Financial Statement Analysis for Afterpay Touch Group Limited

RUNNING HEAD: FINANCIAL STATEMENT ANALYSIS
Financial statement analysis

Financial statement analysis 2
Contents
Introduction.................................................................................................................................................3
Ratio analysis..............................................................................................................................................4
Long term solvency.....................................................................................................................................9
Liquidity position......................................................................................................................................11
Quality of financial statements..................................................................................................................13
Conclusion and Recommendation.............................................................................................................13
References.................................................................................................................................................14

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Introduction
Financial statement analysis deals with the critical examination of company’s final accounts
prepared at the end of each year. It is a process of properly reviewing the statements in order to
make correct and suitable economic decisions. The financial statements of the company include
balance sheet. Income and cash flow statement and statement of changes in equity. The analysis
reflects the overall financial health of the company covering all the quantitative and qualitative
aspects. The outcomes of the examination are very much useful for individuals like investors,
shareholders, managers and other interested users (Fridson and Alvarez, 2011). There are many
techniques and methods used for analysing financial statements of a particular company. It
includes horizontal, vertical analysis and ratio analysis. The methods allow the companies to
identify the trend in their performance by properly interpreting the results. The most common
method used is ratio analysis as it deals with the measurement of firm’s profitability, efficiency,
liquidity and solvency. It provides all the data in a nutshell and presents reliable information
(Rao, 2011).
The report is all about financial analysis of Afterpay Touch Group Limited conducted for the
past three years that are 2016, 2017 and 2018. It explains the interpretation of several ratios
calculated on the basis of company’s data presented in its annual report. Afterpay is an Australia
based payment company that offers various services which facilitates trading between retail
merchants and their customers. It provides a customer centric, omni channel retail service that
allows the merchants to make their customers able for buying products on ‘buy now, receive
now, pay later’ basis. Apart from that, the company also deals in offering Touch System which
facilitates in-store purchases for customers that can be done through their mobile phones,

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websites and several other methods. It also provides ATG System platform to bring more
convenience to its clients and consumers. Initially the company was known as Afterpay Holdings
Limited but the name got changed in June 2017. It is listed on Australia Securities Exchange and
is traded with the ticker APT.AX. Currently, it has market capitalization of $3.403 billion with
the share price at $15.00 per share (Bloomberg. 2018).
Ratio analysis
It is one of the techniques used for evaluating and examining the financial statements of the
company. It analyse the data presented in the statements from all the aspects such as profitability,
solvency and others. The ratios summarize the overall performance and position of the enterprise
and compare the same with past trends and movements. It includes the calculation of several
categories of ratios named as liquidity, profitability, solvency and turnover ratio (Bragg, 2012).
Each category reflects the financial health of the company in its own way by interpreting the
historical data of the entity. Generally, ratio analysis is the most used technique by the analyst
and investors as it provide all the necessary information at one place and in a nutshell.
Shareholders and management of the company look at the data reflected by company’s key ratios
and compare the same with industry averages or from past year’s performance (Bragg, 2012).
Despite having many advantages, the technique also has some limitations that it only takes into
account the quantitative data and only relies on the past years’ information. The historical data
available may prove to be wrong and unreliable which can mislead the analysis and as a result
investors can make wrong and inappropriate interpretations. Overall, ratio analysis helps in
taking important decisions regarding the concerned entity and allows the investors and other
interested parties to make correct decisions regarding their investments (Gibson, 2011).