Financial Statement Analysis for Metcash

Running Head: Financial Statement Analysis
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Project Report: Financial Statement Analysis

Financial Statement Analysis
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Contents
Introduction.....................................................................................................................3
Company overview.........................................................................................................3
Assumptions...................................................................................................................3
Forecasting.....................................................................................................................3
Sales growth...................................................................................................................4
Asset turnover ratio.........................................................................................................6
Profit margin....................................................................................................................7
Dividend payout ratio......................................................................................................8
Cost of debt.....................................................................................................................9
Cost of equity..................................................................................................................9
WACC...........................................................................................................................10
Valuation.......................................................................................................................10
Discounted dividend model...........................................................................................11
RIM...............................................................................................................................11
ROIM.............................................................................................................................11
FCF...............................................................................................................................12
Sensitivity analysis........................................................................................................12
Sales growth.................................................................................................................12
ATO...............................................................................................................................12
PM.................................................................................................................................13
Dividend payout............................................................................................................13
NBC..............................................................................................................................13
Management consulting advice....................................................................................14
Potential opportunity for sales......................................................................................14

Financial Statement Analysis
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Potential challenges for sales.......................................................................................14
Analysis and recommendation......................................................................................14
Conclusion....................................................................................................................15
References....................................................................................................................16
Appendix.......................................................................................................................17

Financial Statement Analysis
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Introduction:
Metcash is an Australian company which distributes and markets the fresh products,
groceries, hardware, beverages and other consumable products. A financial analyst is
required to focus on the past and present financial data of the business in order to identify
that how would be the financial performance of the business so that a better decision could
be made about the strategies and other policies of the business. The financial analysis study
makes it easy for investors to get the real information and forecasting of the performance of
the business so that the investment decision could be made accordingly. A strategic decision
could be made on the basis of the financial performance and it leads the manager to a clear
conclusion (Madura, 2014). In the report, the financial analysis study has been performed on
Metcash. The forecasting models have been applied firstly on the financial statement of the
company in order to, along with that, the valuation model, sensitivity analysis and
management decision process has been studied to measure the overall position of the
company and make a recommendation about the investment level in the business.
Assumptions:
In order to forecast the future performance of a business, it is important for an analyst
to take each and every financial and non financial aspect of the business in context. It is
important for the analyst to forecast the other factors first and then make a decision about
the ultimate item. Such as, in case of measuring the forecasted profit margin level of the
business, it has been found that the analyst requires to forecasted sales and expenses of
the business first. By linking each of the forecasting items, it becomes easy for the analyst
and the investors to reach over a conclusion immediately.
Forecasting:
Forecasting is a process which takes the concern on the previous year figures and
the present factors of the business to measure about the future changes in a business. It is
important for a business to measure all the relevant changes and make the decision about
the forecasting accordingly.
Sales growth:
Sales growth is one of the most important factors to measure and evaluate in order to
find the future changes and performance of a business. There are various factors which
could influence the sales level of the Metcash such as foos demands, liquor demand,
inflation rate, GDP etc. During the financial year 2017, the sales growth of the comapny was
highest because of strong sells in the liquor and acquisition of the hardware company.

Financial Statement Analysis
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Though, in the year of 2018, the growth rate has been decreased because the Metcash hard
competition in the food sector with Woolworths, Wesfarmers and Aldi and inflation rate has
also affected the sales of the business.
Food:
The food sales of Metcash limited has been reduced by 1.4% because of the prices
cut by Woolworths and Coles. The food sales of Metcash has also been affected because of
the Darkes Supermarket, who is one of the largest client of Metcash because of the lower
demand from the market. However, few changes have been made by Metcash limited to
improve the demand and turnover of food. The store of Metcash has deleted 6000 products
from the warehouse and added 2900 new products to attract more customers. Ready meals
are also offered by the company in order to improve the sales of the business.
Liquor:
Liquors are provided by Metcash limited in two divisions which are Independent
brand Australia and Australian liquor markets. The reports explain that the demand of liquor
has been increased to 5.7%. because of the acquisition of Porters liquor. Metcash limited
has also various opportunities which could improve the sales at huge level in near future
such as provide premium products, improvement in the wholesale sales, sales through IBA
network etc.
Hardware:
In case of Hardware performance, the demand of Metcash limited has been
improved at great extent. The changes have taken place because of the synergies. The
forecasting level explains that in near future, the hardware sales would be improved more.
Metcash limited could grab the various opportunities such as it could support independent
retailers, reduce the wholesale price etc to improve the demand of products.
Logistics:
the logistic demand would be improved along with the changes in the market and the
changes in the sustainable growth and cost structure of Metcash limited.
Below given figure explains that how much changes have occurred into the sales
level of the company from 2017 to 2018.

Financial Statement Analysis
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Resultsoverviewbypillar
FY18 FY17 %
$m $m Change
Sales revenue
Food 8,899.6 9,011.4 (1.2%)
Liquor 3,465.5 3,278.5 5.7%
Hardware1 2,098.6 1,578.5 33.0%
Total sales revenue (52 trading weeks) 14,463.7 13,868.4 4.3%
53rd trading week - 253.5 -
Total sales revenue 14,463.7 14,121.9 2.4%
EBIT2
Food3 188.6 188.1 0.3%
Liquor 68.4 67.0 2.1%
Sales revenue (%)
14%
Food
62%
Liquor 24%
Hardware
EBIT (%)
21%
Hardware4 69.0 48.5 42.3%
Business Pillars 326.0 303.6 7.4%
Food
Liquor 58%
Corporate5 6.7 1.2 -
Total EBIT 332.7 304.8 9.2%
21%
Hardware
Figure 1: Sales overview
(Yahoo finance, 2018)
On the basis of the food, liquor and hardware, it has been measured that the sales
growth forecast of the company would be 2.5% in the year of 2019, 2020 and 2021 which
would be reduced to 2% in next 2 years. The changes would occur into the business
because of the pressure from the industry and the changes into the various external factors
of the business. Insider retail (2018) explains that the food sales of the business would be
half dropped in the near future. However, the increased demands of the liquor would
compensate that and the sales of the company would be growing up by 2.5% only. As well
as, it has been measured that the logistic and hardware sales of the business would be
improved at great level which would manage the lower demand of other products of the
company. It has also been estimated that the changes into the inflation rate, population’s
growth and the GDP would affect the sales level of the business.