Topic: Analysis of Financial Performance
FORMAT - A submission of no less than 1350 words and no more than 1650 words is expected excluding the reference list and appendix.
Capilano Honey Limited (ASX code: CZZ)
Select Harvests Limited (ASX code: SHV)
The Excel files contain all the relevant financial statements i.e. Profit & Loss Statement, Balance Sheet, etc. Rounded figures are not to be used in the calculation of ratios.
In the Excel files, you will see a sheet titled "Revenue Expense" in which you can locate the Cost of goods sold (COGS) for each company for the different years.
REQUIRED - Your team has been hired as financial analysts by Elite Banking Corporation. The bank requires your team to analyse the financial position and performance of the above assigned companies for the previous two financial years (2016 and 2017), to determine whether the companies are eligible for a loan from the bank. Your task involves answering the following 5 questions in your own words (i.e. do not simply "cut and paste" information from the Annual Report or any other source). You must apply critical thinking concepts when explaining and justifying your choices. BASED ON THE INFORMATION AVAILABLE ON THE EXCEL FOR BOTH ASSIGNED COMPANIES, ANSWER ALL OF THE FOLLOWING QUESTIONS (1 TO 5 INCLUSIVE).
QUESTION 1: Analyse the sources of finance for each of the two companies in 2017 as compared to 2016. Use two capital structure ratios (Debt Ratio = Total Liabilities / Total Assets and Interest coverage ratio = EBIT / Interest expense) to support your answer and provide an explanation regarding the changes in the composition of the sources of finance for each enterprise. Note: ensure that you analyse in this question, not just describe the ratio values.
QUESTION 2: For each of the two companies, analyse their ability to successfully manage each of their categories of expenses in 2017 as compared to 2016. Use three margin ratios (Gross profit margin = G. Profit / Sales, Operating profit margin = EBIT / Sales, Net profit margin = N. Profit / Sales) to support your answer and explain any change in the ability of each company to control costs. Note: ensure that you analyse in this question, not just describe the ratio values.
QUESTION 3: Analyse the ability of management to manage their fixed and total assets for each of the two companies in 2017 as compared to 2016. Use two Asset Management efficiency ratios (Total asset turnover = Sales / Total assets and Fixed asset turnover = Sales / Net property , plant and equipment) to support your answer and explain any change in each companies' ability to use their assets to generate sales. Note: ensure that you analyse in this question, not just describe the ratio values.
QUESTION 4: Analyse the profitability of invested capital for each of the two companies in 2016 as compared to 2017. Based on your calculations and your answers to questions 2 and 3, explain the main reason(s) for the change in the profitability for each company over the two years. Note: ensure that you analyse in this question, not just describe the ratio values.
QUESTION 5: Given your answers and analysis in questions 1 to 4, what is your final recommendation: an approval or denial of the loan to each and/or both firms? Discuss the basis for your recommendation.
Attachment:- Assignment Files.rar