Financial Statement Analysis Of Accent Group Limited

Overview of Accent Group Limited

Financial statement analysis is a procedure of evaluating and analysing the items of company’s financial statements over the year. The analysis helps the management and investors to take important decisions regarding the company. It provides the overview of firm’s financial position and performance over the years.

Accent Group Limited is an Australia based retail company which is listed on Australia Securities Exchange (ASX). It commenced its business in 1981 and has its headquarters situated at Waterloo, Australia. The core activities of the company involve retailing, distribution and taking franchise for footwear business, Apparel and different types of accessories across New Zealand and Australia (Accent Group. 2018). Formerly, the group was known as RCG Corporation Limited and now it is named as Accent Group. It is considered as the regional leader of distribution of lifestyle footwear having more than 420 stores and 10 distribution brands across various countries. The brands owned by Accent involve Platypus Shoes, Podium Sports, Merrell, CAT, Vans, Dr. Martens, Saucony and many others (Bloomberg. 2018).

The report focuses on the financial analysis of Accent Group for the years 2016, 2017 and 2018. It includes horizontal and vertical analysis of company’s income statement and profit and loss statement. Each item of the accounts has been properly analysed and the changes are noticed. Further, a ratio analysis has also been performed which measure company’s performance from all the financial aspects. On the basis of these different analyses, significant conclusion has been made in the end of the report. 

It is one of the techniques of financial analysis and is otherwise called trend analysis. It demonstrates the fluctuations or changes in the items of financial statements over the number of years. It fundamentally shows the pattern pursued by the organization in the previous years by critically assessing the accessible information (Sinha, 2012). For the most part, the analysis is led for the statement of at least two or more than two years where the underlying time period is considered as the base year and afterward the progressions are been figured over the periods. The vacillations are indicated both in rate and dollar form by applying suitable formula (Higgins, 2012). 

The calculation done in Appendix, shows horizontal analysis of the Accent Group Limited’s balance sheet and P&L account. It has been noticed that the revenue of the firm has increased by 45.05% in 2017 as compare to 2016 while the same reported a mere upsurge of 10.54% in 2018. The upsurge in 2017 was due to the completion of the acquisition of Hype DC which is the leading retailer of branded lifestyle footwear in Australia. In addition to that, the advertising and rental expenses of the company have reduced in 2018 to 18% and 15% respectively. In contrast to it the finance cost increased by 12.97% and income tax expense showed a hike of 47.06% in the current year as compare to 2017. The same expenses were up by 8.05% and -4.94% in 2017 in comparison with 2016. On a whole, the net profit of Accent Group increased by 49.90% in 2018 while the same was reduced by 2.75% in 2017. The reason behind the fall was the huge increase in company’s total expenses as compare to prior year. However, the situation got changed in 2018 and Accent reported high and increased profits.

Focus on Financial Analysis for 2016, 2017, and 2018

As far as balance sheet is considered, the total assets of the firm reduced by 2.95% in 2018 while the same were up by 38.06% in 2017. The sale of property, plant and equipment, collection from receivables and release of inventories in 2018 has reduced the overall assets of the firm. Similar trend has been noticed in the liabilities as they have been reduced by 15.70% in comparison to 2017 where they increased by 74.06%. This huge fall was due to the repayment of long term borrowings and creditors. The shareholder’s equity has also reported a slightest increase of 5.74% in 2018 while the same was 21.01% in 2017 when compared to 2016. The reason was the high issued capital of the company during 2017 which has been increased by 0.43% only in recent year. Overall, the position has improved as Accent has reported high profits and low financial risk.  

Vertical analysis identifies the relationship between the various elements of the statement. On income statement, total revenue is been represented as a basis for calculating the percentage of other items. On balance sheet, the total assets and liabilities become the base for same thing (Fridson and Alvarez, 2011). Looking at the income statement, it can be observed that the net profit of the company was 6.88% in 2016 which further reduced to 4.61% in 2017. This was due to the increased expenses of the company in that year. However, the trend got reversed and the net profit margin of the company goes up to 6.26% of the total revenue in 2018. Minor increases in expenses and upsurge in revenue has stimulated growth in the overall profit of Accent Group. Expenses like advertising, employee benefit and rental expenses comprise major part of company’s total revenue which eventually affects the net profits of the firm. 

The balance sheet reported that the cash balance was initially 9.88% of total assets in 2016 which further reduced to 7.43% and 6.41% in 2017 and 2018. Inventories and intangible assets cover major part of the total assets. However, the total assets of the firm have reduced on a whole. Similarly, the total liabilities has comprises of 35.19% in 2018 and 40.52% in 2017 which was more than the portion of liabilities in 2016. Reduction in liabilities in recent year was majorly contributed by the repayment of long term loan and trade creditors. Shareholder’s equity increased overall indicating good performance of the company.

Profitability ratios

Rate of return on net sales  

The NPR of Accent group was lowest in 2017 reported at 4.61% as compare to other years. This was due to the high operating expenses during the year. However, the trend got changed and company made profits in 2018 reflected by the increased NPR of 6.26%. Also the revenue has reflected a constant growth over the years.

Rate of return on total assets

The ratio was highest in 2018 at 7.69% which reflected that the company has utilized its assets efficiently to generate more revenue (Gibson, 2011). However, the same was lowest in 2017 because of the declining profit before interest and tax and the increased operating expenses. Also, upsurge in fixed assets has also contributed in the fall of ratio in 2017.  

Asset turnover  

In case of Accent, this ratio was highest in 2017 despite of the fact that during this year, company has reported low ROA and NPR. This determines that the firm has utilized its assets more appropriately and due to the fact that it has maintained fixed assets in high ratio as compare to others. However, the ratio got reduced in 2018 to 1.15 due to the proportionate increase in assets and sales.

Rate of return on ordinary shareholders’ equity  

In 2018, the company has made maximum returns to its shareholders because of the high profits made during the year. The ROE was at 11.58% in 2018 whereas the same was 8.72% in 2017. Low profits resulted in low returns to shareholders in 2017.

Earnings per share

As per the annual report, the EPS of Accent Group is highest in 2018 at 0.082 which indicates that the profitability position of the company is strongest in 2018 as compare to other past years.

Working capital

It is basically the difference between current assets and current liabilities of the firm. It can be seen that Accent has highest working capital of £64103 in 2016 which constantly reduced over the years. This means that the company is lacking behind in maintaining its working capital as its liabilities are increasing (Godwin and Alderman, 2012).  

Current ratio

In all the three years, the current ratio was higher than 1 which depicted that Accent has sufficient assets to meet its short term obligations. In 2016, the company experienced strong liquidity which reduced in further years. This was due to the reduction in the amount of current assets and increase in amount of liabilities.  

Vertical Analysis of Income Statement and Balance Sheet

Acid-test ratio

Accent has the lowest quick ratio in 2018 which shows that the firm does not have enough liquid assets and cash balance to meet their financial obligations smoothly. It lack liquid resources and this was due to the weak conversion cycle of the firm.

Inventory turnover

Fewer fluctuations are been there in the ITR of Accent Group over the last three years. The highest was in 2017 at 3.01 times which was due to the fact that the company has converted inventory into sales more quickly in that year. However, the lowest ITR in 2016 indicates that the company was not efficient enough to make best use of its resources.

Days in inventory

Furthermore, less number of days are been taken by Accent to release its inventory in 2017. On the other side, in 2018 and 2016 the time taken was 126 and 135 days respectively.  

Gross profit percentage  

The company has highest gross margin in 2018 accounted at 56.56%. The ratio has shown a constant increase over the past three years. This was due to the continuous upsurge in Accent’s sales and relatively lower increment in its COGS.  

Accounts receivable turnover

As far as managing the accounts receivables is concerned, the firm has performed best in 2018 as it has the highest ratio. The upsurge is due to the reduction in company’s average debtors and increase in its sales.

Days’ sales in receivables

With high DTR in 2018, Accent Group has taken least time in converting its receivables during the same year. This reflected the efficient management of debtors in order to generate more revenue.

Debt ratio

Accent Group’s solvency position was the strongest in 2016 as its debt ratio was lowest during that year as compare to others. In 2016 the ratio was 33% which further increased to 41% and then again fall to 35% in 2018. The reason for having low ratio was high reliance on equity rather than debt. Also, in 2018 the reduction in company’s total liabilities reduced its debt ratio reflecting low financial risk (Bragg, 2012).  

Debt to equity ratio  

Similarly, the D/E ratio of the company was lowest in 2016 at 0.16 which increased to 0.28 in 2017. In 2018, the ratio fall to 0.19 again due to the repayment of company’s long term debt. Although, its short term financial obligations has increased during the year but the payment of long term borrowings led to the overall reduction in debt portion. This has improved the solvency position of the company.

Times interest earned ratio

The ICR of Accent Group was highest in 2018 at 14.30 times due to the increased EBIT of the company as compare to its interest costs. However, the ratio was lowest in 2017 which reflected high chances of bankruptcy because of the high portion of external debt (Jenter and Lewellen, 2015).

Conclusion 

From the above analysis, it can be interpreted that Accent Group Limited has improved its performance in 2018 as compare to 2017 and 2016. The company’s profitability has increased to a certain level because of the efficient utilization of its assets and available resources. In addition to this, the solvency position of Accent has also improved in the recent year as the company relied more on equity rather than increasing its debt component. It was competent enough to repay its long term borrowings which on n whole reduced its debt and lower its financial leverage. Overall, the firm has performed quite well in 2018 in comparison to others. 

References

Accent Group (2018). About Us. [Online]. Available at: https://www.accentgr.com.au/about-us/ 

Bloomberg (2018). Company Overview of Accent Group Limited.  [Online]. Available at: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=10636950 

Bragg, S. M. (2012). Business ratios and formulas: a comprehensive guide (Vol. 577). New Jersy: John Wiley & Sons.

Fridson, M.S. and Alvarez, F. (2011). Financial statement analysis: a practitioner’s guide (Vol. 597). New Jersey: John Wiley and Sons.

Gibson, C. H. (2011). Financial reporting and analysis. USA: South-Western Cengage Learning.

Godwin, N., and Alderman, C. (2012). Financial ACCT2. USA: Cengage Learning.

Higgins, R. C. (2012). Analysis for financial management. New York: McGraw-Hill/Irwin.

Jenter, D. and Lewellen, K. (2015). CEO preferences and acquisitions. The Journal of Finance, 70(6), pp.2813-2852.

Sinha, G. (2012). Financial statement analysis. New Delhi: PHI Learning Pvt. Ltd.