Financial Statement Analysis

This document provides a comprehensive analysis of the financial performance of WAM Capital Limited, including a SWOT analysis, description of core business activities, major changes in financial performance, and calculation of key financial ratios. The analysis evaluates the company's profitability, asset efficiency, liquidity, and capital structure, and provides insights into its future prospects.

Running head: FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
Name of the Student:
Name of the University:
Authors Note:

FINANCIAL STATEMENT ANALYSIS
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Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................2
1. SWOT Analysis:....................................................................................................................2
2. Describing the core business activity of WAM Capital Limited, while providing detail
activities and operating segments:.............................................................................................3
3. Discussing any major changes in financial performance from chairman message or
managing director’s review:.......................................................................................................5
4. Calculating the key financial ratios for WAM Capital Limited for 2016 to 2017:................6
5 . Providing overall assessment of WAM Capital Limited and its future-prospects:.............11
Conclusion:..............................................................................................................................12
References and Bibliography:..................................................................................................13

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Executive Summary:
WAM Capital Limited is one of the major investment companies in Australia, who
has outperformed the S&P/ASX All Ordinary Accumulation Index and provided higher
returns to its investors. The financial ratios of WAM Capital Limited indicated that the
organization is in better financial position in 2017, as compared to 2016. The analysis also
indicates about the message of the Chairman, who highlighted the benefits that an investor
can get after investing in WAM Capital Limited.
Introduction:
The assessment aims in evaluating the performance of WAM Capital Limited for the
financial year of 2017 and 2016. This evaluation has been conducted with the help of
adequate financial ratios to determine the financial strength of the organisation. In addition,
relevant analysis has been conducted on the Chairman message provided in the annual report
of WAM Capital Limited. This evaluation is conducted to determine the trend of the
business, which has been projected by the Chairman regarding the current financial
performance of the organisation. Furthermore, the adequate evaluation for the future
performance of WAM capital is depicted to understand the returns that can be generated from
an investment in the organisation (Wilsonassetmanagement.com.au 2019).
1. SWOT Analysis:
Strength
 High performance in the Capital Market
 Adequate risk measurement
 Positive net profit margin
Weakness
 Limits its operations to the Australian
Equity market
 Uses Equity investments and minimises

FINANCIAL STATEMENT ANALYSIS
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 Higher returns and capital growth to
investors
the exposure in other investment options
Opportunity
 The rising demand from investors to
increase their returns and dividends.
 The opportunity in overseas emerging
markets that can increase return from
investment.
Threat
 Rising threat from competition
 Increasing possibility of economic
recessions
 Changing regulations and policies by the
government
2. Describing the core business activity of WAM Capital Limited, while providing detail
activities and operating segments:
The core business activity of WAM Capital Limited is to provide investors with the
exposure of an actively managed diversified portfolio of undervalued growth companies
listed in ASX. The organisation has been using adequate value arbitrage and market
mispricing opportunities for generating high level of income from investment, while reducing
any kind of risk involved in investments. Furthermore, different investment strategies have
been used by WAM Capital Limited to actively provide investors with the opportunity to
generate high level of income from investment (Wilsonassetmanagement.com.au 2019).
Moreover, the organisation also aims in delivering investors with fully franked dividends,
preserved capital and fully franked dividends from investment. The main operation of the
organisation is to acquire capital from investors and invest in ASX to achieve high end
returns from investment, which can be further distributed as fully franked dividends.

FINANCIAL STATEMENT ANALYSIS
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The above figure provides information regarding the returns that is being provided by
WAM Capital investment portfolio to investors over the financial years. The organisation has
been providing higher returns to the investors in comparison to the S&P/ASX All Ordinary
accumulation index. The above figure provides future information regarding the current
investment on the top 20 holdings that is currently being maintained by the organisation.
WAM Capital Limited operates in Listed equities in ASX, Short portfolios, Fixed interest and
cash investments. The information conducted in the above figure states that there are three
different type of investment operations that is been conducted by WAM Capital Limited,
which helps acquiring the required returns from investments
(Wilsonassetmanagement.com.au 2019). The company main operation is to conducted
relevant equity investments to generate high level of returns from investment. Hence, it could

FINANCIAL STATEMENT ANALYSIS
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be identified that WAM Capital Limited conducts adequate investments in equity and
commence short portfolios for hedging the risk involved in the investments.
3. Discussing any major changes in financial performance from chairman message or
managing director’s review:
The Chairman’s letter provided in the financial report of WAM Capital Limited
indicate about the growth in profitability is obtained by the organization during the financial
year of 2017. The chairman highlighted that the assets of the organization grew from the
levels of $300.2 million to $1,239.3 million. The growth in assets values was achieved by
investment portfolios which have increased by 11.7% for the financial year. The report also
provided information about the standard deviation of the portfolio which was at the levels of
7.1% in comparison to the market 9.2%. Investment capital provided total return of 17.6%,
while the average return from S&P/ASX All Ordinary Accumulation Index was at 9.4%
(Wilsonassetmanagement.com.au 2019).
The above figure provides information regarding the $10,000 investments that could
have been conducted by an investor during 1999 in in the organization. This would have
made the initial investment of $10,000 to $134,212 in 2017, as WAM Capital Limited
provides a higher return in comparison to S&P/ASX All Ordinary Accumulation Index. The

FINANCIAL STATEMENT ANALYSIS
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figure indicates that the investments conducted by WAM Capital Limited are higher than the
original index even during recession of 2008. The Chairman’s report mainly highlights the
possible income that could have been generated by an investor of WAM Capital Limited
throughout its incorporation (Wilsonassetmanagement.com.au 2019).
The above graph provides information regarding the dividends of WAM Capital
Limited starting from its inception. The graph provides adequate information regarding the
overall ordinary fully franked dividends that has been provided by the company over the
previous fiscal years. The chairman directly highlighted the possibility of higher growth and
returns that could be provided WAM Capital Limited to its investors in future years. The
chairperson also discussed about the Capital Management that is conducted by the managers
for securing the Investments conducted in different companies. Moreover, the information is
provided to the investors regarding the engagement and communication that need to be
achieved by the management of WAM Capital Limited (Wilsonassetmanagement.com.au
2019).
4. Calculating the key financial ratios for WAM Capital Limited for 2016 to 2017:
Ratio Name Formula 2016 2017 Interpretation
Profitability

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Net profit margin Net profit/Revenue 55.28% 63.57% Positive
Return on assets Net profit/average total assets 10.67% 6.05% Negative
Return on equity Net profit/average total equity 11.15% 5.67% Negative
Asset Efficiency
Total asset turnover Revenue/average total assets 0.19 0.10 Negative
Liquidity
Current Ratio Current assets/current liabilities 11.461 16.988 Positive
Cash flow ratio
Operating activities/current
liabilities -0.0573 -1.3907 Negative
Capital Structure
Total Debt to
equity ratio Total liability/total equity 0.11 0.07 Positive
Debt ratio Total liability/total assets 0.10 0.07 Positive
Equity ratio Total equity/total assets 0.90 0.93 Positive
Market
performance
Earnings per share Net income/number of shares 0.21 0.12 Negative
Dividend yield
Annual dividend/current stock
price 6.50% 6.28% Negative
P/E ratio Current stock price/EPS 10.53 20.29 Positive
2016 2017
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Profitability
The above graph provides information about the profitability conditions of WAM
Capital Limited for two fiscal years. The analysis directly indicates that the organization has
witnessed a jump in its net profit margins from the levels of 55.28% to 63.57 % in 2017. This
increment in net profit margin is considered to be positive in nature, where cost and expenses

FINANCIAL STATEMENT ANALYSIS
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of the company declined substantially even after the reduction in its revenues and total net
income. However, both return on assets and return on equity of Capital Limited have declined
during the two financial years, as total net income of the company declined in 2017, as
compared to 2016 (Vogel 2014). The return on assets of the company declined from 10.67%
to 6.05% in 2017, as the total net income shrunk from $9,79,94,040 to $6,89,12,591 in 2017,
while the total assets increased from $97,39,56,000 to $1,30,33,62,834 in 2017. This similar
incident happened to the return on equity, as the net income of the company declined, while
the total equity rose from $878,749,246 to $1,21,48,98,458 in 2017. Therefore, it can be
detected that the current revenues of the organization was limited, while the management
continued to acquire additional assets to support its operations and improve the level of return
from investment.
2016 2017
-
0.05
0.10
0.15
0.20
0.25
Asset Efficiency
The Asset efficiency ratio mainly comprises of the total asset turnover, which has
declined from the levels of 0.19 to 0.10 in 2017 (Kou, Peng and Wang 2014). This decline in
total asset turnover ratio of WAM Capital Limited is due to the reduction in total revenues
from the levels of 177,262,792 to 108,407,529 in 2017, while the total assets remained to
increase during the period.

FINANCIAL STATEMENT ANALYSIS
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2016 2017
-5
0
5
10
15
20
Liquidity
Liquidity ratio comprises of current ratio and cash flow ratio which helps in detecting
the current financial position of WAM Capital Limited. The current issues of the company
have increased from the levels of 11.46 to 16.98, which is a positive indication towards its
current financial position. The rising current ratio indicates that the organization is able to
support its short term obligations without hindering the investments conducted in the non-
current assets. However, the cash flow ratio of the organization indicates relevant issue,
where the negative operating cash flow has increased during the financial year of 2017. This
occurred due to the increment in the negative values of net cash flows from operating
activities. Thus, the company does not have strong operational cash flows, which needs to be
improved during the next fiscal year (Wahlen, Baginski. and Bradshaw 2014).

FINANCIAL STATEMENT ANALYSIS
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2016 2017
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Capital Structure
The above figure provides information regarding the capital structure of VAM Capital
Limited during the two financial years. From the relevant analysis it could be identified that
the organization is focused on using the equity capital to support its operations. This is the
main reason why the overall equity ratio increased from the levels of 0.90 to 0.93 in 2017
which in turn reduce the total debt ratio of the company. This directly indicates that Capital
Limited is focused on acquiring equity capital to supported operations while discarding the
debt expenses of the company. Moreover, this investment attitude of WAM capital has
adequately helped the organization to reduce its total debt to equity ratio from 0.11 to 0.07 in
2017. Ecer and Boyukaslan (2014) indicated that the analysis of debt ratio allows the
investors to determine the solvency position of the company, which helps in making relevant
investment decisions.

FINANCIAL STATEMENT ANALYSIS
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2016 2017
-
5.00
10.00
15.00
20.00
25.00
Market performance
The market performance ratio includes the valuation of Earnings per share, dividend
yield, and P/E ratio. The analysis has indicated that the EPS of WAM Capital Limited has
declined from 0.21 to 0.12 in 2017. This is due to the reduction in net income that has been
generated by the company during the fiscal year of 2017 and 2016. The reduction in net
income has declined the levels of EPS that can be depicted for an investment in the company.
However, the P/E ratio of the company has mainly inclined to the levels of 20.29 from 10.53
in 2016. This inclination in P/E ratio is due to the rising demand for the company’s shares
within the investors (Zainudin and Hashim 2016). On the other hand, the dividend yield of
the company has declined slightly from the levels of 6.50% to 6.28% in 2017.
5 . Providing overall assessment of WAM Capital Limited and its future-prospects:
After analyzing the financial ratios of WAM Capital Limited, it could be identified
that the current financial performance of the company has mainly improved in 2017, as
compared to 2016. The profitability ratios indicated that the even after the reduction in
revenue the company was able to improve the level of net income during the financial year.
This increment in the net income is due to the low levels of expenses that is been incurred by
the company during the financial year of 2017. In addition, the current ratio and debt to

FINANCIAL STATEMENT ANALYSIS
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equity ratio also indicates a positive attributes of the organization, which directly indicates
that WAM Capital Limited is not in the path of insolvency. Furthermore, the market
performance ratio indicates that the EPS will eventually rise with its net income, while the
P/E ratio is indicating a positive attribute to the investors. Moreover, the Dividend yield has
slightly declined, while indicating stable returns to the investors (Lee 2015). The future focus
of the organization is to improve its current investment portfolio and generate high level of
income by accommodating more assets and diversifying the investments.
Conclusion:
The assessment has evaluated the current financial performance of WAM Capital
Limited, which has adequately improved in 2017, as compared to 2016. The company has
increased its net income even after the reduction in its total revenues. Moreover, the
Chairman message highlighted the benefits of investment growth and constant dividends that
is been provided to the investors to WAM Capital Limited. The financial performance also
indicated that the company is not going to be insolvent by acquiring high level of debt, as it
mainly focuses on equity capital for its operations. The aim of WAM Capital Limited is to
improve the level of investment in the capital market by reducing the risk and generating
high-level of returns for its investors.

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