Evaluation of the Financial Performance of Bellamy's Australia Ltd.

This document provides an evaluation of the financial performance of Bellamy's Australia Ltd. The analysis includes an overview of the company's performance, profitability, liquidity, and cash management ratios. The study uses financial reports and ratio analysis to assess the company's asset utilization and overall financial performance.

8/6/2019
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Evaluation of the financial performance of Bellamy’s Australia Ltd.
Bellamy australia LTd

Executive summary
Bellamy Ltd is a topmost infant nutrition brand company that trades in Both
the Chinese and Australian markets. The company underwent a tough year
in 2017, and it has since undergone a transformation that has delivered
better outcomes in terms of profit, the returns grew significantly and there
was improvement if the cashflows of the company. The company is confident
to improve in its merits technically through the application and new
prospectus of registration, in the Chinese market. The product label made for
the Chinese market contributes to 6% of the total returns of the corporation.
In the fiscal year 2018, through the reorganization of indirect costs, the
spreading networks and the supply chain that was achieved in FY2018, the
company adopted a more sustainable business model and structure of profit.
The study analyzes the financial reports of Bellamy Ltd and through ratio
analysis the study will be able to evaluate the asset utilization and generally
the overall financial performance of the company. The study used the
secondary information, the financial data available on the company reports
was used to analyze the corporation.
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Table of Contents
Executive summary.........................................................................................ii
1.1 Analysis of the Firm...................................................................................1
1.1.1 Company Performance Overview........................................................1
2.0 Results Discussions and Interpretation......................................................1
2.1 Profitability of Bellamy’s Ltd...................................................................2
2.2 Liquidity of Bellamy’s Ltd.......................................................................2
2.3 Cash management ratios of Bellamy’s Ltd.............................................3
2.4 Market based Ratios...............................................................................4
3.0 Conclusion.................................................................................................4
4.0 Recommendations.....................................................................................5
References.......................................................................................................6
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List of tables
Table 1. Financial Analysis of Bellamy
Ltd…………………………………………………..……1
Table 2. Cashflow Analysis……………………………………………………………….
……...3
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1.1 Analysis of the Firm.
Table 1. Financial Analysis of Bellamy Ltd.
FY2018 FY2017 FY2016
Revenue $ 328,704.00 $ 240,182.00 $ 244,583.00
Cost of sales $ 199,830.00 $ 148,661.00 $ 132,855.00
gross profit $ 128,874.00 $ 91,521.00 $ 111,728.00
net profit or loss $ 42,816.00 $ (807.00) $ 38,328.00
profit margin % 13.026% -0.336% 15.671%
gross profit margin % 39.207% 38.105% 45.681%
Return on Total Asset 0.20 (0.01) 0.36
return on equity 0.21 (0.01) 0.46
equity ratio 74% 58% 58%
capital employed $ 207,403.00 $ 91,288.00 $ 83,385.00
PBT $ 61,196.00 $ (677.00) $ 54,894.00
ROCE 0.30 -0.01 0.66
current ratio 3.1 2.3 2.3
acid test ratio 1.9 0.9 1.2
2018 2017 2016
EPS 39.20 (0.80) 39.80
DILUTED EPS 37.20 (0.80) 38.60
1.1.1 Company Performance Overview.
Bellamy Ltd was able to achieve a revenue $328M up from $240.2M in the
previous year, the Net profit of the company is up to $42.8M from a loss of
$0.8M in the fiscal year 2017, The returns growth was attributable to the
volume driven, and that includes a $8.7M from Camperdown Business that
contributed to the improved sales. The revenue growth to a gross profit of
39% up from 38% in the previous year, the margin of increase was because
of lower cost of acquiring goods and the arrangements in the manufacturing.
2.0 Results Discussions and Interpretation.
Bellamy’s revenue comes from the sale of organic baby food and products.
There was an increase of 37% from the financial year 2017 to 2018, this
because of a stable and healthy economy that’s is very vital for the survival
of a company. The margin increases from 2017 to 2018 was majorly driven
by lower cost of sales from a better ingredient and a shift to the
manufacturing arrangements, results further disclose the better revenue
management attributes by the frim were contributing factors to it through
reduced promotional discounts and less increase in prices of the baby
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products. The statements further disclose that other acquisitions from the
outside markets contributed $8.7M in revenue to the total revenue
generated by the firm. The cost of goods sold have constantly increased over
time from 2016 to 2018 by 61%, this is a course of alarm for the company as
a source for cheaper raw materials will help reduce the cost incurred, further
the firm can source for cheaper materials, labor and manufacturing
equipment, this will reduce the direct cost the company bears. (Bellamy’s
Ltd,2018)
2.1 Profitability of Bellamy’s Ltd
According to Losbichler et al (2012) the analysis of the profitability is critical
and is done through analyzing the financial ratio, by mainly looking at profit
margin ratio. Profitability is a good measure of the income and achievement
in terms of operations of a firm for a stipulated time frame, (Gibson, 2013).
Bellamy’s ltd margin of profit shows an increase to 13% in fiscal year 2018
up from -0.3% in 2017, this shows that overall the firm has improved from
the deep in losses to marking a profit. The net profit was exceptional this can
also be attributed to the 20% growth in ROA (Return on total assets). The
other contributing factor on the changes in the profit margin can be
attributed from the changes in the business operations of the firm, that was
achieved through expansions into other markets outside its normal operating
environment and with the firm opting to source for alternatives to the
products used for manufacturing. The deep in the revenue in the FY2017 at -
0.34% was as a result of decline in the revenue and high administrative cost
incurred $41.4M and $6.8M provisions for the inventory and other cost
incurred to acquire Camperdown Powder which was an expansion strategy
adopted by the company.
Analysis of return on total assets reveals how good the firms resources are
directed to generating more income. (Tamulevičienė, 2016) . The return on
total assets improved from a low of minus 1 percent to twenty percent in the
FY2018 from FY2017 it indicates that the corporation was able to utilize the
resources better to generate more profits.
2.2 Liquidity of Bellamy’s Ltd
Figure 1. solvency Short-run
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2018 2017 2016
0.0
1.0
2.0
3.0
4.0 3.1
2.3 2.3
1.9
0.9 1.2
short-run solvency
current ratio Series2 acid test ratio
According to Robinson et al., (2015) current ratio evaluates ability of a
companies to settle less period liabilities or debts when they accrue, the
extent of this ratio discloses how liquid a firm is. Liquidity is considered as a
very important ratio, it looks at the ease of a firm to pay its bills and
liabilities in the short-run especially through the conversion of the available
assets to cash to be able to pay up. Observing at the current ratio of the firm
improved from 2.3 in 2017 to 3.13 in 2018. Further analysis reveal that the
value of current assets increased to $230m in 2018, the ratios reveal a
decline of 82% down from 96% in the previous year, this reduction is
attributed to the acquisition on new properties and increase in investment of
intangible assets. Further the analysis of acid test ratio would reveal the
available resources of a firm minus the inventory (Sinha, 2012). The acid test
improved from 0.87 in 2017 to 1.90 in 2018 this reveals that the available
cash and other marketable securities available at the disposal of the
company improved significantly, this places the company’s liquidity position
slightly better than the previous financial year.
2.3 Cash management ratios of Bellamy’s Ltd
Table 2. Cashflow Analysis
cashflow margin ratio
Cash flow from operating cash flows/Net sales 21% -19%
Operating Cashflow Ratio
Cashflows from Operations/Current Liabilities 93% -70%
dividends 35,100.00 12,506.00
common shares out standing 109230.00 96736.00
Cashflow per share
Cashflow Per Share = (Operating Cashflow –
Preferred Dividends) / Common Shares
Outstanding 0.30 -0.60
The analysis of a firms cash management ratios reveal the capacity of a firm
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to incur cash from the overall net operations, that can be equated to the
value of total net sales that the firm generated, (Das, 2018). The study
reveals that the cash flow margin ratio increased from -19% in 2017 to 21%
in 2018, the increase in the value is attributed to the increase in the cash
inflow from operations up to $84M in 2018 from -$(32.4M) in the previous
year. The net inflow cash from operational activities increased significantly to
$68M in 2018 this is further explained by the increase in the amount of cash
received from the trade receivables and upside of $31.3M and income
generated after tax of $42.8M, that increased from 2017 to 2018. The
analysis further reveals the cashflow per share increased significantly to 0.3
in 2018 up from -0.6 in 2017, the ratio shows that the value of the firm’s
stock improved marginally, this ratio reveals the true picture of the company
valued stock.
2.4 Market Ratios
Figure 2. market ratios
2018 2017 2016 2015
(10.00)
-
10.00
20.00
30.00
40.00
39.20
(0.80)
39.80
9.80
37.20
(0.80)
38.60
9.50
market ratio
EPS DILUTED EPS
According to Umar & Musa (2013), the earnings per share measures the
efficiency of the management as well as the overall performance of the
company. The analysis of Bellamy’s Ltd reveal an improved performance
with the earnings per share increasing from lowest of -0.80 in 2017 to an
improved price of 39.20 in 2018, this higher earning per share reveal that
the firm offers a far much better opportunity to the potential investors by
creating value to their investments. High EPS show the firms overall net
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revenue that is available to be dispersed to all stockholders of the firm,
(Tandelilin, 2010).
3.0 Conclusion
The analysis reveals a model for a proper financial statement analysis of
Bellamy’s Ltd for the period between FY2016 to FY2018. The generation of
returns by the firm can be used to model and analyze the financial
performance of the company. This study reveals that Bellamy’s Ltd Overall
Profitability has improved significantly from a deep in 2017 to the present
2018. The firm has enjoyed an improved return to equity ratio from negative
to positive over the period under study this implies that the firm has been
able to utilize its assets effectively. Overall the firm can attract more
investors with an improved EPS return ratio, that shows the firm is
performing well.
Additionally, as the company board suggests that the fiscal year 2019 will be
a much better year for the company as Bellamy’s expects an increase in
growth of sales revenue, the potential challenges that arise for the firm is a
challenging trade environment outside Australian market into the Asian
market. Through the firms acquisition of a new company Camperdown the
projections are that the profitability and growth in revenues of the firm are
expected to grow by 10%. The firm has also adopted a more sustainable
business model that is aimed at improving the revenue of the firm, Bellamy’s
has considered a change in the processing, this includes manufacturing and
production where the company seeks to lower the cost and provide a much
flexible reduced inventory position.
4.0 Recommendations
Bellamy’s Ltd returns to capital employed improved to 30% in FY2018 this
implies for every single $10 invested, the company creates $3 for the
stockholder, the robust ROCE is tied to two driving aspects that vary time
and again this are the requirements of capital and overall earnings. Currently
Bellamy’s Ltd is operational at a position which is favorable. observing from
the past year between FY2017 and FY2018, the stock price of Bellamy’s has
improved having hit a rock bottom price in that period. The decline in the
stock price was attributed to the fact that the company incurred huge
amounts of losses, but due to the change of model of operation the company
has managed to change its fortunes and it is expected to further improve
even more in FY2019. The analysis offers a buy recommendation to any
potential investor and offers a hold recommendation to current stock
holders.
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References
Das, S. 2018. Analysis of cash flow ratios: A study on CMC. Accounting, 4, 41-
52.
Gibson, S. and Charles, H. 2013. Financial Statement Analysis. South-
Western Cengage Learning, 13th Edition
Losbichler, H., Hofer, P., Eisl, C. & Zauner, B. 2012. An Investigation of ROCE
and Its Drivers: Empirical Analysis of European Companies. In Jodlbauer, H.,
Olhager, J. & Schonberger, R.J. (Eds.). Modelling Value. Series: Contributions
to Management Science. Selected Papers of the 1st International Conference
on Value Chain Management. Physical-Verlag GmbH Co. 119-148.
Robinson, T., Henry, E., Pirie, W., Broihahn, M. (2015), International Financial
Statement Analysis. 3rd ed. New Jersey: John Wiley & Sons, Inc.
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Sinha, G. 2012, In: Ghosh AK, editor. Financial Statement Analysis. Eastern
Economy Edition. New York: Prentice Hall of India Private Limited.
Tamulevičienė, D. 2016. Methodology of complex analysis of companies’
profitability. Entrepreneurship and sustainability issues, 4, 53-63.
Tandelilin, E. 2010. Portfolio and Investment theory dan application. 1st
Edition, KANISIUS, Yogyakarta
Umar M. S. & Musa T. S. 2013, Stock Prices and Firm Earning per Share in
Nigeria. JORIND 11(2)
December,2013.http://www.transcampus.org/JORINDV11Dec2013/Jorind
%20Vol11%20No2%20Dec%20Chapte r22.pdf. Accessed on April 16th, 2015.
Pp. 187-192.
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