Financial Analysis of Cash Converters International Ltd

The report provides a financial analysis of Cash Converters International Ltd using horizontal analysis and ratio analysis. The profitability, efficiency, liquidity and gearing position of the company have been evaluated. The report includes the formulas and results of various ratios for the last 5 years. The report also discusses the reasons for fluctuations in the financial performance of the company.

Running Head: Financial Analysis of Cash Converters International Ltd
Introduction
Cash converters International Ltd is one among those Australian companies which are listed
on the country’s stock exchange. The company has a franchised retain network and has
the business of selling the second hand goods. The CCV group employs such retailing
practices and also the techniques of professional management, that are modern enough. Also,
the company strictly adheres to all the ethical standards which are applicable to it and due to
this it has successfully positioned its outlets of retail merchandise stores. These practices have
significantly contributed to create a profitable market for the company. The present report
deals with the financial analysis of company’s performance in last 5 years since year 2013.
For the purpose of financial analysis, the key techniques of financial management such as
horizontal analysis of financial statements and ratio analysis have been used.
Horizontal Analysis:
Horizontal analysis of the financial results of the CCV group has been carried taking 2013 as
the base year and then the changes in the key components of income statement have been
observed for all the years from 2013 to 2017. Though, the changes in the financial
performance are quite fluctuating in nature in the present case of CCV, it has been found that
the revenue from different sales has increased at the fluctuating rate from 2013 to 2016 and in
2017, these revenues have actually been reduced even below the original level of year 2013.
The decrease in the revenue was the expected result due to the deliberate plan of the company
to transition its loan book to a higher quality and to lower the risky products to attain the
sustainable business model. The decline in revenue of 2017 since 2016 is reported because of

Financial Analysis of Cash Converters International Ltd 1
changes in the way personal loans were assessed which in turn reduced the volume of lending
of the company and it ultimately resulted in reduced revenue generation from interest on such
loan lending. Even after encountering the decline in the revenues of 2017, the net profit after
tax has increased in since year 2016 where the company had to incur the losses. The the
occurrence of losses in year 2016 was due to the effects of restructuring and compliance
with the ASIC provisions. It could also be observed from the horizontal analysis of income
statement of CCV group that out of these five financial years, the company had to incur
highest cost of sales in 2015 and thereafter, it had again started reducing. In 2017, the firm
has incurred lowest percentage of cost of sales since 2013. Though, the gross profit of the
company in 2017 is lowest of all the years from 2013, the company seems to have managed
its operating expenses quite effectively and hence there is a significant decline in the
operating expenses since 2013. Due to such reduction in operating expenses, the overall
profitability of company has improved since 2015 where the firm had to suffer losses.
However, there is still the declining gap between the overall profitability of company from
2013 to 2017 due to various reasons such as incurrence of high interest expenses since 2013.
Ratio analysis:
In order to evaluate the overall financial performance of the business, the analysis of financial
results related to various important components of company’s financial statements has been
carried. The financial performance of business is bifurcated into various aspects and for each
aspect multiple ratios have been calculated and analysed. These aspects are discussed as
further:
Profitability position

Financial Analysis of Cash Converters International Ltd 2
The profitability position of the business is said to have achieved when the firm is able to
generate sufficient returns for its stakeholders. To ascertain the profitability position of CCV
group certain rations are calculated and analysed. Firstly, return on total assets has been
determined which tells the percentage of returns generated by the company for its
shareholders by utilising its total assets. In 2017, the ROA in 2017 is quite lower than that of
2013 and this shows that the effectiveness of firm to manage its total assets has loosened.
However, since ROA in 2017 has improved as compared to that of 2015 and 2016, it can be
observed that company is striving to improve its overall asset utilisation for its business. The
same is the case of ROE, which has also declined materially since 2013 and hence it can be
said that CCV has failed to generate sufficient returns for its existing holders of common
stock since 2013. However, it is on the track of improving its capabilities to generate an
adequate level of returns for its shareholders since 2015 and has made a considerable
improvement in its profitability position. The operating profit has also declined since 2013
even when there is a clear reduction in the operating expenses due to the fact that the revenue
was intentionally reduced in 2017 to adopt the new provisions of ASIC. The rate gross profit
of the company started growing since 2013 but in 2017 the firm’s GP was reduced materially
due to reduced revenue generation.
Ratio Analysis Formulas 2017 2016 2015 2014 2013
Return on
total assets
Net Income/Average
Total Assets 5.01% -1.22% -5.10% 5.58% 18.95%
Rate of return
on ordinary
equity
Net Income/ Average
Shareholder's Equity 8.20% -2.09% -8.56% 8.69% 27.21%
Operating
profit margin Operating Income/ Sales 13.85% 13.17% -2.00% 12.25% 18.55%
Gross profit
Margin Gross Profit/Sales 63.97% 64.81% 63.07% 64.16% 65.47%

Financial Analysis of Cash Converters International Ltd 3
Efficiency position
To evaluate the efficiency of the company in managing its assets, inventory turnover period
and the debtor settlement period have been identified. The inventory turnover period of the
firm suggests as how much time it takes to convert its inventory into cash. In the present case
of CCV that the inventory turnover days have increased in all the years in a fluctuating
fashion since 2013 and the increased days shows that firm is unable to effectively manage its
inventory by converting it into sales in minimum possible time. The same scenario has been
experienced in case of managing its trade receivables. The settlement period of debtors has
also increased since 2013 and it signifies that the firm is not effectively managing its trade
debtors by converting the credit sales into cash in the minimum possible time.
Inventories
turnover period
(Days)
Average Inventory * 365 /
Cost of Goods Sold 72 76 70 73 42
Settlement period
for debtors
Average Receivables*365/
Credit Sales 14 25 28 23 9
Liquidity position
The liquidity position of any company is achieved when it is able to meet its short term
financial obligations through its current assets. Ideally, the company must at least have twice
of its current assets as it liabilities to maintain a sound liquidity position in the market. To
comment on the liquidity position of the company, current ratios and quick ratios have been
calculated and it is found that the liquidity position of the company over last 5 years have
improved soundly and currently firm manages to maintain a stable liquidity position in
market.
Current ratio Current Assets/ Current Liabilities 2.71 2.09 2.16 2.14 1.71

Financial Analysis of Cash Converters International Ltd 4
Quick ratio Quick Assets/Current Liabilities 2.36 1.84 1.91 1.88 1.50
Gearing position:
Financial gearing determines the financial risk on the company. It basically gauges the
financial leverage imposed on the company and determines the solvency position of the
business. The debt to asset and interest coverage ratio has been determined to ascertain the
solvency position of the business. The interest coverage ratio of the company determines its
capacity to meet its interest obligations in regards to its debts in the timely manner. The
Interest coverage ratio in the present case has significantly declined since 2013 because of
increased debt obligations of the company which in turn has increased its interest payment
obligations also. However, the firm is still earning sufficient profits in the current to meet its
interest obligations on timely basis. Further, the debt to asset ratio measures the total amount
of assets financed through external debt financing and not with the use of investor’s money.
Since in all the years debt to asset is less than 1 it can be said that the company has more
assets than its liabilities and hence it is financially solvent.
Debt to assets ratio Total Debt/ Total Assets 0.35 0.43 0.41 0.40 0.30
Interest coverage ratio EBIT/ Interest Cost 4.00 4.23
-
0.83 4.74 17.35
Investment ratios:
These ratios helps the potential and existing investors of the company to decide whether to
stay associated or make new investment in the company or net looking at its worth and return
potential. To determine the investment worthiness of company price earnings ratio, earning
per share and dividend yield have been identified. The EPS has declined since 2013 and

Financial Analysis of Cash Converters International Ltd 5
hence its shows that the company has failed to maintain a desired level of return for its
shareholders. The price earning per share is increasing since last 5 years and its reflects
positive growth prospects of the company.
Earnings per
share
PAT/ Number of equity
shareholders 0.04 -0.01 -0.04 0.06 0.08
Price-earnings
ratio MPS/EPS 26.01 -98.78 -15.98 7.75 4.88
Dividend yield
Cash Dividend per share/
MPS
0.0350
47
0.0370
37
0.5714
29
0.0454
55
0.02531
65

Financial Analysis of Cash Converters International Ltd 6
References:
My accounting course, 2018. Accounting Topics. Available at: <
https://www.myaccountingcourse.com/financial-ratios/debt-to-asset-ratio> Accessed on:
12.08.2018.
Cash Convertors, 2017. Annual Report. Available at: <
file:///C:/Users/System04091/Downloads/2017%20Annual%20Report%20PDF.pdf> Accessed on:
12.08.2018.