Dynamic Drilling (Aust) Pty Ltd Analysis Assignment Sample

• Subject Name : Accounting and Finance

Financial Analysis Report

Dynamic Drilling (Aust) Pty Ltd works within the drilling industry, particularly in regard to water bores, gas exploration and coal exploration. As a result, their services generate considerable financial revenue from well-known companies such as Origin Energy.

We advise that based on the financial data to the end of 30 June 2019, the current financial position of the company for the FY 2018/2019 is as follows:

In relation to the financial viability of the business and its ability to support the employment of an overseas worker for a period of two (2) years on a salary in accordance with the market rate, per annum plus compulsory superannuation, we confirm details as follows:

a. Historical Financial Records of Dynamic Drilling (Aust) Pty Ltd

The income of the company is derived from providing water bore and drilling services. The general scope of income from drilling division is 3700000 as compared to the income of $2300000 of the previous year. The income of $5037.36 was derived from the engineering division in 2019 whereas this income was higher in 2018. However, the total amount of income was higher in 2019 at $1450359.12. The expenditure incurred on accommodation travel and meals and on fuels and oils have a scope of $160000 to $80000 previously. The equipment hired by the company ranges from $250000 to $600000 and that of total materials from $400000 to $700000. The depreciation charged on fixed assets was high in 2018 and the number of fees and charges have a scope of $50000 to $15000 previously. The company has incurred a net loss of $13432.35 in 2018 and a net profit of $40205.03 in 2019 by carrying out its operations effectively and efficiently.

b. Financial Analysis of FYE 2018 and FYE 2019

The total income of the company has increased from 2018 to 2019 due to the significant rise in the sale of drilling materials. The income from the engineering division was higher in 2018 as compared to the financial year ended 2019 by $3110. The income generated by providing aviation airport services was higher in 2018. The income from other sources includes interest income, income generated by the selling off assets, miscellaneous income and so on. The total amount of other income has not shown much difference. This amount is almost similar for both the years. The total income for the year 2019 was high as compared to the financial year ended in 2018. Therefore, the net income of the company was at a significant loss in the financial year 2018 because of the less generation of revenue income. The number of expenses incurred on the hiring of equipment, hiring of labours and various other materials were also very high. The overhead expenses including accounting fees, advertising and promotion expenses, depreciation, various fees and charges, fuel and oil overhead cost, etc. have to lead to the net loss at the end of 2018. The company has taken insurance on the motor vehicle, plant and machinery, public liability, general insurance cover, business insurance, etc. on which it has to make the payment of premium on regular intervals of time. Moreover, a large amount of salary and wages are paid to the employees and workers which raises the overall expenditure of the company. The amount of rent on equipment was $2271.40 in 2018 which was very high than the rent paid in 2019. In addition to all this, expenditure incurred on repair and maintenance of assets, safety equipment, software and systems, training of employees, etc. lead to the net loss at the end of the financial year 2018.

c. Expenses of the Business for FYE 2018 and FYE 2019

The number of total expenses was high in 2019 as compared to 2018. They are divided into direct cost and overhead expenses. The cost incurred on accommodation travel and meals was almost double in 2019. The fuel and oil expenses were $70739.86 in 2018 and $166169.43 in 2019. The cost of the equipment hired in 2018 was $247972.75 whereas, in 2019, it cost $554489.08 which was very high. There was a change in the cost of total materials by $144964.58 from 2018 to 2019. All this leads to the change in the total cost of goods sold by $851513.88. The overhead expenses include electricity charges, accounting and licensing fees, fuels and oil expenses, insurance charges, payroll expenses, repair and maintenance cost, telephone and communication charges, software and system cost, training charges, etc. Total fees and charges amounted $47345.71 in 2019 which is quite higher than incurred in 2018. There is very less difference between the insurance charges for the two years. Total payroll expenses increased by $182868.87, repair and maintenance cost by $30313.11, safety equipment cost by $16925.81, telephone and communication charges by $10397.42, training expenses by $3733.9 from 2018 to 2019. All these accounted to the rise in overhead cost by $625899.45 in 2019.

d. Financial Forecast for FYE 2020

It has been estimated that the total income of the company derived from aviation airport services, drilling divisional income, engineering divisional income, income from hiring out equipment and interest on investment will decline to $1611040.88 by the end of the financial year 2020 which is very less than that of the financial year 2019. The company is trying to establish a better position by undertaking heavy expenditure on accounting, advertising and promotional activities and reducing the cost incurred on account of various fees and charges. It has raised the total amount of insurance for the year 2020 by $5254.68 in order to safeguard its assets for a long period of time. It has an estimated reduction in payroll expenses by $441079.53 and that of registration charges by $14047.82 in 2020 to achieve profitability in the future. It is planning to hire more equipment on rent in 2020 to carry out its operations effectively and efficiently and will make efforts to reduce the repair and maintenance expenses on assets. The amount spent on safety types of equipment will be reduced as the insurance amount has been increased and significant deductions will be made in telephone and communication cost and training expenditure. All this will help in enhancing the probability of the company to earn significant profits in the coming years.

e. Ability to Support Overseas Workers for At Least Two Years

The business has the ability to support all the overseas workers for at least two years of the period as the company is making significant efforts to reduce its expenditure and raise revenue income. The company is gaining a better understanding of its operations and the nature of industry including the environment in which it carries out its business, technology level, competition level, the need for building strong relationships with both customers and suppliers in the industry. It is planning to appoint an internal auditor who will assess the significant factors that may influence the financial performance of the company. Necessary efforts would be made to examine the potential risks having severe financial consequences by the internal auditor. He/she would gain a better understanding of the company’s non-financial and financial performance measures framed by the management to make improvements in the financial statements of the company.

f. The Business Is Well-Known

Dynamic Drilling (Aust) Pty Ltd is one of the leading companies which provides water monitoring, water bore services. It has both experience and ability to perform complex drilling tasks like exploration coring and drilling. It is currently involved in several major projects involving artesian boring of water up to 1400 m for gas companies and landholders situated near the South Western Queensland. The operations carried out by the company are well known within and outside the boundaries of Australia. Also, it provides adequate training to its employees and workers to enhance their skills level and effectively meets their targets. It follows all the major requirements of WHS policies and regulations. It is devoting more funds to carry out more advertising activities to spread awareness regarding its operations.

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