Financial Statement Analysis of CIMIC Group Limited

This analysis provides an overview of the financial performance of CIMIC Group Limited, including core business activities, major changes in financial performance, key financial ratios, and an overall assessment of the company's financial health.

Running head: FINANCIAL STATEMENT ANALYSIS
Financial statement analysis
Name of the student
Name of the university
Student ID
Author note

1FINANCIAL STATEMENT ANALYSIS
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
1. Core business activities...................................................................................................2
2. Major changes in the financial performance...................................................................3
3. Key financial ratios.........................................................................................................3
4. Overall assessment of company......................................................................................7
Conclusion..................................................................................................................................8
Reference....................................................................................................................................9

2FINANCIAL STATEMENT ANALYSIS
Introduction
CIMIC Group Limited is an ASX listed company and is in existence since the year
1989 with more than 50000 employees over 20 countries. The company is the member of
S&P/ASX 100 index, FTSE4Good and Dow Jones Sustainability Australia Index. The
company is well known for its integrity principles, innovation, delivery, accounting and is
underpinned by the safety. These principles are underpinned by continuous factors focussing
on safety that is fundamental for the operation of the company. The mission of the company
is to create sustainable returns for the shareholders through delivery of the projects to clients
taking into consideration the rewarding, fulfilling and safe careers for the employees. Further,
the company supports collaborative and united culture where the employees are aligned for
achieving the superior performance (Cimic.com.au 2018).
Discussion
1. Core business activities
The company is mainly engaged in providing mining, construction, engineering,
mineral processing, operation, concession and maintenance services for property, resources
and infrastructure markets. It operates through mining and mineral processing, private public
partnership, residential and commercial, services, engineering and HGL segments. The
company is further engaged in construction of rails, roads, tunnels, buildings, airports, and
various social projects for infrastructure. It is also engaged in resources, energy and water
facilities, gas and oil structures, infrastructure projects like geothermal energy, installations of
waste to power, utility-scale wind and renewable energy. Apart from these the company also
provides asset management, maintenance, operation and facilities as well as ICT solutions

3FINANCIAL STATEMENT ANALYSIS
and telecommunication services to commercial and industrial clients and governmental
agencies Cimic.com.au 2018).
2. Major changes in the financial performance
Major changes regarding the financial performance of the company were increase of
revenue by 24% that was generated through solid contributions from the core businesses of
the company. Further, the net profit after tax was increased by 21% and the free operating
cash flow was increased by 12%. These increases were supported by improved rating in
investment grade. These were achieved due to exceptional work of 50,000 employees
(Cimic.com.au 2018).
3. Key financial ratios
Ratio Formula 2017 2016 2015 Interpretation
Profitability
ratio
Net profit
margin Net profit/Sales * 100 5.23 5.35 3.89
Net profit margin that
is also known as the net
margin states the
amount of net income
the company can
generate with the total
sales (Vogel 2014). Net
profit of the company
has been increased over
the years from 2015 to
2016. However, it
slightly reduced in
2017 as compared to
2016 (Cimic.com.au
2018).

4FINANCIAL STATEMENT ANALYSIS
Return on
Asset
Net profit/Total
assets * 100 7.34 5.77 5.38
Return on asset
indicates the
profitability of the
company with regard to
its assets. ROA states
the management’s
efficiency considering
the usage of assets for
generation of earning
(Brigham et al. 2016).
ROA is important as it
helps in analysing the
profitability status of
the company. Further,
it can be used for
comparing the
performance of the
company with previous
years. Looking into
ROA of the company it
can be identified that
the ROA of the
company is in
increasing trend that
states that the
profitability status of
the company over 3
years period has
improved
(Cimic.com.au 2018).
Stability ratio
Debt to asset
ratio
Total liabilities / total
asset
0.65 0.67 0.57 Debt to total assets
indicates the financial
leverage of the
company. It states the
total asset percentage
financed by the
creditors. Increasing
trend of debt to asset
ratio indicates that the
company is unable to
pay off its debt that
further indicates that
the company may be at
default for payment
(Babalola and Abiola
2013). It can be
identified from the debt
to asset ratio of the

5FINANCIAL STATEMENT ANALYSIS
company that it is
increasing trend that
indicates that the
leverage position of the
company is increasing
(Cimic.com.au 2018).
Debt equity
ratio
Total liabilities / total
equity 1.85 2.06 1.35
Debt equity ratio that is
also called as the risk
ratio or gearing ratio
indicates the proportion
of total debt and
financial obligations
against shareholder’s
equity. High debt
equity ratio will be
considered good if the
firm is able to meet its
debt obligation
comfortably. Further,
the debt cost is lower as
compared to cost of
equity as the debt
expenses are deductible
expenses under tax
whereas the equity
expenses are not
(Heikal, Khaddafi and
Ummah 2014).
Looking into the debt
to equity ratio of the
company it is
recognized that the debt
to equity ratio of the
company has been
increased over the
years from 2015 to
2016. However, it has
been reduced over the
years from 2016 to
2017 (Cimic.com.au
2018).
Liquidity
ratio
Current ratio Current assets /
Current liabilities
0.99 0.87 1.24 The current ratio is the
efficiency and liquidity
ratio that is used to
measure the ability of
the company to pay off
the short-term

6FINANCIAL STATEMENT ANALYSIS
obligations. It is an
important measure for
liquidity as the short
term obligations are
payable within short
period of time (Ehiedu
2014). Hence, the
company gets limited
time for raising funds
for paying off these
obligations. Generally
the current ratio of 1 or
more than that indicates
that the liquidity
position of the
company is good.
Looking into the
current ratio of the
company it is identified
that except for 2015 the
current ratio for other 2
years are less than 1
(Cimic.com.au 2018).
Quick ratio (Current assets –
inventories) / current
liabilities
0.95 0.83 1.18 Quick ratio that is also
known as the acid test
ratio is used to measure
the ability of the
company to meet the
short term obligations.
It is called as liquid
ratio as the most liquid
current assets like
inventories are not
taken into
consideration as these
are not convertible to
cash rapidly and are
generally sold on credit
(Enekwe, Agu and
Eziedo 2014). Looking
into the quick ratio of
the company it is
identified that except
for 2015 the quick ratio
for other 2 years are
less than 1 that
indicates that the
liquidity position of the
company is not
satisfactory

7FINANCIAL STATEMENT ANALYSIS
(Cimic.com.au 2018).
Efficiency
ratio
Account
receivable
ratio
Sales / average
receivables 4.18 3.70 4.39
It is an efficiency
metrics that is used to
measure the efficiency
of the company with
regard to the collection
of its debts. High
receivable ratio
indicates various things
like whether the
company is operating
on cash basis or credit
basis, receivable
collection strategies of
the company and credit
period generally
allowed by the
company. High ratio
also indicates that the
company has
conservative credit
policy. It may drive
away the potential
customers and
competitors may take
away the business
(Amba 2014). Looking
into the account
receivable ratio it can
be identified that the
receivable ratio has
been reduced over the
years from 2015 to
2016. However, it is
increased in the year
2017 as compared to
the year 2016
(Cimic.com.au 2018).
4. Overall assessment of company
Sustainability is the integral part of value creation. The company’s approach is to
build reputation as the choice provider with the shareholders and clients and to create positive

8FINANCIAL STATEMENT ANALYSIS
legacy for the shareholders and communities under which it operates. Further, the company’s
sustainability performance recognised during the year 2017 by industry leader DJSI (Dow
Jones Sustainability Indices). Under this the company was recognised as only engineering
and Construction Company that was included under DJSI’s Australia Index. The company
was recognised as the ‘industry best’ performer in various categories. Further, for the 2nd time
they were included under the FTSE4Good where the performance of the companies are
measured for demonstrating strong governance, social and environmental practices
(Bartholomew 2018). As per the analysis, key matter of company’s success is its financial
health. Its debt levels and liquidity position strongly indicates that the company is is able to
fund the strategic acquisitions for the purpose of future growth. However, it is found that
though the earnings growth of the company is positive, the growth rate is lower than the
average of Australian market. However, in future it is expected that the company’s revenue
growth will be higher than the average of Australian market (Simply Wall St 2018).
Conclusion
From the above analysis it can be concluded that the net profitability status of the
company over the last 3 years has been improved. Net profit margin has been increased from
3.89% to 5.23% over the years from 2016 to 2017. Further, the return on assets has been
increased from 5.38% to 7.34% over the years from 2016 to 2017. Further, the debt asset
ratio of the company is stating that the company is lower leveraged. Though the liquid ratio
of the company is lower than required it can be increased through paying off the short – term
obligations of the company. Therefore, the overall performance of the company is good and
the company’s stock can be recommended to consider for investing by the potential investors.

9FINANCIAL STATEMENT ANALYSIS
Reference
Amba, S.M., 2014. Corporate governance and firms’ financial performance. Journal of
Academic and Business Ethics, 8(1).
Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Bartholomew, D., 2018. How Financially Strong Is CIMIC Group Limited (ASX:CIM)?.
[online] Simply Wall St. Available at:
https://simplywall.st/stocks/au/capital-goods/asx-cim/cimic-group-shares/news/how-
financially-strong-is-cimic-group-limited-asxcim/ [Accessed 13 Jul. 2018].
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Cimic.com.au., 2018. [online] Available at:
https://www.cimic.com.au/__data/assets/pdf_file/0005/35843/CIMIC-Annual-Report-
2017.pdf [Accessed 13 Jul. 2018].
Cimic.com.au., 2018. Home - CIMIC Group. [online] Available at:
https://www.cimic.com.au/ [Accessed 13 Jul. 2018].
Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: the
financial statement analysis (FSA) approach. Research Journal of Finance and
Accounting, 5(5), pp.81-90.
Enekwe, C.I., Agu, C.I. and Eziedo, K.N., 2014. The effect of financial leverage on financial
performance: evidence of quoted pharmaceutical companies in Nigeria. IOSR Journal of
Economics and Finance, 5(3), pp.17-25.

10FINANCIAL STATEMENT ANALYSIS
Heikal, M., Khaddafi, M. and Ummah, A., 2014. Influence analysis of return on assets
(ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and
current ratio (CR), against corporate profit growth in automotive in Indonesia Stock
Exchange. International Journal of Academic Research in Business and Social
Sciences, 4(12), p.101.
Simply Wall St., 2018. CIMIC Group (ASX:CIM) - Share price, News & Analysis. [online]
Available at: https://simplywall.st/stocks/au/capital-goods/asx-cim/cimic-group-
shares#future?
unique_symbol=ASX:CIM&l=1&t=qrog_yp&s=3&id=266993&utm_source=post&utm_med
ium=finance_user&lt=Conc_ticker&utm_campaign=Conc_ticker [Accessed 13 Jul. 2018].
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.