Financial Analysis of Accent Group: Horizontal, Vertical and Ratio Analysis

The paper presented analysis of Accent Group financial statement for the past three years. Horizontal, vertical and ratio analysis were used in analysing the financial performance of the company. From the analysis, it was found out that Accent Group is financially stable and healthy.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT 1
Accounting Financial Analysis Report
Author’s Name
Institution
Date

ACCOUNTING FINANCIAL ANALYSIS REPORT 2
Executive Summary
The paper presented analysis of Accent Group financial statement for the past three years.
Horizontal, vertical and ratio analysis were used in analysing the financial performance of the
company. From the analysis, it was found out that Accent Group is financially stable and
healthy. This was based on the fact that the company profitability, liquidity and gearing ratios
were all favourable over the past three years. For instance, the company had an upward
growth in its profitability based on its ROE, ROA and EPS. Further, based on the gearing
ratio, it was established that Accent Group was not struggling to settle its long-term debts.

ACCOUNTING FINANCIAL ANALYSIS REPORT 3
Introduction
Accent Group Limited is usually an ultimate holding company into which results of all the
subsidiary firms are consolidated (Accent Group Limited, 2018). It is the regional leader
within distribution and retail sector of the lifestyle and branded performance footwear with
more than four hundred stores all across 9 diverse retail banners as well as high-class
distribution rights for around 10 international brands all across New Zealand and Australia
(RCG Corporation, 2016). Its combined brands comprises of Hype DC, Vans, Timberland,
Stance, Sperry, Platypus Shoes, Merrell, The Athlete’s Foot, CAT, Palladium, Saucony as
well as Dr. Martens (RCG Corporation, 2017). As such, this paper aims to present financial
analysis of Accent Group based on the last three annual reports. The analysis would include
both vertical and horizontal analysis of its financial statements as well as ratio analysis based
on the information provided in its financial statement. The paper would be wrapped with
current financial standing of the company and recommendation on whether the company
offer better investment opportunity for potential investors.
ANALYSIS
Horizontal analysis
As per the Appendix 3 and 4 below, it is evident that Accent Group revenue
experienced a significantly higher increase in 2016 compared to rest of the years. Its
operating income also experienced a significant increase of 62% in 2016 compared to 32%
recorded in 2018. The trend in operating income and net income was attributable to
significant increase in the overall expenses over the period though not proportional to the
increase in total revenue.
Further, it is evident that Accent Group experienced a decrease in its total current
assets in 2018. Its total assets also experienced a decrease of -0.03% in 2018. Nonetheless, its
total current liabilities increased over the past three years though the increase was not

ACCOUNTING FINANCIAL ANALYSIS REPORT 4
equivalent some periods, the company registered low increase. Nonetheless, its total
liabilities decreased in 2018 contrary to total equity that is said to have experienced an
increasing trend all years long.
Vertical analysis
Based on the vertical analysis of both income and balance sheet statements in the
Appendix 1 and 2 respectively, it is evident that profit after tax represented a good portion of
the total revenue for the company. For instance, profit after income in 2018 represented
6.26% of the total revenue compared to 6.88% in 2015. Further, inventories represented a
higher percentage of the total assets similarly to the intangible assets which represented 54%
of the total assets in 2016 and 57% in 2018.
Financial Ratio analysis
Profitability
Rate of return on net sales
Return on sales also referred to operating margin is a financial ratio which examines
how effectively an organization is at generation of profits from all its sales. Generally, it
examines an organization’s performance by examining what percentage of the total firm sales
are being converted to profits (Helfert & Helfert, 2011). Return on sales for the company
experienced asymmetric trend over the period. This means that the company has been able to
convert a significant portion of sales into income. This trend is attributed by increasing and
decreasing trend in the company net sales and operating income.
Rate of return on total assets
The ratio is a good indicator or signal of how profitable an entity is relative to total
assets. It is gotten by dividing net income of an organization by its total assets (Grzegorz,
2011). As per the result, Accent Group ROA increased over the period with the most recent
increase being recorded in 2018 where the ratio increased from 4.71% to 7.28%. The increase

ACCOUNTING FINANCIAL ANALYSIS REPORT 5
is a good move for the company as it shows how effective its management are being able to
convert the assets into income. This was attributed by increase in the company net income
over the same period.
Asset turnover
This ratio is commonly used in measuring efficiency of an organization’s use of the
assets in generating some revenue or sales (Helfert & Helfert, 2011). In other words, the ratio
could be used in measuring how efficient an organization is in utilizing its assets.
Organizations asset turnover is gotten by dividing net revenue by average total assets. The
company asset turnover decreased from 1.18 to 1.15. Despite the decrease, it is evident that
the company is efficient in utilizing assets to generate revenues. This decrease was
attributable to significantly high increase in the company total assets over the period.
Rate of return on ordinary shareholders’ equity
The ratio is mostly concerned with assessment of the capacity of an organization
earnings returns from their shareholder’s equity. It is gotten by dividing organization’s net
income with its total equity. The ROE for the company increased over the period from 9.85%
to 11.23%. The increase in the company ROE is a clear view that the company is efficient in
managing its shareholders’ equity in generating income.
Earnings per share
It is the portion of an entity’s profit that is allocated to every outstanding share of the
common stocks. In other words, the ratio serves as a signal of entity’s profitability (Grzegorz,
2011). It is computed by dividing the net profit by the average share outstanding. The EPS for
the company increased over the period from 6.45 to 8.23 in 2017. The increase means that the
company is profitable. The increase is attributable to increase in the company net income
over the period with 33.39% increase being the most recent increase recorded for the
company.

ACCOUNTING FINANCIAL ANALYSIS REPORT 6
Liquidity
Working capital
It is a very common measure of an organization’s liquidity level as well as its overall
health (Helfert & Helfert, 2011). Basically, it is a financial measure that represents operating
liquidity that is currently available to an organization. It is gotten by subtracting total current
liabilities from current assets. As per the above figures, it is clear that Accent Group working
capital over the past three years decreased from 64,103 to 34,060 in 2018. This was as a
result of decrease in inventories, cash as well as decrease in account receivable level over the
years. The decrease was attributable to decrease in its current assets with -12.16% in 2018.
Current ratio
Current ratio is usually a financial metric used in measuring capacity or capability of
an organization in settling all its current debts using short-term or current assets (Alexander,
2011). It is gotten by dividing firm’s current assets by the total current liabilities. Current
ratio for the company decreased from 1.74 in 2016 to 1.27. In spite of this decrease, it is clear
that the company is still able to settle its short-run debts. The decrease is greatly attributed by
decrease in the company’s trade receivable, inventories and cash. The decrease was also
attributed by increase in borrowings, income tax, deferred lease incentives as well as
employee benefits.
Acid-test ratio
Acid-test is usually the measure of capacity of an organization to settle its short-run or
current debts by use of the most liquid assets. In other words, it measures dollar amount of
the liquid assets that is readily available with organization against dollar amounts of the
current liabilities. Based on the above results, it is evident that Accent Group acid-test
decreased over the period. This implies that the company was not able to settle its short-run
debts using its most liquid assets. The decrease was as a result of increase in employees

ACCOUNTING FINANCIAL ANALYSIS REPORT 7
benefits, income tax, borrowings and so forth as well as decrease in inventories, receivables
and cash amount.
Inventory turnover
This is the measure of number of times an organization sells or makes use of it
inventories within a year (White, Sondh & Fried, 2005). The ratio is gotten by dividing
COGS by inventories. As per the above results, it is clear that Accent Group inventory
turnover remained at zero. This means that the company made no effort at all in selling or
converting its inventories into revenue. This was attributable to lack of COGS within this
period.
Days in inventory
This is the measure of the number of days an organization sells or utilizes its
inventories within one year. The ratio is gotten by dividing 365 days by inventory turnover
ratio. Days in inventory turnover for the company remained at zero over the past three years.
This implies that for the last three months, the company has not been able to sell inventories
even on a single day.
Gross profit percentage
This is the computation that indicates proportion of the total revenues comprised of
costs directly linked to good sold in order to generate some revenue. It is determined by
dividing gross profit by total revenue (Grzegorz, 2011). As per the results, it is clear that
gross profit margin for the company remained relatively high over the period. This was
attributable to relatively high revenue or sales over the period.
Accounts receivable turnover
This is usually an activity ratio used in assessing how effectively an organization
utilizes its total assets or how effectively an organization collects money owed by debtors.
The ratio is gotten by dividing total revenue by account receivable. Accent Group account

ACCOUNTING FINANCIAL ANALYSIS REPORT 8
receivable turnover increased over the last three years from 17.22 to 38.28 times in 2017. The
increase means that the company is effective enough in collecting money owned by the
debtors. The increase was attributed by decrease in trade receivable with a significant margin
compared to decrease in total revenue.
Days’ sales in receivables
This is the measures of average days it takes an organization in collecting money
owed to them after sale is made (Grzegorz, 2011). It can be determined by dividing 365 days
by account receivable turnover. As indicated in the above figures, it is evident those days
sales in receivable decreased over the past three years. The decreasing trend in day sales in
receivable was attributed by increase in the amount of account receivable over the years. It
therefore implies that the company has been efficient in collecting most of the account
receivables owed by debtors over the years.
Gearing
Debt ratio
It is defined as ratio of the total liabilities to the total assets (Alexander, 2011).
Basically, this ratio is used in determining proportion of an entity’s assets which are generally
financed by use of debts. Based on the result above, it is clear that Accent Group debt ratio
was relatively below one over the past three years. This implies that the company has not
been using debt in financing its assets which is a good sign that the company is at lesser
financial risk.
Debt to equity ratio
It is the gearing ratio used in measuring organization’s financial leverage level. It
shows how much debts an entity is utilizing in financing its operations relative to value of the
shareholders’ equity (Grzegorz, 2011). It is gotten by dividing organization’s total debts by
its total equity. Debt equity for the company has been relatively low over the past three years.

ACCOUNTING FINANCIAL ANALYSIS REPORT 9
This implies that the company has been relying on shareholders’ equity in financing most of
its operations rather than debt financing.
Times interest earned
It is utilized in examining capacity of a company in settling its debts. In other words,
it is used in measuring proportion of income which could be utilized in covering interest
charges for the company in future (Alexander, 2011). As per the figures above, it is evident
that Accent Group interest coverage increased over the past three years. The increase and
relatively high interest coverage ratio is a clear picture that Accent Group has in a better
position for the past three years in covering its interest expenses.
Conclusion
In conclusion, it can be indicated that Accent Group is financially stable and healthy.
This is based on the fact that the company profitability, liquidity and gearing ratios are all
favourable over the past three years. For instance, while looking at the ROE, ROA and asset
turnover for the company, it is evident that the company has been experiencing an upward
growth in its profitability. Further, based on the gearing ratio, it is evident that the company
was not struggling to settle its long-term debts. In fact, it is evident that the company utilizes
shareholders’ equity to finance most of its operations. Therefore, it is recommendable for
potential investors to place their money in this company since there is a high probability to
get positive returns in future.

ACCOUNTING FINANCIAL ANALYSIS REPORT 10
References
Accent Group Limited. (2018). Accent Group Limited annual report 2018. Retrieved from:
http://onlinereports.irmau.com/2018/AX1/12/#zoom=z
Alexander, C. (2011). Market models: A guide to financial data analysis. John Wiley & Sons.
Grzegorz, M. (2011). Financial Analysis in the Enterprise: A Value-Based Liquidity Frame-
work. Available at SSRN 1839367.
Helfert, E. A., & Helfert, E. A. (2011). Financial analysis: tools and techniques: a guide for
managers (pp. 221-296). New York: McGraw-Hill.
RCG Corporation. (2016), RCG Corporation annual report 2016. Retrieved from:
http://onlinereports.irmau.com/2016/RCG/files/assets/basic-html/page-27.html#
RCG Corporation. (2016), RCG Corporation annual report 2017. Retrieved from:
http://onlinereports.irmau.com/2017/RCG/27/#zoom=z
White, G. L., Sondh, A. C., & Fried, D. (2005). Analysis of Financial Statement. Analysis.

ACCOUNTING FINANCIAL ANALYSIS REPORT 11
Appendices
Appendix 1: Vertical analysis of Income statement
Vertical analysis
2016 2017 2018
Revenue
100.00%
100.00
% 100.00%
Other (losses)/income 0.04% -0.01% 0.00%
Expenses
Finished goods used
-47.79%
-
50.35% -41.54%
Changes in merchandise inventories 1.64% 5.25% -1.90%
Employee benefits expense
-18.70%
-
20.38% -20.69%
Depreciation and amortisation expense -3.26% -3.41% -3.43%
Impairment of brand name 0.00% -1.53% 0.00%
Rental expense on operating leases
-9.22%
-
11.15% -11.61%
advertising and promotion expenses -3.18% -3.25% -3.47%
Travel and telecommunication expenses -0.88% -0.70% -0.85%
Warehousing and freight expenses -3.79% -3.13% -3.14%
Acquisition-related costs -0.16% 0.00% 0.00%
Other expenses -3.99% -4.19% -4.03%
Finance costs -0.86% -0.64% -0.65%
Profit before income tax expenses 9.78% 6.51% 8.66%
Income tax expense -2.90% -1.90% -2.41%

ACCOUNTING FINANCIAL ANALYSIS REPORT 12
Profit after income tax expense for the year 6.88% 4.61% 6.26%

ACCOUNTING FINANCIAL ANALYSIS REPORT 13
Appendix 2: Vertical analysis of balance sheet
Vertical analysis
2016 2017 2018
Assets
Cash and cash equivalents 9.88% 7.43% 6.41%
Trade and other receivables 5.64% 3.19% 3.04%
Inventories 17.40% 17.97% 16.30%
Derivative financial instruments 0.00% 0.00% 0.76%
Other 0.60% 0.52% 0.23%
Total current assets 33.53% 29.10% 26.74%
Receivable 0.19% 0.11% 0.06%
Derivative financial instruments 0.00% 0.00% 0.11%
Property, plant and equipment 9.44% 12.00% 12.35%
Intangibles 54.48% 55.81% 57.06%
Deferred tax 2.36% 2.97% 3.69%
Total non-current assets 66.47% 70.90% 73.26%
Total assets 100.00% 100.00% 100.00%
Trade and other payables 13.07% 14.26% 13.39%
borrowings 2.22% 2.42% 3.74%
Derivative financial instruments 1.46% 0.81% 0.04%
Income tax 1.16% 1.28% 1.74%
Employee benefits 0.71% 0.79% 1.01%
Deferred lease incentives 0.70% 0.79% 1.19%
Total current liabilities 19.32% 20.35% 21.10%
Borrowings 8.86% 14.22% 8.43%
Derivative financial instruments 0.44% 0.11% 0.03%

ACCOUNTING FINANCIAL ANALYSIS REPORT 14
Deferred tax 1.62% 2.20% 2.55%
Employees benefits 0.07% 0.10% 0.01%
Deferred lease incentives 1.82% 3.53% 3.06%
Total non-current liabilities 12.81% 20.16% 14.09%
Total liabilities 32.14% 40.52% 35.19%
Net assets 67.86% 59.48% 64.81%
Issued capital 70.75% 61.84% 63.99%
Reserves 0.31% 0.51% 2.01%
Accumulated losses -3.61% -3.15% -1.35%
Equity attributable to the owners of the
RCG Corporation limited 67.45% 59.21% 64.65%
Non-controlling interest 0.41% 0.28% 0.16%
Total equity 67.86% 59.48% 64.81%

ACCOUNTING FINANCIAL ANALYSIS REPORT 15
Appendix 3: Horizontal analysis of income statement
Horizontal analysis
2016 2017 2018
Revenue 69.02% 31.06% 9.53%
Other (losses)/income
100.00%
-
474.51
%
2650.00
%
Expenses
Finished goods used 45.11% 34.57% -9.67%
changes in merchandise inventories
-
707.55% 78.42% 349.50%
employee benefits expense 69.94% 36.75% 10.88%
Depreciation and amortisation expense 81.28% 34.00% 10.23%
Impairment of brand name
100.00
%
Rental expense on operating leases 72.09% 42.98% 13.15%
Advertising and promotion expenses 45.35% 32.58% 15.26%
Travel and telecommunication expenses 56.58% 13.67% 25.41%
Warehousing and freight expenses 73.23% 16.55% 9.81%
Acquisition-related costs
-
373.43% 0 0.00%
Provision for doubtful debts 92.75% 0.00% 0.00%
Other expenses 62.01% 34.29% 5.95%
Finance costs 84.84% 7.45% 11.48%
Profit before income tax expenses 62.42% -3.52% 32.00%

ACCOUNTING FINANCIAL ANALYSIS REPORT 16
Income tax expense 56.15% -5.19% 28.64%
Profit after income tax expense for the year 65.05% -2.83% 33.29%
Other comprehensive income
Net change in the fair value of cash flow hedges taken to
equity, net of tax 129.71%
584.77
% 80.75%
Foreign current translation -
713.33%
-
702.33
% 109.77%
Other comprehensive income for the year, net of tax
173.83%
547.22
% 78.92%
total comprehensive income for the year 34.65% 23.47% 39.55%
Basic earnings per share 42.33% -16.43% 32.69%
Diluted earnings per share 43.61% -16.94% 33.05%

ACCOUNTING FINANCIAL ANALYSIS REPORT 17
Appendix 4: Horizontal analysis of balance sheet
Horizontal analysis
2016 2017 2018
Assets
Cash and cash equivalents 32.72% 3.69% -19.36%
Trade and other receivables 6.95% -28.28% -8.09%
inventories 9.03% 29.85% -13.59%
Derivative financial instruments 0.00% 0.00% 100.00%
Other 54.91% 16.23% -138.41%
Total current assets 14.89% 16.56% -12.16%
Receivable 0.00% -23.26% -106.74%
Derivative financial instruments 0.00% 0.00% 100.00%
Property, plant and equipment 33.36% 43.02% -0.18%
Intangibles -1.06% 29.30% -0.78%
Deferred tax 46.50% 42.42% 17.07%
Total non-current assets 5.52% 32.09% 0.29%
Total assets 8.66% 27.57% -3.04%
liabilities
Trade and other payables -7.23% 33.61% -9.74%
Borrowings 20.54% 33.68% 33.27%
Derivative financial Instruments
100.00% -30.75%
-
1913.55%
Income tax 41.58% 34.47% 23.88%
Employee benefits 13.36% 34.54% 19.88%
Deferred lease incentives 61.90% 36.15% 31.01%
Total current liabilities 10.27% 31.24% 0.62%

ACCOUNTING FINANCIAL ANALYSIS REPORT 18
Borrowings -95.00% 54.87% -73.77%
Derivative financial instruments 84.20% -177.18% -285.87%
Deferred tax -12.92% 46.55% 11.41%
employees benefits 29.22% 45.84% -857.81%
deferred lease incentives 65.81% 62.62% -18.89%
Total non-current liabilities -54.96% 53.96% -47.46%
Total liabilities -15.74% 42.55% -18.63%
Net assets 20.21% 17.37% 5.42%
Issued capital 19.28% 17.13% 0.43%
Reserves -459.71% 56.67% 73.60%
Accumulated losses -39.37% 16.94% -139.53%
Equity attributable to the owners of the
RCG Corporation limited 20.23% 17.48% 5.63%
Non-controlling interest 16.83% -7.08% -78.52%
Total equity 20.21% 17.37% 5.42%

ACCOUNTING FINANCIAL ANALYSIS REPORT 19
Appendix 5: Financial Ratio computations
PROFITABILITY 2016 2017 2018
Rate of RETURN ON NET SALES =
operating profit/total revenue
42,882/438,57
4 = 9.78%
41,424/636,15
3 = 6.51%
60,918/703,18
1 = 8.66%
RATE OF RETURN ON TOTAL
ASSETS = net income/total assets
30,183/451,32
5 = 6.69%
29,352/623,10
4 = 4.71%
44,000/604,72
1 = 7.28%
ASSET TURNOVER = total
revenue/total assets
438,574/
(412236+451,
325)/2= 1.02
636,153/
(451,325+623,
104)/2 = 1.18
703,181/
(623,104+604,
721)/2= 1.15
RATE OF RETURN ON ORDINARY
SHAREHOLDER'S EQUITY = net
income/total equity
30,183/306,28
7 = 9.85%
29,352/370,65
2 = 7.92%
44,000/391,91
3 = 11.23%
EARNINGS PER SHARE = net
income/outstanding shares 6.45 5.54 8.23
Liquidity ratios
WORKING CAPITAL = current assets
– current liabilities
151,309 –
87,206 =
64103
181,340-
126,832 =
54508
161,679-
127,619=
34060
CURRENT RATIO = current
assets/current liabilities
151,309/87,20
6 = 1.74
181,340/126,8
32 = 1.43
161,679/127,6
19 = 1.27
Acid-test ratio= (current assets –
inventories)/ current liabilities
(151,309-
78,534)/
87,206 = 0.83
(181,340-
111,946)/
126,832 = 0.55
(161,679-
98,556)/
127,619 =
0.49

ACCOUNTING FINANCIAL ANALYSIS REPORT 20
inventory turnover = COGS/ average
inventory 0/ 78,534= 0 0/111,946 = 0 0/98,556 = 0
days in inventory turnover =
365/inventory turnover 365/0 = 0 365/0 = 0 365/0 = 0
gross profit percentage = gross
profit/total revenue
(438,574 +
191)/438,574
= 100.04%
(636,153 -51)/
636,153 =
99.99%
(703,181+2)/
703,181 =
100.00%
account receivable turnover = total
revenue/account receivable
438,574/25,47
2= 17.22
636,153/19,85
6 = 32.04
703,181/18,37
0 = 38.28
Days' sales in receivables = 365/
account receivable turnover
365/17.22=
21.20
365/32.04 =
11.39
365/38.28 =
9.54
Gearing ratios
Debt ratio = total debt/total assets
145,038/451,3
25 = 0.32
252,452/623,1
04 = 0.41
212,808/604,7
21 = 0.35
Debt to equity = total liabilities or
debts/ total equity
145,038/306,2
87 = 0.47
252,452/370,6
52 = 0.68
212,808/391,9
13 = 0.54
time interest earned ratio=
EBIT/interest expenses
(42,882+3,753
)/3,753 =
12.43
(41,424+4,055
)/4,055 =
11.22
(60,918/4,581)
/ 4,581= 14.30