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Requirement
Accounting For Business Decisions: the Chosen farm is FARM PRIDE FOODS LIMITED
Solution
Executive Summary
The financial analysis of Farm pride food limited is discussed in the paper. The statement of financial position reflects that the total current assets are increased in the year 2015, and non-current assets of the company are decreased. The total current liabilities are decreased in the year 2015, and non-current liabilities are also decreased in the year 2015 from the previous year 2014. The stockholder's equity of the company is increased by 20.94% which is the good financial health indicator. The statement of profit & loss shows the total revenue is decreased in the year 2015 from the previous year 2014, and other factors show the positive sign of financial position of the company. The earning per share of the company is also increase in the year 2015. The statement of cash flow shows that the cash generated from operating activities is increased by 93.8% in 2015. The cash outflow from financing activities is increased, and the cash outflow from investing activities is decreased in the year 2015. The net cash generated is increased in the year 2015 from the previous year 2014.
Introduction
In this present paper, we will discuss the financial analysis of Farm pride food limited. The financial analysis helps to take business decision making. The paper analyzes the statement of financial position, stockholders equity, statement of profit & loss, and statement of cash flow. On the basis of the analysis, the recommendations have been drawn, and the conclusion is given after the analysis.
The farm pride foods limited is the Australian farm company which provides the eggs to the Australians since seventy-five years. It is the listed company which processes, grades, supplies and markets shell eggs and it also processes the egg products within the country. The company was started as the egg and egg pulp marketing board of victoria then afterward the company becomes the Victoria Egg marketing board. The company became privatized in 1993. The company has more than two hundred employees with six farms within the country. The company supplies eight billion eggs within a week across the country. The varieties of eggs provided by the company include laid cage eggs, free range egg, and barn laid eggs with various varieties.
The management and directors of the company are committed towards the high performance and interest of the shareholders. The written consent is required from ASX for using the shareholder's information of the company for the commercial purpose.
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A. Statement of financial position
1. Total current assets
The current assets are defined as the assets which can easily convert into the cash within one year. The current assets are comprised of account receivables, cash and cash equivalents, prepaid expenses, marketable securities and others. The total current assets in the year 2015 are 21,041 and in the year 2014 are 21,296. The total current assets of the company are decreased by 1.21%. The total current assets are decreased due to a decrease in inventories and biological assets. The assets which are increased are namely, cash and cash equivalents, receivables, and other assets. The total assets are 50,776 so the total current assets are 41.4% of the total assets in the year 2015 and the total assets in the year 2014 are 54,538, so the total current assets are 39% of the total assets (Annual Report 2015 et al., 2015). The total assets are comprised of total current assets and total non-current assets. The total current assets are not decreased in the high percentage which is the acceptable condition of the current assets. The liquidity ratio in the year 2015 is 1.29 and in the year 2014 is 0.80, so the current financial position is good.
2. Total non-current assets
It is defined as the assets which cannot be converted into cash within one year. It is also known as long-term assets. The non-current assets comprise of long-term investments, intangible assets and others. The total non-current assets in the year 2015 are 29,735 and in the year 2014 are 33,242. The total assets in the year 2015 are 50,776, so the total non-current assets are 58.5% of the total assets. The total assets in the year 2014 are 54,538, so the total non-current assets are 60.9% of the total assets. The total non-current assets are decreased in 2015 from the year 2014 by 11.7% (Annual Report 2015 et al., 2015). The decrease in the non-current assets is due to decrease in property, plant, and equipment. The deferred tax assets are increased. The total assets include total current assets and total non-current assets. The non-current ratio in the year 2015 is 6.40 and in the year 2014 are 10.36 which mean the assets are contributing less than the previous year.
3. Total current liabilities
It is defined as the liabilities which have to be paid within one year. It is also known as short term liabilities. It includes short-term debt, accrued liabilities and others. The total current liabilities for the year 2015 are 16,190 and in the year 2014 are 26,575. The total current liabilities are decreased in the year 2015 from the previous year 2014 by 64.14%. The decrease in total current liabilities is due to decrease in borrowings and derivative financial liabilities. The total liabilities are 20,834, so the total current liabilities are 54.07% of the total liabilities. The total current ratio in 2015 is 1.29 and in the year 2014 is 0.80 which means the company can pay its debts easily in the year 2015 (Annual Report 2015 et al., 2015).
4. Total non-current liabilities
It is defined as the long-term financial obligations of the company which is shown on the liability side of the balance sheet for example accounts payable, advance income, prepaid tax, and other long-term loans. The total non-current liabilities in the year 2015 are 4,644 and in the year 2014 are 3,206, so the non-current liabilities are decreased by 44.8%. The total liabilities are 20,834, so the total non-current liabilities are 22.9% of the total liabilities. The total non-current liabilities are decreased due to a decrease in provision and borrowings. The non-current ratio in the year 2015 is 6.40 and 10.36 in the year 2014 which means the non-current assets are contributing less in the year 2015 than the previous year (Annual Report 2015 et al., 2015).
5. Total stockholder’s equity
The stockholders' equity is calculated by deducting the total liabilities from the total assets. It can also be calculated by adding the share capital and retained earnings fewer treasury shares. The total stockholder’s equity in the year 2015 is 29,942 and in the year 2014 is 24,757. The total stockholder’s equity is increased due to increase in cash flow reserve deduction and a decrease in retained earnings. The total stockholder’s equity is increased by 20.9% in the year 2015 from the previous year 2014 (Annual Report 2015 et al., 2015). The stockholder's equity of the company is increased in the year 2015 which means the company is performing well, and its financial position is satisfied.
B. Stockholders’ Equity
It is presented on the liability side of the balance sheet. It represents the paid-in capital, denoted capital and retained earnings of the company. The total stockholders’ in the year 2015 equity in the balance sheet is 29,942 which includes contributed capital 29,578, cash flow hedge reserves -90 and retained earnings 454. The total stockholders’ equity in the year 2014 is 24,757 which includes the contributed capital 29,578, cash flow hedge reserve -222 and retained earnings -4599. The percentage change in stockholders equity between the year 2014 and 2015 is 20.94%. The stockholder's equity is increased due to increase in retained earnings and decreased in cash flow reserve. The stockholder's equity increment reflects the increase in the profits over the particular period of time. The analysis of stockholder’s equity is an important tool which helps to analyze the assets and liabilities of the company. The debt to asset ratio in the year 2015 is 2.43 and in the year 2014 are 2.20 which show the debt financed by the company in the year 2015 is raised by 0.23%. So, the stockholder’s equity is one of the most important elements among the three main components of the balance sheet which shows the profit is increased from the previous year (Schoenebeck et al., 2013).
C. Statement of profit & loss
1. Total revenue
It is defined as the total sales of the company in the particular accounting period. The total revenue of the company in the year 2015 is 91,204 and in the year 2014 are 96,423. The sales revenues are decreased in the year 2015 by 5.72% from the year 2014 due to decreasing in the selling of goods and services. The sales of the company are decreased which needs to be improved because ultimate profit and growth of the company depend on upon the total revenue (Jans et al., 2012).
2. Cost of goods sold
The cost of goods sold is defined as the accumulated cost which is incurred in the manufacturing of goods and services in the particular period of time. It is the direct cost which is incurred at the time of producing such as wages, freight, and other direct costs. The cost of goods sold is deducted from the revenue to identify the gross profit in the particular period of time. The formula for calculating the cost of goods sold is adding beginning inventory and purchases in the particular year less closing stock. The cost of goods sold in the year 2015 is 60,304 and in the year 2014 are 69,931. The cost of goods sold in the year 2015 is decreased by 15.9% from the previous year 2014. The cost of goods sold is decreased which is the positive sign because it helps to increase the profit margin of the company.
3. Non-operating gains and losses
The non-operating income is defined as the income which includes the income generated from the investments, dividend income and other income from the non-operating activities. The non-operating profit in the year 2015 is 5,185 and in the year 2014 are 2,300. The comprehensive income is increased in the year 2015 by 125.4%. The non-operating income is increased which is better for the company because it increases the profit of the company.
4. Earnings per common share
It is defined as the part of the profit which is allocated to the outstanding shares of the company. The formula for calculating the earnings per share is net income minus dividend on preference stock divided by average outstanding shares. The earnings per share in the year 2015 are 9.16 and in the year 2014 are 3.93. The earnings per share are increased in the year 2015 by 133% from the previous year 2014. The net profit from continuing operations in the year 2015 is 5,053 and in the year 2014 are 2,169 which are used to calculate the basic and diluted earnings per share (Wahlen et al., 2014).
D. Statement of Cash flow
1. Net cash inflow/outflow from operating activities
It is defined as the amount which indicates the inflow and outflow of net cash from the daily operating activities. The operating activities exclude investment amount and long term capital of the company. The formula for calculating the operating income is earnings before interest and tax add depreciation fewer taxes. The net cash generated from operating activities in the year 2015 is 9,233 and in the year 2014 are 4,763. The net cash generated from operating activities is increased in the year 2015 by 93.8%. The increase in the net cash is due to decrease in the payment to suppliers and employees, receipts from employees and financial costs. It includes the change in working capital, accounts receivables, short-term debts and accounts payables. The income generated from the operating activities is increased which are a good indicator of financial health (Dumont et al., 2013).
2. Net cash inflow/outflow from financing activities
It is defined as the portion of cash flow statement which shows the raising of capital, repayment to investors such as cash dividend issued. The net cash outflow from financing activities in the year 2015 is -8619 and in the year 2014 is -2,250. The net cash used in financing activities is increased due to increase in the repayment of borrowings and repayments of finance leases and no proceedings from borrowings. The net cash outflow from financing activities is increased in the year 2015 by 283% from the previous year 2014. The increase in the outflow shows that the company is paying a dividend to the shareholders, serving debts and repurchases the stock. The financing activities outflow is increased which means the company has raised the dividend amount given to the shareholders of the company (Dumont et al., 2014).
3. Net cash inflow/outflow from investing activities
It reflects the cash inflow and outflow from investing in the financial market which generates the profits or losses in the particular period of time. It also shows the amount invested in the fixed assets such as plant and machinery. The net cash outflow from investing activities in the year 2015 is -535 and in the year 2014 are -787. The net cash outflow from investing activities is decreased in the year 2015 by 47.10% from the previous year 2014. The decrease in the outflow is due to decrease in the payment for the property, plant and machinery and an increase in a number of proceedings from the sale of property, plant, and machinery. It is important to analyze the investment activities which show the changes due to investment activities (DeFusco et al., 2015). The decrease in the outflow of investing activities shows that the capital expenditures of the company are decreases which are the positive sign for the company. It reflects the overall change in the position of the cash.
4. Net Increase/decrease in cash during the year
The net cash and cash equivalents at the end of the year 2015 are 586 and in the year 2014 is 507. The change in percentage in the year 2015 and 2014 is 15.58%. The increase in cash and cash equivalents is due to positive cash and cash equivalents at the beginning of the year and decrease in the net increase in cash and cash equivalents. The positive cash flow shows that the liquid assets of the company are increasing which helps to pay the debts, giving a dividend to the shareholders, reinvest the profit, pay the expenses, and helps to pay the financial debts (Whitecotton et al., 2013).
Conclusion
The farm pride limited is an Australian company which provides the eggs across the country. The total current assets of the company in 2015 are 21,041 and in 2014 are 21,296. The total current assets are decreased by 1.21%, and the liquidity ratio is 1.29 in the year 2015 which shows the liquidity of the company is satisfactory. The total non-current assets are decreased in 2015 by 11.7%. The total current liabilities are decreased by 64.14% which is a good indicator. The total non-current liabilities are decreased by 44.8% which is also a good indicator of financial performance of the company. The stockholder’s equity is one of the most important components among the three components of the balance sheet. The stockholder's equity is increased in 2015 by 20.94% from the previous year 2014. It shows the profitability of the company increases and the company has more funds to invest which is a positive sign for the company. The statement of profit & loss shows that the revenue is decreased by 5.72% which is not the good indicator of financial health. The cost of goods sold decreased in the year 2015 by 15.9% which shows the less direct expenses and increment in the profit margin of the company. The non-operating income of the company is increased by 125.4% which is the positive indicator of financial health. The earnings per share of the company are increased by 133% which is the positive indicator. The statement of cash flow analysis shows that the cash flow generated from operating activities are increased by 93.8% in the year 2015 from the previous year 2014. The cash flow is increased due to a decrease in payments to suppliers and employees, a decrease in finance costs and income tax paid. The net cash outflow from financing activities is increased by 283% which shows that the dividend paid by the company increases, serving debt and repurchases. The increase in outflow of financing activities is due to increase in repayments of borrowings and repayment of finance leases. Net cash outflow from investing activities is decreased by 47.10% which shows that the capital expenditure paid by the company decreases in the year 2015 from the previous year 2014. The decrease in net cash outflow from investing activities is due to decrease in proceeds from the sale of property, plant and equipment and payment for the property, plant, and equipment.
Recommendations
The financial position of the company sounds satisfactory, but the sales volume is decreased by 5.72% which needs to be improved for increasing the profitability of the company. The second required is to decrease the cash outflow of financing activities. Following are the recommendations:
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1. Marketing activities: The marketing activities such as advertising help to improve the brand image in the eyes of the consumers which enhance the total revenue of the company. The marketing strategy helps to generate more revenue through branding and positioning of goods and services in the market.
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2. Distribution channel: The strong distribution channel helps the company to generate more revenue by providing goods and services to the reachable place of the consumers.
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3. Customized products: The concentric customer strategy helps to increase the demand for goods and services which enhance the brand image, and it directly impacts on the growth of the company.
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4. Expansion of business: The company is currently supplied within the country which limits the profit margin so the company y should start supplying across the globe which helps to increase the total revenue of the company.
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5. Investing in capital market: The investment of funds in the capital market helps to improve the cash outflow from financing activities, and it also helps to generate more funds by investing in the capital market.
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6. Dividend distribution: The company should maintain the balance between the dividend payout ratios and retain earnings which help to reduce the net cash outflow from financing activities. The more dividend paid leads to increase the outflow of the company, and 100% retain earning is also not goods for the company. So, it is important to balance both of them.
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Annual Report 2015. (2015). 1st ed. Australia: Farm Pride Foods Ltd.
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Schoenebeck, K.P. and Holtzman, M.P., 2013. Interpreting and analyzing financial statements. Pearson Higher Ed.
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Jans, S., 2012. Comparative Analysis of Financial Statement (Profit And Loss) and Study on Chit Fund.
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Wahlen, J.M., Baginski, S.P. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.
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Dumont, G. and Schmit, M., 2013. Tier 1 MFIs Financial Performance: Cash-flow statement analysis (No. 13-054). ULB--Universite Libre de Bruxelles.
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Dumont, G. and Schmit, M., 2014. Tier-1 MFIs' Financial Performance: Cash-Flow Statement Analysis Version 2.0.
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DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. and Runkle, D.E., 2015. Quantitative investment analysis. John Wiley & Sons.
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Whitecotton, S., Libby, R. and Phillips, F., 2013. Managerial accounting. McGraw-Hill Higher Education.
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