STEP
ONE:
1.1
Ratio Analysis-
In order to
successfully figure out financial ratios on behalf of Harvey Norman, I created
links between my ‘ratios’ tab, ‘restated financial statements’ tab and
‘financial statements’ tab in the form of formulas.
Profitability Ratios:
Net Profit
Margin:
Net profit
margin (NPM) is found by dividing a company’s ‘sales’ from their ‘net profit
after tax’. This then generates a percentage of revenue which is remaining
after all operating expenses, interest and tax has been deducted. As you can
see above, Harvey Norman’s NPM has varied over the past four years. They hit a
low in 2013 sitting at 10.9%, but has bounced back up in 2014 showing positive
results.
Return on
Assets:
Return on
assets can be found by dividing a company’s ‘net profit after tax’ by their
‘total assets’. This then generates a percentage which gives the company an
idea as to how efficient management is at using it assets to generate earnings.
As you can see, Harvey Norman’s ROA has also been up and down over the past
four years ranging between 9.4%-16%. In 2003, they hit an all time low but look
to be achieving better results as of late.
Efficiency Ratios:
Total Asset
Turnover Ratio:
To find a
company’s total asset turnover, you divide their ‘sales’ by their ‘total
assets’. This then generates a ratio that can measure the efficiency of a
company’s use of its assets. Harvey Norman has had a steady four years in
regards to their asset turnover.
Liquidity Ratios:
Current
Ratio:
To find a
company’s current ratio, you can divide their ‘current assets’ by their
‘current liabilities’. This will then measure whether or not a firm has enough
resources to pay its debts for the next 12 months.
Financial Structure Ratios:
Debt/Equity
Ratio: (debt / equity)
To find a
companies debt/equity ratio you can divide their ‘debt’ by their ‘equity’. This
then indicates the relative proportion of shareholders’ equity and debt used to
finance the company’s assets. In 2012-2013 Harvey Norman was sitting slightly
high in regards to their debt/equity ratio, but it looks as though it is
settling back down in the most recent years.
Equity Ratio
(equity / total assets)
To find a
company’s equity ratio, you divide their ‘equity’ by their ‘total assets’. This
generates a financial ratio which indicates the relative proportion of equity
used to finance a company’s assets. Harvey Norman has been sitting between
55.7%-59% for the last four years. You would hope this never needs to
fluctuate, they are currently sitting quite comfortably.
Market Ratios:
Earnings per
share (EPS) (Net profit after tax / nos of issues ordinary shares)
Earnings per
share is a term used to portray the portion of a company’s profit allocated to
each outstanding share of common stock. It is served as an indicator of a
company’s profitability. To figure out a company’s earnings per share, you can
divide their ‘net profit after tax’ by their ‘nos of issued ordinary shares’.
This looks to be on the rise for Harvey Norman which is a big positive.
Dividends
per share (DPS) (dividends / number of issues ordinary shares
Dividends
per share are the total dividends paid out over one year, divided by the number
of outstanding ordinary shares issued. Over the past four years, Harvey
Norman’s median is 336.76.
Price
Earnings Ratio (market price per share / earnings per share)
A
price-earnings ratio can be found by dividing a company’s ‘market price per
share’ by their ‘earnings per share’. Harvey Norman hit an all time low in 2013
but have sky rocketed since then, into the 400’s.
Ratios Based on Reformulated Financial
Statements:
Return on
Equity (ROE)
Return on
equity is the amount of net income returned as a percentage of shareholders
equity. It measures a company’s profitability by revealing how much profit they
generate with the money shareholders invest.
Return on
Net Operating Assets (RNOA)
Return on
net operating assets is a measure of financial performance. It can show a
company which year had the highest returned earnings.
Net
Borrowing Cost (NBC)
Net
borrowing costs can be found by dividing a company’s ‘net financial expenses
after tax’ by their ‘net financial obligations’. Harvey Norman was at -5.51% in
2012, then hit -2.46% in 2014. This means in 2012 they had less costs for
borrowing on a drop interest rate.
Profit
Margin (PM)
A profit
margin is the amount by which revenue from sales exceeds costs in a business.
Asset
Turnover (ATO)
An asset
turnover is another form of a ratio which measures the efficiency of a
company’s use of its assets in generating sales revenue and/or sales income to
the company. So, a company with a low profit margin tends to have high asset
turnover, while it is the opposite for those with high profit margins.
1.2
Economic Profit-
Economic
profit is the difference between the revenue received from the sale of an
output and the opportunity cost of the inputs used. As shown on Harvey Norman’s
financial statement, a key driver of their economic profit would be the
significant growth of their revenue and income stream seen in 2013-2014. Whilst these improvements could be seen as a
key driver, it is also worth noting that for the same accounting period -
Harvey Norman decreased their expenses by circa 39 million dollars.
STEP
TWO:
Please see
the ‘NPV & IRR’ tab on the Excel Spreadsheet.
STEP
THREE:
3.1 Student Feedback
Student #1: Filisha Kumar – via
ASS#3 Forum.
Step one- (calculation of ratios):
You have
done a fantastic job on step one! The layout makes it easy to read and you have
gone into just the right amount of detail for each ratio.
Step two- (Development of capital investment for firm & NPV / IRR):
Again, your
step two is done very well. You have chosen the direction you are wanting to
take and backed it up with evidence.
Step three-(feedback to other students):
N/A
Overall for ASS#3:
So far, what
a great job! Brilliant presentation and it looks as though you have got this
piece of assessment under control. J
Student #2: Sindi Babi – via ASS#2 Forum.
Step one- (calculation of ratios):
Step one was
done really well. You have explained what each ratio represents and how you
reached your final calculations. This section is also set out really well –
easy to read.
Step two- (Development of capital investment for firm & NPV / IRR):
N/A
Step three-(feedback to other students):
N/A
Overall for ASS#3:
If you
continue to put in this much effort for the rest of your assignment, you should
do very well. I found it to be detailed and very informative. Good job so far!
Student #3:
Step one- (calculation of ratios):
So far so
good! You have explained each ratio very well. I would suggest that you copy
and past your ratios from your excel spreadsheet, to your word doc. It gives
the reader a nice overview of your ratios.
Step two- (Development of capital investment for firm & NPV / IRR):
N/A
Step three-(feedback to other students):
N/A
Overall for ASS#3:
If you
continue to work as hard on the rest of you assignment , as you have in step
one, you will do well J Good luck.
3.2 What I think about other
student’s feedback (useful?)
