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Requirement
1- Write a report on organisational performance of the allocated company in 3000 words with reference to APA.
Solution
Executive summary:
The purpose of the report is to establish the level of the performance recorded by the company with the help of the financial statements and the competitive analysis. It is found that the company has been able to increase its net profits during the period of one year and improve the return on assets of the company for the corresponding period. The competitors of the company have performed better than the company for the same period.
Introduction:
The present report will undertake the analysis of the financial performance and the financial position of the company by doing several analyses involving the financial statements of the company that comprises of the income statement, balance sheet and the cash flow statement of the company. In addition to that, ratio analysis of the company will be carried out to determine the performance recorded by it in several aspects of the operations that are being carried out by the company for carrying out its business (Gyulai and Sz?cs 2017). A competitive analysis will be done to determine the relative performance of the company corresponding to the other participants carrying out their operations in the same industry.
From the above table it is possible to determine the various trends that have emerged over the period of one year in respect of the financial performance as recorded by the entity. The comparison that is being done between the results recorded by the company in the accounting period with that of the immediately preceding recording period will enable the stakeholders of the company to draw conclusion regarding the various performance indicators of the company and validate their results in respect of investing in it any further (Evans and Mathur 2014). Some of the significant conclusions that can be drawn after the conclusion of the analysis are as follows:
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a) The revenue of the company has grown by 24%. The revenue of the company amounted to 30912 and 38285 in the year 2016 and 2017 respectively. This means that the company has been able to attract new customers and increase its commercial footprint in the country significantly over the last one year.
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b) The other income of the company grew by 66%. The other income of the company amounted to 444 and 736 million in the year 2016 and 2107 respectively. The company has been able to substantially increase the revenue that is being generated in its favour from other sources than its core business substantially over the period of one year.
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c) The expenses of the company excluding the net finance cost have improved as the same recorded a decline of 22% for the period between 2016 and 2017. The reduction of the costs of the company along with the increase in the revenue of the company has boosted the profits of the company substantially and is an indicator that the company will be able to create significant value for its stakeholders in the future.
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d) The profit and loss earned by the company amounted to (6235) and 11753 million in the year 2016 and 2017 respectively. The increase in the profits of the company over the period of one year was around 289%. The profit earned by the company took a gigantic leap due to the substantial increase in the profits of the company and the reduction in the costs of the company (Afonsoet al. 2018). The combined effect of these two elements of the financial statements prepared by the company. The increase in the profitability of the company affirms the ability of the firm to create value for the stakeholders of the company.
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e) The financial expenses of the company have increased substantially over the period of one year. The financial expenses of the company amounted to 1161 and 1574 million dollars respectively for the year 2016 and 2017. The increase in the finance cost can be attributed to the rise in the interest bearing securities that had been issued by the company (Bokanet al. 2015). The finance expense of the company rose by 36%. The increasing finance expenditure to be incurred by the company can prove to be detrimental to the finance interest of the company.
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f) The profit after tax of the company amounted to (7259) and 10322 respectively for the year 2016 and 2017. It is seen that the company was able to register an increase in the profit after tax earned by it over the period of one year. The increase in the profit after tax of the company amounted to 242%. The significant growth in the net profit of the company can be attributed to the increase in the revenue that has been generated by the company from its core operations and the reduction for expenses related to the carrying out of the business activities of the company (Amelec and Carmen 2015).
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g) As the company was earning losses in the previous, it was eligible to avail significant amount of tax benefits. However, due to the increase in the profitability of the company and registering of a positive amount of net profit by the company for the period, the company will have to pay significant amount of taxes for this period. The expenditure of the company in respect of the taxation increased from (1052) in the year 2016 to 4100 in the year 2017.
Competitive analysis of the company:
It is necessary to conduct the competitive analysis of the company with other companies that are conducting business activities within the same industry. The competitive analysis helps the company and the stakeholders of the company to determine the relative performance recorded by the company corresponding to the performance recorded by other companies in the same industry (Vogel 2014). Based on the results received the stakeholders of the company can take economic decisions regarding the viability of investing in the shares of the company and the management of the company can identify the opportunities that the company is having regarding the possibility of achieving a higher profitability within the industry by improving its performance.
For conducting the competitive analysis, the company that has been chosen is Rio Tinto Ltd. For comparing the profitability of the two companies, the net profit of the two companies will be compared. Based on the results obtained from the analysis conclusions will be drawn for the performance of the company.
It can be seen that the net profit that has been recorded by both the companies for the period of 2017 amounted to Sum 6222 and Sum 8851 respectively. There is huge gap in the net profit that has been earned by the BHP limited for the period 2017 and the profit that has been earned by Rio Tinto Ltd. for the corresponding period. The reason for the difference in the net profit earned by both the companies can be attributed to several factors like the revenue that is being generated by both the companies. The revenue that is being generated by Rio Tinto for the year 2017 amounted to $40030m whereas the revenue generated by BHP Ltd. for the corresponding period amounted to $38585m. It can be observed that the revenue that is generated by both the companies has significant difference between them.
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From the extract of the annual report of the company, showing the cash flow activities of the entity the activities that contribute to the operating, investing and financing aspect of the company can easily is ascertained.
i) Operating activities:
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a) Revenue from operations: This item represents that amount of cash flow that has flown into the entity by the regular business activities conducted by the company on a daily basis. The cash flow generated in respect of this is solely concerned with the core areas of operations of the company.
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b) Dividends received: This item represents that cash flow that has been generated by the company in the form of the dividends that is received by it from the various investments it has made in the shares of other companies (Kihootoet al. 2016). Every company indulges in the investment of the amount lying unutilised with it for the time being in the shares of other companies to avoid incurring opportunity costs.
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c) Net interest paid: This is represented by the amount that the company had to pay to the lenders who have contributed to the capital of the company. The lenders range from debenture holders of the company, the banks and other financial institutions. The amount is negative because it is a cash outflow of the company.
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d) Settlement of cash management related instruments: This item represents the amount that the company had to incur in respect of the management of the cash held by it by making use of several instruments.
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e) Net taxation paid: This amount represents that amount that the company had to pay to the government in the form of statutory taxes. Tax payment is one of the most common and significant operating expenditure that is incurred by all the entities.
ii) Investing activities:
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a) Purchases of the property plant and equipment: This represents the amount that the company has spent over the period of one year for acquiring new property, plant and equipment. The property plant and equipment acquired by the company helps it in carrying out its regular business operations and create value for itself and the shareholders in the end.
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b) Exploration expenditure: This item represents the amount that has been incurred by the company in respect of exploring new areas of resources for conducting its mining activities.
iii) Financing activities:
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a) Net repayment of/ proceeds from the interest bearing securities: This item represents the amount that the company received or had to pay to the interest bearing securities held by it of the other companies or its securities that are being held by other entities (Goyal and Bhatia 2016). The negative amount signifies that the payment that is being made by the company in respect of the interest bearing liabilities is more than the receipt that is earned by it in this respect.
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b) Dividend paid: This item of the cash flow statement of the company represents the amount that has to be paid by the company to its shareholders. It is a statutory requirement of the company to pay dividends to its shareholders.
After factoring the inflows and the outflows that are being recorded by the company, it is seen that the inflows of the company are more than the outflows of the company and therefore, the company has been able to generate inflows in its favour for the accounting period.
The analysis of the balance sheet of the company reflects the financial position FO the company clearly and objectively if the relevant statutory requirements and the accounting standards have been followed for the purpose of preparation and presentation of the financial statements of the company. The balance sheet for a particular period also contains the details pertaining to the immediately preceding period. The comparison between the data pertaining to two periods can yield the significant changes that have been made by the company in the financial position of the company.
After Conducting the analysis of the balance sheet of the company, the following trends are being observed:
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a) The cash and cash equivalents of the company has significantly increased from SUM 10319 in the year 2016 to SUM 14153 in the year 2017. This shows that the company’s ability to pay off the short term liabilities that arise in carrying out the business operations has improved over the period.
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b) The trade receivables of the company have decreased over the period of one year. The decrease debtors for and the corresponding increase in the amount of the cash balance of the company indicates that the company is being able to reduce the time taken by it to receive cash from the debtors to whom it has sold its products.
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c) Property plant and equipment of the company has decreased over the period of one year. The reduction in the amount of the property, plant and the equipment of the company can lead to reduction in the level of revenue that is being generated byit, as the level of the production carried out by it will reduce.
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d) The traded and other payables of the company have increased over the period of one year. The increase in the level of the current liabilities is not a good sign for the company as this can prove to be detrimental to the liquidity position of the company. If the current liabilities of the company increases the benefit of the increase in the cash and cash equivalent of the company will not be experienced to its fullest by the company.
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e) The interest bearing liabilities of the company under the current liabilities has decreased significantly over the period of one year. The decrease in the interest bearing liabilities can further boost the cash position of the company, as the company will have to pay lesser amount in respect of the interest payable by the company.
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f) Current tax payable by the company by the company has increased significantly over the period of one year. The increase in the tax payable by the company can be attributable to the increase in the net income that is being generated by the company during the current period.
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g) The long-termliabilities of the company in respect of the interest bearing securities of the company have reduced significantly over the period of one year. The reduction in the value of the long-term interest bearing liabilities of the company will improve the level of the liquidity of the company at present and even in the future.
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After concluding the detailed analysis of the financial statements of the company, it can be concluded that the company has been able to generate increased amount of profits in respect of its shareholders. It is observed that the various measures of the company like the return on assets generated by the company have improved over the period of one year. The increased performance levels as recorded by the company will enable the company to create value for its shareholders in the end. The competitor of the company that is Rio Tinto has recorded significantly better performance than the company for the same period.
Reference
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Afonso, A., Baxa, J. and Slavik, M., 2018. Fiscal developments and financial stress: a threshold VAR analysis. Empirical Economics, 54(2), pp.395-423.
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Amelec, V. and Carmen, V., 2015. Relationship Between Variables of Performance Social and Financial of Microfinance Institutions. Advanced Science Letters, 21(6), pp.1931-1934.
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Bokan, N., Gerali, A., Gomes, S., Jacquinot, P. and Pisani, M., 2015, March. EAGLE-FLI. A model for the macroeconomic analysis of banking sector and financial frictions in the euro area. In Dynare conference.
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Enekwe, C.I., 2015. The relationship between financial ratio analysis and corporate profitability: a study of selected quoted oil and gas companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(2), pp.17-34.
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Evans, J.R. and Mathur, A., 2014. Retailing and the period leading up to the Great Recession: a model and a 25-year financial ratio analysis of US retailing. The International Review of Retail, Distribution and Consumer Research, 24(1), pp.30-58.
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Galati, G., Hindrayanto, I., Koopman, S.J. and Vlekke, M., 2016. Measuring financial cycles in a model-based analysis: Empirical evidence for the United States and the euro area. Economics Letters, 145, pp.83-87.
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Goyal, S. and Bhatia, A., 2016. Analysis of Financial Ratios for Measuring Performance of Indian Public Sector Banks. International Journal of Engineering and Management Research (IJEMR), 6(2), pp.152-162.
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Gyulai, L. and Sz?cs, G., 2017. In our study we are focusing on the average profitability of the Hungarian commercial banking sector from 2005 to 2014 with special attention on the effects of the financial crisis. In our globalized world the unavoidable question is how the profitability of our banks fits the same values of the North-American and European, especially the V4 commercial banks. In order to find a well-established answer we carried on a financial ratio analysis with the help of the Bankscope database, which was extended .... Volume of Management, Enterprise and Benchmarking in the 21st century IV, pp.97-109.
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Haff, N., Patel, M.S., Lim, R., Zhu, J., Troxel, A.B., Asch, D.A. and Volpp, K.G., 2015. The role of behavioral economic incentive design and demographic characteristics in financial incentive-based approaches to changing health behaviors: a meta-analysis. American Journal of Health Promotion, 29(5), pp.314-323.
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Kihooto, E., Omagwa, J., Wachira, M. and Ronald, E., 2016. Financial distress in commercial and services companies listed at Nairobi securities exchange, Kenya.
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Schürmann, G., 2016. A Changing Regulatory and Political Environment: What Impact Does it Have on the Analysis of a Financial Institution?. In Rating von Finanzinstituten (pp. 105-118). Springer Gabler, Wiesbaden.
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Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
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