Analysis report of ARB Corporation Ltd and Super Cheap Auto Group Ltd Accounting Assignment 2010 Lecturer: Sia Dixit Personal Details: Hendrik Halim (HAHED92J) Nathanael Siregar (SINAD102J) David Ang (ANDAD92J) MAA103 Assignment Planner – Trimester 2, 2010 STUDENT GROUP NAMES: ID No. :1. Hendrik Halim – HAHED 92J 2. Nathanael Siregar – SINAD 102J3. David Ang – ANDAD 92JClass Time/Day: 12. 45 – 16. 45 / Tuesday Lecturer’s Name: Sia Dixit|
DATE:| BRIEF DETAILS OF HOW YOU INTEND TO PROCEED TO COMPLETE REPORT:| NAME OF STUDENT(S) COMPLETING SECTION(S):| 18-Aug-2010| Overview and contents of an annual report| Nathanael Siregar| 19-Aug-2010| Table of contents| David Ang | 20-Aug-2010| Introduction + Part A| Hendrik Halim| | Body Section| | 21-Aug-2010| Probability| Hendrik, Nathanael| 21-Aug-2010| Efficiency| Nathanael Siregar| 22-Aug-2010| Financial stability, short term and long term| Hendrik, Nathanael | 22-Aug-2010| Additional / other information| David Ang| 23-Aug-2010| Executive summary| Hendrik Halim| 23-Aug-2010| Limitation| David Ang| 4-Aug-2010| Recommendations| David Ang| 25-Aug-2010| List of reference| Hendrik Halim| 26-Aug-2010| Appendices| Nathanael Siregar| 27-Aug-2010| Editing and Finishing| Hendrik, Nathanael, David| 28-Aug-2010| Editing and Finishing| Hendrik, Nathanael, David| Overview and Contents of the Annual Report USE ONLY THE 2009 CONSOLIDATED FIGURES Answer Page No. What date is the end of the financial year? State Day, Month and Year | 27 June 2009| 18| How many new stores did the group open in Australia during the financial year? | 10| 5| Who is the company secretary of the group? | Mr. DJ Kelley| 21| Who are the auditors for the group? RJ WrightRD McllwainMc Donovan| 15| Do the financial statements comply with International Financial Reporting Standards (IFRS)? | Yes| 38| What was the total revenue and income for Goldcross Cycles? | 19,118| 50| What was the total depreciation expenses for the group? | 15,688| 53| What is the total provision for employee benefits? | 10,152| 60| What is the total number of ordinary issued shares as at the end of the financial year? | 84,627| 67| What percentage of the issued capital of Goldcross Cycles was acquired by the group? | 50%| 78| How many BCF stores are located in the Northern Territory? 1| 90| What was the amount of total cash flows from investing activities? | 33,146| 34| What is the total of Retained Profits as at the end of the financial year? | 67,084| 80| Where is the Group’s head office located? | 751, Gympie Road, Lawnton 4501, Queensland | 30| What was the basic earnings per share? | 30,2| 82| How much has the group paid in dividends during the year? | 14,928| 70| Executive Summary The purpose of this paper is to analyze the financial ratio of ARB Corporation Ltd and Super Cheap Auto Group Ltd over the period of 2008-2009. The analysis of financial ratio consist three types of ratio.
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They are the profitability, the efficiency, and the financial stability ratio. In the first section, the key financial ratios of Super Cheap Auto Group Ltd will be calculated and then will be compared with the competitor ARB Corporation Ltd. moreover the result of each ratio will be interpreted in order to gain better understanding about which company is having a good financial ratio. Overall, it has been found that Super Cheap Auto Group Ltd and ARB Corporation Ltd profitable companies which have good financial ratio. However, Super Cheap Auto Group Ltd seems to be more efficient in running their business compared to ARB Corporation Ltd
Table of contents 1. Introduction……………………………………………. Page 4 2. Body:……………………………………………………Page 5 2. 1Profitability………………………………………Page 5 2. 2 Efficiency………………………………………. Page 7 2. 3 Financial Stability…………………………….. Page 8 2. 3A Short Term……………………………………Page 8 2. 3 B Long Term……………………………………Page 9 Limitations……………………….. …………………Page 11 3. Conclusion and Recommendation…………………. Page 12 4. References………………………………………… ….. Page 13 5. Appendices……………………………………………. Page 14 1. Introduction Super Cheap Auto Group Ltd. is a business corporation working on selling automotive products such as car parts, car care and kits.
Its business is very well established and having Australia and New Zealand as the target market. The annual report of this company has got its good performance during 2008-2009 period of time. The other business this report is analyzing about is ARB Corporation Ltd which works on the same field as Super Cheap Auto Group Ltd. They are selling the same products, working on car accessories and spare parts. This report consists of detail ratio analysis of the financial statement of two companies stated above over a two year period (2008 through 2009) by performing and interpreting financial ratios from the data given.
A brief comparison of the two companies’ performance in specific key ratios will also be discussed in this report. So in the end of the report, clear and detailed factors for decision making will also be provided as the base of the conclusion taken. After all analysis and information, this report will lastly provide advises on these organization as investment opportunities, aimed for the information served for some investors to choose which company is giving more success chance to invest on. 2. Financial Ratio 2. 1 Profitability Ratio Table 1(Refer to Appendices)| ARB Corporation Ltd. Super Cheap Auto Group Ltd. | | 2008| 2009| 2008| 2009| Gross Profit Margin| 38. 94%| 40. 07%| 40. 47%| 41. 97%| Net Profit Margin| 16. 34%| 16. 64%| 6. 41%| 6. 70%| Return on Equity| 25. 27%| 35. 35%| 19%| 20. 55%| Asset Turnover (Times)| 1. 53| 1. 60| 1. 86| 1. 89| Return on Assets| 24. 94%| 26. 63%| 11. 92%| 12. 71%| Gross profit margin ‘represents the relationship between the gross profit earned for a period and the sales for the same period’ (Jackling et al 2010, p 662). According to table 1, both of company can increase their gross profit margin from 2008-2009.
Because the companies can increase their sales every year, they finally are being able to manage their COGS more effectively, and rarely return on sales appeared. Therefore they could increase their gross profit margin in 2008-2009. Both of the company has good gross profit margin, but Super Cheap Auto Group has a better gross profit margin than ARB Corporation. Net profit margin means ‘the relationship between the final profit and sales’ (Jackling et al 2010, p 664). According to table 1, both of company has good net profit margin from 2008-2009 although there’s no significant increase.
This is caused by the gross profit of both companies are bigger than the expenses during 2008-2009. According to table 1, ARB Corporation has bigger net profit margin than Super Cheap Auto Group. Return on equity means ‘the profit or loss earned in utilizing the investment of the owners’ (Jackling et al 2010, p 668). Return on equity depends on the company ability to make profit (return) for the equity. According to table 1, the return on equity of both companies has increased during 2008-2009. It implies that both of company has good ability to make profit (return) for the equity.
Return on assets means ‘how much profit has been generated by using the given level of total assets’ (Jackling et al 2010, p 668). Return on assets refers to the company ability to make profit (return) for each asset. According to table 1, the return on assets of both companies has increased during 2008-2009. It means that both of companies have good ability to make profit (return) for each asset. Asset turnover means ‘show how effective an organization is in generating income from its total investment in assets by relating sales/service revenue to the value of total assets’ (Jackling et al 2010, p 657).
According to annual report 2009 of Super Cheap Auto Group, the total assets of Super Cheap Auto Group in 2008=$385,156,000 and 200=$437,771,000. This means that the total assets of Super Cheap Auto Group increase in 2008-2009. These factors are affecting the increase number of assets turnover of both companies. Overall, Super Cheap Auto Group profitability is very good and the investment made by shareholders will generate positive returns. Moreover, the dividends paid by the company are also increasing from the previous year. Therefore, Super Cheap Auto Group will become a profitable investment in the future. 2. Efficiency Ratio Table 2(Refer to Appendices)| ARB Corporation Ltd. | Super Cheap Auto Group Ltd. | | 2008| 2009| 2008| 2009| Inventory Turnover (Days)| 113 days| 113 days| 166 days| 169 days| Debtors Turnover (Days)| 60 days| 53 days| 7 days| 8 days| Creditors Turnover (Days)| 51 days| 46 days| 60 days| 70 days| The inventory turnover measures ‘the efficiency of inventory management. It shows the relationship between inventory sales volumes’ (Jackling et al 2010, p. 663). Refer to table 2, the inventory turnover of Super Cheap Auto Group has increased by three days between years 2008 until 2009.
Hence, on ARB Corporation, the inventory turnover days remain the same between 2008 until 2009. Super Cheap Auto Group happens to have good inventory turnover even though it is not significant. This is caused by the workflow in the inventory of Super Cheap Auto Group was managed well, and it is not excessive which effects on the high sales that they make. Debtors turnover, ‘a measure of the efficiency of the management of credit customers’ (Jackling et al 2010, p. 656). Super Cheap Auto Group has a decreasing debtor turnover by 1 day between 2008-2009. This problem gives negative effect to the company since debtors pay longer.
Inversely with ARB Corporation, they accelerate the debtors turnover by decreasing the days of turnover in the year 2008-2009 and cause the company to get faster income. But Super Cheap Auto Group still have better debtors turnover compares to the ARB Corporation debtors turnover in amount of days since Super Cheap Auto Group can get debtors turnover in less than 10 days. The Creditors Turnover ‘a measure of the efficiency of the management of credit supplier’ (Jackling et al 2010,p 656). Super Cheap Auto Group has a good creditor turnover from the year 2008 until 2009.
It is shown in table 2, Super Cheap Auto Group can increase their creditors’ turnover from 60 days to 70 days, which means they can pay a little bit longer to the creditors. Again, this inversed to ARB Corporation which only has 51 days in 2008 to pay their debts to the creditor, and 46 days in 2009 to pay their debts to the creditors. This means that they (ARB Corporation) have to accelerate their payment to the creditors. Overall, Super Cheap Auto Group has a good efficiency, because Super Cheap Auto Group has good inventory turnover and creditor turnover.
So, Super Cheap Auto Group can pay their debt in 2009 longer than 2008. 2. 3 Financial Stability Ratio Table 3(Refer to Appendices)| ARB Corporation Ltd. | Super Cheap Auto Group Ltd. | | 2008| 2009| 2008| 2009| Current Ratio| 1. 78| 2. 42| 1. 39| 1. 55| Quick Ratio| 0. 84| 1. 13| 0. 175| 0. 251| Debt Asset Ratio ( interest bearing debt only)| 23. 14%| 22. 13%| 33. 15%| 30. 03%| Debt Asset Ratio (total debt)| 31. 91%| 23. 38%| 64. 75%| 64. 28%| Debt Equity Ratio (total debt)| 46. 87%| 30. 52%| 183%| 179%| Times Interest Earned (Times) | 29. 36 times| 61. 07 times| 5. 04 times| 4. 05 times|
Current ratio ‘a measure of liquidity by showing the relationship between current assets and liabilities’ (Jackling et al 2010, p 658). Refer to table 3, the current ratio of both company was increased from 2008 until 2009. According to the annual report 2009 of Super Cheap Auto Group, the total current assets in 2008=$221,996,000. While the total current assets in 2009=$264,744,000. This mean the total current asset of Super Cheap Auto Group has increased. On the other hand, the total current liabilities in 2008= $159,275,000. While the total current liabilities in 2009=$170,864,000.
Although the total liabilities increased, but Super Cheap Auto Group still has bigger total current assets than the total liabilities. But ARB Corporation also has current ratio increased from 2008-2009. Even though the current ratio of ARB Corporation is higher than current ratio of Super Cheap Auto Group, the total current assets are greater than the total liabilities. The current ratio factor increase of both companies. Quick ratio represents ‘a more immediate measure of liquidity than the current ratio by excluding the less liquid current assets, such as inventory’ (Jackling et al 2010, p667).
Quick ratio and current ratio are quite similar, but quick ratio is more reliable than current ratio. This is because quick ratio excludes inventory and less pressing of current liabilities, often a bank overdraft. It is good for both companies, because they can increase their quick ratio although they exclude the inventory from 2008 until 2009. Debt asset ratio (interest bearing debt only) measures ‘the percentages of total funds provided by creditors and are represented by total liabilities/total assets’ (Jackling et al 2010, p 659).
It is good for both companies, because they can reduce their debt assets ratio from 2008-2009. This means that their debt decreased from 2008-2009. With the decreasing debt, then the debt interest will automatically be decreased by a percentage based on the amount of their debt. So they can get more profit in the year 2009, because of loan interest deduction or decrease from 2008 until 2009. Debt asset ratio ‘measures the percentage of total funds provided by creditors and is represented by total liabilities/ total assets’ (Jackling et al 2004, p. 931).
According to table 3, ARB Corporation managed to decrease their debt asset ratio by 8. 53% from the year 2008 until 2009. This shows that ARB Corporation paid its debts to the creditors on time. Super Cheap Auto Group managed to decrease their debt asset ratio in small amount of percentage, by 0. 47%. Even though Super Cheap Auto Group managed to decrease their debt asset ratio by total, ARB Corporation has decreased more in percentage. If a company succeeded in decreasing its debt asset ratio, it means that the company is able to pay its debts to the creditor with no problems or obstacles.
Debt equity ratio ‘Indicates the quantity of debt finance in proportion to the owners funds’ (Jackling et al 2004, p. 931). Looking at table 3, in 2008 until 2009, ARB Corporation managed to decrease its debt equity ratio by 16. 35%, which means the company received more money from the equity instead of loans. Super Cheap Auto Group happened to decrease their debt equity ratio in smaller amount of percentage, by 4%. Again, ARB Corporation gained larger percentage of decreasing debt equity ratio, and were able to gain more profit from the equity instead of loans.
Times interest earned ratio ‘measures the safety margin of profit over interest payments, or the extent to which profit can decline before the entity will find it difficult to meet the interest payments from current profits’ (Jackling et al 2004, p. 944). From table 3 we can conclude that ARB Corporation, from the year period 2008 until 2009, managed to gain 31. 71 times over the period of time. This means the company was able to pay the interest of expense constantly. On the other hand, Super Cheap Auto Group failed to increase the times interest earned ratio.
Instead of it, they faced a decrease by 0. 99 times. This is caused by the profit of Super Cheap Auto Group was not enough to pay for the interest. Overall, Super Cheap Auto Group financial stability is good. They seem not to have any problem with their liquidity and solvency over the short and long term. The creditors will be comfortable to lend them more loans because they have the credibility to pay the debt owed and also the interest. 3. Limitations The main limitation of this report is the lack information that was given, especially for the annual report of Super Cheap Auto Group.
We need more specific information so we will know better how the calculation worked and we will be able to compare the two companies from the perspective of the three consolidated that should be provided in the annual report. For example: in the balance sheet report doesn’t show specifically about the tangible assets. 4. Conclusion and Recommendation Finally in conclusion we can see from the analysis above show in three parts of analysis showed Super Cheap Auto Group Ltd is better in three parts. For example in Profitability Super Cheap Auto Group get more profit with their strategy which made their Gross profit always increase every year.
That can be invited investors to invest to company because they will get their return as soon as possible. In the efficiency showed Super Cheap Auto Group Ltd can manage their inventory to the cash more quickly than their competitor. Just three days quickly but that is so worth it to all shareholders so make shareholders’ trust is increase and maybe in the next year they will give more investment in this company and in the Creditors Turnover Super Cheap Auto Group can pay to their creditor longer than his competitor because that trust.
In Financial stability showed Super Cheap Auto Group is good because they trust give the creditors give longer time to this company to pay back the loan. So make they can manage their money in another place in the urgent position So finally our report suggest to investors are invest in Super Cheap Auto Group Ltd based on the analysis above and all of that reasons. 5. Reference list 1. Carnegie et al 1999, ‘Accounting Financial and Organizational Decision making’, McGraw Hill, Australia. 2. Jackling et al 2010, ‘ Accounting A Framework For Decision Making’, McGraw Hill, Australia 3.
Jackling et al 2004, ‘ Accounting A Framework For Decision Making’, McGraw Hill, Australia 4. Pyle, William W, and Kermit D. Larson (1981). Fundamental Accounting Principles. Homewood, Illinois: Richard D. Irwin 5. Gunascharon, A, Mani, H. , S Yusuf, Y. (1999). Application of activity-based costing: some case experiences. Managerial Auditing Journal. (416), pp. 286-293. 6. Brookings – Financial Crisis. Retrieval May 1, 2010. 7. Appendices Ratios Formula| | | | | | | | | | | Earnings after interest and tax| Return on equity| | | ————————–| | | | Shareholders equity| | | | | | | | Gross profit|
Gross profit margin| | | ——–| | | | Sales| | | | | | | | Earnings before interest and tax| Net profit margin| | | ———————| | | | Sales| | | | | | | | Sales| Asset turnover| | | ——–| | | | Total assets| | | | | | | | Earnings before interest and tax| Return on assets| | | ———————| | | | Total assets| | | | | | | | Cost of goods sold| Inventory turnover| | | ——————–| | | | Average (or year end) inventory| | | | | | | | | | | | Credit sales| Accounts receivable turnover| | —————————| | | | Average (of year end) accounts receivable| | | | | | | Credit purchases| Accounts payable turnover| | ————————–| | | | Average (of year end) accounts payable| | | | | | | | Current assets| Currebt ratio| | | ———–| | | | Current liabilities| | | | | | | | Quick assets| Quick asset ratio| | | ———-| | | | Quick liabilities| | | | | | | | Total debts| Debt to assets ratio| | | ——–| | | | Total assets| | | | | | | | Total debt| Debt to equity ratio| | | ———-| | | | Owner’s equity| | | | | | | | Earnings before interest and tax| Times interest earned| | | ———————|