ACCY801: Financial Performance Analysis and Comparison of AX1 and NCK

This report presents a comparative financial analysis of two companies, AX1 and NCK, focusing on their performance in key areas. The analysis begins with an executive summary outlining the objectives and evaluation of each company's position. It includes a table of contents and an introduction setting the stage for the comparative study. The report delves into the companies' objectives and long-term plans, followed by a detailed examination of financial ratios, including liquidity, capital structure, asset management efficiency, operating profitability, and returns on shareholders' investment. The report highlights the strengths and weaknesses of each company, offering recommendations for improvement, particularly for AX1, in areas such as liquidity and asset utilization. The analysis is based on the 2019 financial data and includes calculations of various financial ratios, providing insights into the companies' financial health and strategic decisions. The report concludes with recommendations for improvement and references to support the analysis, along with an appendix for additional data.

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Accounting & Financial Management

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Executive summary
The company evaluation is made in the report for NCK and AX1 and in that, all of the
important elements have been covered. There is the identification of the objectives and then
the position and performance are evaluated in an effective manner. the calculation of the
ratios is made and by that, it has been determined that the company needs improvement the
performance and position both are maintained in a better manner by the NCK and it is
considered as the competitor. There are various areas in which the improvement will be made
and for that, the investment will be made in assets. This will be improving the liquidity
position of the business and also the utilization of them shall be made appropriately by the
management. This efficiency will lead to a positive impact on the turnover of the company.
There will be a reduction in the expenses which will be made and that will help in improving
the profits which will add to the further benefits. The shareholder returns will be increasing
and that will also be affecting the further funding which will be required in the company. All
of these actions will be incorporated by the management so that required improvements are
made and success is attained.

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Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
Objectives and long term plans..................................................................................................4
Financial ratios...........................................................................................................................6
Liquidity, Capital structure and asset management efficiency..................................................6
Operating profitability................................................................................................................8
Returns on shareholders’ investment.......................................................................................10
Capital expenditures.................................................................................................................11
Conclusion and recommendations...........................................................................................11
References................................................................................................................................13
Appendix..................................................................................................................................15

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Introduction
The analysis is required to be performed in the business by which all the areas and their
performance can be evaluated. In this report, there will be consideration of the AXI and NCK
which are the companies to be used for the evaluation purpose. The various aspects in
relation to them will be undertaken and that will help in making the proper comparison
among them. The issues which are involved will be identified so that the analysis can be used
to provide the management with the recommendation in this respect. The use of ratio analysis
will be made that will be covering various calculations. They will help in ascertaining the
financial position and performance of the business which is necessary to take further
decisions and make the situation better. There will be involvement of the return which is
made by the shareholders on the investment so that the same can be evaluated and the coming
period can be considered on that basis. The main capital expenditures which are made in the
business together with the source which is used to finance them will be identified in the
report.
Objectives and long term plans
The companies which are involved have been framed with a certain objective that will be
required to be achieved and for that various actions are taken. They are the main aim for
which the various policies and procedures are followed. In the NCK there are various short
and medium-term objectives that are set in order to attain something which is beneficial in
the long-run. There are various resources that are involved and it is important that they are
allocated in an adequate manner. For this, the objectives are set and the complete process is
carried in the best possible manner (NCK, 2019). There are several interests and other risks
which are involved with the company and it is highly required that they are eliminated. For

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this, the company makes various risk management objectives and they help in controlling the
risk which has a negative impact on the business.
In the NCK there are various long-term goals that are set and by that the long-term gains will
be attained by the business. There is a plan which has been formulated under which four new
stores will be opened. This plan will be making the network strong and by that, the company
will be available in all areas to provide the customers with the required services and products
which will be beneficial for them.
The AX1 is also operating and is having the objectives which are required to be fulfilled by
it. The main among all is the growth plan objective and under that, the consideration is given
to the investments which are innovation-driven and are in the store formats, digital
capabilities, new business development and store environment. With the help of them, it will
be ensured that the customers are given the high-class experience and there will be growth in
the value of shareholders (AX1. (2019). There is the focus made on the overall improvement
of all the areas by which combined improvement will be made. The interest of all the parties
will be combined so that they will be working in one direction for the attainment of the same
goal and objective.
There is a growth plan which is prepared by the group and in that various aspects have been
covered. There will be the opening of 40 new stores looking to attractive deals and the
strength which is available in the market. There are estimations by which the positive cash
flow is considered by these plans. There will also be the opening of corporate stores by which
the sales and the profit margin will be affected in a positive direction.

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Financial ratios
The evaluation will be made on the basis of the ratios and for that, the calculations are made
and the findings are presented hereunder:
NCK AX1
Particulars 2018 2019 2018 2019
Current ratio 1.12 1.27 1.27 1.22
Quick ratio 0.60 0.65 0.49 0.43
Receivable turnover 135.65 243.87 38.24 26.73
Inventory turnover 2.59 2.64 3.10 2.58
Fixed asset turnover 2.75 2.92 9.41 9.24
Total asset turnover 1.48 1.57 1.16 1.19
Debt ratio 0.51 0.51 0.35 0.40
Interest coverage 64.42 57.65 17.13 22.60
Gross profit margin 62.98% 63.22% 56.51% 57.39%
Operating profit
margin
23.66% 22.47% 9.21% 10.12%
Net profit margin 16.22% 15.59% 6.26% 6.77%
Return on assets 23.92% 24.40% 7.26% 8.05%
Equity multiplier 2.05 2.03 1.55 1.66
Return on equity 48.98% 49.44% 11.25% 13.36%
Liquidity, Capital structure and asset management efficiency
Liquidity:
The business is involved in various operations and in that there are several liabilities and
obligations which are required to be met. They will be arising with time and it will be needed
that the company managed adequate assets by which they can be taken into account. For this,
the liquidity shall be managed and that will be identified with the help of liquidity ratios
(Anjum and Malik, 2013). In this, there will be consideration of the current liabilities which
will be required to be met and the assets which are maintained in correspondence to them. It
has been noted that in AX1 there is the decline which is made in terms of liquidity over the
period of time and that needs to be managed. Another company NCK which is the competitor

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of AX1 in the market is, on the other hand, maintaining a positive liquidity position. There is
an increase in the ratios which are taking place and that shows the company is moving in the
proper direction. The current ratio and quick ratio which are maintained by AX1 are 1.22 and
0.43 in 2019 but for NCK there is a ratio of 1.27 and 0.65 respectively. It can be said that
while making the comparison the position of NCK is better and AX1 is required to make the
improvement.
There will be increment that will be made in assets and also the liabilities will be reduced by
taking the required actions. The overall performance will be made better when the set
standards in this respect will be attained.
Capital structure:
The maintenance of the capital structure is an important decision for any business and it is
required that there shall be consideration of all the important points while making this
decision. The other activities which are performed are also affected by the same and so the
correct structure becomes all the more important. In that, there is the consideration of the
proportion in which the various assets and liabilities are maintained (Delen, Kuzey and Uyar,
2013). The ratios are calculated for the same also and in that debt ratio and interest ratio have
been calculated. The position of the AX1 is not satisfactory as in that the amount of the
liabilities is increasing which will be creating the burden on the company. The debt position
in the case of NCK is higher than AX1 but that is maintained at a constant level and there is
no change in the same.
The interest coverage position of the company is improving and there is an increase which is
made and reached to 22.60 which is at 57.65 in 2019. The overall position of a competitor is
better but the yearly performance showed some improvement in the case of AX1 due to the
increase in the profits which are made and decline in the interest expense. This will be

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required to be further improved and for that, the debt balance will be managed in such a
manner that the cost which is involved in that respect reduces. This will also be affecting the
profitability in a positive manner and that will be the additional gain that will be made by the
company.
Asset management efficiency:
The management is responsible in relation to making the efficient use of the assets which are
available. They shall be utilized in such a manner that the revenue which is generated from
them is increased and the benefit of the same is received to the business which is positive in
the long-run. In this, there will be consideration of various assets that involve the inventory,
receivables, total assets and fixed assets (Halim et al., 2012). They help in generating the
revenue and the efficiency with which they have been utilized to generate the sales is
identified with the help of these ratios. The calculations have been made and it is identified
that the efficiency of the assets has declined in the current period and there is less
contribution which is made by them in the case of AX1. On the other hand, the reverse
situation is involved with NCK in which the ratios are increasing and that shows the
efficiency of management in using the available resources. It is required that all the assets
which are available with the AX1 will have to be used in such a manner that they contribute
to making the additional sales. This will be making the position positive and the company
will be able to deal with the competition that is available in the market.
Operating profitability
The evaluation of the profitability is made which is maintained in the company and which is
the main aim of the business. There are various operations that are performed in the business
and it is required that they are maintained in such a manner that profits arise with them. This
will be made possible when the expenses which are incurred in relation to the operations are

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controlled appropriately (Kirkham, 2012). It has been noted that the profitability of the
company AX1 is improving in the current year as there is an increase in the ratios which are
determined but the same is lower than the profitability which is managed by NCK.
There is a high difference which is involved in the profits which are maintained by the
company and its competitor. There is a rise in the sales which is made and with that, the costs
which are associated with that are also increasing (Fai, Siew and Hoe, 2016). It has been
noted that there is an increase in the gross profit margin which was earlier maintained at
56.51% is not identified to be at 57.39%. There is the rise but the competitor is still
making the higher profits and for that adequate steps will be undertaken.
The Operating profit margins which are maintained are almost half of the margin that is
maintained by the competitor company. This shows that there is a high need for improvement
and then only the target can be attained and the benefit of the competition will be taken. This
will be made possible with the help of identifying the expenses which are incurred and the
proper analysis of them will be performed (Mousa, 2015). This is required as then only the
expenses which are high and are not relevant will be determined. Once this is done there will
be a proper process that will be set and according to that the reduction in the cost will be
made.
This will be making the profitability grow and businesses will be able to grow in the long-
run. The AX1 Company is growing and this will continue if it continues to carry the actions
by more care. The overall analysis involves the consideration of operations and in that the
costs which are involved will have to be accounted for. The interest expense which is
incurred by AX1 is very high in comparison to NCK. This shows that the company is
maintaining a high level of debts and on that, there are various interest expenses that are paid.
They lead to a decline in the profits and the complete profitability of the company is affected

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in an adverse manner. There are less interest costs which are involved with NCK and that
increases the earnings which are made by it. It will be required that loans are reduced and
some other source of funding is obtained. This will help in avoiding the excessive interest
cost and the profitability will be improving and beat the competition.
Returns on shareholders’ investment
Shareholders are considered to be very important in any business as they are the main source
of funds for the company. The company issues shares to raise the funds and in that
shareholders are the ones who make the investment. They provide the funds to the company
with the motive to earn the appropriate returns on their amount (Nirajini and Priya, 2013).
Due to this, the company is required to consider this and maintain adequate profits. The
payment of the return to shareholders will be made when the profits will be available and so
this shall be taken into account. For the proper analysis of this, there is the calculation of
return on equity which is made (Kara, 2012). Under this, the rate at which the return is
available to the shareholders is calculated and that helps them in taking the required decision.
The return on equity for AX1 is increasing from 11.25% to 13.36% in 2019 which is good for
the investors but if they compare the position with the competitor then they will not be
willing to make an investment. This is because of the high return which is provided by NCK
on its investments. There is a rate of 48.98% which is further increasing to 49.44% in the
current year. This is far higher than the rate provided by AX1 and so the investors will be
attracted to the competitor. In order to deal with this, the company will be required to focus
on the profits which are made and then the return on equity will be increased. This is
necessary to retain the investors from moving to other companies and to obtain the funds in
the required manner.

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Capital expenditures
The capital projects are undertaken by the companies so that they can develop themselves and
they are such projects in which investment is once but the return is gained for the lifetime.
There are several such investments that are made in various forms and for that funds are
collected from different sources (Liang et al., 2016). The NCK has made the capital
expenditure in relation to the new showroom which has been opened. The amount which will
be contributed to the same amounts to $1118000. There is a solar panel that is installed and
by that, the energy efficiency will be upgraded which is a positive decision for the company.
The consideration in this respect is obtained with the debt funding. This expenditure will be
bringing benefits to the company and so will be in the interest of the company for a longer
duration.
The capital expenditure is also involved with the AX1 and that has been made in respect of
the non-current assets. There is an addition which is made for that the amount is incurred.
The amount which is involved in this is $12970000. The commitment in this respect has been
made but the liability in relation to the same has not been recognized yet. This is the amount
involved but the payments are not involved in this respect to date. The amount which is
considered in the accounts amounts to $61000 for the year. This has been obtained from the
borrowings which are made and in that, a particular rate of interest is paid by the company on
a timely basis.
Conclusion and recommendations
The report has been prepared and in that the analysis for the companies is made. The
consideration of the several information has been made and firstly the objective which is
there with the company has been identified and with that, the plan that is involved to attain
the same has also been determined. There is the consideration of the various aspects and in

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that comparison among AX1 and NCK has been made. The ratios have been calculated and
with that proper evaluation is made. The NCK is considered as the competitor of the other
company and then the explanation is provided accordingly. There is the evaluation of
liquidity, management efficiency in assets and capital structure has been considered. In that,
it has been determined that the company needs to make the improvement so that it can
compete in the market and attain a higher position. There are various shortcomings that are
involved and the manner in which they can be resolved has also been taken into
consideration. The profitability is taken into use and in that also the rates are calculated and it
is identified that AX1 is maintaining the profitability at a very low level and there is the need
to make the changes. The expenses which are incurred involve the interest which is at a
higher amount and in order to improve the profits the same will be required to be eliminated.
The returns to the shareholders are provided at a lower rate than that of the competitor and
this will prove to be disadvantageous as the investors will not invest further in the company.
This will be improved when higher returns will be provided to them and that requires the
increase in profits. Capital expenditures are considered and they will be for the benefit of the
company. Overall the improvement will be made in the AX1 so that it can achieve the
objectives and attain success in a competitive market.

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References
Anjum, S. and Malik, Q.A. (2013) Determinants of corporate liquidity-An analysis of cash
holdings. Journal of Business and Management, 7(2), pp.94-100.
AX1. (2019) Annual report. [Online] Available at:
http://onlinereports.irmau.com/2019/AX1/4/ [Accessed 8 April 2020]
Delen, D., Kuzey, C. and Uyar, A. (2013) Measuring firm performance using financial ratios:
A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Fai, L.K., Siew, L.W. and Hoe, L.W. (2016) Financial analysis on the company performance
in Malaysia with multi-criteria decision making model. Systems Science and Applied
Mathematics, 1(1), pp.1-7.
Halim, M.S.A., Jaafar, M., Osman, O. and Haniff, M.S. (2012) Financial Ratio Analysis: An
Assessment of Malaysian Contracting Firms. Journal of Construction in Developing
Countries, Supp, 1, pp.71-78.
Kara, E. (2012) Financial Analysis in Public Sector Accounting. An Example of EU, Greece
and Turkey. European Journal of Scientific Research, 69(1), pp.81-89.
Kirkham, R. (2012) Liquidity analysis using cash flow ratios and traditional ratios: The
telecommunications sector in Australia. Journal of New Business Ideas & Trends, 10(1),
pp.1-13.
Liang, D., Lu, C.C., Tsai, C.F. and Shih, G.A. (2016) Financial ratios and corporate
governance indicators in bankruptcy prediction: A comprehensive study. European Journal
of Operational Research, 252(2), pp.561-572.

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Mousa, G.A. (2015) Financial ratios versus data envelopment analysis: the efficiency
assessment of banking sector in bahrain bourse. International Journal of Business and
Statistical Analysis, 2(2), pp.75-84.
NCK. (2019) Annual report. [Online] Available at:
https://www.nickscali.com.au/media/wysiwyg/pdfs/NCK_-_Annual_Report_2019.pdf
[Accessed 8 April 2020]
Nirajini, A. and Priya, K.B. (2013) Impact of capital structure on financial performance of the
listed trading companies in Sri Lanka. International Journal of Scientific and Research
Publications, 3(5), pp.1-9.

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Appendix