Accounting Ratio Analysis ReportTeam 1Tracey Jimin Yang -101112682 Laura Bowick- 101112644 Amelia Savoie – 101126143 Tanya Fernandes – 101092033 Sameera Sheikh – 101045929ACCT 4005 – CRN 15030 George Brown CollegeCorby Spirit and Wine Ltd · All calculations have been rounded to the nearest million 1. 1 Liquidity Current Ratio = Current Assets/ Current Liabilities: 2015 – 171,000,000.00 / 26,000,000.00 = 6.58 2016 – 170,000,000.
00 / 33,000,000.00= 5.15 2017 – 165,000,000.
00 / 32,000,000.00= 5.16A key metric to measure the liquidity of a company is to calculate the current ratio. The current ratio is the total current assets divided by the total current liabilities of a company. As a quick observation and context, from the numbers above we can see that: The company’s current assets declined every year. They have declined by total of $6,000,000.00 and current liabilities have increased since 2015 by total of $7,000,000.
The current ratio for 2015, 2016 and 2017 was calculated for Corby Spirit and Wine through their recent balance sheet. The analysis shows that in 2015, the current ratio for Corby was 6.58. In 2016 the ratio decreased to 5.15. By the end of 2017, it increased very slightly to 5.
16. Over this three year period, the ratio has declined by 1.42 points or rounded to 21.
0%. Much of this decline in the current ratio is driven by a $7 million increase in current liabilities over this three year period of time. A Business comment that can be made after analyzing the liquidity of Corby Wine by analyzing the current ratio, is that the company is still well equipped to meet their short term liabilities, as the ratio measures their ability to pay off short-term liabilities with its total current assets. This can be concluded based on varying statistics. Specifically, according to Harvard Business Review, a company with a current ratio greater than 1.0 proves to have stable liquidity.
Therefore, even though Corby Spirit and Wine has declined by 1.42 over three years, but still hold a ratio of 5.16 and therefore remain significantly liquid and in strong financial health after 2017. 2. Profit: Net Profit Margin = Net Income/Net Sales 2015 – $20,000,000 / $132,000,000 = 15.15 2016 – $25,000,000 / $140,000,000 = 17.86 2017 – $26,000,000 / $144,000,000 = 18.06The profit ratio for 2015,2016 and 2017 was calculated through the most recent balance sheet for Corby Spirit and Wine.
The analysis shows that in 2015, the profit ratio for Corby Spirit and Wine was 15.15. In 2016, the ratio increased to 17.86, and by the end of the year 2017, the ratio had increased to 18.06. Throughout this three-year period, the ratio has increased by 2.91 points.
This is represented through marginal increases found within the net income and net sales of the company. Profit margin represents the ability to generate an adequate return on their invested capital, therefore demonstrating the ability Corby Spirit and Wine has in returning a profit upon their personal investment. To judge a company’s return, it is assessed by their earnings relative to the level and sources of financing. Thus, it is clear that the company has been able to generate a strong return on their personal investment, and are developing a concise level of financing.
This ratio would give stakeholders/investors a reason for attraction, as they are creating a large profit margin for the company. Corby Spirit and Wine is in an excellent financial position, yet this is not the only ratio that must be taken into account when determining the position of the company within the economic world. Andrew Peller Ltd 1. Liquidity Current Ratio = Current Assets / Current Liabilities 2015 – $147,000,000 / $78,000,000 = 1.88 2016 – $151,000,000 / $79,000,000 = 1.91 2017 – $161,000,000 / $82,000,000 = 1.
96The increasing current ratio indicates that the company is in good financial health, and has a solid amount of liquid assets in comparison to its liabilities. Current assets have increased marginally, while current liabilities have remained stagnant. This current ratio of nearly 2:1 is a good indication of Andrew Peller’s solvency as a company. The solid current ratio may also indicate that Andrew Peller has chosen to finance its operations using long term debt instruments as opposed to short term. The company is very well equipped to take care of any short term obligations, as current assets are nearly double current liabilities. This current ratio would give investors confidence that this company is able to pay back short term debts with relative ease, and thus Andrew Peller is in a good position financially. However, the analyst must not use the current ratio as a tell all indicator of a companies health.
The current ratio includes inventories which could be hard to sell or obsolete. The investor must take a close look at the composition of current assets, and specifically highly liquid current assets like cash to make an informed judgement as the current ratio is just a “snapshot”. 2. Profit- Andrew Peller Analysis ( Balance and income)- Profit ratio & summary of findings: Net Profit margin 2015- $16,000,000/ $316,000,000 * 100 =5.
06% 2016- $19,000,000/334,000,000 *100 =5.69% 2017- $ 26,000,000/343,000,000*100 =7.58%While gross profit margins remained stable from 2015-2017, net profit margins increased steadily to a healthy 7.58% in 2017. The increase in net profit margin can likely be attributed to decreasing interest expenses, but also a large windfall gain of over $5 million in the “unusual expense” section of the income statement. Furthermore, the decreasing interest expense could be indicative of the company’s reduced long term debt load.
The increasing net profit margin is a good sign that the company is operating profitably, and in Andrew Pellers case, net income has actually grown profoundly (37.5% YOY in 2017). Although profit margins are stable, the company still has some significant expenses that are showing up on the bottom line.
One cause for concern that is hurting net profit margins are the increasing SG&A costs (Sales, General and Administrative costs). These costs represent a large portion of overall sales revenues (28% in 2017), and should be reduced if the company wishes to increase net profit. Company Introduction2 Corby spirit and wine is a leading distributor and marketer of spirit and wine. The company makes up approximately 21% of spirit sales in Canada (Corby, 2016). 2 The Toronto based company is listed as the trading symbols CSW.A and CSW.
B on the Toronto Stock Exchange. According to Corby’s annual report, The current revenue, net earnings and earnings per share of Corby Ltd as in 2016 is $140M, $25M, and $890,000 (Corby, 2016). Andrew Peller is an award winning premium brand of wine which includes Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Copper Moon (Andrew Peller Ltd, 2018).
Since their initial development, Andrew Peller has become the forerunner in the consumer wine industry. Based on recent stock analysis, Andrew Peller Ltd has become less market efficient than other leading brand in the industry when spinning revenue into bottom line profit (Globe and Mail, 2018). Current Ratio Analysis of both the companies: 3 The current ratio that measures a company’s ability to pay short-term and long-term obligations.
A current ratio below 1 indicates that a company’s liabilities are greater than its assets and suggests insolvency, and that the company would be unable to pay off its obligations if they came due during that period. It also shows that the company is not in good financial health as short term assets could not be turned over in time to cover short term liabilities. However, this does not necessarily mean that the company will go bankrupt.(Investopedia, n.d.) Our case study analysis focuses on two companies; Corby Spirit and Wines Limited and Andrew Peller, for a period of 3 years (2015-2017).
Corby’s average current ratio over the three year period is 5.63 and Andrew Peller’s is 1.92. Both companies have current ratios above 1, indicating that these companies are both in solid financial health. Corby’s relatively higher current ratio indicates it has 5 times more current assets than current liabilities (Tradimo, n.d.
). This is a significant cushion, and would likely give investors confidence in the vitality of the company. That being said, a company with a high current ratio may not always be able to pay its current liabilities as they become due if a large portion of its current assets consists of obsolete or hard to sell inventories. The investor therefore must be careful to closely analyze the composition of current assets, and discern how liquid the current assets are. Although Corby’s current ratio may signal financial strength, it also raises the possibility that the company is not investing its cash reserves efficiently.
Profit Margin ratio analysis: Net profit margin is usually expressed in terms of percentage as to how much of each dollar collected by a company as profit is earned by the company. It is an important indicator of the financial health of the company. (Investopedia, n.
d.) Corby has a high net profit margin of 17.02% (average of 3 years) and Andrew has a comparatively lower net profit margin of 6.
11% (average of 3 years). Low profit margin does not necessarily mean low profit. If a business with very small operating budget, for example, a freelance tuition teacher or independent contractor has most of their revenue tied to profits. Even if they have a high profit margin, its annual profits may seem low when compared to the profits earned by a multinational corporation. In this case since both the companies are at the same level of operation, Corby has a higher net profit margin as compared to Andrew Peller.
Based on liquidity and profit ratios of the companies Corby Ltd and Andrew Peller Ltd, we could find that Corby Ltd has a mixed conclusion with decreasing liquidity ratio but increasing profit ratio. On the other hand, we found that Andrew Peller Ltd had consistent increasing in both liquidity and profit throughout three years, from 2015 to 2017. We end the analysis by concluding that both companies are in a stable financial state with a steady increase of profit margin.