio depends on individual business needs (Atrill et
al, 2015). The higher the ratio, the more liquid the business is considered to be. The Current Ratio
shows A2C to be performing well with a ratio 2.0-3.8:1, more liquid than Bega with 1.5-1.8:1.
The Quick Ratioexcludes inventory and prepayments, and a minimum is considered to be around 1:1.
A2Chas maintained a minimum of 1.7:1 for the Quick Ratio and has greater liquidity than Bega with a
ratio of 0.6-0.7:1.
Cashflow to Sales, Cashflow to Total Debt Ratios: The Cashflow to Sales ratio indicates the ability of the
firm to convert sales to cash flow. A2C’s results for Cashflow to Sales Ratio are extremely low, and even
negative in FY2015. On the whole, Bega was a better performer in this area.
21
The Cashflow to Debt Ratio (Cashflow from Operating Activities / Total Debt) has been used as a
predictor of corporate bankruptcy and is an indicator of the firm’s ability to repay the debt from its
operations after meeting all costs. A ratio of 0.28 means the firm will take approximately3.6 years to
repay the principal amount from internally generated funds if it used its entire cashflow paying debt.
The fact that the Cashflow to Sales and Cashflow to Debt Ratio were negative in FY 2015 is concerning
and reflects the negative profits of that year. This would be a concern to investors who may be
justifiably worried about its liquidity, and it is good to see a strong turn-around in FY 2016. In FY2016,
the ability of A2C to pay debt was actually better than Bega’s.
6.3.1.
Capital structure ratios
The Capital Structure Solvency/Gearing (leverage) ratios (Appendix 8.14-16, Table 6.3.1) show how the
business is financing its assets and help us to assess the level of business risk and the business’s longterm solvency. If debt becomes too high, the business may be at risk of becoming insolvent.
A certain level of financial gearing can increase the returns to owners, so long as the returns generated
from borrowed funds exceed the costs of paying interest.Gearing increases financial risk as a company
must commit to pay interest charges and capital repayments that increase its financial burden and that
may increase its risk of insolvency (Atrill et al, 2015).
Table 6.3.1. Summary of Capital Structure Ratios
Ratio
Debt/Equity ratio
Debt ratio
Equity ratio
Interest coverage
Gearing ratio
Currency FY2012 2013
2014
2015
2016
NZ$,000
33%
21%
32%
52%
58%
NZ$,000
25%
18%
24%
34%
37%
NZ$,000
75%
82%
76%
66%
63%
20
43
9
10
255
NZ$,000
33%
20.81% 30.69% 51.58% 57.92%
The Debt to Equity, Debt Ratio, and EquityRatios show us the degree of financing provided by owners
of the company versus outsiders. The extent to which a company is financed by outsiders (i.e. it’s level
of gearing) is an important factor in assessing risk.
22
Analysis of the A2 Milk Company shows a decline in the Equity Ratio over the period studied (reducing
from 75% to 63%), and corresponding increase in the Debt Ratio and Debt/Equity Ratio. In FY 2016, this
culminated in 37% of assets being funded by debt, and a Debt/Equity Ratio of 58%.
On the other hand, The Interest Cover Ratio has been healthy throughout the 5 year period, with EBIT
saying above 9 times the costs of financing. In 2016, the Interest cover ratio was 255, which is very high
and shows although debt to equity ratio has increased, we can be reasonably confident in A2’s ability to
pay its finance costs.
Gearing ratio: Gearing ratio measures a company’s financial leverage. A2’s gearing ratios in FY2012-2016
are 33%, 21.81%, 30.69%, 51.58% and 57.92% respectively which is high, and indicates higher financial
risk. However, there were no borrowings after FY2013 and the main portion of liabilities are trade
creditors and accruals for its operations. Although the total liabilities have increased, both current and
non-current liabilities are accounts payable. Moreover, non-current liabilities are stable. The total
increase in the 5 years is 64.75 million (525%).
23
7. Conclusion
A2C’s financial reports show a significant change in the company between FY2012 and FY2016, both
structurally and in its performance, with signs that the company is beginning to mature and become
more established as a dairy products producer. Sales revenue has grown substantially over the 5 year
period studied. In its best performance year, FY2016, sales increased by 128%, and this combined with a
slower growth in the cost of sales helped to result in a 178% increase in the gross profit margin from
$54,416,000 in FY2015, to a staggering $151,006,000 in FY2016. Asset value has also increased
substantially across the 5 year period studied with a sharp spike in asset value from $88,867,000 in
FY2015 to $210,152,000 in FY2016 (a 136% increase). Unfortunately, the company’s liabilities have also
grown, from $12,324,000 in FY2012 to $77,074,000 in FY2016, and this has affected the bottom-line
with negative profits reported in FY2014 and FY2015 and an equity value that has not increased evenly
in proportion to asset growth. The company’s cash flow statements also showed negative net cashflows
in FY2014 and FY2015, fuelling concerns about the company’s solvency and liquidity.
Ratio analysis allowed us to investigate the company more deeply and to draw comparisons with its
older and more established dairy industry competitor, Bega. In terms of efficiency, there are signs that
A2C has increased its efficiency, and is maturing as a business. The Asset Turnover ratio has steadily
improved, on the other hand, inventory turnover and DSI ratios have reduced to become more similar to
its larger competitor, Bega. This is in line with expectations for the dairy industry. When it comes to
Capital structure, we notice an increase in A2C’s external financing with Debt/Equity Ratio and Debt
Ratio trends increasing over the period. This is concerning, however analysis of the interest coverage
does show that A2C is unlikely to have any immediate problems paying its additional financing costs.
In regards to profitability, ROA and ROE showed poor results in FY2014 and FY2015 followed by a
marked improvement in FY2016. In terms of liquidity and solvency, although the company passed the
Current Ratio and Quick Ratio analysis for all of the years studied, the Cashflow to Sales and Cashflow to
Total Debt ratios showed negative results in FY2015. This was during a time of negative profits for the
company. Although FY2016 results are a large improvement and mark a change in trend, results
indicate that there may be substantial financial risk involved due to the company’s growing
liabilities/short-term liquidity.
24
Although there are some concerns about the firm’s short-term liquidity, and volatile profit history, its
recent financial performance is impressive. Its behaviour is also understandable in the context of its
strategy to focus on market and product expansion ahead of immediate profits. By analysing the
financial statements, we can conclude that A2C has seen impressive results despite the drawback in
FY2014 and FY2015. The most recent results from FY2016 are also reassuring that it is now beginning to
achieve its aims and provide a stronger return to investors. For the investor, A2C is likely to pose a
greater financial risk than its larger competitor, Bega, however company’s impressive recent sales
growth combined a with a strong gross profit margin and exciting prospects for future growth offer
potential forthe company provide good returns in the not-too-distant future.
25
8. Appendix
8.1.
Income Statement
Consolidated statement of comprehensive income
Sales
NZ$,000
Cost of sales
NZ$,000
Gross margin
NZ$,000
Interest Income
NZ$,000
Other Revenue
NZ$,000
Administrative expenses
NZ$,000
Finance costs
NZ$,000
Marketing expenses
NZ$,000
Occupancy expenses
NZ$,000
Other expenses
NZ$,000
Profit before tax and share of loss from an asociate
NZ$,000
Share of net loss of an associate accounted for using the equity method NZ$,000
Profit before tax
NZ$,000
Income tax expense
NZ$,000
PROFIT/(LOSS) AFTER TAX FOR THE YEAR
NZ$,000
Other comprehensive (loss)/income
Items that may be reclassified to profit or loss:
Foreign currency translation (loss)/gain
NZ$,000
TOTAL COMPREHENSIVE GAIN/(LOSS)
NZ$,000
Earnings/(Loss) per share
Basic (cents per share)
NZ$,000
Diluted (cents per share)
NZ$,000
8.2.
Income Statement – Horizontal Analysis
26
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
62,458
-41,531
20,927
177
1,589
-5,522
-204
-3,185
-175
-8,746
4,861
-743
4,118
287
4,405
94,304
-60,671
33,633
288
370
-8,024
-120
-4,529
-170
-12,565
8,883
-3,719
5,164
-1,044
4,120
110,621
-70,802
39,819
455
224
-11,753
-81
-9,706
-456
-16,421
2,081
-1,361
720
-710
10
154,803
-100,387
54,416
15
306
-15,369
-130
-10,253
-495
-27,344
1,281
1,281
-3,372
-2,091
352,502
-201,496
151,006
502
274
-27,033
-205
-32,997
-768
-38,480
52,299
52,299
-21,863
30,436
-182
4,223
-2,316
1,804
-4,497
-4,487
954
-1,137
-3,341
27,095
0.8
0.74
0.7
0.66
–
-0.33
-0.32
4.43
4.31
Income Statement HORIZONTAL ANALYSIS
2012
2013
2014
2015
2012
2013
2014
2013
2014
2015
2016
2013
2014
2015
Change
Consolidated statement of comprehensive income
Sales
Cost of sales
Gross margin
Interest Income
Other Revenue
Administrative expenses
Finance costs
Marketing expenses
Occupancy expenses
Other expenses
Profit before tax and share of loss from an asociate
Share of net loss of an associate accounted for using the equity method
Profit before tax
Income tax expense
PROFIT/(LOSS) AFTER TAX FOR THE YEAR
Other comprehensive (loss)/income
Items that may be reclassified to profit or loss:
Foreign currency translation (loss)/gain
TOTAL COMPREHENSIVE GAIN/(LOSS)
Earnings/(Loss) per share
Basic (cents per share)
Diluted (cents per share)
8.3.
Change
Change
Change
Change
NZ$,000
NZ$,000 NZ$,000 NZ$,000 %
130,079
31,846
16,317
44,182
197,699
-19,140
-10,131
-29,585 -101,109
12,706
6,186
14,597
96,590
111
167
-440
487
-1,219
-146
82
-32
-2,502
-3,729
-3,616
-11,664
84
39
-49
-75
-1,344
-5,177
-547
-22,744
5
-286
-39
-273
-3,819
-3,856
-10,923
-11,136
4,022
-6,802
-800
51,018
-2,976
2,358 N/A
N/A
1,046
-4,444
561
51,018
-1,331
334
-2,662
-18,491
-285
-4,110
-2,101
32,527
-2,134
-2,419
-2,181
-6,291
-0.10 N/A
-0.08 N/A
5,451
3,350
N/A
N/A
-4,295
28,232
2016
Change
Change
Change
%
%
%
622
51
46
61
63
77
45
41
42
3
44
83
401
25
464
6
1,173
57
4.76
4.63
2015
13 N/A
11 N/A
17
40
128
17
42
101
18
37
178
58
97
3,247
39
37
10
46
31
76
33
60
58
114
6
222
168
9
55
31
67
41
77
38
3,983
63 N/A
N/A
86
78
3,983
32
375
548
100
21,010
1,556
94
349
121
75
N/A
N/A
450
2,483
1,442
1,447
Income Statement – Vertical Analysis
Income Statement – VERTICAL ANALYSIS
Consolidated statement of comprehensive income
Sales
Cost of sales
Gross margin
Interest Income
Other Revenue
Administrative expenses
Finance costs
Marketing expenses
Occupancy expenses
Other expenses
Profit before tax and share of loss from an asociate
Share of net loss of an associate accounted for using the equity method
Profit before tax
Income tax expense
PROFIT/(LOSS) AFTER TAX FOR THE YEAR
Other comprehensive (loss)/income
Items that may be reclassified to profit or loss:
Foreign currency translation (loss)/gain
TOTAL COMPREHENSIVE GAIN/(LOSS)
Earnings/(Loss) per share
Basic (cents per share)
Diluted (cents per share)
27
FY 2012
%
FY 2013
FY 2014
FY 2015
FY 2016
%
%
%
%
100
100
100
100
100
66
64
64
65
57
34
36
36
35
43
0
0
0
0
0
3
0
0
0
0
9
9
11
10
8
0
0
0
0
0
5
5
9
7
9
0
0
0
0
0
14
13
15
18
11
8
9
2
1
15
1
4
1 #VALUE! #VALUE!
7
5
1
1
15
0
1
1
2
6
7
4
0
1
9
0
7
2
2
4
4
1
1
1
8
0
0
0 #VALUE!
0 #VALUE!
0
0
0
0
Freight
Salary and Wage Costs(under administrative expenses)
Other operating expenses
Consultancy, accounting and secretarial fees
NZ$,000
NZ$,000
NZ$,000
NZ$,000
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
4819
7492
7942
9283
15521
4395
6504
7564
10177
16045
1842
2078
3521
3221
3508
861
1051
2359
4693
6903
28
FY 2012
%
Income Statement – VERTICAL ANALYSIS
FY 2013
FY 2014
FY 2015
FY 2016
%
%
%
%
8
8
7
6
4
7
7
7
7
5
3
2
3
2
1
1
1
2
3
2
8.4.
Statement of Financial position
FY 2012
FY 2013
FY 2014
FY 2015
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
6,568
17,189
481
677
24,915
20,187
24,375
2,399
742
47,703
15,979
27,358
1,992
5,583
225
51,137
6,092
39,944
9,651
4,846
60,533
69,361
45,407
15,099
52,556
182,423
Non-current assets
Property, plant and equipment
Prepayments
Non-current receivables in associates and joint ventures
Goodwill
Other intangible assets
Deferred tax assets
Total non-current assets
TOTAL ASSETS
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
10,991
6
1,582
10,055
1,037
1,086
24,757
49,672
10,290
377
9,370
3,036
1,628
24,701
72,404
9,163
10,587
4,194
1,562
25,506
76,643
9,301
10,993
6,230
1,810
28,334
88,867
8,097
10,381
5,933
3,318
27,729
210,152
LIABILITIES
Current liabilities
Short term borrowings
Accounts payable
Current tax liabilities
Lease liability
Total current liabilities
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
4,414
7,225
638
11
12,288
12,093
301
12,394
17,875
17,875
28,357
595
28,952
66,168
10,640
76,808
Non-current liabilities
Lease liability
Accounts payable
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
36
36
12,324
80
80
12,474
124
124
17,999
189
1,097
1,286
30,238
228
38
266
77,074
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
63,754
-28,104
148
1,550
37,348
49,672
84,253
-23,984
-2,168
1,829
59,930
72,404
86,264
-23,974
-6,665
3,019
58,644
76,643
86,303
-26,065
-5,711
4,102
58,629
88,867
130,548
4,371
-9,052
7,211
133,078
210,152
NZ$,000
NZ$,000
FY 2012 FY 2013 FY 2014 FY 2015
FY 2016
3916
7150
8391
15178
33521
2778
2859
7160
10447
27421
Consolidated statement of financial position
ASSETS
Current assets
Cash & short term deposits
Trade and other receivables
Prepayments
Inventories
Current tax assets
Total current Assets
EQUITY
Equity attributable to equity holders of the parent
Share capital
Retained earnings/(deficit)
Foreign currency translation reserve
Employee equity settled payments reserve
From Accounts Payable
Trade creditors
Accruals
29
FY 2016
8.5.
Statement of Financial position – Horizontal Analysis
2012
HORIZONTAL ANALYSIS
2014
2015
2012
2013
2013
2014
2015
Consolidated statement of financial position
ASSETS
Current assets
Cash & short term deposits
Trade and other receivables
Prepayments
Inventories
Current tax assets
Total current Assets
2013
2014
2015
2016
2013
2014
2015
2016
Change Change Change Change Change Change Change Change
NZ$,000 NZ$,000 NZ$,000 NZ$,000 %
%
%
%
3,039
13,619
-4,208
-9,887
63,269
207
21
62
1,039
7,186
2,983
12,586
5,463
42
12
46
14
1,918
-407
7,659
5,448
399
17
384
56
65
4,841
-737
47,710
10
652
13
985
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
22,788
3,434
9,396 121,890
91
7
18
201
Non-current assets
Property, plant and equipment
Prepayments
Non-current receivables in associates and joint ventures
Goodwill
Other intangible assets
Deferred tax assets
Total non-current assets
TOTAL ASSETS
-701
-1,127
138
-1,204
6
N/A
N/A
N/A
N/A
N/A
N/A
-1,205 N/A
N/A
N/A
76 N/A
-685
1,217 N/A
N/A
7
1,999
1,158
2,036
-297
193
542
-66
248
1,508
50
-56
805
2,828
-605
0
22,732
4,239
12,224 121,285
46
LIABILITIES
Current liabilities
Short term borrowings
Accounts payable
Current tax liabilities
Lease liability
Total current liabilities
Non-current liabilities
Lease liability
Accounts payable
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Equity attributable to equity holders of the parent
Share capital
Retained earnings/(deficit)
Foreign currency translation reserve
Employee equity settled payments reserve
From Accounts Payable
Trade creditors
Accruals
N/A
N/A
N/A
N/A
N/A
4,868
5,782
10,482
37,811
-337 N/A
N/A
10,045
N/A
N/A
N/A
N/A
N/A
106
5,481
11,077
47,856
N/A
N/A
N/A
N/A
N/A
N/A
67
53 N/A
N/A
1
44
150
44
5,525
1,162
12,239
N/A
N/A
39 N/A
-1,059 N/A
N/A
-1,020
122
46,836
1
20,499
4,120
-2,316
279
22,582
22,732
2,011
10
-4,497
1,190
-1,286
4,239
39
-2,091
954
1,083
-15
12,224
44,245
30,436
-3,341
3,109
74,449
121,285
3,234
81
1,241
4,301
6,787
3,287
18,343
16,974
44
N/A
30
11
N/A
13
N/A
N/A
N/A
49
16
11
16
N/A
48
5
83
2
136
N/A
59
N/A
N/A
44
N/A
65
2
N/A
N/A
13 N/A
38
4
3
6
133
1,688
N/A
62
N/A
55
165
N/A
52
55
44
937
68
21
97
79
155
32
15
1,565
18
60
46
2
0
207
65
2
6
0
9
14
36
0
16
51
117
59
76
127
136
83
3
17
150
81
46
121
162
N/A
8.6.
Statement of Financial position – Vertical Analysis
Consolidated statement of financial position
ASSETS
Current assets
Cash & short term deposits
Trade and other receivables
Prepayments
Inventories
Current tax assets
Total current Assets
VERTICAL ANALYSIS – as percentage of Total Assets
FY 2013
FY 2014
FY 2015
FY 2016
%
%
%
%
13
28
21
7
33
35
34
36
45
22
1
3
3
11
7
1
1
7
5
25
N/A
N/A
0
N/A
N/A
50
66
67
68
87
0
0
0
0
0
0
22
14
12
10
4
0
N/A
N/A
N/A
N/A
3
1
N/A
N/A
N/A
20
13
14
12
5
2
4
5
7
3
2
2
2
2
2
50
34
33
32
13
100
100
100
100
100
FY 2012
%
Non-current assets
Property, plant and equipment
Prepayments
Non-current receivables in associates and joint ventures
Goodwill
Other intangible assets
Deferred tax assets
Total non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Short term borrowings
Accounts payable
Current tax liabilities
Lease liability
Total current liabilities
Non-current liabilities
Lease liability
Accounts payable
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
N/A
0
N/A
N/A
23
N/A
17
0
0
N/A
32
1
N/A
N/A
N/A
33
0
0
N/A
N/A
0
25
0
17
0
23
0
1
1
34
128
57
0
3
75
100
116
33
3
3
83
100
113
31
9
4
77
100
97
29
6
5
66
100
N/A
%
8
6
%
10
4
37
0
0
N/A
0
N/A
31
5
N/A
23
0
0
0
%
31
N/A
17
0
N/A
N/A
EQUITY
Equity attributable to equity holders of the parent
Share capital
Retained earnings/(deficit)
Foreign currency translation reserve
Employee equity settled payments reserve
From Accounts Payable
Trade creditors
Accruals
9
15
1
0
25
%
11
9
0
0
0
37
62
2
4
3
63
100
%
17
12
16
13
8.7.
Cash Flow Statement
Consolidated Cash Flow Statement FY 2012-2016
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
(NZ$,000) (NZ$,000) (NZ$,000) (NZ$,000) (NZ$,000)
Cash Flows From Operating Activities
Receipts from customers
Interest received
Other income
Tax refunds
Payments to suppliers & employees
Interest paid
Taxes paid
Net cash inflow (outflow) from operating activities
Cash From Investing Activities
Payment for property, plant & equipment
Investment in intangible assets
Investment in A2 Milk (UK) Limited
Net cash inflow (outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of equity shares
Short term borrowings
Repayment of lease liability
Payment for capital raising costs
Net cash inflow (outflow) from financing activities
Net increase/(decrease) in cash & short term deposits
Cash & short term deposits at the beginning of the year
Effect of exchange rate changes on cash
Cash acquired with The a2 Milk Company Limited (UK)
Cash and short term deposits at the end of the year
32
56,948
177
1,580
N/A
-57,663
-199
-755
88
86,502
274
225
244
-82,932
-100
-566
3,647
107,446 144,708 341,995
403
150
502
224
306
274
756
N/A
N/A
-106,699 -150,633 -311,587
-40
-49
-37
-1,655
-2,548
-9,673
435
-8,066
21,474
-9,253
-878
-2,301
-12,432
-1,245
-2,071
-2,514
-5,830
-871
-2,042
-4,574
-7,487
-995
-2,632
N/A
-3,627
-1,172
-882
N/A
-2,054
7,739
3,793
-9
-48
11,475
-869
21,582
-4,414
-47
-1,099
16,022
13,839
2,011
N/A
N/A
N/A
2,011
-5,041
39
N/A
N/A
N/A
39
-11,654
44,245
N/A
N/A
N/A
44,245
63,665
7,467
-30
0
6,568
6,568
-220
0
20,187
20,187
-605
1,438
15,979
15,979
1,767
0
6,092
6,092
-396
0
69,361
8.8.
Cash Flow Statement – Horizontal Analysis
Consolidated Cash Flow Statement FY 2012-2016
Cash Flows From Operating Activities
Receipts from customers
Interest received
Other income
Tax refunds
Payments to suppliers & employees
Interest paid
Taxes paid
Net cash inflow (outflow) from operating activities
Cash From Investing Activities
Payment for property, plant & equipment
Investment in intangible assets
Investment in A2 Milk (UK) Limited
Net cash inflow (outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of equity shares
Short term borrowings
Repayment of lease liability
Payment for capital raising costs
Net cash inflow (outflow) from financing activities
Net increase/(decrease) in cash & short term deposits
Cash & short term deposits at the beginning of the year
Effect of exchange rate changes on cash
Cash acquired with The a2 Milk Company Limited (UK)
Cash and short term deposits at the end of the year
2012 – 2013
change
NZ$,000
HORIZONTAL ANALYSIS
2013 – 2014 2014 – 2015 2015- 2016
change
change
change
NZ$,000
NZ$,000
NZ$,000
2012 – 2013
changes %
HORIZONTAL ANALYSIS
2013 – 2014 2014 – 2015
changes % changes %
2015- 2016
changes %
29,554
97
-1,355
N/A
-25,269
99
189
3,559
20,944
129
-1
512
-23,767
60
-1,089
-3,212
37,262
-253
82
N/A
-43,934
-9
-893
-8,501
197,287
352
-32
N/A
-160,954
12
-7,125
29,540
52
55
86
N/A
44
50
25
4,044
24
47
0
210
29
60
192
88
35
63
37
N/A
41
23
54
1,954
136
235
10
N/A
107
24
280
366
8,008
-1,193
-213
6,602
374
29
-2,060
-1,657
-124
-590
N/A
3,860
-177
1,750
N/A
1,573
87
136
9
53
30
1
82
28
14
29
N/A
52
18
66
N/A
43
13,843
-8,207
-38
-1,051
4,547
14,708
-19,571
N/A
N/A
N/A
-14,011
-18,880
-1,972
N/A
N/A
N/A
-1,972
-6,613
44,206
N/A
N/A
N/A
44,206
75,319
179
216
422
2,190
40
1,693
91
N/A
N/A
N/A
87
136
98
N/A
N/A
N/A
98
131
113,349
N/A
N/A
N/A
113,349
646
-899
-190
N/A
13,619
13,619
-385
1,438
-4,208
-4,208
2,372
-1,438
-9,887
-9,887
-2,163
N/A
63,269
12
633
N/A
207
207
175
N/A
21
21
392
100
62
62
122
N/A
1,039
33
8.9.
Ratio Analysis – GP Margin
Gross Profit
Sales
GP Margin
Gross Profit
Sales
GP Margin
8.10.
Gross Profit Margin (GP Margin) The A2 Milk Company
FY 2012
FY 2013
FY 2014
FY 2015
20,927
33,633
39,819
54,416
62,458
94,304
110,621
154,803
34%
36%
36%
35%
Units
NZ$,000
NZ$,000
%
Units
NZ$,000
NZ$,000
%
FY 2012
115,366
932,911
12%
FY 2016
151,006
352,502
43%
Gross Profit Margin (GP Margin) Bega Cheese Group
FY 2013
FY 2014
FY 2015
FY 2016
135,125
118,275
121,092
153,372
1,010,086
1069392
1,112,630
1,195,967
13%
11%
11%
13%
Ratio Analysis – ROA
Return on Assets (ROA) The A2 Milk Company
Units
FY 2011
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
4,118
5,164
720
1,281
52,299
49,672
72,692
77,121
88,867
210,152
EBIT
NZ$,000
Total Assets
NZ$,000
Ave. total assets
NZ$,000
41200.5
61182
74906.5
82994
149509.5
ROA
%
10%
8%
1%
2%
35%
32,729
Return on Assets (ROA) Bega Cheese Group
Units
FY 2011
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
36,283
43,716
99,972
20,078
43,735
515,956
551,472
548,637
552,419
586,674
EBIT
NZ$,000
Total assets
NZ$,000
Ave. total assets
NZ$,000
489020.5
533714
550054.5
550528
569546.5
ROA
%
7%
8%
18%
4%
8%
462,085
34
8.11.
Ratio Analysis – ROE
Return on Equity (ROE) The A2 Milk Company
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
4,405
4,120
10
-2,091
30,436
37,348
59,930
58,644
58,629
133,078
NZ$,000
31265.5
48639
59287
58636.5
95853.5
%
14%
8%
0%
-4%
32%
Profit available
for distribution
NZ$,000
Total Equity
NZ$,000
Average Equity
ROE
FY 2011
25,183
Return on Equity (ROE) Bega Cheese Group
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
20,429
25,445
66,055
12,408
28,906
246,440
261,952
314,388
312,666
327,838
NZ$,000
225957.5
254196
288170
313527
320252
%
9%
10%
23%
4%
9%
Profit available
for distribution
NZ$,000
Total Equity
NZ$,000
Average Equity
ROE
8.12.
FY 2011
205,475
Efficiency Analysis
From Income Statement
Sales
Cost of Sales
9. A2 Milk Company
FY2011 FY2012 FY2013
NZ’000
62,458
94,304
NZ’000
41,531
60,671
FY2014
110,621
70,802
FY2015
154,803
100,387
FY2016
352,502
201,496
From Balance sheet
Total Assets
Total Inventories
Trade and other receivable
Total Account payable
NZ’000
NZ’000
NZ’000
NZ’000
Ave. Total Assets
Ave. Total Inventories
Trade and other receivable
Ave. Total Account payable
NZ’000
NZ’000
NZ’000
NZ’000
32,729
425
11,689
6,037
Ratios
Asset turnover Ratio
Inventory Days Ratio
Inventory Turnover
Days of Debtor Ratio
35
49,672
677
17,189
7,225
72,404
742
24,375
12,173
76,643
5,583
27,358
17,751
88,867
4,846
39,944
28,546
210,152
52,556
45,407
66,396
41,201
551
14,439
6,631
61,038
710
20,782
9,699
74,524
3,163
25,867
14,962
82,755
5,215
33,651
23,149
149,510
28,701
42,676
47,471
1.52
4.84
75.37
84.38
1.55
4.27
85.51
80.44
1.48
16.30
22.39
85.35
1.87
18.96
19.25
79.34
2.36
51.99
7.02
44.19
Debtor Turnover Ratio
Creditor Days Ratio
Creditor Turnover Ratio
4.33
84.81
6.26
4.54
58.35
6.26
4.28
77.77
4.69
4.60
84.62
4.31
8.26
85.99
4.24
Bega Cheese Group
From Income Statement
FY2012
FY2013
FY2014
FY2015
FY2016
Sales
AUD’000
FY2011
926,752
1,010,086 1,069,392
1,112,630
1,195,967
Cost of Sales
AUD’000
811,386
874,961
951,117
991,538
1,042,595
Total Assets
AUD’000 462,085 515,956
551,472
548,637
552,419
586,674
Total Inventories
AUD’000 104,595 162,669
169,027
184,167
194,889
192,398
AUD’000
95,767
104,303
106,660
119,508
AUD’000 117,764 130,869
144,940
164,152
13,908
156,044
Ave. Total Assets
AUD’000
489,021
533,714
550,055
550,528
569,547
Ave. Total Inventories
AUD’000
133,632
165,848
176,597
189,528
193,644
Trade and other receivable
AUD’000
89,554
100,035
105,482
113,084
131,591
Ave. Total Account payable
AUD’000
124,317
137,905
154,546
89,030
84,976
From Balance sheet
Trade and other receivable
Total Account payable
83,341
143,673
Ratios
Asset turnover Ratio
1.91
1.88
1.95
2.02
2.10
Inventory Days Ratio
60.11
67.99
66.62
69.77
67.79
Inventory Turnover
6.07
5.37
5.48
5.23
5.38
Days of Debtor Ratio
35.27
36.15
36.00
37.10
40.16
Debtor Turnover Ratio
10.35
10.10
10.18
9.84
9.09
Creditor Days Ratio
55.92
57.44
59.31
55.81
51.66
Creditor Turnover Ratio
6.53
6.35
6.20
6.54
7.07
8.13.
Ratio Analysis – Liquidity Ratios
36
Consolidated Statement of Cash Flows
Cash Flow From Operating Activities
A2 Milk Company
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
NZ$,000
88
3,647
435
-8,066
21,474
From Income Statement
Sales
NZ$,000
62,458
94,304
110,621
154,803
352,502
From Balance Statement
Total current Assets
Inventories
Cash and Short Term Deposits
Total Current Liabilities
Total Liabilities
NZ$,000
NZ$,000
NZ$,000
NZ$,000
NZ$,000
24,915
677
6,568
12,288
12,324
47,703
742
20,187
12,394
12,474
51,137
5,583
15,979
17,875
17,999
60,533
4,846
6,092
28,952
30,238
182,423
52,556
69,361
76,808
77,074
FY 2012
2.0
2.0
0.53
0.00
0.01
FY 2013
3.8
3.8
1.63
0.04
0.29
FY 2014
2.9
2.5
0.89
0.00
0.02
FY 2015
2.1
1.9
0.21
-0.05
-0.27
FY 2016
2.4
1.7
0.90
0.06
0.28
Ratios
Current Ratio
Quick Ratio
Cash Ratio (Cash and Short Term Deposits)
Cashflow to Sales
Cashflow to total debt
Consolidated Statement of Cash Flows
Cash Flow From Operating Activities
Bega Cheese Group
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
AUD$,000
-10,539
59,385
40,474 -17,345
58,980
From Income Statement
Revenue
AUD$,000
932,911 1,004,387 1,069,392 1,112,630 1,195,967
From Balance Statement
Total current Assets
Inventories
Cash and Cash Equivalents
Total Current Liabilities
Total Liabilities
AUD$,000
AUD$,000
AUD$,000
AUD$,000
AUD$,000
264,807 289,201 321,541 328,589 346,274
162,669 163,027 184,167 194,889 192,398
6,053
22,698
28,630
10,284
9,658
165,310 174,771 212,170 179,287 209,253
269,516 287,269 234,249 239,753 258,836
Ratios
Current Ratio
Quick Ratio
Cash Ratio (Cash and Short Term Deposits)
Cashflow to Sales
Cashflow to total debt
8.14.
FY 2012
1.6
0.6
0.037
-0.011
-0.039
Capital Structure Analysis – Debt to equity Ratio
37
FY 2013
1.7
0.7
0.130
0.059
0.207
FY 2014
1.5
0.6
0.135
0.038
0.173
FY 2015
1.8
0.7
0.057
-0.016
-0.072
FY 2016
1.7
0.7
0.046
0.049
0.228
Debt to equity Ratio The A2 Milk Company
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total Liabilities
NZ$,000
12,324
12,762
18,477
30,238
77,074
Total Equity
NZ$,000
37,348
59,930
58,644
58,629
133,078
Debt to Equity
%
33%
21%
32%
52%
58%
Debt to equity Ratio Bega Cheese Group
8.15.
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total Liabilities
NZ$,000
269,516
287,269
234,249
239,753
258,836
Total Equity
NZ$,000
246,440
261,952
314,388
312,666
327,838
Debt to Equity
%
109%
110%
75%
77%
79%
Capital Structure Analysis – Debt ratio
Debt ratio The A2 Milk Company
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total Liabilities
NZ$,000
12,324
12,762
18,477
30,238
77,074
Total Assets
NZ$,000
49,672
72,692
77,121
88,867
210,152
Debt ratio
%
25%
18%
24%
34%
37%
Debt ratio The A2 Milk Company
8.16.
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total Liabilities
NZ$,000
12,324
12,762
18,477
30,238
77,074
Total Assets
NZ$,000
49,672
72,692
77,121
88,867
210,152
Debt ratio
%
25%
18%
24%
34%
37%
Capital Structure Analysis – Equity ratio
Equity ratio The A2 Milk Company
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total Equity
NZ$,000
37,348
59,930
58,644
58,629
133,078
Total Assets
NZ$,000
49,672
72,692
77,121
88,867
210,152
Equity ratio
%
75%
82%
76%
66%
63%
38
Equity Ratio Bega Cheese Group
Units
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
Total Equity
NZ$,000
246,440
261,952
314,388
312,666
327,838
Total Assets
NZ$,000
515,956
549,221
548,637
552,419
586,674
Equity ratio
%
48%
48%
57%
57%
56%
39
9. References
A2 Corporation Limited. (2012). Annual Report. Retrieved from
https://thea2milkcompany.com/wp-content/uploads/A2_AR_2012_v08_lores.pdf
A2 Corporation Limited. (2013). Annual Report. Retrieved from
https://thea2milkcompany.com/wp-content/uploads/A2_AR_2013_v16_web.pdf
A2 Corporation Limited. (2014). Annual report. Retrieved from https://thea2milkcompany.com/wpcontent/uploads/a2-Milk-Annual-Report_2014__Screen_Spreads1.pdf
A2 Corporation Limited. (2015). Annual Report. Retrieved from
https://thea2milkcompany.com/wpcontent/uploads/A2ML00022_a2_REPORT_Spreads_vLR.pdf
A2 Corporation Limimted. (2016). Annual Report. Retrieved from https://thea2milkcompany.com/wpcontent/uploads/A2ML0029-a2-2016-AR_Spreads.pdf
A2 Corporation Limited. (2017). Half Year report. Retrieved from https://thea2milkcompany.com/wpcontent/uploads/A2ML0030_a2_2017_HalfYrRept_Editorial.pdf
Bega Cheese Limited. (2012). Annual Report. Retrieved from
http://www.begacheese.com.au/wp-content/uploads/2013/04/Annual_Report_2012.pdf
Bega Cheese Limited. (2013). Annual Report. Retrieved from
http://www.begacheese.com.au/wp-content/uploads/2013/08/Annual_Report_2013.pdf
Bega Cheese Limited. (2014). Annual Report. Retrieved from
http://www.begacheese.com.au/wp-content/uploads/2014/08/Annual-Report-June-2014-finalsigned.pdf
Bega Cheese Limited. (2015). Annual Report. Retrieved from
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BGA_2015.pdf
Bega Cheese Limited. (2016). Annual Report. Retrieved from
http://www.begacheese.com.au/wp-content/uploads/2012/10/00-Bega-Cheese-2016-AnnualReport_interactive.pdf
Geoffrey Babidge (20 November, 2012) A2 Corporation Presentation to AGM. Retrieved from
https://thea2milkcompany.com/wp-content/uploads/2012-AGM-Presentation.pdf
40
1.
New Zealand Exchange. (n.d.). The A2 Milk Company Limited ordinary share (ATM) analysis.
Retrieved from https://www.nzx.com/markets/NZSX/securities/ATM/analysis
41
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