Analysis and Interpretation Business Report. Analysis and Interpretation Business Report. Description
Television is a major industry in Australia that is always changing and facing new challenges. Two of the main participants in the industry are the Ten Network and the Nine Network. This assignment requires you to analyse the recent financial reports of these two major networks and provide a report to advise potential investors as to which company would be the best investment.
You can find the financial reports of the two Networks at the following url’s. Please note: The Ten Network has a financial year that ends on 31 August and the Nine Network has a financial year that ends on 30 June. PLEASE IGNORE THE DATES FOR THE PURPOSES OF THIS ASSIGNMENT. When completing the assignment please just use and compare the relevant years for both companies – ie 2014, 2013 and 2012.
The course Learning Outcomes assessed by this assessment task are:
LO2. Analyse and interpret information about financial position and performance;
LO3. Apply management accounting and financial management principles to basic business transactions and business decision making.
LO5. Use financial accounting data to analyse a simple investment decision
Ten Network Holdings
YE 31 August 2014
https://images.tenplay.com.au/~/media/Corporate%20Site%20Media/Files/Results/2014/TNHL%202014%20Annual%20Report.pdf
YE 31 August 2013
https://images.tenplay.com.au/~/media/Corporate%20Site%20Media/Files/Results/2013/TNHL%20Full%20Financials%202013.pdf
Nine Entertainment Co
YE 30 June 2014
https://www.nineentertainment.com.au/media/3771/NEC-Annual-Report-2014-web-.pdf
YE 30 June 2013
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REQUIRED:
PART 1. HISTORICAL FINANCIAL ANALYSIS AND INTERPRETATION
_________________________________________________________________________
You are required to provide information for potential investors of the Ten Network (Ten Network Holdings) and the Nine Entertainment Co, who are considering which of these companies would be the better investment. Accordingly you need to prepare an evaluation report comparing the two companies using the following analytical tools. Set out below are the tasks you are required to carry out and include in your report
TASK NUMBER 2 – ANALYSE AND INTERPRET THE DATA
1. VERTICAL ANALYSIS 10 Marks
From the Vertical Analysis above; identify and comment on any significant trends you can identify between 2012 and 2014 for EACH COMPANY SEPARATELY. For example – in your opinion, has any item in the Balance Sheet or Income Statement changed significantly over the period or is maybe inconsistent with other trends? If so:
o Describe the change;
o Explain why you think this has happened, and/or describe what you think is happening to the company?
o Do you think this trend is good or bad? Say why.
2. TREND ANALYSIS 10 Marks
From the Trend Analysis above; identify and comment on any significant trends you can identify between 2012 and 2014 for EACH COMPANY SEPARATELY. (For example – has any item in the Income Statement of a company shown an upward or downward trend? Why have balances or certain types of inflows or outflows in the Cash Flow Statement been increasing or decreasing?) . For the changes you identify:
o Describe the change;
o Explain why you think this has happened, and/or describe what you think is happening to the company?
o Do you think this trend is good or bad? Say why.
Don’t forget: You can use Internet research for both your vertical and trend analyses to try to
explain what happened to the Companies and help to explain trends and movements. You
can also examine the Non-financial and other information in the annual reports to see if you
can identify and explain some of the trends. Good research will be rewarded in the marking.
3. RATIO ANALYSIS 9 Marks
Based on your calculations of the ratios above for both companies:
Comment on the trends between 2012 and 2014 for EACH Ratio for
• NETWORK TEN, and then
• NINE ENTERTAINMENT CO.
(ie is the ratio better or worse in 2014 than it was in 2013 and/or 2012 for each company separately; briefly explain what you think this means based on the definition of the ratio you included above)
4. YOUR INVESTMENT RECOMMENDATION: COMPARE THE TWO COMPANIES
Using the Vertical, Trend and Ratio Analyses above, prepare a strong argument for a potential investor recommending that they invest in EITHER Network Ten OR Nine Entertainment Co. Ensure you clearly support your recommendation with facts from your analyses above.
10 Marks
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APPENDIX
Ratio Analysis Example to assist in the preparation of your assignment. This appendix does not list ALL ratios that you could use – please also refer to the Birt Text.
(This information is reproduced from the SAIBT Study Guide of Accounting for Business. Students can track the calculations of the ratios for the Income Statement and Balance sheet using the example reports provided)
ABC Limited Income Statement
for the years ended 30 June 2012 and 2011 (in $’000’s)
2012 2011
Net Sales 900 750
less COS 530 420
Gross Profit 370 330
less Expenses-.
Selling 117 75
Administrative 126 95
Total 243 170
Earnings Before Interest & Tax (EBIT) 127 160
Interest 24 30
Profit before income tax 103 130
Income Tax 28 40
Profit 75 90
Preference dividends 9 9
Ordinary dividends 24 20.8
ABC Limited Balance Sheet
As at years ended 30 June 2012 and 2011 (in $’000’s)
2012 2011 2010
Current Assets
Cash assets 38 40
Debtors 117 86 80
Inventory 180 120 100
Other current assets 55 42
Total Current Assets 390 288
Non-Current Assets 560 572 . .
Total Assets 950 860 820
Current Liabilities 112 94
Non-Current Liabilities 200 250
Total Liabilities 312 344
Net Assets 638 516
Preference Shares 100 100 100
Ordinary Shares 380 300 300
Retained earnings 158 116 . 56
Equity 638 516 456
Number of ordinary shares 500,000 400,000
Ordinary shares’ market price $0.90 $1.45
Ratio Significance of ratio Method of calculation 2012 2011
Profitability Ratios
Return on total assets Measures rate or return earned through operating total assets provided by both creditors and owners. Profit from ordinary activities before income tax + Borrowing costs
Average total assets 103 + 24 =
(860 + 950)/2 130 + 30 =
(820 + 860)/2
Return on ordinary
shareholders’ equity Measures rate of return earned on assets provided by owners Profit – Preference dividends .
Average ordinary equity 75 – 9 =
(416 + 538)/2 90 – 9 =
(356 + 416)/2
Profit margin Measures profitability of each dollar of sales. Profit from ordinary activities after income tax
Income 75 = 8.3%
900 90 = 12%
750
Gross profit margin Measures the gross profit earned per dollar of sales. Gross profit
Sales 370 = 41%
900 330 = 44%
750
Expense ratio Attempts to measure the proportion of a specific expense type as a proportion of sales. Selling expense
Income 117 = 13%
900 75 = 10%
750
Earnings per share Measures profit earned on each ordinary share. Profit from ordinary activities after tax – Preference dividends
Weighted average number of ordinary shares issued 75 – 9 = 14.7c
(500+400)/2 90 – 9 = 20.3c
400
Price-earnings ratio Measures the amount investors are paying for a dollar of earnings. Market price per ordinary share
Earnings per ordinary share $0.90 = 6.1 times
$0.147 $1.45 = 7.1 times
$0.203
Earnings yield Measures the return to an investor purchasing shares at the current market price. Earnings per ordinary share .
Market price per ordinary share $0.147 . = 16.3%
$0.90 $0.203 . = 14.0%
$1.45
Dividend yield Measures the rate of return to shareholders based on current market price. Annual dividend per ordinary share
Market price per ordinary share 24/500 = 5.3%
$0.90 20.8/400 = 3.6%
$1.45
Dividend payout Measures the percentage of profits paid out to ordinary shareholders. Total dividends to ordinary shareholders
Profit – Preference dividends 24 . = 36%
75 – 9 20.8 . = 26%
90 – 9
Liquidity Ratios
Current ratio A measure of short-term liquidity. Indicates the ability of an entity to meet its short-term debts from its current assets. Current assets
Current liabilities 390 =
112 288 =
94
Quick ratio A more rigorous measure of short-term liquidity. Indicates the ability of the entity to meet unexpected demands from liquid current assets. Cash assets + Receivables
Current liabilities 38 + 117 =
112 40 + 86 =
94
Receivables turnover Measures the effectiveness of collections; used to evaluate whether receivables balance is excessive. Net credit sales income
Average receivables balance 900 .= 8.9 times
(86 + 117)/2 750 . = 9.0 time
(86 + 80)/2
Average collection period Measures the average number of days taken by an entity to collect its receivables. 365 .
Receivables turnover 365 = 41 days
8.9 365 = 41 days
9.0
Inventory turnover Indicates the liquidity of inventory. Measures the number of times inventory was sold on the average during the period Cost of sales
Average inventory balance 530 .= 3.5 times
(120 + 180)/2 420 .= 3.8 X
(100 + 120)/2
Average days to sell Measures the average number of days taken by an entity to sell its inventory. 365 .
Inventory turnover 365 = 104 days
3.5 365 = 96 days
3.8
Operating cycle Measure of the total average time it takes from the receipt of inventory to the point at which the customer pays the debt. It is a measure of the overall efficiency of a retail firm’s core operations. Average collection period + Average days to sell 104 + 41 = 145 days 96 + 41 = 137 days
Capital Structure Ratios
Debt ratio Measures percentage of assets provided by creditors and extent of using gearing. Total liabilities
Total assets 312 = 33%
950 344 = 40%
860
Equity ratio Measures percentage of assets provided by shareholders and the extent of using gearing. Total equity
Total assets 638 = 67%
950
516 = 60%
860
Capitalisation ratio The reciprocal of the equity ratio and thus measures the same thing. Total assets
Total equity 950 = 1.5 times
638 860 = 1.67 X
516
Times interest earned (Interest Coverage Ratio) Measures the ability of the entity to meet its interest payments on borrowings out of current profits. Profit from ordinary activities before tax + Borrowing costs
Borrowing costs 103 + 24 =
24 130 + 30 =
30
Asset turnover ratio Measures the effectiveness of an entity in using its assets during the period. Income
Average total assets 900 .=
(860 + 950)/2 750 .=
(820 + 860)/2
Hoggett, Medlin, Edwards, Tilling & Hogg (2012) pages 1078 – 1079 adapted
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Analysis and Interpretation Business Report
Analysis and Interpretation Business Report
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