MGT707 Entrepreneurship Oz Assignment Solution

MGT707 Entrepreneurship Oz Assignment Solution

MGT707 Entrepreneurship Oz Assignment Solution

Introduction

As a business management consultant, being appointed by Mr. Benson Evans who is the Chief Operations Officer of Hotel Properties Limited (HPL), the companies to be compared are Stockland Group and Mirvac Group. Both of these companies are involved in real estate business and have approached HPL for potential partnership in residential and resort business development (Atkinson, 2012). As part of the consultancy agreement, the overall performance of both the companies have been analyzed individually using ratio analysis as stated below (Alvarez, 2013):

Ratio analysis

[all figures are in $]

Capital Structure and Leverage measures help us to understand the sources of finance and the dependence of debts over shareholder's equity as well as the burden of debts over the company. The various ratios helps us to understand the value of the company in terms of net worth, it's employed capital, whether the net worth is worth the fixed assets owned, the obligations over the company in terms of interest costs, etc (Berry, 2009).

Stockland Group :

Net Worth

 

Particulars

2013

2014

2015

2016

2017

 

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

 

Total Liabilities

5874800000

6602000000

6942000000

7688000000

7568000000

 

Net Worth ( Total Assets - Total Liabilities)

8194900000

8298000000

8787000000

9254000000

9927000000

 
 
             

Capital Employed

 

Particulars

2013

2014

2015

2016

2017

 

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

 

Current Liabilities

2801800000

2953000000

3293000000

3714000000

3778000000

 

Capital Employed (Total Assets - Current Liabilities)

11267900000

11947000000

12436000000

13228000000

13717000000

 
 

 

From 2013 to 2017, we see an increase in the net worth of the company which is basically due to increase in total assets every year. Over a period of five years, the company, in total, shows its net worth 20% up as compared to what it was in 2013. We see a similar change in capital employed where the current capital is approximately 21% ahead of what it was in 2013 (Boyd, 2013). Also, it shows an increase in capital employed.

Fixed Assets To Net Worth Ratio

 

Particulars

2013

2014

2015

2016

2017

 

Fixed Assets

12862800000

13294000000

14575000000

15531000000

16172000000

 

Net Worth

8194900000

8298000000

8787000000

9254000000

9927000000

 

Fixed Assets to Net Worth Ratio (Fixed Assets / Net Worth)

1.57

1.60

1.66

1.68

1.63

 
 
             

Current Liablities To Net Worth

 

Particulars

2013

2014

2015

2016

2017

 

Current Liabilities

2801800000

2953000000

3293000000

3714000000

3778000000

 

Net Worth

8194900000

8298000000

8787000000

9254000000

9927000000

 

Current Liabilities to Net Worth (Current Liabilities / Net Worth)

0.34

0.36

0.37

0.40

0.38

 

From 2013 to 2017, we see increasing fixed assets to net worth ratio, which is undesirable in normal business days as it shows the extent of owner's cash being locked up in fixed assets and how much cash is left for business operating activities. However, Stockland shows 1.63 times of net worth in fixed assets. Also, we see an increase in current liabilities to net worth ratio which is undesirable for a business (Easton, 2010).

Total Debt Ratio

Particulars

2013

2014

2015

2016

2017

Total Liabilities

5874800000

6602000000

6942000000

7688000000

7568000000

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

Total Debt Ratio (total liabilities / total assets)

0.42

0.44

0.44

0.45

0.43

           

Debt Equity Ratio

Particulars

2013

2014

2015

2016

2017

Total Debts

2352400000

2815000000

3030000000

3319000000

3272000000

Equity/Shareholder's funds

8194900000

8298000000

8787000000

9254000000

9927000000

Debt-Equity Ratio (debt / equity)

0.29

0.34

0.34

0.36

0.33

Total debt ratio and debt equity ratio are somewhat similar that shows the burden of liabilities over assets of the company. In case of total debt ratio, we see slight changes from 0.42 in 2013 to 0.43 in 2017. In case of debt equity ratio, we saw an increasing burden from 2013 to 2016 which decreased in 2017 to 0.33 times (Elaine, 2015). Thus, lower debt equity ratios show the dependence of company on leverage less. Also, the debts almost form 30% of equity's money.

Equity Multiplier

Particulars

2013

2014

2015

2016

2017

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

Total Equity

8194900000

8298000000

8787000000

9254000000

9927000000

Equity Multiplier (total assets / total equity)

1.72

1.80

1.79

1.83

1.76

The equity multiplier helps in calculating the financial leverage of the company. From 2013 to 2017, the company's equity firms approximately 55-58% of the total assets or total balance value which means the company's debts forms 40-45% approximately from 2013 to 2017 (Fridson & Alvarez, 2012).

Times Interest Earned

Particulars

2013

2014

2015

2016

2017

Earnings before tax

440300000

528000000

604000000

681000000

857000000

Interest

79000000

79000000

69000000

74000000

79000000

Times Interest Earned (earnings before taxes and interest / interest payment)

5.57

6.68

8.75

9.20

10.85

Coming to times interest earned, we see a positive result that is the company's earnings have shown an increase every year making it sufficient enough to bear obligations such as interest costs. Currently, the earnings are 11 times approximately of its interest obligation compared to 6 times in 2013 (Girard, 2014).

Mirvac Group :

Net Worth

 

Particulars

2013

2014

2015

2016

2017

 

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

 

Total Liabilities

3235600000

3745600000

3941400000

3989000000

4136000000

 

Net Worth ( Total Assets - Total Liabilities)

6010800000

6176100000

6462100000

7180000000

7972000000

 
 
             

Capital Employed

 

Particulars

2013

2014

2015

2016

2017

 

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

 

Current Liabilities

911000000

899400000

887400000

1353000000

944000000

 

Capital Employed (Total Assets - Current Liabilities)

8335400000

9022300000

9516100000

9816000000

11164000000

 
 

From 2013 to 2017, we see an increase in the net worth of the company which is basically due to increase in total assets every year. Also, it shows an increase in capital employed. However, there is a slight increase in value every year's net worth and capital employed (Ittelson, 2009).

Fixed Assets To Net Worth Ratio

 

Particulars

2013

2014

2015

2016

2017

 

Fixed Assets

8355000000

8203900000

9463600000

9923000000

11081000000

 

Net Worth

6010800000

6176100000

6462100000

7180000000

7972000000

 

Fixed Assets to Net Worth Ratio (Fixed Assets / Net Worth)

1.39

1.33

1.46

1.38

1.39

 
 
             

Current Liablities To Net Worth

 

Particulars

2013

2014

2015

2016

2017

 

Current Liabilities

911000000

899400000

887400000

1353000000

944000000

 

Net Worth

6010800000

6176100000

6462100000

7180000000

7972000000

 

Current Liabilities to Net Worth (Current Liabilities / Net Worth)

0.15

0.15

0.14

0.19

0.12

 

From 2013 to 2017, we see a high fixed asset to net worth ratio, which is undesirable in normal business days (McLaney & Adril, 2016). However, Mirvac shows 1.39 times of net worth in fixed assets. Also, we see an increase in current liabilities to net worth ratio in 2016 but a drastic decrease in 2017 with ratio as 0.12.

Total Debt Ratio

Particulars

2013

2014

2015

2016

2017

Total Liabilities

3235600000

3745600000

3941400000

3989000000

4136000000

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

Total Debt Ratio (total liabilities / total assets)

0.35

0.38

0.38

0.36

0.34

           

Debt Equity Ratio

Particulars

2013

2014

2015

2016

2017

Total Debts

2088600000

2599700000

2747200000

2293000000

2872000000

Equity/Shareholder's funds

6010800000

6176100000

6462100000

7180000000

7972000000

Debt-Equity Ratio (debt / equity)

0.35

0.42

0.43

0.32

0.36

In case of total debt ratio, we see slight changes from 0.35 in 2013 to 0.34 in 2017. In case of debt equity ratio, we saw no fixed trend from 2013 to 2017. Thus, lower debt equity ratios show the dependence of company on leverage less. Also, the debts almost form 36% of equity's money (Parrino, 2013).

Equity Multiplier

Particulars

2013

2014

2015

2016

2017

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

Total Equity

6010800000

6176100000

6462100000

7180000000

7972000000

Equity Multiplier (total assets / total equity)

1.54

1.61

1.61

1.56

1.52

As we know that the equity multiplier helps in calculating the financial leverage of the company. From 2013 to 2017, the company's equity firms approximately 60-65% of the total assets or total balance value which means the company's debts forms 35-40% approximately from 2013 to 2017 (Penman, 2012).

Times Interest Earned

Particulars

2013

2014

2015

2016

2017

Earnings before tax

363300000

447900000

471700000

584000000

588000000

Interest

35300000

144800000

145100000

137000000

162000000

Times Interest Earned (earnings before taxes and interest / interest payment)

10.29

3.09

3.25

4.26

3.63

Coming to times interest earned, we see a negative result. Though the company's earnings have shown an increase every year, it is insufficient to bear obligations such as interest costs. Currently, the earnings are 4 times approximately of its interest obligation compared to 10 times in 2013 (Ramírez, 2018).

Coming to liquidity measures, we adopt such measures to understand the solvency position of the company, that is, its ability to pay its liabilities if required to be paid immediately.

Stock land Group :

Net Working Capital To Total Asset Ratio

Particulars

2013

2014

2015

2016

2017

Current Assets

1206900000

1606000000

1154000000

1411000000

1323000000

Current Liabilities

2801800000

2953000000

3293000000

3714000000

3778000000

Working Capital

(1594900000)

(1347000000)

(2139000000)

(2303000000)

(2455000000)

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

Net Working Capital To Total Asset Ratio

(0.11)

(0.09)

(0.14)

(0.14)

(0.14)

 

The company shows a weak solvency position as there is a negative working capital since 2013 which has increased only (Rivenbark, Vogt, & Marlowe, 2009).

Current Ratio

Particulars

2013

2014

2015

2016

2017

Current Assets

1206900000

1606000000

1154000000

1411000000

1323000000

Current Liabilities

2801800000

2953000000

3293000000

3714000000

3778000000

Current Ratio (Current Assets/ Current Liabilities)

0.43

0.54

0.35

0.38

0.35

Also, where the current assets are desired to be at least above 1, the company has a weak current ratio which kept on decreasing from 0.43 in 2013 to 0. 35 in 2017.

Quick Ratio

Particulars

2013

2014

2015

2016

2017

Current Assets

1206900000

1606000000

1154000000

1411000000

1323000000

less : CA Other

810700000

753000000

881000000

1069000000

923000000

Quick Assets

396200000

853000000

273000000

342000000

400000000

Quick Liabilities

2801800000

2953000000

3293000000

3714000000

3778000000

Quick Ratio ( Quick Assets/Quick Liabilities)

0.14

0.29

0.08

0.09

0.11

Note : Assuming that Others in Current Assets is composed of closing stock.

Also, quick ratio shows worse position than current ratio which remains low in all the five years.

Mirvac Group :

Net Working Capital To Total Asset Ratio

Particulars

2013

2014

2015

2016

2017

Current Assets

891400000

1717800000

939900000

1246000000

1027000000

Current Liabilities

911000000

899400000

887400000

1353000000

944000000

Working Capital

(19600000)

818400000

52500000

(107000000)

83000000

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

Net Working Capital To Total Asset Ratio

(0.0021)

0.0825

0.0050

(0.0096)

0.0069

This company showed positive changes in 2017 as compared to 2016, that is, from negative balance $107,000,000 to positive $83,000,000 which is a drastic improvement (Seitz & Ellison, 2009).

Current Ratio

Particulars

2013

2014

2015

2016

2017

Current Assets

891400000

1717800000

939900000

1246000000

1027000000

Current Liabilities

911000000

899400000

887400000

1353000000

944000000

Current Ratio (Current Assets/ Current Liabilities)

0.98

1.91

1.06

0.92

1.09

The company shows a better current position with 1.09 currently.

Quick Ratio

Particulars

2013

2014

2015

2016

2017

Current Assets

891400000

1717800000

939900000

1246000000

1027000000

less : CA Other

641500000

1435000000

774400000

780000000

824000000

Quick Assets

249900000

282800000

165500000

466000000

203000000

Quick Liabilities

911000000

899400000

887400000

1353000000

944000000

Quick Ratio ( Quick Assets/Quick Liabilities)

0.27

0.31

0.19

0.34

0.22

Note : Assuming that Others in Current Assets is composed of closing stock.

However, quick ratio, being a real indicator after excluding closing stock, shows worse solvent position. However, as per the analysis, the current liabilities have been reduced drastically in 2017 (Siciliano, 2015).

Efficiency ratios are a measure of checking the operating effectiveness of fixed assets whether they are being used properly to generate revenue, the debtors & creditors policies, relation between profits and revenues, etc.

Stockland Group :

Average Collection Period

Particulars

2013

2014

2015

2016

2017

Average Receivables

169100000

119000000

103000000

134000000

139000000

Revenues

674100000

679000000

698000000

728000000

752000000

Average Collection Period (Average Receivables*365/revenues) [in days]

92 days

64 days

54 days

67 days

67 days

The lesser the days, the better cash flow is into the firm. The company shows a decrease in days which is a positive sign, that is, the credit policy is improving.

Accounts Relievable To Revenues

Particulars

2013

2014

2015

2016

2017

Average Receivables

169100000

119000000

103000000

134000000

139000000

Revenues

674100000

679000000

698000000

728000000

752000000

Accounts relievable to revenues (average accounts recievablers/ revenue sales)

0.25

0.18

0.15

0.18

0.18

           

Accounts Payable To Revenues

Particulars

2013

2014

2015

2016

2017

Average Payables

310400000

554000000

595000000

643000000

585000000

Revenues

674100000

679000000

698000000

728000000

752000000

Accounts Payable To Revenues (Average Payables/ Revenues)

0.46

0.82

0.85

0.88

0.78

The debtors turnover ratio shows no significant change for all the five years while the creditors turnover ratio is high for all the five years except in 2013.

Assets To Revenue Ratio

Particulars

2013

2014

2015

2016

2017

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

Revenues

674100000

679000000

698000000

728000000

752000000

Assets to revenue ratio (Average total assets/ Revenues)

20.87

21.94

22.53

23.27

23.26

           

Total Assets Ratio

Particulars

2013

2014

2015

2016

2017

Revenues

674100000

679000000

698000000

728000000

752000000

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

Total Assets Ratio ( Revenues/ Total Sales)

0.05

0.05

0.04

0.04

0.04

The asset to revenue shows a positive result which is 24% in 2017. However, the total asset ratio shows a negative result meaning that the company isn't using it fixed assets in the most effecient way.

Working Capital Turnovers

 

Particulars

2013

2014

2015

2016

2017

 

Revenues

674100000

679000000

698000000

728000000

752000000

 

Working Capital

(1594900000)

(1347000000)

(2139000000)

(2303000000)

(2455000000)

 

Working Capital Turnover ( Revenues/Working Capital)

(0.42)

(0.50)

(0.33)

(0.32)

(0.31)

 
             

Operational Efficiency Ratio

 

Particulars

2013

2014

2015

2016

2017

 

Rental Income

674100000

679000000

698000000

728000000

752000000

 

Investment Income

7100000

24000000

86000000

12000000

75000000

 

Other Income

1053200000

1241000000

1412000000

1600000000

2043000000

 

PreTax Profit

440300000

528000000

604000000

681000000

857000000

 

Expenses

1294100000

1416000000

1592000000

1659000000

2013000000

 

Revenue sales

674100000

679000000

698000000

728000000

752000000

 

Operational Efficiency Ratio (Expenses/Revenue Sales)

1.92

2.09

2.28

2.28

2.68

 
             

Note : We are assuming that the profit has been calculated after deducting expenses from the revenues. Also, there is no information regarding purchases. So, the difference would be regarded as operating or general expenses.

 
             

Note : Stockland is involved in real estate business and that is why, rental income is solely considered as the revenue or sales. Investment income is assumed to be other business or other income of the company.

 
 

The working capital ratio shows negative results in all the five years while the operational effeciency ratio shows higher expenditures of the company.

Mirvac Group :

Average Collection Period

Particulars

2013

2014

2015

2016

2017

Average Receivables

110900000

121200000

94400000

110000000

97000000

Revenues

583100000

650900000

618400000

613000000

618000000

Average Collection Period (Average Receivables*365/revenues) [in days]

69 days

68 days

56 days

65 days

57 days

The lesser the days, the better cash flow is into the firm. The company shows a decrease in days which is a positive sign.

Accounts Relievable To Revenues

Particulars

2013

2014

2015

2016

2017

Average Receivables

110900000

121200000

94400000

110000000

97000000

Revenues

583100000

650900000

618400000

613000000

618000000

Accounts relievable to revenues (average accounts recievablers/ revenue sales)

0.19

0.19

0.15

0.18

0.16

           

Accounts Payable To Revenues

Particulars

2013

2014

2015

2016

2017

Average Payables

549900000

505100000

673100000

531000000

519000000

Revenues

583100000

650900000

618400000

613000000

618000000

Accounts Payable To Revenues (Average Payables/ Revenues)

0.94

0.78

1.09

0.87

0.84

The debtors turnover ratio is low for all the five years while the creditors turnover ratio is high for all the five years.

Assets To Revenue Ratio

Particulars

2013

2014

2015

2016

2017

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

Revenues

583100000

650900000

618400000

613000000

618000000

Assets to revenue ratio (Average total assets/ Revenues)

15.86

15.24

16.82

18.22

19.59

           

Total Assets Ratio

Particulars

2013

2014

2015

2016

2017

Revenues

583100000

650900000

618400000

613000000

618000000

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

Total Assets Ratio ( Revenues/ Total Sales)

0.06

0.07

0.06

0.05

0.05

The asset to revenue shows a positive result which is 20% in 2017. However, the total asset ratio shows a negative result meaning that the company isn't using it fixed assets in the most effecient way.

Working Capital Turnovers

 

Particulars

2013

2014

2015

2016

2017

 

Revenues

583100000

650900000

618400000

613000000

618000000

 

Working Capital

(19600000)

818400000

52500000

(107000000)

83000000

 

Working Capital Turnover ( Revenues/Working Capital)

(29.75)

0.80

11.78

(5.73)

7.45

 
             

Operational Efficiency Ratio

 

Particulars

2013

2014

2015

2016

2017

 

Rental Income

583100000

650900000

618400000

613000000

618000000

 

Investment Income

19700000

22700000

33000000

512000000

12000000

 

Other Income

900000000

1204900000

1285800000

1812000000

1728000000

 

PreTax Profit

363300000

447900000

471700000

584000000

588000000

 

Expenses

1139500000

1430600000

1465500000

2353000000

1770000000

 

Revenue sales

583100000

650900000

618400000

613000000

618000000

 

Operational Efficiency Ratio (Expenses/Revenue Sales)

1.95

2.20

2.37

3.84

2.86

 
             

Note : We are assuming that the profit has been calculated after deducting expenses from the revenues. Also, there is no information regarding purchases. So, the difference would be regarded as operating or general expenses.

 

Note : Stockland is involved in real estate business and that is why, rental income is solely considered as the revenue or sales. Investment income is assumed to be other business or other income of the company.

 
 

The working capital ratio shows a drastic improvement in 2017 while the operational effeciency ratio shows higher expenditures of the company.

Profitability measures show the relation between the profits and revenues of the company and the return to equity shareholders. Also, it shows the return on assets to show how well the assets are being used to generate revenues.

Stockland Group :

Net Profit Margin

Particulars

2013

2014

2015

2016

2017

Pretax Profits

440300000

528000000

604000000

681000000

857000000

Total Revenue

1734400000

1944000000

2196000000

2340000000

2870000000

Net profit margin (net profit before income tax / sales)

25.39%

27.16%

27.50%

29.10%

29.86%

The net profit margin shows an increasing trend from 2013 to 2017 but slight changes are observed.

Return On Equity

Particulars

2013

2014

2015

2016

2017

Reported NPAT After Abnormals

104600000

527000000

903000000

889000000

1195000000

Equity/Shareholder's funds

8194900000

8298000000

8787000000

9254000000

9927000000

Return on equity (net profit/ average equity)

1.28%

6.35%

10.28%

9.61%

12.04%

There is an increasing return to the equity holders which was 1.28% in 2013 and 12.04% in 2017.

Return On Assets

Particulars

2013

2014

2015

2016

2017

Pretax Profits

440300000

528000000

604000000

681000000

857000000

Total Assets

14069700000

14900000000

15729000000

16942000000

17495000000

Return on asset (net profit/ average total assets)

3.13%

3.54%

3.84%

4.02%

4.90%

However, the return to assets ranges between 3-5% which is not a good sign as it shows the inefficiency of the management to use their assets in the best possible way for generating revenues.

Mirvac Group :

Net Profit Margin

Particulars

2013

2014

2015

2016

2017

Pretax Profits

363300000

447900000

471700000

584000000

588000000

Net Sales

1502800000

1878500000

1937200000

2937000000

2358000000

Net profit margin (net profit before income tax / sales)

24.17%

23.84%

24.35%

19.88%

24.94%

The net profit margin shows a decrease in 2016 but an increase in 2017.

Return On Equity

Particulars

2013

2014

2015

2016

2017

Reported NPAT After Abnormals

139900000

447300000

609900000

1033000000

1164000000

Equity/Shareholder's funds

6010800000

6176100000

6462100000

7180000000

7972000000

Return on equity (net profit/ average equity)

2.33%

7.24%

9.44%

14.39%

14.60%

There is an increasing return to the equity holders which was 2.33% in 2013 and 14.60% in 2017.

Return On Assets

Particulars

2013

2014

2015

2016

2017

Pretax Profits

363300000

447900000

471700000

584000000

588000000

Total Assets

9246400000

9921700000

10403500000

11169000000

12108000000

Return on asset (net profit/ average total assets)

3.93%

4.51%

4.53%

5.23%

4.86%

However, the return to assets ranges between 3-5% which is not a good sign as it shows the inefficiency of the conflict management to use their assets in the best possible way for generating revenues.

Growth potentials show the comparison of revenues or equity with previous years balances to evaluate the growth of the company or the potential capacity of the company.

Stockland Group :

Revenue Growth

Particulars

2013

2014

2015

2016

2017

Revenue in current year

1734400000

1944000000

2196000000

2340000000

2870000000

Revenue in previous year

-

1734400000

1944000000

2196000000

2340000000

Revenue Growth (Current Year Revenue-Previous Year Revenue)/Previous Year Revenue*100

-

12.08%

12.96%

6.56%

22.65%

           

Equity Growth

Particulars

2013

2014

2015

2016

2017

Equity In Current Year

8194900000

8298000000

8787000000

9254000000

9927000000

Equity In Previous Year

-

8194900000

8298000000

8787000000

9254000000

Equity Growth ( Equity in current year-equity in previous year/previous year equity)*100

-

1.26%

5.89%

5.31%

7.27%

The company shows a high improvement in 2017 as compared to 2016 with 22.65% in case of revenue growth and 7.27% in case of equity growth.

Profit Growth

Particulars

2013

2014

2015

2016

2017

Current Year Profit After Tax and Abnormals

104600000

527000000

903000000

889000000

1195000000

Previous Year Profit After Tax and Abnormals

-

104600000

527000000

903000000

889000000

Profit Growth (Current Year Profit-Previous Year Profit/Previous Year Profit)*100

-

403.82%

71.35%

-1.55%

34.42%

           
           

NOTE : From Profitability ratios, total revenue has been considered to reflect a true percentage of net profits, growth results, etc.

However, the profit growth isn’t as good as the results in 2014 and 2015.

Mirvac Group :

Revenue Growth

Particulars

2013

2014

2015

2016

2017

Revenue in current year

1502800000

1878500000

1937200000

2937000000

2358000000

Revenue in previous year

1502802013

1502800000

1878500000

1937200000

2937000000

Revenue Growth (Current Year Revenue-Previous Year Revenue)/Previous Year Revenue*100

0.00%

25.00%

3.12%

51.61%

-19.71%

           

Equity Growth

Particulars

2013

2014

2015

2016

2017

Equity In Current Year

6010800000

6176100000

6462100000

7180000000

7972000000

Equity In Previous Year

5754700000

6010800000

6176100000

6462100000

7180000000

Equity Growth ( Equity in current year-equity in previous year/previous year equity)*100

4.45%

2.75%

4.63%

11.11%

11.03%

The company shows a negative percentage in 2017 as compared to 2016 where 52% was observed, thus, showing a drastic fall in case of revenue growth. However, it shows not much change in equity growth with 11.03% in 2017.

Profit Growth

Particulars

2013

2014

2015

2016

2017

Current Year Profit After Tax and Abnormals

139900000

447300000

609900000

1033000000

1164000000

Previous Year Profit After Tax and Abnormals

416100000

139900000

447300000

609900000

1033000000

Profit Growth (Current Year Profit-Previous Year Profit/Previous Year Profit)*100

-66.38%

219.73%

36.35%

69.37%

12.68%

           

NOTE : From Profitability ratios, total revenue has been considered to reflect a true percentage of net profits, growth results, etc.

Also, the profit growth isn’t as good as the results in 2014 and 2016. It is much lower in the current year.

Comparison of overall performance

Comparing the overall performance of both the companies:

Stockland shows negative working capital for all the five years indicating heavy burden of liabilities over it while Mirvac did show a negative balance in 2016 but showed a drastic improvement in 2017 by reducing its liabilities.

Stockland shows higher net worth than Mirvac while Mirvac shows higher capital employed than Stockland. Mirvac has lesser burden lf debts over it as compared to Stockland. However, the interest bearing ratio is way better in case of Stockland with approximately 10 times while it is just 4 times in case of Mirvac in the year 2017.

Mirvac shows a better current ratio than Stockland. Also, the credit policy of Mirvac is better with 57 days in 2017 as compared to 67 days in case of Stockland. Both the companies show drastic revenue to asset ratios. However, the Mirvac has a better working capital turnover in 2017 as compared to negative results in Stockland.

The net profit margin is higher in case of Stockland while return on equity is higher in case of Mirvac. The revenue growth of Mirvac shows a negative change while Stockland shows a good & high change in revenue growth. On the other hand, Mirvac shows better equity growth than Stockland. However, the profit growth of Stockland is much higher than Mirvac Group (Skonieczny, 2012).

Recommendation

Analyzing the companies individually and comparing their results, the observations say that both the companies have flaws and therefore, relevant decision is hard to be formed. However, we consider Mirvac Group to be a better capitalizing and ideal partner. The following organization will form the most appropriate potential partnership with HPL.

The reasons behind recommending this company can be enumerated as below:

The company shows drastic improvements in 2017 as compared to 2016. For example, the positive change in working capital but Stockland Group shows negative working capital balances over the last five years.

Mirvac Group has a better capital structure than Stockland in terms of equity debt structure, that is, it has a lesser proportion of debts in its capital structure. Also, the company has a better current ratio reflecting a better liquidity status. Mirvac has a better credit policy (Taillard, 2013).

It’s true that a better revenue growth is observed in Stockland which is a vital need for every company but having a better equity growth is a positive signal for long term sustainability as it shows the external stakeholders increasing trust and confidence in the company.

However, the most commendable part of Mirvac Group is its drastic improvements in the year 2017 which were worse in 2016. This somewhere shows the company's ability to take strong decisions and focusing more on other factors than higher revenues. The company's changes such as reduction of current liabilities, increase in current assets, increase in equity growth, better debtor turnover, etc reflects its strong determination towards taking its company onto higher levels. This also proves their promising nature towards the coming up projects and thus, we recommend Mirvac Group for this deal.

Conclusion

The above comparative analysis is however restricted to the financial information. The certain information such as a company's future plans, or some ongoing projects due to which it is incurring heavy expenditure and such other non financial information are equally important to understand the business operations and accordingly, compare it with other companies. However, ratio analysis tool aren't based on such information. We can conclude by choosing Mirvac over Stockland for HPL Limited on the basis of above analysis. 

Bibliography

1. Alvarez, F. (2013). Financial statement analysis. Hoboken, N.J.: Wiley.
2. Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
3. Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.
4. Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
5. Easton, P. (2010). Financial statement analysis & valuation. Cambridge, UK: Cambridge Business Publishers.
6. Elaine, H. (2015). International financial statement analysis. Hoboken: John Wiley & Sons.
7. Fridson, M., & Alvarez, F. (2012). Financial Statement Analysis: A Practitioner's Guide. New York: John Wiley & Sons.
8. Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.
9. Ittelson, T. (2009). Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports. Franklin Lakes,
N.J.: Career Press.

10. McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United Kingdom: Pearson.
11. Menifield, C. E. (2014). The Basics of Public Budgeting and Financial Management: A Handbook for Academics and Practitioners. Lanham, Md.: University Press of America.
12. Parrino, R. (2013). Fundamentals of Corporate Finance, 2nd Edition. Milton: John Wiley & Sons.
13. Penman, S. (2012). Financial statement analysis and security valuation. Boston, Mass.: McGraw-Hill.
14. Ramírez, C. Z. (2018). The Impact of IFRS 16 on Key Financial Ratios: A New Methodological Approach. Accounting in Europe .
15. Rivenbark, W. C., Vogt, J., & Marlowe, J. (2009). Capital Budgeting and Finance: A Guide for Local Governments. Washington, D.C.: ICMA Press.
16. Seitz, N., & Ellison, M. (2009). Capital Budgeting and Long-Term Financing Decisions. New York: Thomson Learning.
17. Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.
18. Simpson, M. (2012). Financial accounting. Basingstoke: Macmillan Press.
19. Skonieczny, M. (2012). The basics of understanding financial statements. Schaumburg, Ill.: Investment Publishing.
20. Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.