Financial Analysis of CSL Ltd: A Three-Year Report

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Finance for business
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Abstract
The reports involve the understanding of the operations of the CSL ltd. which is an Australian
based medicines manufacturing company. This report analyzes several financial ratios of the
company by going through its annual report for three years. The report involves the analysis of
the non-current assets of the company. These several analyses are done for the advantage of the
organization which will help them to make certain changes in the company and take various
effective decisions which will help them to achieve their objectives. The report reflects certain
recommendations which have been given to the management of the CSL limited which can help
the organization to achieve success.
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Table of Contents
I Introduction...................................................................................................................................4
I Financial statement of CSL limited...............................................................................................5
2.1.................................................................................................................................................5
2.3.................................................................................................................................................9
2.4.................................................................................................................................................9
2.5...............................................................................................................................................12
2.6...............................................................................................................................................13
III Recommendations.....................................................................................................................14
IV Conclusion................................................................................................................................15
References......................................................................................................................................16
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I Introduction
The main objective of this report gives the understanding about the requirement of the finance
for the running the operational activities of the business such finding can be identified with the
help of the financial ratios of the company which have been estimated under this report. Under
this report there is study about the CSL limited which is a pharmaceutical company which deals
with the manufacturing of the medicines and which is located in Australia. The objective of this
company is to provide effective medical facilities to the citizens which can help them in medical
conditions. The report involves the estimation of the ratios of CSL Ltd. and several analysts have
been given which can further help the organization to identify best method through which they
can achieve the several benefits. The analysis has been made about the noncurrent assets of the
company which identifies the depreciation method which can be applicable to the company
assets. The report includes the calculation of the Net present value and recommendations have
been given regarding the worst and the best case. The objective is to find whether the company
needs the capital for the investment purpose.
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II Financial statement of CSL limited
2.1
Financial Analysis of CSL limited
Financial Analysis Is the Examination of Financial Statements of the company. Financial
Analysis is done to Evaluate Business in order to Determine Strengths, Liabilities and Future
Goals of the Company. Financial Analysis Covers Horizontal Analysis, Vertical Analysis, Ratio
Analysis and Stock Price Movement of the Company. Financial Analysis is done to predict the
performance of the company in coming years. CSL Limited is a Biotechnology company That
Develops, Research and Manufactures the market Tools related To Healthcare.
CSL Limited Deals in Various Products and Services which are related to Healthcare Sector.
Products of CSL Limited Includes Therapies of bleeding Disorder such as Von Willebrand and
Hemophilia Disease.CSL Limited also Deals in Products which are used in Organ
Transplantation, Burn Treatment, and Cardiac Surgery.
Some of the Medicines manufactured by CSL Limited
 Album 4,
 Albums 20
 Hepatitis B, Instagram P
 Ripstop,
 Tenants immunoglobulin
Immunology Products are one of the Key Products Offered by CSL Limited. Immunology
Products Refers to those Products which are related to the Immune system. Immunology
Products of CSL Limited Includes Beriglobin P, Carimune (Refers to Human Cytomegalovirus
immunoglobulin).
Importance of Products and Services in Maintaining Comparative Advantage of the
company
Products and Services Offered By CSL Limited are Unique and Less Costly as compared to
other companies in the Healthcare Sector. Comparative Advantages can be in a situation where
the Company May Be not Best in Producing Something but the Products and Services Offered
by the company are available at lower cost. CSL Limited is Having Comparative advantage in
Healthcare sector Because of Product Quality. The Quality of Medicines which are manufactured
By CSL limited is better as Compared to Other Companies. CSL Limited Focuses on New
Indications for its Existing Products. The market of Immune system is Very Big as compared to
other Markets and the Products and Services offered by CSL Limited are Meaning Along with
the cost (Humplreys,Denvir, 2016).
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Analysis of liquidity and Capital structure Ratio
Liquidity Ratios cover the following four Ratios
 Current Ratio
 Quick Ratio
Current Ratio
Calculation of Current Ratio Of CSL Ltd
For the Year 2018-19 For the Year 2017-18 For the Year 2016-17
Current assets = $ 5540.1
Current assets = $
4993.7
Current assets = $
4602.1
Current Liabilities =$ 2188.2
Current Liabilities =
$1914.7
Current Liabilities =
$1618.1
Current Ratio = Current Assets/Current
liabilities
Current Ratio = 2.61 Current Ratio = 2.84 Current Ratio = 2.77
1. Liquidity Ratios
s.
no Particulars Formula 201
7
201
8
201
9
1 Current ratio Current Assets/ Current Liability 2.77 2.84 2.61
2 Quick Ratio Quick Assets/ Current Liabilities 1.21 1.25 1.20
3 Operating cash Flow
ratio
Cash flow From Operations/Current
liabilities
0.8
6 0.77 0.99
While Analysing the Liquidity Ratios of the company it was found that during these three years
company is Maintaining the Favourable Ratio as the Part of Current assets is More than current
Liabilities of the Business. Current Ratio is calculated by Dividing current assets and current
Liabilities. Here Current assets refer to the assets which are used for less than one year in the
Business, on the other hand, current Liabilities are those Liabilities Which has to be pay within
one year (Accounting Tools,2018).
The Ideal current Ratio is 2:1 which means that the amount of current assets is more than current
liabilities. This Situation is also known as Favourablesituation.There should be Minor difference
in the ratios of the company. In this particular case, the Current ratio of company has increased
in 2018 as compared to 2017 and Decrease in 2019 as Compared in 2018. Here the change in
Ratio is Very less and this is favourable condition for the company.
The quick ratio is the ratios which represent the Quick Liquidity of the assets of the company. In
simple Words Quick Ratio Tells the company how quickly the current assets of the company can
be converted into cash. While analyzing it was found that Quick Ratio in the year 2017 was 1.21
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and it has changed to 1.25 In the Year 2018 and again decrease in the year 2019. Fewer changes
in Quick Ratio Shows that the company has maintained Good Financial position in the market
(Boyas Teeter 2017).
Operating Cash Flow is calculated by Dividing Cash Flow from Operating Activities By current
Liabilities. Operating Ratio is related to cash Flow from Operating Activities. While Analysing it
was found that Operating Cash Flow ratio In the year 2017 Was 0.86 and It has Decreased to
0.77 In the Year 2018 And again increases in the Year 2019 The Change in Operating cash Flow
Ratio is Very Nominal which is Beneficial for the company.
2016-2017 2017-2018 2018-2019
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Operating cash flow ratio
Quick ratio
Current ratio
Capital Structure Ratio
Debt Equity Ratio and Interest Coverage Ratios are covered Under Capital Structure Ratios Of
the company
 Debt Equity Ratio
 Interest Coverage Ratio
Capital structure
Ratios:
Particulars 2016-2017
2017-
2018
2018-
2019
Debt to equity ratio
1.2
2 1.26
1.0
8
Interest coverage ratio
109.3
3 163.20
255.9
5
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2016-2017 2017-2018 2018-2019
-
50.00
100.00
150.00
200.00
250.00
300.00
Interest coverage ratio
Debt to equity ratio
Debt Equity Ratio is calculated by dividing the debt of the Company by Equity of the company.
In simple Words Debt Equity Ratio is calculated by Dividing External Liabilities of The
Business with the Internal Liabilities. The debt Equity ratio is calculated to find the Source of
fund which was used by the Company in financing its Operations. If Debt of the Company is
more than Equity it means that company Has Taken more amount of Finance from Outsider.
In the Year 2016-17 Debt Equity Ratio was 1.22 and In The Year 2017-18, It has Increased to
1.26 From 1.22.And in the Year 2018-19 It has Decreased to 1.08.Although the Debt Equity
Ratio Of the company should Not Be Greater than 1.5. It should Remain between 1 To 1.5.And
In the Case of CSL Limited The Debt Equity Ratio of the company is Between 1 to 1.5 In all the
Three Years (Lewis Tan, 2016).
Interest Coverage Ratio is calculated by Dividing Net Profit Before Interest and Tax by Total
Interest Payable. If the Interest Coverage Ratio of the company is low it means that the company
has less amount of profit to pay Interest On his Debts (Accounting Tools, 2018).
On The Other Hand, if the interest coverage ratio of the company is more than Company has
sufficient amount of profit to Meet Interest Expenses ion His Debt. In this Particular Case Debt
Equity Ratio for the Year 2016-17 is 109.33 and it has shown an Increase in the Year 2017-18
I.e. 163.20 and again in the Year 2018-19. If the Interest coverage Ratio is More than 2 then it is
Beneficial for the company and in the Case of CSL Limited interest Coverage Ratio is More than
2 In all the Consecutive years which means Company can easily Pay Interest On his Debts.
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2.3
Analysis of Non - Current Assets
The non-current assets of the company are owned by them for the long term purpose in which
the life of the assets is for the period of more than 1 year. Because these are assets which
continuously performs in the business for a long period of time and further helps in the creation
of profits in the company. There can be several types of non-current assets such as the intangible
assets which include goodwill or patents, plant & machinery, land & building, etc. (Sorana,
2015).
2016-17 2017-18 2018-19
3744 $ US 4520.6 $ US 5780 $ US
Under this figure, it can be stated that the non-current assets of the CSL ltd. is increasing year
after year which point that the company is paying more attention to the fixed assets investment
rather than the current assets investment. This can be estimated that the company is running
profits and they are focusing on the long term advantages rather than the short term.
The company is using the straight-line method (SLM) for the estimation of the depreciation of
the company. This method cannot be replaced until the other methods of depreciation shows the
positive financial position of the company. Since the amount of depreciation is same for all the
years then, in that case, there is no need to estimate the further depreciation as there is no change.
Under the financial statement of the company the depreciation is treated as the non-cash
expenses because of the reason being the company has not made any payment in the form of
cash. Depreciation is the amount which reduces the value of the assets because of certain reasons
such as obsolesce, decrease in efficiency and others(Sorana, 2015).
2.4
NPV at different stages
Particular £
Sales 11250000
Less: V.C (varibale cost) 6750000
Contribution 4500000
Less: F.C (Fixed cost) 450000
Less: depreciation 500000
Net profit 3550000
Less: Tax 1065000
Net profit after Tax 2485000
Add: Depreciation 450000
Net cash inflow 2935000
Present value factor 12% 3.037
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Discounted cash inflow 8913595
Add: Pv 10% (retrieved of
working capital
5660132.82
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Add: Residual value 317500
The present value of cash
inflow 14891228
Cash outflow
Particular £
Initial outlay 2500000
Working capital requirement 500000
Total 3000000
Net Present value
Particular £
Net cash inflow 14891227
Less cash outflow 3000000
Net value 11891227
Sensitivity Analysis
The method which is used for the analyzation of the two variables of the data in which the effect
of one of the analysis is based on the other is referred to as Sensitivity Analysis. This analysis
helps in finding the impact of the one variable onto the other and also identifies the percentage
amount change (Krishnan, et. al., 2016).
Measurement of the Sensitivity Analysis:
A
On the basis of sale price unit
The sales price per unit of the product is needed to be decreased by 20% for the measurement of
the sensitivity analysis on NPV when the sales are taken as other variables.
In case when the sales price is reduced by 20%, NPV:
Actual NPV
NPV After
Change in Sale
Price per unit Difference
14891228 2500253 12390975
NPV Decrease % 83.21%
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B.
On the basis of price per unit
For the measurement of the sensitivity on the NPV, there will be requirement of decrease in the
price per unit by 20% in case when taking the price per unit as the other variable.
When the price per unit is reduced by 20%, NPV:
Actual NPV
NPV After
Change in Price
per Unit Difference
14891228 1701665 13189563
NPV Decrease % 88.57%
C
On the basis of the variable cost per unit
For the sensitivity analysis on the NPV, it will require variable cost per unit to be reduced by
20% in which variable cost per unit is taken as the other variable.
In case when the variable cost is increased by 20%, NPV
Actual NPV
NPV After
Change in
Variable Cost
per Unit Difference
14891228 2234057 12657171
NPV Increase % 85.00%
D
On the basis of the cash fixed cost
For measuring the sensitivity there will be a requirement of increase in the cash fixed cost by £
100,000 after taking the cash fixed cost as the other variable.
When cash fixed cost is increased by £ 100,000
Actual NPV
NPV After
Change in Cash
Fixed Cost Difference
14891228 2966096 11925132
NPV Decrease % 80.08%
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2.5
Issue of share or bond
CSL Ltd. issues the bonds and shares of in the year 2016, 2017 and 2018. The data related to the
bold of the company are at the amount of £ 221.3, £ 241 and £ 262.7 for those three years. The
amount related to the issue of shares and cash which is generated from the proceeding of the
shares is£ 17.4, £ 12.7 and £ 15.7. CSL Ltd. is issuing the shares to their existing shareholder
which also means that they are offering the shares to their employees first. There are several
reasons behind the issue of share such for saving the underwriter cost, issuing cost and the other
costs which reduces the cash from the issue of shares. Offering the shares to their own
employees is known as the right shares. After completion of the process the shares are then
offered to the general public(Krishnan, et. al., 2016).
The floating rates of CSL Ltd. are as follows:
Floating Rates 2016-17 2017-18 2018-19
Unsecured bank
loans
1.4% 1.8% 2.9%
Bank overdraft 1.3% 1.9%
Senior unsecured
notes
2.9%
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