Financial Analysis Essay Example

5Financial Analysis

BREVILLE GROUP LIMITED FINANCIAL ANALYSIS

Table of Contents

Introduction & Background Information ……………………………………………………………………….3

Ratio Computation

  1. Profitability ratio…………………………………………………………………………………………………3

  2. Asset Efficiency ratio…………………………………………………………………………………………..4

  3. Liquidity ratios……………………………………………………………………………………………………4

  4. Capital structure ratios…………………………………………………………………………………………5

  5. Market performance…………………………………………………………………………………………….6

Conclusion & Recommendation………………………………………………………………………………………6

References List……………………………………………………………………………………………………………….7

Introduction & Company Background

Breville Group is an Australian-based company, founded in 1957 and formerly known as Housewares International Limited, which is engaged in the designing and development of the world’s best kitchen appliances with the Group’s major brand being Breville but has other notable brands for different markets (Breville Group Limited, 2013). Consequently, the Group nowadays operates as an international electrical business with operations in such other international markets as New Zealand (Breville Group Limited. 2015).

The focus of this report is on examining a four-year ratio trend analysis for the company in order to determine its viability in regards to recommended public-company operations.

Ratio Analysis

  1. Profitability Ratio

Profit Margin

= Net income/sales

45,982/427,940

= 0.107*100%, 10.7%

49,732/486,547

=0.102*100%

48,765/541,615

=0.090*100%

46,680/527,036

=0.086*100%

Income/total assets

45,982/278,716

=0.165*100%

49,732/338,448

=0.147*100%

48,765/336,262

=0.145*100%

46,680/361,272

=0.129*100%

ROE= net income/total equity

45,982/177,412

=0.259*100%

49,732/201,196

=0.247*100%

48,765/213,046

=0.228*100%

46,680/231,405

=0.207*100%

Analysis

The Group’s profit margin decreases over the four-year period from a high of 10.7% to a low of 8.6% in the period between 2012 and 2015. The decreasing pattern is also replicated for ROA that decreases from 16.5% to 12.9% and ROE that decreases from 25.9% to a low of 20.7% within the same period. The negative profitability patterns indicates that Breville is not making enough profits probably due to poor pricing strategies or even poor marketing campaigns that indicates a decrease in the level of revenues posted within the period.

  1. Asset Efficiency

Asset turnover

= sales/total assets

427,940/278,716

486,547/338,448

541,615/336,262

527,036/361,272

Receivable turnover ratio=sales/accounts receivable

427,940/73,579

486,547/90,770

541,615/78,442

527,036/87,341

Analysis

The Group’s asset turnover ratio decreases in the four-year period from 1.54 to 1.46 in 2012 and 2015 respectively. On the contrast, receivables turnover increases slightly during the same period from 5.82 to 6.03. The decrease in the asset turnover indicates that the firm’s ability to utilise the existing asset-base to make sales has slowly diminished and this can be related to poor management policies in place that might affect timely replacement of torn and worn-out assets needed for making sales on time. On the contrary, the firm’s increase in the receivables turnover ratio clearly indicates that enough sales are made from the trade account reflected within the four-year period, which shows healthy operations over the years.

  1. Liquidity Ratios

Current ratio= current assets/current liabilities

192,523/80,453

248,398/118,052

247,347/97,909

254,808/102,626

Acid test ratio =(cash+ accounts receivable+ short-term investment)/current liabilities

(53,095+73,579

+479)/ 80,453

(68,130+90,770+

2,110)/ 118,052

(70,885+78,442

+7)/ 97,909

(54,634+87,341

+2,548)/ 102,626

Analysis

The Group’s current ratio increases slightly within the four-year period from 2.39 to 2.48 in 2012 and 2015 respectively, which indicates a favourable and healthy position. It basically means that the Group has ensured to sustain sufficient number of current assets that might come in handy to pay-off any possible short term obligation as and whenever they fall due. On the contrast, however; the acid test ratio decreases within the same period from a high of 1.58 to a low of 1.48. The decrease is however in line with the industry averages hence postulating a favourable position for that matter.

  1. Capital Structure

Total debt-to-equity ratio=total liabilities/total equity

101,304/177,412

137,252/201,196

123,216/213,046

129,867/231,405

Equity to total assets ratio= total equity/total assets

177,412/278,716

201,196/338,448

213,046/336,262

231,405/336,262

Analysis

The Group’s total debt to equity ratio decreases slightly for the period between 2012 and 2015 from 0.57 to 0.56 respectively. The decrease in the ratio portrays a favourable operation since it means that Breville is trying so hard to decrease the level of its debt structure and rather replace it with equity funds. This is in a move to cut down on the amounts used to pay off finance costs attributed to the debt funds. In fact, it is safe to indicate that the Group is trying to harmonise the level of debt and equity funds in order to enhance control over its operations. On the contrary, the Group’s equity to total assets ratio increases slightly within the same period from 0.64 to 0.69 indicating a favourable and healthy position as it postulates that the company is making efforts to fund most of assets using the equity funds as opposed to debt funds.

  1. Market Performance Shares

Dividends Per share

= dividends paid/outstanding shares

25,369/130,089

33,174/130,095

33,824/130,095

35,125/130,095

EPS= EBT/ no of shares

72,467/130,089

78,864/130,095

77,947/130,095

77,021/130,095

Analysis

The Group’s dividends per share for the four-year period increase from 0.19 to 0.27 in 2012 and 2015 respectively. Subsequently, the same pattern is reflected with the earnings per share ratio (EPS) that increases from 0.56 to 0.59 respectively. The increase in these ratios indicates a healthy operating firm that is able to attract investors that are willing and able to put investments with the company given that there are probable returns.

Conclusion & Recommendations

The above discussion indicates that Breville Group Limited profitability and efficiency ratios are somehow operating below the required standards and thus, there is a need for the management to come up with effective marketing, pricing and asset utilisation policies that would foster optimal results. On the other hand, the company’s market performance, liquidity and capital structure are operating as par the required averages hence portraying favourable operating position.

References List

Breville Group Limited. 2013. Annual reports. Retrieved Report.pdffromhttp://www.brevillegroup.com.au/wp-content/uploads/2013/10/BRG-AR13-final.pdf

Breville Group Limited 2015. Annual reports. Retrieved from http://www.brevillegroup.com.au/wp-content/uploads/2015/10/BRG-2015-Annual-