HI5002 Finance for Business: G8 Education Performance Analysis Report

This report provides a comprehensive financial analysis of G8 Education Limited, examining its performance through various lenses. It begins with an abstract and introduction, followed by an in-depth financial analysis, including the service provided by the company. The report delves into performance ratios, particularly liquidity and capital structure, highlighting trends and areas needing improvement. A non-current asset analysis is conducted, tracking changes in plant, property, and equipment, as well as intangible assets. Scenario analysis is performed to assess the impact of different variables like selling price and sales units on the company's net present value. The report also considers share issuance and its impact on the company's capital. The analysis concludes with recommendations and a summary of findings, supported by references and an appendix. The report utilizes financial data to evaluate the company's strengths and weaknesses, providing insights into its financial health and potential future strategies. The selling price is identified as the most sensitive element, and the report emphasizes its importance in future evaluations.

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FINANCE FOR BUSINESS

Finance for business
Abstract
The performance analysis is performed for the G8 education limited and in that the service which
is provided by the company has been identified. There is the ration calculation which is
performed and by that the evaluation is made and it is identified that liquidity is required to be
improved. Further analysis is made and in that, all of the changes in the assets of the company
have been taken into account. The selling price is the most sensitive element and will have to be
used for further evaluation. The shares have been issued and there is an increase in the capital
with the help of the same. The graph has been made in which all of the movements which are
involved in the share price have been considered and with that, the graph for the movement of
the PE ratio is also prepared. The movements have been identified and the further position will
be maintained accordingly.
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Finance for business
Table of Contents
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Financial analysis.............................................................................................................................4
Service provided by the company................................................................................................4
Performance ratios.......................................................................................................................4
Non-current asset analysis...........................................................................................................7
Scenario analysis.........................................................................................................................7
Share or bond issuance................................................................................................................9
PE ratio and share price movement...........................................................................................10
Recommendations..........................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13
Appendix........................................................................................................................................15
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Finance for business
Introduction
The business carries various operations and in that there is the need to perform all the actions in
the most appropriate manner. There will be need to identify all the information and then the
evaluation of that is to be made so that all of the important areas which need improvement can be
identified. There will be a consideration which will be provided to the service that is provided by
the company. In that there will be a further evaluation which will be made with the help of the
ratio analysis and that will help in making the proper measurement and evaluation of the
performance. The assets which are involved in the non-current category will be identified and the
analysis of them will be performed. There will be consideration of the various scenarios and with
the help of that most sensitive element will be identified. The company undertakes the issue of
the bond or the share and that will be determined. The analysis of the change in the share price
will be made and that will be compared with the change in the PE ratio which is taking place.
Financial analysis
Service provided by the company
G8 education limited is the company which is involved in the educational sector. The main
service provided by the company is in relation to child care services. There are various
recognized brands which are used and by the help of them, the services are provided by the
company in the best possible manner and that too in the best quality (G8 education limited,
2019). There is the early childhood education on which focus is made by the company and in that
provision of the services with the help of established brands is made possible.
Performance ratios
The measurement of the performance is required to be made in all the businesses and for that,
there will be consideration of all the aspects which are involved in the company. There will be
proper analysis tool which will be used and in that the most effective is the ratio analysis. In that,
there is the consideration of various aspects by which the performance will be measured and the
comparison among the available data will be made possible (Almazari, 2012). There will be
ascertainment of the liquidity and capital structure in the given case and they will be analyzed.
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Finance for business
The calculation for the same is provided below in which all of the information for the past years
has been considered.
Liquidity ratios
The business is required to maintain the liquidity and for that, there is the need to balance the
current assets and liabilities which are present. The company is required to meet with the
obligations which exist and for that there is the need for the proper liquid balance which shall be
maintained (Williams and Dobelman, 2017). The ability of the company to meet with the
liabilities is determined with the liquid assets and in that there are two ratios which are covered
and they are current ratio and quick ratios. The calculation of them is made and shown below.
Particulars Formula 2016 2017 2018
Current ratio Current assets/current
liabilities
0.54 0.61 0.30
Quick ratio Quick assets/Current
liabilities
0.51 0.61 0.30
2016 2017 2018
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Current ratio
Linear (Current ratio)
Quick ratio
Linear (Quick ratio)
The calculation for the liquidity ratios is made and in that it is identified that there is a downward
trend which is present. The minimum standard which is required to be maintained for the ratios
is not present and the liquidity of the company is not at that level (G8 education limited, 2017).
There are fewer amounts of the assets which are available and the company will not be able to
meet with the liabilities which are there in the company. The requirement is there that there shall
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Finance for business
be an improvement which shall be made and by that the meeting of the liabilities will be made in
an adequate manner.
Capital structure ratios
The capital structure of the company comprises of all the sources from which the funds have
been collected by the company. There is the need to undertake the proper analysis in order to
ensure that the proper balance has been maintained among all the sources (Gode and Ohlson,
2013). This is important as if the debt funds will be more than it will be increasing the liability of
the company and due to the same the collection shall be made in such manner by which the cost
of the company can be controlled and the need of the business is also fulfilled.
Particulars Formula 2016 2017 2018
Debt ratio Total liabilities/total
assets
0.47 0.33 0.36
Debt to equity Total liabilities/total
equity
0.87 0.49 0.55
2016 2017 2018
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Debt ratio
Linear (Debt ratio)
Debt to equity
Linear (Debt to equity)
The capital structure is undergoing the change and in that there is the fall in the debt and debt to
equity ratio which is determined. There is a decline in the ratio which shows that the debt of the
company is declining (G8 education limited, 2017). This is good as the company will be required
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Finance for business
to pay fewer amounts as the cost of the debt. This will be saving the balance which can be used
for any other purpose. The balance is maintained and the company has the scope by which the
funds can still be managed in the time of need.
Non-current asset analysis
In the provision of the required services there is the need for the maintenance of the required
assets and in that non-current assets are involved. There is the need to keep the proper record of
the same so that no issues are faced in relation to them (Barker and Schulte, 2017). There are
changes which are made in them due to the purchase and disposal of the assets and a proper
analysis of the same is to be performed. The same is undertaken in respect of the G8 education
limited and in that all of the assets which are included will be taken into consideration.
The non-current assets of the company involve various assets and in that most important are the
plant, property, and equipment which are used for the services. In this, there are many other
assets which are included. There is a continuous increase which is made in the same from
$54845 in 2016 to $63906 in 2017. After this further, the expansion is made and the amount has
reached $91710. This shows that the company has made an investment in the plant and property
which will be helpful in performing the activities in an adequate manner (G8 education limited,
2018). The intangible assets are also involved in this category and increase is there in them also
which is rising with the time. In this goodwill is involved which shows that the value of the
company in the market is expanding and it is gaining success. There were the derivative financial
instruments which were involved and they are declining continuously. There is a decrease in
them and in 2018 they eliminated completely leaving the company with no derivative financial
instruments.
Scenario analysis
The evaluation of the project is required to be made in all the businesses and in that there is the
need to consider all of the aspects which are involved in them. There are various proposals and
all will be providing the company with the different returns which need to be analyzed by the
company in an appropriate manner. There will be an evaluation of them by the help of proper
evaluation tool and that will be providing the company with the required returns (Sarrazin,
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Finance for business
Pianosi and Wagener, 2016). The decision making of the company will be improved and that
will be providing it with the benefits. There are various such aspects involved in the business in
which the changes take place in a continuous manner and they will be affecting the results which
are obtained by the company. There will be impact due to the changes and they will have to be
analyzed in an appropriate manner. The main impact is due to the various elements which are
involved in the business and therefore they will be required to be taken into account in all the
cases.
There will be a determination of the net present value as that is the criteria on the basis of which
the decisions in relation to the projects are undertaken. There will be calculations which will be
made and in that the company will be required to undertake the changes which are taking place
and by that, the difference in the result in all the scenarios will be made available (Ruiz et al.,
2012). The changes will be identified and then the evaluation of them will be made to make the
final decisions. There will be various elements which are involved and all of them will be
included such as selling price, sales unit, fixed cost and variable cost.
All of the changes are taken into consideration and the calculation is made accordingly which is
presented below.
Worst case conditions:
Particulars Original Option
1
Option 2 Option 3 Option
4
NPV 6592661 4679131 1808836 3722366 6380047
% of Change in NPV
(A)
-29.025 -72.563 -43.538 -3.225
A variable which is
changing
Sales
units
selling
price
variable
cost
fixed
cost
% of the change in
Input (B)
20 20 20 22.22
Sensitivity (A/B) -1.4513 -3.6281 -2.1769 -0.1451
Best case options
Particulars Original Option Option 2 Option 3 Option 4
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Finance for business
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NPV 6592661 8506191 11376487 9462956 6805275.76
% of Change in NPV (A) 29.0252 72.56288 43.5377 3.2250171
A variable which is
changing
Sales
units
selling
price
variable
cost
fixed cost
% of the change in Input
(B)
20 20 20 22.22
Sensitivity (A/B) 1.4513 3.6281 2.1769 0.1451
The scenario analysis is performed and in that there is the proper calculation which is
undertaken. The same is performed in an appropriate manner and has been provided in the
appendix. There is the determination of the net present value by considering all of the changes
which are available and the deviations which are made in the results have been analyzed in an
effective manner (Hu and Mahadevan, 2016). The worst and best cases have been considered and
with that, there is the ascertainment of the results which are helpful in the decision making.
Selling price is the most sensitive element which is determined and by the change in that there
will be the highest impact which will be made on the results which are available. The company
will be required to consider this and include the evaluation of the selling price in all the
processes which will be undertaken in the coming period.
Share or bond issuance
The share issue has been undertaken by the company in the year 2017 and in that the contract is
entered with the CFCG investment partners. The issue has been made on the 17 February 2017
and in that there is the amount of $212.8 million which has been raised. There are total 54846894
shares which have been issued and subscribed with the issue price of $3.88 per share. The
company has decided the issue price on the basis of the weighted average price of the last 30
days stock and on that premium of around 8% has been added (Market Screener, 2019). The
shares have been placed in two levels which took place on the 24 February 2017 and 17 May
2017. All of the shares have been allotted by the company and with the help of that, there is a
rise in the equity capital of the company.
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Finance for business
PE ratio and share price movement
In the making of the decision in the business, there is the need to evaluate all of the aspects. The
changes which are taking place in the share price are an important factor which needs to be
considered by the company. For this reason, the evaluation of them is required to be made and
the identification of the share price in the past few years will be made. The fluctuations which
are taking place in that will be considered and there will be a proper evaluation of the same for
further decisions (Yahoo finance, 2019). The PE ratio will be calculated and in that the share
price will be used together with the earnings per share which are made by the company. There
will be a proper comparison of the movement which is asking a place in the share price and the
ratio and the relation which exists among them will be identified. With the help of the results, it
will be possible to take further decisions and make the company a success.
Particulars 2016 2017 2018
MPS 3.0759 3.0318 3.0348
EPS 0.212 0.189 0.159
Price earnings
ratio
14.51 16.04 19.09
2016 2017 2018
0.00
5.00
10.00
15.00
20.00
25.00
Price earnings ratio
Price earnings ratio
Linear (Price earnings
ratio)
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Finance for business
Share price movement
(Source: Market index, 2019)
The relation which is present between the share price and the price-earnings ratio can be
evaluated with the help of the graphs which are presented above. It has been noted that there is
an upward trend which is available in the PE ratio as the same is increasing in a continuous
manner. There is the rise which is made and this is because of the declining earnings which are
made (G8 education limited, 2017). The share price is also moving but there are fluctuations in
the same. The share price is increasing the 2017 and in that period it can be said that there is the
convergent relation which is existing and after that, the decline is faced. In this, both are moving
in the other directions and so the divergence is present among them.
Recommendations
The evaluation has been made in an adequate manner and in that there is the consideration of the
several elements. They are having different impacts on the business and on the basis of them, the
further decisions will be made. The liquidity of the company is analyzed and in that it is
identified that the company is not able to maintain the same at the adequate level. The liquidity is
low and further declining. In order to manage the obligations of the business, it is required that
improvement in the same shall be made. The company will be required to make the investment
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Finance for business
in the assets and by that, there will be a rise in the ratio which will be beneficial for the company
and all of the liabilities will be fulfilled on time.
Conclusion
The report is providing complete knowledge in relation to the operations which are performed by
G8 education limited. All of the other elements have also been covered and there is the
determination of the performance which is maintained by the company. The position is analyzed
and all of the changes which need to be made have been provided in the recommendations
above. There is the undertaking of the analysis of the non-current asset and in that the assets
which are involved are identified. There is the scenario analysis which is performed and in that
the most sensitive variable has been ascertained. The share issue which is made by the company
is discussed with all the details in relation to the same. The share price and the movement which
is made in the PE ratio has been analyzed with the help of the graphs.
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