Financial Statement Analysis for Accent Group Limited

This report has been prepared to identify and highlight the financial strengths and weaknesses of Accent Group Limited. The report analyses the profitability position, liquidity position, and gearing ratios of the company using different financial ratios. The report also provides recommendations to improve the financial position of the company.

Running Head: Financial Statement Analysis
Financial Analysis
Accent Group Limited

Financial Statement Analysis 1
Executive summary:
This report has been prepared to identify and highlight the financial strengths and weaknesses
of Accent Group Limited. The company is operating as the leading dealer of wide range of
sports footwear, apparel and other accessories in Australia. To analyse the financial
performance of the company various approaches have been used such as horizontal analysis,
vertical analysis and ratio analysis. The annual reports of Accent Group for the financial
years 2018, 2017 and 2016 have been thoroughly examined. The results of financial ratios
have revealed that the company has achieved profitability over the last three years. But it has
distributed maximum profits to its shareholders in 2018 among all the 3 years. However, at
the same time the liquidity position of the company in 2018 is not as strong as that was in the
previous two years. The capital structure of the company in all the three financial years is
adequate. However, in 2017, the portion of debt financing was relatively higher than that of
2016 and 2018.

Financial Statement Analysis 2
Table of Contents
Executive summary:..............................................................................................................................1
Introduction:..........................................................................................................................................3
Profitability position:.............................................................................................................................3
Return on net sales ratio...................................................................................................................4
Ratio of return on total assets...........................................................................................................4
Asset turnover ratio...........................................................................................................................5
Return on equity ratio.......................................................................................................................5
Liquidity Position:..................................................................................................................................6
Current Ratio.....................................................................................................................................6
Quick Ratio........................................................................................................................................6
Inventory turnover ratio and day’s inventory ratio...........................................................................7
Gross Profit Ratio...............................................................................................................................7
Receivables turnover ratio.................................................................................................................7
Day’s sales in receivables...................................................................................................................7
Gearing Ratios:......................................................................................................................................8
Debt to asset ratio.............................................................................................................................8
Debt to equity ratio...........................................................................................................................8
Interest Coverage Ratio.....................................................................................................................8
Conclusion:............................................................................................................................................8
References:..........................................................................................................................................10
Appendix:............................................................................................................................................11

Financial Statement Analysis 3
Introduction:
Accent Group Limited is an Australian company listed on Australia’s Securities Exchange. It
had started its business operations in year 1981 and is headquartered at Waterloo, Australia.
The company is engaged in the retail, distribution as well as franchisee business of footwear,
Apparel and the various types of accessories across Australia as well as New Zealand. Accent
Group was initially known with the name of RCG Corporation Limited. The company is
operating as the regional leading distribution of lifestyle footwear and it currently owning
over 420 stores and 10 distribution brands across both the countries of its operations. The
brand portfolio of the company includes Athlete’s Foot, Hype DC, Platypus Shoes, Podium
Sports, Sketchers, Merrell, CAT, Vans, Dr. Martens, Saucony, Timberland, Sperry Top-
Sider, Palladium, and Stance (Bloomberg, 2018).
The present report is prepared to carry out the financial analysis of the Accent Group using
different techniques such as horizontal analysis (also known as trend analysis), vertical
analysis and ratio analysis. Under this report the financial performance of the company over
last three financial years i.e. 2016, 2017 and 2018 has been analysed using different financial
ratios. Financial performance of business is based on various aspects such as its profitability
position, liquidity position, solvency position and its efficiency in managing and using
different assets of the business (Higgins, 2003). These aspects have been taken into
consideration in order to assess the overall financial position of Accent Group.
For ratios calculation: Refer Appendix Table 3
Profitability position:
Profitability is the state when the firm has sufficient amount of earnings left after meeting all
the costs and expenses of the business. There are various rations which determine the
profitability position of the business. (Tracy, 2012). The use of the key profitability ratios

Financial Statement Analysis 4
has been made in the present case to analyse the profitability position of business of Accent
Group Limited.
Return on net sales ratio
The return on net sales ratio is commonly known as Net Profit Margin Ratio. This ratio
measures the amount the earnings that are left in the business after making payment for the
expenses of the business in the given period of time. A firm with higher net profits is able to
offer higher returns to its owners and hence higher net profit is preferred in all types of
businesses. In the present case of Accent Group Limited, the net margin ratio was lowest in
2017 among all the three years under consideration. Though, the business of Accent Group
has experienced inclining trend in terms of sales revenue generation since 2016 to 2018.
However, the operating expenses in 2017 are relatively higher in 2017. The increased net
profit margin in 2018 as compared to 2018 reflects that company has earned better profits for
its owners in 2018.
Ratio of return on total assets
The ratio of return on total assets measures how effectively and efficiently the firm is
utilising its total assets in the business to generate returns for its owners. The ROA of Accent
Group is highest in 2018. It shows that the company has been able to utilise its total assets in
most efficient manner in 2018 when compared to 2016 and 2017. The increased operating
expenses and declining profit before interest have led to minimum ROA in 2017. Moreover,
increase in the level of fixed assets held in the business of Accent Group must have also
contributed to the lowest ROA in 2017 as the company could not have utilised its total assets
efficiently and therefore some of the assets must have remained idle in 2017. The excessive
investment in total assets has blocked the surplus funds of the business which could have
distributed among the owners of company if prudent investment in fixed assets was made

Financial Statement Analysis 5
where minimum finance cost could be incurred to finance the assets (Accent Group Limited,
2018).
Asset turnover ratio
Asset turnover ratio is the type of efficiency ratio which is used to assess the efficiency of
firm in deploying the overall business in the business. Higher Asset turnover ratio is desirable
in any business as higher the asset turnover ratio, more is the efficiency of the firm in
utilising its assets to generate sales revenue (Tracy, 2012). Accent Group has highest ATR in
2017 despite of the fact that in this particular year company has achieved lowest ROA. This
shows that the company has earned highest sales revenue in 2017 by utilising its assets due
the reason that it has maintained fixed assets in highest proportion as compared to other years
i.e. 2018 and 2016. However, in order to invest more in assets in 2017, the company must
have had borrowed funds from the external market where cost of financing such assets had to
be paid which in turn must have reduced its level of profits. This has resulted in lower ROA
but higher ATR in 201. Moreover, the ratio of 1.15 shows that Accent Group must have
earned $ 1.50 sales by making investment of each dollar in assets (Accent Group Limited,
2018) (Refer Appendix Table 3).
Return on equity ratio
The return on equity ratio measures the quantum of profits which have been passed to the
shareholders of the company (Nissim & Penman, 2001). Accent Group has generated
maximum returns for its shareholders in 2018 and this shows that it has effectively utilised
the funds provided by its shareholders in its business and through the effective utilisation, it
has distributed highest returns for its shareholders. Moreover, the earning per share of Accent
Group Limited is highest in 2018 which depicts that the company had strongest profitability
position in 2018. The reason of highest EPS in 2018 is that the company has earned highest
quantum of profits that are distributable among the shareholders is earned.

Financial Statement Analysis 6
Liquidity Position:
The liquidity is the state which is achieved when the firm has sufficient amount of current
assets available with us to meet its current liabilities which falls due within next one year. To
determine the liquidity position of Accent Group Limited, use of various prominent ratios has
been made such as current ratio, quick ratio. If the company has implemented best working
capital management practices then it will certainly have the strong liquidity position in the
market.
Current Ratio
A company must have at-least maintained quantum of current assets which is equivalent to its
current liabilities. In the present case of Accent Group, the current ratio in all the 3 years is
higher than 1 which shows that the company has adequately invested in its current assets so
that it can meet its short term financial obligations as and when they become due without
requiring to dispose-off its fixed assets (Accent Group Limited, 2016). However, Accent
Group had experienced strongest liquidity position in 2016 and thereafter its liquidity state
had started weakening due to increase in the current liabilities like short term borrowings,
employees benefit expenses and deferred lease incentives. Moreover the total current assets
have been declined considerably in 2018 as compared to that of 2017 (Refer Appendix Table
1). In 2016, the company held lesser current financial obligations than that of 2017 and 2018.
However, in 2017, it has enhanced its investment in current assets to maintain its liquidity.
But, in 2018 the quantum of its current asset has reduced which had ultimately resulted in
weakened liquidity position.
Quick Ratio
The lowest quick ratio in 2018 as compared to that of 2017 and 2016 shows that although the
company has sufficient current assets to meet its short term financial obligations but the
balance of liquid asset which can easily and quickly be converted into cash is not sufficient
enough due to weaker cash conversion cycle (Higgins, 2012).

Financial Statement Analysis 7
Inventory turnover ratio and day’s inventory ratio
The inventory turnover ratio of a firm shows the number of times the business inventory has
been converted into sales in the given period of time, generally a year (Foster, 2004). The
ITR of Accent Group has not varied significantly over the last three financial years. However,
the highest ITR was reported by the company in 2017 which shows that the inventory was
converted into sales more frequently in 2017 as compared to 2018 and 2016. Also, the
company has taken relatively lesser time to convert its inventory into sales in 2017 than 2018
and 2016. The highest ITR in 2016 reflects the inefficient working capital management
practices of the company.
Gross Profit Ratio
In 2018, highest quantum of revenue was generated out of sales. However, the cost of goods
sold which has been incurred in the lesser proportion of total sales as compared to 2017 and
2016.Due to this highest GP rate has been achieved in 2018.
Receivables turnover ratio
The receivables turnover ratio measures the frequency with which the receivables were
converted into cash. Higher receivable turnover ratio is generally preferred. In 2018, highest
RTR is achieved which shows that Accent Group has managed its accounts receivables in the
most efficient way in 2018.
Day’s sales in receivables
In terms of management of accounts receivable of the business, the company has performed
best in 2018 as it has taken least time to convert its trade receivables into cash sales as
compared to other two years. It clearly shows that Accent Group has strongest cash operating
cycle in 2018 due to which it quickly convert its credit sales into cash.

Financial Statement Analysis 8
Gearing Ratios:
The gearing ratios are used to determine the appropriateness of capital structure of the
business.
Debt to asset ratio
The debt to asset ratio measures the proportion of total assets which has been financed
through the use of external debt sources (Cull, Demirgu Kunt & Morduch, 2007). Accent
Group had strongest solvency position in 2016 as it had relied more on equity financing i.e.
the internal sources of finance to invest in the business assets. Hence, it had to face least
financial leverage in 2016.But in 2018 the company is facing higher insolvency risk because
it has higher proportion of debt in its total capital structure.
Debt to equity ratio
Debt to equity ratio shows the proportion of total debt and total equity in the total capital
structure of the firm. As the proportion of debt is quite lower in the total capital structure of
the company, it can be said that Accent Group is facing lesser risk of insolvency.
Interest Coverage Ratio
In 2017, Accent Group Limited had lowest interest coverage ratio which reflects higher
chances of its bankruptcy. The interest coverage ratio shows the quantum of earnings
available with the company to meet its financing costs. As the proportion of external debt is
highest in 2017, higher is the chance of not meeting its interest obligations on timely manner.
Conclusion:
From the above analysis it can be said that, the profitability position of Accent Group was
best in 2016 and lowest in 2017. However, in 2018, the company has managed to improve
again its profitability state by making effective utilisation of its overall assets as well the
investments made by its shareholders. Also, it has been found that the company has paid
maximum returns to its equity shareholders in 2018. Further, the liquidity position of

Financial Statement Analysis 9
business was strongest in 2016 due to limited short financial obligations but the same is not
the case in 2018 due to which it does not have satisfactory liquidity position. It must therefore
enhance its investments in current assets. Lastly, it can be said that Accent Group has
strongest financial position in 2016 as it had relied less on external debt financing sources to
acquire its fixed assets.

Financial Statement Analysis 10
References:
Accent Group Limited. (2016). Annual Report: 2016. Retrieved from:
http://onlinereports.irmau.com/2016/RCG/index.html#27/z
Accent Group Limited. (2018). Annual Report: 2018. Retrieved from:
http://onlinereports.irmau.com/2018/AX1/26/#zoom=z
Bloomberg. (2018). Company Overview of Accent Group Limited. (2018). Retrieved from:
https://www.bloomberg.com/research/stocks/private/snapshot.asp?
privcapId=10636950
Cull, R., Demirgu¨ ç‐Kunt, A. and Morduch, J. (2007). Financial performance and outreach:
A global analysis of leading microbanks. The Economic Journal, 117(517), pp.F107-
F133.
Foster, G. (2004). Financial Statement Analysis, 2/e. Pearson Education India.
Higgins, R.C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Nissim, D. and Penman, S.H. (2001). Ratio analysis and equity valuation: From research to
practice. Review of accounting studies, 6(1), pp.109-154.
Tracy, A. (2012). Ratio analysis fundamentals: how 17 financial ratios can allow you to
analyse any business on the planet. Ratio Analysis. Net.

Financial Statement Analysis 11
Appendix:
Table 1
I. Horizontal Analysis
2018 2017 2016
Revenue 703181 10.54% 636153 45.05% 438574
Other Income 2
-
103.92
% -51
-
126.70
% 191
Expenses
Finished Goods -292100 -8.81% -320332 52.82% -209608
Changes in Merchandise Inventories -13390
-
140.08
% 33408
363.36
% 7210
Employee Benefits Expenses -145508 12.21% -129671 58.09% -82021
Impairment of Brand Name
-
100.00
% -9714
Write off of assets -65
Depreciation and Amortisation
Expenses -24133 11.39% -21665 51.51% -14299
Rental Expenses on operating Leases -81644 15.15% -70904 75.38% -40428
Advertising and Promotion Expenses -24425 18.01% -20697 48.32% -13954
Travel and Telecommunication
Expenses -5962 34.07% -4447 15.84% -3839
Warehousing and Freight Expenses -22107 10.88% -19938 19.83% -16639
Acquisition-related costs
-
100.00
% -700
Provisions for doubtful debts
-
100.00
% -331
Other Expenses -28350 6.33% -26663 52.18% -17521
Finance Costs -4581 12.97% -4055 8.05% -3753
Profit before income tax expenses 60918 47.06% 41424 -3.40% 42882
Income tax expense -16918 40.14% -12072 -4.94% -12699
Net Income 44000 49.90% 29352 -2.75% 30183
Statement of Financial Position
30-Jun-
18
30-Jun-
17
30-Jun-
16
$’millio
n
$’millio
n
$’millio
n
Current assets
Cash and cash equivalents 38772 -16.22% 46279 3.83% 44573

Financial Statement Analysis 12
Trade receivables 18370 -7.48% 19856 -22.05% 25472
Inventories 98556 -11.96% 111946 42.54% 78534
Derivative financial instruments 4614 0 0
Other current assets 1367 -58.05% 3259 19.38% 2730
Total current assets 161679 -10.84% 181340 19.85% 151309
Non-current assets
Property, plant and equipment 74664 -0.18% 74800 75.50% 42620
Intangible assets 345051 -0.78% 347758 41.44% 245875
Derivative financial instruments 676
Receivables 341 -51.63% 705 -18.87% 869
Deferred tax assets 22310 20.59% 18501 73.69% 10652
Total non-current assets 443042 0.29% 441764 47.25% 300016
Total assets 604721 -2.95% 623104 38.06% 451325
Current liabilities
Trade & other payables 80965 -8.87% 88849 50.63% 58986
Short term borrowings 22625 49.86% 15097 50.77% 10013
Derivative financial instruments 251 -95.03% 5054 -23.52% 6608
Provision for income tax 10497 31.38% 7990 52.60% 5236
Employee Benefits 6107 24.81% 4893 52.76% 3203
Deferred lease incentives 7174 44.96% 4949 56.61% 3160
Others
Total current liabilities 127619 0.62% 126832 45.44% 87206
Non-current liabilities
Long term borrowings 51000 -42.45% 88625 121.56
% 40000
Derivative financial instruments 184 -74.08% 710 -63.92% 1968
Deferred tax liabilities 15447 12.88% 13685 87.11% 7314
Employee Benefits 64 -89.56% 613 84.64% 332
Deferred lease incentives 18494 -15.89% 21987 167.55
% 8218
Total non-current liabilities 85189 -32.19% 125620 117.22
% 57832
Total liabilities 212808 -15.70% 252452 74.06% 145038
Equity
Issued capital 386973 0.43% 385310 20.67% 319319
Reserves 12151 278.77
% 3208 130.79
% 1390
Retained earnings -8184 -58.25% -19603 20.40% -16282
Total equity 390940 5.97% 368915 21.18% 304427
Non-Controlling Interest 973 -43.98% 1737 -6.61% 1860
Shareholder's Equity 391913 5.74% 370652 21.01% 306287
Total Liabilities and Equities 604721 623104 451325

Financial Statement Analysis 13
Table 2
Vertical Analysis
2018 2017 2016
Revenue 703181
100.00
% 636153
100.00
% 438574
100.00
%
Other Income 2 0.00% -51
-
0.01% 191 0.04%
Expenses
Finished Goods
-
292100
-
41.54
%
-
320332
-
50.35
%
-
209608
-
47.79
%
Changes in Merchandise
Inventories -13390
-
1.90% 33408 5.25% 7210 1.64%
Employee Benefits Expenses
-
145508
-
20.69
%
-
129671
-
20.38
% -82021
-
18.70
%
Impairment of Brand Name -9714
-
1.53%
Write off of assets -65
-
0.01%
Depreciation and Amortisation
Expenses -24133
-
3.43% -21665
-
3.41% -14299
-
3.26%
Rental Expenses on operating
Leases -81644
-
11.61
% -70904
-
11.15
% -40428
-
9.22%
Advertising and Promotion
Expenses -24425
-
3.47% -20697
-
3.25% -13954
-
3.18%
Travel and Telecommunication
Expenses -5962
-
0.85% -4447
-
0.70% -3839
-
0.88%
Warehousing and Freight
Expenses -22107
-
3.14% -19938
-
3.13% -16639
-
3.79%
Acquisition-related costs -700
-
0.16%
Provisions for doubtful debts -331
-
0.08%
Other Expenses -28350
-
4.03% -26663
-
4.19% -17521
-
3.99%
Finance Costs -4581
-
0.65% -4055
-
0.64% -3753
-
0.86%
Profit before income tax
expenses 60918 8.66% 41424 6.51% 42882 9.78%
Income tax expense -16918
-
2.41% -12072
-
1.90% -12699
-
2.90%
Net Income 44000 6.26% 29352 4.61% 30183 6.88%

Financial Statement Analysis 14
Statement of Financial Position
30-
Jun-18
30-
Jun-17
30-
Jun-16
$’milli
on
$’milli
on
$’milli
on
Current assets
Cash and cash equivalents 38772 6.41% 46279 7.43% 44573 9.88%
Trade receivables 18370 3.04% 19856 3.19% 25472 5.64%
Inventories 98556 16.30
% 111946 17.97
% 78534 17.40
%
Derivative financial instruments 4614 0.76%
Other current assets 1367 0.23% 3259 0.52% 2730 0.60%
Total current assets 161679 26.74
% 181340 29.10
% 151309 33.53
%
Non-current assets
Property, plant and equipment 74664 12.35
% 74800 12.00
% 42620 9.44%
Intangible assets 345051 57.06
% 347758 55.81
% 245875 54.48
%
Derivative financial instruments 676 0.11%
Receivables 341 0.06% 705 0.11% 869 0.19%
Deferred tax assets 22310 3.69% 18501 2.97% 10652 2.36%
Total non-current assets 443042 73.26
% 441764 70.90
% 300016 66.47
%
Total assets 604721 100.00
% 623104 100.00
% 451325 100.00
%
Current liabilities
Trade & other payables 80965 13.39
% 88849 14.26
% 58986 13.07
%
Short term borrowings 22625 3.74% 15097 2.42% 10013 2.22%
Derivative financial instruments 251 0.04% 5054 0.81% 6608 1.46%
Provision for income tax 10497 1.74% 7990 1.28% 5236 1.16%
Employee Benefits 6107 1.01% 4893 0.79% 3203 0.71%
Deferred lease incentives 7174 1.19% 4949 0.79% 3160 0.70%
Others
Total current liabilities 127619 21.10
% 126832 20.35
% 87206 19.32
%
Non-current liabilities 0.00%
Long term borrowings 51000 8.43% 88625 14.22
% 40000 8.86%
Derivative financial instruments 184 0.03% 710 0.11% 1968 0.44%
Deferred tax liabilities 15447 2.55% 13685 2.20% 7314 1.62%
Employee Benefits 64 0.01% 613 0.10% 332 0.07%
Deferred lease incentives 18494 3.06% 21987 3.53% 8218 1.82%
Total non-current liabilities 85189 14.09 125620 20.16 57832 12.81

Financial Statement Analysis 15
% % %
Total liabilities 212808 35.19
% 252452 40.52
% 145038 32.14
%
Equity 0.00%
Issued capital 386973 63.99
% 385310 61.84
% 319319 70.75
%
Reserves 12151 2.01% 3208 0.51% 1390 0.31%
Retained earnings -8184 -
1.35% -19603 -
3.15% -16282 -
3.61%
Total equity 390940 64.65
% 368915 59.21
% 304427 67.45
%
Non-Controlling Interest 973 0.16% 1737 0.28% 1860 0.41%
Shareholder's Equity 391913 64.81
% 370652 59.48
% 306287 67.86
%
Total Liabilities and Equities 604721
100.00
% 623104
100.00
% 451325
100.00
%
Table 3
Ratio
Analysis
Profitability
Ratios
Rate of return
on net sales Net Income 44000.00 29352 29801
Net Sales 703181 636153 438574
6.26% 4.61% 6.79%
Rate of return
on total assets EBIT
44000+(4581*70%
)
29352+(405
5*70%)
29801+(375
3*70%)
Average Total Assets
(604721+623104)*
.50
(623104+45
1325)*.50
(451325+41
2236)*.50
7.69% 5.99% 7.51%
Asset
turnover Net Sales 703181.00 636153.00 438574.00
Average Total Assets
(604721+623104)*
.50
(623104+45
1325)*.50
(451325+41
2236)*.50
1.15 1.18 1.02

Financial Statement Analysis 16
Rate of return
on ordinary
shareholders’
equity Profit after Tax 44000 29352 29801
Average Shareholder's
Equity
(390940+368915)*
.50
(368915+30
4427)*.50
(304427+24
2828)*.50
11.58% 8.72% 10.89%
Earnings per
share Annual Report 0.08 0.05 0.06
Liquidity
Working
capital 2018 2017 2016
Current ratio Current Assets 161679.00 181340.00 151309.00
Current Liabilities 127619.00 126832.00 87206.00
1.27 1.43 1.74
Acid Test
Ratio Quick Assets 61906.00 67011.00 71196.00
Current Liabilities 127619.00 126832.00 87206.00
0.49 0.53 0.82
Inventory
turnover COGS 305490.00 286924.00 202398.00
Average Inventory
(98556+111946)*.
50
(111946+78
534)*.50
(78534+714
45)*.50
2.90 3.01 2.70
Days in
inventory 365 365 365 365
Inventory Turnover
Ratio 2.90 3.01 2.70

Financial Statement Analysis 17
125.75 121.16 135.23
Gross profit
percentage GP 397691 349229 236176
Sales 703181 636153 438574
56.56% 54.90% 53.85%
Accounts
receivable
turnover Sales 703,181 636,153 438,574
Average Accounts
Receivables
(18370+19856)*.5
0
(19856+254
72)*.50
(25472+237
01)*.50
36.79 28.07 17.84
Days’ sales in
receivables 365 365 365 365
Receivable Turnover
Ratio 36.79 28.07 17.84
9.92 13.00 20.46
Gearing
Debt ratio Total Debt 213781 254189 146898
Total Assets 604721.00 623104.00 451325.00
0.35 0.41 0.33
Debt to
equity ratio Total Debt 73625 103722 50013
Total Equity 390940 368915 304427
18.83% 28.12% 16.43%
Times
interest
earned ratio EBIT 65499.00 45479.00 46253.00
Interest Expense 4581 4055 3753
14.3 11.22 12.32