Country : Australia
Assignment Task:

Required:
1. Does your company employ a strategy ofproduct differentiation, cost leadership, or a combination of both? You can find information about a company’s strategy in its 10-K and in the D&B Business Browser.

2. Based on your answer to (1), what are yourgeneral expectations for R&D expense (innovation), gross profit margin, net profit margin, and asset turnover for your company?

Given the company’s focus on the AMS segment to drive growth, I expect to see more R&D, higher margins and lower turnover, although it might take a few more reporting periods for this strategy to manifest in the financial statements.

3. Using horizontal and vertical analyses, identify and comment on key changes in your company’s income statement and balance sheet for the last three years.

Income Statement
Gross profit% dipped in 2018 but increased in 2019 despite a drop in sales. Net profit margin percentage increased substantially in 2018 (recall that 2017 was depressed due to one-time increase in tax expense), but fell in 2019. R&D as a percentage of net sales has fallen in each of the last two years. Total gross profit fell a bit in 2018, but recovered in 2019. The dollar amount of R&D has also fallen over the past two years. Operating profit as a percentage of net sales is fairly consistent over the past two years, as is its dollar amount.

Balance Sheet
Cash decreased as a percentage of total assets and in total dollar amount in 2018, but increased in 2019.The percentage of inventory to total assets has been steadily increasing and the dollar amount of inventory increased in 2019. PP&E has been steadily decreasing, both as a percentage of total assets and in total dollar amount.

The dollar amount and percentage of long-term debt has steadily decreased over the past two years. 

4. Calculate your company’s sustainable growth rate for the past three years and comment on its trend.

a) If your company wanted to increase its sustainable growth rate, could it do so via profit margin, asset turnover, and/or financial leverage?
i) When answering this question:
(1) Calculate ROE and its component ratios.
(2) Refer to your prior analyses of ratios.
(3) Integrate your vertical and horizontal analyses.
(4) Consider how effectively your company uses leverage (ROE-ROA)
(5) Compare your company’s ROE, ROA, and Financial Leverage Ratio to industry benchmarks and comment on differences.

b) If your company pays dividends, comment on the implications of reducing dividend payout to achieve higher growth.


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  • Posted on : July 14th, 2019
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