Financial Statement Analysis of CSL Limited

RUNNING HEAD: BUSINESS FINANCE
Financial statement analysis

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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

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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

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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.

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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).