Financial statement analysis of NZ Transport Limited Essay

Q 1.1 Purposes of fiscal statement analysis of NZ Transport Limited

Fiscal statements are analysed in order for different users to do a sound economic determinations in a concern. The users can be the proprietor of the company, stockholders, investors, creditors or authorities entities. These analyses provide utile information about the public presentation of the company over a peculiar period of clip, its fiscal place and besides demo how the company performs comparison to the companies in the similar industries. Specifically, fiscal statement analysis, will assist NZ Transport Limited and any company to: ( Accountlearning.blogspot.co.nz, 2014 )

1. Assess past public presentation – The old public presentation of the company will be an index on how the company will execute presently and make up one’s mind on the hereafter. For illustration, if during the past twelvemonth, the company net net income is lower than the current twelvemonth, the company can take a expression at the disbursals being incurred. In the comparative income statement presented by NZ Transport Limited, the operating disbursals were lower 2012 as compared to 2011. The company can see the lessening in the operating disbursals as the major factor in increasing the net income.
2. Assess current fiscal place – NZ Transport Limited balance sheet will demo how much of its assets is owned by the company and every bit good as its liabilities. It will demo the company’s liquidness ( ability to pay short term liabilities ) and its solvency ( the ability of the company to last for a long period of clip ) . This shows the company’s capacity to pay due duties and will assist the creditors to make up one’s mind whether to impart capital to the company.
3. Predict profitableness and company’s growing – NZ Transport Limited income statement will demo the company’s public presentation through the income it generates. The gross and net net income border will give the thought particularly for investors both current and possible, if the company is able to bring forth income.
4. Predict failure of the company – Through the analysis of the fiscal statements of NZ Transport Limited, the users can see whether the company can last for a long clip or will fall in over a short period of clip. For illustration, it the reported figures in the net income for more than five old ages are systematically negative, intending the company is runing continuously at a loss and you can state that the company will be belly-up and close down.

Q 1.2 Financial Statement Analysis ( AccountingCoach.com, 2014 )

1. Profitability ratios:

I. Gross Profit Margin	2011	2012	Industry
Gross Profit* Gross saless *sales-cogs	77,000 175,000 = 44 %	90,000 155,000 =58 %	39 %
The gross net income border has an addition of 14 % from 2011 which is 44 % and 58 % for 2012. In both twelvemonth, the company is above the industry criterion which is 39 % . The gross net income border of NZ Transport Limited shows that it can sell its merchandise or services above the cost of buying it. One of the grounds that the gross border in higher in 2012 is that the cost of gross revenues is lower as to its proportion to gross revenues compared to 2011. Looking at the income statement, 2011 gross revenues of 175,000 cost the company 98,000 or 56 % while in 2012 the gross revenues of 155,000 cost the company 65,000 or 42 % .

two. Net Net income Margin	2011	2012	Industry
Net Net income Gross saless	23,298 175,000 =13.3 %	44,200 155,000 =28 %	5.5 %
The net net income border besides has an addition 15 % from 13 % in 2011 to 28 % in 2012 which is a batch higher than the industry criterion which is 5.5 % . The factors that have contributed to the addition in the net net income border was an addition in the gross border in 2012 of 14 % and the operating disbursals for 2012 decreased compared to 2011.

three. Return on entire assets	2011	2012	Industry
Net Net income Entire Assetss	23,298 122,050 = 19.08 %	44,200 126,550 = 34.93 %	5.8 %
This ratio shows the net income earned on every assets of the company. This shows how efficient NZ Transport Limited in utilizing its assets to bring forth income. In 2011 the company has 19 % ROA and about 35 % for 2012. This indicates that the company is more profitable in 2012. The company performed good compared to industry criterion of 5.8 % .

four. Return on Equity	2011	2012	Industry
Net Income Entire Equity	23,298 62,600 =37.21 %	44,200 65,050 =67.98 %	11.8 %
The ROE for NZ Transport Limited for both twelvemonth is above the industry criterion. In 2011 it has 32.21 % return while in 2012 it has a really high return of 67.98 % . This means that the company has high return available to its investors. The consequences were high compared to the industry criterion of 11 % .

2. Fiscal stableness ratios:

I. Current ratio	2011	2012	Industry
Current Asset Current Liabilitiess	31,750 29,750 =1.067:1	42,450 33,500 =1.267:1	1.84:1
As defined, current ratio is a method of mensurating liquidness of a company. It is the proportion of current assets to the current liabilities. Current ratio will find the handiness of current assets that will cover liabilities that will fall due within a twelvemonth or twelve months. NZ Transport Limited has available current assets available for every current liability that will fall due. In 2011, the company has 1.067 current plus for every 1 current liability. In 2012, it has improved its current ratio to 1.267 current plus for every 1 current liability. The may be able to settle its current duties but its place is below the industry criterion of 1.84 current plus for each 1 current liability.

two. Quick ratio/Acid trial ratio	2011	2012	Industry
( Current Asset-Inventory Current Liabilitiess	( 31,750-18,000 ) 29,750 =0.46:1	( 42,500-28,500 ) 33,500 =0.42:1	0.66:1
The speedy ration of the company for 2011 and 1012 is 0.46:1 and 0.42:1 severally. These are below the industry criterion of 0.66 speedy plus for every current liability. The stock list being the biggest constituent of the current assets affected the speedy ratio. Inventory being the least liquid in current plus was non considered in ciphering the speedy ratio.

three. Working capital	2011	2012	Industry
Current Asset-Current Liabilitiess	31,750-29,750 =2,000	42,450-33,500 =8,950	Not given
NZ Transport Limited has a on the job capital of 2,000 and 9,000 for 2011 and 2012 severally. This indicates the available capital over a short period of clip. The chief factor of the higher on the job capital for 2012 is the stock list. The company is keeping more stock list as compared to 2011. The other constituents of current assets and current liabilities are of comparative degree.

four. Gearing ratio	2011	2012	Industry
Entire Liabilitiess Entire Assetss	59,450 122,050 =48.71 %	61,500 126,500 =48.60 %	55 %
The geartrain ratio shows how much of the entire assets were acquired or funded through liabilities. In 2011 is 48.71 % of its entire assets were funded through loans and 48.60 % of the assets in 2012 were funded by liabilities. This per centum is better than the industry which has 55 % criterion which means that the assets acquired by companies in the same industry have acquired their assets through loans.

v. Debt to equity ratio	2011	2012	Industry
Entire Liabilitiess Stockholders’ Equity	59,450 62,600 =95 %	61,500 65,060 =94 %	Not given
The company has a really high debt to equity ratio at 95 % and 94 % for 2011 and 2012 severally. This means that the concern relies on creditors to fund its assets and about half of the assets were financed by loaners.

six. Times involvement earned	2011	2012	Industry
Exabit Interest Expense	26,350 5,000 = 6.27 times	50,650 4,000 =12.66 times	3.6 times
NZ Transport Limited has 6.27 times involvement disbursal coverage by its runing income in 2011 and 12.66 times in 2012. Its public presentation is better than of the industry which is merely 3.6 times. This means that the company has the ability to run into involvement payments when it fall due because it can be covered by the operating income the company generates from its operation.

seven. Shareholders’ equity ratio ( SHE )	2011	2012	Industry
SHE Entire Assetss	62,600 122,050 =51.3 %	65,050 126,550 =51.40 %	Not given
These ratios of 51.30 % for 2011 and 51.40 % in 2012 show the extent of the parts of the stockholders on the entire financess of the concern. The consequence shows that in both old ages, the stockholders contributed about the same per centum of 51 % on the entire company’s entire financess. The balance was financed by loaners.

3. Asset utilisation ratios:

I. Inventory turnover	2011	2012	Industry
Cost of Goods Sold Inventory	98,000 18,000 =5.44 times	65,000 28,500 =2.28 times	2.8 times
In 2011 the company performed good and was able to sell fast at 5.44 times but in 2012 it slowed down to 2.28 times merely. The factors that affected the stock list turnover were: foremost, the cost of goods sold is higher in 2011 and the staying stock list was besides lower therefore resulted to higher turnover ; secondly, in 2012 the cost of goods sold was lower and the stock list at the terminal was higher ensuing to low stock list turnover. In 2011 the company performed higher than the industry criterion of 2.8 times but a spot lower in 2012.

two. Histories receivable turnover	2011	2012	Industry
Gross saless Histories receivable	175,000 7,950 =22.01	155,000 7,600 =20.39	Not given
NZ Transport Limited can roll up its gross revenues on history for 22.01 times during 2011 and slower in aggregation in 2012 by holding AR turnover 20.39. Another ground for the lessening in the turnover is the lessening in sale and histories receivable is besides lower during 2012.

three. Average aggregation period	2011	2012	Industry
365 yearss Histories Receivable TO	365 yearss 22.01 = 17 yearss	365 yearss 20.39 = 18 yearss	20 yearss
In 2011 the mean aggregation period is 17 yearss which means the company is efficient in roll uping recognition gross revenues. In 2012, the mean aggregation period is about 18 yearss or one twenty-four hours more than 2011. In both old ages, the company collects faster than the industry which is 20 yearss.

four. Non-current assets turnover	2011	2012	Industry
Gross saless Non-Current Assetss	175,000 90,300 =1.94 times	155,000 84,100 =1.84 times	1.8 times
The non-current assets turnover for 2011 is 1.94 times and 1.84 times in 2012. The company’s turnover in a spot higher on the industry criterion which is 1.84. This means that the company has the effectual in using its fixed assets in bring forthing gross revenues.

v. Total assets turnover	2011	2012	Industry
Gross saless Entire Assetss	175,000 122,050 =1.43 times	155,000 126,550 =1.22 times	1.6 times
The company has entire assets turnover of 1.43 times and 1.22 clip for 2011 and 2012 severally. It is below par the industry’s public presentation which is 1.6 times but it still shows that the company was able to utilize its entire assets to bring forth gross.

Q 1.3

The followers are the restrictions of analyzing fiscal statements of NZ Transport Limited: ( Investopedia, 2008 )

1. Benchmarking of fiscal informations – In the instance of NZ Transport, its fiscal place and public presentation information will go more utile if it compared usually to the companies of the same industries, to the economic system as a whole and besides to its old public presentation.
2. Companies use different accounting patterns which makes it hard to come up with comparing. In instance of NZ Transportation Limited, the company may utilize consecutive line method in ciphering the depreciation of equipment and the other industry participant used other method such as dual worsening method in ciphering depreciation which may ensue to material difference in geting at the net income.
3. Companies may hold extremum seasons which make some period with important difference in rations between two periods. For illustration, if during summer interruptions, the demand is high on that period doing some ratios significantly different from the remainder of the accounting period.
4. Costss are used in entering minutess in a company and the rising pricess are non considered that can impact the ratios to be calculated.
5. Companies including NZ conveyance have different accounting rhythms. They may utilize calendar twelvemonth or financial twelvemonth which makes it hard to compare to other companies.

Q 2 Recommendations:

Palms Associates

CharteredAccountants

5D/208 Hobson Street

Auckland CBD

Phone ( 09 ) 12345678

Peter Parker

Chief Executive Officer

NZ Transport Limited

PO Box 123-45

Auckland

Beloved Sir:

Report on fiscal twelvemonth ended 31 March 2012

Please happen enclosed our study to the direction of NZ Transport Limited based on the completed fiscal statements and back uping analysis for the period April 2011 to 31 March 2012.

The study summarises profitableness, liquidness and fiscal stableness and direction effectivity as measured by the ratios shown in the agenda. Included in the study are the recommendations for the company.

Profitableness.

The gross net income per centum has increased from 44 % to 58 % as a consequence of lessening in the cost of goods sold from 56 % to 42 % . The net net income border besides has an addition 15 % from 13 % in 2011 to 28 % in 2012 The factors that have contributed to the addition in the net net income border was an addition in the gross border in 2012 of 14 % and the operating disbursals for 2012 decreased compared to 2011.

The return on owner’s equity for both twelvemonth is above the industry criterion. In 2011 it has 32.21 % return while in 2012 it has a really high return of 67.98 % which means that the company has high return available to its investors.

In 2011 the company has 19 % Return on assets and 35 % for 2012. This indicates that the company is more profitable in 2012.

Liquid and fiscal stableness.

In 2011, the company has 1.067 current plus for every 1 current liability. In 2012, it has improved its current ratio to 1.267 current plus for every 1 current liability. The increased current ratio is already within ideal scope which is 1.2 to 2.0 for every current liability that will fall due.

The speedy ration of the company for 2011 and 1012 is 0.46:1 and 0.42:1 severally. These are below the industry criterion of 0.66 speedy plus for every current liability. The stock list being the biggest constituent of the current assets affected the speedy ratio.

In 2011 is 48.71 % of its entire assets were funded through loans and 48.60 % of the assets in 2012 were funded by liabilities.

The company has a really high debt to equity ratio at 95 % and 94 % for 2011 and 2012 severally. This means that the concern relies on creditors to fund its assets and about half of the assets were financed by loaners.

The stockholder’s equity ratios are 51.30 % for 2011 and 51.40 % in 2012 show the extent of the parts of the stockholders on the entire financess of the concern. The consequence shows that in both old ages, the stockholders contributed about the same per centum of 51 % on the entire company’s entire financess. The balance was financed by loaners.

The company has 6.27 times involvement disbursal coverage by its runing income in 2011 and 12.66 times in 2012. This means that the company has the ability to run into involvement payments when it fall due because it can be covered by the operating income the company generates from its operation.

Management Effectiveness.

In 2011 the company performed good and was able to sell fast at 5.44 times but in 2012 it slowed down to 2.28 times merely. The factors that affected the stock list turnover were: foremost, the cost of goods sold is higher in 2011 and the staying stock list was besides lower therefore resulted to higher turnover ; secondly, in 2012 the cost of goods sold was lower and the stock list at the terminal was higher ensuing to low stock list turnover.

It can roll up its gross revenues on history for 22.01 times during 2011 and slower in aggregation in 2012 by holding AR turnover 20.39. Another ground for the lessening in the turnover is the lessening in sale and histories receivable is besides lower during 2012.

In 2011 the mean aggregation period is 17 yearss which means the company is efficient in roll uping recognition gross revenues. In 2012, the mean aggregation period is about 18 yearss or one twenty-four hours more than 2011. In both old ages, the company collects faster than the industry which is 20 yearss.

The non-current assets turnover for 2011 is 1.94 times and 1.84 times in 2012. The company’s turnover in a spot higher on the industry criterion which is 1.84. This means that the company has the effectual in using its fixed assets in bring forthing gross revenues.

The company has entire assets turnover of 1.43 times and 1.22 clip for 2011 and 2012 severally. It is below par the industry’s public presentation which is 1.6 times but it still shows that the company was able to utilize its entire assets to bring forth gross.

Recommendations.

The company needs to better its fiscal place. The direction must non trust on external creditors in order to fund its assets and operations because they may stop up paying more involvement.

The liquidness ratios specifically the short term demand to be improved. The company may hold the capacity to pay its current duties falling due but it is still below par of the ideal scope.

The company’s public presentation is making good and needs to continuously better. The net income border increased but it needs to take a expression on the diminution of gross revenues on the current twelvemonth. Kindly contact us to discourse the contents of this study and other concerns that may originate from it.

Yours failthfully,

Palms, CA

Mention:

• Accountlearning.blogspot.co.nz, . ( 2014 ) . Aims Of Financial Statement Analysis – Accounting-Management: Aims Of Financial Statement Analysis. Retrieved 3 December 2014, from hypertext transfer protocol: //accountlearning.blogspot.co.nz/2010/02/objectives-of-financial-statement.html
• AccountingCoach.com, . ( 2014 ) . Fiscal Ratios – Income Statement | AccountingCoach. Retrieved 3 December 2014, from hypertext transfer protocol: //www.accountingcoach.com/financial-ratios/explanation/3
• Investopedia, . ( 2008 ) . Uses and Restrictions of Financial Ratios – CFA Level 1 | Investopedia. Retrieved 3 December 2014, from hypertext transfer protocol: //www.investopedia.com/exam-guide/cfa-level-1/financial-ratios/uses-limitations-ratios.asp