Financial Performance and Position Analysis: Charter Hall Group Report

This report undertakes a comprehensive financial analysis of Charter Hall Group, an ASX-listed real estate company, evaluating its financial performance and position. The analysis includes a detailed examination of profitability, efficiency, liquidity, and gearing ratios, comparing Charter Hall Group's performance against its competitors. The report assesses the company's financial health, economic outlook, and future prospects, offering recommendations regarding investment potential and addressing relevant ethical considerations. It also explores the impact of the political and competitive environment on the business and suggests strategies for future success, culminating in an overall assessment of the company's financial standing and investment viability. The report is supported by calculations and interpretations of key financial metrics, providing a robust evaluation of Charter Hall Group's financial strengths and weaknesses.

Schedules of relevant ratios and
other useful calculations & A written
report

Executive Summary
This report presents about the financial statement analysis of the ASX listed company.
In this Charter Hall Group is taken a real estate organization and the financial position and
performance of the company is being evaluated and compared with its competitors. Based on
the findings, it can be concluded that the financial position of the company is good but is not
in the position to compete its competitor and therefore, it is recommended to invest in it.

TABLE OF CONTENTS
Introduction................................................................................................................................4
Company analysis......................................................................................................................4
Ratio analysis.............................................................................................................................4
Profitability ratios...................................................................................................................4
Efficiency ratios.....................................................................................................................6
Liquidity ratios.......................................................................................................................7
Gearing ratios.........................................................................................................................8
Recommendations and overall assessment................................................................................9
Has Year 1 been better than Year 2 for the company?..........................................................9
Will the company succeed in the future?...............................................................................9
The likelihood of a merger or acquisition?............................................................................9
Relevant ethical considerations if the organisation becomes insolvent...............................10
Suggest what should the company be doing help it succeeds?............................................10
The impact of the political competitive environment on the business.................................10
External factors that need to be taken into consideration....................................................10
Would you invest in this company?.....................................................................................11
References................................................................................................................................12
Appendix..................................................................................................................................13

Introduction
Financial statement analysis provides support to the business organization in order to
gaining insight about financial performance and position of the business in the industry in
which it is operating. It is also very useful in establishing a comparison with other companies
in the industries in order to know its competitive position. In this report Charter Hall Group is
taken as an organization which is a real estate company. The principle business of the
organization is to invest in the property funds along with the property funds management. It
manages and invests in the equity all across the important real estate industry. The report
provides an insight about the current position and performance of the company. Ratio
analysis will be carried out in comparison to its competitors for knowing its competitive edge
and at last determining the future success of the company.
Company analysis
The 2019 performance highlights of the company are that the group has earned and
operating earnings after tax of $221 million which is an increase of 25.5%. There is an 8.1%
increase in its property investment portfolio amounting to $1.8 billion. The funds under
management has also shown a rise of 31.1% which has amounted to $30.4 billion (Charter
Hall Group Annual Report. 2019). The economic growth of the company in Australia was
weak in the year 2019 more than expected. This has led to the weaker global economic
outlook which has created in Australia downward pressure on the interest rates along with the
US bond yield rates. On an overall basis, the current performance of eth company is sound.
Ratio analysis
Profitability ratios
Charter Hall Group
(see appendix for calculations) 2019 2018 Industry average
Return on assets 10.60% 12.48% %
Return on equity 12.40% 13.52% %
Net profit margin 63% 102% %
Gross profit margin 86% 100% %
Expense ratio/Cost to
Income ratio 64% 56%
%
Cash return on sales 51% 68% %
Earnings per share $0.51 per share $ 0.54 per share $
Price earnings ratio 19 times 18 times times
Earnings yield 5.12% 5.41% %
Dividends per share $0.34 $0.32 $

Cedar Woods Properties Limited
(see appendix for calculations) 2019 2018 Industry average
Return on assets 82.92% 70.83% %
Return on equity 133.32% 120.62% %
Net profit margin 128% 177% %
Gross profit margin 31% 42% %
Expense ratio/Cost to
Income ratio 13% 4%
%
Cash return on sales 9% -3% %
Earnings per share $0.61 per share $0.54 per share $
Price earnings ratio 7.9 times 9.0 times times
Earnings yield 12.52% 11.05% %
Dividends per share $0.35 $0.29 $
Interpretation: The return on asset of the Charter group is very less in comparison to its
tough competitor. In 2018, the return was 12.48% which reduced to 10.60% in the year 2019.
In contrast to the Cedar Woods, the Charter group is lacking behind as the company is having
return of 70.83% and 82.92% in the year 2018 and 2019 respectively. This is because of the
fact that the in case of Cedar Woods, it is effectively utilizing its assets for generating
revenue which is not so in the case of Charter as it is generating very low revenue from its
assets. This is a point of concern for the company (Atidhira and Yustina, 2017). The return on
equity ratio of the Charter company has also shown a huge reduction which indicates the
inability of the company in utilizing the equity funds of the investors in earning higher
income for which the funds procured. On the other hand, ROE of the Cedar Woods is much
higher indicating the efficiency of the organization in earning huge amount of profits form
the amount invested by the investors. The factor for this reduced percentage of Charter is the
inability to appropriately utilizing the resources. The net profit margin of the of the Charter
company is good but it has shown a high decline in the percentage from 2018 to 2019
(Octavia and Aidina, 2020). Even though the revenue has increased but the profit has not
increased which means that the company is incurring more cost. While in case of Cedar
Woods, the ratio is much more than the Charter which 177% and 128% in the 2018 and 2019
respectively. Again, there is a drop in the percentage but then too it is very high. The gross
profit margin of the Charter is high and good indicating company is generating higher
revenue or is able to reduce its it cost of sales which has resulted into increase in gross profit.

But Cedar Woods is having lower ratio indicating company is ineffective in managing its cost
of sales.
The expense ratio of the company is very low in comparison to Cedar Woods in
respect to the income which is a good sign that the company is working on managing its
expenses. The cash return on sales ratio of the Charter group is higher than that of Cedar
Woods which depicts that the organization is able to generate higher cashflow from its
operating activities which is not so in case of Cedar Woods as it is having lower ratio and
even negative because of negative cashflow from the operating activities. The earning per
share of the company is not so good and that of competitor is also very low making much
difference (Hindradjaja, 2019). The price earnings ratio of Charter is higher than that of
Cedar Woods which indicates that the investors will be getting high value from every euro
invested. Therefore, the Charter company is in the better position. The earning yield is Cedar
Woods is higher than Charter which depicts the percentage in respect to how much
organization earned on per share. Higher the ratio better it is for the company. The DPS ratio
represents the dividend received by the investors per share. Both the companies have shown
an increase in the DPS which is not higher but more or less the same.
The overall profitability position of the Charter group is moderate as there are few
aspects like ROE, ROA, NP margin where are ratio is very low in comparison to its
competitor.
Efficiency ratios
Charter Hall Group
(see appendix for calculations) 2019 2018 Industry average
Asset turnover 0.17 times 0.12 times times
Cash return on assets 0.09 times 0.08 times times
Fixed Asset turnover 0.18 times 0.14 times times
Cedar Woods Properties Limited
(see appendix for calculations) 2019 2018 Industry average
Asset turnover 0.64 times 0.40 times times
Cash return on assets 0.06 times -0.01 times times
Fixed Asset turnover 0.94 times 0.63 times times
Interpretation: The asset turnover ratio of the Charter group is lower than that of Cedar
Woods which indicates that the company is efficient enough in generating greater revenue

from its assets. This might be because of inefficient and effectiveness in managing its assets
and utilizing it in a better and appropriate manner (Fatihudin and Mochklas, 2018). The cash
return on assets is the actual cash flow as against the total assets of the company. In case of
Charter the ratio is high as it is generation positive cash flow from its operating activities
which is not so in case of Cedar Woods as it is having negative cash flow from its operating
activities. The fixed asset turnover ratio measures the efficiency of the business in raising its
revenue or sales from optimum utilising its fixed assets. This ratio of Charter Group is low in
contrast to its competitors as it is having 0.14 times and 0.18 times in the year 2018 and 2019
respectively which is very low as the Cedar Woods is having 0.63 times in 2018 and 0.94
times in the year 2019 (Sunjoko and ARILYN, 2016). This highlights that the company is not
effective in using its fixed assets in generating higher sales. Therefore, in terms of efficiency,
the financial position of the company is not good as it is not able to appropriately make use of
its assets which is also having an influence over its profitability.
Liquidity ratios
Charter Hall Group
(see appendix for calculations) 2019 2018 Industry average
Current ratio 1.99:1 1.65:1 xx:1
Quick ratio 1.99:1 1.50:1 xx:1
Cedar Woods Properties Limited
(see appendix for calculations) 2019 2018 Industry average
Current ratio 3.16:1 2.03:1 xx:1
Quick ratio 0.48:1 0.36:1 xx:1
Interpretation: The liquidity ratio is used by the determining the liquidity position of the
company. It measures the ability of the company in meeting its short term obligations. The
current ratio of Charter group is good which indicates that it can easily meet with its current
liabilities but will not much short term assets. While in case of Cedar Woods, it is much
higher and both the company has shown an upward trend. But the current ratio more than 3
indicates that company is having ideal assets left ideal is not generating any income and also
it increases the chances of default or blocking of cash (Hasby, Anshori and Primasari, 2018).
The quick ratio is similar to current ratio but it does not include inventory. The quick ratio is
favourable if it is higher. Charter group is having a good ratio because it is having less
amount invested in its inventory which is having less influence over its liquidity. In

comparison to Cedar Woods, the Cedar company is having lower quick ratio which indicates
that the company has invested a lot of money in its inventory which has lowered its quick
ratio and this creates a situation of risk for the Cedar Woods in paying off its current
obligation. Thus, the form the above analysis, the liquidity position of the Carter group is
very group which highlights its efficiency in meeting its short term obligations effectively.
Gearing ratios
Charter Hall Group
(see appendix for calculations) 2019 2018 Industry average
Debt to equity ratio 25% 8% %
Debt ratio 20% 8% %
Equity ratio 80% 92% %
Cash debt coverage 167% 93% %
Interest cover ratio 23.93 times 64.13 times Times
Cedar Woods Properties Limited
(see appendix for calculations) 2019 2018 Industry average
Debt to equity ratio 52% 70% %
Debt ratio 34% 41% %
Equity ratio 66% 59% %
Cash debt coverage 670% -3794% %
Interest cover ratio 22.92 times 16.21 times Times
Interpretation: The gearing ratio states about the composition of debt and equity in the
capital structure of the company. It is always favourable to have lower ratio which indicates
that the company is less risky. The debt equity ratio of Charter company is lower in
comparison to its competitor Cedar Woods but is there is an increase in the debt ratio in case
of Charter as in the year 2018 it was 8% but it increased to 25% which is a huge jump while
in case of Cedar Woods the percentage has decreased from 70% in the year 2018 to 52%
which depicts that the company is paying off its debts quickly (Dance and Imade, 2019). The
debt ratio is the ratio of total debt with respect to its total assets. In case of Charter, the debt is
equal to 20% of its assets which has increased in 2019 indicating that it has taken additional
debts for managing its business while in Cedar Woods it has declined to 34% which means
that the company is making payment of its debts. The equity ratio establishes the relationship
of total equity with respect to the assets. It indicates about the amount of equity the company
has in comparison to the total assets the company is currently having. The higher the ratio
better it is for the company. The equity ratio of Charter company is high which is good and

also indicates that the company on an overall basis is less leveraged as the larger portion of
the asset is being owned by its investors. This ratio of Cedar Woods is also good which is
also increasing and also lower ratio is not always a point of concern. Charter company has
shown an increase in the percentage which means that its can effectively meet all its liability
with cash available without any need for further borrowing.
The cash debt coverage ratio shows the amount of the organization's all liabilities can
be secured (paid) with net money from its operating business activities. At the end of the day,
this proportion is one of the proportions of the organization's budgetary adaptability and
security. This ratio of Cedar Woods is also good in 2018 it was negative because of negative
cash flow from its operational activities but in the year 2019, it has increased it positively and
with a huge jump. The interest coverage ratio of the Charter is higher in 2018 which reduced
in 2019, even though, it is having the ability to make payment of its interest (Atidhira and
Yustina, 2017). In contrast to it, the ratio of Cedar Woods is also sound showing an
increasing trend highlighting its ability to make payment of its interest expenses. Therefore,
the solvency position of the Charter group is very good and is prone to no threat in
comparison to its competitor.
Recommendations and overall assessment
Has Year 1 been better than Year 2 for the company?
On comparing both the years, in some aspect year 2019 is better while in some other
year 2018. But in respect to profitability and gearing ratios, the year 2018 has been much
better for the company while liquidity ratio does not make any much difference.
Will the company succeed in the future?
The company will succeed in future as it has started working on improving its
efficiency is also good in respect to the liquidity. All it has to focus on increasing profitability
and reducing the debt from its capital structure. By reducing the cost of sales and other
operating and non-operating expenses will help it in increasing its profits along with
effectively using the assets and the equity funds of the investor for generating greater. This
will help in attracting investors in making an investment in the company. This will help in
achieving its objectives.
The likelihood of a merger or acquisition?
The company can either merge with the other highly competitive company in the
industry which will help it in expanding its business and share its liabilities and in

overcoming its obligations. Also, it can look for acquiring a small company in other segment
of real estate which will help it in gaining more profits which can be used for funding its
current business segment and paying off its debt liability.
Relevant ethical considerations if the organisation becomes insolvent
Upon being insolvent or deemed to be or the chances of insolvency, then the
management or the directors of the business have to comply with certain duties. Some of
these are ethical and some are legal. First is to keep books and records of every single
financial activity during the indebtedness. Another is duty is to protect the interests of all
creditors involved, inclusive of stakeholders and workers. This includes not inappropriately
utilizing the position to facilitate its own advantages. One more point is to make sure that in
all possible way make payment to the creditors as much as possible.
Suggest what should the company be doing help it succeeds?
The most thing the company should be doing is to work on enhancing its profits and
revenue. It requires to identify the segment which are incurring more profits and revenue
apart from those which are incurring losses. The company should find out the ways for
reducing its cost which will help in increasing its net profit. Charter group needs to ensure
that it maintains its liquidity as that of today so that make be used in making payment of its
current obligations so that some of the financial burden can be reduced. It requires to
implement some new strategies in regard to how to make use of its assets to the full capacity.
If the company is successful in making this happen then it can easily generate heavy revenue
along with the profits which it can use paying off its debt which will reduce the fixed interest
liability that increases the financial risk and burden over the company.
The impact of the political competitive environment on the business
There are large of corporates in this real state sector which gives tough competition to
the Charter Hall Group. But the political environment in Australia is very stable which makes
the investor feel confident about the purchases they made. The government is looking for
increasing its national appeal in respect to the international trade. Since, the political
environment is in the favour of the company but the huge competition prevailing in it has a
huge impact over it. Therefore, the company is required to work more effectively and
confidently while keeping an eye on its competitors more in order to take fist over advantage
otherwise it will not succeed.

External factors that need to be taken into consideration
The external factors that the company is required to consider is the economic factors,
one problem that the company face is in respect to the company tax which is 30%. It does not
impact all businesses if the turnover is of the organization is less than $25mn then they
qualify for the lower tax slab. Social factor is that the there are different classes of people live
having different desire and needs there it requires to understand the each of the class for
expanding the business and even taking first mover advantage.
Would you invest in this company?
As of now, it is not viable to invest in the company as the return on assets, equity, net
profit margin of the company is very lower as compared to its competitor. Even though the
DPS of the both the companies are nearly same, but the return is higher of the competitor.
Therefore, based on the analysis and interpretation, it is not feasible to invest in the company
as it current position. For short term, it might not be right to invest in it but for long run,
investment can be made.

References
Books and Journals
Atidhira, A. T. and Yustina, A. I., 2017. The influence of return on asset, debt to equity ratio,
earnings per share, and company size on share return in property and real estate
companies. JAAF (Journal of Applied Accounting and Finance). 1(2). pp.128-146.
Atidhira, A.T. and Yustina, A.I., 2017. The influence of return on asset, debt to equity ratio,
earnings per share, and company size on share return in property and real estate
companies. JAAF (Journal of Applied Accounting and Finance), 1(2), pp.128-146.
Dance, M. and Imade, S., 2019. Financial Ratio Analysis in Predicting Financial Conditions
Distress in Indonesia Stock Exchange. Russian Journal of Agricultural and Socio-
Economic Sciences, 86(2).
Fatihudin, D. and Mochklas, M., 2018. How Measuring Financial Performance. International
Journal of Civil Engineering and Technology (IJCIET), 6(9), pp.553-557.
Hasby, Y.N.S.S.A., Anshori, M.Y. and Primasari, N.S., 2018. THE IMPACT OF CURRENT
RATIO, RECEIVABLE TURNOVER AND TOTAL ASSETS TURNOVER ON
ROA AT TELECOMMUNICATION SUB-SECTOR COMPANIES REGISTERED
IN BEI YEAR 2009-2017. In PROCEEDING International Conference
Technopreneur and Education 2018 (Vol. 1, No. 1).
Hindradjaja, G.G., 2019. Financial Performance of Construction, Property, and Trading
Companies Based on Working Capital, Liquidity Ratio, and Profitability
Ratio. Advances in Civil Engineering and Sustainable Architecture, 2(1), pp.1-9.
Octavia, E. and Aidina, E.N., 2020. The Effect of Profitability Ratio, Liquidity, Ratio and
Leverage Ratio to Financial Distress (Studies at Textile and Garment Companies
Listed on the Indonesia Stock Exchange 2012-2016). International Journal of
Psychosocial Rehabilitation, 24(2).
Sunjoko, M.I. and ARILYN, E.J., 2016. Effects of inventory turnover, total asset turnover,
fixed asset turnover, current ratio and average collection period on
profitability. Jurnal Bisnis dan Akuntansi, 18(1), pp.79-83.
Online
Charter Hall Group Annual Report. 2019. [Online]. Available Through:<
https://www.charterhall.com.au/docs/librariesprovider2/fund-documents/results/chc-
results/chc-results/chc-2019-annual-report.pdf.pdf?sfvrsn=d733db55_13 >.