Valuation and Financial Statement System †Free Samples to Students

Question: Discuss about the Valuation and Financial Statement System. Answer: Introduction: Boral limited is a building and construction company based in Australia, Asia Pacific and America. Its main materials of construction are lime, oxides, decorative concrete, stone and structural timber limited (Allman and Escobar de Nogales, 2015). It is also involved in property activities and transport for its products. Ratios Formulae 2014 2015 2016 Net profit margin Net Income * Net Sales 189.875/3197.62= 0.059 196.733/3289.813= 0.006 163.15/4194.03= 0.039 Asset turnover Sales/ total assets 3197.62/4302.23= 0.74 3289.813/4489.96= 0.74 4194.03/5233.33= 0.80 Current ratio Current Assets Current Liabilities 1249.17/876.46= 1.42 1332.96/706.71= 1.89 1566.96/1101.6= 1.42 Quick ratio Cash + Accounts Receivable Current Liabilities 335.32+462.67/876.46= 0.91 387.18+504.77/706.71= 1.26 360.7+663.4/1101.6= 0.93 Debt ratio Total debt/ total assets 1701.6/4302.2= 0.395 1792.3/4489.9= 0.399 2081.4/5233.3= 0.397 Cash cycles A measure of how Boral limited converts its products into cash through its daily sales and is measured through inventory, receivables and payables and back to the cash again. Inventory being Current Inventory / Operating Revenue * 365 = 2016=413.65/3197.6*365= 47.22 2015=411.66/3289.8*365= 45.67 2014=497.15/4194.03*365= 43.26 Accounts payables being Creditors / Operating Revenue * 365 = 2016= 450.87/3197.6*365 =51.46 2015=491.06/3289.8*365 = 54.48 2014=610.49/4194.03*365 = 53.13 Accounts Receivables being Debtors / Operating Revenue * 365 = 2014=663.4/4194.03*365 = 57.73 2015=504.77/3289.8*365 = 56 2016=462.67/3197.6*365 = 52.81 Cash conversion cycle= inventory + receivables-Payables 2016= 47.22+ 52.81-51.46 = 48.57 days 2015= 45.67+ 56-54.48 = 47.19 days 2014= 43.26+ 57.73- 53.13 = 47.86 days Need and Usefulness of Financial Ratios There are different financial reasons to meet the needs of users. Each of these reasons has certain purposes. The following are examples of the most typical financial ratios used by different stakeholders (Balasundaram, 2012). The elements that limit and make difficult the financial analysis are those of accounting type, such as the comparison of the financial statements, the reconstruction of the accounting concepts, the reclassification of the items according to short and long term temporal criteria, the lack of Information in terms of average values, imprecision and reformulation of concepts, window dressing effect, among others (Lead With Cash, 2010). On the other hand, we take into account that the valuation of the financial analyst in seeking to obtain information for the setting of investment and financing criteria in a market or sector that presents inflationary problems, causes the analysis to develop with distorted figures, that even if they are repressed By any method, there are substantial differences in valuation and significant disagreements over whether they are restated through the maintenance of financial capital or physical capital (Sagner, n.d.). In an interesting work, this indicates that financial analysis, although irreplaceable to learn from the past, is nevertheless insufficient in itself for real decision-making, since experience has shown that situations of the past are not perpetuated. In addition, this researcher adds that the analysis of changes in the relative value of the different elements of the financial statements is ineffective if there are conceptual and technical problems (Vinturella and Erickson , n.d.). Hence we approach this type of problem to obtain a greater scope in our conclusions. Limitations Another common limitation is the dispersion of the data, since it is usually only possible to use a measure of central tendency as the average of the sector and this is insufficient. That is why financial analysis currently includes two very important types of techniques in its new structure: decomposition measures and statistical classification models. The first statistical technique allows the analyst to determine how the elements of a structure are distributed to analyze the changes that occur over time in the structure. These decomposition measures are based on the analysis of the amount of accounting information. The application of decomposition measures within the analysis of the financial statements is an opportunity to know if the company maintains its structure stable over time, or to be able to locate its weaknesses in relation to its sector (Sagner, n.d.). CSR ltd is a listed company in the ASX that produces building materials and products. It was founded in 1855 as a colonial sugar refining company. In this report, we shall analyze certain ratios of this company and compare it with Boral ltd, a company that is in the same building industry and compare how the two companies are doing in relation to one another (Wingard-Nelson, 2012). The ratios show that the company is performing well as its ratios fall within what the optimal ratios should be. RATIO FORMULAE 2014(millions) 2015(millions) 2016(millions) Net profit margin Net income/Net sales 99.1/511.4=0.194 146.7/654.5=0.224 169.3/771.5=0.219 Asset turnover Sales /Total Assets 1746.6/2008.3=0.869 2023.4/2119.3=0.955 2298.8/2215.8=1.03 Current ratio Current Assets/ Current Liabilities 635.5/425.2=1.49 704.9/466.3=1.51 785.7/488.8=1.61 Quick Ratio (Cash+Accounts Receivables)/Current Liabilities (5.9+54)/425.2=0.14 (68.4+51.4)/466.3=0.26 (73.1+319.6)/488.8=0.81 Debt Ratio Total Debt/ Total Assets 851.1/2008.8=0.42 913.3/2119.3=0.43 898.6/2215.8=0.41 Cash cycles This is a metric that is used to measure a companys management effectiveness and the overall health of the company (Wingard-Nelson, 2012). It measures how fast cash in hand can be converted into accounts payable and inventory, through accounts receivable and sales and then back into cash. 2014 2015 2016 Inventory being Current Inventory / Operating Revenue * 365 (326.4+66.1)/511.4*365=280 days (320+76.2)/654.5*365=220days (348.8+72.7)/771.5*365=199days Accounts Receivablesbeing Debtors / Operating Revenue * 365 (251.1+54)/511.4*365=217.7 days (268.7+51.4)/654.5*365=178.5days (319.6+51.3)/771.5*365=175.5days AccountsPayables being Creditors / Operating Revenue * 365 (195+5.4)/511.4*365=143 days (236.8+16.3)/654.5*365=141.1days (260.6+18.9)/771.5*365=132.2days Cash conversion cycle= 355 days 257 days 243 days This company should work towards reducing its cash conversion cycle days. References Allman, K. and Escobar de Nogales, X. (2015). Impact investment. Hoboken, NJ: Wiley. Balasundaram, N. (2012). Ratio analysis. [Place of publication not identified]: Lap Lambert Academic Publ. Lead With Cash. (2010). World Scientific. Sagner, J. (n.d.). Working capital management. Schmidlin, N. (2014). The art of company valuation and financial statement analysis. Chichester: John Wiley Sons. Vinturella, J. and Erickson, S. (n.d.). Raising entrepreneurial capital. Wingard-Nelson, R. (2012). Percents and ratios. Berkeley Heights, NJ: Enslow Publishers.