Financial Analysis Of Automotive Holding Group Limited
Ratio Analysis
The company that has been chosen for analysis is Automotive Holding Group Limited. The company is listed on Australian Stock Exchange and is engaged in the business of automotive retailing in Australasia. The principal business activity of the company consist of automotive retail, refrigerated logistics and other logistic. The automotive retail segment of the company has more than 190 motor vehicle franchises which is at more than 110 dealership locations operating both at New Zealand and in Australia. The second segment which is refrigerated logistic segment is operating in cold storage and transport operations. The company operates in other range of business like truck and trailer body building, transport and storage etc. The company is trading on exchange at $ 1.55 on 18th January, 2019. The 52 week high of the company is $ 3.87 and 52 week low of the company is $ 1.39. The company is headquartered Perth, Australia. (Reuters.com, 2019)
For the purpose of analysing the investment prospect of the company, the results of the company for the last financial year has been analysed along with computation of ratios for all the years. The details of Profit and Loss Account and Financial Statement of the company for the past four years has been presented here-in-below:
|
Automotive Holding Group Limited |
|||||
|
Income Statement |
|||||
|
Sl No |
Particular |
30-06-2018 |
30-06-2017 |
30-06-2016 |
30-06-2015 |
|
1 |
Total Revenue |
6474053 |
6106064 |
5625999 |
5245789 |
|
2 |
Cost of Revenue |
4977948 |
4651737 |
4190744 |
3928948 |
|
3 |
Gross Profit |
1496105 |
1454327 |
1435255 |
1316841 |
|
4 |
Operating Expense |
||||
|
a. |
Research development |
||||
|
b. |
Selling general and administrative |
1212607 |
1176435 |
1128715 |
1020438 |
|
c. |
Non-recurring |
||||
|
d. |
Others |
97780 |
79241 |
84782 |
85688 |
|
e. |
Total Operating Expenses |
6343124 |
5955611 |
5447862 |
5076689 |
|
f. |
Operating income or loss |
130929 |
150453 |
178137 |
169100 |
|
5 |
Income from continuing operations |
||||
|
a. |
Total other income/ expenses net |
-78602 |
-60459 |
-40988 |
-39072 |
|
b. |
Earnings before interest and taxes |
130929 |
150453 |
178137 |
169100 |
|
c. |
Interest expense |
-44584 |
-41447 |
-36580 |
-33576 |
|
d. |
Income before tax |
52327 |
89994 |
137149 |
130028 |
|
e. |
Income Tax expense |
14535 |
28901 |
40263 |
35913 |
|
f. |
Minority Interest |
20011 |
14914 |
24928 |
23299 |
|
g. |
Net Income from continuing operations |
37792 |
61093 |
96886 |
94115 |
|
6 |
Net Income |
32639 |
55539 |
90071 |
88091 |
|
7 |
Net income applicable to common shares |
32639 |
55539 |
90071 |
88091 |
|
Automotive Holding Group Limited |
|||||
|
Balance Sheet |
|||||
|
Sl No |
Particular |
30-06-2018 |
30-06-2017 |
30-06-2016 |
30-06-2015 |
|
1 |
Current asset |
||||
|
a. |
Cash and cash equivalent |
73046 |
95035 |
108593 |
69862 |
|
b. |
Net receivables |
416570 |
356957 |
333614 |
318586 |
|
c. |
Inventory |
1110746 |
899796 |
828111 |
732030 |
|
d. |
Other current asset |
44981 |
51023 |
||
|
e. |
Total Current Asset |
1645343 |
1401911 |
1304866 |
1149645 |
|
2 |
Long Term Investment |
8355 |
8316 |
5076 |
7375 |
|
3 |
Property Plant and Equipment |
376524 |
401130 |
359041 |
349174 |
|
4 |
Goodwill |
233738 |
222565 |
209277 |
186614 |
|
5 |
Intangible Asset |
305430 |
290605 |
252983 |
205427 |
|
6 |
Other Asset |
68701 |
60866 |
60192 |
58847 |
|
7 |
Deferred Long term charges |
68701 |
60866 |
60192 |
58847 |
|
8 |
Total Asset |
2638091 |
2385393 |
2191435 |
1957082 |
|
9 |
Current Liabilities |
||||
|
a. |
Accounts Payable |
186494 |
137435 |
96371 |
102769 |
|
b. |
Short/ Current long term debt |
4352 |
5125 |
17363 |
12986 |
|
c. |
Other Current Liabilities |
199163 |
173143 |
163357 |
167925 |
|
d. |
Total Current Liabilities |
1503207 |
1224557 |
1099341 |
959236 |
|
10 |
Long Term Liabilities |
225461 |
224438 |
265632 |
197243 |
|
11 |
Other liabilities |
40931 |
43836 |
38340 |
35737 |
|
12 |
Minority Interest |
20011 |
14914 |
24928 |
23299 |
|
13 |
Total Liabilities |
1861577 |
1583050 |
1471932 |
1261439 |
|
14 |
Total Stock Holder equity |
756503 |
787429 |
694575 |
672344 |
On the basis of above data, fundamental analysis has been carried out on the basis of analytical tools like ratios. The ratios that have been computed for analysis has been presented here-in-below:
- Gross Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting the direct expenses of production. The higher the gross margin of the company, the better the company is performing. It is used for analysing the health of the company.(InvestingAnswers Inc, 2019) The formula for computation of Gross Profit Margin has been presented here-in-below:
Gross Profit Margin: Gross Profit earned/ Sales.
The result of the company for the past three years have been presented here-in-below:
|
Gross Profit Margin |
||||
|
Sl. No |
particular |
Gross Profit |
Sales |
Gross Profit Margin |
|
1 |
2018 |
1496105 |
6474053 |
23.11% |
|
2 |
2017 |
1454327 |
6106064 |
23.82% |
|
3 |
2016 |
1435255 |
5625999 |
25.51% |
On perusal of the above data, it can be seen that gross profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost and slow rise of prices and competition in market. Thus, the gross margin of the company has shown a downward trend for the year.
- Operating Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting the operating expenses of the company. The higher the operating margin of the company, the better the company is performing. It is used for analysing the health of the company. The formula for computation of Operating Profit Margin has been presented here-in-below:
|
Operating Profit Margin |
||||
|
Sl No |
particular |
Operating Profit |
Sales |
Operating Profit Margin |
|
1 |
2018 |
130929 |
6474053 |
2.02% |
|
2 |
2017 |
150453 |
6106064 |
2.46% |
|
3 |
2016 |
178137 |
5625999 |
3.17% |
On perusal of the above data, it can be seen that operating profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost and slow rise of prices and competition in market. Thus, the operating margin of the company has shown a downward trend for the year.
- Net Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting all the expenses of the company. The higher the net profit margin of the company, the better the company is performing.(InvestingAnswers, Inc. , 2019) It is used for analysing the health of the company. The formula for computation of Net Profit Margin has been presented here-in-below:
|
Net Profit Margin |
||||
|
Sl. No |
particular |
Net Profit |
Sales |
Net Profit Margin |
|
1 |
2018 |
32639 |
6474053 |
0.50% |
|
2 |
2017 |
55539 |
6106064 |
0.91% |
|
3 |
2016 |
90071 |
5625999 |
1.60% |
On perusal of the above data, it can be seen that net profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost along with indirect cost and slow rise of prices and competition in market. Thus, the net margin of the company has shown a downward trend for the year.
- Net Income from continuous operations Profit Margin: This is one of the significant profitability ratio and is used for the purpose of analysing the Dollar earned by the company after meeting all the expenses of the company. The higher the net profit margin from continuous operations of the company, the better the company is performing. It is used for analysing the health of the company. The formula for computation of Net Profit Margin from continuous operations has been presented here-in-below:
Gross Profit Margin
|
Net Income from continuous operation Profit Margin |
||||
|
Sl No |
particular |
Net Profit from continuous operation |
Sales |
Net Profit Margin |
|
1 |
2018 |
37792 |
6474053 |
0.58% |
|
2 |
2017 |
61093 |
6106064 |
1.00% |
|
3 |
2016 |
96886 |
5625999 |
1.72% |
On perusal of the above data, it can be seen that net profit margin of the company has fallen over the years on account of increasing cost of material and other direct cost along with indirect cost and slow rise of prices and competition in market. Thus, the net margin of the company has shown a downward trend for the year.
- Current Ratio This is one of the significant liquidity ratio and is used for the purpose of analysing the liquidity of the company and measuring the solvency of the company in the short term. It represents the working capital position of the company. It is used for analysing the health of the company. The formula for computation of Current Ratio has been presented here-in-below:
|
Current Ratio |
||||
|
Sl. No |
particular |
Current Asset |
Current Liabilities |
Current Ratio |
|
1 |
2018 |
1645343 |
1503207 |
1.09 |
|
2 |
2017 |
1401911 |
1224557 |
1.14 |
|
3 |
2016 |
1304866 |
1099341 |
1.19 |
On perusal of the above, it can be see that current ratio of the company is downward trending which signifies that company is not able to actively manage its working capital management of the company. Thus, the same is showing a downward trend. (CFI Education Inc., 2019)
- Quick Ratio This is one of the significant liquidity ratio and is used for the purpose of analysing the liquidity of the company and measuring the solvency of the company in the short term. It represents the working capital position of the company. It is used for analysing the health of the company and consider only those asset which can be immediately converted to cash to pay off the debt. The idle ratio is 1:1.The formula for computation of Quick Ratio has been presented here-in-below:
Quick Asset: Current Asset- Inventory
|
Quick ratio |
||||
|
Sl No |
particular |
Quick Asset |
Current Liabilities |
Quick Ratio |
|
1 |
2018 |
534597 |
1503207 |
0.36 |
|
2 |
2017 |
502115 |
1224557 |
0.41 |
|
3 |
2016 |
476755 |
1099341 |
0.43 |
On perusal of the above, it can be see that quick ratio of the company is downward trending which signifies that company is not able to actively manage its working capital management of the company and does not have much quick asset to repay debt . Thus, the same is showing a downward trend.
- Total Debt-Equity Ratio: This is one of the significant leverage or capital structure ratio and is used for the purpose of understanding the degree of leverage of the company. It is used for analysing the health of the company The idle ratio is 2:1.The formula for computation of Total Debt- equity Ratio has been presented here-in-below:
|
Total Debt-Equity Ratio |
||||
|
Sl No |
particular |
Total Debt |
Equity |
Total Debt-Equity Ratio |
|
1 |
2018 |
229813 |
756503 |
0.30 |
|
2 |
2017 |
229563 |
787429 |
0.29 |
|
3 |
2016 |
282995 |
694575 |
0.41 |
On perusal of the above, it can be seen that the debt to equity ratio of the company has seen a downfall which is good for the company as the amount of debt is reducing for the company compared to equity. However, the company shall not be able to reap the benefit of trading on equity.
- Debt-Equity Ratio: This is one of the significant leverage or capital structure ratio and is used for the purpose of understanding the degree of leverage of the company. It is used for analysing the health of the company The idle ratio is 2:1 and consider only long term debt. (CFI Education Inc., 2019)The formula for computation of Debt- equity Ratio has been presented here-in-below:
|
Long Term Debt-Equity Ratio |
||||
|
Sl No |
particular |
Long Term Debt |
Equity |
Debt-Equity Ratio |
|
1 |
2018 |
225461 |
756503 |
0.30 |
|
2 |
2017 |
224438 |
787429 |
0.29 |
|
3 |
2016 |
265632 |
694575 |
0.38 |
On perusal of the above, it can be seen that the debt to equity ratio of the company has seen a downfall which is good for the company as the amount of debt is reducing for the company compared to equity. However, the company shall not be able to reap the benefit of trading on equity.
- Cash Conversion Cycle: This is one of the significant tool used to analyse the period in which the company is able to convert its investment in the inventory and other resources into cash flows from sales. Further, the shorter the cycle the better is for the company. The formula for computation of cash conversion cycle has been presented here-in-below:
Cash Conversion Cycle: Receivable Days+ Inventory Days- Payable Days.
|
Cash Conversion Cycle |
|||||
|
Sl No |
particular |
Receivable Days |
Inventory Days |
Payable Days |
Cash Conversion Cycle |
|
1 |
2018 |
21.81 |
56.68 |
9.13 |
69.35 |
|
2 |
2017 |
20.64 |
51.64 |
6.99 |
65.30 |
|
3 |
2016 |
21.16 |
50.61 |
6.46 |
65.31 |
On perusal of the above, it can be seen that the cash conversion cycle of the company is increasing which represent poor efficiency of the company to convert sales into cash. Thus, the cash conversion cycle is showing an upward trend.
The common size statement analysis of the company helps in analysing the items in financial statement comprising Profit and loss Account as percentage of sales of that respective year. It allows analysis and comparison between companies of between different time period for the same company. The statement is very useful in analysing the performance of the company over the year in terms of percentage profitability, controlling expenses and checking the increase or decrease in expenditure of individual item of financial statement. The common size financial statement for Automotive Holding Group Limited has been presented here-in-below:
|
Automotive Holding Group Limited |
|||||||||
|
Income Statement |
|||||||||
|
Sl No |
Particular |
30-06-2018 |
% |
30-06-2017 |
% |
30-06-2016 |
% |
30-06-2015 |
% |
|
1 |
Total Revenue |
6474053 |
100% |
6106064 |
100% |
5625999 |
100% |
5245789 |
100% |
|
2 |
Cost of Revenue |
4977948 |
77% |
4651737 |
76% |
4190744 |
74% |
3928948 |
75% |
|
3 |
Gross Profit |
1496105 |
23% |
1454327 |
24% |
1435255 |
26% |
1316841 |
25% |
|
4 |
Operating Expense |
||||||||
|
a. |
Research development |
||||||||
|
b. |
Selling general and administrative |
1212607 |
19% |
1176435 |
19% |
1128715 |
20% |
1020438 |
19% |
|
c. |
Non-recurring |
||||||||
|
d. |
Others |
97780 |
2% |
79241 |
1% |
84782 |
2% |
85688 |
2% |
|
e. |
Total Operating Expenses |
6343124 |
98% |
5955611 |
98% |
5447862 |
97% |
5076689 |
97% |
|
f. |
Operating income or loss |
130929 |
2% |
150453 |
2% |
178137 |
3% |
169100 |
3% |
|
5 |
Income from continuing operations |
||||||||
|
a. |
Total other income/ expenses net |
-78602 |
-1% |
-60459 |
-1% |
-40988 |
-1% |
-39072 |
-1% |
|
b. |
Earning before interest and taxes |
130929 |
2% |
150453 |
2% |
178137 |
3% |
169100 |
3% |
|
c. |
Interest expense |
-44584 |
-1% |
-41447 |
-1% |
-36580 |
-1% |
-33576 |
-1% |
|
d. |
Income before tax |
52327 |
1% |
89994 |
1% |
137149 |
2% |
130028 |
2% |
|
e. |
Income Tax expense |
14535 |
0% |
28901 |
0% |
40263 |
1% |
35913 |
1% |
|
f. |
Minority Interest |
20011 |
0% |
14914 |
0% |
24928 |
0% |
23299 |
0% |
|
g. |
Net Income from continuing operations |
37792 |
1% |
61093 |
1% |
96886 |
2% |
94115 |
2% |
|
6 |
Net Income |
32639 |
1% |
55539 |
1% |
90071 |
2% |
88091 |
2% |
|
7 |
Net income applicable to common shares |
32639 |
1% |
55539 |
1% |
90071 |
2% |
88091 |
2% |
On perusal of the common size statement, it can been seen that company performance has seen a down trend on year on year basis as the major profitability ratio of the company has undergone a downfall and the total operating expense of the company has seen an increase over an year on year basis. Thus, on the basis of period on period basis it shall be seen that companies performance has seen a downfall. Thus, the signs are negative for the company.
Conclusion
On the basis of above discussion, it can be seen that company has not been performing well on year on year basis. Further, the prices of the stock of the company are trading at near about 52 week low. The financial performance has seen a downfall on year on year basis which does not actively support the investment climate. However, one needs to see the performance of competitor during the same period. Thus, on the basis of ratio analysis and common size statement it is advised that investor shall not invest in such company.
References:
CFI Education Inc. (2019). What is the Current Ratio? Retrieved January 20, 2019, from corporatefinanceinstitute.com: https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-formula/
CFI Education Inc. (2019). What is the Debt to Equity Ratio? Retrieved January 20, 2019, from corporatefinanceinstitute.com: https://corporatefinanceinstitute.com/resources/knowledge/finance/debt-to-equity-ratio-formula/
InvestingAnswers Inc. (2019). Gross Profit Margin. Retrieved January 20, 2019, from investinganswers.com: https://investinganswers.com/financial-dictionary/ratio-analysis/gross-profit-margin-2076
InvestingAnswers, Inc. . (2019). Net Profit Margin. Retrieved January 20, 2019, from investinganswers.com: https://investinganswers.com/financial-dictionary/financial-statement-analysis/net-profit-margin-2233
Reuters.com. (2019). Automotive Holdings Group Ltd (AHG.AX). Retrieved JAnuary 20, 2019, from www.reuters.com: https://www.reuters.com/finance/stocks/company-profile/AHG.AX