Finance for Decision Making Report Sample

Finance for Decision Making Report

Assignment instructions

1. Your assignment should address the question(s) and stated learning outcomes by drawing on appropriate learning from Modules 1 to 6 of the subject materials.

2. The assignment is an opportunity to demonstrate your learning, including theory and its practical application. To address the questions in this assignment, you are to draw from the core materials in the subject notes, prescribed readings and textbooks, and the resources provided in Blackboard, but not be limited by these materials.

3. The assignment counts for 30% of your total mark in this subject.

4. The assessment rubric provides guidance on the criteria and performance indicators against which your submission will be assessed.

Business report

You are required to write a business report by analysing and comparing the annual reports of Ridley Corporation Limited and Inghams Group Limited over the past three years (the exact time period will be confirmed by your lecturer at the start of the semester). Your business report should evaluate the relative financial performance of the two groups based on the financial analysis results and propose strategies for future improvements and/or areas for further investigation and analysis.
The financial analysis should be conducted using skills and techniques learned in this course. You are required to:

• calculate and analyse the five (5) key categories of financial ratios (Note: Due to the word limit, you are NOT required to conduct the horizontal, vertical or trend analysis.)

• conduct an analysis of the Return on Equity (ROE) using the DuPont analysis.

• use appropriate graphs to illustrate the relative performance of the two companies, including the trend of the ratios over the time period.

You will be assessed on your ability to do the following in writing your assignment:

• Assess the financial reports of the two designated companies. You are expected to identify the ratios to be analysed, compare and evaluate the financial performance of the companies, and draw correct conclusions based on the analysis.

• Present the assignment as a standard business report. The report must be of a standard commonly expected in the commercial world in relation to grammar, punctuation and spelling.

. Other requirements for the business report

• Other sources of financial information may be useful for your analysis. Examples are ASX, Reuters Finance, Yahoo Finance, financial newspapers such as The Australian
Financial Review.

• The assignment is to be presented as a business report containing:

− executive summary
− table of contents
− informative headings and subheadings
− numbered sections
− numbered appendices
− labelled tables and graphs.

• The report itself is limited to 3,000 words. See word limit advice on the front cover of the assignment. (Note: The executive summary, table of contents, references and any appendices, tables or graphs, are not included in the word count.)

Solution

Introduction

The business report is prepared to conduct a ratio analysis for the firm namely Ridley Corporation Limited and Inghams Group Limited. Ratio analysis is regarded as a versatile tool which enables analysts, investors and management to compare firms in a structured as well as quantitative manner. Ratio analysis facilitates the identification of strengths the firm has, weaknesses, opportunities and threats (Park et al, 2023, p12). In the era of the volatile and highly competitive market, it becomes important for the firm has deep understanding about its financial status and it can easily be done by conducting a ratio analysis. Doing so, it enables the firm to make an informed decision. Therefore, an effort is made to illustrate the three-year financial trends of the chosen companies from 2020-2023 to assess their financial performance.

Company Background

Ridley Corporation Limited

Ridley Corporation Limited operating in Australia stands as a foremost provider of premium-quality as well as high-performance animal nutrition solutions (Ridley.com.au, 2023, p5). Engaging in this service is rooted in the belief that intelligent animal nutrition plays a crucial role in addressing contemporary as well as future challenges in food production. This particular is committed to delivering excellence in its sector. Ridley holds a significant position within the agricultural landscape of Australia for incorporating a comprehensive range of operations. As one of the country’s largest consumers of locally-grown cereal grains, this firm contributes to rural communities and economies (Ridley.com.au, 2019). The firm operations cater for a diverse clientele. This is from commercial farms to hobbyists. Serving industries like pig farming, poultry, beef & sheep production, aquaculture along with the retail sector, home layer markets, equine and canine. With a substantial operation capacity and extensive product portfolio, this firm’s offering supports both the aquaculture and agriculture sectors. Encompassing commercial stockfeed's distributed directly to the farms.

Inghams Group Limited

Inghams Group Limited is a popular firm in Australia engaged in the supply of a diverse range of protein products involving turkey, chicken, and plant-based alternatives. These high-quality products are distributed around several market segments involving retail, food service distributors, wholesale, quick-service restaurants and others (Inghams.com.au, 2023, p, 10). Additionally, to its protein business, this particular firm holds a notable position as one of the biggest producers of stock feed within Australia. Inghams Group with a dedicated workforce of about 8000 operates collaboratively to support its operations, prioritise welfare and lastly serve its valued customers for MBA assignment expert.

Rivalry between two companies

Both Ridley and Inghams are operating in the animal nutrition solutions field. Though Ingham's primary focus remains on the production and supply of poultry as well as other protein products, Ridley specialises in rendering animal nutrition products along with feed solutions for several livestock industries involving poultry. In this sense, they both appeared to be serving the broader agricultural sector with multiple product offerings. Further, both firms cater to commercial farms as well as agricultural enterprises within the food production supply chain where customers rely on both firms to render essential products and services.

Calculation of Ratio

Calculation of ROE through DU point model

From the above table it can be analyzed that Inghams has better return on its equity as compared to Ridley and it almost higher in each year

Ratio analysis for Ridley Corporation Limited

Figure 1: Profitability ratio

According to Husain et al (2020, p 15), the profitability ratio is the key financial metric which assesses the capabilities of the firm in generating profit from its operations. The higher the profitability rate the higher the potentiality of the firm tends to be understood. The three years of Ridley's profitability ratios show a positive scenario. Gross margin, Net profit margin, operating margin and ROA, all are increased in the current year as compared to previous years. Improvement in the level of the gross profit ratio over the years indicates Ridley is able to maintain a higher percentage of its sales after bearing production costs. Similar to the gross margin, the operating margin also indicates a better efficiency in managing operational or indirect costs. The increase in the ROA is also suggesting that Ridley is becoming more efficient in utilising its assets. The increase in the profitability ratios of the firm is attributed to the strong performance of its packaged feeds, ingredient segments and Bulk stockfeed segment (Ridley.com.au, 2023, p 22). As per the annual report, it was found that the packaged feeds segment increased from $46.5 million in FY21 to $58.0 million and the primary contributor to this outstanding performance was the Rendering Business unit which is benefited from capital investment in product premiumization as well as higher market prices for oil and rendered tallows. It has been found that volumes via Branded packaged products grew significantly because of expanding market share along with increasing product lines into urban pet speciality chains (Ridley.com.au, 2023, p 6). In a nutshell, the firm strategic focus on the product premiumisation, cost efficiency and market share expansion in its key segment resulted in higher profitability ratios.

Figure 2: Liquidity ratio

According to Baraja et al (2019, p 5), liquidity ratio is the effective way to assess the ability of the firm to meet its short-term financial obligations. Generally, a firm which has 1 liquidity value or above, those firm understood to be financially capable of meeting its day-to-day expenses without any hurdles. From the above figure, it can be analysed that in 2022, Ridley's current ratio decreased from 1.46 to 1.19. Though it is still above the value of 1, it suggests that the firm has reduced its short-term liquidity. It is a similar case with the quick ratio which suggests a reduced ability of Ridley to meet its short-term obligations without relying on inventory sales. Considering the cash ratio, it suggests there is more cash available to cover short-term liabilities. As per the annual report, it was found that liquidity risk management involves maintaining adequate reserves, reserve borrowing facilities , banking facilities and others (Ridley.com.au, 2023, p 70). However, the decline prompted the firm to reassess its practice to ensure it may not face any complexities in meeting financial obligations.

Figure 3: Efficiency ratios

According to Herison et al, (2022, p1), efficiency ratios assess the firm’s ability to collect payment from customers, pay to its suppliers and how frequently is able to make sales. From the above figure, it can be analysed that Ridley is holding its inventory for a longer period of time. It is from 35.24 days to 45.03 days. It may lead the firm to increase its storage costs. There is also an increase in accounts receivable and payables days which indicates Ridley is taking longer time to get its payment from customers and it is also paying lately to its supplier. In relation to the duration of working capital, a slight increase indicates a longer time for converting investment into cash.

Figure 4: Leverage ratio

According to Kariyawasam (2019, p 2), leverage ratio sometimes also known as gearing ratio which assesses how much of the capital structure of the firm is financed from borrowing or its own. The higher the rate is an indication of the high financial risk of the firm. It happens that a firm that has leveraged its asset or capital from an external source or borrowing may be susceptible to paying a high rate of interest rates in an economic downturn times and high inflation rate (Dabi et al, 2023, p 10). In general, it adds the risk of a financial burden on the firm. From the above figure, it can be analysed that, there is there is a decrease in the debt/equity ratio, equity multiplier, and debt/capital ratio over the years. This indicates that Ridley is been actively reducing its reliance on debt financing. Further, the increase in the interest coverage ratio from 2020 to 2022 is an indication that the firm’s earnings are now much more comfortable covering its interest expense thereby reducing the default risk. As per the annual report, it was found that there has been a 38% reduction in its net finance costs and it is about $2.8 million in 2022 (Ridley.com.au, 2023, p 8). This decline is attributed to lower interest rates and debt retirement. In a nutshell, lower net finance costs are used to reduce interest expenses improving a firm’s profitability positively.

Figure 5: EPS

According to Sari et al, (2020, p 293), EPS is used to measure the portion of the firm’s profit allocated to each outstanding share. This is considered to be a key metric to evaluate a firm’s profitability. From the above figure, the trend in Ridley EPS indicates a positive turnaround from a loss in 2020 to the positive earnings in the year 2021 and then a substantial growth in 2022. It indicates that the financial health of the firm has improved significantly.

Ratio analysis for Inghams Group Limited

From the above figure, it can be analysed that the ratios for Inghams Group show some fluctuations in profitability as well as efficiency over the years. The firm experienced a decrease in the gross profit, net profit and operating profits as compared to its previous years. The drop in the profitability ratios is attributed to several factors like operational disruptions from COVID-19, rise in inflation, increased input cost, war in Ukraine, and COVID-related costs. As per the annual report, it was found that the ongoing COVID-19 has caused significant operational disruption worldwide affecting several industries involving food processing as well as distribution (Investors.inghams.com.au, 2022, p4). The distribution likely led to changes in workforce availability, supply chain management and increased operational costs related to Pandemic-related safety measures. Inflation increases the cost of goods and services involving input costs like fuel and feed which are critical for Inghams’ operations. It has been found that Inghams experienced increased input costs involving fuel and feed where Feed costs alone increased by $45.4 m. It means raising input costs directly impacts the cost of sales and puts pressure on profitability. War in Ukraine contributed to an increase in input cost because geopolitical conflicts disrupted global supply chains thereby leading to price increases for feed and grains (Investors.inghams.com.au, 2022, p 83). Additionally, it was found that in New Zealand, the core poultry volume decreased by 2% in the first half and further it was by -4% in the second half due to lower demand caused by ongoing border closure all because of COVID-19.

Figure 7: Liquidity Ratio

The liquidity ratios of Inghams appeared to be stable over the years with little fluctuations. The quick and current ratios show a consistent liquidity whereas the cash ratio has experienced a gradual decrease in the cash reserves to the short-term obligations. Overall, the liquidity ratio suggests that the firm has maintained a reasonable level of liquidity to meet its short-term financial commitments (Investors.inghams.com.au, 2022, p 145). Ingham's ideal liquidity position aligns with its prudent liquidity risk management strategy where maintaining sufficient cash is extremely crucial to meet obligations when due.

Figure 8: Efficiency Ratio

The efficiency ratios of the Inghams show variations in inventory management, supplier payment practices and account receivable collection. Inventory days increased to 37.76 from 32.80 in 2021 demonstrating Ingham is holding inventory for a slightly longer period in the current years as compared to the previous year (Investors.inghams.com.au, 2022, p 131). The negative working capital is demonstrated by inefficient management. The decrease in accounts receivable demonstrates a relatively stable collection period from customers. In relation to accounts payable it suggests that this firm takes a longer time to pay its supplier. It may hamper the relationship with suppliers.

Figure 9: Leverage ratio

From the above figure, it can be analysed that there is an increase in the level of debt-equity ratios suggesting higher reliance on debt to finance its activities. The increase in the equity multiplier suggests that the firm is using more equity to finance its assets in the year 2022 which reduces financial leverage but also indicates a shift in the company’s capital structure (Investors.inghams.com.au, 2022, p 112). One thing that is also noticeable from the part of the interest coverage ratio is that it decreased in the current years indicating a lower ability of the firm to cover its interest expenses.

Figure 10: EPS

From the above-mentioned figure, it can be analysed that the EPS of the Ingams in 2022 is $9.45 and it is decreased from the previous years. The fall in the EPS of the firm can disappoint the investors who expected higher earnings on the basis of 2021 performance.

Comparative analysis

Inghams appeared to consistently outperform Ridley in relation to gross profit margin over the three years indicating a stronger pricing power as well as cost management. Considering operating and net profit margins, Ridley shows better profitability at the operational level and better bottom-line profitability right through those years. Further , the higher ROA of Ridley as compared to Ingham indicates better asset utilisation to generate profit in those fiscal years.

Consequences

Ridley performed better in profitability ratios, particularly in 2022 and 2021. The consequences lie in the fact that Ridley's better performance involves more financial position, stronger stock price and increased investor confidence. Contrarily Ingham is required to address areas like gross margin as well as operating efficiency to improve profitability along with competitiveness in the market.

Figure 12: liquidity ratios of both firms

Ridley performed better in terms of current ratio in 2022 and 2022 demonstrating a potential ability to cover short-term obligations with its current assets. Contrarily, Inghams outperformed Ridley in the quick ratio as well as cash ratio showing better ability in covering its short-term financial obligations without too much relying on its inventory.

Consequences

The consequences of these liquidity performances might impact how each firm manages its short-term financial needs, positions itself and handles unexpected expenses for growth. In this process, Ridley’s better current ratio suggests it has a stronger safety net against its short–term financial challenges. While higher quicker and cash rates of Inghams indicate a better ability to respond to liquidity needs in its business operations.

Figure 13: Efficiency ratio of both firms

Ingham appeared to outperform Ridley in terms of managing inventory days as well as account receivable days demonstrating more efficient inventory turnover along with a faster collection of payments. However, Ridley also has longer account payables days indicating a relatively longer time to pay its supplier. Lastly Ridley has a shorter duration of working capital cycle as compared to Inghams suggesting more efficient working capital management.

Consequences

The consequences of efficiency or working capital ratio performances can impact each firm’s cash flow and relationship with customers and suppliers (Seth et al, 2021, p 2). The efficiency of Ingham in managing inventory as well as receivables may render advantages in cash management. However, the longer account payable days might need to be managed efficiently to create of maintain relationships with suppliers.

Figure 14: Leverage ratio of both firms

From the above figure, it can be analysed that Ridley maintained lower debt-related ratios consistently demonstrating a more conservative approach to debt management as well as lower reliance on the external financing sources as compared to Inghams. On the other hand, Inghams had a higher debt-related ratio demonstrating a higher reliance on debt financing.

Consequences

The consequences of these leverage performances might impact each firm’s financial stability, capability to secure financing along with risk exposure (Munangi et al, 2020, p 2). In this process, Ridley’s lower reliance on debt renders more stability whereas Ingham's higher leverage can be a strategic decision for growth however it comes with higher financial risks.

Figure 15: EPS of both firms

The higher EPS of Ridley as compared to Ingham's indicates potential earnings per share for Ridley in the current year.

Consequences

The consequences of the EPS performance for both firms likely influence investor perception and their overall financial performance. Positive EPS is for growth perception and vice versa. For both firms, it appeared to be positive.

Recommendation

Ridley

Profitability improvement: Ridley has shown fluctuations in its profitability ratios over the years. However, it can be improved by focusing on cost management and pricing strategies. It would be effective for Ridley to implement cost-saving measures like implementing dynamic pricing models which adjust product prices on the basis of factors such as demand, competitor pricing and seasonality.

Increasing efficiency of working capital ratio: The efficiency ratio of the firm fluctuates significantly. This can be improved by streamlining inventory management as well as accounts receivable collection. It would be effective for the firm to implement Just-in-time inventory practices along with offering incentives for early payment to its customers.

Market Share Expansion: Ridley has reported an increase in sales volume in the packaged feeds segment and others. Therefore, it would be effective for this to continue expanding market share in growing segments. Investing in marketing as well as distributing would aid in reaching a broader customer base.

Inghams Group Limited

Gross Margin Enhancement: Though this firm has a potential gross margin, further improvement can be made. This firm may evaluate pricing strategies as well as cost-efficiency measures like optimising product pricing in order to maintain profitability at the sametime and provide flexibility to remain competitive in the market.
Debt management: It is essential for Inghams to manage its debt because it has a higher level of financial leverage. It can be done by carefully monitoring as well as managing debt levels to mitigate financial risk. Let's say, this firm may consider refinancing in order to secure more favourable interest rates.

Liquidity management: Since this firm has lower current ratios it can enhance cash flow forecasting to ensure sufficient liquidity in meeting its operating needs.
Profitability stabilisation: This firm has reported significant fluctuations in its net profit margin. Therefore, it becomes important to focus on stable pricing and cost-control strategies to retain more profits. This can be done by implementing hedging strategies to reduce the impact of volatile input costs.

Conclusion

In conclusion, the analysis of Ridley and Ingham's firm financial performance with the help of key ratios renders valuable insights into their respective strengths and weaknesses and further highlights areas for improvement. Ridley demonstrates stronger profitability with higher gross and net profit margins and its lower leverage ratios contributing to having a stable financial position. Whereas for Ingham it has exhibited a robust profitability however it faces challenges in leverage ratios and a decline in sales in the current year. Careful implementation of the recommended measures could help Ridley as well as Ingham enhance its financial performance along with secure its position in the highly competitive market.

References

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Dabi, R. S. K., Nugraha, Disman, and Sari, M. (2023). Capital structure, financial performance and sustainability of Microfinance Institutions (MFIs) in Ghana. Cogent Economics & Finance, 11(2), 2230013.https://www.tandfonline.com/doi/abs/10.1080/23322039.2023.2230013

Herison, R., Sahabuddin, R., Azis, M., and Azis, F. (2022). The Effect of Working Capital Turnover, Accounts Receivable Turnover and Inventory Turnover on Profitability Levels on the Indonesia Stock Exchange 2015-2019. Psychology And Education, 59(1), 385-396.https://www.academia.edu/download/80385379/Article_Roni_et_al_2_2022.pdf

Husain, T., and Sunardi, N. (2020). Firm's Value Prediction Based on Profitability Ratios and Dividend Policy. Finance & Economics Review, 2(2), 13-
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Investors.inghams.com.au. (2022). Retrieved from https://investors.inghams.com.au/Resources/files/INH0029%20Inghams%20AR22_PFO2_Web.pdf

Kariyawasam, A. H. N. (2019). Analysing the impact of financial ratios on a company’s financial performance.http://dr.lib.sjp.ac.lk/handle/123456789/11904

Park, H. and Kim, J.D., 2020. Transition towards green banking: role of financial regulators and financial institutions. Asian Journal of Sustainability and Social Responsibility, 5(1), pp.1-25. https://link.springer.com/article/10.1186/s41180-020-00034-3

Munangi, E., and Bongani, A. (2020). An empirical analysis of the impact of credit risk on the financial performance of South African banks. Academy of Accounting and Financial Studies Journal, 24(3), 1-15.https://www.academia.edu/download/75798685/An-Empirical-Analysis-of-The-Impact-of-Credit-Risk-on-1528-2635-24-3-554.pdf

Ridley.com.au (2019). Retrieved from https://www.ridley.com.au/about/

Ridley.com.au.(2023). Retrieved from https://www.ridley.com.au/wp-content/uploads/2022/09/Ridley-AR-2022-FINAL.pdf

Seth, H., Chadha, S., Sharma, S. K., and Ruparel, N. (2021). Exploring predictors of working capital management efficiency and their influence on firm performance: An integrated DEA-SEM approach. Benchmarking: An International Journal, 28(4), 1120-1145.https://www.emerald.com/insight/content/doi/10.1108/BIJ-05-2020-0251/full/html