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WORK TOGETHER WITH EXPERTSMIND'S TUTOR TO ACHIEVE SUCCESS IN ANALYSIS OF FINANCIAL INFORMATION ASSIGNMENT!

Learning Outcome:

Analyse and interpret financial information to inform decision-making for a business entity.
Profitability
Liquidity
Asset utilisation
Stability
Investor
Formulate recommendations
Effectively communicate conclusions

Restaurant Brands N Z Limited
Schedule of Ratios, Percentages and Key Figures
For the 52 weeks ending February 2016-2018

 

 

2016

2017

2018

(i)

Increase in operating revenue

8.45%

28.08%

48.06%

(ii)

Gross profit margin

19.12%

19.24%

18.84%

(iii)

Net profit (before tax) %

8.53%

7.46%

7.04%

(iv)

Return on average assets  %

23.96%

17.81%

15.30%

(v)

Return on equity %

32.79%

19.39%

18.02%

(vi)

Net profit aftertax

$24,070,000

$25,955,000

$35,466,000

(vii)

Current ratio

0.28:1

1.44:1

0.46:1

(viii)

Liquidity ratio

0.09:1

1.29:1

0.26:1

(ix)

Debt ratio

0.46:1

0.36:1

0.55:1

(x)

Age of Accounts Receivable (days)

4.81 days

2.65 days

3.23 days

(xi)

Inventory turnover (times)

36.58 times

48.99 times

58.86 times

(xii)

Total assets

$139,797,000

$302,387,000

$452,440,000

(xiii)

Basic earnings per share

24.59 cents

24.08 cents

28.83 cents

(xiv)

Dividends cents per share (CPS)

20 CPS

22 CPS

23.5 CPS

Operating revenue is the measure of profit obtained from business operations less the direct expenses such as depreciation, wages and cost of goods sold. This measure of profitability informs the investor how much revenue that will become profit for a company.
This income is an indirect measure of efficiency. A higher operating income means that the company is more profitable on its core business. It is important to note that, the day to day decisions made by managers such as pricing strategy, prices of raw materials and labor cost are a critical influence in amount of operating income obtain. In other words operating profit is a measure of management's competence and flexibility during harsh economic times.

In 2016 operating revenue stood at $231m, 51.11% of this turning to profit. This was attributed to; Scott Coulter replacing Brett Hewlett whom together with the board developed a new strategy. The company controlled the supply of its key ingredients, as one of its diversification programme, the company invested in SeaDragon. The company made key changes in its fiscal year from 31st March to 30th June. The internal changes also included creation of a position of Chief Innovation officer (Comvita, 2016).

In 2017 the operating revenue fell drastically by (32.44%) due to external factors that heavily influenced the profitability of the organization; the poor honey season and the changes in the regulatory environment for the grey market channel sales from New Zealand and Australia to China (Comvita, 2017).

Despite cost cutting initiatives by the company towards the end of 2017, 2018 the operating revenue went up by only 14.51%. This is due to bad weather in the second season in a row which led to poor honey harvest. The other event that influenced the revenue included the board's decision to allow third party to undertake due diligence on the company which took most of the valuable time (Comvita, 2018).

Liquidity ratio is used to determine the ability of an organization to settle its payables in timely manner. This ratio is crucial to lenders and creditors before granting credit. In 2016 Comvita's ability to settle its bills was high at 1.89:1. However, the credit worthiness of the organization fell to 2.62:1 and stagnated for two consecutive years.

Age of accounts receivable days is used to measure a company's effectiveness in collecting its receivable. In 2016 the accounts receivables were 34.63 days compared to 2017 which had 73.53 and 2018 at 102.07 days. This means that Comvita's collection process was poor, its credit polies were poor and its customers were not creditworthy. In comparison to 2016, the efficiency improved, and quality customers settled their debt in time in the year 2017. In 2018, the company adopted a conservative credit approach and lost some customers due to the poor performance as a result of the poor weather, thus had 102.07days.

Restaurant Brands N Z Limited's 2016 operating revenue was at 8.45% due to diversification to Australia and the acquisition of KFC Franchise in New South Wales. Successful marketing, promotion and store transformation programme are some of the key events that led to such performance. The acquisition of Taco Bell and Pizza Hut franchises in Hawaii in 2017 kept the company's momentum high. In 2018 Restaurant Brands N Z Limited's continued expansion into the Australian market with the acquisition of an additional 18 KFC stores in New South Wales which brought total store numbers there to 61, taking the operating revenue to a record 48.06% from 2017's which stood at 28.08%.

In 2016 the ability of Restaurant Brands N Z Limited's to settle its bills stood at 0.09:1 which was really low since the company was growing. However, with the continued expansion this rose up to 1.29:1 in the subsequent year. In 2018, this dropped significantly to 0.26:1.Most of Restaurant Brands N Z Limited were in cash as it operates a fast food restaurant chain and hence adopting a conservative credit policy which stood at 4.81 days in 2016 falling to 2.65 days in 2017 later rising to 3.23 days

To complete your analysis you are required to:

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Question 1 Access the NZX website and collect the share price for each of your two (2) companiesat the close of each of the following days:

NOTE: these are the answers for question number 1. Proceed to question number 2.

Share prices of each companies below:

Date Restaurant Brands NZ Limited Comvita Limited
29-Aug-18 $7.72 $5.70
26-Sep-18 $7.78 $6.40
31-Oct-18 $8.58 $5.70
28-Nov-18 $8.53 $5.80
19-Dec-18 $8.40 $5.10
30-Jan-19 $8.54 $4.61
27-Feb-19 $8.60 $4.09
20-Mar-19 $9.16 $4.30
10-Apr-19 $8.77 $4.13
1-May-19 $8.48 $4.24

Question 2 Comment on the change in share price over the period you have tracked for RESTAURANT BRANDS NZ LIMITED. Your commentary should include factors in the business environment / industry characteristics that may have resulted in a change in share price. Include research from information that has appeared in the media that might have relevance to how the shares have traded. This information does not have to be directly related to the particular company and should include the current economic environment and information about the particular industry the company trades in.

The share prices vary from day to day due to forces of demand and supply. When investors are interested in one stock more than the supply in the market the demand goes high than the market can offer. The puzzle that the general public fails to understand is what makes investor desire a certain stock and dislike the other. The most crucial part is understanding what happenings are positive for the entity and what news is negative. An organization's earnings determine its value. In October 2018 received a non-binding indicative proposal from Finaccess Capital to acquire 75% of Restaurant Brand's share by way of partial take over. In November 2018 a pre bid take over agreement was signed. This announcement has kept the share price fluctuating between 8.48 and 9.16

NOTE: Use the table on number 1 (Restaurant Brand Share price) to answer this question.

Question 3 Collect the current data (ie: Choose only one current date) from the NZX website showing the following investment ratios:

These are the current data as of 9 May 2019 at 12:54 pm:

 

Restaurants Brands NZ Limited

Comvita Limited

Dividend yield (gross)

2.793%

0.817%

Price/earnings (PE) ratio

0.0

0.0

Net tangible asset backing per share (NTA)

-$0.196

$3.260

Earnings per share (EPS)

$0.0

-$0.695

Question 4 Using the current data you have collected from the NZX website compare and comment on the following ratios for each company. Comment on how each ratio is calculated, what each ratio measures and what this means for investing in each company.

NOTE: Use the information from number 3 to answer this question. Use both companies.
• Dividend yield (gross)
Divided Yield=Annual Dividend/Current Stock Price
Dividend Yield is a measure of an investment's productivity
The yield on investment in Restaurants Brands NZ Ltd is 2.793% while in Comvita Ltd the yield on investment is 0.817%.

• Price/earnings (PE) ratio.
P/E Ratio=Stock Price Per Share/Earnings Per Share
This ratio shows the expectations of the market. This ratio helps the investor determine which company is financially sound.
Both company's earning ratio are zero therefore investors are indifferent
• Net tangible asset backing per share (NTA)
NTA=Tangible Assets/Shares Outstanding
NTA Shows how much shareholders can get if the company liquidates today and assets sold for the value indicated on the balance Sheet.
Comvita is undervalued.

• Earnings per share (EPS)
Refers to the portion of a company's profit allocated to each share of common stock.
It's a clear indicator of the company's profitability.
Earnings per share= (Net Income-Preferred Dividends)/End of period common shares outstanding.

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Question 5 Using the share price on 1 May 2019calculate how many shares your client could buy in each of your two companiesand the dividends they could expect based on the number of shares bought on this day.
No of Shares =Amount to be invested/Share Price
Restaurants Brands NZ Limited=$20,000/8.48
= 2359 Shares
Dividends= Dividends Per share x 2356shares
Comvita Limited=$20,000/4.24
=4717 shares
Dividends= Dividends Per sharex 4717 shares

Question 6 Choose some profitability, financial stability and asset utilisation ratios for RESTAURANT BRANDS NZ LIMITEDthat are important to advise your client about. /Comment on what each of these indicates about the profitability, financial stability or asset utilisation of this company. Reasons for changes in ratios from one year to the next are not required.

These are the chosen profitability, financial stability and asset utilisation:

 

Restaurant Brands NZ Limited

Profitability:

Increase in operating revenue

The profitability of this organization is on the rise since 2016. This can only get better will the continued expansion.

Financial Stability:

Liquidity Ratio

The ability of the company to settle its bills in timely manner was much higher in 2017compared to the other two years. However, the decline was not significant.

Asset Utilisation:

Age of Accounts Receivables(days)

The company's efficiency in collecting it's trade receivables was lower in 2017 compare to other two years. In 2018, the efficiency improved an indication of a step in the right direction.

Question 7 Explain what diversification means and advise your client abouthow diversification could reduce risk when investing in shares.

Question 8 Diversification refersto theapproach that reduces risk by allocating investments among various financial instruments, industries, and other categories. The intention is to maximize on returns should each react differently under the same conditions.

Question 9 Recommendwhether your client should invest in these companies. Consider both short term andlong-term investing. Justify your recommendations considering the current business environment, return on the investment, profitability, financial stability and asset utilisation of each company.

The investor should invest in these companies. Comvita's had a record profits in 2016. However, in the subsequent periods made losses but this was due to external factors. If the weather improves this would reap enough profits. Restaurant Brands NZ Limited profitability is unrivalled and they are on the rise, with the acquisition it can only get better. Both organizations are financially stable and their return on investment is good.

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PRESENTATION

You are required to:

1 Choose one (1) company that youhas investigated and recommend whether the client should invest in this company. Present your findings to the class.
Note:Restaurant Brands NZ Limited is the chosen company to present.

2 The presentation should be a maximum of 8-10 minutes long and use suitable presentation aids for presenting financial information.

3 Your presentation should be relevant and informative.

4 In addition to the material researched in Section One your presentation should incorporate background information about your chosen company including:

• Brief history about the company

Restaurant Brands New Zealand Ltd was established in 1997 to acquire the New Zealand eatery and takeaway establishments of KFC and Pizza Hutx. In 2011, Restaurant Brands gained the New Zealand establishment for Carl's Jr., an enticing new burger brand, entering another period of worldwide development. The company started expanding internationally 2012 and now has almost 20 stores in activity. In April 2016, Restaurant Brands acquired 42 KFC stores in New South Wales, Australia and has along these lines extended its venture by obtaining. In March 2017, the organization bought 37 Taco Bell and 45 Pizza Hut stores in Hawaii and Guam, further expanding its seaward tasks(Restaurantbrands, 2019).

• The business activities it is involved in

Restaurant Brands is a corporate franchisee and specialises in managing multi-site branded food retail chains.

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