Financial Analysis of MYOB Group Ltd and Xero Limited

RUNNING HEAD: BUSINESS FINANCE
Financial analysis

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Contents
Introduction.................................................................................................................................................3
Description of the companies......................................................................................................................3
MYOB Group Limited............................................................................................................................3
Xero Limited...........................................................................................................................................4
Calculation and analysis of performance ratios...........................................................................................5
Short term solvency.................................................................................................................................5
Long term solvency.................................................................................................................................6
Asset utilization.......................................................................................................................................8
Profitability ratios....................................................................................................................................9
Market value ratios................................................................................................................................11
Graphs and comparison of share price movements....................................................................................13
Share valuation..........................................................................................................................................14
Conclusion.................................................................................................................................................15
References.................................................................................................................................................16

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Introduction
The report discusses the financial performance of two Australian companies named as MYOB
Group Ltd and Xero Limited. It covers all the aspects from measuring the performance with the
help of key ratios to comparing the value of companies’ stock with its current share price. The
report provides a brief overview of both the companies, outlining their core activities,
competitive advantage and their historical performance. Further, various categories of
performance ratios are calculated which evaluates and compares the financial position of both
companies for the past two years. In the later part, the report explains the share price movements
of both the entities and compares the same with the fluctuations in the market prices of ASX
S&P 200. In addition, the report also explains the calculation of companies’ stock by using
Constant Dividend Growth Rate model and compares the value with its recent market price of
the stock. At last, a conclusion is provided stating the findings of the analysis and concluding
that which company has performed better in the past two years.
Description of the companies
MYOB Group Limited
Mind Your Own Business (MYOB) is an Australia based multinational company engaged in
providing various types of accounting software services to small and medium sized entities. The
company was found in 1980 by a team of developers working at Teleware Inc. and got listed on
ASX on 9 July 1999. The company develops and publishes software in New Zealand and
Australia. It operates its business through three segments named as Payment Solutions, Clients
and Partners and Enterprise Solutions. The segment payment solutions offer various types of

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services like payment gateway services, merchant services facilities, fraud management and
invoice payments. Clients and Partners segment payroll, tax and other management solutions to
SMEs and provide advisory services to the business. The division of Enterprise Solutions
provides services related to business management software like enterprise resource planning,
payroll and human capital management. Currently, the company is the leading provider of
business management solutions across the country (Bloomberg. 2018).
Xero Limited
It is software as a service (SaaS) company operating its business in Australia, United States and
other countries. The entity deals with offering a platform for conducting online accounting
services for the businesses and their advisors. There are two segments of the company through
which it operates and they are Australia and New Zealand (ANZ), and International. Its cloud
accounting software named as Xero for small businesses is provided in ANZ and United
Kingdom. The software contains over 400 add-on applications that allow individuals to
customize Xero as per their needs. It has various features including payments, reports, invoicing,
cash flow, support and mobile. With help of such features, it offers online accounting training for
small and medium size businesses as well as provides access to the real-time account
information. Xero was founded in 2006 and it is one of the fastest growing software on
international basis. It employs more than 2000 people and is considered as the World’s Most
Innovative Growth Company in 2014 and 2015 according to Forbes. It is publically listed on
ASX and is traded with the symbol XRO.AX (Reuters. 2018).
Being operating in the same market, both the companies give each other tough competition as
they perform their functions in same industry. The competitive advantage of MYOB was gained
by its acquisition of BankLink, a New Zealand accounting solution provider. This deal was the