Draft ASS#2

Hi all,

Please see attached my draft assignment for feedback. You can also find my firm’s financial statements through the link below.

I look forward to your feedback. Any feedback will of course be reciprocated.

https://www.autoneum.com/investor-relations/financial-reports/

12066074 – Haitham Haddad – Autoneum Financial Statements

ASS#2 Steps 3 to 6

ASS#2 Feedback Template

Kind regards,

Daniel

Step 3 – Ratios Commentary

Profitability Ratios

The profitability ratios for the years in review are in a bell shape. That is, they increase from 2015 to 2016, remain somewhat steady from 2016 to 2017, and then drop back to 2015 levels in 2018. This is despite revenue increasing steadily throughout 2015 to 2018. This implies costs have increased more than revenue has. A quick glance at the income statements suggests this is true.

Efficiency (or Asset Management) Ratios

These ratios have steadily decreased over the years in review. To me, this means that for every dollar invested in the firm, the firm has been making less sales. Given the firm has been steadily increasing revenue over the years, does this mean the increase in sales has not been value adding?

Liquidity Ratios

There appears to be no consistent trend in these ratios nor any drastic fluctuations, which is good I suppose. The current ratio and quick ratio 1, all show numbers that are greater the one, which means the firm has net assets. The ratios for quick ratio 2, turns all the figures in to under 1, which implies that receivables make up a considerable portion of assets and perhaps that the firm is not sitting on that much cash.

Financial Structure Ratios

The average debt to equity for Autoneum is 1.54. A quick online search suggests this is very high relative to its competitors. The average for Autoneum’s competitors are around 0.50. The same can be said for the equity to assets ratio, it is very low compared with their competitors. The firm’s times interest earned ratio appears to be in good shape, with the lowest being at 6.3 in 2015. This tells me that in 2015, that the firm could meet its interest payments from its EBIT 6.3 times over.

Market Ratios

I found these ratios told me very little about the business of Autoneum. The only real takeaway for me is that I would not be investing in Autoneum for cash flow with a high of 3.1% in 2015 for its dividend yield ratio.

Ratios Based on Reformulated Financial Statements

Dividend Payout Ratio

This ratio fluctuates a lot. It appears Autoneum prefers to keep its dividends in dollar value somewhat consistent, however because CI fluctuates a lot it causes this ratio to fluctuate a lot.

Return on Equity (ROE)

Autoneum’s ROE has a high of 30.0% in 2016, compared with a low of 3.2% in 2018. This is a pretty drastic difference. The 2018 figure of 3.2% looks to be the result of increasing equity and a reduced CI. This suggests management is not using the company’s assets efficiently, in order to generate a profit.

Return on Net Operating Assets (RNOA)

This calculation produces virtually the same results as ROE does, so nothing worth mentioning additionally here.

Net Borrowing Cost (NBC)

These figures end in a low of 5.1% in 2018, from a high of 31.4% in 2016. It appears the firm has increased its NFO, but net financial expenses after tax remained steady.

Profit Margin (PM)

These figures appear virtually the same as the calculations from non-re stated figures.

Operating Liability Leverage (OLLEV)

Autoneum has kept its operating liabilities steady, whilst increasing its NOA, resulting in a decreasing OLLEV.

Financial Leverage (FLEV)

This ratio has remained very low and relatively stable.

Return on Operating Assets (ROOA)

From 2016 to 2018 this ratio has declined, which is consistent with all the other efficiency ratios, which have been suggesting the firm’s efficiency of assets have been decreasing over time.

Operating Liability Leverage Spread (OLSPREAD)

I struggled to fully interpret this one. I went back through the study guides and did some Google and YouTube searches, but this revision did not help much. I can see the calculation is ROOA minus the short-term borrowing rate, which here is 5%. To help me think about, I thought, what if ROOA only equalled 5%? Therefore, OLSPREAD here would be 0%. Thus, I am going to conclude (rightly or wrongly) my understanding of OLSPREAD is the additional income earned from using operating leverage.

Asset Turnover (ATO)

This figure has been steadily declining from 2015 to 2018. This means that for every proceeding year; the firm has made less sales for every dollar of NOA.

Growth in sales, operating income, net operating assets, and shareholders’ equity.

Growth in sales is evident, but the level of growth remains roughly the same and minor. Growth (or decline here) in operating income goes from a high of 189.2% in 2016 to a low of negative 54.9% in 2018.  Operating income is down in 2018 due to quite a large increase in quite a few operating expenses. Growth in NOA remains modest, except for in 2017, which appears largely due to an increase in tangible benefits. Shareholders equity was growing rapidly until 2018, when it went from 31.5% in 2017 to 1.2% in 2018. The sudden and large increase in tangible benefits looks to also be to blame here.

Free Cash Flow

Free cash flow is in the negatives for 2017 and 2018. Autoneum’s OI has been sliding and its NOA has been increasing, resulting in the negative free cash flow.

Implicit Interest After Tax

Autoneum’s implicit interest rate after tax has remained steady, which makes sense as the short-term borrowing rate is not changed from 5% and there has not been any drastic changes in its operating liabilities.

Economic profit

Economic profit has been fluctuating pretty drastically, resulting in a high of CHF 104.6 million in 2016 and a low of negative CHF 11.6 million in 2018. This looks to be the result of decreasing OI, a key input of RNOA, which is a key input of economic profit.

 

 

Financial Statement Analysis – ASS#1 draft

Hi all,

Please see attached my draft ass#1 for feedback. You can post your feedback here, on the blog forum in Moodle, or by email @ haitham.haddad@cqumail.com.

Please note, it is only about 70% complete.

I look forward to your comments.

Kind regards,

Daniel

 

12066074 – Haitham Haddad – Autoneum Financial Statements

ASS#1 Step 3 – 5

AmberTech Limited and Controlled Entities

G’day everyone,

Please see below some info about my firm and the industry within which the firm operates.

What does the firm do and who is Amber Technology?

“Amber Technology is one of Australia’s largest and most respected distributors of technology equipment solutions for the professional media, film, recording, live production and home entertainment marks.” – Amber Tech.

Amber Tech essentially provides both goods and services to a large range of both commercial and retail customers. The firm was formed in 1987 and was ASX listed in 2004. Considering the firms biggest cost is to its suppliers, I deduce that it provides substantially more goods, than it does services.

Amber Tech does not produce the goods that it sells; it purchases them from its producers to which it claims to have exclusive rights. The firm essentially buys products wholesale and then re sells it to its customers at a mark-up. Judging by the firm’s 12 million dollars worth of inventories listed on its balance sheet, I assume that the firm has to hold on to a considerable amount of its products before it moves on.

The firm focuses in five key areas or ‘solutions’:

  1. Media Systems: Content creation, acquisition, delivery, processing, asset management for broadcast and new media.
  2. Professional Products: Sound equipment for live sound installations including musicians, stage shows and media.
  3. Commercial installations: Audio, visual and infrastructure brands for commercial custom installation projects.
  4. Residential Installations: Audio, visual and infrastructure brands for home cinema, multi-room AV and more.
  5. Home Entertainment: Our network of electronic retailers supply high end audio, visual and accessory brands for the home.

Random facts about Amber Tech’s 2017 annual report and the company itself:

  • Currently employees 84 people, down from 94 in June 2016
  • Net loss after tax of 634k in 2017 FY, down from a profit of 237k in 2016
  • Revenues decreased by 11.9% in past FY
  • Borrowings increased by 859k in past FY
  • The board is ‘cautiously optimistic’ for strong growth in the next FY
  • Remunerations of directors have not changed since 2010, despite returning a net loss year on year since 2013 to present (except in 2016)
  • The firms gross profit margin equals 0.679
  • Accumulated loss of 963k in 2017 FY
  • There was a management buyout in 1987.

Click here to watch a video explaining what a management buyout is and why the managers of a firm would decide to initiate and / or partake in a buyout.

What is the industry like?

The firm primarily operates in the technology distribution sector, whist also providing some services that would be considered to be in the technology and media sector. The distribution sector is facing increasing pressure to reduce prices, mainly due to increased competition in the industry and easier access for consumers to go direct to wholesalers via online services such as Amazon. Further, the media and broadcasting sector (which some of the major clients of Amber Tech operate in) are facing a high degree of uncertainly at the moment due to the significant uptake of online streaming services such as Netflix and Stan.