FIN80004: Report on Ansell - Accounting Assessment

December 27, 2017
Author : Alex

Solution Code: 1ABBC

Question: Accounting Assessment

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Accounting Assessment

Case Scenario/ Task

This report states about the financial and investment viability of Ansell Limited after assessment of its financial reports and the financial ratios. After studying the financial reports it can be stated that the revenue of the firms has been on an increasing trend and the gross profit margins, return on equity of the company has always remained constant which is a very positive factor. This states that the operations within the company are being carried out smoothly.

The company has its vision of providing protection to people and has adhered to it by proving all kinds of protection products. It has expanded globally with acquisitions and at times has also sold out certain less profitable divisions. The company believes in innovation and has constantly strived to provide better quality products to its customers.

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Solution:

  • Introduction

The report states about the financial viability of Ansell Limited along with a brief information about the company and its operations. The business of the company has been studied in order to understand its revenue and its potential sources. It also gives an insight of its expenses which gives an understanding of its margins. The usage of the funds has also been assessed in order to understand the application off funds by the company and the type of investments that have been made by the company. The company strongly believes in expansion and innovation. The same can be assessed by studying a detailed schedule of its capital expenditure. The ratio of the company has been analyzed with the standard ratios in order to understand the profitability and financial growth of the entity.

  • Background of Company

The company has been founded in 1929 and is headquartered in Melbourne, Australia. The company majorly deals in all kinds of protective items like medical items, physical wellbeing protective items, single use solutions and medical solutions.

The main objective of the company is to offer the people against several kinds of risks they are exposed to by providing protective tools. The company believes in innovation and has regularly strived to improve the quality of its products. This can be assessed keeping in mind the huge amount of research and development cost that has been incurred by the company.

The company has been actively involved in acquisitions in order to ensure its global presence. The company has been an efficient performer and this can be analyzed by consistency in its financial performance over the past few years.

  • Usage of Funds:

Year 2011 2012 2013 2014 2015
Amount (Mil) USD 38.22 84.54 264.30 97.57 193.70

The capital expenditure schedule of the company has been studied in order to understand the usage of funds made by the company. The company has consistently employed its funds in capital expenditure over the last 5 years which states that the company is still expanding its operations. The company has also invested in acquisition which implies that the company has always had ample amount of funds for acquisitions. In addition to it, it also implies that company has the objective of expanding its horizon over the globe. The company has also invested in research and expenditure. A main reason behind such investment is the industry in which it is operating requires consistent research and development for long-term survival. Investment in leases states that few of the assets of the company have been acquired on lease and the company prefers to pay lease expenditure on them in place of capital expenditure.

  • Analysis

The financial statements of the company have been analyzed in order to assess the financial position and stability of the company.

All the ratios have been computed keeping in mind the figures of the annual reports of the company for the past 5 years.

Return on Assets

Year 2011 2012 2013 2014 2015
Ratio 9.76 10.14 8.59 2.04 8.72

The given ratio has fluctuated over the years and it had been seen at lowest in the year 2014. The gross profit margin of the company was at par when compared to the gross profit margin of past years. The main contributor to such ratio was an increase in the operating expense of the company which had impacted the operating income and the return of the company thereby reducing this ratio.

Return on Equity

Year 2011 2012 2013 2014 2015
Ratio 18.67 18.97 17.96 4.41 18.12

This ratio states about the return given to the equity investors of the company. The equity owners are the main risk bearers and owners of the company therefore also affects the share price of the company. This ratio of the company has always remained consistent close to 18% except in the year 2014. The main factor attributable behind such fall was the acquisition of the company during uncertain economic reforms and its restructuring plans which had been announced in June 2014. Therefore, this ratio states that the return of the company has remained consistent over the years. This is a positive indicator because it indicates that the operations of the company are being carried out efficiently. Since this ratio has remained consistent it gives the investor a projection of the future value of the shares. The investors generally have an inclination towards investments where the expected results are more certain.

Current Ratio

Year 2011 2012 2013 2014 2015
Ratio 1.46 2.62 2.18 2.55 2.73

Current ratio states about the working capital strength of the company. It is computed by dividing current assets by current liabilities. Generally, a current ratio of 2 is considered to be satisfactory. It implies that the twice amount of current assets to meet its current debt obligations. Ratio greater than 2 implies that the firm has working capital in excess of requirement which may imply that the firm is not able to invest its funds in capital assets and therefore, the funds of the firm are lying idle as working capital. Here the firm has maintained its current ratio slightly over 2 over the past 5 years. This ratio can be considered as almost satisfactory because they have remained slightly above 2. Therefore, the company has ample amount of liquidity and would be readily able to meet its current obligations.

Acid Test Ratio

Year 2011 2012 2013 2014 2015
Ratio 0.99 1.74 1.46 1.66 1.64

Acid test ratio is also known as quick ratio. This ratio is computed by using the current assets that are readily marketable to the current liabilities. Only those assets are considered whose liquidity is very high. A quick ratio of 1 is considered to be satisfactory because this ratio states that the entity must have an equal amount of readily marketable securities to meet its current debt obligations. A ratio greater than 1 implies that the company has excess investment in liquid assets. In the given case, the company has a ratio which is more than 1 for the past 4 years. This states that the liquidity position of the company is very good and it can easily meet its debt obligations. However, the current assets to meet the current liabilities are in excess. This liquid position can also be justified pertaining to the fact that the company has always remained active for acquisitions therefore, keeping some asset is liquid form is feasible because it provides the company with the flexibility in their acquisitions. The company can easily modify its bid because of presence of large amount of liquid assets.

Cash Ratio

Year 2011 2012 2013 2014 2015
Ratio 0.57 0.98 0.81 0.89 0.86

Cash Ratio states about the proportion of cash available with the entity with respect to its current liabilities. A cash ratio of around 1 is considered to be ideal however a cash ratio of less than 1 also does not denote that a firm is having financial difficulty. It states about the ability of the company to pay its current liabilities immediately with cash and cash equivalents without disposing off the current liabilities. In the given case, it can be observe that initially the company was maintaining lower cash ratio which increased considerably in the second year and then reduced in the third year and has remained almost consistent after that. The main factor attributable behind the same would be analyzing by the company of their optimum cash ratio and not keeping the cash idle in the company.

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