Financial analysis for Oatland & Wollongong-Samples for Students

Question: Discuss about the Financial analysis for Oatland Golf Club and Wollongong Golf Club. Answer: Introduction The report aims to do a financial analysis for Oatland Golf Club and Wollongong Golf Club. The important financial considerations for the discussion is able to include Current ratio, Quick ratio, Accounts receivable turnover, Number of days sales in receivables, Debt to Equity ratio, Number of times interest charges are earned and Return on Assets. Some of the other financial consideration is seen to include Return on Equity and Earnings per Share on common stock. Oatland Golf Club situated in suburb of Sydney, in the state of New South Wales, Australia is affluent with the organizing a rewarding game. The Golf course also takes several initiatives to support the basic elements of golf including, the correct grip and getting along with the on-course play. The main program of the compansy is seen to commence from Sunday 4th February 2018 till Sunday 25th March 2018. The golf course is also able to include 8-week programme (8 x 45-minute sessions) which considers various aspects of the game (Oatlands Golf Club, 2018). Wollongong Golf Club is situated between magnificent Illawarra Escarpment and beautiful Pacific Ocean. The golf club was established in 1897, a decade before electricity was introduced and club shares the honour for being one of the oldest in the country. The club offers wide range of selection of bars and function spaces. It offers AAA rated accommodation along with award winning service. The true link of the company enjoys a round to indulge in the unique experience which is offered in Wollongong. The interpretation of the ratio analysis is done mainly on three aspects, namely liquidity, solvency and profitability ratio. Under the liquidity ratio, ratios such as current ratio, quick ratio, asset receivable turnover ratio and number of days sales in receivables has been calculated. Under solvency ratio total liabilities to total assets, interest coverage and debt equity ratio is calculated. The profitability ratio has included the analysis of net margin percentage, redone on assets and return on equity (Wollongonggolfclub.com.au, 2018). Oatlands Golf Club 2014 2015 2016 RATIO ANALYSIS Liquidity Current Ratio % 49% 63% 51% Quick Ratio $0.4 0.579300351 0.422362672 Accounts Receivable Turnover (times) 0.92 -0.82 Number of days sales in receivables 6.74 6.53 6.47 Solvency Debt to Equity Ratio % 33% 36% 33% Interest Cover (times) 0.25 0.15 -0.15 Total Liabilities/Total Assets 25.0% 26.3% 24.7% Profitability Net Margin % 1.33% 1.78% -1.95% ROA % 0.6% 0.9% -1.0% ROE % 1% 1% -1% Ratio Analysis Current ratio The report has shown the computation of current ratio by dividing the current assets with current liabilities. The current ratio percentage of the company is discerned to be 49% in 2014, 63% in 2015 and 51% in 2016. This shows a reducing trend in the recent year for computation of current ratio. The decreasing nature of the current ratio shows that the company has considerable ability to pay short-term and long-term obligations (Andrijasevic Pasic, 2014). Quick ratio- The calculation of legal issues done by subtracting inventories from current assets and dividing it with current liabilities. The quick ratio is further depicted with a stagnant trend of 0.42 in 2014, 0.58 in 2015 and 0.42 in 2016. Short-term liquidity has not depicted any significant increase in performance in 2016. The decrease in the value of both quick ratio and current ratio is evident with the evaluation of the movement in the values of annual report which clearly shows that from 2014 to 2015 there was an increase in current assets by 40%, from 2015-16 the current assets got reduced by 20% (Evans Mathur, 2014). Accounts receivable turnover- This ratio has been used to measure the effectiveness of the firm in collecting debts and extending credit. Receivables turnover ratio has stated that in 2015, the company was able to efficiently utilize its assets and this is reflected with Accounts Receivable turnover ratio of 0.92 times. However, due to significant increase in the collection period in 2016, the ratio was discerned as -0.82. The calculation of receivables turnover ratio is done by dividing the net credit sales value by average accounts receivable. The main consideration of the calculation is done on annual basis (Lakshmi, Martin, Venkatesan, 2016). Number of days sales in receivables- The computation of DSR is seen with dividing the Accounts Receivable by average sales per day. The company has shown a decreasing and then increasing trend of number of days sales in receivable. This is evident with 6.74 days in 2014, 6.5 days in 2015 and 6.4 days in 2016. The decreasing trend of number of days since in receivables over time clearly shows that the company that the company is selling its product to customers on credit and taking significantly less time to collect money (Adedeji, 2014). Debt to Equity ratio- The depiction of debt-to equity ratio is seen to be done with diving the total long-term borrowings by total capital. A deeper understanding of the debt equity ratio for Oatlands Golf Club has able to show that the company has significantly able to reduce its debt equity ratio which is a positive sign. The lowering value of the debt equity ratio indicates that that there is a less relation of proportion of shareholders' equity and debt used to finance a company's assets. The lowering value of debt equity ratio is evident with 0.33 in 2014, 0.35 in 2015 and 0.32 in 2016 (Islam, 2014). Number of times interest charges are earned- The consideration for this ratio clearly shows how easily company is able to pay interest expenses on the outstanding debt. The consideration of Interest Cover (times) is seen with a decreasing trend. This is evident with 0.25 in 2014, 0.15 in 2015 and -0.15 in 2016. Due to a significantly low interest charges on in 2016, the golf club is burdened by debt expense over the time (Shah Jan, 2014). Return on Assets- Return on assets acts as the main indicator to illustrate the profit of the company in terms of total assets. In the given case, it is calculated by dividing the total earnings by total assets. Henceforth, it is not able to generate enough net income by total assets. As per the analysis of Oatlands Golf Course, the return on asset has first increased from 0.6% to 0.9% in 2015. However, the profit in terms of assets has reduced in 2016, which is evident with a return on asset ratio of -1% in 2016 (Grohmann, Kouwenberg, Menkhoff, 2015). Return on Equity- This is discerned as the amount of net income in terms of percentage of shareholders equity. ROE is discerned as corporations profitability by revealing based on the amount of profit company generates from the invested amount by the shareholders. The evaluation of this ratio is done by dividing net income by shareholders equity. Based on the given scenario Oatlands Golf Club has first depicted a stagnant and then a decreasing return on equity. This is evident with ROE of 1% in 2014 and 2015, followed with a decrease of 1% in 2016. The decreasing trend of ROA clearly suggests that company is not able to generate sufficient profit from the amount of investment made by the shareholder (Zainudin Hashim, 2016). Wollongong Golf Club Limited 2013 2014 2015 RATIO ANALYSIS Liquidity Current Ratio % 96% 88% 149% Quick Ratio 0.913886446 0.869131091 1.470018555 Accounts Receivable Turnover (times) -0.62 1.00 Number of days sales in receivables 7.65 7.53 6.86 Solvency Debt to Equity Ratio % 12% 9% 5% Interest Cover (times) -0.23 -0.39 0.20 Total Liabilities/Total Assets 101.9% 108.2% 69.8% Profitability Net Margin % -4.79% -2.88% 3.63% ROA % -15.9% -13.6% 20.4% ROE % -2% -1% 2% Ratio Analysis Current ratio Wollongong Golf Club Limited is comparatively in a much better position in terms of current ratio than Oatlands Golf Club. It has sufficient current assets such as cash, accounts receivables, inventories and prepaid expenses to bear the short-term and long-term obligations. This is seen to be evident with a current ratio of 0.96 and 2013, 0.88 and 2014 and 1.48 and 2015. The increasing trend of current ratio clearly suggests that Wollongong Golf Club Limited will be able to meet all short-term capital requirement (Raki?evi?, Miloevi?, Petrovi?, Radojevi?, 2016). Quick ratio- Similar to the current ratio, the quick ratio of the company is depicted with an increasing trend. This is evident with a quick ratio of 0.91 and 2013, 0.87 in 2014 and 1.47 in 2015. The increasing nature of the quick ratio shows that Wollongong Golf Club Limited is experiencing a solid top line growth thereby converting the receivables into cash to meet the financial obligations. Based on such increasing growth rate of acid test ratio can be said that the golf club has a faster inventory turnover and cash conversion cycles (Richardson, Lanis, Taylor, 2015). Accounts receivable turnover- The interpretations as per Accounts Receivable turnover is also increasing in nature. This is evident with Accounts Receivable of -0.62 in 2014 which increased to 1 in 2016. The linear growth in this ratio shows that the golf club is efficient enough in collecting debts and extending credit (Xu et al., 2014). Number of days sales in receivables-In this area also the company has made a significant improvement. Wollongong Golf Club, has reduced time taken to collect the money from customers after providing them the services on credit. The growth in Number of days sales in receivables is evident with 7.65 days in 2014 which further reduced down to 7.53 days in 2015 and 6 .86 days in 2016 (Omar, Koya, Sanusi, Shafie, 2014). Debt to Equity ratio- The debt equity ratio is expressed in terms of percentage and reducing trend of percentage over the years clearly states that the company is able to make a significant progress in reducing the reliance of shareholders' equity and debt for financing the assets of the company. In 2014, the debt-to-equity ratio of Wollongong Golf Club was 12%, which reduced to 9% in 2015 and 2016 it got reduced by 5%. This has been depicted with the reducing trend of long-term debt over the years, which is evident with long-term debt of $ 623972 in 2014, $ 327415 in 2015 and $ 40851 in 2016 (Normah et al., 2014). Number of times interest charges are earned- The time taken to pay the interest amount on the outstanding debt has been considered with the increasing trend. This is evident with interest coverage ratio of -0.23 in 2014, -0.39 in 2015 and 0.20 in 2016 (Adewuyi, 2016). Return on Assets- The illustrations as per this ratio clearly suggests that the company is able to generate enough net income in terms of total assets. The return on assets have increased from -15.9% in 2014 to -13.6% in 2015 and the significant rise in the growth was evident with 20.4% in 2016. This clearly shows that Wollongong Golf Club is in a stable position to generate income from the available assets (Hoberg Maksimovic, 2015). Return on Equity- The interpretations of this seen with corporations profitability by revealing based on the amount of profit company generates from the invested amount by the shareholders. The companys profitability based on the invested amount by the shareholders is depicted to increase from -2% in 2014, -1% in 2015 and 2% in 2016 (Schoenmaker Wierts, 2015). Conclusion The discussion on ratio analysis is able to suggest that Wollongong Golf Club is in a significantly better position despite of certain downtowns in 2014 and 2015. However, the improvement in areas such as cash and cash equivalents, reduced short-term borrowing and current maturities have significantly contributed to a better current ratio, quick ratio, accounts receivables ratio and number of days sales in receivables in 2016. The interpretations as per solvency ratio has also shown that the companys debt to equity ratio is in a significantly better position over the years. Henceforth, despite of certain downtowns in 2014 and 2015, it has been able to recover its position by improving on overall financial management. The significant improvement is seen with reducing the overall operating expenses over the years. Oatlands Golf Club on the other hand, has been considered with the improving trend in 2014 and 2015 and a reducing trend in 2016. The lowering value of the debt equity ratio indicates that that there is a less relation of proportion of shareholders' equity and debt used to finance a company's assets. The lowering value of debt equity ratio is evident with 0.33 in 2014, 0.35 in 2015 and 0.32 in 2016. In addition to this, Oatlands Golf Club is not able to generate enough net income by total assets. As per the analysis of Oatlands Golf Course, the return on asset has first increased from 0.6% to 0.9% in 2015. However, the profit in terms of assets has reduced in 2016, which is evident with a return on asset ratio of -1% in 2016. Wollongong Golf Club has sufficient current assets such as cash, accounts receivables, inventories and prepaid expenses to bear the short-term and long-term obligations. This is seen to be evident with a current ratio of 0.96 and 2013, 0.88 and 2014 and 1.48 and 2015. The increasing trend of current ratio clearly suggests that Wollongong Golf Club Limited will be able to meet all short-term capital requirement. Moreover, the interp retations as per Accounts Receivable turnover is also increasing in nature. This is evident with Accounts Receivable of -0.62 in 2014 which increased to 1 in 2016. The linear growth in this ratio shows that the golf club is efficient enough in collecting debts and extending credit. The increasing nature of the quick ratio shows that Wollongong Golf Club Limited is experiencing a solid top line growth thereby converting the receivables into cash to meet the financial obligations. Based on such increasing growth rate of acid test ratio can be said that the golf club has a faster inventory turnover and cash conversion cycles. These evaluations clearly depict that Wollongong Golf Club is in a much better position than Oatlands Golf Club. References Adedeji, E. A. (2014). A Tool for Measuring Organization Performance using Ratio Analysis. Research Journal of Finance and Accounting, 5(19), 1622. Adewuyi, A. W. (2016). Ratio Analysis of Tesco Plc Financial Performance between 2010 and 2014 in Comparison to Both Sainsbury and Morrisons. Open Journal of Accounting, 5(July), 4556. https://doi.org/10.4236/ojacct.2016.53006 Andrijasevic, M., Pasic, V. (2014). a Blueprint of Ratio Analysis As Information Basis of Corporation Financial Management. Problems of Management in the 21st Century, 9(2), 117123. Retrieved from https://ezproxy.library.capella.edu/login?url=https://search.ebscohost.com/login.aspx?direct=truedb=bthAN=99552651site=ehost-livescope=site Evans, J. 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