Write My Assignment Australia

Analysis is to evaluate to A.P. Eagers accounting

Accounting Analysis

The purpose of accounting analysis is to evaluate to which extent A.P. Eagers accounting is following a true business accounting policies. This section helps us to know the places where A.P. Eagers showing flexibility in its accounting. Also this section helps us to know how appropriate the estimation techniques and the accounting policies A.P. Eagers follows. All of these things helps us to know the credibility of numbers that A.P. Eagers publish in their annual reports and disclosures.

Policies

The annual report of A.P. Eagers shows the summary of all significant accounting policies that A.P. Eagers follows as “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”1. These summary outlines provide the information on policies that are used for estimation of numbers, cash equivalents, Fair Value, other equity investments, employee benefits, non-marketable securities, derivatives instruments, Loan payables and receivables, Income taxes, depreciation methods and other accounting related data sets. Most of these have “boilerplate” same language that is used to be in other companies annual reports accounting policies. Some of the points in paragraphs of summary of accounting policies provide most notable policies that shows the credibility of company financial statements.

            Use of estimates - A.P. Eagers use lots of estimates throughout their financial statements. These includes mostly the estimation of Acquisition of Automotive Holdings Group (AHG) and provisional fair values, Recoverability of goodwill and other intangibles with indefinite useful lives, Fair value of assets and liabilities acquired in business, Leases, Staff underpayment provision/liability, Used vehicle write down to net realisable value, New and demonstrator vehicle write down to net realisable value, Fair value estimation of land and buildings and Deferred Tax Asset.

            Fair value – It is the price that company pays for receiving an asset or pay for usually transfer of liability in a transaction made between two parties. While determining the fair value in acquisition of AHG Company uses a process referred as Purchase Price Allocation (PPA) process1. As using this process of acquisition there is a reduction of value of intangible assets by $145 million. On the other hand using PPA process impact on valuation of goodwill was inflated in excess of the fair value of net tangible and identifiable intangible assets.

Revenue Recognition – if we look over the revenue recognition of A.P. Eagers it seems quite complex due to revenues comes from different business segments like sales, service, rental, finance and insurance income. Like revenue from sales of vehicles is only recognized when the vehicles or parts are invoiced and physically dispatched or collected. On other hand service revenue only recognized when services are rendered but the parts used in services the revenue only recognized upon delivery of fitted parts to the customer upon completion of service.

Flexibility

A.P. Eagers is very imminent about it use of the estimates very extensively in their financial reporting. The main areas in which they used estimates are Fair Value of acquisition of AHG, employee benefits, valuation of inventories, depreciation methods, deferred income taxes and revenue recognition. The main real point of an action of using these estimates are to identify the fair value of those assets. The methodologies used in estimation of these fair value basically provide large amount of flexibility for A.P. Eagers.

Disclosure Quality

Annual reports provided by the company are may be about 100 pages or more, the latest report provided by A.P. Eagers is of 95 pages and within these annual report company make it less or more easy for the analyst to understand the company accounting quality and to know business reality of the firm. Overall form looking over the annual report of A.P. Eagers we can see the company had made all attempts to make its annual report as much as transparent as possible by using their financial statements reporting.

 

 

Financial Analysis

 

Common size & horizontal analysis

 

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

EBIT

27.01%

23.02%

6.27%

15.31%

16.56%

9.91%

1.66%

-3.41%

16.87%

Sales

32.24%

10.20%

0.94%

5.82%

14.00%

18.05%

6.22%

2.44%

41.44%

Net Income

27.35%

37.88%

15.14%

19.90%

13.46%

21.27%

-6.97%

3.06%

-227.62%

Debt

2.10%

28.74%

-4.48%

13.16%

2.54%

25.97%

4.88%

6.95%

263.09%

Equity

5.66%

23.10%

15.07%

9.63%

18.94%

8.65%

2.88%

-16.45%

28.05%

Assets

3.53%

26.44%

3.29%

11.60%

9.68%

17.79%

4.01%

-3.13%

175.80%


If we look over the common size analysis of the company financial statements there is decrease in the sales from financial year 2016 to 2018 by again it increase in 2019 and there is an unusual increase of 44.14%. Also we can see there is large fall of net income to -227.62% in 2019 and there is increase in the debt by 263% by previous year.

All this seems in 2019 is due to the acquisition of Automotive Holdings Group (AHG) and their consolidation of their financial statements.

Although if we look over the common size analysis of the financial statements of the company everything seems fine with company net profit.

Cash Flow analysis

It basically the analysis or evaluation of company cash inflows and outflows or we can say in other words from where the company is generating it cash and where it spending. Its helps in valuation of a company and tell us how much excess cash a company can produce.

By looking over cash flow statement cash flow from operating activities are increasing every year which shows the company is performing better.

Liquidity Analysis

It basically helps us to know the short term liquidity of the company. The ratios tells us the company is able to pay its short term liabilities from its liquid assets. Mainly two ratios helps in checking liquidity of the company one of quick ratio and other is current ratio.

 

FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

Quick Ratio

0.33

0.36

0.28

0.31

0.32

0.34

0.28

0.25

0.24

0.37

Current Ratio

1.26

1.29

1.15

1.26

1.21

1.29

1.21

1.11

1.13

0.94


In above table we can see the company quick ratio is below 1 and mainly constant. Quick ratio mainly accounts most liquid assets from current assets and it exclude inventories and it is not liquid as other current assets.

On the other hand the current ratio is decreasing every year and goes to below 1 in 2019 which shows the company is not capable of paying off its current liabilities from its current assets.

Income Analysis

Basically ratios for analyzing the income of the company all come from income statement. Ratios like EBIT margin, gross margin, profit margin and EPS. Some other ratios which we can consider and important are ROA analysis and EBIT ROA to access the income of the company.

EBIT margin helps in calculation of probability of company by dividing EBIT to net income. Also known as operating margin basically reflects the benefits that the company had generated through its economic activity alone.

Gross margin or gross profit margin is calculated by dividing gross profit to its sales.

Profit margin is the net profit divided by sales. This shows how much cents of profit a company generates from given dollar of sales.

EPS is the earning per share its helps to determine how much earning after deducting preferred dividends comes in hand of common shareholders. A higher EPS of a company more the valuable is the company.

 

 

FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

EBIT margin

2.08

2.07

1.85

1.71

1.64

1.69

1.53

1.67

1.57

 (1.43)

Gross Margin

2.36%

2.42%

2.90%

3.27%

3.62%

3.89%

3.65%

3.43%

3.17%

2.01%

Profit Margin

1.65%

1.67%

2.05%

2.39%

2.63%

2.63%

2.69%

2.39%

2.43%

-2.17%

EPS (cents/share)

103.80

127.14

33.20

35.63

43.11

50.28

54.91

52.18

50.80

 40.60


In above table we can see the company performance in nearly constant in all years but 2019 it suddenly goes down. EBIT margin and profit margin goes to negative which showing the company is in net loss. The company in rest years before 2019 is in profit. As per the income statement that is due to the increase in the expenses of the company as compare to previous years.

 

Capital Structure Analysis

            Financial leverage – these ratios sometimes are also known as debt or equity ratios. They basically helps in analyzing the debt of the company for measuring the value of equity of that company. These ratio helps in measuring the load of debt a company had by comparing it with the company equity or assets. This helps us to know that how much company assets are belonged to creditors and how much to shareholders.

In case when creditors own more assets than the company is highly leverage or if the shareholders owns more assets than that company is less leverage.

Most common type of leverage ratio we analyze are debt ratio, debt to equity ratio and equity ratio.

Debt ratio or solvency ratio is measure of company total liabilities to total assets in terms of percentage which shows the company ability to pay off its liabilities form its assets.

Debt to equity ratio shows how much company financing are coming from investors or creditors. Higher the ratio display that more the money is coming from creditors than from investors. It basically calculate by dividing total liabilities to total equity.

Equity ratio also known as investment leverage shows the amount of assets that are financed by the investors. This shows how much assets are left with the investors after paying all liabilities. It is calculated by dividing total equity to total assets.

 

FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

Debt Ratio

59.98%

59.15%

60.23%

55.70%

56.48%

52.80%

56.47%

56.94%

62.86%

82.76%

Debt to equity ratio

149.86%

144.80%

151.44%

125.71%

129.76%

111.86%

129.70%

132.23%

169.27%

479.96%

Equity Ratio

40.02%

40.85%

39.77%

44.30%

43.52%

47.20%

43.53%

43.06%

37.14%

17.24%

 

For the above table of ratio for past ten years we can see the company is becoming highly leveraged as it debt ratio in increasing and equity ratio is decreasing that means most of its assets are financed by the creditors rather than that of investors. In 2019 the company D/E ratio was 479.96% which is on very higher side. By looking over the high leverage we can say it not the good sign for a company as it increase the interest burden on the company.

Coverage

These ratio helps to figure out the ability of that company to pay off its liabilities. These seems somewhat similar to that of leverage ratios but it helps in analyzing that the company have ability or whether company can afford to pay interest on the debt it has.

            Interest Coverage – also known as time interest earned ratio use to analyze how much proportionate amount of company income used for covering the interest expenses in near future. Calculated by dividing Income before interest and taxes (EBIT) by Interest expenses given in the income statement of the company.

 

FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

Interest coverage

3.11

3.25

4.14

4.71

5.71

6.90

6.62

6.67

5.98

2.83

 

In above we can see the capability of the company decreased in 2019 as compared to previous years to the times a company pay the interest from its EBIT. But still the figure is near about 3 which is not the bad sign and shows company has enough EBIT to pay off the interest on its debt.

Growth and risk analysis

The Growth and risk analysis helps us to know the financial flexibility of the company.

We use Dupont 3 factor model to analysis.

ROE = Profit Margin for ROE x Assets Turnover x Capital Structure Leverage

 

Profit Margin for ROE = Net Income / Sales                                                                                                                      = -129,124,000.00 / 5,816,979,000.00                                                                                         = 0.0222

Assets Turnover = Sales / Average total assets                                                                                                      = 5,816,979,000.00 / 3,321,459,000.00                                                                                      = 1.75

Capital Structure Leverage = Average total assets / Equity                                                                                                     = 3,321,459,000.00 / 840,612,000.00                                                                                          = 3.95

ROE = 0.022 x 1.75 x 3.95

ROE = 3.98

 

 

Get It Done! Today

  • 1,212,718Orders

  • 4.9/5Rating

  • 5,063Experts

"

Dissertation-
“My wound healing efficacy dissertation turned out just excellent with the extreme level of proficiency. I did not expect online writers to do such a scrupulous job. The content was precise, scientific, and thoughtful. Likewise, the sources were cited according to APA standards. I could not have been happier. I entrust my success to the dissertation professionals of Thestudenthelpline and recommend everyone for the same.” - Evelyn

Assignment writing-
"I never expected my first year to be that hard, and I panicked when I saw so many papers assigned to me. In spite of being a diligent student, I ordered this one assignment due to a lack of time to 'Thestudenthelpline'. I got my essay written according to almost all the instructions directed to the website. The writer did it well. Moreover, the price was not expensive either. I will use this service again if necessary." - Harper, a psychology freshman

Essay writing
"I ordered a 3-page essay on comparative analysis from Thestudenthelpline. Though the comparative analysis is not easy, it did not count as complex. The essay writers are very patient and open to customer views. Because of the cooperative writers, I was able to deliver my essay way before the deadline. The essay was structured with the proper sentence skills and had all the necessary sources, cited according to the rules. You can definitely place your order here if you need qualified assistance." - Aubrey

"

Highlights

  • 21 Step Quality Check
  • 2000+ Ph.D Experts
  • Live Expert Sessions
  • Dedicated App
  • Earn while you Learn with us
  • Confidentiality Agreement
  • Money Back Guarantee
  • Customer Feedback

Just Pay for your Assignment

  • Turnitin Report

    $10.00
  • Proofreading and Editing

    $9.00Per Page
  • Consultation with Expert

    $35.00Per Hour
  • Live Session 1-on-1

    $40.00Per 30 min.
  • Quality Check

    $25.00
  • Total

    Free
  • Let's Start