Hi, i am asked to critically evaluate the financial performance of the company with reference to the condensed financial statements and ratio analysis. You should evaluate the company's performance by identifying the key drivers of profitability and incorporate your understanding of the Australian milk industry. Here are the screenshots of the references. Thank you
CONDENSED STATEMENTS OF EARNINGS 2020 Notes Revenue 1,730,696 Net operating profit after tax 383,868 Profit or loss 332,084 - Investment profit after tax 51,784 + Interest expense after tax 0 = Net operating profit after tax 383,868 of which: Net non-recurring expense after tax 0 = Net non-recurring expense (income) 0 x (1 - Tax rate) 0.70 = Net non-recurring expense after tax (excluding non-recurring tax items) 0 + Net investment profit after tax -51,784 = interest income 6,129 Tax (expense)/benefit 0.70 = Net investment profit after tax 4,299 + Net investment revaluation profit/(loss) 56,083 - Interest expense after tax = Interest expense 0 x (1 - Tax rate) 0.70 = Interest expense after tax 0 = Profit or loss (group) 332,084 CONDENSED BALANCE SHEETS 2020 Ending operating working capital Operating cash 86,535 + Trade receivables 70,700 + Inventories 147,332 + Other current assets 56,336 - Trade payables -281,919 - Other current liabilities 23,508 = Ending operating working capital 55,476 + Ending net non-current operating assets Non-current tangible assets 30,350 + Non-current intangible assets 13,640 + Other non-current assets 0 + Deferred tax asset (net of liability) 28,201 - Other non-current liabilities (non-interest- bearing) -13,828 = Ending net non-current operating assets 58,363 + Ending non-operating investments Excess cash 767,643 Minority equity investments 252,580 + Other Non-Operating investments = Ending non-operating investments 1,020,223 = Total business assets 1,134,062 Ending debt + Non-current debt 3 + Preference shares = Ending debt + Ending group equity Ordinary shareholders' equity 1,134,062 + Non-controlling interest in equity 0 - Net assets held for sale 0 = Ending group equity 1,134,062 = Total invested capital 1,134,062 NOTES 1. Operating cash assumption - 5% of revenue 2. The listed investment (non-current asset) has been included as a non-operating asset, in addition to ex 3. The company has excess cash with no borrowings.8 Net profit margin (ROS) 19.2% * Asset turnover 1.19 10 = Return on assets (ROA) 22.9% 11 x Financial leverage 1.28 12 = Return on equity (ROE) 29.3% 13 14 Alternative ROE decomposition 15 Net operating profit margin 22.2% 16 x Net operating asset turnover 15.20 17 = Return on Net Operating Assets 337.2% 18 19 Return on Net Operating Assets 337.2% 20 x (Net Operating Assets/Invested Capital) 0.10 21 + Return on Non-Operating Investments -5.1% 22 x (Non-Operating Investments/Invested Capital) 0.90 23 = Return on Invested Capital 29.3% 24 25 Spread 29.3% 26 x Financial leverage 0.00 27 = Financial leverage gain 0.0% 28 ROE = Return on Invested Capital + Financial 29 leverage gain 29.3%
