Financial Analysis of Crown Resorts Limited and Comparison with Skycity Entertainment Group

This report provides a brief summary about the financial performance and position of Crown Resorts for 2016 and 2017. It deals with the ratio and horizontal analysis of company’s past two years financial statements. The report also compares the performance of the company with its competitor Skycity Entertainment Group.

RUNNING HEAD: BUSINESS FOR ACCOUNTING
Financial analysis

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Executive Summary
This report provides a brief summary about the financial performance and position of Crown
Resorts for 2016 and 2017. It deals with the ratio and horizontal analysis of company’s past
two years financial statements. The ratio analysis performed suggested that Crown has
improved and increased its liquidity, profitability and efficiency in the last year as compare to
2017. Furthermore, the horizontal analysis reflected that though the revenue and gross
income of the company has reduced but it was able to maintain its profit by reporting a
significant hike in its net profit margin last year. Crown’s horizontal analysis is compared to
the analysis of Skycity Entertainment Group, another company operating in the same
industry. It is observed that the overall performance of Crown Limited is better than Skycity.

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Contents
1.0 Introduction..........................................................................................................................1
1.1 Purpose........................................................................................................................1
1.2 Scope...........................................................................................................................1
1.3 Limitations........................................................................................................................2
1.0 Company Overview........................................................................................................2
3.0 Ratio Analysis......................................................................................................................3
3.1 Current Ratio....................................................................................................................3
3.2 Gross Profit Margin..........................................................................................................3
3.3 Return on Equity...............................................................................................................4
3.4 Return on Assets...............................................................................................................5
3.5 Days Inventory Ratio........................................................................................................5
4.0 Analysis and Comparison....................................................................................................6
4.1 Horizontal Analysis..........................................................................................................6
References..................................................................................................................................9

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1.0 Introduction
Financial analysis is the procedure of evaluating and analysing the financial statements of the
company. It deals with the examination of accounts prepared by the organization at the end of
the accounting period. Generally, the analysis conducted is used by the investors and
management to make correct and appropriate decisions regarding the concerned entity
(Fridson and Alvarez, 2011). The report contains ratio and horizontal analysis of Crown
Resorts Limited and then compares the performance of the company with its competitor
Skycity Entertainment Group.
1.1 Purpose
The purpose of the report is to provide insights to its users about the financial performance
and position of Crown Resorts for the past two years. Ratio analysis is conducted with an
objective to know about the position of the firm in a nutshell. Various categories of ratios are
calculated on the basis of quantitative data presented in the annual report of Crown Resorts.
The main aim of horizontal analysis is to reflect the changes occurred in some specific items
of company’s financial statements over the years 2016 and 2017. The changes are then
compared with the analysis of Skycity for the same number of years.
Overall the objective of financial analysis is that it helps the managers, investors,
shareholders and other users to have an idea about the liquidity and profitability of Crown
Resorts.
1.2 Scope
The report covers the financial data of Crown Limited for the past two years and it analyses
the liquidity, profitability and efficiency of the company for 2016 and 2017. Furthermore, it
examines the changes in the specific items of entity’s income statement such as sales, net

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income, gross income, selling and administrative expenses and cost of goods sold including
depreciation and amortization expenses for the years.
1.3 Limitations
Following are the limitations of the analysis performed in the report:
 It only covers the quantitative aspect and does not provide insights into qualitative
aspect of both the companies.
 The limitation of ratio analysis is that it is based on past years’ data which might
prove to be unreliable and wrong.
 The horizontal analysis takes into account only some specific items of income
statement and ignores the other important factors such as interest and tax expense and
line items of balance sheet.
 Ambiguity in the data is the major drawback of the study.
1.0 Company Overview
Crown Resorts Limited is the leading and largest entertainment group of Australia having its
core businesses and investments in resort sector. It owns and operates two leading integrated
resorts in the country named as Crown Melbourne Entertainment Complex and Crown Perth
Entertainment Complex. The company operates through four segments that include Crown
Perth, Crow Aspinall’s, Crown Melbourne and Wagering and Online (Reuters. 2018). Both
the fully owned resorts have casinos, hotels, function rooms, food and beverage outlets,
shopping malls and restaurants. It is publically listed on ASX and is traded with the symbol
ASX: CWN. The market capitalization of the firm is $ 9.521 billion with the share price at
$13.85. As of 2018, the revenue earned by the company amounted to $ 3.49 billion with the
net income worth $558.9 million (Yahoo Finance. 2018).

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3.0 Ratio Analysis
3.1 Current Ratio
Current ratio 2016 ($m) 2017 ($m)
Current assets (A) 842 2,059
Current liabilities (B) 882 1,126
CR (A/B)
0.9
5 1.83
The above table shows the calculation of current ratio which is derived by dividing total
current assets of Crown limited by its total current liabilities for years 2016 and 2017.
Current ratio is one of the liquidity ratios which are used to measure the financial health of
the company. It basically analyse the capability of the company in meeting its short term
obligations with its liquid assets. The industry benchmark for this ratio is 2:1 which means
that the entity should have its assets double of its liabilities so that it can easily pay them off
on time (Bragg, 2012).
In case of Crown Limited, the ratio has been increased from 0.95 to 1.83 in the past two
years. However, it was still less than the industry benchmark of 2:1. The reason for the
upsurge was the significant rise in company’s current assets as compare to its CLs. The cash
balance of Crown Limited increased from $ 449,663 million to $ 1,771,227 million which
ultimately boosted up the ratio (Crown Resorts. 2017).
3.2 Gross Profit Margin
Gross profit
margin 2016 ($m) 2017 ($m)
Gross profit (A) 3415.0 3099.0
Total revenue (B) 3,557 3,253

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GPR (A/B) 96.01% 95.27%
The ratio is calculated by dividing the amount of gross profit with the total sales made by the
firm during the year (Bragg, 2012).
It is one of the profitability ratios which show the profit amount earned by the company out
of its total revenue. It is derived after deducting the cost of sales from the figure of total sales.
The gross profit is expressed as a percentage of revenue and the firm having high and
increase GPR reflects greater profitability (Gibson, 2011).
From the above table, it can be interpreted that the margin has been slightly reduced from
96.01% to 95.27% due to the decline in Crown’s gross profit over the years. This is because
of the upsurge in company’s cost of goods sold from $ 142,042 million to $ 153,605 million.
Furthermore, the revenue of the firm also declines to $3253 million in 2017 (Crown Resorts.
2017).
3.3 Return on Equity
Return on Equity 2016 ($m) 2017 ($m)
Net income available to shareholders (A) 949.0 1866.0
Shareholder's equity (B) 5,062 5,141
ROE (A/B) 18.75% 36.30%
It also determines the profitability position of the company. To calculate such ratio, the net
income which is available to shareholders is divided by the owner’s equity. The ROE
indicates the amount of return a company offer to its shareholders for the capital invested by
them in the business (Godwin and Alderman, 2012). Generally, investors see this ratio as an

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indicator of firm’s profitability because a high ratio means high returns and high profits.
Therefore, a high ROE is favourable for the entities (Higgins, 2012).
Crown’s ROE has shown an upward trend as the ratio rises from 18.75% to 36.30% in 2017.
This was due to the huge increase in company’s net income from $949 million to $1866
million in the year. Such upsurge indicates that despite having reduced gross profit, Crown is
capable of offering high returns to its shareholders (Crown Resorts. 2017).
3.4 Return on Assets
Return on
Assets 2016 ($m) 2017 ($m)
Net profit (A) 949 1,866
Total Assets (B) 8,849 8,553
ROA (A/B) 10.72% 21.82%
This ratio shows the portion of profit generated by total assets of the firm. It is calculated by
dividing the amount of net profit with the assets of the company (Nikolai, Bazley and Jones,
2009).
A high ROA indicates that the company is able to employ its available resources properly in
order to generate more return from them. The ROA of Crown Limited has shown the same
trend as its ROE. The ratio increased from 10.72% to 21.82% during the past two years. One
reason for this huge upsurge was the increased net profit and other is the reduced total assets
of the firm. Overall, the company has maintained a high profitability position in the market
(Crown Resorts. 2017).

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3.5 Days Inventory Ratio
Days Inventory
Ratio 2016 2017
Days (A) 365.0 365.0
ITR (B) 9.12 9.10
Days inventory (A/B) 40.0 40.1
It indicates the time taken or number of days taken by the company on an average to convert
its inventory into sales. It is the indicator of firm’s efficiency and capability in utilizing its
inventory for generating revenue. The ratio is calculated by taking into account the number of
days and inventory turnover of the firm (Vogel, 2014). Crown’s inventory days remains
almost same in 2016 and 2017 because of the slightest change in its ITR.
4.0 Analysis and Comparison
4.1 Horizontal Analysis
Crown Resorts
Particulars 2016 2017 Increase/Decrease
%
change
$million $million $million
Sales 3,557 3,253 -304 -8.5%
Cost of goods sold including D&A 424 450 26 6.1%
Gross income 3415 3099 -316 -9.3%
Selling, general and administration
expense (SG&A) 0 0 0 0.0%
Net income 949 1,866 917 96.6%

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Skycity Entertainment group
Particulars 2016 2017 Increase/Decrease
%
change
$million $million $million
Sales 999 927 -72 -7.2%
Cost of goods sold including D&A 181 164 -17 -9.4%
Gross income 922 858 -64 -6.9%
Selling, general and administration
expense (SG&A) 349 341 -8 0.0%
Net income 146 45 -101 -69.2%
Horizontal analysis is a technique of financial statement analysis and is also known as trend
analysis. It shows the changes in the amount of corresponding items of the statement over a
period of time. It basically shows the trend followed by the company in the past years by
critically evaluating the available data. Generally, the analysis is conducted for the statements
of two or more than two years where the initial period is considered as the base year and then
the changes are been calculated over the periods. The fluctuations are shown both in
percentage and dollar form by applying appropriate formula (Heitger, Mowen and Hansen,
2007).
Uses of horizontal analysis are as follows:
 It facilitates the comparison of the line items over number of accounting periods.
 It is useful in knowing the trend and behaviour of items like revenue, expenses and
others.

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 It helps the management in taking suitable decisions for the organization by allowing
them to compare different amounts over different financial periods.
 By reflecting the trend, horizontal analysis provides insights to the managers about
what needed to be changed in future (Sinha, 2012).
The above two tables show the analysis of Crown Resorts and Skycity Entertainment, the
Australian companies operating in gaming and entertainment industry. When compared, it is
observed that the sales made by Crown Resort have shown a decrease of 8.5% whereas the
same reduces by 7.2% in case of Skycity. Furthermore, the cost of sales of Skycity reduced
by 9.4% while a reverse trend was noticed in the COGS of Crown Resort. It increased by
6.1% and reaches to $450 million in 2017.
The decline in the gross income of Skycity was also less than the reduction observed in the
gross profit of Crown Limited. It falls by 6.9% in 2017 whereas Crown’s GP decline by 9.3%
during the same year. However, despite having such significant reductions in revenue and
gross income, Crown was able to maintain its profitability by keeping its net profit margin
high at $1866 million, reflecting an overall upsurge of 96.6%. So, it can be said that Crown
Resorts Limited has performed better in past two years.
Recommendations that can lead to an increase in company’s performance are as follows:
 Crown should focus on cutting down its COGS so as to improve and increase its
gross profit margin.
 The company should also pay more attention on increasing its sales by delivering
quality services to its customers.

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References
Bragg, S. M. (2012). Business ratios and formulas: a comprehensive guide (Vol. 577). New
Jersy: John Wiley & Sons.
Bragg, S. M. (2012). Financial analysis: a controller's guide. New Jersy: John Wiley & Sons.
Crown Resorts. (2017). Annual Report. [Online]. Available at:
https://www.crownresorts.com.au/CrownResorts/files/9d/9df41ad5-de12-465c-ad18-
2925ad3533fa.pdf
Fridson, M.S. and Alvarez, F. (2011). Financial statement analysis: a practitioner's guide
(Vol. 597). New Jersey: John Wiley & Sons.
Gibson, C. H. (2011). Financial reporting and analysis. USA: South-Western Cengage
Learning.
Godwin, N., and Alderman, C. (2012). Financial ACCT2. USA: Cengage Learning.
Heitger, D.L., Mowen, M.M. and Hansen, D.R. (2007). Fundamental cornerstones of
managerial accounting. USA: Cengage Learning.
Higgins, R. C. (2012). Analysis for financial management. New York: McGraw-Hill/Irwin.
Nikolai, L. A., Bazley, J. D., and Jones, J. P. (2009). Intermediate Accounting. USA:
Cengage Learning

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Reuters. (2018). Crown Resorts Ltd (CWN.AX). [Online]. Available at:
https://www.reuters.com/finance/stocks/companyProfile/CWN.AX
Sinha, G. (2012). Financial statement analysis. New Delhi: PHI Learning Pvt. Ltd.
Vogel, H.L. (2014). Entertainment industry economics: A guide for financial analysis. New
York: Cambridge University Press.
Yahoo Finance. (2018). Crown Resorts Ltd (CWN.AX). [Online]. Available at:
https://finance.yahoo.com/quote/cwn.ax?ltr=1