Financial Statement Analysis of CSL Limited

The report includes an overall analysis of CSL Limited, providing insights into its financial performance for the past years. The historical financial data is collected for the years 2008 to 2017 including the income statement, balance sheet and cash flow statement of the company. The report commences with a brief introduction about the company and its core activities. It provides a brief introduction about the CSL’s operations and describes the segments through which the firm operates. In the later part, the objectives of conducting a financial statement analysis are explained along with the evaluation of current operations of CSL.

RUNNING HEAD: BUSINESS FINANCE
Financial statement analysis

Business finance 2
Contents
Introduction.................................................................................................................................................3
Brief description of CSL..............................................................................................................................3
Purpose of financial statement analysis.......................................................................................................4
Analysis of current operations.....................................................................................................................5
Dividend valuation....................................................................................................................................13
Share price movements..............................................................................................................................14
Identification of the areas of cash flow......................................................................................................15
Relevant investment and financing strategies............................................................................................15
Recommendations and Conclusion............................................................................................................16
Bibliography..............................................................................................................................................17
Appendix...................................................................................................................................................19

Business finance 3
Introduction
The report includes an overall analysis of CSL Limited, providing insights into its financial
performance for the past years. The historical financial data is collected for the years 2008 to
2017 including the income statement, balance sheet and cash flow statement of the company.
The report commences with a brief introduction about the company and its core activities. It
provides a brief introduction about the CSL’s operations and describes the segments through
which the firm operates. In the later part, the objectives of conducting a financial statement
analysis are explained along with the evaluation of current operations of CSL.
In order to analyse the financial statements of the company, various categories of ratios are
calculated which measures the profitability, liquidity, efficiency and solvency of CSL for the
past two years. Also, the supply and demand factors are taken into consideration while
evaluating the current operations of the company. The report also calculates the value of stock
by using dividend valuation model and notifies the changes in company’s share price and returns
over the past ten years. The fluctuations are then compared to the movements in the market
return for the same period of time. All the calculations done are properly analysed in the later
part of the report where the areas of the cash flow are identified that are needed to be improved.
In the last, the report suggests some relevant strategies for CSL in respect of financing and
investments that will help in improving the cash flow position. Also, a conclusion has been
provided including all the findings of the report.

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Brief description of CSL
CSL Limited is an Australia based biotechnology company involved in the business of
developing and delivering biotherapies. The core activities of the company involve research,
manufacture, development, marketing and distribution of biopharmaceutical and related
products. It operates through segments named as CSL Behring, CSL Intellectual Property and
Seqirus. The Behring segment is involved in manufacturing and marketing of plasma therapies
including plasma products. The CSL Intellectual Property division is engaged in the business of
licensing the property owned or generated by the company to the third parties which are not
related to the company. Seqirus deals with the distribution, selling and manufacturing of wide
range of vaccines, antivenoms and other pharmaceutical products across Australia and New
Zealand. The segment also develops vitro diagnostic products through Seqirus
immunohematology1.
Overall, the company has performed well in terms of revenue as it increased from $5902.34
million to $6590.60 million in 2017. Also the net profit of the firm was up to $1332.31 million
from $1240.89 million. The company is listed on ASX and is traded with a ticker symbol
CSL.AX. The market capitalization of the firm is $59,929.89 million with a share price of
$197.122.
Purpose of financial statement analysis
The procedure of analysing and evaluating the financial statements of the company for the
purpose of decision making is known as financial statement analysis. The main objective of
conducting such evaluation is to help the managers, directors and other stakeholders to take
1 Reuters. CSL Ltd (CSL.AX).
2 ibid

Business finance 5
proper and relevant decisions for the company. Analysing all the three statements will help the
users to properly understand company’s financial position, profitability, liquidity and solvency.
The cash flow statement helps in understanding the investing, operating and financing activities
of the firm. Following are the objectives of financial statement analysis:
 The objective is to assess the past performance of the firm in order to predict the future
performance. The analysis provides trend in pat sales, cash flow, net profit so as to assist
the investors and creditors to judge the overall performance of the firm.
 The analysis helps in predicting the growth rates and earning prospects for the firm that
are very much helpful for the investors while comparing the various investment
alternatives. It helps in judging the earning potential of the organization.
 Another motive is to predict the insolvency and bankruptcy circumstances of the
company. The analysis of statements assists the managers and investors to take suitable
precautions before time and avoid the maximum losses.
 The analysis is also used by banks and financial institutions for providing credit to the
firms. They can take suitable decisions and can make proper allocation of credit among
different borrowers. The balance sheet of the company shows the liquidity and solvency
position of the firm which will be very much useful for the lenders.
Analysis of current operations
Ratio analysis has been used to measure and evaluate the income statement and balance sheet of
CSL Limited. Considering the current operations of the company, various categories of ratios are
calculated which assess the performance and position of CSL Limited for 2016 and 2017 from
each and every aspect.

Business finance 6
Liquidity ratios: they measure the financial health of the company by comparing all the current
assets against its short term obligations.
 Current ratio: It shows how efficiently and effectively a company pays off its current
liabilities with its current assets.
 Quick ratio: Another liquidity ratio which also evaluates the financial strength of the
organization bay taking into account the most liquid assets of the firm against its short
term liabilities3.
In case of CSL Limited, both the ratios have shown fluctuating trends in the past ten years. in
2010, the CR of the company was 4.24 which reduced to 2.92 in 2011 due to the significant
reduction in assets and increase in liabilities. However, after that the ratio increased till 2014
because of the constant reduction in liabilities and because of the same reason, it has been
declined in 2017 also.
The QR also shows the same trend as it was high in 2010 but it further reduced because of the
low amount of cash and increased inventory in the business. However, the ratio increased in
2017 because of the significant rise in its cash balance.
Profitability ratios: They asses the overall profit and net income of the company from various
point of views. In other words, the ratios reflect the overall profitability position of the firm.
 Net profit ratio: It measures the amount of profit earned by the company against its total
revenue.
 Return on equity: It evaluate the amount of return offered by the company to its
investors and shareholders out of the profit earned by it.
3 Bragg, Business ratios and formulas: a comprehensive guide (Vol. 577).

Business finance 7
 Return on assets: The ratio measures the income made by the firm out of its total assets
during a particular year4.
In 2009, the NPR of CSL was 24.79% which reduced to 22.16% in 2012 and after that an
upward trend has been noticed in the ratio till 2015. This fluctuation was due to the fact that
increase in sales during the years was less than the upsurge in company’s profits. In the last year,
the ratio reduced to 20.22% due to the proportionate increase in both sales and profit. The ROE
of the firm increased after 2012 as and when CSL started making high profits and providing high
returns to its shareholders. It had the highest ROE of 50.20% in 2015 which fall to 42.27% last
year.
The ROA showed an increasing trend after 2009 where the ratio was 12.51% that rose to 21.54%
in 2015 due to the proportionate increase in both assets and profit. However, it reduced in 2017
to 14.66% due to the significant increase in CSL’s total assets.
Efficiency ratios: They are also known as turnover ratios which measures how efficiently a firm
manages its assets or resources in order to generate high revenue.
 Inventory turnover ratio: It shows how many times and how quickly a company
convert its inventory into cash. The ratio reflects the efficiency of the firm in managing
the amount of its inventory.
 Asset turnover ratio: It measures the value of company’s sales that is generated from its
average total assets. Generally, a high ATR represent effective and efficient use of
resources in order to make high revenue.
4 Bragg, Financial analysis: a controller's guide. New Jersy: John Wiley & Sons

Business finance 8
 Receivable turnover ratio: Another metric which reflects the amount of time taken by
the company to collect its receivables5.
The ITR of the firm was 1.76 in 2009 which reduced to 1.60 times in 2014. This was due to the
increased COGS of CSL. However, the ratio further reduced to 1.41 times in last year because of
the increased inventory. The ATR of the company has shown an upward trend after 2010 where
it was 0.68 that increased to 0.88 in 2014. Further, it reduced to 0.79 in 2017 due to the increased
average total assets. The DTR of CSL has shown constant upsurge over the past 10 years
reflecting the efficient collection from debtors.
Solvency ratios: These ratios measure the long term solvency of the company by evaluating its
debt and equity structure for the past two years.
 Debt to equity ratio: It reflects the proportion of total debt and total equity of the firm to
measure the solvency.
 Debt ratio: It also measures the degree of financial leverage taken by the company by
measuring its total liabilities against its total assets. It shows the amount of assets that are
financed through debt6.
The debt equity ratio of the firm increased in past 10 years due to the upsurge in CSL’s debt
component as compare to its equity. Also, its debt ratio has reported an upward trend reflecting
increased borrowings and high financial risk for the company.
Supply and demand factors
5 Gibson, Charles. H. Financial reporting and analysis.
6 Godwin and Alderman. Financial ACCT2

Business finance 9
Looking at the revenue growth over the period of CSL Limited, it can be interpreted that the
demand of company’s products has increased constantly which boosted up its sales in the past
years. In addition, the facts and figures of the past ten years reflected that CSL’s revenue
increased constantly from 2008 to 2017. In 2008, company reported the sales of $3419.73
million which reached to $6590.60 million in the last year. This constant upsurge reflected the
increased demand of pharmaceuticals products in Australia. Being a biotechnology company,
CSL’s products have always been in demand due to the needs of individuals. The increased sales
boosted up the earnings of the company and also increased its dividend growth. According to the
annual report of 2017, the Immune Globulin Subcutaneous increased at 10% due to the strong
demand noted in US and Europe.
On global level the CSL Limited’s plasma products covers 22.6% of the total market of plasma
proteins worth 15,222.4 million in 20127.
7 IPFA. GLOBAL PLASMA SUPPLY AND PRODUCT DEMAND.

Business finance 10
According to the report generated by National Blood Authority of Australia, it is observed that
the supply of plasma products has constantly increased from 2012 to 2017. The plasma related
products are been purchased from CSL Behring (Australia) Pty Ltd in order to meet the
increasing clinical demand and to manage the supply risk effectively. According to the report, in
2012 the CSL supplied products worth $222.02 million which increased to $351.83 million8.
This shows that the supply and demand of plasma products have been constantly increased and
the company is able to meet all the demands by making appropriate supply.
Apart from this, CSL Behring has almost more than 190 plasma collection centres across USA
and Europe. The company has improved the industry dynamics by making a significant
consolidation with the three companies and covering 80% of the total market. In addition, the
underlying demand for plasma products has grown and exceeded the future supply infrastructure.
The increase in GDP per capita has also contributed to the increased demand9.
Cash flow statement analysis
Cash flow from 200 200 2010 201 201 2013 2014 2015 2016 2017
8 NBA. National Supply Plan and Budget.
9 Pengana Capital. CSL, the company holding the largest position in the Australian equities fund.

Business finance 11
operating activities 8 9 1 2
Net cash
used/provided
689.
25
102
4.82
1168
.49
101
8.11
120
5.8
1311.
7
1360.
7
1363
.6
1178
.6
1246
.6
Cash flow from
Investing activities
Net cash
used/provided
-
239.
21
-
449.
52
-
292.
95
-
209.
64
-
449
.5
-$
442.6
2
-$
401.2
4
-$
411.
95
-$
809.
12
-$
859.
61
Cash flow from
financing activities
Net cash
used/provided
-
225.
11
105
4.12
-
2352
.54
-
128
8.5
-
194
.7
-$
1,199.
84
-$
1,136.
38
-$
825.
40
-$
361.
96
-$
103.
11
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
200
400
600
800
1000
1200
1400
1600
Cash flow from operating activities
Cash flow from operating
activities
The cash flow from operating has increased constantly from $689.25 million in 2008 to $1363.6
million in 2015. This was due to the huge amount of cash collected from the customers during
those years. However, the same reduced to $1246.6 million in 2017 due to the high amount of
taxes paid and payment made to suppliers during the year.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-1000
-900
-800
-700
-600
-500
-400
-300
-200
-100
0
Cash flow from Investing activities
Cash flow from Investing
activities
From the above graph, it can be interpreted that the cash used in company’s investing activities
has constantly increased from $442.62 in 2013 to $859.61 million in 2017. The amount was
lower in previous years. The figures increased because of the increase in the investments made
by CSL in the property. Its announcement of new investment at Liverpool site has contributed to
the outflow of cash from the business. However, these investments eventually help CSL to have
control over its global chain10.
10 Morningstar. CSL Ltd.

Business finance 13
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-3000
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
Cash flow from financing activities
Cash flow from financing
activities
From the above graph, it can be interpreted that the cash used in financing activities has reduced
from $119.84 million to $103.11 million from the period 2013-2017. However, the activities
reported cash inflow of $1054.12 million in 2009 because of the high proceeds from the issuance
of shares. Later, the figure became negative but reduced due to the high amount of debt issued by
the company in the past years which make the inflow of cash in the business. The payments of
dividend and debt are comparatively less than the issuance of debt. This eventually reduced the
cash outflow from financing activities. Also the payment made for stock repurchase has been
reduced which effected the overall cash used in financing activities11.
Dividend valuation
Valuation of shares
Calculation of required rate of return (CAPM
11 Morningstar. CSL Ltd.

Business finance 14
model)
Market premium (Rm-Rf) 6%
Risk free rate (Rf) 2.76%
Beta (B) 0.89
Required rate = Rf + B*(Rm-Rf) 8.10%
Dividend discount model
Estimated dividend per share
1.
43
Required rate of return 8.10%
Growth rate 0.57%
Value of stock
$
18.97
Share price movements

Business finance 15
1/05/2008
1/12/2008
1/07/2009
1/02/2010
1/09/2010
1/04/2011
1/11/2011
1/06/2012
1/01/2013
1/08/2013
1/03/2014
1/10/2014
1/05/2015
1/12/2015
1/07/2016
1/02/2017
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Share price movements
Average return (CSL)
Average return (ASX)
Months
%
The above chart compares the share price of CSL Limited with the market return of ordinaries
indices. It can be observed that both the trend lines are pretty much close to each other. It can be
observed that the company offer negative returns when the market was negative and offer
positive returns when it was increasing. Overall the returns and share price of the company has
increased over the past ten years. However, the same has been affected by the fluctuations in
demand12.
When compared with the value of stock derived from DDM model, it can be interpreted that the
current stock price of CSL is $197.12 and the future value estimated is $18.97. This means the
company’s share price will fall in future and the investors has the opportunity to book high
profits by selling the shares today and purchasing the same later. Also the increased supply and
demand has boosted up the share price of the CSL. However, its weaker profitability position
12 Yahoo Finance. CSL Ltd (CSL.AX).

Business finance 16
does not allow CSL to generate high returns to its shareholders. Moreover, company focuses
more on investing in properties which has also affected its share price to some extent.
Identification of the areas of cash flow
From the above analysis, it can be interpreted that CSL need to improve its cash flow position so
as to improve its profits and increase its turnover. One of the areas identified is that CSL must
focus on increasing its proceeds from the sale of property, plant and equipment. This will
eventually bring the cash in business and helps in setting off the cash used in purchase of PPE.
Also, the company must issue high number of shares along with the issue of debt. Moreover,
CSL should improvise its changes in working capital by collecting its receivables and converting
its inventory into cash quickly. Improvement in these areas will eventually improve the cash
position of the company.
Relevant investment and financing strategies
Following strategies can be used by CSL to improve its cash flow position:
 Increase the sale of its non-current asset such as PPE which will bring cash in the
business and reduce their storage cost.
 CSL should formulate such sort of strategies which will cut down the cost of acquiring a
new property or making investment in the new venture.
 Issuance of shares and proceeds from borrowings are the financing strategies which can
stimulate the flow of cash in the business.
CSL Limited needs to follows such strategies as it will automatically improve its cash flow
position and enhances its liquidity and profitability situation.

Business finance 17
Recommendations and Conclusion
From the view point of shareholders’ wealth maximization, the company has performed well in
the past years as its stock price has experienced an upsurge during the time. It is said that
increase in the stock price will increase the wealth of shareholders. CSL Limited’s stock price
has shown a hike in the past few years. Moreover, the firm has strong liquidity position but need
to work upon its profitability, efficiency and solvency situation. Also, it needs to improve its
cash flow so as to make high revenue and high profits.

Business finance 18
Bibliography
Reuters. CSL Ltd (CSL.AX), 2018. Accessed October 9, 2018.
https://www.reuters.com/finance/stocks/company-profile/CSL.AX
Pengana Capital. CSL, the company holding the largest position in the Australian equities fund,
2018. Accessed October 9, 2018. https://www.pengana.com/news-and-insights/csl-the-company-
holding-the-largest-position-in-the-australian-equities-fund/
IPFA. GLOBAL PLASMA SUPPLY AND PRODUCT DEMAND, 2014. Accessed October 9,
2018. https://ipfa.nl/UserFiles/File/WS%202014/Symposium%202014%20IPFA%20BCA/
Proceedings%20Sacramento%202014/1_5_Robert_IPFA_BCA_2014.pdf
Bragg, Steven. M. Business ratios and formulas: a comprehensive guide (Vol. 577). New Jersy:
John Wiley & Sons, 2012.
Bragg, Steven. M. Financial analysis: a controller's guide. New Jersy: John Wiley & Sons,
2012.
Gibson, Charles. H. Financial reporting and analysis. USA: South-Western Cengage Learning,
2011.
Godwin and Wayne C. Alderman. Financial ACCT2. USA: Cengage Learning, 2012.
NBA. National Supply Plan and Budget, 2018. Accessed October 9, 2018.
https://www.blood.gov.au/pubs/1617report.v2/part-2-annual-performance/objective-1-secure-
supply-blood-and-blood-products.html
Yahoo Finance. CSL Ltd (CSL.AX), 2018. Accessed October 9,
2018.https://finance.yahoo.com/quote/CSL.AX/cash-flow?p=CSL.AX

Business finance 19
Morningstar. CSL Ltd, 2018. Accessed October 9, 2018. http://financials.morningstar.com/cash-
flow/cf.html?t=CSL&region=aus&culture=en-US
Appendix
Liquidity Formula 201 201 201 201 201 201 201 201 200 20

Business finance 20
ratios 7 6 5 4 3 2 1 0 9 08
Current
ratio
Current
assets/Current
Liabilities 2.84
2.7
8
3.5
7
3.7
9 3.60 3.63
2.9
2
4.2
4
4.0
4
3.1
2
Quick
ratio
Quick
assets/Current
liabilities 1.25
1.2
1
1.6
9
1.8
5 1.79 2.07
1.3
8
2.3
9
2.8
0
1.6
9
Profitabili
ty ratios
Net profit
margin
Net profit/Total
sales
20.2
2%
21.
02
%
25.
26
%
24.
50
%
24.5
7%
22.1
6%
22.
46
%
23.
63
%
24.
79
%
19.
73
%
Return on
equity
Net
income/Shareho
lders' equity
42.2
7%
48.
39
%
50.
20
%
41.
33
%
40.4
5%
28.7
1%
27.
35
%
21.
39
%
16.
88
%
24.
05
%
Return on
assets
Net profit/Total
assets
14.6
6%
16.
43
%
21.
54
%
20.
82
%
20.3
5%
16.9
2%
19.
66
%
15.
79
%
12.
51
%
14.
37
%
Efficiency
ratios
Inventory
turnover
ratio
Cost of goods
sold/Average
inventory 1.41
1.5
5
1.5
3
1.6
0 1.51 1.63
1.4
6
1.4
7
1.7
6
1.6
2
Asset
turnover
ratio
Sales/Average
total assets 0.79
0.8
5
0.8
6
0.8
8 0.82 0.84
0.7
8
0.6
8
0.7
7
0.8
6
Receivable
turnover
ratio
Sales/Average
receivables 6.82
6.3
1
6.0
9
6.5
0 5.97 5.80
4.9
5
5.0
4
5.8
0
5.1
1
Solvency
ratios
Debt to
equity
ratio
Total debt/Total
equity 1.26
1.2
2
0.8
3
0.6
0 0.56 0.37
0.1
1
0.1
1
0.1
3
0.3
4
Debt ratio
Total
liabilities/Total
assets
65.3
2%
66.
05
%
57.
09
%
49.
63
%
49.6
8%
41.0
9%
28.
09
%
26.
19
%
25.
84
%
40.
23
%

Business finance 21