Analysing Ratios

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

Profitability ratios:

+Return on Asset Ratio:

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

Efficiency ratios:

+ Current Asset Turnover Ratio:

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

Liquidity ratios:

+ Quick Ratio 1:

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

+ Quick Ratio 2:

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

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 Michael Hill'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?

Market ratios:

+ 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 Michael Hill'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?

+ 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 Michael Hill'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?

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 Michael Hill'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?

+ 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 Michael Hill'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?

+ Profit Margin (PM) Ratio:

• Identify and explain what causes the fluctuation (decrease in 2018, then increase in 2019, and decrease again in 2020) of Michael Hill'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?

+ 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 Michael Hill'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?

Note:

• The Sales in the Ratio calculation below is the "Revenue from continuing operations".
• The calculation of Ratios and Restatements below are based on the information from Michael Hill's Annual Reports that can easily be found on google.

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, 163Restated Balance Sheets as at 30 June 1 2012 2015 2019 2020 55 555 55 55 55 555 55555555555555: Cash and cash equivalents 5,510.99 5,255.39 5,595.00 4,920.50 Trade and other receivables 24,219 25,351 29,555 25,005 Contract assets 0 299 201 525 Right of return assets 0 0 291 105 Inventories 203,553 192,024 129,503 125,242 Current tax receivables 555 0 2,295 3,155 Dther current assets 3,945 2,559 2,935 2,103 Trade and other receivables 2,321 2,555 5,955 10,222 Property, plant and equipment 29,435 55,555 53,213 45,405 Right-5f-use assets 0 0 0 123,911 Deferred tax assets 52,593 55,022 52,205 24,455 Intangible assets 5,254 12,525 15,439 24,429 Contract assets 0 1,595 1,435 1,045 0ther non-mrrent assets 2 052 1 193 1 105 522 Total operating assests W Trade and other payables Contract liabilities Current tax liabilities Provisions Deferred revenue Lease liabilities Contract liabilities Provisions Deferred revenue Lease liabilities Total operating liabilities Net operating assets {no.4} l22 355,455.44 334,355.34 335,455.55 445,334.55 43,415 5 5 4,535 35,434 5 5 5,335 55,513 5 145 354 44,345 5 3,545 34,555 35,435 5 5 4,453 53,335 5 135 443 44,545 35,554 1,353 31,441 1,353 5 55,513 5,443 1,543 5 154 354 54,433 35,434 1,445 34,444 353 43,154 53,534 5,334 5 115 545 l 332 I092 llll 245 192.99 2125 515.39 202 595.00 155 232.512 fllf Restated Income Statement (& Comprehensive Income Statement) as at 30 June 2017 2018 2019 2020 AU$000 AU$000 AU$000 AU$000 Operating Income Revenue from continuing operations 551,099 575,539 569,500 492,060 Other income 1,640 1,074 1.555 20,574 Total operating income 552,739 576,613 571,055 512,634 Operating Expenses Cost of goods sold (200,093) (208,657) (216,468) (193,855) Employee benefits expense (141,755) (156,298) (163, 177) (149, 173) Occupancy costs (53,900) (58,074) (60,587) (14,390) Marketing expenses (26,081) (31,433) (33,732) (28,918) Selling expenses (24,647) (26,708) (24,636) (18,701) Impairment of property, plant and equipment (36) (348) (289) (6,473) Impairment of other assets 0 (134) (1,823) (1,582) Depreciation and amortisation expense (17,427) (18,694) (19,366) (55,611) Loss on disposal of property, plant and equipment (557) (522) (619) (499) Other expenses (25,896) (29,948) (29,083) (29,349) Profit/(loss) from discotinued operations (11,485 (30,208) 0 Total operating expense (501,877) (561,024) (549,780) (498,551) Tax Expense Tax reported (15,051) (11,342) (2,313) (1,426) Tax benefit (949.2) (807) (739.2) (2,879.4) Net tax expense (16,000) (12, 149) (3,052) (4,305) Operating Comprehensive Income Gains/(losses) on cash flow hedges (256) 996 (323) 434 Currency translation differences during the year (2,542) 320 4,911 (1,716) Total operating comprehensive income (2,798) 1,316 4,588 (1.282) Comprehensive operating income after tax (OI) 32,064 4,756 22,811 8.496