Financial Decision Making of A2 Milk and Tainui Group Holdings Limited

This report presents a comprehensive financial analysis of two New Zealand-based companies: A2 Milk, a publicly listed entity, and Tainui Group Holdings, a Maori-owned company. The study critically examines the operating environment of Tainui Group Holdings, considering economic, social, legal, and taxation aspects, alongside accounting standards and the influence of Maori values. The analysis includes a detailed horizontal and vertical financial statement trend analysis of both companies, utilizing common size and ratio analysis (quick ratio, current ratio, return on equity, and net profit margin) to assess their financial positions. Furthermore, the report delves into working capital management, liquidity, and profitability ratios, offering recommendations based on the financial analysis and concluding that A2 Milk demonstrates a stronger financial standing compared to Tainui Group Holdings. The report utilizes data from financial statements, including balance sheets, income statements, and cash flow statements, to support its findings and recommendations.

Running head: FINANCIAL DECISION MAKING OF A 2 MILK AND TAINU GROUP
HOLDINGS LIMITED
Financial Decision Making of A 2 Milk and Tanui Group Holdings Limited:
Name of the Student:
Name of the University:
Student ID:
Author note:

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Executive Summary
The study titled “Financial Decision Making of A 2 Milk and Tanui Group Holdings Limited”, is a
financial analysis of a New Zealand listed company A 2 Milk and a Maori company, Tainu Group
Holdings Limited. The study discusses the business environment of the Maori company and also
does a horizontal and vertical financial statement trend analysis of both the company for the
purpose of financial decision making. In the study, on the basis of the financial analysis, necessary
recommendations are suggested to both the companies and it is concluded that A 2 Milk company
has a stronger financial position than the Tanui Group Holdings.

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Table of Contents
1. Introduction......................................................................................................................................4
2. Critical Analysis of Tainui Group Holdings’ Operating Environment:..........................................4
2.1 Economic and Social Environment:..........................................................................................4
2.2 Legal Environment:...................................................................................................................4
2.3 Taxation System:.......................................................................................................................5
2.4 Accounting Standard and Reporting System:............................................................................5
2.5 Iwi/Maori Value in Business:....................................................................................................6
3. Analysis of Financial Statements and Valuation of Financial Assets:............................................6
3.1 Common Size Analysis..............................................................................................................6
3.1.1. Horizontal Common Size Analysis....................................................................................6
3.1.2. Vertical Common Size Analysis:.....................................................................................11
3.2 Ratio Analysis:.........................................................................................................................15
3.2.1 Quick ratio and Current Ratio:..........................................................................................15
3.2.2. Return on Equity:.............................................................................................................17
3.2.3 Net Profit Margin..............................................................................................................18
4.1 Liquidity ratios.............................................................................................................................21
4.1.1. Inventory management........................................................................................................21
4.1.2. Receivable Management......................................................................................................22
4.1.3. Payable Management...........................................................................................................23
4.2 Profitability Ratios.......................................................................................................................25
4.2.1 Inventory management.........................................................................................................25

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4.2.2 Receivable management.......................................................................................................26
4.2.3 Working Capital Management..............................................................................................27
5. Recommendations..........................................................................................................................29
6. Conclusion.....................................................................................................................................29
References and Bibliography.............................................................................................................31
Appendix............................................................................................................................................34

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1. Introduction
A2milk Limited and Tainu Group Holdings are both New Zealand based companies, out of
which the A2Milk is NZX registered company, whereas the Tainui Group Holdings Limited is a
Maori company (thea2milkcompany.com, 2019). Even after being from the same country and
environment, there is a huge different in the both businesses, because they are a completely
different type of organisations. Hence, both the sector is analysed critically through their operating
environment, trend analysis of their financial statement and also by analysing the liquidity,
profitability, working capital management and inventory management.
Tainui Group Holdings Limited is kiwi based private company. The company is owned by
the Waikato Tainui of iwi. The company provides services in tourism, has its main interests in
fisheries, property, tourism and forestry. The company was founded in the year 1998, having its
headquarters in Hamilton, New Zealand and have invested in many properties across the world
(Henry, Dana & Murphy, 2018).
2. Critical Analysis of Tainui Group Holdings’ Operating Environment:
2.1 Economic and Social Environment:
New Zealand as one of the most developed country in the world it has one of the largest
GDP in the world. The overall GDP of New Zealand is $20,585.28 crores, and the exchange of the
currency of New Zealand to United States is $0.67.
Thus, the same economic environment is applicable to the Maori businesses also, and hence
due to such rich economy, the businesses have a great advantages on its assets owned. The value of
the business gets affected by the country’s economy, and thus the Maori businesses have a great
business value.

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2.2 Legal Environment:
The Legal environment of Maori businesses is based on its operations, where the business is
mainly based on assets owned collectively and thus governed by specific legislations that only
applies to the Maori land and assets. The Acts under which the legislations are applicable are – The
Maori Reserved Lands Act (1997), the Maori Fisheries Act (2004) and Te Ture Whenua Maori act
(1993). The Maori organisation’s operations under this act, helps in protecting their business and
their consumer as well.
The Governance and the acts are related to the Maori land and resources, and thus
undertaken based on an agreement, which is Treaty settlements. Treaty settlements is an agreement
helps the Maori organisation in purchasing and selling their assets under a special clause, to the
government agencies, since the company cannot sell their assets or deal with any agency directly.
Treaty settlements are most of the time is finalised by the Act of Parliament, which includes the law
in terms of settlement, and also includes provision related to assets acquisition, assets management
and governance (Henry, Dana & Murphy, 2018).
2.3 Taxation System:
The iwi/Maori organisations follows the New Zealand taxation systems, and follows the
New Zealand Taxation rules. Taxes are collected in New Zealand are received at a national level by
the Inland Revenue Department (IRD) on the behalf of the Government of New Zealand. Maori
company according to the New Zealand tax standard, pays the standard tax rate on the total revenue
of the company.
In the new tax reform statement of 2017-2018, the taxes are charged on the income started
$14,000 with a tax rate of 10.65%, and from $14,000 to $48,000 tax rate charged is 17.5%, and the
maximum tax rate charged is 48% from the amount above $70,000. Hence, this specific rate chart
is also used by the Maori companies to pay its annual tax on its revenue generated from its
operations. Considering their income, a tax rate will be charged from the companies.

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2.4 Accounting Standard and Reporting System:
The New Zealand follows the NZ-IFRSs Standards and Interpretation, which also followed
by the Maori Companies to prepare their financial statement and financial report. The companies in
New Zealand prepares and presents the financial report on the basis of New Zealand accounting
standard and approved by the External Reporting Board.
2.5 Iwi/Maori Value in Business:
Maori businesses have implemented some concepts and principles in their businesses
approaches. The first policy is the “Te kaupapa pakihi”, which means ‘The foundation of the
business’, which refers to the fundamental principles of the businesses, across the business domains
irrespective of the size of the business. This fundamental includes many policies- (i) Putake, (ii)
Turanga, (iii) Tikanga, (iv) Kaitiakitanga, (v) Rangatiratanga, which are described properly in their
social report. The above fundamentals describes their principle of leadership, origin of the business
and others.
3. Analysis of Financial Statements and Valuation of Financial Assets:
3.1 Common Size Analysis
3.1.1. Horizontal Common Size Analysis
Horizontal balance sheet trend analysis of A 2 Milk company, for five year of periods:

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Particular 2013 2014 2015 2016 2017 2018
Current Asset
Cash & short term deposits 100.00% 79.15% 38.13% 1138.56% 174.48% 281.32%
Trade and other recivables 100.00% 112.24% 146.00% 113.68% 160.49% 89.87%
Prepayments 100.00% 83.03% 484.49% 156.45% 238.14% 100.16%
Inventory 100.00% 752.43% 86.80% 1084.52% 54.11%
Current tax asset 100.00%
Total current asset 100.00% 107.20% 118.37% 301.36% 141.59% 195.93%
Non-current asset 100.00%
Property,plant and equipment 100.00% 89.05% 101.51% 87.06% 103.22% 116.07%
Investments in subsidiaries 100.00%
Non-current recivables in associates and joint ventures 100.00%
Loans to subsidiries 100.00%
Goodwill 100.00% 112.99% 103.83% 94.43%
Other Financial asset 100.00% 301.15%
Other Intangible asset 100.00% 138.14% 148.55% 95.23% 223.85% 0.00%
Deffered tax 100.00% 95.95% 115.88% 183.31% 58.89% 248.77%
Total non-current asset 100.00% 103.26% 111.09% 97.86% 308.85% 252.82%
Total asset 100.00% 105.85% 115.95% 236.48% 163.66% 210.09%
Liabilities and shareholders equity
Liabilities
Current liability
Loans from subsidiries 100.00%
Account Payable 100.00% 147.81% 158.64% 233.34% 107.83% 162.85%
Current tax liabilities 100.00% 3.33% 1788.24% 291.33% 163.10%
Total current liabilities 100.00% 144.22% 161.97% 265.29% 133.25% 162.92%
Non-current liabilities
Accounts payable 100.00% 155.00% 152.42% 120.63% 43.86% 120.00%
Deffered tax liability 100.00% 3.46%
Total non-current liabilities 100.00% 155.00% 1037.10% 20.68% 37.59% 120.00%
Total liabilities 100.00% 144.29% 168.00% 254.89% 132.92% 162.88%
Stockholders equity
Share capital 100.00% 102.39% 100.05% 151.27% 102.88% 105.41%
Retained earnings 100.00% 99.96% 108.72% -16.77% 2173.80% 305.95%
Foreign currency translation reserve 100.00% 307.43% 85.69% 158.50%
Employee equity settled pyments reserve 100.00% 165.06% 135.87% 175.79% 168.67% 1014.90%
Total Equity 100.00% 97.85% 99.97% 226.98% 181.46% 230.12%
Total liabilities & Eqity 100.00% 105.85% 115.95% 236.48% 163.66% 210.09%
Balance sheet trend analysis
Table 1: Table showing balance sheet trend analysis of A2 Milk Ltd
(Source: As Created by Author)
The above trend analysis shows the change in the equity have increased to 230.12% in the
year 2018 from the base year of 2013, where the change of liability has reduced to 162.88% in the
end of 2018, from which it can be assumed that the company is slowly approaching towards equity
financing than debt financing.
The below is the horizontal income statement trend analysis of A 2 Milk for five years:

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Particular 2013 2014 2015 2016 2017 2018
Sales 100.00% 117.30% 139.94% 227.71% 168.58% 155.21%
Cost of sale 100.00% 116.70% 141.79% 200.72% 141.80%
Gross margin 100.00% 118.39% 136.66% 277.50% 174.51% 176.21%
Interset income 100.00% 157.99% 32.97% 334.67%
Other revenue 100.00% 60.54% 136.61% 89.54% 101.82%
Administartive expenses 100.00% 146.47% 130.77% 175.89% 120.02% 145.66%
Finance Cost 100.00% 67.50% 160.49% 157.69% 65.85% 102.22%
Distribution expenses 100.00% 130.05%
Marketing expenses 100.00% 214.31% 105.64% 321.83% 127.31%
Occupancy expenses 100.00% 268.24% 108.55% 155.15%
Other expenses 100.00% 130.69% 166.52% 140.73% 79.41% 117.61%
Profit before tax and share of associate / joint venture earning 100.00% 23.43% 61.56%
Share of net profits/loss of associates 100.00% 36.60%
Profit before tax 100.00% 13.94% 177.92% 4082.67% 266.45% 203.25%
Income tax expenses 100.00% 68.01% 474.93% 648.37% 222.77% 179.75%
Profit after tax 100.00% 0.24% -20910.00% -1455.57% 297.82% 215.88%
Other comprehensive income/loss 100.00%
Items that will be not be reclassified to profit or loss 100.00%
Items that may be reclassified to profit or loss 100.00%
Foreign currency translation gain/loss 100.00% 194.17% -21.21% -350.21% 56.75% 3.90%
Listed investment fair value gain 100.00% 813.20%
Total Comprehensive income/loss 100.00% 248.73% 25.34% -2383.03% 376.90% 298.03%
Table 2: Table showing Income Statement trend analysis of A2 Milk Ltd
(Source: As Created by Author)
From the above table it can be concluded that the company have tried to maintain a good
and constant growth on its profit, but as shown in the table in the year 2016 it has incurred a huge
loss for that period, however the company have managed to recover that in the next year.
Figure 1: Figure showing total comprehensive income/loss of A2 Milk Ltd
(Source: As Created by Author)

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The above chart is the graphical representation of the above horizontal income statement
trend analysis of the company, where the 4th bar is showing the loss in the year 2016.
Horizontal balance sheet trend analysis of Tainu Group Holdings, for last five year of
periods:
Particular 2013 2014 2015 2016 2017 2018
Current Asset
Cash and cash equivalents 100.00% 109.72% 102.82% 102.29% 109.41% 186.37%
Trade and other recivables 100.00% 167.09% 110.13% 125.16% 856.82% 19.87%
Other financial assets 100.00%
Inventory 100.00% 348.67% 4.17% 146.69% 635.99% 117.98%
Biological assest- livestock 100.00% 98.68% 302.43% 142.17% 117.47%
Non-current asset classified as held for sale 100.00% 1.77%
Total current asset 100.00% 117.81% 97.30% 198.29% 106.80% 113.35%
Non-current asset 100.00%
Other receivables 100.00% 163.38% 291.80% 110.84% 8.40% 106.73%
Other financial assets 100.00% 104.66% 156.78% 101.21% 103.63% 119.96%
Investments in associates 100.00% 196.72% 99.11%
Investments in Subsidiaries 100.00%
Intangible assets 100.00% 219.13% 46.40% 105.31% 101.87% 100.62%
Biological assets - trees 100.00% 105.95% 109.53% 122.72% 135.07% 136.29%
Property,plant and equipment 100.00% 155.14% 100.39% 105.45% 69.82% 106.95%
Investment properties 100.00% 103.60% 102.99% 69.95% 105.55% 112.67%
Te Wherowhero title properties 100.00% 124.39% 103.61% 134.95% 171.90% 98.36%
Total non-current asset 100.00% 113.66% 112.88% 86.61% 99.20% 108.46%
Total asset 100.00% 114.42% 109.95% 105.22% 101.59% 110.07%
Liabilities and shareholders equity 100.00%
Liabilities 100.00%
Current liability 100.00%
Trade and other payables 100.00% 207.20% 64.84% 89.26% 68.27% 107.42%
Accured revenue 100.00% 98.91%
Interest bearing liabilities 100.00% 0.41% 3596.77% 4687.26%
Advances- subsidiaries 100.00% 1.41%
Other financial liabilities 100.00% 836.42% 120.66% 534.98% 16.99% 104.31%
Total current liabilities 100.00% 84.29% 76.97% 741.02% 7.34% 107.11%
Non-current liabilities 100.00%
Accured revenue 100.00% 98.86%
Other payables 100.00% 39.96%
Interest bearing liabilities 100.00% 144.00% 117.10% 15.67% 298.55% 116.72%
Deffered tax liability 100.00%
Other financial liabilities 100.00% 28.99% 163.85% 32.85% 201.26% 83.45%
Total non-current liabilities 100.00% 136.57% 116.01% 16.05% 366.46% 112.35%
Total liabilities 100.00% 124.66% 110.00% 94.20% 61.94% 111.82%
Stockholders equity 100.00%
Accumulated comprehensive revenue and expenses 100.00% 110.08%
Retained earnings 100.00% 111.30% 110.96% 109.17%
Revaluation reserves 100.00% 76.51% 106.07% 108.62% 105.63% 90.80%
Non-controling interest 100.00% 175.09% 62.04% 102.46%
Total Equity 100.00% 111.22% 109.93% 109.09% 113.60% 109.78%
Waikato-tainui Balance sheet trend analysis

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Table 3: Table showing balance sheet trend analysis of Tainu Group Holdings
(Source: As Created by Author)
In the above table, the change of the assets and liabilities is shown in percentage where it is
also being observed that the financial position of the company is very strong as the growth change
of the assets is higher than that of the liabilities.
Horizontal income statement trend analysis of Tainu Group Holdings for last five years:
Particular 2013 2014 2015 2016 2017 2018
Revenue 100.00% 117.50% 110.80% 98.82% 88.10% 69.10%
Other income 100.00% 650.00% 39.56% 105.16% 205.63% 87.08%
Total income 100.00% 122.14% 107.50% 98.93% 90.23% 69.85%
Expenses 100.00% 131.29% 118.29% 94.24% 109.12% 68.74%
Finance cost-bank loans 100.00% 99.75% 125.97% 87.85% 61.92% 76.78%
Finance income - Short term deposits 100.00% 160.94% 116.32% 85.55% 98.64% 128.11%
Share of net profits/loss of associates 100.00% 150.00% 296.84% 584.08% 26.70% -113.54%
Net operating profit for the year 100.00% 129.66% 68.17%
Other gains- net 100.00% 104.87% 45.98% 312.10% 231.80% 35.39%
Other income 100.00% 166.77%
Social investment 100.00% 68.56%
Surplus from tribal activities 100.00% 345.47%
Settlement 100.00% 29.90% 333.77% 19.22%
Grant expenses 100.00% 86.31% 364.19% 39.31%
Net profit before tax 100.00% 62.56% 115.74% 98.00% 175.32% 77.31%
Tax credit 100.00% 193.81% -0.39%
Net profit for the year 100.00% 63.99% 117.49% 94.38% 175.35% 76.88%
Other comprehensive income/loss 100.00%
Gain/loss on revaluation of farm and other properties 100.00% -439.83% 26.74% 150.55% 204.77% -114.62%
Share of other comprehensive income 100.00% -201.01%
Total Comprehensive income/loss 100.00% 67.18% 113.72% 94.92% 174.94% 74.79%
Table 4: Table showing Horizontal Income Statement trend analysis of Tainu Group
Holdings
(Source: As Created by Author)
The company has shown in 2015 and 2017 the most impressive growth, because the net
income of both the year is showing the more than 100%, as per the base year. In 2017 the income is
the highest in the last five year, but the net operating income and the total income for the year is not

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the highest, which means they managed to earn the maximum profit for that year by reducing
expenses and the costs.
Figure 2: Figure showing total comprehensive income/loss of Tainu Group Holdings
(Source: As Created by Author)
3.1.2. Vertical Common Size Analysis:
The below is the vertical balance sheet trend analysis of A 2 Milk company, for five year of
periods: