PURPOSE
Financial Statement Analysis – To calculate and analyse financial ratios using actual
reported data.
REQUIRED
Given the financial statements and the additional information, analyse and discuss the
financial performance and position of Specialty Fashion Group Limited. You should
refer to the notes to the financial statements and the Director’s Report for further details
and clarifications of changes in the financial statements. (You may find the Full Year
Results CEO & CFO Presentation useful for this assignment).
Your analysis should be supported by profitability, liquidity, gearing and other
appropriate ratios from Chapter 18 of the prescribed textbook.
Calculate and analyse financial ratios (percentage and ratio analysis)
Use the 2017, 2016 and 2015 published annual reports to obtain the financial statement
figures needed to calculate the ratios (where there are consolidated accounts, use the
consolidated amounts). In addition, students are strongly advised to:
perform horizontal and vertical analyses of the Statements of Financial Position
(Balance Sheets) and Statements of Profit or Loss (Income Statements) for the
company
read all parts of the Annual Reports
Instructions
Your report should calculate* and analyse the following ratios, in clearly identified
separate sections:
Profitability
Rate of return on net sales
Rate of return on total assets
Asset turnover
Rate of return on ordinary shareholders’ equity
Earnings per share (given in the Annual Report)
Liquidity
Working capital
Current ratio and Acid-test ratio
Inventory turnover and Days in inventory
Gross profit percentage
Accounts receivable turnover
Days’ sales in receivables
Gearing
Debt ratio
Debt to equity ratio
Times interest earned ratio
(* Tabulate and show the formula and detailed calculations in an Appendix.)
Your analysis should include:
Year-to-year (2017 and 2016; 2016 and 2015) comparisons (horizontal analysis).
Use the Director’s Report and the Notes to the Accounts to further justify your
answer.
The components of each ratio should be investigated to determine the significant or
determining factors in any change to the ratio.
These significant factors should then be investigated to determine (to the extent
possible) the cause and sustainability of their change (refer to example below).
Example of a current ratio analysis: Company X current ratio increased from 1.2 to 4.3. The
company increased its ability to pay its debts in the short-term. The main reasons for the
increase were a 22% increase in cash and a 14% decrease in trade payables. The increase
in cash and the decrease in trade payables were both a result of reductions in purchases of
inventory. This is unlikely to continue as the company was depleting a previous overstock.
Each ratio analysis will be marked on the correctness of the comparisons and the
identification of the determining factors. The depth and correctness of analysis of the
factors will be the primary criteria for grade differentials in this assignment. The
determining factors need not be confined to the annual reports, but they must be relevant
to your analysis.
Check the web link (www.specialtyfashiongroup.com.au) to the Annual Reports of
Specialty Fashion Group Limited.
