Financial Analysis of TasFoods Ltd: Investment Perspective

This report conducts a comprehensive financial analysis of TasFoods Ltd, an Australian food and agriculture company, evaluating its performance over three years (2015-2017). The analysis employs financial ratio analysis to assess profitability, efficiency, liquidity, solvency, and market performance. The report examines the company's corporate social and environmental reporting, highlighting its commitment to sustainability and ethical practices. The financial analysis reveals that TasFoods experienced significant financial losses during the period, with negative net profit margins, return on assets, and return on equity. Efficiency ratios, such as asset turnover, also indicate challenges in utilizing assets effectively. Based on the financial performance, the report advises against investment in TasFoods, citing substantial financial risks for investors. The report concludes by discussing the limitations of ratio analysis.

Financial Analysis of TasFoods
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Executive summary
The report has been undertaken for providing an understanding of the use of financial
ratio analysis to develop an insight into the long-term performance of a selected company for
analyzing its worth for investment purpose. The company that has been selected for financial
analysis purpose is TasFoods Ltd, an Australian company involved in production of agriculture
and food products. The company is performing well on social and environmental aspects as
analyzed from its social and environment reporting performance analysis. The financial ratio
analysis has examined the profitability, liquidity, efficiency, solvency and market performance of
the company. It has been identified from carrying out financial ratio analysis that the company
financial performance is not sound and there is large financial risk for the investors to invest in
the company.
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Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Overview of the company and its operations..................................................................................4
Corporate Social and Environmental Reporting Analysis...............................................................5
Financial Analysis of Tasfoods Limited over last three years.........................................................6
Overall financial analysis of Tasfoods has been presented below in table:.................................6
Profitability Analysis...................................................................................................................7
Efficiency Analysis......................................................................................................................8
Short-term solvency Analysis......................................................................................................9
Long-term solvency Analysis....................................................................................................10
Market Analysis.........................................................................................................................11
Conclusion.....................................................................................................................................12
Overall Recommendations.............................................................................................................12
Limitations of Ratio Analysis........................................................................................................12
References......................................................................................................................................13
Appendix........................................................................................................................................15
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Introduction
The present report is developed to conduct the financial analysis of Tasfoods Ltd for
facilitating the investor for decision-making. In this context, the report is developed to provide
advice to a potential investor seeking to make an investment in the firm. The financial analysis
has been carried out on the basis of the annual report to facilitate the investors in their decision-
making process. The report has covered the following aspects to provide a solid base for
decision-making of the investors. This includes providing an overview of the selected company
and its operations, critical analysis of its corporate social responsibility reporting, calculation of
the results of financial statement ratio analysis and providing an interpretation of the ratios for
guiding the investor in decision-making.
Overview of the company and its operations
TasFoods Limited is an ASX listed entity that is extremely focused on production of
cream, butter and dairy products. It is also actively involved in processing, manufacture and sale
of agricultural and food products. The company consists of following major segments that are,
dairy cream segment, poultry segment and other segments. The company vision is to create a
reputable source of high quality and innovative food products for achieving customer
satisfaction. Its mission statement is to become a global leader in providing Tasmanian sourced
food products. The company has developed a competent team of business leaders having wide
range of experience in the agriculture and food sector. The company is involved actively in
making investments and has acquired Meander Valley Dairy branded food products business in
the year 2015. The company’s strategic intent is to acquire and develop a portfolio of premium
branded food products. It aims to achieve its strategic priorities by gaining expansion into new
product categories, developing innovative products and expanding its business in the domestic
and international level (TasFoods Limited: About the Company, 2018).
The competitive advantage of the company is developing premium quality product and
meeting the customer demand for fresh food products. It is aiming to sustain its competitive
advantage by developing an efficient and agile business process and systems. The company in
order to attain this is actively promoting capital investment in improving the process efficiency
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and ensuring food safety. It is also actively seeking investment in management expertise for
promoting the development of food safety systems. It also strives to provide quality products and
services for the customers and is actively involved in identification of new sales opportunities to
increase the product sales. It also aims at developing innovative agriculture and food products by
continuous investment in research and development. Also, the company places emphasis on
developing a work culture that aims to attain employee empowerment and to provide the best
place to them for working in agribusiness (TasFoods Limited : Annual Report, 2018).
Corporate Social and Environmental Reporting Analysis
The company has adopted a continuous disclosure policy in order to provide relevant
information to the stakeholders about its financial and non-financial performance. The non-
financial performance of the company includes information in relation to social and
environmental performance. The company has developed adequate policies and procedures for
promoting the welfare of its employees, contractors and other people. The Code of Conduct of
the company has adequate policies within the workplace for ensuring that adequate safety laws
are undertaken by the company for ensuring work safety. The Board is highly committed for
developing a workplace that places emphasis on maintaining a diversity that helps in achieving
the growth and development of the company (TasFoods Privacy Policy, 2018). TAS has became
a B Corporation in the year 2013 which means it has certified effectively with the rigorous
standards of social and environmental performance, accountability and transparency. The
company is also listed on the Social Venture Exchange (SVX) that can be regarded as a platform
for establishing a link between the investors and the social and environmental performance. It
has become one of the initial 12 companies on SVX for the purpose of providing in-depth
information relation to the company social and environment concerns to the investors.
The company is attributed to be major supplier of Coles and Woolworth and as such
places large emphasis on development of long-term relationship with the suppliers and the
consumer. The food products produced by the company are regarded to be fundamental part of
the lives of broader social communities in Australia (TAS: Social Impact, 2018). It’s Food and
Nutrition Policy is developed mainly for achieving the objectives and challenges that aims at
promotion of food as a valuable export commodity by ensuring its access to healthy and
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affordable local food supply. It has also obtained Food Safety and Quality Accreditation for
ensuring that its food products are safe for the consumers. As such, the company is highly
committed for the production of quality, healthy and safe food as per the sustainable policies in
order to promote the healthy and well-being of population of the country at large. The company
has implemented 100% green energy with Bullfrog Power for reduction in the power
consumption in its head office and also for minimizing the pollution. The energy is mainly
generated from the use of wind and hydro facilities that are certified with EcoLogo. It is an
environmental standard verification program that was mainly developed by Environment Canada
for ensuring that the company is acting as per the standard environment rules and regulations
(TasFoods Limited: Environment, 2018).
Financial Analysis of Tasfoods Limited over last three years
In order to make the financial analysis of Tasfoods it has been decided to conduct the
ratio analysis for the last three years. Ratio analysis refers to the quantitative analysis of the
financial information present in the financial statements of the company. The main purpose of
the ratio analysis is to evaluate the various aspects of a company financial and operating
performance like profitability, solvency, liquidity, operating efficiency and market efficiency.
Ratio analysis can be done of same companies for different years and also comparison can be
made of two companies belonging to same industry. In this report ratio analysis of Tasfoods
Limited will be done has been conducted for year 2015, 2016 and 2017.
Overall financial analysis of Tasfoods has been presented below in table:
Ratios Formula 2015 2016 2017
Profitability Ratios
Net profit margin Net Profit/Net Revenue -
169.75%
-
15.97%
-
21.88%
Return on assets Net Profit/Total Assets -62.48% -6.50% -
16.73%
Return of shareholders’
equity
Net Profit/Shareholder's
Equity -75.73% -7.35% -
21.51%
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Efficiency Ratios
Inventory turnover Net Revenue/Inventory 83.67 11.85 14.49
Receivable turnover Net Revenue/ Account
Receivable 1.44 7.26 11.12
Asset turnover Net Revenue/Total Assets 0.37 0.41 0.76
Short-term solvency Ratios
Current Ratio Current Assets/Current
Liabilities 3.92 4.18 2.56
Quick Ratio Quick Assets/Current
Liabilities 3.90 3.89 2.25
Cash Flow from
operations to current liabilities
Cash Flow from operations /
current liabilities -3.67 -0.71 -0.46
Long-term solvency
Debt to equity Long Term debt/Equity 0 0.009 0.044
Debt to total assets Long Term debt/Total Assets 0 0.008 0.034
Market-based ratios
Price/Earnings ratio MPS/EPS -0.07 -0.07 -0.04
Earnings yield EPS/MPS -14.88 -15.03 -23.00
Dividend yield Annual Dividend /Market
price per share 30.51% 0.00% 0.00%
(Annual report 2015, 2016 and 2017: TasFoods Limited)
Profitability Analysis
Profitability ratios refer to the application of financial metrics that helps to assess the
business ability to earn the revenue as compared to expenses and other costs. Profitability is
measured for a particular period say one year. To measure the profitability of a company, ratios
like net profit ratio, return on assets, return on equity and gross profit ratio are being calculated.
Profitability measurement of Tasfoods Limited has been done and results are shown in above
table.
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 Net Profit Margin: This ratio is also called as return on sales as it measures the amount
of net income that has been earned on each dollar of sales. It is calculated in percentage
through comparing the net income and net sales occurred in same period. Net profit
reflects the ability of company to use resources for earning the enough revenue that
covers all the expenses occurred in the company. On looking at the above table it has
been found that Tasfoods has suffered a net loss in all three years. So it can be said that
profitability of the company was not sufficient to meet the requirement of the company
(Brigham and Michael, 2013).
 Return on Assets: Return on assets is also known as return on total assets as it provides
profitability percentage on total assets. This ratio tells the amount of net income produced
by the company using the total assets of the company. It is calculated through comparing
the net income to the total assets of the company. The return on assets of Tasfoods
Limited was negative 62.48% in year 2015 and in years 2016 & 2017 there was some
improvement but still return on assets was negative in last two years (Annual report 2015,
2016 and 2017: TasFoods Limited).
 Return on Shareholder’s Equity: Return on equity is the most important profitability
ratio form the investor point of view. It measures the ability of a company earn the
revenue using the shareholders investment made in the company. It can be seen that
TasFoods has been going through bad times as there has been net loss in last three years.
In year 2015, company has reflect negative 75.73% return on equity that has turned down
by some percentage but still it was in year 2016 and 2017.
Recommendation to Investor: On the basis of overall profitability of the company during the
last three it is highly advised to not invest in TasFoods Limited. It is because company has been
suffering from heavy loss and it is continuously increasing.
Efficiency Analysis
Efficiency ratios are mainly used to analyse how company is using assets and liabilities to
generate the revenue. It shows the ability of the company on how efficiently it utilizes its
resources to earn the required revenue. Some of the important efficiency ratios are asset turnover
ratio, inventory turnover ratio and receivable turnover ratio (Damodaran, 2011).
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 Asset Turnover ratio: Asset turnover ratio is type of efficiency ratio that is used to
measure the company’s ability to generate the amount of sales using the assets of the
company. This ratio tells the investors how efficiently company uses its assets to earn the
desired sales revenue. Asset turnover ratio of TasFoods was 0.37 times in year 2015 that
indicates company earned utilized only some part of assets to earn the sales and rest
assets are remained unutilized. Asset turnover ratio in year 2016 was 0.41 and it got
increased to 0.76 in year 2017 but it was not sufficient to prove that company is utilizing
its assets in effective manner.
 Inventory Turnover Ratio: This ratio shows that how effectively company manages its
inventory to turn them into cost of goods sold. This ratio is calculated by comparing cost
of goods sold with average inventory for a particular period. In short it can be said that
this ratio tells how many times company has sold average inventory dollar amount during
a period. Inventory turnover ratio of TasFoods was very high in year 2015 as company
has very less inventory in year 2015 while it was less in year 2016 and 2017 as inventory
has increased significantly in these years (Annual report 2015, 2016 and 2017: TasFoods
Limited).
 Receivable turnover ratio: Receivable turnover ratio is type of efficiency ratio that
measures the number of times business turns the accounting receivable in cash. This ratio
tells how many times business collects average account receivable in a period. It shows
efficiency of company to collect the credit sales from the customers. On looking at the
above table it was found that accounts receivable turnover of TasFoods has been
increasing in years 2015, 2016 and 2017. In year 2017 it was 11.12 times that indicates
that company is not able to collect the cash from their customer very efficiently (Davies
and Crawford, 2011).
Recommendation to investor: The efficiency ratios of TasFoods are not favorable and it shows
company has not been working very efficiently. So, investors are informed that they should
invest in this company until the company made required changes to be efficient enough.
Short-term solvency Analysis
Short term solvency ratios are also called as liquidity ratios. Liquidity ratios measure the
ability of company to meet the short term expenses or liabilities. It can be said that these ratios
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help to find out whether company is going through the financial distress in short run or not.
Some of the important solvency ratios are current ratio and quick ratio.
 Current Ratio: Current ratio measures the ability of the company to meet the short term
liabilities through using the current assets. This ratio reflects that how company will meet
their short term obligations that will arise in next year. Current ratio of TasFoods was
3.92 times in year 2015 that reflects very strong liquidity position or it can be said that
company has not been using current assets to generate the required funds. In year 2017,
this ratio has been decreased to 2.56 times that indicates that company has still enough
assets to meet the short term liabilities but presence of enough current assets creates the
potential financial distress on company performance and proves that it fails to convert the
available assets into sales revenue that causes them to suffer a major loss in last three
years (Firer, 2012).
 Quick Ratio: This ratio is important measure of liquidity position of the company but it
does take into consideration assets that are not easily convertible into cash and cash
equivalents. This ratio measures the company ability to meet the liabilities through using
only quick assets. Quick assets refer current assets less prepayments and inventory as
they cannot be converted into cash and cash equivalent easily. It has been found that
TasFoods maintains very high quick ratio in last three years that give a clear indication
that company has not been able to collect the account receivable on time and it is
accumulating year by year. Still company maintains enough cash resources to meet the
short term obligations arising next year (Annual report 2015, 2016 and 2017: TasFoods
Limited).
Recommendation to Investor: Tasfoods has very good liquidity position during the last three
years that indicates that company can meet the current liabilities on time. One thing that investor
must focus on it is that account receivable has been accumulating year by year which cause
increase in current assets.
Long-term solvency Analysis
Long term solvency ratios are used to measure company ability to meet the long term
debt. These ratios mainly provide the capital structure position of the company to fund the assets
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of the company. If company maintains very high debt capital as compare to equity capital than it
mean company is highly leverage and depends on other funds to buy required assets.
 Debt to Equity ratio: This ratio measures amount of debt capital against the equity
capital. Tasfoods has no debt in year 2015 and it completely depends upon owners funds
to finance the assets of the company. Company has raised some debt capital in year 2016
and 2017 but amount raised was very low as compared to equity capital (Higgins, 2012).
 Debt to total Assets: This ratio shows proportion of assets acquired using the debt capital
as the source of funds. It is calculated as debt capital divided total assets. On the basis of
analysis it has been found that Tasfoods used very minimal amount of debt capital to
finance the assets (Annual report 2015, 2016 and 2017: TasFoods Limited).
Recommendation to Investor: Long term solvency position of Tasfoods has been highly strong
as company uses very little debt capital as the source of funds and mainly dependent on the
equity capital to finance the assets required.
Market Analysis
Market analysis reflects how company represent themselves in the market. Ratios like
earnings per share, dividend yield, price earnings ratio and earning yield helps to find out
company position in the market.
 Price/Earnings ratio: This is market prospects ratio that calculates the market value of a
stock as compared to the earnings of the company. It helps the investors to seek the fair
market value of the company and also helps in making the effective investment decision.
As company has suffered a major loss during the lasts three year it is not right time to
make invest in the company (Deegan, 2013).
 Dividend Yield: Tasfoods has paid dividend in year 2015 and provided a dividend yield
of 30.51%. It shows that company’s market position is not strong enough to attract the
investors for investment purpose (Annual report 2015, 2016 and 2017: TasFoods
Limited).
Recommendation to investors: It has been suggested to investors to not to invest in this
company as it very poor market condition.
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Conclusion
It can be concluded from the overall analysis of financial performance carried out for
TasFoods Ltd that the investors should not select to invest in the company. This is because it is
predicted on the basis of its present poor financial performance that it’s potential of future
growth and development is not good and so it is doubtful that it will provide good financial
returns in the future context.
Overall Recommendations
On the basis of overall ratio analysis it is right to say that TasFoods is not the right choice
to make investment as company has been suffering losses and it fails to provide returns to their
investors.
Limitations of Ratio Analysis
The major drawback of the method of financial ratio analysis is that financial statements
provide financial results on the basis of historical information. As such, the financial outcomes
realized does not depict the actual financial position of a company and therefore not useful for
future prediction. It is also not possible to compare the financial performance of two companies
on the basis of ratio analysis if they are of different size and nature. The financial results
achieved by the use of ratio analysis do not provide a complete picture of the financial
performance of a company (Brealey, Myers and Marcus, 2009). This is because the
interpretations obtained from the ratios are not considered in context of other factors such as
government policy, economic conditions and availability of resources.
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