COMPANY PERFORMANCE ANALYSIS

Requirement

1- Write a report on "COMPANY PERFORMANCE ANALYSIS" in approx 3000 words with reference to company named "Crown Resorts Limited" data.

Solution

I.Introduction

It is necessary to measure the performance of the companies. It is mostly done for stakeholders who are interested in the financial performance of the company. It helps to determine the financial stability of the company. It is an effective way to determine the company in which investment could be done. This paper will analyze the financial perform ace of the crown resorts limbered. It is is an ASX listed company. it is one of the largest groups of entertainment in Australia. It has a major contribution to Australian employment, training, tourism, and programs related to social responsibility. It has a portfolio in Sydney, Perth, and Melbourne. Under the year 2018, the net profit of the company was $326.7 million. Melbourne market has a significant contribution to this profit. It has managed to increase the revenue for several periods. It was founded in the year 2007 on 31st if may. It operates in the gaming and tourism industry. The predecessor of this c company was publishing nod broadcasting limited. 
This paper will analyze the financial performance for three years. These years are 2015-2016, 2016-2017 and 2017-2018. The financial statement of the company will be the major source to extract the information of the company. The annual report published for the listed years will be taken into consideration. this will help to analyze the ratios like profitability and an operating ratio of the company. Again, there will be a consideration on the cash management analysis for the company. It will help to reflect the cash in hand for the company. these are the major assessment through which investment decisions could be made. Systematic and unsystematic frisk will also be determined. The dividend payout ratio and dividend policy for the crown resort limited will be considered in the report. The recommendation will be provided after making the calculation. (Crownresorts, 2019)

II.Financial analysis of Crown Resorts Limited

This section is the performance of the company in monetary terms. This will also include a description of the company. 

2.1.Crown Resorts Limited description

Crown resort limited is an ASX limited company. It was being founded in the year 2007. It has completed its 11 years of incorporation. The predecessor of this companies is publishing and broadcasting limited. It has entered in the market of Las Vegas in the year 2008 by acquiring 19.6% of Fontainebleau resorts. It has entered in the market of Sri Lanka in the year 2013 after the government has provided the approval to enter into the market. 2014 was also the major year for the company. it has made a venture with the Betfair by acquiring 50 percent if the company. it has managed to increase the consumer volume year after year. There is 640 staff present in the company according to the data of 2015. It was involved in illegal advertising in the year 2016. However, it has managed the situation and there was no conviction. It used to present its financial statement at the end of the sixth month of each reporting year (Damodaran, 2016). This means that it presents its report on the 30 June every year. The major focus if the company is to increase the dividend return for the shareholders. It has made a strategy for the development of Australian operations which are termed to be world class. 
It is the most successful company in the sector of tourism and gaming. This is the most comparative advantage. This is because it has managed to acquire a strong position in the market. It is in continuous practice to identify the opportunities that could help the company in increasing its area of operation. It used to provide skill-based coaching or training to their employees. This helps them to cater to the best service in their sector. They follow the major rule of the hospitality industry to meet the expectations of the consumers. This termed to be the major advantage for the company. it faces major competition from the red rock resorts and century casinos. This has not the business if the company down (Fanet al. 2016). It is emerging in many markets gradually. Therefore, this is the major contribution area in the field of comparative advantage for the company. (Asx, 2019)
EBITDA of the company for the year has been increased by 10.6 percent. This the result if the VIP program which has major recognition which has increased by 54.5 percent. It has declared 30 percent of dividends on each share. the annual dividend had reached 60 percent. It is major for investors who want to invest in the company.

2.2.calculation and analysis of selected performance ratios

The financial statement of the company is a major source of information. It helps in determining the several ratios of the company. This section will cover the profitability and operatingratiosof the company. profitability ratios will help to reflect the profit portion of the company. On the otherhand, the operating ratio will help to know the working capital management of the company. it helps in determining the operating activities of the company. [Referred to appendix 1]
The profitabilityratio that has been determined for the company are:

  • Net profit ratio- This helps to determine the profit of the company after making all the adjustments for the indirect expenses are the company. this will help to know the position of the company in delivering the profit to the shareholders of the company. this has been seemed to be reduced for the company. It was remarkable in the year 2015-2016. This has led the company to earn the advantage of being in a profitable position. The trend of delivering a dividend to the shareholders is beingmaintained by the company in many of the unfavorable conditions (Lane and Rosewall, 2015). This has become the major growth area for the company. It has been increasing by the company has the more indirect expenses. This reducing the profit of the company. The major expense is the income tax of the company. the major reason for the reduction in the profit is an adjustment of the expenses. These are the expenses that are not directly related to the manufacturing process of the company.it includes rent, advertisement expenses, depreciation and many more. 

  • Gross profit ratio-    The gross profit ratio of the company for the year 2016 was 35%. It was not able to maintain the trend of growth in the year 2018. It was only 23 percent in that particular year. The gross profit comes from the trading activities of the business. It is the figure which is shown before making the adjustment for the operating expenses for the company. previous rends if the company in the gross profit are acceptable. Significant changes have been discovered during the last year data for the company. the income statement is the major source of information for the stakeholders (Al?Hadiet al. 2017). This helps in analyzing the most vital part of the financial performance of the company.

2.3.cash management analysis

Cash management refers to the procurement of cash for the operating activities ofthe company. It is notable that all the cash for day to day activities of the business could not be procured from the working capital. Therefore, the company used to employ several other methods to inject capital in the business. This is being done to maintain the flow of cash in the business.  There needs to be a balance between the inflow and outflow of the cash in the company.

  • Mutual funds:It has been found under the notes to accounts of the company that it trades with the mutual funds. It is trading across the country and with other foreign markets.  This has led to the major source for the procurement of the borrowed fund. The company is depended on the debt fund to inject capital in its operating activities.  This was a major in the year with 9.4 million dollars. The currencies are being converted in the presentation currency of the crown resorts (Cumminget al. 2017). The differences thatare raisingfrom there translation of the currency are being recognized as the other income (comprehensive) by the company. [Referred to appendix 2]

Apart from this it also issues securities to procure fund for the cash management in the business. Securities are being traded by prospective buyers. They are the shareholders of the company. It is also dependent on the debt fund like debentures to procure funds for the day to day activities of the business. This helps the company to meet its target for fund management. Debt and equity fund are the major areas that are targeted by the company for fund management. It helps to raise the required cash for the business. There are short term deposits with maturity time of three or less than that. This is readily cash convertible and helps the company in managing the risk. This is generated from the changes in the futures aspect of the values. There are contractual cash flows which help in the management of the financial assets (Dungeyet al. 2017). This helps the company in managing several aspects of the risk that could take place due to the unavailability of the cash for the operational activities.
Depreciation and amortisation are calculated on a straight-line basis over the estimated useful life of the asset as follows: 

  • • Buildings - 40 to 75 years; 

  • • Fixtures and Fitting in buildings - 4 to 20 years; and

  •  • Plant and equipment - 2 to 20 years

Under the given circumstance the crown is going to launch a new product. The expectation of the selling price of the product is 20 per unit AUD dollar. The company expects that it could sell 300000 unit each year. The price will get the same for the four years. There need to the installation of the equipment which cots 2000000 for the company. it will inject 6000000 in the working capital which could be retrieved at the end of the investment period (Bamiatziet al. 2016). 
The first change in the value driver is when unit sales decrease by 10 percent. this has been assessed as adding the amount of the depreciation in the profit after tax of the company. The depreciation amount has been calculated as 450000. The value if NPV calculated from this change is 2635593. This means that the net present value of this product by decreasing the unit sales by 10 percent us 2635593. 
Again, in the case of the price per unitdecrease by percent the value if the NPV calculated as 1601155. This below the NPV calculated for the previous year. This change is not considered for the business. It is also lower than the original value if the NPV without taking the changes (Alfaro et al. 2017). 
Under the variable cost per unit increases by 10 percent the value of the NPV is 2149642. This is higher than the previous change but it also lower than the actual NPV calculated fur the new launch. This will also not make a big effect of the cash management of the company (Bruno and Shin, 2017). therefore, it is not a major change that could be considered. 
Cash fixed cost increases by 10 percent in the last change. This change is seemed to be remarkable and is showing a significant amount of NPV from the change. This brings the amount very close to the original NPV calculated for the project. Therefore, all changes are not seemed to be much significant. The original NPV is more likely to manage the cash flow of the company (Kanget al. 2017). 
NPV shows the net amount that could be retrieved from the project. The calculation for the NPV of the new launch of the product shows that there are significant changes in the values of the NPV after taking the changes into consideration. The major changes have been taken place due to the price per unit decreased by 10 percent. this has made the revenue or cash inflow of the project at a lower value (Avdjievet al. 2019). This means that there will be less cash generated from each unit if they sell.  this will decrease the expected amount of cash from the business. Therefore, it is mandatory to calculate the NPV from the project. 

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2.5. systematic and unsystematicrisk

Systematic risks are those risks that are associated with the market segment or the entire market. It is the expectation of the loss which could arise from the particular area of the market and market as a whole. Crown resort has identified these risks and stated in the annual report of the company. these risks might change year after year. However, there are certain risks that do not change for the company. this is classified as:
Under the given circumstance the crown is going to launch a new product. The expectation of the selling price of the product is 20 per unit AUD dollar. The company expects that it could sell 300000 unit each year. The price will get the same for the four years. There need to the installation of the equipment which cots 2000000 for the company. it will inject 6000000 in the working capital which could be retrieved at the end of the investment period (Bamiatziet al. 2016). 
The first change in the value driver is when unit sales decrease by 10 percent. this has been assessed as adding the amount of the depreciation in the profit after tax of the company. The depreciation amount has been calculated as 450000. The value if NPV calculated from this change is 2635593. This means that the net present value of this product by decreasing the unit sales by 10 percent us 2635593. 
Again, in the case of the price per unitdecrease by percent the value if the NPV calculated as 1601155. This below the NPV calculated for the previous year. This change is not considered for the business. It is also lower than the original value if the NPV without taking the changes (Alfaro et al. 2017). 
Under the variable cost per unit increases by 10 percent the value of the NPV is 2149642. This is higher than the previous change but it also lower than the actual NPV calculated fur the new launch. This will also not make a big effect of the cash management of the company (Bruno and Shin, 2017). therefore, it is not a major change that could be considered. 
Cash fixed cost increases by 10 percent in the last change. This change is seemed to be remarkable and is showing a significant amount of NPV from the change. This brings the amount very close to the original NPV calculated for the project. Therefore, all changes are not seemed to be much significant. The original NPV is more likely to manage the cash flow of the company (Kanget al. 2017). 
NPV shows the net amount that could be retrieved from the project. The calculation for the NPV of the new launch of the product shows that there are significant changes in the values of the NPV after taking the changes into consideration. The major changes have been taken place due to the price per unit decreased by 10 percent. this has made the revenue or cash inflow of the project at a lower value (Avdjievet al. 2019). This means that there will be less cash generated from each unit if they sell.  this will decrease the expected amount of cash from the business. Therefore, it is mandatory to calculate the NPV from the project. 

2.5. systematic and unsystematicrisk

Systematic risks are those risks that are associated with the market segment or the entire market. It is the expectation of the loss which could arise from the particular area of the market and market as a whole. Crown resort has identified these risks and stated in the annual report of the company. these risks might change year after year. However, there are certain risks that do not change for the company. this is classified as:

  • Business risk: It has been found that business in the Perth area are deemedto be of market changes. This is being maintained by the company with the help of the risk management criteria. However, the company has disclosed this risk as a systematic risk in its annual report (Mackaya and Haque,2016.). It is specific to the company and could be considered as systematic risk for the company.

  • Financing risk: This has been raised in the year 2016 for the company. it has managed to handle the situation. This risk raised from managing the operating activities if the company. it is significant in this case as it could major changes in the financial performance of the business (McCauleyet al. 2015). There could be possible chances of increasing this risk from the 

Unsystematic risks are those risks that could be eliminated through the diversification and changes in the portfolio. This is being identified for Crown Resort Limited as:

  • Weather conditions: This has been stated by the company in its annual report as weather conditions hamper the business. People used to travel according to weather conditions (Noret al. 2017). Therefore, when the weather conditions are not good business could make significant revenue. 

  • Labor problems: All the employees are nut possessed with the required skill. Customers need to be handled gently to increase goodwill. Therefore, company has taken initiate to train the employees and launch its own training program for the newcomers.

2.6.Dividend payout ratio and dividend policy

Under the year 2017-2018 crown resort has offered a significant dividend to the shareholders. Previous ratios are lower than this period but are not bad. This helps the company to maintain the trust of the shareholders on the company. Its issues share to the general public as well.
The dividend policy of the company follows a 60 percent issue of the share on a yearly basis. During the year 2017, the firm has paid $1110.8 million to the shareholders. This has changed in 2018 with 413.4 million dollars. This is the reason the dividend payout ratio changes to down place (Caballeroet al. 2016). The firm follows the dividend policy according to the financial position. This is the reason it has paid less in the year 2018. [Referred to appendix 3]

III.Recommendation letter

Dear client, 
The assessment of the financial position of the crown resort limited has been taken into consideration. It has been found that there are fluctuations in the profitability ratio like the net profit of the company. Operating ratios like the asset turnover ratio is remarkable for the company(8.16, 0.39 and 0.43 for 2016, 2017 and 2018 respectively). The cash management shows that it could make proper cash available for several activities of the business(working capital cash of $130.9 million). The NPV calculation of the new project has been considered in different circumstances. It has been found that the dividend policy of the compact follows 60 percent of the dividend to the shareholders. This changes according to the finicalconditions. There has been significant distribution of dividend in the year 2017. This does not mean that the company is going to take the same decisions. This is because net profit of the company is continuously decreasing, and there is reduction in the dividend by 2 times (from 2017-2018). 
Therefore, it is recommended to hold the plan for investment in the company. It could be stated when the company starts to earn a stable profit. This will allow earning a stable income on the investment being made with the company.  
Thanking you
Yours faithfully 

Investment analyst

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IV.Conclusion

Assessment has been made for several financialpositions of the company. It has been found that it is performing well. Under the year 2017, it has made some remarkable profits. The significant impact has made from the changes which show that cash fixed cost increase by 10 percent. This had made the NPV become closer to the original amount of the NPV calculated for the project.  There has been an increasing in the fixed cost which does not hamper the variable cost. Fixed cist brings the flow if the working capital in the business. This brings positive changes in the cash flow of the company. therefore, it could be said that the change which brings remarkable change. It has been found under the notes to accounts of the company that it trades with the mutual funds. It is trading across the country and with other foreign markets.  This has led to the major source for the procurement of the borrowed fund. The company is depended on the debt fund to inject capital in its operating activities.  This was a major in the year with 9.4 million dollars. Treasury bills are also available in the business to manage the cash of the company. systematic risks are an expectation of the loss which could arise from the particular area of market and market as a whole. Crown Resort has identified these risks and stated in the annual report of the company. these risks might change year after year. However, there are certain risks that do not change for the company.The most vital part is the revenue and net profit of the company which reflects the financial standing of the company in that particular year. There is a major impact on the NPV after making this amendment. The value of the NPV before this change was 3325218. The dividend policy of the company changes according to its financial performance. 

Reference list

  • Book 

  • Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). US: John Wiley & Sons.

  • Journals 

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  • Cumming, D.J., Grilli, L. and Murtinu, S., 2017. Governmental and independent venture capital investments in Europe: A firm-level performance analysis. Journal of corporate Finance, 42, pp.439-459.

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  • Fan, D., Cui, L., Li, Y. and Zhu, C.J., 2016. Localized learning by emerging multinational enterprises in developed host countries: A fuzzy-set analysis of Chinese foreign direct investment in Australia. International Business Review, 25(1), pp.187-203.

  • Kang, T., Baek, C. and Lee, J.D., 2017. The persistency and volatility of the firm R&D investment: Revisited from the perspective of technological capability. Research Policy, 46(9), pp.1570-1579.

  • Lane, K. and Rosewall, T., 2015. Firms’ investment decisions and interest rates. Reserve Bank of Australia Bulletin. June quarter, pp.1-7.

  • Mackaya, W. and Haque, T., 2016. A study of industry cost of equity in Australia using the Fama and French 5 Factor model and the Capital Asset Pricing Model (CAPM): A pitch. Accounting and Management Information Systems, 15(3), p.618.

  • Nor, N.H.M., Nawawi, A. and Salin, A.S.A.P., 2017. The influence of board independence, board size and managerial ownership on firm investment efficiency. Pertanika Journal of Social Science and Humanities, 25(3), pp.1039-1058.

  • Online Article 

  • Alfaro, L., Asis, G., Chari, A. and Panizza, U., 2017. Lessons unlearned? Corporate debt in emerging markets (No. w23407). National Bureau of Economic Research.

  • Avdjiev, S., Bruno, V., Koch, C. and Shin, H.S., 2019. The dollar exchange rate as a global risk factor: evidence from investment. IMF Economic Review, pp.1-23.

  • Caballero, J., Panizza, U. and Powell, A., 2016. The second wave of global liquidity: Why are firms acting like financial intermediaries?.58, pp.532-551.

  • McCauley, R.N., McGuire, P. and Sushko, V., 2015. Dollar credit to emerging market economies.

  • Websites

  • Asx, (2019),Asx, available at: www.asx.com.au., [accessed on 18.05.2019]

  • Crownresorts, (2019), ANNUAL REPORT 2018, available at: https://www.crownresorts.com.au/CrownResorts/files/77/773dddd5-bd54-45a8-8797-6fb6038b996a.pdf, [accessed on 17.05.2019]

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