Detailed Financial Analysis Report on CSR Limited's Financial Position

This report provides a comprehensive financial analysis of CSR Limited, a building materials manufacturer. It includes an introduction outlining the report's objectives and a brief description of the company, its operations, and its key brands. The report delves into the ownership and governance structure, highlighting the significant institutional ownership and the role of the board of directors. A major section of the report focuses on the calculation of fundamental financial ratios, including liquidity, financial leverage, efficiency, profitability, and market value ratios, using data from the past two financial years. The analysis covers current ratio, quick ratio, debt ratio, debt-to-equity ratio, interest coverage ratio, account receivable turnover, asset turnover ratio, inventory turnover ratio, gross margin ratio, profit margin ratio, return on assets, return on equity, and price-earnings ratio. The report also incorporates data from the ASX regarding share prices, explores the correlation of graphs, and includes risk calculations and WACC calculations. Furthermore, the report discusses the company's dividend policy and concludes with recommendations.

Financial Analysis on
CSR limited

Table of Contents
Introduction..........................................................................................................................................2
1. Brief description of the company.....................................................................................................3
2. Ownership-governance Structure of CSR limited:...........................................................................3
3. Calculation of fundamental ratios of past two financial years:........................................................4
Liquidity ratio.......................................................................................................................................4
 Current ratio..................................................................................................................................4
 Quick ratio....................................................................................................................................4
Financial Leverage ratio.......................................................................................................................5
Debt ratio..............................................................................................................................................5
Debt-to-Equity Ratio............................................................................................................................6
Interest Coverage ratio.........................................................................................................................6
Efficiency ratios....................................................................................................................................7
Account Receivable Turnover..............................................................................................................7
Asset Turnover ratio.............................................................................................................................7
Inventory turnover Ratio......................................................................................................................8
Profitability Ratios................................................................................................................................8
Gross Margin Ratio..............................................................................................................................8
Profit Margin Ratio...............................................................................................................................9
Return on Assets Ratio.........................................................................................................................9
Return on Equity.................................................................................................................................10
Market Value Ratios...........................................................................................................................10
Price Earnings Ratio...........................................................................................................................10
4. Using ASX showing price of the shares.........................................................................................11
I) showing price of shares...................................................................................................................11
ii) Correlation of the Graphs...............................................................................................................12
5. Research on CSR limited...............................................................................................................12
6. Risk Calculations............................................................................................................................13
7. WACC calculations........................................................................................................................13
8. Considering Debt Raio...................................................................................................................14
9.Discussion on Dividend Policy.......................................................................................................15
10. Letter of recommendations:..........................................................................................................16
11. References....................................................................................................................................17

Introduction
In this report, there are different financial analysis from different perspective. The financial
position and condition of CSR limited is tried to represent in defined way. Various tools
and techniques of financial analysis is done to represent the financial condition of the
company. Performance of the company is evaluated by calculating the performance ratios
such as profitability ratios, market value ratios, liquidity ratios etc. Many graphs and charts
are used to demonstrate the financial position of the company such bar chart, pie chart etc.
Every business has some risk and returns and we have used CAPM model to calculate the
risk of the company. There is also discussion on the dividend policy of the company. After
doing company structure evaluation, performance analysis, risk calculation, there is defined
presentation of the recommendation for the company.

1. Brief description of the company
CSR Limited, having a tag line “Inspiring Building for Life”, is a manufacturer and
supplier of building materials. The company operates their business in Australia and New
Zealand having four segments in their operations (CSR, 2018). The segments are Building
products, Glass, Aluminium, and property. The business operation has several product lines
and groups to operate in the market. CSR’s trusted brands are Viridian, Potter, Monier,
Edmonds, Bradford, martini, PGH, Cemintel, ceilector, GYPROCK, hebel, velocity. The
company running its business profitably from last five years where it’s trading revenue is
$2.5b with 7% growing, earning per share is 36.5c, and net profit is $183.8m with 11%
growing. Among all other products, Building Products EBIT is $202.8m in FY2017 which
is better than other products’ EBIT (CSR, 2018). The increase in net profit is significantly
done by this Building Products and it was record for the company’s net profit earnings.
2. Ownership-governance Structure of CSR limited:
I. Company’s total capital formation has a significant portion of shares. These shares
are owned by either external parties or internal parties (Statements of financial
accounting concepts as amended, 2007). In CSR limited, there is also a difference in
share holdings in a word ownership of the company. After looking the statements of
the company we have found out that institutional ownership is greater than 20%
which is 57.54% (CSR, 2018). This ownership held by other institutions has effects
on the price of shares. There is little ownership of insider which is 0.56% and this
cannot make the market share volatile. A big portion of 47.27% in CSR is available
for General Public and they can play role in share price volatility. The rest 0.63% of
ownership holds by Private Company. So, from the ownership structure we can say
that CSR’s ownership is mostly institutional (CSR, 2018).
II. Like other companies CSR limited has board of directors and an elected chairman.
The corporate governance of the company consists of board of directors and senior
management team. JEREMY SUTCLIFFE is the chairman of the company from
2011. There are other members in the board of directors. The structure of the board
is like the other listed companies. The most important is the ownership of the shares

of these directors is less than 5% and everybody works for the interest of the
shareholders. The board strives to create the value for the shareholders. There is
little chance of failure of the directors as shareholders elect the board and board
members elect the chair (CSR, 2018).
3. Calculation of fundamental ratios of past two financial years:
There are some fundamental ratios that represents company’s capabilities and strengths.
These ratios are Liquidity ratios, Financial Leverage Ratios, Efficiency ratios, etc. (Britton
and Waterston, 2013). These ratios are described and calculated below:
Liquidity ratio
Liquidity ratio shows the ability of the company to pay its short-term debt obligations
(Porter and Norton, 2017). The basic liquidity ratios are current ratio, quick ratio, and cash
ratio. The calculation and interpretations of these ratios are described below:
 Current ratio: Current is the ability to meet up the short term debts. The formula
is-
Current Ratio= current assets
current liabilities
CSR limited has following current assets and current liabilities in FY2016 and FY2017
Particulars FY2016 FY2017
Current assets $785.7m $736.4m
Current liabilities $488.8m $513.6m
Current Ratio 1.61 1.43
The current ratio of FY2016 represents the value of paying capability of the company is
1.61 where in FY2017 it decreases to 1.43. So the short-term debt paying capability
decreases.

 Quick ratio: How quickly the company can repayment its short-term liabilities is
represented by quick ratio (Shim, Siegel and Shim, 2012). Quick ratio can be found
by-
Quick ratio=Cash+ Marketable Secuirities +Receivables
current liabilities
$ Particulars FY2016 m FY2017 m
Cash & cash equivalents 73.1 19.1
Receivables 51.3 23.4
Current liabilities 488.8 513.6
Quick Ratio 0.80 0.66
In FY 2016 quick ratio is 0.80 and in FY 2017 it decreases to 0.66. It indicates that the
quick payable ability decreases in FY2017.
Financial Leverage ratio
Financial leverage ratio is the ratio of company’s debt and equity. These ratio provides the
company the information about their capability to pay the loan (Britton and Waterston,
2013). There are some financial leverage ratios. These are described and calculated below:
Debt ratio
At the times of expansion of the company or newly start something, the company needs
financing (Goodhart, 2013). It can finance from either debt or equity. Financial leverage is
the option to evaluate the ability of the company to pay its liabilities with its assets. Debt
ratio is one of the financial leverage tools that calculates how well a company can pay its
liabilities with its assets. The calculation is done by-
Debt ratio=Total liabilities
Total assets
Particulars FY2016 FY2017

Total assets $2097.1m $2215.8m
Total liabilities $898.6m $890..6m
Debt Ratio (%) 0.43 0.40
The debt ratio in year 2016 shows more capability of paying liabilities in compare to 2017
Debt ratio.
Debt-to-Equity Ratio
There are two ways of financing and equity shares is another way to finance the company.
Debt-to-Equity ratio shows the percentage of financing comes from equity and debt. This
can be called as the capital gearing ratio. By this we can know about the portion of equity
and debt in the capital of the company. The following way Debt-to-Equity can be
calculated:
Debt−¿−Equity= Total Liability
Total equity
Particulars FY2016 FY2017
Total equity $1317.2m $1206.5m
Total liabilities $898.6m $890..6m
Debt-to-Equity Ratio (%) 0.68 0.74
In 2016, 68% debt-to equity ratio shows company finance more from equity assuming
baseline is 1. In 2017, 74% ratio shows company is financed more from equity. Comparing
two consecutive years 2017 has more debt-to-equity ratio than 2016 which indicated
company is more relying on equity than debt.
Interest Coverage ratio
When company borrows it has to pay interests and it’s an obligation for the company to pay
it. Interest coverage ratio evaluates how much capable the company is to pay the interest

obligation (Goodhart, 2013). By the following way interest coverage ratio can be
calculated:
Interest Coverage Ratio= EBITDA( Earning before interest , tax , depreciation∧amortization)
Interest expenses
Here, EBITDA of the company in 2016 is $338m and interest expense is $21m. So by
applying the formula the ratio is 6.10 which indicates a far better position for the company.
In 2017, EBITDA is $368m and interest expense is $13m. So Ratio is 8.52 which is better
than 2016. It indicates that company has solvency to cover the interest payments.
Efficiency ratios
Efficiency ratio refers how well a company uses its assets to make profit. It also shows that
how well a company utilizes its assets internally (Goodhart, 2013). Efficiency ratio has an
alliance with profitability ratio. There are some ratios that calculate the efficiencies of the
company:
Account Receivable Turnover
This ratio calculates how many times a company can turn its accounts receivable into cash
during a period (Velez-Pareja, 2012).
This is calculated by net credit sales divided by average accounts receivable. Here CSR has
net credit sale and account receivables. Their account receivable turnover is 8.68 in 2016
and 8.50 in 2017 which provides the idea of the company about how quickly they can
collect their account receivables. In 2016 the turnover was better than 2017 turnover.
Asset Turnover ratio
Asset turnover ratio is another efficiency ratio that measures the capability of generating
sales using the assets the company has. In other words asset turnover calculates the sales
generating power of its assets (Velez-Pareja, 2012).

Asset generating is calculated by net sales divided by Average total assets. In net sales the
returns and refunds are deducted from the total sales.
Here CSR has net sales and net assets of 2016 and 2017 respectively the Asset Turnover
ratio is 1.06 and 1.14 which represents company has better Asset Turnover ratio in 2017.
Inventory turnover Ratio
Inventory is common for every business basically manufacturing business. Inventory
turnover ratio measures the efficiency of inventory management. This measures how many
times average inventory is turned or sold in a certain period (Velez-Pareja, 2012).
Inventory turnover ratio is related to the cost of goods sold.
Inventory turnover ratio is calculated by-
inventory turnover ratio= Cost of Goods sold
Avearage inverntory
Average inventory is used as many company merchandising activities fluctuates throughout
the year. Here CSR’s inventory turnover ratio is 4.57 and 4.45 in FY2016 and FY2017
respectively calculated by taking cost of goods sold and average inventory information
from these two consecutive year. Comparing these two years inventory turnover ratio of
2016 is higher and it shows the company has much involvement in selling in 2016 than
2017
Profitability Ratios
Profitability ratios compare its income statement categories to calculate the ability of the
Company to generate profit. This ratio show basically how company can achieve profits
from their operations (Velez-Pareja, 2012). Investors and creditors can get idea about the

company’s ability to generate profit. There are some profitability ratios. These are
discussed below and their application is shown in CSR limited:
Gross Margin Ratio
This ratio shows how profitably a business can sells it inventory or merchandise. It
compare the gross margin to the net sales. It is shown in percentage form.
Calculation of this ratio’s formula is like below:
Gross Margin Ratio=Gross margin
net sales
Where Gross margin is calculated by subtracting cost of goods sold from net sales. CSR’s
Gross Margin Ratio is 33.85% in 2017 where in this industry the average gross margin is
32.4%. So Gross margin ratio of 2017 indicates a positive side of the company. In 2016,
Gross margin ratio is 33.6% which indicates a positive gross margin of the company. In
compare to 2017, 2016 has less Gross margin ratio and company run their operations so
well in 2017.
Profit Margin Ratio
This ratio is also related to net sales. This provides the company information about ability
of net income earning generated from each dollar of sales (Velez-Pareja, 2012). Investors
and creditors get information about how effective a business is in generating net income
from its sales. Internal management also use this to set their future goals.
Profit Margin ratio is calculated by-
Profit Margin Ratio= Net Imcome
Net Sales
CSR’s Profit Margin Ratio is 8.02% in 2017 and 6.19% in 2016. This ratio is also indirectly
measures the ability of the company how well a company can manage or bear its expenses.
The ratio of 2017 is quite good than 2016. So it can be interpret company’s net income
earnings ability is increasing. .

Return on Assets Ratio
This ratio is shortly called ROA which measures the profit earning assets of a company.
Return on Assets calculates how much assets are capable of generating profit (Goodhart,
2013). This ratio gives investors and creditors a clear idea about the company's assets
revenue generating and they take their investment decision by this ROA ratio.
Return on Assets is calculated by-
Return on Assets Ratio = Net Income
Average Total Assets
Calculated ROA of CSR is 6.57% and 8.25% in 2016 and 2017 respectively. Return on
Assets is increased in 2017 which indicates that the ability of revenue earnings of the
company utilizing the assets increases. That is the positive sight for the investors and other
parties in the company.
Return on Equity
This profitability ratio is directly related with the interest of the shareholders. Return on
Equity ratio calculates the ability of generating profit of the company using the
shareholders’ investments (Goodhart, 2013). Shareholders get a better idea about condition
of their investments. This ratio also helps other investors to buy the share of the company.
This ratio is calculated by-
Returnon Equity= Net income
Shareholder equity
CSR’s calculated ROE is positive which is 12.22% and 15.21% in consecutive two years
from 2016 to 2017. The interpretation from this calculation is the company has a good ROE
and if shareholders hold their investments they will get 15.21% return on their investment
in 2017.

Market Value Ratios
Market value Ratios are used to evaluate the current market price of the company which are
publicly trading their shares and equities (Goodhart, 2013). There are some market Value
ratios such as price earnings ratio, price to book value ratio etc.
Price Earnings Ratio
This Ratio is briefly called P/E ratio. These ratio provides how much investors are willing
to pay in return of their earnings. This ratio is calculated by-
Price Earnings ratio= Price Per share
Earning Per share
Where
Earnings per share= net income
number of shares outstanding
CSR’s price earnings Ratio is 12.47% in 2017 and 12.9% in 2016. Again the earning per
share (EPS) is 36.5c in 2017 and 32.9c in 2016.
So it can be seen that the EPS in case of CSR ltd. has been decreased in 2017 comparing to
that of 2016. And the price earnings ratio has also been decreased comparing in these two
years.
4. Using ASX showing price of the shares
I) showing price of shares
To show the chart and graph we have taken 2016 and 2017 two consecutive year. January
to December is taken in consideration (ASX, 2018). We have considered the closing share
price for the chart.
2016 Price 2017 Price
January 2.55 January 4.41
February 2.96 February 4.18