Financial Forecasting, Ratio Analysis, and Company Performance Review

This finance assignment delves into key financial concepts and practical applications. It begins with calculating Return on Equity (ROE) and Additional Funds Needed (AFN), fundamental tools for assessing financial performance and future funding requirements. The assignment then explores financial forecasting, outlining the crucial steps involved, including data collection, analysis, and documentation, with a focus on sales forecasting using the percentage of sales method. Moving average techniques, both simple and weighted, are applied to forecast net interest income, along with the calculation of Mean Absolute Deviation (MAD) to evaluate forecast accuracy. Furthermore, the assignment includes an analysis of APN Outdoors Ltd, covering its organizational policies, financial ratios (ROE, ROA, debt-to-equity, etc.), and an assessment of its profitability, liquidity, and solvency. The analysis utilizes financial statements and industry data to provide a comprehensive view of the company's financial health and performance.

Task 1 -Question 1
ROE = NI/S × S/TA × TA/E
Net Income- $24
Sales- $2000
Total Assets $1200
Equity - $500
ROE =24/2000 *2000/1200 *1200/500
=0.048 or 4.8%
Task 1 -Question 2
Additional Fund Needed = A0 * Δ S
So - L0 * Δ S
So - M * S1 *RR
A0 = 1200
Δ S
So = 15%
L0 = 700
S1 = 2300
M = 1.2%
RR= 1-37.5%=62.5%
AFN = 1380 – 805 -17.25
= 557.75
Thus additional funds required $557.75
Task 1 -Question 3
Steps in Financial Forecasting
One of the most important functions of a business is financial forecasting. The main
objective of financial forecasting is to assist businesses in the decision making process
thus allowing the derivation of future goals (Putra, 2009).

The steps involved in financial forecasting include the following-
 Firstly, the organization should prepare a timetable which should include the
organization’s key milestones, timeframes, and business plans.
 Next, the organization should review its assumptions based on their processes.
The assumptions should also factor in the external factors that may affect how
the organization operates.
 The third step is to collect data. Sources of data include historical financial
reports, revenue forecasts and departmental budgets.
 The fourth step is to analyze the data. This will involve building a revenue
forecast, income statement and balance sheet forecast.
 The last step is to document all results and perform a cross check against
industry forecast and expert opinion.
Task 1 -Question 4
A financial plans sets out how an organization will meet its long term organizational
goals established by management. Organizations set a strategic long-term view via
planning. The planning process will involve examining the organization’s current
financial statements and forecasts. Financial plans are also useful for coordinating and
controlling key activities throughout the fiscal year.
Task 1 -Question 5
Sales Forecasts are important because they affect other departmental budget. For
example, the sales budget may be used to determine the production level of a
manufacturing company, such that if sales increase, production levels would increase,
which subsequently increases the need for raw material.
Given that there is correlation between sales and other budget, the sales for the next
period can be used to forecast financial statements. This method of forecasting is
known as the percentage of sales method. For example, if the COGS as a percentage
of sales is 30%, we can assume that 30% can be applied to the forecasted sales to
obtain forecasted COGS.

Task 1 -Question 6
a) Moving Average
Year Net Interest Income
3YR moving
average
2006 3081
2007 3317
2008 3413
2009 3625 3270.3333
2010 3925 3451.6667
2011 3952 3654.3333
2012 3801 3834.0000
2013 3833 3892.6667
2014 4016 3862.0000
2015 5254 3883.3333
2016 4367.6667
Therefore, 2016 Forecast -4367.67
b) Weighted Moving Average
Assume Weights-0.8, 0.10 & 0.10 with importance on recent data
Year Net Interest Income
3YR Weighted
moving average
2006 3081
2007 3317
2008 3413
2009 3625 3370.2000
2010 3925 3573.0000
2011 3952 3843.8000
2012 3801 3916.6000
2013 3833 3828.5000
2014 4016 3841.7000
2015 5254 3976.2000
2016 4988.1000

c) Mean Absolute Deviation –MAD
Moving Average-391.86
Year
Net Interest
Income
3YR moving
average
Absolute
Error
2006 3081
2007 3317
2008 3413
2009 3625 3270.3333 354.6667
2010 3925 3451.6667 473.3333
2011 3952 3654.3333 297.6667
2012 3801 3834.0000 33
2013 3833 3892.6667 59.66667
2014 4016 3862.0000 154
2015 5254 3883.3333 1370.667
2016 4367.6667
MAD 391.8571
Weighted Moving Average – 326.74
Year
Net Interest
Income
3YR Weighted
moving
average
Absolute
Error
2006 3081
2007 3317
2008 3413
2009 3625 3370.2000 254.8
2010 3925 3573.0000 352
2011 3952 3843.8000 108.2
2012 3801 3916.6000 115.6
2013 3833 3828.5000 4.5
2014 4016 3841.7000 174.3
2015 5254 3976.2000 1277.8
2016 4988.1000
MAD
326.742
9
A smaller MAD produces better smoothing results, therefore the weighted moving
average will produce the better sales forecast.

Task 2-Part 1
Background
Company – APN Outdoors Ltd
Industry – Advertising and Billboards
ASX Listed since 2015 -APN.AX
Organizational Policies and Procedures
 Sales/ Revenue-The Company generates most of its revenue from outdoor
advertising of billboards, rail and airport. Revenue is reported gross.
 Inventory-The Company has policies in place in regards to its levels of digital
inventory with plans to upgrade.
 Credit and collection Policy- The Company accepts credit and has put policies in
respect to collection. Generally, they expect to collect monies owed within 45 days. If
payment is not made within 60 days, and the debtor appears to be facing financial
difficulties, then the company will make provisions for impairment.
 Purchasing and Payment policies- The Company have contracts with specific
suppliers. Policies are in place such that payments to suppliers are done within 30
days.
 Work place Health and Safety- The Company has a dedicated WHS committee
and system to ensures the health and safety of every employee, visitor and sub
contractor
 Environmental -The Company has policies on improving environmental standards
such as reducing PVC in banners, using LED lights and complying with Australian
legislation.
 Audit Services- The company is audited by PWC in accordance to section 327 of
corporations act
 Remuneration-The remuneration includes fixed pay and performance based
components (APN Outdoors, 2017).

Task 2- Part 2
Financial Ratios 2016 2015 2014
Return on Equity 18.00% 16.55% -5.66%
Return on Assets 10.73% 10.55% -3.29%
Debt to Equity Ratio 0.67 0.58 0.68
Time Interest Earned 25.96 21.65 1.50
Days in Receivables 76.34 76.17 85.25
Days in Inventory 1.27 1.28 1.21
Days in Payables 3.77 3.82 11.68
Current Ratio 1.90 1.90 2.46
Quick Ratio 1.89 1.89 2.44
Source- APN Financial reports and The Wall Street Journal
Task 2- Part 3
Profitability Ratios
These ratios measure the profitability for the company. They include return on asset and
return on equity (Subramanya & Wild, 2009). In 2016, APN Outdoors had a return on
asset of 10.83 and return on equity of 18. Since the ratio is high and is increasing each
year then APN is doing well.
Liquidity ratio
These ratios determine the liquidity risk for the company i.e their ability to pay current
liabilities. They include current ratio and quick ratio (Subramanya & Wild, 2009, p. 530).
In 2016, APN Outdoors had a current ratio of 1.9 and a quick ratio of 1.89. A ratio above
1 suggests greater assurance that APN’s current liabilities can be paid using its current
assets, thus the company does not have a liquidity risk problem
Solvency Ratios
Solvency Ratios determine if a company a company can meets its long term liabilities.
They include time interest earned and debt to equity ratio. In 2015 and 2016, the time
interest on APN Outdoors was 25 and 21 implying that they can meet interest payments
comfortably. Similarly, the debt to equity ratio has been low suggesting they have little
debt and thus low risk.

References
APN Outdoors. (2017). Retrieved from APN Outdoors: https://www.apnoutdoors.com.au
Putra, D. (2009). Qualitative Forecasting Methods and Techniques. Retrieved from http://accounting-
financial-tax.com
Subramanya, K., & Wild, J. (2009). Financial Statement Analysis. New York: McGraw-Hill Irwin.
The Wall Street Journal. (2017). APN Outdoor Group Ltd. Retrieved from The Wall Street Journal:
http://quotes.wsj.com/AU/XASX/APO/financials/annual/balance-sheet