ass#3 draft - PLEASE SUPPLY FEEDBACK

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?)