Financial Ratio Analysis for a Company

This assignment presents a case study analyzing the financial performance of a company using various ratio analysis techniques. It covers liquidity ratios (current ratio, quick ratio), profitability ratios (gross profit margin, net profit margin, return on equity), solvency ratios (debt-equity ratio, interest coverage ratio), efficiency ratios (inventory turnover ratio, debtor turnover ratio, creditor turnover ratio), and investment ratios (dividend yield ratio). The provided data for three years allows for a comparative analysis of the company's financial health and performance trends.

Running Head: Financial analysis of company 1
Financial analysis implementation

Financial analysis of company 2
Part-B
Executive summary
This report has shown key understanding on the financial analysis and using several
financial tools such as ratio analysis, capital structure analysis and capital budgeting analysis.
This report has shown how APN Outdoor Company has performed its business throughout the
time. However, APN Outdoor company has shown high amount of growth throughout the time.

Financial analysis of company 3
Table of Contents
Part-B...........................................................................................................................................................2
Executive summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Comparing Firm’s Capital Structure.........................................................................................................4
Analysis of Financial Ratios of APN Outdoor Company............................................................................7
Significant Changes in the Capital Structure in Past Three Years.............................................................7
Wealth Maximization in Past Three Years...............................................................................................8
Importance of Minimization of the Cost of Capital..................................................................................8
Recommendations for Lowering the Cost of Capital...............................................................................8
Conclusion...................................................................................................................................................9
References.................................................................................................................................................10

Financial analysis of company 4
Introduction
In this report, financial performance and capital structure of APN Outdoor Company. It
is an Australian company which has been providing media and advertisement services to clients.
This company has increased its overall profit since last three years and shown high value
creation on its investment. This report has shown the capital structure and ratio analysis of
company in determined approach.
Comparing Firm’s Capital Structure
Capital structure of company is accompanied with debt and equity capital portion of
company. Ideally, each and every company should maintain capital structure of 30 % debt and
70% equity. The WACC of APN Outdoor Company has been computed as below (Gitman,
Juchau, & Flanagan, 2015).
Cost of Equity
CAPM Model
Risk free rate of
return 2.40%
Beta 1.3

Financial analysis of company 5
Market Rate of
Return 7%
Cost of Equity 8.38%
Cost of debt
Interest after tax 2956100
Debt 103000000
Cost of debt 2.87%
Weights
Debts (Loan) 103000000
Equity 222334000

Financial analysis of company 6
Total 325334000
Weighted Average Cost of Capital (WACC)
Weight
Cost
(%) Weighted Cost
Debt 0.32 2.87% 0.91%
Equity 0.68 8.38% 5.73%
Cost of Capital (WACC) 6.64%
After computing all the details of company, it is inferred that the cost of capital of APN
Outdoor Company is 6.64%. The debt of the APN Outdoor Company is 32% and 68% equity
funding. This level of capital structure of APN Outdoor Company has shown that company has
been enjoying advantage of debt portion in its business. QMS Media Company is one of the
biggest rivals of company. It has maintained debt to equity ratio to 22:78. It reflects 22% debt
funding and rest 78% equity funding in its capital. Nonetheless, QMS Media Company has cost
of capital 7.78% which is quite high as compared to APN Outdoor Company. QMS has high cost
of capital and reduced its financial leverage (Finance. Yahoo, 2017).

Financial analysis of company 7
Analysis of Financial Ratios of APN Outdoor Company
Throughout the time, with the increasing ramification of economic changes, APN
Outdoor Company has increased its overall earning and profit since last three years. The current
ratio of company has gone down by .65 points since last three years. Quick ratio has also
decreased by .55 points in the same time period. Net profit of company has increased to 20% in
2016 from the net loss of 6% in 2015. The return on capital employed has increased to 26% in
2016. Interest co coverage of company is equal to zero and shown 32% debt and 68% equity
portion. Efficiency ratio has also changed with a view to reduce the overall cost of capital.
Inventory turnover ratio is zero since last three years due to its zero level of inventory
management. Creditors turnover ratio of company has also managed to 40% with view to reduce
the amount blockage and cost of capital associated with the same (Brigham & Gerhardt, 2013).
Significant Changes in the Capital Structure in Past Three Years
The share capital of APN Outdoor Company is $58.15, $63.74, and $59.64 million in all
2014, 2015 and 2016. Moreover, Debt portion of APN Outdoor company has increased by 5%
since last three years (Finance. 2017).
Particulars 2014 2015 2016
Fiscal year ends in June AUD$ '000
AUD$
'000
AUD$
'000
AUD in Million except per share
data
Long term loans 125 97 133

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Wealth Maximization in Past Three Years
The stock price of APN Outdoor Company has shown increment of profit by 200% as
compared to last three years. This increment showcases that company has increased the value of
capital invested by shareholders in determined approach. This increased level of profit and
earning of company will provide high amount earning per share of company. It will provide them
high level of earning to shareholders who have invested in organization (Hunjra & Bashir, 2014)
Importance of Minimization of the Cost of Capital
Reducing cost of capital may result to increased business efficiency for APN Outdoor
Company. It will also result to following advantage such as creation of core competency,
increased brand image and shuffling of capital of company. This minimization of cost of capital
will also reduce the overall cost of production and increased the contributed profit in determined
approach (Karna, Richter & Riesenkampff, 2016).
Recommendations for Lowering the Cost of Capital
This company has maintained 32% debt portion which could be further increased with a
view to take tax deduction advantage and low cost of capital associate with the same (Finance.
Yahoo. 2017). Nonetheless, simultaneously APN Outdoor company will increase its financial
risk if it increases its debt portion. In addition to this, company could also go for finance option
which could be available for company at lower cost of capital.

Financial analysis of company 9
Conclusion
In this report, it is observed that APN Outdoor company has high debt portion and
increased financial risk in its business functioning. However, this has resulted to tax advantage
and lowering down the overall cost of capital. Now in the end, it could be inferred that company
should maintain effective capital structure that could reduce the cost of capital and financial risk
at large.

Financial analysis of company 10
References
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage
Learning.
Finance. Yahoo. (2017). APN Outdoor Group Limited (APO.AX). Retrieved September 16, 2017 from,
https://finance.yahoo.com/quote/APO.AX/financials?p=APO.AX
Finance. Yahoo. (2017). QMS Media Limited (QMS.AX). Retrieved September 16, 2017 from,
https://finance.yahoo.com/quote/QMS.AX/balance-sheet?p=QMS.AX
Hunjra, A. I., & Bashir, A. (2014). Comparative Financial Performance Analysis of Conventional and
Islamic Banks in Pakistan. Bulletin of Business and Economics (BBE), 3(4), 196-206.
Karna, A., Richter, A., & Riesenkampff, E. (2016). Revisiting the role of the environment in the
capabilities–financial performance relationship: A meta‐analysis. Strategic Management
Journal, 37(6), 1154-1173.

Financial analysis of company 11
Appendix
Financial analysis of APN company
Particulars 2014 2015 2016
Fiscal year ends in June AUD$ '000
AUD$
'000
AUD$
'000
AUD in Million except per share
data
Total Revenue 250 300 330
COGS 80 80 80
Operating Profit/(Loss) 242 292 324
Other expenses 228 230 252
Finance cost 30 4 3
Net profit -16 58 69
Current Assets 76 85 94
Inventory 1 1 1
Average Inventory 1 1 1
Trade receivables/Debtors 58 63 69
Average Debtors 37 39 42
Total Assets 372 389 451
Dividend Paid 9 39 32
Current Liabilities 31 45 50
Trade Payables/Creditors 6 2 2
Average Payables 3 4 2
Total Liabilities 156 141 182
Capital Employed 341.0 344.0 401.0
Long term loans 125 97 133
Shareholders' Equity 216 248 269
Dividend per Share (DPS)
0.0416666
7
0.157258
1
0.11895
9
Earnings per Share (EPS) -0.7 0.25 0.29
Price per Share 10 10 10
Computation of ratio analysis
Liquidity ratio 2014 2015 2016
Current ratio 2.4516129 1.8888889 1.88
Quick ratio 2.41935484 1.8666667 1.86

Financial analysis of company 12
Profitability ratio 2014 2015 2016
Gross Profit Margin 0.968
0.973333
3
0.98181
8
Net Profit Margin -0.064
0.193333
3
0.20909
1
Return on Capital Employed
-
0.0469208
2
0.168604
7 0.17207
Return on Equity
-
0.0740740
7 0.233871
0.25650
6
Solvency Ratios 2014 2015 2016
Debt-Equity Ratio
0.7222222
2
0.572580
6
0.68029
7
Interest coverage Ratio
0.1239669
4
0.013698
6
0.00925
9
Efficiency Ratios 2014 2015 2016
Inventory turnover ratio
0.0074390
9
0.007439
1
0.00743
9
Debtor turnover ratio
6.8493150
7
7.692307
7
7.85714
3
Creditor turnover ratio
26.666666
7 20 40
Investment Ratios 2014 2015 2016
Dividend Yield Ratio 0.036 0.13 0.09697

Financial analysis of company 13