Financial Analysis

This document provides a financial analysis of Sea link, Aurizon, and Ellex companies. It includes an analysis of profitability, asset efficiency, liquidity, and capital structure. The document also discusses the limitations of ratio analysis.

Running Head: FINANCIAL ANALYSIS 1
FINANCIAL ANALYSIS

FINANCIAL ANALYSIS 2
Table of Contents
Profitability......................................................................................................................................3
Asset Efficiency...............................................................................................................................4
Liquidity..........................................................................................................................................5
Capital structure...............................................................................................................................6
Limitations of the Ratio Analysis....................................................................................................7
References........................................................................................................................................9

FINANCIAL ANALYSIS 3
Profitability
Sea link
The profitability of the Sea link company is not sound in terms of the yearly comparison
as the ratios are fluctuating in nature. The return on equity is 17.7% in the year 2016, whereas
the same is 7.25% in the year 2018. The return on assets improved from 2016, to the year 2017
that is from 17.7% to 19.9%. The same reduced from 19.9 to 13.025. This indicates that the
company sold some of the assets and hence the ratio saw a fall. The profit margin has also
reduced as the profits decreased from $22349000 to $23832000. The gross profit margin also fell
from 92.27% to 89.61% due to slight increase in the cost of the goods sold (Grant, 2016). The
profitability needs attention in order to be consistent in the market.
Aurizon
The profitability position of the Aurizon limited has improved in comparison of the past
years. The ratio increased from -3.50 to 9.91% in case of the return on equity and the investors
can expect some returns this year. The return on assets however decreased from 7.14% to 6.025.
This again determines a negative outlook from the perspective but the profit margin increased
from -5.57% to 15.85%, gross profit margin showcase a rise from 24.77% to 32.71% and lastly
the cash flow to sales ratio depicts the rise in from 35.22% in the year 2016 to 42.91% in the year
2018. The overall position is sound and healthy.
Ellex
In order to analyze profitability, several parameters are used and prominent ratios used
such as return on equity, return on equity, profit margin, gross profit margin, and cash flow to
sales ratio. In 2016, it is seen that 228 per cent on the equity. In 2017, it decreased to 187 per

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cent and at last, it fell to 147 per cent. Another parameter is the return on assets, which indicates
that how much profitability can be generated by the asset usage. In 2016, the assets have
generated 20 per cent of the profitability by using the assets (Heo et al., 2018). In 2017, there is a
drastic fell in the per cent to negative four per cent, which may mean that the company has been
overusing the machine. The company is using its whole sum of profits to distribute to the
shareholders rather than maintaining reserves and surplus. In 2018, the situation is too drastic as
the return on assets is negative. Net profit margin has been evaluated on the basis of maximum
sales and less overhead expenses. 15 to 20 per cent of net profits are most appropriate but the
company generates 4 per cent in 2016, negative one per cent in 2017, and negative six per cent in
2018.
Asset Efficiency
Sea link
Asset efficiency ratios are those ratios that determine how early the cash is realized from
the customers and how well the company can pay back the liabilities and the creditors easily.
The efficiency ratios include the asset turnover ratio, the inventory turnover ratio, and the
receivables turnover ratio.
As it can be observed from the position of the Sea link Limited it can be analyzed that the
ability of the company to generate the revenue with the help of the existing asset is decreasing
over the years in case of the Sea Link limited. It decreased from 1.67 to 1.38 in the year 2018.
The inventory turnover ratio of the Sea link have been 68.82 in comparison to the year 2016
being only 42.26. This needs an improvement and immediate attention of the management. The

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receivables have been improved from 163.29 days to 30.55 days. This indicates the ability of the
company has increased and the mixed results give the moderate positivity (Pratt, 2016).
Aurizon
The receivables on the other hand have been delaying in providing the cash to the
company. The receivable when converted into the times have been decreased indicating that the
ability of the company to collect from the debtors have been reduced certainly. The receivables
have increased from 55.78 to 61.55 days and the inventory has reduced from 83.11 to 52.56. The
situation reflects the mix results. The overall asset efficiency has remained stagnant between the
ranges of 0.30 to 0.33. The efficiency is moderate and needs improvement.
Ellex
The prominent ratio to assess the efficiency is inventory turnover, asset turnover, and
receivable turnover. In 2016, 2017 and 2018, the asset turnover is 5 per cent, 3.79 per cent, and
3.81 per cent. Inventory turnover (days) shows the number of times company brings inventory in
the organization in a year. The company brings 93 times in 2016 and increase in number should
reflect maximum sales but at the same time, it has not been increasing (Zainudin, & Hashim,
2016).
Liquidity
Liquidity ratios determine the position of the company in terms of how well the company
can pay the liabilities of the company via the necessary cash.
Sea link
The current ratio of the company has been 0.96 and it has been moving in the positive
direction from 0.60 to 0.96. The quick ratio on the other hand has been also increasing from 0.56

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in the year 2017 to 0.80 in the year 2018. The benchmarks are yet so far and still the company is
improving but at the slower pace. This is a positive indication for the liquidity position of the
company.
Aurizon
This again is reflected from the calculations where the Sea Link Limited has been
deteriorating and going in the negative direction. This tends to be unhealthy as the current ratio is
decreasing from 1.14 to 0.95, and quick ratio is falling from 0.94 to 0.81, so is the scenario of the
cash flow as it decreased from 1.65 to 1.56. The company shall get rid of the obsolete assets and
the focus must be shifted on the long term liabilities so that the current ratio as well as the quick
ratio can be improved (Altman, Iwanicz‐Drozdowska, Laitinen & Suvas, 2017).
Ellex
A prominent ratio used to determine the liquidity position of Ellex is current ratio, cash
flow ratio, and quick ratio. While analyzing the data given in the appendix-1, it is seen that Ellex
limited has considerably good liquidity while comparing it to the standard ratio i.e. 2:1. In 2016,
the company has 2.3 times current assets to pay off one liability, whereas in 2017, the current
ratio has fallen to 1.72. On the other hand, in 2018, it is seen that it has again improved and
reached three times (current assets) as compared one current liability (Cao, Jokinen, Mai, &
Sanchez, 2016).
Capital structure
Sea link
The capital structure of the Sea Link Company has been in the form of the debt and the
equity, debt bring 49.35% and the equity being 50.65% of the total assets. The company is also

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moving towards financing the capital from debt more, rather than the equity. The ability to pay
back the financial costs has also increased from 47.54 to 50.38 times. This indicates that of the
company is expanding via the debt proportion; it also has the ability to settle the costs of the
interest on time (Easton & Sommers, 2018).
Aurizon
The capital structure ratios define the proportion of the debt and the equity used to
finance the operations of the company. The debt to Equity ratio of the company has been
increasing from 90.20% to 106.62% in the year 2018 indicating the company is entertaining
more financial leverage on the company. Though the ability of the company has improved in
paying back the financial cost from 4.68 to 6.04, but yet the company needs to be aware. The
situation also indicates the equity being 48% and the debt being 51%. The ratio was reverse in
the year 2016, also the debt coverage ratio also decreased from 3.29 to 3.21, indicating how well
the company is able to pay back the non-current liabilities (Grant, 2016).
Ellex
In order to judge the capital structure, some of the prominent ratios are debt ratio, debt
and equity ratio, equity ratio, debt coverage ratio and interest coverage ratio. Debt equity ratio
includes the employment and proportion of debt and equity. In 2016, it is seen that standard ratio
of debt equity ratio is 2:1. In 2016, the company has 49 per cent debt in total capital structure,
whereas in 2017, it is increased to 52 per cent in the capital structure. Further, in 2018, the
proportion of debt is nearly 36 per cent in total capital

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Limitations of the Ratio Analysis
 There are certain limitations towards the analysis of the ratios and these are presented
below.
 There is a sheer ignorance in case of the ratios due to changes in the price level.
 There is a complete ignorance towards the aspects of the firm in case of the qualitative
nature
 There is no such standard definition and the different formulas are used by the different
companies.
 The usage of the different accounting policies can make the ratios non-comparable with
each other (Toppr, 2018).


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References
Altman, E. I., Iwanicz‐Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). Financial distress
prediction in an international context: A review and empirical analysis of Altman's Z‐
score model. Journal of International Financial Management & Accounting, 28(2), 131-
171.
Cao, L., Jokinen, T. M., Mai, K., & Sanchez, H. (2016). U.S. Patent No. 9,316,542. Washington,
DC: U.S. Patent and Trademark Office.
Easton, M., & Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Heo, S., Diering, G. H., Na, C. H., Nirujogi, R. S., Bachman, J. L., Pandey, A., & Huganir, R. L.
(2018). Identification of long-lived synaptic proteins by proteomic analysis of
synaptosome protein turnover. Proceedings of the National Academy of
Sciences, 115(16), E3827-E3836.
Pratt, J. (2016). Financial accounting in an economic context. John Wiley & Sons.
Toppr, (2018). Limitations of Ratios. Retrieved from
https://www.toppr.com/guides/accountancy/accounting-ratios/meaning-objectives-
advantages-and-limitations-of-ratio-analysis/
Zainudin, E. F., & Hashim, H. A. (2016). Detecting fraudulent financial reporting using financial
ratio. Journal of Financial Reporting and Accounting, 14(2), 266-278.

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