BAFI3225 - Financial Statement Analysis of Afterpay Limited

This report provides a detailed financial statement analysis of Afterpay Limited, an Australian company operating in the financial services industry across multiple countries. It includes an industry analysis highlighting Afterpay's position among its competitors like Sezzle and Klarna, followed by a company analysis detailing its establishment and business model. The core of the analysis involves calculating and interpreting key financial ratios such as the current ratio, gross profit ratio, debtor turnover ratio, creditor turnover ratio, and quick ratio, using financial data from 2020 and 2021. The report concludes that Afterpay is performing well but suggests areas for improvement to enhance its market position. This document is available on Desklib, a platform offering a wide range of study resources for students.

Financial statement
analysis

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Industry analysis.....................................................................................................................3
Company analysis...................................................................................................................3
Financial analysis...................................................................................................................4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial statement analysis is one of the most important aspects as it helps the company
to analyse and evaluate its long term financial position by reviewing the overall position so that it
can help the stakeholders that are directly as well as indirectly associated by the company to see
a clear picture of the operation of the firm (Akhmedjanov, 2019). The report covers all the
detailed evaluation of the company that is Afterpay limited and thus a precise review and
calculation of all the factors are done so that it can help in the overall growth and development of
the firm in the long run
MAIN BODY
Industry analysis
Afterpay Limited is an Australian company which is operating their business in New
Zealand, Canada, United States, Australia, and United Kingdom. As per the economic data, it
can be said that they have delivered solid results in 2021 as the underlying sales of the company
is $22.4b which is up to 102% on financial year 2020 (Afterpay Limited Annual Report, FY21).
They are ranging among the top 20 companies in Australia with 16.2 million active users which
are up to 635 percent more than the FY20. As the company deals in providing financial services
to its clients it is one of the most profitable firms in the industry as of now. The core competitors
of their companies are Sezzle, it is the publicly traded company which is offering alternative
payment platforms with interest free instalment plans. They are having 7.8 million active users.
Another main player in the market is Klarna, it is the company which offering the financial
solutions to the users and also save time and money in the administration. The company is
founded in 2005 and their one-time card payments make them different from other similar
companies.
Company analysis
Afterpay company is established by Molnar and his neighbour, Eisen in 2014 and in 2016
the company is listed on the Australian Securities Exchange. Afterwards, Matrix Partners, who is
the American venture capital, announced its investment in Afterpay to supports its entry into US
retail market. Afterpay is known for their pay later service which helps the customer in-store in
terms of online purchase and pay later with four equal fortnightly repayments which are interest
free. The client pays the full amount of money within a few days and does have a less a

processing fee of 4.19%. They are having the overall functionality of the business so that they
can expand their business in the market (Boyle, Lewis-Western and Seidel, 2021).
Afterpay is providing tweak to the traditional lay-by model and also allowing the
consumer to pay for the services in 4 instalments while they are able to use the products straights
away. They are also eliminating the need of retailer in order to track and hold stock
advertisement payments and it becomes the destination for the consumer who is efficiently
compare their offerings to the Afterpay websites. They are operating in the short-term financing
market structure as the customer can pay the full amount of the purchase in the instalments. It
allows the users to spread the cost into smaller amounts within the short period of time. In
current time, Afterpay is facing the issues that purchase made using Afterpay to be paid in
instalment in two weeks. In June 2018, Afterpay has introduced the extent on late fees. For this,
they are doing the analysing the business environment and understanding the consumer needs
which shows the overall market scenario in order to cope with the situation.
Financial analysis
Particulars Amount Amount Amount Amount Amount
current ratio=
current
assets/current
liabilities 2021 2020
2019 2018 2017
current assets 2657757 1405291
current
liabilities 325397 193552
current ratio
8.1677366
42
7.26053463
7
5.8 6.51063829
787234
4.65625
gross profit
ratio= gross
profit/ sales
*100 2021 2020

gross profit 675106 384856
sales 249564 134295
gross profit
ratio
270.51417
6724
286.575077
255
124.68 6445.22 105.53
debtor turnover
ratio= average
debtor/ credit
sales 2021 2020
Net consumer
receivables/
average debtor 1456169 782861
Credit sales 249564 134295
debtor
turnover ratio
5.8348519
82 5.82941286
0.00171518
14381777
0.00167901
92841336
0.00337628
33321849
Creditor
turnover ratio=
average
creditor/ credit
purchase 2021 2020
Trade and other
payables 306259 182613
Credit purchase 5502 1452
Creditor
turnover ratio
55.663213
377
125.766528
926
0.00416493
12786339
0.00302093
57875509
0.00792556
85733977

quick ratio=
quick assets/
current
liabilities 2021 2020
quick assets 2157544 1045654
current
liabilities 325397 193552
quick ratio
6.6304975
15
5.40244482
1
2.025 1.42553191
4893617
1.59375
Interpretations
Current ratio- it is one of the most important ratio as it is related with the short term
liquidity of the firm so that it can be analysed that the assets of the company is sufficient to pay
off its current liabilities or not. The company that is Afterpay company is performing
exceptionally well in the market as the ratio was around 7 in the year 2020 but it jumped to 8 in
the year 2021 and thus it can be seen from that the firm is on a right track and has a good
liquidity which can further help the company in the long run (de Souza and et. al., 2019).
Gross profit ratio-it is a ratio which is related with the profitability of the firm in the
long run and is related with the sales that the company do in its normal course of time. As it can
be seen from the above that gross profit ratio of Afterpay company is more than 250 in both the
years so it is profitable for the firm and also the firm must try to strive ahead in the market so
that it can become lucrative for the company in the long run (Lotfi, Salehi and Dashtbayaz,
2021).
Debtor turnover ratio- it is a ratio which shows that the firm takes how much time to
recover its debts from the sales of its goods and services in which a firm deals and thus this ratio
carries a lot of value as lower debtor turnover ratio is preferable and thus a company must do all
the possible efforts so that the ratio can be lowered in the market in the long run. The company
that is Afterpay Company is performing well in the industry and thus it is very crucial as well as
critical for the company to take utmost care of the factors so that it can be sustained in an
effective and efficient manner. As it can be seen from the above that the ratio for the firm is
hovering at around 5 days for both the years that is 2020 and 2021 which is a good one and thus
the firm must try to maintain it in the long term.

Creditor turnover ratio-it is a ratio which is related with the creditor time period that is
given by the creditor to the company so that all the dues can be cleared by the firm and thus it is
lucrative if it is on the higher side as the money and the funds can be invested in the areas that
can be more profitable in the industry. The ratio of the days for Afterpay Company was
satisfactory in the year 2020 as it was around 125 days but it came down to around 55 days in the
year 2021 and thus it is very important to give it higher value so that it can add value in the long
run scenario (Prodanova and et. al., 2019).
Quick ratio- it is a ratio which measures short term liquidity of the firm and thus it is
very crucial as it shows the true and clear picture of the firm so as to analyse and evaluate that
the firm can pay off its short term liquidity in an effective and efficient manner or not. The firm
that is Afterpay Company is doing well enough in the market as in 2020 the ratio was around 6
while in 2021 the ratio was around 5 so it is gradually declining so the firm must try to
implement impactful measures so that it can help the company to grow and prosper in the long
run (Rahim and et. al., 2020).
Thus it can be said from all of the things that has been analysed that the company that is
Afterpay Company is performing well in the industry and thus it is operating very well in the
market in which it is operational as compared to other companies that are also operational in the
similar market conditions. Also it can also use some other ways so that the firm can become
more effective and efficient in the market so that it can stand well ahead of all the other rivals
that are operating in the industry (Wei and et. al., 2019).
CONCLUSION
It can be concluded from the above that there are a lot of things that has to be kept in
mind by the company that is Afterpay Company, though the firm is doing pretty well in the
market but still it can be said that there are a lot of other factors that can help the firm to gain an
upper hand in the market in which it is operational.

REFERENCES
Books and journals
Akhmedjanov, K., 2019. ACCOUNTANCY REFORM AND PREREQUISITES FOR THE
PREPARING OF FINANCIAL STATEMENTS UNDER IFRS IN THE REPUBLIC
OF UZBEKISTAN. Theoretical & Applied Science, (7), pp.86-92.
Boyle, E.S., Lewis-Western, M.F. and Seidel, T.A., 2021. Do Quarterly and Annual Financial
Statements Reflect Similar Financial Statement Error in the Post-SOX Era?. Journal of
Financial Reporting, 6(1), pp.1-31.
de Souza, J.A.S and et. al., 2019. The linguistic complexities of narrative accounting disclosure
on financial statements: An analysis based on readability characteristics. Research in
International Business and Finance, 48, pp.59-74.
Lotfi, A., Salehi, M. and Dashtbayaz, M.L., 2021. The effect of intellectual capital on fraud in
financial statements. The TQM Journal.
Prodanova, N.A and et. al., 2019. Methodology for assessing control in the formation of financial
statements of a consolidated business. International Journal of Recent Technology and
Engineering, 8(1), pp.2696-2702.
Rahim, S and et. al., 2020, October. Disclosure of Local Government Financial Statements in
South Sulawesi. In Brawijaya International Conference on Multidisciplinary Sciences
and Technology (BICMST 2020) (pp. 1-6). Atlantis Press.
Wei, L and et. al., 2019. Discovering bank risk factors from financial statements based on a new
semi‐supervised text mining algorithm. Accounting & Finance, 59(3), pp.1519-1552.