Financial Statement Analysis for Business: Case Study Analysis Report-Invocare Limited. Essay Example

3. Current Level of Profitability

The following set of accounting data was extracted from Invocare Limited 2015/2016 financial statements.

Data Item

Data Value

Page Number in Annual Report

Earnings before Interest & Tax(EBIT)

(100,372+13,555)= 113,927

Capital Employed ( shareholders’ equity + Total debt)

(234,210+234,455)= 468,665

Equity Capital

Cost of Equity

Equity Charge= (Equity Capital * Cost of Equity)

266,999.4

Net income

Given the data provided in the table above, the ROCE and Residual Earnings/Income for Invocare Limited are 24.3% and -$195,951.4 respectively.

ROCE was computed as = 113,927/468,665 *100%= 24.3%

RE= 71,048-266,999.4= -$195,951.4

The high ROCE ratio is an indication that Invocare Limited has continued to employ its underlying capital-base in much more efficient manner hence generating substantial levels of shareholder’s value (Nissim & Penman, 2001). However, its residual earnings figure is negative meaning that its operations are economically unprofitable given the higher level of risks experienced within the consumer discretionary sector as a whole.

4. Future Prospects for Growth

The current market share of InvoCare Limited dropped significantly with most of this decline being attributed to such fundamental issues as the ever-changing needs of the customer (InvoCare Limited 2016, pg. 5). It is important that the company engage in the addressing and thereby catering for this particular this ever-changing factor. In fact, the firm recently adopted the ‘Protect and Grow investment programme to cater for the ever-changing needs of the customers. In regards to the future operational period, the company seeks to refresh and thereafter enhance its existing product offerings for the purpose of meeting the ever-changing market as well as the specific needs of the customers while at the same to implement efficient competitive strategies.

The firm should seek to enhance its four pillars of growth that expounds on InvoCare business model for purposes of achieving long term growth and returns for its existing base of stakeholders. There is also a great stride of opportunity for the company to increase its overall market share-base from its current substantial scales and assets (InvoCare Limited 2016, pg. 5). The increase should be focused on accomplishing its overall operational efficiencies while still making sure to allow it to employs its capital resources even more efficiently. It is assumed that the future market conditions in the near and the mid-term is considered to be favourable for the company’s operations especially since there has been an increase in the number of deaths. The initial phase of the ‘Protect and Grow’ is expected to stabilise the underlying market share in the period heading towards 2017/2018 financial period (InvoCare Limited 2016, pg. 5). In essence, indications are that death case averages will grow in line with historic set of increases and the initiative’s direct focus on operational efficiencies that would further improve near-term productivity gains.

According to InvoCare Limited (2015), the future outlook of the firm’s operations is marred with regulatory constraints within a particular section of the entire Australian market-base. Despite this, there are visible set of opportunities for consolidation in such markets as New Zealand (Auckland) and regional and some of Australia’s capital cities. The firm is also expected to explore notable overseas opportunities that meet the firm’s immediate internal challenges and risk assessment criterion.

References List

InvoCare Limited. 2015. Macquarie Connections Australian Conference 2015 Sydney. Accessed from https://www.invocare.com.au/content/dam/invocare/InvoCare%20Corporate/documents/presentations/Macquarie%20Presentation%20-%20May%202015.pdf

InvoCare Limited. 2016. 2016 annual report. Accessed from file:///C:/Users/user1/Downloads/IVC%202016.pdf

Nissim, D. & Penman, S.H., 2001. Ratio analysis and equity valuation: From research to practice. Review of Accounting Studies, vol.6, no.1, pp.109-154.