Analytical Procedures: Understanding Company Performance Report

This report presents a financial ratio analysis of Aristocrat Leisure Limited, comparing its performance over three years (2014-2016) with its competitor Ainsworth Game Technology and industry benchmarks. The analysis covers liquidity, profitability, long-term solvency, and market strength ratios, including debtor turnover, net profit margin, and earnings per share. The report also examines the company's management and governance, discussing integrity, competence, participation, management style, organizational structure, authority, responsibility, and human resource practices, drawing from the company's annual reports. The findings highlight the company's increasing efficiency in revenue collection, significant growth in net profit margin, and strong performance in earnings per share compared to its competitor and the industry. The report references various sources including company official websites and academic publications to support its analysis.

ANALYTICAL PROCEDURES – AN UNDERSTANDING OF ENTITY’S
PERFORMANCE
Analytical review has been conducted by following the ratio analysis of the company financial
statements for the last three years and then of the competitor – Ainsworth Game Technology. In
order to facilitate the more comparability, the ratios of industry have also been identified. The
ratios under the major four heads have been calculated and mentioned – Liquidity ratio,
profitability ratio, long term solvency ratio and market strength ratio.
In order to start with the company’s ratio analysis, the debtor’s turnover ratio has been increasing
on year on year basis from 2.54 in the year 2014 to 4.92 in the year of 2016. It indicates that the
company has either started making the sales in cash to the customers or has increased the
efficiency in collection of the revenue from the customers of the company. The competitor has
earned 2.40 as debtor’s turnover ratio which means that the company is more efficient in doing
the business and when the same is compared to the industry where 8.50 is the benchmark, the
efficiency of the company is lower (Drake, 2010, Delen, 2013).
The second ratio is the net profit margin. The company has earned the net profit margin of
negative 1.96 in the year of 2014, 11.78 in the year of 2015 and 16.47 in the year of 2016. It
depicts that the company has increased its growth significantly. The competitor of the company
has earned 19.51 as net profit margin which indicates that although the competitor is not
efficiently managing its debtors but has been able to earn the high net profit margins at the end of
the year. When the ratio of net profit margin of the company and competitor is compared with
the industry then it is observed that both the companies have exceeded the level of the industry
and is generating higher net profit margins (Delen, 2013, PCAOB, 2017).
The third measure that has been considered is the earnings per share. The company has disclosed
and earned the 20.6 per share in the year of 2014, 24.8 in the year of 2015 and 55.10 in the year
of 2016. The company has been able to perform very well in the three years and have been able
to achieve the higher earnings per share almost more than double of previous year. The
competitor has earned the 16 per share. When these figures are compared with the industry then
it is shown that the company under consideration has performed very well in relation to the

providing the maximum return to the shareholder of the company (Company Official Website,
2016; Company Official Website,2015; Company Official Website2014)
STATEMENT SHOWING THE RATIO ANALYSIS
($
millions)
S.
No. PARTICULARS 2016 2015 2014 Competitor Industry
( Ainsworth
Game
technology
2016)
(As per
Investing .
com)
1 Liquidity Ratios
a Current Assets 875.1 898.5 701.5 208.1
Less Current Liabilities 549.2 442.4 371.7 47.8
Working Capital 325.9 456.1 329.8 160.3
b Current Ratio 1.59 2.03 1.89 4.35 1.59
c Debtors 432.9 441.9 328.4 118.8
Revenue 2128.7 1582.4 833.7 285.5
Debtors Turnover
Ratio 4.92 3.58 2.54 2.40 8.5
d Assets 2987.7 3218.7 1112.7 435.9
Revenue 2128.7 1582.4 833.7 285.5
Assets Turnover Ratio 0.71 0.49 0.75 0.65 0.53
e Stock 124.3 102.2 75.8 55.7
Revenue 2128.7 1582.4 833.7 285.5
Stock Turnover Ratio 17.13 15.48 11.00 5.13 76.25
2 Profitability Ratios
a Net Profit 350.5 186.4 -16.3 55.7
Revenue 2128.7 1582.4 833.7 285.5
Net Profit Margin 16.47 11.78 -1.96 19.51 11.07
b Gross Profit 1256.0 903.3 457.8 171.7
Revenue 2128.7 1582.4 833.7 285.5

Gross Profit Margin 59.00 57.08 54.91 60.14 51.19
3
Long Term Solvency
Ratios
a Total Debt 1912.2 2301.3 406.6 120.1
Equity 1075.5 917.4 706.1 315.9
Total Debt to Equity 177.80 250.85 57.58 38.02 92.53
b Long Term Debt 1363.0 1858.9 34.9 72.4
Equity 1075.5 917.4 706.1 315.9
Long Term Debt to
Equity 126.73 202.63 4.94 22.92 91.5
c Debt 1912.2 2301.3 406.6 120.1
Total Assets 2987.7 3218.7 1112.7 435.9
Debt Ratio 64.00 71.50 36.54 27.55
4 Market Strength Ratios
a
Earnings Per Share
(cents)
$
55.1
$
24.8
$
20.6
$
17
$
35
UNDERSTANDING OF MANAGEMENT AND GOVERNANCE
The management plays the important role in the functioning of the company. Without proper
management, the company will not be able to perform and achieve its objectives. Under this
heading, the company’s working and the functions of the management of the company and those
charged with governance will be discussed.
- Integrity and Ethical Values – As per the report of the chairman of the company
embedded in the annual report of the company, the company has established the
objectives and the strategies which led company to have the effectiveness in the
operations of the company along with the good administration across all level of the
company. Secondly the management of the company wherever required has been able to
make the estimates and judgments and the assumptions which further led to ensure that

the company has designed the accounting framework lawfully and efficiently (Claessens
and Fan, 2012).
- Competence- Under the part of the Operational and financial review of the annual report
of the company, it is mentioned that the company is continuously facing the severe
competition from the market and the industry and in order to be more competitive,
company have planned to make investment in acquiring the key skills and the talent
which is required to perform the particular type of task. To make it the strategy, the
company has included the retention incentive for the managers who will retain in job for
consecutive period of five years and is the part of remuneration.
- Participation – As per the annual report for the year ending 2016, the company has nine
directors and each of them has the requisite experience and skills. All the directors of the
company are totally independent and is not related in any manner with each other. Each
of the directors has requisite experience. For instance, ID Blackburn has been appointed
in the year or 2010 and has been the managing director of Caltex Australia Limited,
Teekay Corporation, Recall Holdings and Australian Nuclear Science and Technology
Organization. Currently he is acting as the member of each board committee and is also
non executive chairman.
- Management’s Style and Philosophy – DCP bank is the chairperson of audit and risk
committee of the company and also is the director of the company. The company has
mentioned in the annual report of the company the areas where the risks have been
identified and for which the management of the company is required to identify the risks
concerned and manage it accordingly. The approach that has been adopted by the
company is to assess the risk on regular basis then monitoring the same and reporting it to
the management of the company so as to increase the progress of the company and
delivering the strategic opportunities.
- Structure of the organization- The Company has established the well defined structure
within the organization. There is no chance of having any irregularity in the functioning
of the company. It is because the company has followed all the provisions of
corporation’s act 2001 and the listing guidelines and has accordingly formulated the
various committees like remuneration, audit and risk, shareholders grievance and etc.
Secondly the company has mentioned all the accounting policies and procedures which h

further states that the structure of accounting function is also very well defined (Shleifer
and Vishny, 2011).
- Authority and Responsibility – The authority and the responsibility of various works are
made through the passing of the resolution at the meeting of the company. It may be
monthly board meeting or the annual general meeting depending upon the facts and
circumstances of the matter under discussion. Secondly, authority responsibility and
reporting are well established through the employment contract entered into with the
employee at the time of recruiting. It describes the roles and responsibilities and other
activities required under the job.
- Human Resource – The Company has the policy of recruiting the employees by way of
posting the vacancy at the website of the company or by posting the vacancy in the daily
newspaper of the company. The recruitment is done after having the screenings and the
interviews and the verification checks.
REFERENCES
Company Official Website, (2015), “Annual Report 2015”, available at
https://www.aristocrat.com/au accessed on 18/09/2017.
Company Official Website, (2016), “Annual Report 2016”, available at
https://www.aristocrat.com/au accessed on 14/09/2017.
Company Official Website, (2014), “Annual Report 2014”, available at
https://www.aristocrat.com/au accessed on 14/09/2017.
Claessens, S. and Fan, J.P., (2012).”Corporate governance in Asia: A survey”. International
Review of finance, 3(2), pp.71-103.
Delen, D., (2013), Measuring firm performance using financial ratios: A decision tree
approach. Expert Systems with Applications, 40(10), pp.3970-3983.

PCAOB, (2017), “Analytical Procedures” available at
https://pcaobus.org/Standards/Archived/Pages/AU329A.aspx accessed on 17/09/2017.
Shleifer, A. and Vishny, R.W., (2011), “A survey of corporate governance”. The journal of
finance, 52(2), pp.737-783.