Financial Ratio Analysis of Blackmore's Company: FIN600TX

Desklib provides past papers and solved assignments for students. This report analyzes Blackmore's financial health using ratio analysis.

Student name – ID FIN600TX YYYY
Assignment – Company
Financial management
1

Student name – ID FIN600TX YYYY
Assignment – Company
Executive summary
This report discuss the financial management of the Blackmore’s, the Blackmore’s is the leading natural
health company in Australia’s. Blackmore’s is passionate about the natural health of the area, and
inspiring people to control all over the problem, and invest in their wellbeing. The financial performance
of the Blackmore’s is increased by 19 % net profit after tax growth. The financial performance is shown
in this report, the ratios is shows the financial position of the organisation to help investors `to get more
funds from the external part of the organisation. There is having four types of ratio which has explained
and calculated in this report, this report gives the recommendations to the performance of the
Blackmore’s in the financial management to get the effective result.
2

Student name – ID FIN600TX YYYY
Assignment – Company
Table of Contents
1. Introduction..............................................................................................................................4
2. Company analysis.....................................................................................................................5
3. Ratio Analysis..........................................................................................................................6
3.1 Profitability and Market ratios..........................................................................................6
3.2 Efficiency ratios................................................................................................................7
3.3 Liquidity ratios..................................................................................................................8
3.4 GEARING RATIO...........................................................................................................8
4. Recommendations and overall assessment.............................................................................11
5. References..............................................................................................................................13
6. Appendices.............................................................................................................................14
3

Student name – ID FIN600TX YYYY
Assignment – Company
1. Introduction
In this report, it discusses the financial management of the Blackmore’s, it discuss the financial ratios of
the 2017, and 2018 years. In this report, it also discusses the analysis of the ratio, and it gives the changes
how and why the performance getsaffected. The financial ratios are the most important part of the
organisation to show the result of the organisation, the investors will compare all the ratios of the
different organisation to make the investment. There are many ratios which is identified the performance
of the organisation, such as profitability and market ratios, efficiency ratios, liquidity ratios, and gearing
ratios. In the ratios, it will also give the recommendation to get the effective result. The ratio analysis is
having important part to get the further decisions to make the proper significant decisions and they will
satisfy the investors.
4

Student name – ID FIN600TX YYYY
Assignment – Company
2. Company analysis
The Blackmore’s is the Australian leading natural health company, in the current year the Blackmore’s
has increased the net profit after tax growth, and revenue in the market. In the last 10 years as the most
trusted brand in the vitamins and supplements in the Australia. The Blackmore’s is having much range of
mineral supplements, herbal, and vitamins, and it is useful for the market. Blackmore’s has established in
1962, it combines the traditional naturopathic with the effective scientific research for the market.
Blackmore’s has also increases the assets of the organisation with the market and there is having the
changes from 258662 to 302507.
In the organisation, there are many financial resources, which is giving maximum profit for the
organisation and they will give the proper segment of the work. The organisation is earning maximum
return from the main course such as vitamins, and herbal products (Blackmores, 2019). The company is
earning Exchange differences arising on translation of foreign controlled entities with the different
income.
In 2018, there is having maximum number of revenue, and they are increasing year by year, they had
gained the revenue 601136. As compare to the last year they had gain most of the thing in the different
manner.
5

Student name – ID FIN600TX YYYY
Assignment – Company
3. Ratio Analysis
3.1 Profitability and Market ratios
The ratios is calculated in appendices heading.
In this ratios, it calculated the all profitability ratios, return on assets is showing the figures of the every
assets is showed in the profit, the single assets is having the profit, the 0.2 is having the difference
between with 2018 to 2017. The return on equity is the also important as per the investor, 2018 is having
more as compare to the 2017. The net profit margin is shows the margin with the products, and in 2018 is
having more margin as compare to the 2017. The gross profit margin is also the same as per the net profit
margin and this is having similarities. The net interest income is also high compare to the last year the
difference is 0.8, in the further they will earn maximum income from the different sources (Accounting
tools, 2019). The expense ratio is also has changes they done the maximum revenue then the expenses
ratio is decreased compare to the last year, and that is helpful for the organisation.
Cash return on sales is also doing great work, they are earning maximum ratio 0.2 as compare to the last
year, and this is helpful for the organisation. the earning per share has also increased and they has earn the
0.66 per share and the investor has also believing more, and increase the brand value. Price earnings ratio
is decreased as compare to the last year, it decreases to the 9.89 in the current year. Dividend per share
has also decreases from the last year.
6

Student name – ID FIN600TX YYYY
Assignment – Company
3.2 Efficiency ratios
The ratio has shown in the Appendix 2.
In this ratios, it calculate the efficiency ratio, the assets turnover ratio is also increases as compare to the
last year (Accounting tools, 2019). Cash flow return on assets is also increases from the last year, and
they increase up to 0.20%. Fixed assets turnover is also increases as compare to the last year, and from
the 0.10%.
7

Student name – ID FIN600TX YYYY
Assignment – Company
3.3 Liquidity ratios
LIQUIDITY RATIO:
Particulars 2018 2017 Average
Current ratio 1.73 1.81 1.77
Quick ratio 1.14 1.22 1.18
Receivables turnover 5.28 5.19 5.24
Average collection period 69.15 70.28 69.72
3.4 GEARING RATIO
Particulars 2018 2017 Average
Debt to equity ratio 45% 44% 0.45
Debt ratio 50% 51% 0.50
Equity ratio 42% 43% 0.42
Cash debt coverage 25% 22% 0.23
8

Student name – ID FIN600TX YYYY
Assignment – Company
Interest cover ratio 25.86 20.63 23.24
Extract and calculation from the financial statement for calculating ratios:
Particulars 2018 2017
Current Assets 302,507 258,662
Quick Assets 198542 173868
Current Liabilities 174,467 142,556
Average Receivables 141,467 133,391
Net credit sales 746,681 692,790
Debt 86,000 78,968
Equity 192,875 177,541
Operating Cash flow 58,030 45,634
Total debt 233,066 209,401
Total assets 464,850 412,174
9

Student name – ID FIN600TX YYYY
Assignment – Company
EBIT 101,612 86,231
Interest 3,930 4,180
Total Liabilities 271,520 233,355
Total Equity 193,330 178,819
A liquidity ratio is a category of financial ratios which explains the liquidity position of the company
(Vodová, 2013). It shows the liquidity in the company against different variables. Liquidity is the ability
of the company to generate cash funds from the assets when needed by the enterprise. The various ratios
calculated for Blackmores Company in the assignment under the head liquidity ratios are briefly
discussed as follows:
 Current ratio: Current ratio shows the ratio between the current assets and current liabilities of the
company. It depicts the current assets the company holds to fulfill the current liabilities of the company. It
is calculated by;
Current assets / Current liabilities
 Quick ratio: It shows a little more liquid position of the company than the current ratio by excluding the
inventory amount from the current assets of the company and calculating the quick assets.
Quick assets / Current liabilities
 Receivable turnover ratio: It shows the number of time a company collects its average debtors from credit
sales. It is calculated using formula;
Credit Sales / Average account receivables
Average account receivable is calculated by adding opening and closing amount of receivables
and dividing it with 2. *Total sales have been assumed to be credit sales for the purpose of calculation in
the assignment.
 Average collection period: It is the period in which the company can collect its outstanding debtors. It is
the credit period allotted to the debtors from the company. It is calculated as 365 / Receivables turnover
10

Student name – ID FIN600TX YYYY
Assignment – Company
Gearing Ratios: It depicts the various comparison of equity and borrowed funds in the company
(Zalewski, et. al., 2017). The various gearing ratios calculated in the assignment are;
 Debt equity ratio: It shows the comparison between debt and equity of the company. It is calculated as
Debt / Equity.
 Debt ratio: It is the percentage of total debts against the total assets of the company. It is calculated as;
Debt / Total assets.
 Equity ratio: It is the percentage of total equity capital of the company against the total assets of the
company. It is calculated as; Equity / Total assets.
 Cash debt coverage ratio: Operating cash flows / Total debts.
 Interest coverage ratio: EBIT / Interest (EBIT: Earnings before interest and tax).
4. Recommendations and overall assessment
Analysis of the ratios
Ratios are the financial instruments that are used to analyze the financial data of the company. They are
divided into various categories according to the information they provide from the financial data ( Situm,
2014). The comparison of data of both the years shows that the liquidity of the company has decreased a
bit in the year 2018 than in 2017. However, the receivables turnover and the credit period for the period is
decreased in the year 2018 which is a good indication in increasing cash flow in the company. Debt
equity ratio has increased in the year which shows the more use of debt in the company compared to the
previous year. However, it is also compensated with the increase in the interest coverage ratio of the
company. Hence the overall performance of the company has become better in 2018.
The company is currently succeeding at maintaining the financial ratios at a good level. The continuous
efforts in increasing cash flow in the company with the increase in debtor's turnover and interest coverage
ratio show the predictability of future profits. Also, the debt ratio and equity ratio are also very close to
the ideal ratio and so are the current and quick ratios. These are the indicators that the company will
continue to earn profits in the near future under normal business circumstances.
The merger and acquisition are totally depended on the discretion of the company’s management as the
company is earning suitable profits and have a quite stable financial condition ( Xu, et. al., 2014). If the
company's management wants to expand the business of the company it can undergo mergers and
acquisitions. However, the company is not in need of the merger and acquisitions as a matter of revival or
survival of the business.
11

Student name – ID FIN600TX YYYY
Assignment – Company
In order to be more successful and more profitable, the Blackmores should concentrate on increasing cash
flows in the business. It should also make efforts to bringing the near ideal ratios of the company to the
exact ideal ones. It should focus less on generating debt fund but should bring it down to the ideal debt-
equity ratio to maintain the risk and cost of the company at the same time.
Whenever there is insolvency in the organization it is considered ethical for the business to declare it
before going into the process of insolvency to protect the interest of potential investors in the market
(Islam, 2014). Also, the personal interest is kept aside and efforts are made to repay the amount due to the
outside as well as the owners by rationally utilizing the assets of the company to generate cash flows.
Political environment influences the business and profits of the firm. A suitable environment helps in
uplifting the profits of the company whereas in unfavorable political conditions the profits and the
operations of the business are adversely affected. All the external factors of the business like legal,
economic, technological, and social environment factors affect the business directly or indirectly with
different ranges as per the type and industry of the business.
The profits from the past year have been increasing and the financial condition of the company seems to
be promising. In such a situation it is suitable for the person to invest in the business of Blackmores
Company and earn the profits in the company.
12