Performance of McMillan Shakespeare Limitedâ€Myassignmenthelp.com

Question: Analysis and interpretation of the performance of McMillan Shakespeare Limited? Answer: Introduction Background of the company For this purpose of this assignment, McMillan Shakespeare Limited (MMS) is the business organization that has been undertaken for the purpose of financial performance and financial position analysis. McMillan Shakespeare Limited (MMS) is engaged in providing services of salary packaging and motor vehicle leasing services. McMillan Shakespeare Limited has started its business operations in 1988 and since then they are engaged in providing services of salary packaging and notated leasing services. McMillan Shakespeare Limited is listed in Australian stock exchange and has been reported in top 200 ASX listed companies. Apart from their primary business operations, they are also are also engaged in the business of asset management, fleet financing and management services. McMillan Shakespeare Limited has wide spread business operations and they has 21 subsidiary companies under. Purpose of the group assignment Purpose of this assignment is to understand and analysis ratios and financial statements analysis technique. How to assess and analyse financial position and financial performance of the business organisation is the outcome of this assignment. In this assignment, ratio analysis of five years has been done i.e. from 2011 to 2015 (Salo and Punkka, 2011). Main purpose of this assignment is to develop skills among students of analysing and reading financial statements of any business entity. In order to complete course successfully development of analysis skill is required and therefore main purpose of this assignment is to develop analytical skills. Purpose of this assignment includes development of skills of students in terms of making conclusion. Trend and cross-sectional financial analysis Trend analysis and cross sectional financial analysis of McMillan Shakespeare Limited has been undertaken in this sections. Ratio analysis has been used technique for the same and various ratios has been calculated and analyzed. Profitability ratio, solvency ratio, efficiency ratio and liquidity ratios are calculated and analyzed in this section of report. Ratio calculation Profitability ratios Gross profit ratio = Gross profit / Sales revenue * 100 Operating profit ratio = Operating profit / Sales revenue * 100 Net profit ratio = Net profit / Sales revenue * 100 Ratio 2015 2014 2013 2012 2011 Gross profit ratio 75.14% 76.68% 77.51% 78.26% 79.60% Net profit ratio 17.32% 22.80% 26.93% 17.98% 16.02% (El-Dalabeeh, 2013) Analysis: Above two ratios is used to analyse profitability of the business organisation and in this case McMillan Shakespeare Limited has been tested on such basis. Gross profit reflects ability and capabilities of business organization in terms of primary business operations (Wunsch, Gruber and Claupein, 2012). McMillan Shakespeare Limited had shown great operational efficiency as reflected in their gross profit ratio. In all 5 years they had maintained higher operational efficiency. On the other hand, net profit ratio is used to analyse cost management and real profit earning capacity of the business organization (Entwistle, 2015). As compared to industry average, McMillan Shakespeare Limited has shown great efficiency in generating profits for their internal stakeholders in terms of net profit. Their net profit ratio in all 5 years has been at higher side but results shows high fluctuations. It can be concluded that overall profitability position of McMillan Shakespeare Limited i s attractive and increasing financial performance has been observed (Erik and Kerstin, 2013). Because of great profitability ratios (gross and net profit), McMillan Shakespeare Limited has been able to maintain higher cash availability in business operations. Profitability of McMillan Shakespeare Limited has also impacted liquidity of the McMillan Shakespeare Limited as by earning more profits, McMillan Shakespeare Limited is able to save more cash for business operations. Operating efficiency Accounts Receivable Turnover = Revenue / (Average Accounts Receivable) Inventory Turnover = (Cost of Sales) / (Inventory) Accounts Payable Turnover = (Cost of Sales) / (Accounts Payable) Total Asset Turnover = (Revenue) / (Total Assets) Ratio 2015 2014 2013 2012 2011 Accounts receivable turnover period 8.30 days 11.91 days 18.15 days 15.97 days 19.34 days Inventory turnover period 13.52 days 15.07 days 15.33 days 33.17 days 37.47 days Accounts payable turnover period 1.52 days 1.53 days 1.82 days 1.14 days 1.22 days Cash conversion cycle 20.30 days 25.45 days 31.66 days 48 days 55.46 days Total Asset Turnover 50.13% 66.23% 73.80% 77.20% 90.28% (Olesen and Podinovski., 2017) Analysis: Operation efficiency ratios are used to analyse effectiveness in business operations of the business organisation. Accounts receivables ratio reflects efficiency of business organisation in terms of their ability of collecting cash from its debtors in normal course of business. It shall be kept at as low as possible and in case of McMillan Shakespeare Limited, receivables period is effective and improvement can be observed from 2011 to 2015. Another efficiency ratio is inventory turnover period, this ratio reflects turnaround period of stock i.e. days from inventories held in store till the date of sales (Kadzinski and Napieraj, 2017). Cost of sales or cost of goods sold is the base for analysing inventory turnover. In case of McMillan Shakespeare Limited, great improvement has been seen from 2013 as there is great reduction in their inventory turnover period. Accounts payable turnover is another efficiency ratio that is used to analyse payable period of the business organi zation i.e. within which creditors are required to be paid. It can be observed that payable period of McMillan Shakespeare Limited is at adverse side in all 5 years under consideration as they payable period is very low. Cash conversion cycle is the overall effect of business operational efficiency that can be used for analysis of overall operational efficiency (Kaushal and Muthusamy., 2014). In case of McMillan Shakespeare Limited, it shows acceptable level of efficiency. According to cash conversion cycle of McMillan Shakespeare Limited, they will be at strong position in terms of liquidity in the operations. At last, total asset turnover ratio has been used to analyze efficiency of assets in terms of its utilization in generating sales revenue for the period under consideration. In case of assets, assets utilization ratio has shown positive or efficiency in generating sales revenue during all 5 years under consideration (Olesen and Podinovski., 2015). Liquidity ratios Current ratio = Current assets / current liabilities Quick ratio= Current assets (Inventories + Prepaid expenses) / current liabilities Ratio 2015 2014 2013 2012 2011 Current ratio 1.72 times 1.41 times 1.28 times 1.26 times 0.61 times Quick ratio 1.59 times 1.27 times 1.15 times 1.19 times 0.56 times (Fenyves and Tarnoczi, 2011) Analysis: Liquidity ratio can be defined as the ratios which are used to analyse liquidity position of the business organisation. Liquidity position means position of working capital or relationship between current assets and current liabilities. Liquidity ratios are used to analyse level of cash and cash equivalent present in the business organisation i.e. in its business operations. Current ratio and quick ratio are two effective tools of liquidity ratio that are used to measure level of liquidity in the business operations (Gomaa and Shaw, 2011). Current ratio establishes relationship between current assets available for meeting current obligation of the business organisation and in short term. In case of McMillan Shakespeare Limited, their current ratio reflects adequate level of current assets i.e. they has adequate level of current assets for meeting their current obligations. In all 5 years, McMillan Shakespeare Limited has maintained adequate level of current assets and this shows greater efficiency in terms of liquidity position (Pandya, 2014). Another ratio that is used to analyst deeper liquidity position is quick ratio. Quick ratio does not use those current assets in which cash is already incurred or cash is blocked. Inventories and prepaid expenses are two current assets that is not included in calculation of quick asset (Khatik and Varghese, 2015). In case of McMillan Shakespeare Limited, their liquidity position in terms of quick ratio shows positive results. Solvency ratios Debt Equity ratio = Total debt / total equity Interest coverage ratio = EBIT / Interest or Finance cost Equity ratio = Total equity / total assets Ratio 2015 2014 2013 2012 2011 Debt Equity ratio 1.44 times 1.34 times 1.29 times 1.33 times 1.62 times Interest coverage ratio 9.65 times 6.29 times 7.05 times 6.45 times 4.51 times Equity ratio 0.41 times 0.43 times 0.44 times 0.43 times 0.38 times Analysis: Solvency ratios are those ratios which can b used to analyse solvency position of the business organisation. Solvency position can be defined as the position which defies level of risk present in terms of capital structure of the business organisation (Lewis and Tan., 2016). In terms of investors, solvency position of business organisation is very much important and in order to analyse financial position solvency ratios are also very important. In case of McMillan Shakespeare Limited, three solvency ratios are used for the solvency analysis i.e. debt equity ratio, interest coverage ratio and equity ratio (Piatti, 2014). Debt equity ratio is used to analyse level of debt and equity utilised in the business operations i.e. propionate debt and equity utilisation. It can be analysed that, in all 5 years i.e. from 2011 to 2016 capital structure is at risk. They had utilised more as compared to internal funds i.e. equity (including reserves). Financial leverage of McMillan Shak espeare Limited is at higher side and denotes higher level of risk in capital structure management and level (Ribera, Zargari, Chapman and Joshi, 2016). On the other hand from the investors point of their solvency position is at great side according to interest coverage ratio. In all 5 years they show good results in terms of their ability in terms of paying interest or financial cost. Market performance Earnings per share = Net earnings for shareholders / No of equity shares Book value per share = Total Equity / No of equity shares Ratio 2015 2014 2013 2012 2011 Earnings per share $ 4.51 $ 7.1 $ 6.56 $ 5.59 $ 4.61 Book value per share $ 18.08 $ 18.64 $ 18.82 $ 20.69 $ 16.98 (Schmidlin, 2014) Analysis: It can be analysed that McMillan Shakespeare Limited is able to generate consistent EPS in all 5 years. As compared to industry average, McMillan Shakespeare Limited has been able to generate the same and is able to attract more investors (Faezinia, Ohadi and Janani, 2012). Book value per share is the theoretical framework that is used to assess market position by dividing book value of equity funds with no of equity shares lying with the entity. Both ratios show adequate level of market efficiency of McMillan Shakespeare Limited. Reasons for change in financial position and performance From the above ratio analysis, it can be observed that results or financial performance and position of McMillan Shakespeare Limited in 2011 has been drastically changed till 2015. Following are some reasons for the same: Competition: It can be observed that from 2011 to 2015 there is increase in competition for McMillan Shakespeare Limited. Although McMillan Shakespeare Limited has been operating business operations which is quite unique bit since 2011 many new business entity has entered the market (Kadan and Zach, 2012). Level of competition has influenced level of business operations, profitability and operational efficiency of McMillan Shakespeare Limited. Change in consumer preference: Since some positive results have been seen from 2011 to 2015 and reason for the same is change in consumer preference. In modern business environment, consumers are more educated and more smart, they undertaken each and every detail of business operations. Shift of consumer preference is another reason of positive change in financial position and performance (Riordan and Riordan, 2009). Customers require more stable business organisations to handle their salary package service or motor vehicle leasing services. This has been the positive influencing factor for McMillan Shakespeare Limited to attract more customers. Management decisions: Management decisions related to merger, acquisition, business transformation and introduction of new business line is another reason of positive financial performance and position (Longinidis and Georgiadis., 2011). Management of McMillan Shakespeare Limited has taken time to time decisions related to introduction of asset management business, merger with UFS, group remuneration services, etc. These decisions have contributed in increasing efficiency and effectiveness of business operations of McMillan Shakespeare Limited from 2011 to 2015 (Walther, 2016). According to annual report of McMillan Shakespeare Limited, it can be analyzed that McMillan Shakespeare Limited has undergone various integration and management buyouts so as to support business operations and to provide better services to their customers. These decisions have supported effective business operations of McMillan Shakespeare Limited and have gained much new business Conclusion After analysis of this report, it can be concluded that ratio analysis can be used for making analysis of financial performance and financial position of the business organisation. In this report, evaluation of financial performance and position of McMillan Shakespeare Limited has been undertaken. It can be summarized that, in terms of pprofitability position of McMillan Shakespeare Limited, in all 5 years they had maintained adequate level of profitability in operational (gross profit) and in administrative terms (net profit). McMillan Shakespeare Limited has been able to maintain higher level of gross and net profit margins. As compared to industry average, these results of profitability have shown greater efficiency in term of profit earning. By maintaining core business operations, McMillan Shakespeare Limited has been able to maintain higher profits. McMillan Shakespeare Limited has been able to manage their administrative and service cost in during the reporting period and this supports maintaining higher profitability. Efficiency ratio reflects adequate business operation management and efficiency. It can be concluded that efficiency ratios are used by various internal external stakeholders for decision making and are very important for the analyzing and reviewing business operations. Cash conversion cycle in all 5 years has shown effective results in term of converting cash from inventory, receivables and payable. In case of McMillan Shakespeare Limited, both accounts receivable and inventory turnover period has reflected greater efficiency. This has been the reason of maintaining liquidity in the working capital. Payable turnover period also denotes greater efficiency in terms of deferring payments to creditors and making available more cash or liquidity in the working capital management or in business operations. It can be concluded that, efficiency position is the major factor that has contributed in effective management of business operations. In terms of liquidity state of McMillan Shakespeare Limited, it can be concluded that they had maintained higher level of liquidity in the working capital. Current ratio indicates currents assets of McMillan Shakespeare Limited are in excess of current obligations. This has made them highly liquid and this is the reason of maintaining higher profitability. Quick ratio has also suggested the same and has the contributor in maintaining efficient business operations. Availability of cash or liquidity has saved McMillan Shakespeare Limited from various legal litigations and enhanced their goodwill or brand among its competitors. It can be concluded that solvency position has shown adverse situation in terms of debt and equity usage in business operations. Interest coverage ratio has shown attractive results for investors as these are at higher side in all 5 years. Interest coverage ratio is the factor that has enhanced goodwill of McMillan Shakespeare Limited and has attracted more investors in terms of investment. It can be concluded that mmanagement decisions, change in consumer preference and competition are some reasons of change in financial performance and position of McMillan Shakespeare Limited. It can be concluded that by maintaining effective solvency position in the business operations, management of McMillan Shakespeare Limited has been able to earn market goodwill. References El-Dalabeeh, A., 2013. The Role of Financial Analysis Ratio in Evaluating Performance: (Case Study: National Chlorine industry). Interdisciplinary Journal of Contemporary Research In Business, vol. 5, no 2, pp 13-28. Entwistle, Gary., 2015. Reflections on Teaching Financial Statement Analysis. Accounting Education, vol 24, no 6, pp 555-558. Erik Hofmann, Kerstin Lampe., 2013, Financial statement analysis of logistics service providers: Ways of enhancing performance. International Journal of Physical Distribution Logistics Management, vol 43, no 4, pp 321-342. Faezinia, V., Ohadi, F., Janani, M., 2012, The Quantitative Study of Effective Factors on Price-Earning Ratio in Capital Market of IRAN. Interdisciplinary Journal of Contemporary Research in Business, vol 3, no 1, pp 550-559. Fenyves Veronika, Tarnoczi Tibor., 2011, Liquidity management and corporate risk. Annals of the University of Oradea: Economic Science, vol 1, no1, pp 530-536. Gomaa, Markelevich, Shaw., 2011, Introducing XBRL through a financial statement analysis project. Journal of Accounting Education, vol 29, no 2-3, pp 153-173. Kadan, Madureira, Wang, Zach., 2012, Analysts' industry expertise. Journal of Accounting and Economics, vol 54, no 2, pp 95-120. Kadzinski, Labijak, Napieraj., 2017, Integrated framework for robustness analysis using ratio-based efficiency model with application to evaluation of Polish airports. Omega, vol 67, pp 1-18. Kaushal, Chang, Lee, Muthusamy., 2014, Using efficiency analysis and targeted intervention to improve operational performance and achieve cost savings in the endoscopy center. Gastrointestinal Endoscopy, vol 79, no 4, pp 637-645. Khatik, S., Varghese, T., 2015, Impact of Working Capital Management on Firm Profitability: An Empirical Study of ITC Ltd. International Journal of Information, Business and Management, vol 7, no 4, pp 284-305. Lewis, Tan., 2016, Debt-equity choices, RD investment and market timing. Journal of Financial Economics, vol 119, no 3, pp 599-610. Longinidis, Georgiadis., 2011, Integration of financial statement analysis in the optimal design of supply chain networks under demand uncertainty. International Journal of Production Economics, vol 129, no 2, pp 262-276. Olesen, Petersen, Podinovski., 2015, Efficiency analysis with ratio measures. European Journal of Operational Research, vol 245, no 2, pp 446-462. Olesen, Petersen, Podinovski., 2017, Efficiency measures and computational approaches for data envelopment analysis models with ratio inputs and outputs. European Journal of Operational Research. Pandya, B., 2014, Performance of Foreign Banks in India: An Empirical Analysis. Vidwat, vol 7, no 1, pp 13-17. Piatti, Domenico., 2014, Operating cash flow and creditworthiness assessment. Academy of Accounting and Financial Studies Journal, vol 18, no 2, pp 1-20. Ribera Boigues, S., Zargari, Ahmad, Chapman, Hans, Joshi, Nilesh., 2016, An Empirical Factor Analysis of Efficiency and Profitability Ratios in the U.S. Retail Industry, ProQuest Dissertations and Theses. Riordan, Diane A., Riordan, Michael P., 2009, Inflation and Financial Statement Analysis in the International Accounting Classroom. Journal of Teaching in International Business, vol 20, no 2, pp 174-187. Salo, A., Punkka, A., 2011, Ranking Intervals and Dominance Relations for Ratio-Based Efficiency Analysis. Management Science, vol 57, no 1, pp 200-214. Schmidlin, N., 2014, The Art of Company Valuation and Financial Statement Analysis A value investor's guide with real-life case studies (The Wiley Finance Series). Hoboken: Wiley. Walther, A., 2016, Jointly Optimal Regulation of Bank Capital and Liquidity. Journal of Money, Credit, and Banking, vol 48, no 2-3, pp 415-448. Wunsch, Karin, Gruber, Sabine, Claupein, Wilhelm., 2012, Profitability analysis of cropping systems for biogas production on marginal sites in southwestern Germany. Renewable Energy, vol 45, p 213.