ACC10707: Financial Ratio Analysis of Boral and CSR Limited

This report presents a comparative financial analysis of Boral Limited and CSR Limited, focusing on their performance from 2016 to 2018. The analysis employs key financial ratios, including net profit margin, asset turnover, current ratio, quick ratio, debt ratio, and cash cycle, to assess the companies' profitability, efficiency, liquidity, and leverage. The report calculates these ratios for each company over the three-year period, identifies trends, and compares their relative performance. The findings indicate that CSR Limited demonstrates a stronger profitability position and higher asset turnover, while Boral Limited exhibits better liquidity and a shorter cash cycle. Based on the analysis, recommendations are provided to Boral Limited to improve its net profit margin and asset turnover. The report concludes with a summary of the key findings and their implications for each company's financial health and strategic decision-making. The assignment was completed for the ACC10707 course. The report includes all the workings for the ratios and cash cycles, meeting the requirements of the assignment brief.

Running head: ACCOUNTING FOR BUSINESS AND FINANCE
Accounting for business and finance
Name of the student
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Table of Contents
Introduction................................................................................................................................2
Ratio analysis.............................................................................................................................2
Conclusion and recommendation...............................................................................................4
Reference....................................................................................................................................6
Appendix....................................................................................................................................7

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Introduction
Boral Limited that was established on 19th December 1960 is the international
construction materials and building company that offers the construction and building
materials, plasterboards in Australia and Asia through the cladding, roof tiles and joint
venture in United States (Boral.com.au 2019). On the other hand, CSR Limited is involved in
supply and manufacturing of the building products in New Zealand and Australia. It operates
through 4 segments – glass, building products, property and aluminium (Corporate 2019).
The report will focus on comparing the financial performance of Boral Ltd against its
competitor CSR Limited for the year ended 2016, 2017 and 2018. The performances will be
compared through performing various ratio analyses.
Ratio analysis
Various ratios considered for comparing the performances of Boral Ltd against CSR
Ltd are mentioned below –
 Net profit margin – it is the profitability measure used to measure the percentage of
sales revenue left with the entity after paying all the expenses. It represents the profit
extracted by the entity from sales. Looking into the calculation table it can be
identified that the net profit margin for Boral Ltd is in enhancing trend and increased
from 5.85% to 7.51% over the years from 2016 to 2018 (Damodaran 2016). On the
other hand, net profit margin of CSR Limited does not have any particular trend as it
increased from 7.36% to 8.31% from 2016 to 2017 and again dropped to 7.93% in
2018. However, it can be recognized that the profitability position of CSR Limited is
better as compared to Boral Ltd.

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 Asset turnover – it measures the company’s sales value as compared to the assets
value. It is used to indicate the efficiency with which the assets are used for
generation of revenues. It can be identified that the asset turnover of Boral Limited
does not have any particular trend as it dropped from 0.74 to 0.54 from 2016 to 2017
and again increased to 0.61 in 2018. On the other hand, the same for of CSR Limited
is in enhancing trend and increased from 1.06 to 1.23 over the years from 2016 to
2018. However, it can be recognized that the efficiency position of CSR Limited in
context of asset turnover ratio is better as compared to Boral Ltd (Ehrhardt and
Brigham 2016).
 Current ratio – it is used for measuring the liquidity position of the organization in
terms of its liquid assets against its short term liabilities. It indicates whether the
organization has sufficient liquid assets to meet its short term liabilities when they
become payable. Generally current ratio of 1.0 to 3.0 indicates good health of the
company. Both the company’s current ratio dropped in 2017 as compared to 2016
(Brigham et al. 2016). However, in 2018 both were able to increase their current ratio
that is Boral Ltd’s ratio increased from 1.20 to 1.75 whereas the same for CSR
Limited it is increased from 1.43 to 1.59. Hence, it can be determined that current
ratio of Boral Ltd is somewhat better as compared to CSR Limited.
 Quick ratio – though like current ratio it is also used for measuring the liquidity
position of the company, it is considered to be more conservative as it does not
account for the assets those take some times to be converted into cash such as
inventories or prepaid expenses. Generally quick ratio of 1.0 or more indicates good
health of the company (Collier 2015). Quick ratio of CSR limited is in reducing trend
and dropped to 0.67 in 2018 from 0.89 in 2016. On the contrary, the same for Boral
Ltd is increased from 0.95 to 1.13 over the period from 2016 to 2018. Hence, it can

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be determined that quick ratio of Boral Ltd is significantly better as compared to CSR
Limited.
 Debt ratio – it measures the debt proportion of the company against the total assets.
To be more specific, it represents the degree of reliance on the debt for financing the
entity’s assets. Higher ratio signifies higher risk associated with the business
operation. On the contrary, low ratio signifies conservative financing with the
opportunity for borrowing at future period with lower level of risk. Generally, debt
ratio of 0.40 or lower indicates good health of the company (Amran and Aripin
2015). Both the companies have stable debt ratio and are moving around 0.40 to 0.42.
Hence, both the companies are involved with lower leverage risk.
 Cash cycle – cash cycle indicates the time length taken by the entity in converting the
investments under inventory and other resources into cash through sales. Generally
the entity purchases goods on credit that is recorded as account payable and the goods
sold on credit are recorded as accounts receivables. Therefore, cash will not be
considered as a factor until the payments are made and the dues are collected. Hence,
the timing becomes vital aspect of any business from the cash management aspect
(Edwards, Schwab and Shevlin 2015). It can be identified that the cash cycle for
Boral Ltd is in reducing trend and reduced from 601.92 days to 473.74 days over the
period from 2016 to 2018. On the other hand, cash cycle for CSR Limited has
reduced from 590.66 days to 560.74 days over the same period. Hence, cash cycle for
Boral Ltd is better as compared to that of CSR Limited (Gitman, Juchau and
Flanagan 2015).

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Conclusion and recommendation
From the above discussion it is concluded that if the overall performance of the
companies are compared it can be stated that both the companies are performing well. The
profitability position, asset turnover position CSR Limited is better whereas the liquidity
position and cash cycle of Boral Limited is better as compared to CSR Limited. However, it
is recommended to Boral Ltd that to improve the net profit margin it shall eliminate the
unprofitable products from the line of products, reduce the inventories and review the
existing pricing structure. Further, to improve the asset turnover, Boral Ltd shall find the
ways for using the assets more efficiently and improving the level of sales.

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Reference
Amran, N.A. and Aripin, N., 2015. Financial ratios: A tool for conveying information and
decision making. Global Review of Accounting and Finance, 6(1), pp.151-164.
Boral.com.au., 2019. Boral Australia: Build something great™. [online] Available at:
https://www.boral.com.au/ [Accessed 5 Jan. 2019].
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Corporate., 2019. CSR Building Products - a leading building products brand in Australia &
New Zealand. [online] Available at: https://www.csr.com.au/ [Accessed 5 Jan. 2019].
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and
corporate finance (Vol. 324). John Wiley & Sons.
Edwards, A., Schwab, C. and Shevlin, T., 2015. Financial constraints and cash tax
savings. The Accounting Review, 91(3), pp.859-881.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.

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Appendix