Task number Essay Example

Task number 2

  1. Vertical analysis

  1. Ten network balance sheet

The vertical analysis of the company’s balance sheet reveal a decline in the company’s cash and cash equivalent s from 9.28% in 2013 to 1.23% in 2014. On the other hand, the company’s receivables have risen over the three years from 6.94% in 2012 to 9.24% in 2014. Payables have also sharply increased from 1.06% in 2012 to 4.53% in 2014. These changes may have resulted from the company’s declining performance in terms of revenue and profits. This thus is implies that less cash is available while the company’s ability to collect receivables is also impaired while it may face liquidation due to inability to pay debts. These changes are bad and hence not desirable since they imply that the company’s future operations can be impaired due to lack of funds. The company’s other financial assets have sharply increased from0.29% in 2012 to 16.23% in 2014 (Richard, 2014). This has been caused by sharp increase in assets that have not been classified into a specific class. Though an increase in assets is desirable, failing to classify them into specific asset classes is bad as it can encourage fraud bearing in mind that this is a large amount to be classified as others. The long-term provisions have also risen sharply from 2.75% in 2012 to 20.73% in 2014 probably because of increasing risks the company is exposed to. This is a bad change given its poor performance. While the contributed equity has been increasing from 152.87% in 2012 to 255.54% in 2014, the reserves have declined from -725.13% in 2012 to -109.68% in 2014. The changes have resulted from the company’s declining performance leading to losses. The changes are bad since it means investors are not getting value for their investment and are running the company from their pockets.

  1. Ten network income statement

Revenue for continuing operations have been on the decline during the period from $751,894 in 2012 to $625,967. The change may be attributed to changing market conditions causing decline in sales. The change is not good since a decline in sale would lead to losses for the company threatening its survival. Televisions costs have experienced changes from 87.58% of revenue in 2012 to 111.29% in 2014. This has been caused by increased costs of the televisions while the company is selling them at a loss. The change is bad since it leads to losses for the company.

  1. Nine network balance sheet

The company’s cash and cash equivalents declined from 13.13% in 2013 to 6.94% in 2014. On the other hand, trade and other receivables have increased from 7.32% in 2012 to 10.26% in 2014. The changes might have been caused by the company’s investment in other areas as well as decline in ability to collect money owed. The changes are not good since the company ought to be efficient in collection of money owed so as to fund its operations. Investments in associates accounted for using the equity method have declined from 7.19% in 2012 to 1.2% in 2014. This may have been caused by a divesting strategy adopted by the company. The change is good since the invested funds have been released to fund company’s operations. Licenses have changed from 10.09% in 2012 to 18.73% in 2014 since the company acquired new licenses. The change is desirable since the company can be able to make more sales in future. Current interest bearing loans have declined from 111.29% in 2012 to 0% in 2014. On the other hand, long-term interest bearing loans have increased from 0.01% in 2012 to 19.04% in 2014. The changes have been caused by the company restructuring its loans in a way that it is able to pay without hurting its current operations. This change is desirable since the company can now pay its loans in a better manner. The contributed equity declined from 92.78% in 2013 to 27.24% in 2014. This is caused by investors divesting from the company. This change is not desirable since the funds available to the company are declining. On the other hand, the retained earnings increased from -73.07% in 2012 to 29.73% in 2014. This is resulted from improving performance by the company where it reported profits in 2014 and is hence a desirable change.

  1. Nine network income statement

Revenues increased from $1,196,634 in 2012 to $1,546,556 in 2014. On the other hand, finance costs declined from 32.94% in 2012 to 4.29% in 2014. The changes have been caused by better market conditions and hence increased sales. Declining financing costs have been caused by restructuring of loans and hence increased repayment (Fridson, 2011). These changes are desirable as they will enable the company make profits. The company’s profits from continuing operations before income tax declined from 93.59% in 2013 to 6.41% in 2014. This was caused by gain on restructuring in 2013. This is a good change since the restructuring enabled the company to organize itself for better performance in future.

2a) Ten network trend analysis for income statement

The company’s revenue from operating activities has declined from 100% in 2012 to 83.25%. On the other hand, the company’s net profitability declined from 100% to -200.15% in 2013 and 1184.8% in 2014. This may have been caused by worsening economic and hence market situations leading to declining sales. This is not a desirable change since it means that the company’s profitability has declined resulting in negative returns for the shareholders.

  1. Ten network trend analysis for cashflow statement

Cashflow from investing activities declined from $79,708 in 2013 to -$2,920 in 2014. This may have been caused f by divesting and losses made from investments. This change is bad as it may add to the losses made by the company from its operating activities (Larry, 2009) . On the other hand, the company’s cashflow from financing activities increased from $25,414 to $108,894. This may have been caused by incurring new loans and asking shareholders to make new capital contributions. This is not a good change since it means that the company is running its affairs from shareholders pockets while obligations to pay are increasing.

  1. Nine network income statement trend analysis

The company’s total operating revenue increased from 100% in 2012 to 129.21% in 2014. The change might have been caused by improving market conditions and hence more sales. The change is good as it means the company can make more profits from increased sales. The company’s total comprehensive income declined from 131.68% in 2013 to -5.63% in 2014. This resulted from the big gain on restructuring realized in 2013 as well as a bad marketing or economic environment in 2014. The change is not good since the company made less profit and hence returns to shareholders.

  1. Nine network cashflow statement trend analysis

The company’s cashflow from operating activities increased from $(17,150) in 2012 to $189,026 in 2014. This may have resulted from increased returns from operating activities. The change is good since if returns from operations increase, the company can start operating profitably again. Cashflow from investing activities declined from $459,044 in 2013 to $-385,569 in 2014. This may have been caused by divesting in 2013 and increased investment in 2014. The change may be good since the investments in 2014 are expected to result in returns for the shareholders in future. Cashflow from financing activities increased from -$300,394 in 2013 to $23,860 in 2014. This resulted from increased interest from financing activities. The change is good since it means less obligations and increased profitability for the company.

3 Ratio analysis

  1. Profitability analysis for ten network

The company’s profitability declined from 1.5% in 2012 to -30.95% and -20.78% in 2013 and 2014 respectively. The decline has been caused by the company realizing losses during the period. The change is undesirable since it shows a decline in company’s profitability and hence returns to customers.

  1. Profitability analysis for Nine network

The company’s profitability declined from 78.57% in 2012 to 94.55% and 3.34% in 2013 and 2014 respectively. The changes have been caused by unconducive economic conditions and restructuring. The change is not desirable as it indicates declining returns for shareholders investment.

  1. Liquidity analysis Ten network

The company’s current ratio improved from116.9% in 2012 to $123.09% in 2014. The change resulted from increased efforts by the company to clear current liabilities and increased current assets (Readyratios.com, 2015). The change is desirable at it signifies increased ability to meet current obligations.

  1. Nine network liquidity analysis

The company’s current ratio improved from 29.53% in 2012 to 174.56% and 136.57% in 2013 and 2014 respectively. The change resulted from increased efforts by the company to clear current liabilities and increased current assets. The change is desirable at it signifies increased ability to meet current obligations.

  1. Ten network debt ratio analysis

The company’s debt ratio declined from 43.66% in 2012 to 32.83% and 33.90% in 2013 and 2014 respectively. This was caused by increased contributions from shareholders. This is a bad change since the company ought to operate profitably and not run its affairs from contributions from shareholders.

  1. Nine network debt ratio analysis

The company’s debt ratio sharply declined from 136.65% in 2012 to 42.43% in 2014. This has resulted from debt repayment and restructuring. This is a good change as it results in reduced repayment obligations for the company.

4. Investment recommendations

The vertical analysis of the financial statements showed that Ten network continues to make losses that in turn have led into a declining balance sheet position. It is to be noted that in 2014, the company sold goods at less prices that it bought them. On the other hand, Nine network has reported profits over the three years period though they have also declined. From the vertical analysis, its balance sheet looks better (Bragg, S2012). On the other hand, ratio analysis indicates that Nine Network is performing better financially than Ten network. Thus, I would rather invest in Nine network as opposed to investing in Ten network since this is where I am most likely to make returns on my investment.

References:

Richard, G2014, Financial accounting theory and analysis, New York, John Willey & Sons.

Fridson, M2011, Financial statement analysis: A practitioner’s guide, John Willey & Sons.

Readyratios.com, 2015, Profitability ratios, Retrieved on 12th December 2015, from;

http://www.readyratios.com/reference/profitability/

Larry, M2009, Basics of Accounting and information processing, London, Rutledge.

Bragg, S2012, Financial analysis: A business decision guide, Sydney, Prentice Hall.