Data3 Limited Business Analysis

This assignment tasks the student with analyzing Data3 Limited's financial performance using key ratios extracted from their annual reports (2012-2017). The analysis should incorporate a review of the company's business plan, focusing on its diversification strategy and expansion projects. The student is then required to provide recommendations for Data3 Limited based on their findings, particularly concerning financing options for accelerating growth.

BUS5IAF Introduction to Accounting & Finance
Financial Statement Analysis
DATA#3 Limited
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Contents
Part I: Introduction.....................................................................................................................4
Part II: Industry Situation and company plans...........................................................................4
Part III: Financial Statement Analysis.......................................................................................6
A: Statement of financial performance...................................................................................6
Gross Profit, Operating Income and net income.................................................................6
Trend analysis (horizontal analysis and vertical analysis) of the comprehensive income
statement form year 2013 to year 2017..............................................................................7
Significant changes to the accounting policies while preparing the income statement......9
Trend and any item that seems to be different from the industry norms............................9
B: Statement of Financial Position.......................................................................................10
Analysis of Accounting Equation for past years..............................................................10
Trend analysis (horizontal analysis and vertical analysis) of the Balance sheet statement
form year 2013 to year 2017.............................................................................................10
Accounting Policies in respect to different items presents in the balance sheet...............16
Trend and any item that seems to be different from the industry norms..........................17
C: Statement of Cash Flow...................................................................................................17
Comparison of cash flow from operating activity with past net income..........................17
Note on whether company is expanding through the investing activity...........................17
Important source of finances for the Data3 Limited.........................................................18
Movement of cash flows after comprising all the three activities....................................18
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D: Summary of above analysis.............................................................................................18
Part IV: Ratio Analysis............................................................................................................18
Trends, Strength and Weakness of the company performance measured through ratio
analysis.................................................................................................................................22
Part V: Conclusion and recommendations...............................................................................23
References................................................................................................................................24
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Part I: Introduction
Analysis of financial statements helps in evaluating the performance of the company
during the past years and compares them with the current year. In this report financial
performance of Data3 Limited has been evaluated for last five years using the trend analysis
and ratio analysis. The head office of the company is located at Brisbane, Australia. The chief
executive director of the company is Laurence Baynham. The ending date of lasted financial
year was June, 2017. Data3 Limited is related to the information technology industry and
aims to provide the services to the business organization to overcome their data problem and
other IT related problems. Some of the major services provided by the company are
Consulting services, procurement services, projects handling service, managing the task
services; and resourcing the human requirement. Company provides their services in whole
of Australia, and Asia Pacific (Company Overview, 2017). The independent auditors of the
company are Pitcher Partners. As per the auditors financial statements present true and fair
picture of the company financial performance. The most recent price of the company as on 7
September, 2017 was AUD $1.82. The last dividend per share for the year 2016-17 was $0.13
AUD (Morning Star, 2017).
Part II: Industry Situation and company plans
Data3 Limited belongs to IT services industry and it provides services that is needs by
organizations to handle there data problems and other IT related problems. This industry is
growing at rapid pace in Australia as well as in Asia Pacific countries. So it is highly
expected that company will definite expand their business in future years and become the
world strong player in this industry.
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The long term business plan of the company is to grow the business aspect consulting
group and leveraging the Data3 Limited. Make the brand name Data3 Popular enough to get
international business frequently. Improving the health of employees and playing important
role in sustainable accounting with help of corporate governance (Annual Report, 2016).
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Part III: Financial Statement Analysis
A: Statement of financial performance
Gross Profit, Operating Income and net income
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
Amount in AUD thousand
Net Revenue
$
771,042.00
$
833,595.00
$
870,470.00
$
983,223.00
$
1,098,221.00
Gross Profit
$
196,709.00
$
199,187.00
$
226,108.00
$
253,810.00
$
289,562.00
Income from
Operation
$
17,754.00
$
10,999.00
$
15,389.00
$
19,582.00
$
22,507.00
Net Profit
$
12,138.00
$
7,524.00
$
10,604.00
$
13,601.00
$
15,809.00
(Annual Reports 2013 to 2017)
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2013-06 2014-06 2015-06 2016-06 2017-06
$-
$50,000.00
$100,000.00
$150,000.00
$200,000.00
$250,000.00
$300,000.00
$350,000.00
Trend Analysis of Various Incomes
Gross Profit
Income from Operation
Net Profit
AUD Million
Looking at the above table and graph it can be said that there sere has deep decline in
the gross profit in year 2014 as compare to year 2013, but there has been gradually increase
in gross in rest of the years. In respect of income from operations and net income it can be
said that there has same trend as in case of gross profit. So it can be said that year 2014 was
not a good year for the company performance point of view as there had been strong decline
in the net income as compare to previous year (Annual Reports 2013 to 2017).
Trend analysis (horizontal analysis and vertical analysis) of the comprehensive income
statement form year 2013 to year 2017
Vertical analysis is also known as common size analysis and horizontal analysis is
also known as time series analysis.
Income Statement of DATA3 Limited
Amount in AUD thousand
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
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Horizontal (Time Series) Trend Analysis
Revenue 100.00% 108.11% 112.90% 127.52% 142.43%
Cost of revenue 100.00% 110.46% 112.19% 127.00% 140.80%
Gross profit 100.00% 101.26% 114.95% 129.03% 147.20%
Sales, General and
administrative 100.00% 105.16% 117.75% 130.89% 149.23%
Operating
income 100.00% 61.95% 86.68% 110.30% 126.77%
Interest Expense
Income before
taxes 100.00% 62.11% 86.96% 111.50% 128.22%
Provision for
income taxes 100.00% 62.39% 86.03% 110.25% 123.60%
Net income 100.00% 61.99% 87.36% 112.05% 130.24%
(Annual Reports 2013 to 2017)
Income Statement of DATA3 Limited
Amount in AUD thousand
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
Vertical (Common Size) Trend Analysis
Revenue 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of revenue 74.49% 76.11% 74.02% 74.19% 73.63%
Gross profit 25.51% 23.89% 25.98% 25.81% 26.37%
Sales, General
and
23.21% 22.58% 24.21% 23.82% 24.32%
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administrative
Operating
income 2.30% 1.32% 1.77% 1.99% 2.05%
Interest Expense 0.04% 0.02% 0.02% 0.01% 0.01%
Income before
taxes 2.27% 1.30% 1.75% 1.98% 2.04%
Provision for
income taxes 0.69% 0.40% 0.53% 0.60% 0.60%
Other
Net income 1.57% 0.90% 1.22% 1.38% 1.44%
(Annual Reports 2013 to 2017)
Significant changes to the accounting policies while preparing the income statement
As seen in the annual report for years 2016 and 2017, it has been found that there
have not any significant changes while preparing the income statement for both the years.
Data3 Limited has followed the same accounting policies that company is following in
previous year. For example, company has recognized and measured the income recognized at
the fair value of the amount received or yet to be received.
Trend and any item that seems to be different from the industry norms
Data3 limited has been listed on the ASX and it is world famous for providing the
business technology solution in form of Hybrid IT technology. It is leading player in its
industry and has a business plan to out growth of the company in coming years.
As seen from the annual reports there has been no sign that indicates any change in
trend and item differs from the industry norms. It is mandatory for every company to follow
the accounting standards that are applicable on them to promote the harmonization of
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financial reporting. So there seems that all the companies in this industry follow same
accounting policies as defined in the AASB standards.
B: Statement of Financial Position
Analysis of Accounting Equation for past years
Accounting Equation
Amount in AUD million
Years Assets Liabilities Stockholder's Equity Liabilities + Equity
2013 $ 214,842.00 $ 180,968.00 $ 33,874.00 $ 214,842.00
2014 $ 271,786.00 $ 238,164.00 $ 33,874.00 $ 272,038.00
2015 $ 293,656.00 $ 257,283.00 $ 36,373.00 $ 293,656.00
2016 $ 317,840.00 $ 277,214.00 $ 40,626.00 $ 317,840.00
2017 $ 340,071.00 $ 297,316.00 $ 42,755.00 $ 340,071.00
(Annual Reports 2013 to 2017)
Trend analysis (horizontal analysis and vertical analysis) of the Balance sheet statement
form year 2013 to year 2017
Vertical analysis is also known as common size analysis and horizontal analysis is
also known as time series analysis.
Balance Sheet Statement of DATA3 Limited
Amount in AUD thousand
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
Horizontal (Time Series) Trend Analysis
Assets
Current assets
Cash and cash
100.00% 121.22% 127.71% 119.87% 159.04%
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equivalents
Receivables 100.00% 135.95% 142.17% 157.92% 155.89%
Inventories 100.00% 78.16% 121.13% 388.95% 138.61%
Other current assets
Total current assets 100.00% 128.53% 135.29% 145.69% 157.48%
Non-current assets
Net property, plant and
equipment 100.00% 96.35% 103.34% 101.14% 99.01%
Intangible assets 100.00% 107.14% 561.02% 722.69% 764.78%
Deferred income taxes 100.00% 102.44% 32.54% 35.63% 41.00%
Other 100.00% 94.70% 14.85%
Total non-current
assets 100.00% 100.66% 154.55% 176.69% 168.56%
Total assets 100.00% 126.51% 136.68% 147.94% 158.29%
Liabilities and
stockholders' equity
Liabilities
Current liabilities
Accounts payable 100.00% 131.55% 141.92% 145.31% 159.61%
Borrowings 100.00% 108.78% 57.84% 22.59% 43.60%
Current Tax Liabilities 100.00% 44.95% 544.04% 1278.44% 967.43%
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Provisions 100.00% 114.42% 159.34% 162.98% 184.95%
Other current liabilities 100.00% 154.89% 158.52% 268.32% 239.80%
Total current
liabilities 100.00% 132.48% 143.17% 153.22% 164.84%
Non-current liabilities
Borrowings 100.00% 34.72% 0.00% 28.50% 30.92%
Provisions 100.00% 125.13% 161.53% 187.32% 203.03%
Other 100.00% 81.17% 64.12% 277.11% 143.67%
Total non-current
liabilities 100.00% 88.08% 92.07% 151.17% 136.72%
Total liabilities 100.00% 131.61% 142.17% 153.18% 164.29%
Stockholders' equity
Controlled Equity 100.00% 100.00% 100.00% 100.00% 100.00%
Retained earnings 100.00% 100.00% 109.76% 123.32% 130.15%
Non Controlling
Interest 100.00% 148.60%
Total stockholders'
equity 100.00% 100.00% 107.38% 119.93% 126.22%
Total liabilities and
stockholders' equity 100.00% 126.62% 136.68% 147.94% 158.29%
(Annual Reports 2013 to 2017)
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Balance Sheet Statement of DATA3 Limited
Amount in AUD thousand
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
Vertical (Common Size) Trend Analysis
Assets
Current assets
Cash and cash
equivalents 39.71% 38.05% 37.11% 32.18% 39.90%
Receivables 50.31% 54.06% 52.33% 53.70% 49.55%
Inventories 1.50% 0.93% 1.33% 3.96% 1.32%
Other current
assets 1.21% 1.17% 1.02% 1.49% 1.50%
Total current
assets 92.74% 94.22% 91.79% 91.33% 92.27%
Non-current
assets
Net property,
plant and
equipment 2.91% 2.22% 2.20% 1.99% 1.82%
Intangible assets 1.02% 0.86% 4.18% 4.97% 4.92%
Deferred
income taxes 3.34% 2.70% 0.79% 0.80% 0.86%
Other 0.00% 0.00% 1.04% 0.91% 0.13%
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Total non-
current assets 7.26% 5.78% 8.21% 8.67% 7.73%
Total assets 100.00% 100.00% 100.00% 100.00% 100.00%
Liabilities and
stockholders'
equity
Liabilities
Current
liabilities
Accounts
payable 76.76% 79.75% 79.70% 75.40% 77.40%
Borrowings 0.32% 0.28% 0.14% 0.05% 0.09%
Current Tax
Liabilities 0.10% 0.04% 0.40% 0.88% 0.62%
Provisions 0.81% 0.73% 0.94% 0.89% 0.94%
Other current
liabilities 4.58% 5.61% 5.31% 8.31% 6.94%
Total current
liabilities 82.58% 86.40% 86.50% 85.53% 86.00%
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Non-current
liabilities
Borrowings 0.54% 0.15% 0.00% 0.10% 0.11%
Provisions 0.83% 0.82% 0.98% 1.05% 1.06%
Other 0.29% 0.18% 0.13% 0.54% 0.26%
Total non-
current
liabilities 1.66% 1.15% 1.12% 1.69% 1.43%
Total liabilities 84.23% 87.55% 87.61% 87.22% 87.43%
Stockholders'
equity
Controlled
Equity 3.85% 3.04% 2.82% 2.60% 2.43%
Retained
earnings 11.91% 9.41% 9.57% 9.93% 9.80%
Non Controlling
Interest 0.00% 0.00% 0.00% 0.25% 0.34%
Total
stockholders'
equity 15.77% 12.45% 12.39% 12.78% 12.57%
Total liabilities
and
stockholders'
100.00% 100.00% 100.00% 100.00% 100.00%
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equity
(Annual Reports 2013 to 2017)
Accounting Policies in respect to different items presents in the balance sheet
 Property and Equipment: These assets are recognized at cost of purchase less
accumulated depreciation.
 Inventories: Inventories are recorded in the balance sheet at lower of cost of net
realizable value.
 Accounts receivables: Accounts receivable that are not interest bearable and due in 30
days are recognized initially at fair value and after that measured at amortized value.
 Goodwill: Initially goodwill has been recognized on the acquisition cost and after that
impairment has been carried cost every year (Annual Report, 2016)
 Cash and Cash Equivalents: This current asset of the company comprises of cash at
hand and in banks and any cash received on calls held with financial institutions. So
this cash is measured at fair value of measurement (Bull, 2007)
Trend and any item that seems to be different from the industry norms
Data3 Limited has followed the same accounting policies as define in the industry
norms that are there is no change that differs from the norms.
C: Statement of Cash Flow
Comparison of cash flow from operating activity with past net income
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
All Data in AUD thousand
Cash Flow from operating
Activity
$
30,489.0
$
29,419.0
$
24,262.0
$
6,818.00
$
51,251.0
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0 0 0 0
Net cash outflow from investing
activities
$ -
4,570.00
$ -
2,843.00
$ -
10,114.0
0
$ -
2,767.00
$ -
3,953.00
Net cash outflow from financing
activities
$ -
11,417.0
0
$ -
8,471.00
$ -
8,609.00
$ -
10,738.0
0
$ -
13,882.0
0
Net Profit
$
12,138.0
0
$
7,524.00
$
10,604.0
0
$
13,601.0
0
$
15,809.0
0
(Annual Reports 2013 to 2017)
Note on whether company is expanding through the investing activity
Through looking at the cash used in the investment activities it has been found that
company is frequently expanding its business by way of purchasing the other business
segments through acquisition, by purchase of property, plant and equipments and investment
big amount of cash in software assets.
Important source of finances for the Data3 Limited
It has been found that company is totally dependent upon the cash generated through
operating activities and reserves left in previous years. There was no flow of cash from
financial institutions and issue of common shares in past five years.
Movement of cash flows after comprising all the three activities
Particulars 2013-06 2014-06 2015-06 2016-06 2017-06
All Data in AUD thousand
Net increase or decrease in cash in $ $ $ $ - $
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all three activities
14,502.0
0
18,105.0
0 5,539.00 6,687.00
33,416.0
0
(Annual Reports 2013 to 2017)
D: Summary of above analysis
It can be concluded from the general review and trend analysis of the financial
statements that Data3 Limited had progressed positively in last five years except in year 2014
due to some unavoidable reasons. Data3 Limited has followed all the mandatory
requirements of the preparing the financial report through successful adoption of Australian
GAAP together with important points given in IFRS (Fridson and Alvarez, 2011).
Part IV: Ratio Analysis
Below table provides the calculation of various ratios. Detailed workings can be seen
in the excel sheet:
Data3 Limited (Amount in thousand $ )
Particulars 2013 2014 2015 2016 2017
Shareholder's
Equity
$
33,874.00
$
33,874.00
$
36,373.00
$
40,626.00
$
42,755.00
PBIT
$
17,754.00
$
10,999.00
$
15,389.00
$
19,582.00
$
22,507.00
Interest charges
$
282.00
$
147.00
$
196.00
$
100.00
$
105.00
Current Assets
$
199,241.00
$
256,082.00
$
269,545.00
$
290,274.00
$
313,774.00
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Current
liabilities
$
177,411.00
$
235,031.00
$
254,008.00
$
271,837.00
$
292,453.00
Cost of sale
$
574,333.00
$
634,408.00
$
644,362.00
$
729,413.00
$
808,659.00
Stock or
Inventory
$
3,232.00
$
2,526.00
$
3,915.00
$
12,571.00
$
4,480.00
Accounts
Receivables
$
108,084.00
$
146,936.00
$
153,667.00
$
170,684.00
$
168,495.00
Net Sales
$
771,042.00
$
833,595.00
$
870,470.00
$
983,223.00
$
1,098,221.00
Total Assets
$
214,842.00
$
271,786.00
$
293,656.00
$
317,840.00
$
340,071.00
Net profit
$
12,138.00
$
7,524.00
$
10,604.00
$
13,601.00
$
15,809.00
Cash flow from
operating
activities
$
30,489.00
$
29,419.00
$
24,262.00
$
6,818.00
$
51,251.00
Debt
$
3,557.00
$
3,133.00
$
3,275.00
$
5,377.00
$
4,863.00
EPS (in $)
$
0.08
$
0.05
$
0.07
$
0.09
$
0.10
MPS
$
0.95
$
0.68
$
1.08
$
1.54
$
1.82
DPS 0.10 0.07 0.07 0.10 0.13
(Morning Star, 2017 and Annual Reports 2013 to 2017)
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Ratio Analysis 2013 2014 2015 2016 2017
Long term
Solvency
Ratio:
Debt to equity
Ratio Debt/Equity 10.50% 9.25% 9.00% 13.24% 11.37%
Interest cover
ratio
PBIT/Interest
charges*100 62.96 74.82 78.52 195.82 214.35
Market
Strenght ratio
Dividend yield
ratio
Dividend per share
/ Market price per
share *100 10.50% 10.29% 6.49% 6.50% 7.14%
Price earning
ratio
Market price per
share / EPS 11.90 13.60 15.40 17.10 18.20
Liquidity
ratios:
Current ratio
Current
assets/Current
liabilities 1.12 1.09 1.06 1.07 1.07
Working
Capital
Current Assets -
Current Liabilities
21830.0
0
21051.0
0
15537.0
0
18437.0
0
21321.0
0
Receivables Sales /Accounts 7.13 5.67 5.66 5.76 6.52
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Turnover Ratio receivables
Accounts
receivable
collection
period
Accounts
Receivable
/Sale*365 51.17 64.34 64.43 63.36 56.00
Inventory
Turnover Ratio Cost of sale/ stock 177.70 251.15 164.59 58.02 180.50
Average Days
inventory in
hand
Accounts
Receivable / Cost
of sale*365 68.69 84.54 87.04 85.41 76.05
Profitability
ratios:
Net profit
margin
Net
profit/sales*100 1.57% 0.90% 1.22% 1.38% 1.44%
Asset turnover
ratio Sales/Total Assets 3.59 3.07 2.96 3.09 3.23
Return on
equity
Net Profit/
Shareholder's
Equity 35.83% 22.21% 29.15% 33.48% 36.98%
Return on
assets
Net income/ total
assets 5.65% 2.77% 3.61% 4.28% 4.65%
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