Analysing Ratios

Have a look at the calculated ratios of Michael Hill Ltd below (attached image) and answer the following questions:

Profitability ratios:

+ Net Profit Margin Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, increase in 2019 and the decrease again in 2020) of the firm's (Michael Hill) Net Profit Margin ratios in the 4 years below.
• What does the fluctuation of Net profit Margin ratios tells you about the firm? (Explain briefly.)

+Return on Asset Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, increase in 2019 and decrease again in 2020) of the firm's Return on Asset ratios in the 4 years below.
• What does the fluctuation of Return on Asset ratios tells you about the firm? (Explain briefly.)

Efficiency ratios:

+Total Asset Turnover Ratio:

• Identify and explain what causes the fluctuation (increase in 2018, increase again in 2019 and then decrease in 2020) of the firm's Total Asset Turnover ratios in the 4 years below.
• What does the fluctuation of Total Asset Turnover ratios tells you about the firm? (Explain briefly.)

+ Current Asset Turnover Ratio:

• Identify and explain what causes the fluctuation (increase in 2018, increase again in 2019 and then decrease in 2020) of the firm's Current Asset Turnover ratios in the 4 years below.
• What does the fluctuation of Current Asset Turnover ratios tells you about the firm? (Explain briefly.)

Liquidity ratios:

+Current Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019 and decrease again in 2020) of the firm's Current ratios in the 4 years below.
• What does the fluctuation of Current ratios tells you about the firm? (Explain briefly.)

+ Quick Ratio 1:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019 and decrease again in 2020) of the firm's Quick ratio 1 in the 4 years below.
• What does the fluctuation of Quick ratio 1 tells you about the firm? (Explain briefly.)

+ Quick Ratio 2:

• Identify and explain what causes the fluctuation (increase in 2018, increase again in 2019 and then decrease in 2020) of the firm's Quick ratio 2 in the 4 years below.
• What does the fluctuation of Quick ratio 2 tells you about the firm? (Explain briefly.)

Financial Structure ratios:

+ Debt/Equity Ratio:

• Identify and explain what causes the fluctuation (increase in 2018, then decrease in 2019, and increase again in 2020) of the firm's Debt/Equity ratios in the 4 years shown in the image below.
• What does the fluctuation of Debt/Equity ratios tells you about the firm? (Explain briefly.)

+ Equity Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019, and decrease again in 2020) of the firm's Equity ratios in the 4 years shown in the image below.
• What does this mean for the firm or what does the fluctuation of Equity ratios tells you about the firm? (Explain briefly.)

Market ratios:

+ Earnings per share (EPS) Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019, and decrease again in 2020) of the firm's Earnings per Share (EPS) ratios in the 4 years shown in the image below.
• What does the fluctuation of Earnings per Share (EPS) ratios tells you about the firm? (Explain briefly.)

+ Dividend Yield Ratio:

• Identify and explain what causes the fluctuation (increase in 2018, then increase again in 2019, and remain the same in 2020) of the firm's Dividend Yield ratios in the 4 years shown in the image below.
• What does the fluctuations of Dividend Yield ratios tell you about the firm? (Explain briefly.)

+ Price Earnings (P/E) Ratio:

• Identify and explain what causes the fluctuation (increase greatly in 2018, then decrease a lot in 2019, and finally increase again in 2020) of the firm's Price Earnings (P/E) ratios in the 4 years shown in the image below.
• What does the fluctuations of Price Earnings (P/E) ratios tell you about the firm? (Explain briefly.)

+ Market/Book (P/B) Ratio:

• Identify and explain what causes the fluctuation (increase in 2018, then decrease in 2019, and decrease again in 2020) of the firm's Market/Book (P/B) ratios in the 4 years shown in the image below.
• What does the fluctuations of Market/Book (P/B) ratios tell you about the firm? (Explain briefly.)

Ratios based on Reformulated Financial Statements:

+ Return on Equity (ROE) Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019, and decrease again in 2020) of the firm's Return on Equity (ROE) ratios in the 4 years shown in the image below.
• What does the fluctuations of Return on Equity (ROE) ratios tell you about the firm? (Explain briefly.)

+ Return on Net Operating Asset (RNOA) Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019, and decrease again in 2020) of the firm's Return on Net Operating Asset (RNOA) in the 4 years shown in the image below.
• What does the fluctuations of Return on Net Operating Asset (RNOA) ratios tell you about the firm? (Explain briefly.)

+ Profit Margin (PM) Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019, and decrease again in 2020) of the firm's Profit Margin (PM) in the 4 years shown in the image below.
• What does the fluctuations of Profit Margin (PM) ratios tell you about the firm? (Explain briefly.)

+ Financial Leverage (FLEV) Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then decrease again in 2019, and decrease again by a lot in 2020) of the firm's Financial Leverage (FLEV) in the 4 years shown in the image below.
• What does the fluctuations of Financial Leverage (FLEV) ratios tell you about the firm? (Explain briefly.)

+ Asset Turnover (ATO) Ratio:

• Identify and explain what causes the fluctuation (increase in 2018, then decrease slightly in 2019, and increase again in 2020) of the firm's Asset Turnover (ATO) in the 4 years shown in the image below.
• What does the fluctuations of Asset Turnover (ATO) ratios tell you about the firm? (Explain briefly.)

Conclusion:

• How well is your firm (Michael Hill Ltd) performing?
• What is your reflection on your firm's ratios? What do they tell you (or do not tell you) about regarding the performance of your firm?
• How would you use those ratios to analyse and connect to your firm's economic and business realities?

RATIOS as at 30 June 2017 2018 2019 2020 Profitability Ratios Net Profit Margin Net profit after tax/Sales 5.42% 0.50% 3.709 D.36% Return on Assets Net profit after tax/Total assets 7.67% 0.75% 5.56% 0.35% Efficiency (or Asset Management) Ratios Total Asset Turnover Ratio Sales/Total assets 1.42 1.51 1.50 0.98 Current Asset Turnover Ratio Sales/Current assets 2.31 2.52 2.55 2.23 Liquidity Ratios Current Ratio Current assets/Current liabilities 3.00 2.10 2. 12 1.39 Quick Ratio 1 Current assets - inventory - prepayments)/Current liabilities (CL) 0.40 0.34 0.42 0.26 Quick Ratio 2 (Current assets - inventory - prepayments - receivables) /CL 0.09 0.10 0.13 0. 11 Financial Structure Ratios Debt/Equity Ratio Debt/Equity 92. 46% 118.08% 114.53% 226.14% Equity Ratio Equity/Total assets 51.96% 45. 85% 46.61% 30.66% Times Interest Earned Earnings before interest & tax/Interest (see the workings) 19.70 17.02 8.57 1.4 Market Ratios Earnings per Share (EPS) Net profit after tax/Number of issued shares 0.08 0.01 0.05 0.005 Dividends per Share (DPS) Dividends/Number of issued shares 0.05 0.05 0.05 0.03 Dividend Yield Ratio Dividends per share/Market price per share 0.04 0.05 0.09 0.09 Price Earnings Ratio Market price per share/ Earnings per share 14.41 130.81 9.93 69.83 Net Asset Backing per Share Ratio Net assets (ie Total equity)/Number of shares issued 0.52 0.45 0.46 0.40 Market/Book Ratio Market price per share/Net asset backing per share 2. 13 2.15 1. 18 0.81 Ratios Based on Reformulated Financial Statements Dividend Payout Ratio Dividends/Comprehensive income (CI) 0.65 6.74 0. 92 6.5 Return on Equity (ROE) Comprehensive Income (CI) /Shareholders' equity 14.76% 1.64% 11.93% 1. 16% Return on Net Operating Assets (RNOA) Operating income (Ol) after tax/Net operating assets 12.92% 2.28% 10.98% 5.37% Net Borrowing Cost (NBC) Net financial expenses after tax/Net financial obligations 4.81% 5.56% 5.57% 151.61% Profit Margin (PM) Ol after tax/Sales 5.82% 0.83% 4.01% 1.73% Operating Liability Leverage (OLLEV) Operating liabilities/Net operating assets 0.57 0.82 0.81 2. 13 Financial Leverage (FLEV) Net financial obligations/Shareholders' equity 0.23 0. 19 0. 18 0.03 Return on Operating Assets (ROOA) Ol after tax + implicit interest after tax)/Operating assets 6.43% 1.00% 3.81% -1.69% Operating Liability Leverage Spread (OLSPREAI ROOA - short-term borrowing rate (after tax)' 1.43% -6.00% -1. 19% -6.69% Asset Turnover (ATO) Sales/Net operating assets 2.22 2.76 2.74 3. 11 Growth in Sales Change in sales/Prior period's sales 0.005% 4.43% -1.05% -13.60% Growth in Operating Income Change in Ol after tax/Prior period's Ol after tax 33.84% -85. 17% 379.62% 62.76% Growth in Net Operating Assets Change in NOA/Opening NOA -53.98% -15.86% -0.54% -23.81% Growth in Shareholders' Equity Change in shareholders' equity / Opening shareholders' equity 8.47% -13.48% 1.04% -12.98% Free Cash Flow OI - ANOA 323, 193.81 44, 130.60 23,933. 19 57,954.00 Implicit interest after tax Short-term borrowing rate (after tax)' x Operating liabilities 7,038.20 8,547.35 8,463.45 16,854.85 Economic profit (RNOA - cost of capital') x NOA 12,208 11,949 6, 195 4, 163