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Being able to analyse and articulate company financial statements is an invaluable skill that ensures managers have a strong grasp on all facets of the business. Specifically, financial literacy ensures managers are equipped with relevant up-to-date knowledge to make crucial decisions to maximise the wealth of the organisation – a fundamental principle of financial management.
The objective of this assignment is to briefly describe and analyse the financial health of the company using the core concepts and techniques you have learnt in this subject particularly relating to – Ratio analysis and Working Capital Management.
Find a publicly listed manufacturing company in your country or region. If no locally listed company can be found, use a relevant international one. Extract relevant data from their annual report, and other sources (e.g. company websites, stock exchange, and/or from the IBISWorld or Marketline database). Using the information provided in the financial statements, comment on the liquidity and profitability of your selected company.
Select the following ratios from each category for your analysis for last 3-5 years.
Liquidity – Current ratio and Quick Ratio
Profitability – Return on Equity ratio and Return on Assets ratio
(Please note that calculation of ratios are not required as calculated ratios are available on IBISWorld and Marketline. However, if not available, calculate required ratios from the company's financial statements.)
You are required to analyse and interpret the above ratios using the theoretical concepts introduced in this subject to evaluate the company's operations and performance. Then, upon collecting observations from the last 3–5 years and industry aggregates, answer the following:
Based on a trend analysis, elaborate on whether the company you have chosen is improving or deteriorating in terms of its liquidity and profitability ratios, highlighting any areas (and appropriate actions) for improvement.
How does the company compare to its peers, i.e. benchmarking? Comparison can be done from the industry- averages (or else, to those from its main competitor)? Would there be any issues of concern and, if so, how to address them?
Is it possible to identify any relationship between liquidity and profitability ratios? Which is more important for the survival of the company in long run as well as short run?
Calculate 'Operating cycle' and 'Cash cycle' of your selected manufacturing company. How does understanding of all the elements of the operating and cash cycle help in managing working capital efficiently.
The required word length for this assessment is 1300 words (plus or minus 10%).
Your report will be marked according to the criteria outlined in the assessment grading criteria outlined in the Subject Outline.
In terms of structure, presentation, and style you are required to use:
AIB standard report format
AIB preferred Microsoft Word settings
author-date style referencing (which includes in-text citations plus a reference list).
These requirements are detailed in the AIB Style Guide.
Acknowledge the sources of facts appropriately. Use a minimum of four (4) references.
All references must be from credible sources such as books, industry-related journals, magazines, company documents and recent academic articles.
Your grade will be adversely affected if your report contains no/poor citations and/or reference list and if the word length is beyond the allowed tolerance level (see Assessment Policy available on AIB website).
GWA Group Limited (GWA) is an Australian company that is engaged in the business of manufacturing and distributing the household consumer products that includes sanitary ware, laundry tubs, bathroom products, tap ware, door fittings, stainless steel sinks, hot water storage units, garden care equipment, lawn equipment and furniture by the distribution channel networks of the company in abroad and Australia (MyShareTrading.com , 2017). The company is listed on Australian Securities Exchange (GWA GRoup, 2018). The company is selected in order to analyse its financial health through analyzing the ratios of the company of the four years. The current ratio, quick ratio, return on assets and return on equity are considered for analyzing the financial health of the company.
The liquidity ratio of the company can be analyzed with the help of the balance sheet of the company. The liquidity of the company incorporates the assets and the liabilities of the company. This shows the ability of the company to pay the current debts with the help of the current assets. The ration analysis is considered as a good tool for comparing the ratios of the company. The changes in the ratios of the company can be analyzed which can help in interpreting the financial health of the company. The current ration of the company in the years 2015 was 1.79. In the year 2016, it increased and reached to 2.32 and 2.36 in the year 2017. In the year 2018, the current ration of the company is 3.16. In order to meet the current obligations and stay solvent, it is important for the company to have current ration 1.0 at least. As the current ratio of the company was more than 1 in the year 2015 and it increased to 3.16 in the year 2018. Hence, this can be said that the company is capable of paying the current debt obligations.
For analysing the liquidity of the company, it is important to calculate the quick ration of the company. It is more severe than that of the current ration in analyzing the liquidity of the company. It helps in analyzing the ability of the company to meet the short term debts obligations without the need to sell the inventory (PEAVLER, 2017). The quick ratio of the company was 1.03 in the year 2015, it increased and reached to 1.25 in the year 2016. In the year 2017, the quick ration of the company reached to 1.39 and 2.20 in the year 2018. It is important for the company to have at least 1.0 quick ration in order to meet the short term debt obligations. As the company's quick ration was more than 1.0 hence it can be said that the liquidity of the company is relatively good and the company has the ability to meet the short-term debt obligations in an effective manner. This shows that the liquidity position of the company has improved in the year 2018 in comparison to the year 2015.