GSB003 Financial Statement Analysis of Acumentis Group Limited Assessment 1 Answer
The profitability and financial leverage both are essential to manage by the organization to sustain in long run. This report has divulged how well company has managed its business to strengthen its overall sales and efficiency maintained by company. It is found that Acumentis Group Limited has performed at the worse scenario in 2019 as the losses have been incurred and the company was not able to utilize the fund in a measurable way to increase the revenue and profit for the company. There is need to set up strong financial structure which could help Acumentis Group Limited to lower down its financial leverage with the reduction of the cost of capital
The financial analysis is used to assess the financial performance and how well company has been performing throughout the time. The financial analysis tools helps in assessing the business performance and also helps in formulating the effective financial strategic planning of the long term success of the organization. The ratio analysis helps in evaluating the two financial factors and determining the future growth of the organization. Business entities work to achieve the organization's goal and object of shareholders and for this purpose, they have to work hard to survive in the dynamic business environment. This report contains the financial analysis of Acumentis Group Limited to demonstrate the financial performance and position of the organization through the general purpose financial statement of the company. This analysis also includes the industry ratio to compare the company data with industry benchmark.
Overview of the Company
Acumentis Group Limited is engaged in providing the real estate service and providing the property valuation in Australia with revenue of $ 4,14,93,000 as from the latest annual report. This company has a company known as Landmark white limited which has been changed in 2019 to Acumentis Group Limited (Acumentis group limited, 2020). This company was founded in 1982 and having headquarter in Sydney, Australia in the real estate sector. This company has strengthen its business outcome sand increasing its share price which has shown the positive indicator for its future growth (Acumentis group limited, 2020).
2. Evaluate the financial performance and financial position of Company
The financial performance of the company can be considered to measure the organization's ability to utilize the assets through the business to generate the revenue of the company. It is also used to measure the overall performance for the given period. Income statement represents the revenue and expenditure of the company and its management while the balance sheet defines the management of the assets and liability of the company over the periods. For this financial analysis, the ratio analysis technique can be useful and compare the data with the past financial year and also with the industry benchmark (Gibson, & Frishkoff, 2012). Following are the ratio analysis of the Acumentis Group Limited (Acumentis group limited, 2020).
|Profitability ratio for Acumentis Group Limited (ACU.AX)
|Net Profit Ratio
|Net Profit/ Sale
|gross profit ratio
|Gross margin/ Revenue
|Net Margin/Net worth
|Return on total assets
|Net margin/Total assets
|Return on capital employed
|Net operating profit/Capital employed
Source :( Please look for the excel sheet for details calculation)
The shown profitability of company can be measure through the profitability ratio of the company. This ratio defines the profit capability for the shareholders from their fund. NP ratio of the company has been reduced in a major way as it has been reduced by more than 4 times in the current year (Haller, Link, & Groß, 2017).
(Acumentis group limited, 2020).
However, the reason for the negative NP ratio. As it is the service sector company hence there will be no GO ratio of the comoany.net worth of the company has been reduced by 32% while the operating capital of the company has also been reduced by 23% in 2019 due to which profitability of the company has been lower in the current year (Acumentis group limited, 2020). The company has filed to achieve the target from the last year and industry benchmark. The company has to improve the performance to make all the financial figures positive otherwise it will lead to the winding up of the company in a future financial year. It has also damaged the brand image of the company (Sierra-Garcia, et al. 2018).
|Liquidity ratio of Acumentis Group Limited (ACU.AX)
|Current ratio analysis
|Current assets / Current Liability
|Quick Ratio analysis
|Quick assets/ Current Liability
Source (Acumentis group limited, 2020)
Liquidity ratio reveals the data financial liquidity of the company which helps to make the payment to all the CL of company by conversion of the current assets, hence it also discloses the ability to convert the current assets into cash so that company can be able to operate the business by having the cash liquidity at all the level of business (Pinto, & Picoto, 2016).
(Acumentis group limited, 2020).
From the above calculation of current ratio, it is found that current ratio of the company has been decreasing from the last year and the reason behind such reduction is 84% hike of the current liability while the current assets of the company are reduced by 18% (Acumentis group limited, 2020). The same has been applied to the quick ratio as the quick assets of the company have also been reduced by 17% which has shown the lower liquidity in the company (Schroeder, Clark, & Cathey, 2019). The industry benchmark is far ahead of company database and management requirements to increase the liquidity of the company.
|Efficiency ratio Acumentis Group Limited (ACU.AX)
|Receivable Turnover ratio
|Revenue/ average debtors
|Working capital ratio
|Fixed assets ratio
|Revenue / fixed assets
|Assets turnover ratio
Source :( Acumentis group limited, 2020)
The business efficiency of the company helps to increase the business of the company hence it is required to have high efficiency of the company. From the above efficiency ratio analysis, it can be observed how the company has improved the efficiency within the company to face the competition and industry benchmark (Thier, et al. 2017).
(Acumentis group limited, 2020).
The receivable turnover ratio has been higher and demonstrates the credit policy has been improved as the debtors of the company have been reduced by 26% while the sales have just decreased by 1% during 2019. Revenue of the co any still higher, while the working capital of the company has been reduced by 67% therefore working capital turnover ratio, has been high during the current financial year. Fixed assets of the company can be utilized to improve the revenue for the organization hence management should deployment the fund in such a way that the performance of the organization improved. This ratio has been reduced because the fixed assets have been lower by 27% (Acumentis group limited, 2020). Assets turnover ratio also indicates the poor performance of the company as it has reduced by 10% in 2019.
|Capital Structure Ratio Acumentis Group Limited (ACU.AX)
|Debts capital ratio
|Total debt/ total capital
|Debt to equity ratio
|Total debt/ total equity capital
|Interest coverage ratio
|Interest / EBIT
Source :( Acumentis group limited, 2020).
The capital structure of the company can be understood through the kind of capital implement with the organization for the business purpose.
(Acumentis group limited, 2020).
From the above debt, capital is 9 % of the total assets and shows that is has been increased by 95% during the current year. Debt capital ratio also shows that 13% of the debt involved in the capital of the company and been the reason for the high finance cost during 2019 as compared to last year (Acumentis group limited, 2020). The interest coverage ratio also shows the negative result as the profit of the company has been negative and the company has performed below the average this year (Arif, Noor-E-Jannat, & Anwar, 2016).
From the above ratio analysis, it can be concluded that Acumentis Group Limited has performed at the worse scenario in 2019 as the losses have been incurred and the company was not able to utilize the fund in a measurable way to increase the revenue and profit for the company. Management requires to improve the profitability of the company during the current year and also implement the strategic tool to analyze the financial project which can provide the benefit to the company. Ratio analysis demonstrates that investor should not invest in this company as this impact the fund in a negative way (Otekunrin, et al. 2018).
This analysis helps in assessment of the financial costing of company. This WACC helps in determining the overall cost of equity and cost of debt and same is segregated to the proportion of the capital in the business. However, in order to compute the cost of capital, firstly, cost of equity is computed by using by using the WACC and after that the cost of the debt is done by using the KD method (Acumentis group limited, 2020).
|Computed cost of equity by using the CAPM method
|Computation of Cost of capital by using the WACC
|Cost of capital
|% of capital
|% of cost of capital
|total capital and WACC
(Acumentis group limited, 2020).
After assessing all the details, it could be inferred that the cost of capital of the company is way too low which is showing the benefits for the organization to sustain its business in long run and strengthen its profitability. There is need to take up more projects so that company could deploy its capital in other projects. There is need to raise more capital as the cost of capital of the company is way too low and if more projects is undertaken then the company would be benefited with the use of the low cost of capital. The company must focus on its business strategies and prepare the policy to implement within the organization which can lead to increase the revue and also help to control the cost.
3. Cost volume profit analysis to measure the financial performance
This analysis helps to understand the relationship between revenue and its cost to gain the profit for the company. The cost will be classified into two parts first is a variable cost and the second is a fixed cost. This cost-profit analysis help to prepare and understand the business plan of the company toward the future financial year. Revenue of the company is $ 41493 and the cost of the company is $ 45386 which is 109% of the revenue and leads to the losses for the financial year (Ariesta, Marlina, & Hidayati, 2019). This shows that the company has to control its fixed cost by increasing the production quantity and variable cost by meeting with the supplier of the raw material. The company also require to improve the business strategies as it has performed at a lower rate and also failed to face its competition in the market (Rodrigues, & Rodrigues, 2018). This cost volume profit analysis has helped company to identify the point at which it could have no profit and loss and identify the point which would give it higher business marginal outcomes on its sales (Acumentis group limited, 2020).
4. Recommendations to improve financial performance
For the improvement of the business performance of Acumentis Group Limited, top management require to follow the following step:-
- The top management has to review and create a new vision for the company and determine the benchmark to be achieved.
- Management requires to analysis the trend in the market and market volatility.
- Then the business plan should be devolved to achieve the goal and mission of the company (Rodrigues, & Rodrigues, 2018).
- Skilled and professional people should be hired to fit for the job and also the training program should be conducted to improve their technical skills.
- Business activity should be monitored at an appropriate interval and resolve any variance that will occur (Ul Hassan, Zainuddin, & Nordin, 2017).
- There is need to set up strong financial structure which could help organization to lower down its financial leverage with the reduction of the cost of capital.
- The strong profitability could be used by company to strengthen its business performance.
From the above key step, Acumentis Group Limited can scalp up the business of the company and also lead to result in positive profitability in the long term by achieving the shareholder's goal (Almamy, Aston, & Ngwa, 2016).
After analyzing the above financial performance of Acumentis Group Limited it can be observed that the ratio analysis technique helped to compare the data of financial statements for more than two years and find out the variances in the financial item disclose in the financial statement. This variance needs to be evaluated by the top management to find out the reason behind and resolve them as required to improve the business performance. Although ratio analysis still has the inherent limitation to provide the appropriate evaluation due to the influence of micro and macroeconomic factors. The company must focus on its business strategies and prepare the policy to implement within the organization which can lead to increase the revue and also help to control the cost. This policy should communicate with each employee of the organization so that they can understand their roles and respond appropriately.