Metcash Limited Financial Analysis Report for BUS103 Accounting

This report provides a financial analysis of Metcash Limited, focusing on its financial performance in 2017 and 2018. It examines the company's main activities, revenue recognition policies, and valuation of fixed assets. The report also discusses the role of the auditing firm, Ernst & Young, and the importance of corporate social responsibility. Key financial ratios, including efficiency, profitability, and debt positions, are analyzed to assess the company's financial health and performance over the two-year period, revealing a deterioration in profitability and debt management in 2018. Desklib offers a platform for students to access this and similar solved assignments for academic support.

Running head: METCASH LIMITED ANALYSIS 0
Analysis of the Metcash Limited

METCASH LIMITED ANALYSIS 1
Table of Contents
Part I...........................................................................................................................................2
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................2
Answer 3....................................................................................................................................2
Answer 4....................................................................................................................................2
Answer 5....................................................................................................................................3
Part II..........................................................................................................................................4
Efficiency ratios......................................................................................................................4
Profitability Position...............................................................................................................4
Debt Position..........................................................................................................................5
References..................................................................................................................................6

METCASH LIMITED ANALYSIS 2
Part I
Answer 1
The principle activities of the Metcash Limited Company are distributing and marketing of
the groceries, alcoholic beverages, fresh produce hardware and the consumer goods (Metcash
Limited, 2018).
Answer 2
The company is following the revenue recognition policy of recording the revenue to an
extent that their economic benefits will flow to the group and that the revenue can be
measured reliably. The revenue from the contracts with the customers AASB 15 is applicable
from the financial year 2019 and this will supersede all the existing current revenue
recognition methods under the Australian Accounting Standards (Metcash Limited, 2018).
The policy is denoted on page number 45 and 48 of the annual report (Metcash Limited,
2018)
Answer 3
All the fixed assets such as the property plant and the equipment are valued by the company
are measured at the cost less accumulated depreciation. The item of the property plant and
equipment is derecognised upon disposal. This information can be found out on the page
number 47 of the annual report of the company (Metcash Limited, 2018).
Answer 4
The auditing firm doing the audit of the financial statements of the Metcash limited is the
Ernst and young.

METCASH LIMITED ANALYSIS 3
The central reason for performing the audit is the presentation of genuine and the reasonable
estimation of the organization and furthermore gives the independent opinion regarding the
findings the auditor came across during the process of the audit. It is mandatory on part of the
auditor to declare the independent view which is not biased otherwise he will held guilty of
the negligence of his duties. There are few questions which are raised with respect to the
autonomy of the evaluator and the contentions proposes that the appropriate corporate
administration measures if, are not set up, a firm of auditors may deal with the experts.
The main purpose of carrying out the external audit is that there are some areas which may be
left by the internal auditor keeping in the mind thoughts. The thoughts can be like the auditor
belongs to the firm from the long term and he understand the operations of the company in a
better manner yet the external unit removes the chances of errors. Further the third party
gives an unbiased opinion and at the same time the variance if any in the reports of both can
be found out and the same can be rectified for the purpose of the future benefits (Tepalagul,
and Lin, 2015).
Answer 5
The proof that the business caters the corporate social responsibility can be observed in the
image below. The business surely takes care of the environment, society and its people.
Moreover the initiatives taken by the company are diversity in the Woking team of the
company by keeping the ratio of the females to 57%. The recognition has also been received
by the company for the utilisation of CSPO, Certified Sustainable Palm Oil, and promotes the
products which are inclusive of this. Further the 82.5% of the waste was diverted from the
landfill; and lastly the energy was also reduced by 7% from 446361 GJ, to 415485 GJ
(Metcash Limited, 2018).

METCASH LIMITED ANALYSIS 4
Part II
Efficiency ratios
Efficiency Ratios 2017 2018
Inventory Ratio
Cost of goods sold 16.98 16.80
Average Inventory
Asset turnover ratio
Net Sales 3.59 3.89
Assets
The asset turnover ratio and the inventory ratios are the part of the efficiency ratio. The
current position reflects that the company has shown decrement in terms of realizing the
inventory at 16.80 times, in comparison to the earlier times where the inventory was
realizable at 16.98 times. Also in case of the asset turnover ratio, the company has improved

METCASH LIMITED ANALYSIS 5
its performance by indicating that the net assets are generating the income but the utilisation
is not well. Hence the mixed and the moderate results are shown in this category of the ratios
(Saleem and Rehman, 2011).
Profitability Position
2017 2018
Profitability Ratios
Return on total assets
EBIT 6.07% -1.96%
Total Assets
Net profit margin
Net profit 8.57% -1.01%
Sales
The profitability position is useful not only for the management but also for the users of the
financial statements such. The profitability ratio of the Metcash company suggests that the in
the financial year 2017, the profitability ratios of the company are 8.57% and at the same
time the return on the total assets of the company are 6.07%, whereas when compared to the
position in the successive year the position is worse as both the return are showing negative
outlook and it is a question of high risk (Warren and Jones, 2018).
Debt Position
Leverage Ratios 2017 2018
Interest coverage ratio
EBIT 4.64 -2.38

METCASH LIMITED ANALYSIS 6
Interest Expense
Debt to Equity ratio
Debt 1.40 1.68
Equity
The debt position of the Metcash Company indicates that earlier in the year the company was
performing better and showed some great results, however after operating the business in the
year 2018, the position of the company deteriorated to a very low level. The interest coverage
ratio which measures the ability of the company to pay back the interest costs is in the
negative magnitude in the year 2018, as compared to the previous year. Also in case of the
debt and the equity the company has taken more debt, which is again a loss for the company.
Hence, the position of the company deteriorated in case of debt position (Tracy, 2012).

METCASH LIMITED ANALYSIS 7
References
Metcash Limited, (2018) Annual report [Online] Available from
file:///C:/Users/Manita/Downloads/3027570_1705165542_attach-file-1548491556263.pdf
[Accessed on 26th January 2019]
Metcash Limited, (2018) Sustainability [Online] Available from
https://www.metcash.com/corporate-social-responsibility/environment-sustainability/
[Accessed on 26th January 2019]
Saleem, Q. and Rehman, R.U. (2011). Impacts of liquidity ratios on
profitability. Interdisciplinary Journal of Research in Business, 1(7), pp.95-98.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.
Tracy, A. (2012) Ratio analysis fundamentals: how 17 financial ratios can allow you to
analyse any business on the planet. Ratio Analysis. New York: Springer.
Warren, C. S., and Jones, J. (2018). Corporate financial accounting. USA: Cengage
Learning.