Financial Analysis Report: Schrole Group Ltd and Financial System

This report provides a financial analysis of Schrole Group Ltd, an ASX-listed company providing solutions to international schools. The analysis begins with an industry description and a company overview, including its services and business model. The report then delves into the company's financial instruments, classifying them and explaining their uses. Key financial ratios, including net profit margin, current ratio, and debt-equity ratio, are computed and analyzed to assess the company's profitability, liquidity, and solvency. The analysis reveals concerning trends, such as negative profitability, declining liquidity, and increasing debt levels. The report highlights the challenges Schrole Group Ltd faces and suggests the need for stronger management policies and financial regulation. Finally, a brief competitor analysis has been done and opportunities and threats are also discussed.

FINANCIAL MANAGEMENT

Scrhrole Groups Ltd
Executive Summary
The current report is based on the ASX listed company Schroles Group and is engaged into
providing solution to international schools. The report highlights upon the industry and the
competition that it faces in the industry. Further, the emphasis is on role of the financial system.
The financial ratio is even computed for the group that reveals the company is under loss and
other ratios are disturbed. An overall discussion indicates that the company can perform however
needs strong policies of management and regulation.
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Contents
Introduction.................................................................................................................................................4
1. Industry description..............................................................................................................................4
2. Company description............................................................................................................................5
3. Financial Instruments Analysis..............................................................................................................5
4. Ratios.......................................................................................................................................................7
5. Financial market analysis.........................................................................................................................9
Recommendations & Conclusion...............................................................................................................13
References.................................................................................................................................................14
Appendix...................................................................................................................................................16
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Scrhrole Groups Ltd
Introduction
The financial system of Australia is properly regulated that helps the business to flourish and
leads to better opportunities. The institutional framework is an important consideration that
needs to be carefully analyzed. In this report, the major emphasis is on the company name
Scrhrole Groups Ltd and the entire study reveal on that. The group is well established and the
assignment is structured in manner that helps in providing a strong exposure to the subject. The
financial system of Australia is properly regulated that helps the business to flourish and leads to
better opportunities. The institutional framework is an important consideration that needs to be
carefully analyzed. In this report, the major emphasis is on the company name Scrhrole Groups
Ltd and the entire study reveals that. The group is well established and the assignment is
structured in a manner that helps in providing a strong exposure to the subject.
1. Industry description
It has been observed that the global enterprise software market has improvised its business
strategies and presented various types of opportunities in the industry in the past few years. This
kind of software’s is used by organizations of all sizes in order to conduct the process of
manufacturing, advertising, entertainment, retail, public sector, financial services, transportation,
telecom, banking, energy or utilities, and distribution. The rise in global competition has also
made it necessary for organizations to use the latest technology methods in order to compete in
the market with the help of proper understanding (Australian government, 2018). Hence, can be
stated that the increasing software services and technological innovation in today's world will
help the organizations to improvise their business and further boost the market growth also.
The ASIC that is the Australian Securities and Investment commission regulates the corporate
sector in Australia. The main aim is to look after the affairs of the company and ensures that the
customers, investors, and creditors are not exploited (Australian government, 2018).
There is no industry that operates outside the ambit of the regulators because any act outside the
ambit of law will attract legal actions for the company.
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2. Company description
Schooled group Limited is a technology-based organization which provides management
solutions to an International school. The organization is an ASX listed company and is working
on a digital platform where it provides various types of digital verification services, replacement
and recruitment options to fast-growing International schools. The organization also provide the
schools with massive cross-sell potential platform which help it to conduct the online recruitment
process in accordance to the database that has been filtered by the schools in respect to the
specific requirements that are required for the job (Schroles group Ltd, 2018). The subscription-
based model of the software helps the teacher to apply for the best job fit for him, therefore
creating a job opportunity
The organization operates into two major deals, recruitment software’s and vocational training
that is given to the management staff of the educational sector. The software not only helps the
International schools to conduct the processes with the help of easy digital solution programs but
also help them to conduct the process of recruitment, replacement, and other processes much
easier with the help of the software’s installed in their management structure (Dewhurst, Pettigre
and Srinivasan, 2012). The organization is observed to use cloud-based software as a service
platform in which it provides the International schools with candidate management solutions
(Schroles group Ltd, 2018). The company comprises of a little role when it comes to the
financial system because it is engaged into software for the international schools.
3. Financial Instruments Analysis
The monetary contracts entered into by the company are its financial instruments. It is usually
created by the company and recognized when the company becomes a party to the contractual
obligations. It can be traded, exchanged for and modified. It is both the cash and cash deposits of
the company or the evidence for an ownership interest in another entity or a contractual right of
the company to either receive or deliver cash (Horngren, 2013). The Accounting Standard
defines financial instruments as, ‘any such contract that gives rise to the financial asset for one
entity and financial liability for another entity’. Financial instruments can thus be categorized
into cash instruments or derivative instruments. Cash instruments are those whose value can be
readily determined by the market and which are the most liquid. They can also be readily
transferred or converted into another form like loans and deposits or any other assets. Derivative
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Scrhrole Groups Ltd
financial instruments are those which obtain their value based upon the valuation of the
underlying asset. Such underlying assets can be like interest rate or stock market index, so on and
so forth. Such derivatives can be either exchange-traded derivatives or over the counter
derivatives.
A further classification of the financial instruments is also depending upon the asset class which
can be either equity-based or debt based. The equity-based financial instruments represent the
ownership rights created by the specific financial instrument. The debt based financial
instruments represent the loans or debt made by the investor to the issuing entity. Such debt-
based financial instruments are also classified into short-term (less than one year) and long term.
Foreign exchange transactions and financial instruments belong to a separate category and do not
qualify under any of the above classes.
Uses of Financial Instruments
Cash and cash equivalents are the short term idle cash available with the company.
Loans and Receivables are the non-derivative financial instruments with either fixed or
determinable payments that are not quoted in an active market. At every reporting date, it is
measured at amortized cost. Loans and Receivables maturing within a period of 12 months are
classified under Current Assets and others are classified under Non-Current Assets.
Derecognition of the financial assets is carried out when the contractual rights to receive cash
flows expires or is transferred to another party and the Group ceases to have significant
involvement with the risks and benefits of the associated assets (Schroles group Ltd, 2018).
Thus the classification, valuation, and measurement of the financial assets have been done in
accordance with the applicable accounting standards and the same is being amended from time to
time.
Application of Financial concepts
The impact of the adoption of AASB 9 Financial Instruments is explained in the Annual Report.
It discloses the new accounting policies that have been adopted by the company from 1 January
2018 and also the changes in the accounting policies from 1 January 2018.
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In accordance with the amendments in AASB 9, the group classifies its financial assets in the
below measurement categories:
• Assets that can be measured at amortized cost and
• Assets that can be measured subsequently at fair value – either through profit and loss or
through Other Comprehensive Income.
This classification depends on how the company manages its contractual terms of cash flows.
The initial recognition is done at fair value or at fair value through profit and loss (FVPL). The
transaction costs that are directly attributable to the financial assets are capitalized and the rest
are expenses off through the Profit and Loss account. The transaction costs of financial assets
measured at FVPL are also expenses off to the Profit and Loss Account (Horngren, 2013).
With effect from 1 January 2018, due to the adoption of AASB 9, there was a requirement to
revise the methodology of calculation of impairment losses from the provision for doubtful debts
to the expected credit loss model. Under this model, the Group makes an assessment of the future
expected credit losses on a forward-looking basis and the impairment is calculated accordingly.
This credit loss model is made applicable to cash and trade receivables. In cases of Trade
Receivables, a simplified approach has been laid down by AASB 9 which requires the
recognition of the expected lifetime credit losses from the initial recognition of the receivables.
Trade receivables can be decided to be written off when there is no reasonable expectation of
recovery (Schroles group Ltd, 2018). The factors indicating the same are a failure of the debtor
in engaging with the group for a repayment plan, and failure to meet the contractual obligations
for a period beyond 120 days of its due date. The adoption of this model of impairment
calculation has not resulted in any material impact on the financial instruments.
4. Ratios
a. Selection of ratios
The three financial ratios chosen for the company is net profit ratio, debt-equity ratio, and the
current ratio. Each of the three ratios sheds light upon profitability, solvency, and liquidity.
b. Computation
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Scrhrole Groups Ltd
When it comes to the profitability ratio, the Net profit margin indicates a poor run for the
company as in both the years that is 2017 and 2018 the net profit runs negative. Though the sales
have increased the expenses has shot up considerably that led to the huge downfall in the profit
margin. It is a high alert for the company because the profitability is an indication of the
company’s performance and this scenario indicates that Schrole Group has failed to deliver in
terms of profitability (Libby, Libby & Short, 2011).
Secondly, the current ratio of the company has declined in 2018 that is from 3.21 to 0.93 in 2018.
This indicates that the company that the major increment was in the current liabilities of the
company indicating that the short term obligations is more. Further, in 2018 the current ratio is
less than 1 striking the notion that the company will have immense issues in discharging the
obligations (Laux, 2014). The current assets are less as compared to current liabilities that shows
more obligations of the company are present as compared to funds.
Thirdly, the solvency of the company is reflected by the solvency ratio and debt-equity ratio is
computed to project the level of debt and equity. As per the computation, it is witnessed that the
debt-equity ratio of the company has increased sharply from 0.43 in 2017 to 2.78 in 2018. It is an
indication of the fact that the company has procured more debts which signals that the reliance of
the company is more on debts (Libby, Libby & Short, 2011). Hence, the major portion of the
profit will go towards the payment of interest. As the current ratio of the company is weak,
thereby the company will have acute difficulties in discharging the obligations.
c. Weakness
The financial ratio of Schrole group indicates that the company is facing a lot of difficulties in
terms of making a profit and having liquidity. All three ratio projects a significant problem for
the company. The profitability of the company is running negative while the liquidity is below
the standard ratio. Further, there is a high increment in debt hence indicating that the company
will fail to perform in an effective manner.
4. Competitor analysis
Opportunities and Threats refer to factors external to the company.
The opportunities
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Since it caters to international school market there is an immense level of opportunities. It is an
online recruitment management tool and with the passage of time, it is seen that there is a
considerable increment in the number of schools. Further, it has become essential to keep the
teacher database that helps the international schools with specific needs (Ujjual & patel, 2013).
The presence of subscription based model helps the teachers to apply for the opportunity that
best fits them. Hence, the growth in the education sector and the number of schools is a big boon
to the organization as it helps in providing high quality survives (Fan, Cui, Li & Zhu, 2016).
Thereby, it is imperative that as the education industry is flourishing there will be high growth in
the usage of the software. Hence, this opportunity is derived from the external factor and is
irrespective of the manner in which the company performs. Thereby the boom in the education
sector is a big opportunity to Schrole group and it can flourish by dint of this factor (Basta,
Basta, & Brown, 2013).
Threats
The company is unable to consider the challenges that are present in the market and posed by the
new entrants and the established ones. The major competition has been posted by the Search
associates that are an established player that is present in the industry for the past 25 years on a
model that is franchise based. It caters to more than 700 international schools and spans to over
120 countries. It has strengthened the online portal and the pricing model is very conservative in
nature. Schrole group is facing an immense cutthroat competition from the offerings of SCL that
is cot effective and charges a yearly fee providing unlimited hires (Van & Venzke, 2015).
Further, there are various other players in the market with their own specific function and
benefits. Hence, considering the entire scenario, the threats are huge for Schrole group because
the product function might not suit the customer and owe to the presence of other market players
it might fail in the attempt.
5. Financial market analysis
a. Analysis
Schrole Group Limited (SGL) has presented its financial report for the year ended 31 December
2018 which is used as a base. The Consolidated Statement of Financial Position gives the details
of the financial assets as below:
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Scrhrole Groups Ltd
• Cash and Cash Equivalents
• Trade Receivables
• Other Receivables
Cash and cash equivalents include cash on hand, demand deposits available on demand with the
bank with an original maturity of three months or less. As on 31 December 2018, the balance of
Cash and cash equivalents available with the company has been reported as $1,670,970 million.
Trade receivables are generally due to be settled within a period of 30 days. Due to this short-
term nature of the same, its carrying value is deemed to be its fair value. The Statement of
Financial Position discloses the carrying amount of Trade Receivables as on 31 December 2018
as below:
Trade Receivables = $465,054 million
Less: Provision for expected credit loss =$65,651 million
Net Trade Receivables = $399,402 million
The Other Receivables comprises of GST Receivable, Term Deposits, Prepayments, and other
items at the below-carrying amounts:
Trade Receivables = $465,054 million
Less: Provision for expected credit loss =$65,651 million
Net Trade Receivables = $399,402 million
The Other Receivables comprises of GST Receivable, Term Deposits, Prepayments and other
items at the below carrying amounts:
GST Receivable = $36,881 million
Term deposit = $60,000 million
Prepayments = $15,698 million
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Other = $13,147 million
Yes, the industries need government regulations because regulation helps in a better frame of
work. When it comes to regulation the company is regulated in a better fashion and the
operations happen in an effective manner. The benefits of the regulations are as follows:
Regulation can restore accountability and rebuild trust in tech area
The technological software’s are used properly then they can help the consumers to diagnose
various types of problems that are having really bad consequences. The technological software’s
will also help the organizations to rebuild the structure of accountability within the industry.
Also if it will be regulated by the government then it can solve various kinds of unintended
issues (Moncrieff, 2013).
Citizens can be protected by tech regulation
It is generally observed that the technology is used for money making concepts by the help of
human-centered designs and customer first objectives. Artificial intelligence is a very powerful
source of technology that can be used by organizations to conduct the management processes but
at the same time, it can be dangerous for citizens as well.
The social media sites try to learn the behavior of users on the basis of their searches and make
them vulnerable to various kind of political campaigning which will further affect their
decisions.
Proper regulation of technological systems in the management structure of the organization is
required in order to get a transparent and fair view in the accountability that is being provided by
them by making necessary changes (Schroles group Ltd, 2018). It is observed that software
engineers face a lot of problems in relation to government regulations after building the software.
The software engineers try to create a technological or artificial intelligence method which is
ethical in nature and also conducts proper decision-making task so as to work in accordance with
the government framework (Weedmark, 2017). If the engineers are provided with more support
from the government then they can be confident in the decisions made by them, which will
further help them to make innovations in the technological field that can be helpful for the whole
market (Michelin, 2017).
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Regulation can bridge the gap between entrepreneurs, engineers, and lawmakers
Technology and its instruments are used to deploy various kinds of control and laws that can
help to conduct the production or exploration process in an efficient manner. There is a gap
between the lawmakers and technological institutions where they are not able to understand the
concept of encryption and other algorithms. It is very important for the business world to
understand this concept so as to clear the problems and further improvised the industry with the
help of the new technological measures (Merchant, 2012). There are still various kinds of
problems existing in the organizational management structures that can be removed with the
application of the new technological measures. Regulation of the new technological systems will
help the organization and the government to understand each other and further develop a
language where both can understand the need for technology in today's market.
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Recommendations & Conclusion
The future of Australia software market indicates a potential market whereby the company can
perform in an effective manner and deliver strong and digital technology. The Tech future
provides a clear, as well as narrative that is unified in nature and help in detailing how the nation
can work together to attain a safe, as well as inclusive economy that will be enabled with the
help of digital technology. From the point of view of the county and the government, it can be
said that a clear perspective is laid by the government so that the digital economy gets flourished.
The strategy is a clear indication that the Government role is prominent in ensuring a strong
market and that the Australian will benefit from the opportunities provided by the digital
economy. Going by the overall discussion, it can be said that the financial market for Schrole
group Ltd is under immense pressure because going by the performance, it can be stated that the
business is performing under immense difficulties. The expenses are huge due to which the
profits have declined sharply. Moreover, competition has made things worse. Thereby it is
essential that regulation should come to the forefront. In the past three years there have been no
cases of unethical behavior and hence indicates that the company has performed in an effective
manner.
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References
Almunawar, M.N. & Low, K.C.P 2013, Open Source Solutions and CSR., Springer, Berlin:
Heidelberg.
Australian government. (2018) Australian Tech future. Available from
https://www.industry.gov.au/data-and-publications/australias-tech-future [Accessed 20 May
2019]
Basta, A., Basta, N. & Brown, M. (2013) Computer security and penetration testing, Cengage
Learning.
Dewhurst, M, Pettigre, M, and Srinivasan, M. (2012). How multinational can attract the talent
they need. Retrieved from: https://www.mckinsey.com/business-functions/organization/our-
insights/how-multinationals-can-attract-the-talent-they-need
Fan, D., Cui, L., Li, Y. & Zhu, C.J. (2016). Localized learning by emerging multinational
enterprises in developed host countries: A fuzzy-set analysis of Chinese foreign direct
investment in Australia. International Business Review. 25(1): 187-203,
doi:10.1016/j.ibusrev.2014.12.005
Horngren, C. (2013) Financial accounting. Frenchs Forest, N.S.W: Pearson Australia Group.
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. 44(4), 380-382. Available from:
http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/4235/3672 [Accessed 20 May
2019]
Libby, Libby, P & Short, D. (2011) Financial accounting, New York: McGraw-Hill/Irwin.
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. 24(3), 1-34. Doi: http://dx.doi.org/10.1108/01140581211283904
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Michelin. (2017) Michelin Key financial indicators. Available from:
https://www.michelin.com/eng/finance/key-figures-indicators/consolidated-data [Accessed 20
May 2019].
Moncrieff, J. (2013) Is strategy making a difference?. Long Range Planning Review 32 (2),
2014, pp. 273–276. Available at
https://www.researchgate.net/publication/289712696_The_Interplay_of_Strategic_Management_
and_Information_Technology [Accessed 20 May 2019].
Schroles group Ltd. (2018) Schroles group Ltd annual report & accounts 2018. Available from
https://static1.squarespace.com/static/5af533a312b13fb602fe7d7b/t/
5ba1bbd9758d4680359ef3e7/1537326047470/
Schrole+Group+initiating+research+report+18+09+18.pdf [Accessed 20 May 2019]
Ujjual, V. and Patel, P. (2013). Multinational enterprises’ global competitiveness through
emerging markets strategies and integration in global innovation networks. Innovation and
Development, vol. 3 (2), p. 297 – 312. Available at https://www.tandfonline.com/do i/abs/
10.1080/2157930X.2013.825071. [Accessed 12 April 2019].
Van A.S. & Venzke, C. (2015)Predatory Innovation in Software Markets’, Harvard Journal of
Law & Technology, vol. 29, no. 1, pp. 46-55. Available from:
http://jolt.law.harvard.edu/articles/pdf/v29/29HarvJLTech243.pdf [20 May 2019]
Weedmark, D. (2017) What is the Key Feature of a Multinational Corporation?.Available at
https://smallbusiness.chron.com/key-feature-multinational-corporation-81029.html [Accessed 20
May 2019].
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Appendix
Financial statements
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Ratio
2017 2018
Current assets 3506239 3271571
Current liabilities 1092064 3485727
Current ratio 3.210653 0.938562
2017 2018
Total debt 1283636 3582108
Equity 2936074 1287293
Debt equity ratio 0.437195 2.782667
2017 2018
Revenue 1413543 4081016
Net profit -8224981 -1774781
NP margin -17.186 -229.945
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