FIN600 Financial Management Case Study Sample

FIN600 Financial Management Sample

Context

The purpose of the assignment is to provide you with the opportunity to apply the knowledge and skills acquired in FIN600 Financial Management, to a practical task, involving the use of ‘real‐world’ accounting information. This is intended to consolidate your accounting knowledge and skills.

Instructions

The basic requirement is to undertake a general financial analysis, comparing financial position and performance over the two most recent financial years, of an ASX listed company. Your Learning Facilitator will provide the details of the ASX listed company. The annual report for the chosen company should be available on the company website and/or will be provided by your Learning Facilitator.

Note: Assessment 2 submissions based on the incorrect company or a company not chosen by the Facilitator will be regarded as a Non-Submission and no grade will be allocated.

Non-Submissions of Assessment 2 will prohibit a Supplementary assessment for the student.

The analysis should consider each of the following financial ratios:

- profitability and market performance
- efficiency,
- liquidity,
- capital structure

Note: Please use the ‘consolidated’ data in conducting your analysis.

You are only required to look at the most recent financial report. For those ratios which involve averages, you will calculate an average for the most recent year only, the prior year ratio calculation will NOT consider average calculations.

A written report

The written report is the main element of this assessment. A sample template is provided under the assessment 2 information, FIN600 Assessment 2 report template.doc.

The written report should:

- Explain what is revealed by the ratios and other calculations, in the context of the company’s profitability, asset efficiency, liquidity, capital structure, and market performance.

- In particular, any important changes over the two financial years should be identified, discussed and, where possible, explained.

- Provide an overall assessment of whether the company, over the recent financial year, has been better than the previous financial year, in the perspective of existing equity investors (shareholders).

In preparing this report, students should:

- analyse the financial statements of the business;

- identify key ratios and apply ratio analysis;

- argue the case of why the organisation may or may not succeed in the future and what the business should be doing to help it succeed;

- consider the impact of the political and competitive environment on the business;

- include external factors that need to be taken into consideration and the likelihood of a merger or acquisition;

- provide a recommendation, that is, would you invest in this company after your own analysis or under what circumstances would you buy/save the business?

Solution

INTRODUCTION

Financial management is a function of business that deals to invest many resources for better investments. Financial management is a plan, process, organization, and control of all the transactions related to the business. It includes analyzing the money and investments for a particular person as well as useful for businesses to make a particular decision. For this assessment, the selected organization is Bega cheese limited. It is an Australian diversified dairy company that was founded on 15th July 1899. It is one of the largest business organizations in the dairy sector in Australia in the year 2018. As per the MBA Assignment Expert The business segments of Bega cheese Ltd. include code dairy ingredients such as cream cheese, cheese, and milk as well as make approximately 35% of the income. In the year 2020, Bega cheese's limited revenue was from exports holding 15.7% ( Bega Cheese Limited 2021).Half of the shares are still held by Bega farmer suppliers. Understanding the financial planning of Bega cheese limited is helpful to improve its financial performance also. This report covers ratio analysis to identify the current financial performance and economic Outlook. Such recommendations are helpful to identify the financial performance and cover the overall summary in this report. 

MAIN BODY

Performance of financial and economic viewpoint

The above information demonstrates that Bega cheese limited maintains their financial performance as per the statement of financial. It is also helpful to increase the working capital which is divided by the shareholders and directly impacts the earnings. To accomplish the economic health or overall health of the business organization, this business has acquired other businesses so that the business can run smoothly. It directly indicates the suitable administration of the business.

Ratio Analysis 

The term ratio analysis is a method to identify the liquidity position and profitability position of the business organization by studying the statement of financial. Bega cheese limited maintains their performance of financial by studying the financial information. It is also helpful to compare the current year and the previous year. It gives the development in this report that is related to a particular item and is helpful to appreciate the potential growth in the firm. It is also helpful to provide the proper financial information so that managers can take a particular decision and divide the dividend to the shareholders. To understand the profitability and market ratios, it is useful to identify the gross profit, return on equity and return on assets which are described below:

Profitability ratio 

The term profitability ratio is helpful to assess the business's capability to generate income, price, balance sheet, and shareholders' equity. The profitability ratio is calculated only to generate the revenue as compared to the expenditure and the cost is connected with the income. The profitability share is helpful to analyze the proper earning ability in the business. It can be interpreted that Bega cheese limited have enhanced its profitability ratio by 3 times in the 2021 whereas sales have been also developed by 39% which directly impacts the administration's expenses which are controlled by the manager. If there is superior profitability in the firm then there is a higher net profit in the business organization (Shakatreh, 2021).  The net profit is 300% in the year 2021 while the gross profit of the Bega cheese limited is decreased by twice in the present year ( Bega Cheese Limited 2021). The gross profit ratio has incresed in the present year in contrast to the past year. The net profit ratio is superior because the net value is decreased by one percent which directly impacts the return on equity. 

Source :  (For detail computation please refer to FIN600Assessemnt 2 Appendix Template )

The disclosure of the business organization is mainly dependent upon the operating capital in a very suitable manner. Expenditure ratio has maintained according to the percentage and compared to the past year. It shows that there is no improvement in the expenses in the previous year. To maintain the cash flow in the business organization, operating activity or operating ratio has enhanced by 10.36% in the present year an directly impacting the net cash flow (Muhammad, & Muhammad, 2021). The earnings per share of the business are increased because the administration has maintained their superior return as compared to the past year. It is also helpful to maintain the position of financial in the marketplace and the payout ratio for the dividend has maintained the same  which directly impacts the dividend per share of the business. The price earnings ratio has also decreased in the present year and the earnings per share of the business are superior as compared to the previous year ( Bega Cheese Limited 2021).

Liquidity ratio 

The term liquidity ratio is a financial metric that is helpful to identify the data capability whether firm pay a debt or not. It is helpful to measure the capability of the business to use cash or quick assets immediately (Arsyad &Pelu, 2021).  If there is a good liquidity position in the firm then it indicates that the company is in good financial health condition and meets its current liability. The liquidity ratio represents that Bega cheese limited has maintained their position in the business organization as compared to the current asset and current liability. It is also helpful to understand the net cash flow of the business. The above table demonstrates that the current assets of the company are increasing by  102% whereas the current liability of the business has increased by 110% directly impacting the current ratio of the firm adversely . The quick ratio has demonstrated increasing trend  and lead to increase such ratio. The total net cash flow is superior in the present year due to superior cash flow.

Source :  (For detail computation please refer to FIN600Assessemnt 2 Appendix Template )

Efficiency ratio 

An efficiency ratio measures the firm's capability to use its assets and generate revenue. It takes time to collect cash from the clients and convert stock into cash (Goel, 2016).  The efficiency ratio of Bega Cheese Limited represents debtor turnover ratio of the firm has decreased by 20% whereas the sales have been superior by 39% directly impacting the policy of credit of the business organization. It is also helpful to provide the appreciation of operating capacity so that business runs easily. In the year 2021, the Debtor's turnover ratio has been reduced but the working capital of the business organization decreased by 12.60% in the year 2020 which directly impacts the working capital ratio. Income of the Bega cheese limited is superior whereas the fixed assets have been also superior by 3% and directly impacts the fixed asset turnover ratio. It gives that this business used FA ratio in a very suitable manner so that total assets used in a very optimal manner (Ratios and the health of your business. 2017). The asset turnover ratio of the business has been enhanced because stock turnover days has superior and there is a superior worth of stock for the firm. The debtor days have been developed because it takes time to decrease and gather all the cash which are related to the businesses. There is a lack of cash also in the stock turnover ratio because the COGS is decreased and directly impacts the liquidity position ( Bega Cheese Limited 2021).

Source :  (For detail computation please refer to FIN600Assessemnt 2 Appendix Template )

Capital Structure Ratio 

The structure capital ratio of Bega cheese limited is decreased by 22% because this firm provides a proper appreciation of capital arrangement in the business. The asset of Bega cheese limited is higher  by 50% which directly impact the assets ratio of the business (Anonymous 2020).  The debt ratio of Bega cheese is higher and directly impacts the low-risk capital. The coverage percentage has decreased due to the operating flow of clash in the present year as well as the earnings before interest and taxes superior by 12% provide the superior financial price.

Source :  (For detail computation please refer to FIN600Assessemnt 2 Appendix Template )

The above information demonstrates that Bega cheese's limited financial data shows better position in the present year and it will be directed by the top authorities (Fields, 2016).  The liquidity position and the profitability position should also be developed in Bega cheese limited as well as an understanding of the policy of credit or administration of money of the firm.

Recommendations 

It has to be recommended that in this report profitability ratio, liquidity ratio, efficiency ratio, and capital structure ratio perform better in Bega cheese limited. It is also helpful to analyze by different ratios only to identify the financial planning or financial data in the business. The profitability ratio of Bega Cheese Limited represents that there is a proper percentage that would be described whether it is gross profit, net profit, operating profit, and many more. Many ratios have to be identified in the context of Bega cheese limited which is described below:

Profitability ratio: This ratio directly impacts or indicates how much profit is earned by the business organization and at what time. This ratio is helpful to evaluate the gross profit, net profit, and operating profit. In this report, the profitability ratio of Bega cheese limited is helpful to evaluate and compare 2 years that is 2021 and 2020.  It has to be recommended that the profitability ratio directly impacts the income or sales because there is no difference between the both. Furthermore, this company faces pressure in the year 2020 because they don't maintain a profit according to the profitability ratio and it can be measured as a good option. The profitability ratio is very important for the business because the price of the business has enhanced (Tabash, & Hassan, 2017).

Liquidity ratio: The liquidity ratio of Bega cheese limited represents the proper capacity of the business whether the firm can repay its liability or not. In this report, this firm is also using the current asset, current liability, and quick ratio. It is also helpful to evaluate and contrast between the present years as well as the past year. The liquidity position of Bega Cheese Limited is going downward nature. Moreover, the current ratio of Bega cheese limited also maintains a liquidity position in the year 2020 and it can be measured as a good investment option. This will be depicted that the current ratio of the business has enough current assets to release the current liability ( Bega Cheese Limited 2021).

Efficiency ratio: The efficiency ratio of Bega cheese limited is computed only to evaluate the current position of the business organization and whether the dividend is distributed by the shareholders or not. In this report, the efficiency ratio has also been enhanced because it can directly impact positivity. For example, the account receivable ratio has enhanced and understands the policy of credit due to the compilation era (Bitar,  Pukthuanthong,  & Walker, 2018). Bega cheese limited gathers all the cash from the clients in the very short term which directly impacts the flow of cash. The stock turnover ratio has also developed because the holding period is decreased and directly impacts the shareholders. So the investors and shareholder does not consider as a good option.

Capital structure ratio: The capital structure ratio of Bega cheese limited is computed only to evaluate the financial position of the firm and whether the company goes for the investment option or not. The company is relying on that equity as a better option to invest in many resources. (Greuning, &BrajovicBratanovic, 2020). In the context of Bega cheese limited, the structure capital ratio reflects that the company's position is down because they do not repay long-term debt.

CONCLUSION 

As per the above information, it has been concluded that the financial position of Bega cheese limited is performing well. They maintain their profitability ratio, liquidity ratio, efficiency ratio, and capital structure ratio of both the year which is 2020 and 2021. It has to be analyzed that all the ratios reflect a good position as compared to the previous year and investors looking for a good investment option. The company is also exploring all the options whether it is related to merger, acquisition, fresh marketplace, enhance share market, and many more. The manager of Bega cheese limited identifies the net profit ratio, operating profit ratio, gross profit ratio, and capital structure ratio for the long term. This company provides various opportunities to complete the goals & objectives because it is a diversified Australian dairy company that provides financial and non-financial products also.

Reference 

Annual report of the Bega Cheese Limited has been retrieved  from https://www.begacheese.com.au/wp-content/uploads/2021/09/106401_Bega-Annual-Report-2021-Bega-Annual-Report_V23_Small.pdf

Anonymous. (2020). German enterprises' profitability and financing in 2019. Monthly Report of the Deutsche Bundesbank, 72(12), 65–81.https://lesa.on.worldcat.org/oclc/8907423391

Arsyad, M., Haeruddin, S. H., Muslim, M., &Pelu, M. F. A. R. (2021). The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), 36–36.https://lesa.on.worldcat.org/oclc/8987260723

Bitar, M., Pukthuanthong, K., & Walker, T. (2018). The effect of capital ratios on the risk, efficiency and profitability of banks: evidence from oecd countries. Journal of International Financial Markets, Institutions & Money, 53, 227–262. https://lesa.on.worldcat.org/oclc/7258848987

Chen, X., He, W., Tao, L., & Yu, J. (2022). Attention and underreaction-related anomalies. Management Science, (20220309). https://lesa.on.worldcat.org/oclc/9441487163
Fields, E. (2016). The essentials of finance and accounting for nonfinancial managers (Third, Ser. Business professional collection). AMACOM, American Management Association. Retrieved August 13, 2022.https://lesa.on.worldcat.org/oclc/934794155

Goel, S. (2016). Financial ratios (First, Ser. Finance and financial management collection). Business Expert Press. Retrieved August 13, 2022,https://lesa.on.worldcat.org/oclc/935736451

Greuning, H. van, &BrajovicBratanovic, S. (2020). Analyzing banking risk : a framework for assessing corporate governance and risk management (Fourth). World Bank Group. Retrieved August 13, 2022https://lesa.on.worldcat.org/oclc/1159170255.

Muhammad, A., Sitti, H. H., Muslim, M., & Muhammad, F. A. R. P. (2021.). The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), 36–44.https://lesa.on.worldcat.org/oclc/9118288669

Ratios and the health of your business. (2017). Telegraph-Journal, D.1, 1.https://lesa.on.worldcat.org/oclc/7059427449

Shakatreh, M. (2021). The effect of liquidity ratios management on the profitability of industrial companies listed on the amman stock exchange. Accounting, 1131-1138, 1131–1138. https://lesa.on.worldcat.org/oclc/8947386231

Suratmi, &YustinaRahmawati, I. (2020). The effect of profitability ratio, liquidity ratio, leverage ratio, and company size on sukuk rating corporation during 2014-2017 periods. Shs Web of Conferences, 86.https://lesa.on.worldcat.org/oclc/8700290562

Tabash, M. I., & Hassan, H. I. (2017). Liquidity, profitability and solvency of uae banks: a comparative study of commercial and islamic banks. Academy of Accounting and Financial Studies Journal, 21(2), 1–15.https://lesa.on.worldcat.org/oclc/7288318428