• Internal Code :
  • Subject Code : GSB003
  • University : Australian Institute of Management
  • Subject Name : Managing Finance

Financial Statement Analysis of Real Estate Company - Acumentis Group Limited

Executive Summary

 This report has been carried out to examine the financial position and performance of a selected company, that is, Acumentis Group Limited. The company is involved in providing property valuation and investment services within the real estate sector of Australia. It has been inferred from carrying out financial analysis of the company that it has realized financial losses in the year 2019 owing to suspension of its bank valuation and high investment in the IT platform as compared to the revenue realized. Its financial position is not stable and therefore it is recommended to the investors for not making any type of investment within the company. 

Contents

Executive Summary.

Introduction.

Brief description of the company (Acumentis Group Limited)

Industry outlook (Real Estate)

Trend Analysis (Vertical and Horizontal Analysis) of Acumentis Group Limited.

Vertical Analysis or Common Size Analysis.

Horizontal Analysis or Trend Analysis.

Financial Ratio Analysis of Acumentis Group Limited.

Profitability Analysis.

Assets Analysis-Efficiency ratios.

Working Capital Ratios (Liquidity ratios)

Gearing Ratios (Capital Structure ratios)

Key Financial Issues that have inferred from the financial analysis.

Working Capital or credit risk.

Liquidity Risk.

Conclusion.

References.

Introduction

The main aim of this report is to carry out an examination, analysis, and discussion of the information contained within the general purpose financial statements of a selected corporation. The corporation selected for the purpose is Acumentis, independent property valuation, and advisory services firm listed on the ASX. The analysis of the financial statements of the selected company is carried out with the use of ratio analysis. The financial performance and position of the company are analyzed in the context of the financial evaluation conducted. The financial performance discussion includes commentary on relevant context to the organization, its industry, and the operations. The identification of the financial issues in the context of the evaluation is also discussed within the report.

Brief Description of The Company (Acumentis Group Limited)

 Acumentis is an ASX listed firm that provides independent property valuation and advisory services. It has been established by merging three premier property valuation and advisory firms that is, LMW, Taylor Byrne, and MVS National. However, LMW has acquired MVS national and has extended its property valuation services and also acquired Taylor Byrne. The property valuation services of the company have also extended in the rural and regional areas by extended its portfolio to different property classes.

The consolidation of the various business segments of the company has resulted in promoting its expansion with the emergence of new people, ideas, expanded services, and having the expertise of about 300 expert team members in its various regional and metropolitan regions within Australia. The company is highly committed to delivering the highest quality property services to its clients and as such is also continuously investing in valuation management and IT systems for providing distinct services and achieving a differentiating position within the sector (About Acumentis, 2020).

Industry Outlook (Real Estate)

 The Australian property market comprises of conducting trade of land and providing various other property services within Australia. The property prices within Australia are expected to increase at a faster rate in recent times due to the presence of an economic bubble. There have been changes in the residential housing market of the nation in recent years with a hike in property prices in major cities. However, with a more rigid credit policy and a decline in the interest of the foreign investors in residential property, there has been a decline in property prices across the major cities of the nation. Thus, it can be said that the growth rate within the property market of Australia in the future is expected to be largely non-uniform as it is predicted that there would be high variation in the property prices across the cities and regional areas of Australia (Pressley, 2020).

Trend Analysis (Vertical and Horizontal Analysis) of Acumentis Group Limited

Vertical Analysis or Common Size Analysis

Important Items of Income Statement of Acumentis Group Limited

Vertical Analysis or Common Size Analysis

Particulars

2017

2018

2019

Revenue

100.00%

100.00%

100.00%

Operating expenses

-90.52%

-89.93%

-109.38%

EBIT

9.48%

13.55%

-37.18%

Net Interest (Expenses)/Income

0.05%

0.12%

-0.39%

Tax (Expenses)/Savings

-3.04%

-4.00%

1.13%

Profit/(Loss) of the year

6.49%

9.93%

-36.51%

Table 1: Vertical Analysis (Income Statement of Acumentis Group Limited)

Source: (Annual report, 2017 and Annual report, 2019)

Important Items of Financial Statement of Acumentis Group Limited

Vertical Analysis or Common Size Analysis

Particulars

2017

2018

2019

Current Assets

     

Cash and cash equivalents

10.59%

6.80%

4.93%

Accounts receivables

9.76%

13.02%

10.40%

Other current assets

6.07%

1.87%

4.26%

Total Current assets

26.41%

21.68%

19.58%

Non-Current Assets

     

Plant and equipment

1.15%

1.70%

2.39%

Intangible assets

68.16%

69.23%

68.29%

Other non-current assets

4.27%

7.38%

9.74%

Total non-current assets

73.59%

78.32%

80.42%

Total Assets

100.00%

100.00%

100.00%

Liabilities and Equity

     

Current liabilities

     

Borrowings (Current)

0.28%

0.14%

5.57%

Trade payables

5.49%

4.77%

6.97%

Other current liabilities

12.72%

6.54%

10.81%

Total Current Liabilities

18.50%

11.45%

23.35%

Non-Current Liabilities

     

Borrowings

0.21%

0.15%

8.82%

Other non-current liabilities

16.70%

1.00%

1.94%

Total Non-current liabilities

16.91%

1.15%

10.76%

Total Liabilities

35.41%

12.60%

34.11%

 

0.00%

0.00%

0.00%

Net assets

64.59%

87.40%

65.89%

Equity

     

Issued Capital

62.23%

83.15%

106.60%

Retained earnings/(Deficit)

2.36%

4.25%

-40.71%

Other

0.00%

0.00%

0.00%

Total Equity

64.59%

87.40%

65.89%

Table 2: Vertical Analysis (Financial Statement of Acumentis Group Limited)

Source: (Frino Chen and Hill, 2013)

Horizontal Analysis or Trend Analysis

Important Items of Income Statement of Acumentis Group Limited

Horizontal Analysis or Trend Analysis

Particulars

2017

2018

2019

Revenue

100.00%

166.37%

165.52%

Operating expenses

100.00%

165.27%

200.01%

EBIT

100.00%

237.92%

-649.33%

Net Interest (Expenses)/Income

100.00%

400.00%

-1333.33%

Tax (Expenses)/Savings

100.00%

218.77%

-61.55%

Profit/(Loss) of the year

100.00%

254.61%

-931.61%

Table 3: Horizontal Analysis (Income Statement of Acumentis Group Limited)

Source: (Frino Chen and Hill, 2013)

Important Items of Financial Statement of Acumentis Group Limited

Horizontal Analysis or Trend Analysis

Particulars

2017

2018

2019

Current Assets

     

Cash and cash equivalents

100.00%

48.25%

31.61%

Accounts receivables

100.00%

100.23%

72.38%

Other current assets

100.00%

23.10%

47.68%

Total Current assets

100.00%

61.66%

50.36%

Non-Current Assets

     

Plant and equipment

100.00%

110.70%

140.58%

Intangible assets

100.00%

76.29%

68.05%

Other non-current assets

100.00%

129.92%

154.97%

Total non-current assets

100.00%

79.94%

74.23%

Total Assets

100.00%

75.11%

67.93%

Liabilities and Equity

     

Current liabilities

     

Borrowings (Current)

100.00%

37.66%

1334.42%

Trade payables

100.00%

65.32%

86.20%

Other current liabilities

100.00%

38.60%

57.71%

Total Current Liabilities

100.00%

46.51%

85.75%

Non-Current Liabilities

     

Borrowings

100.00%

53.51%

2850.88%

Other non-current liabilities

100.00%

4.48%

7.90%

Total Non-current liabilities

100.00%

5.09%

43.22%

Total Liabilities

100.00%

26.73%

65.44%

Net assets

100.00%

101.63%

69.29%

Equity

     

Issued Capital

100.00%

100.36%

116.34%

Retained earnings/(Deficit)

100.00%

135.42%

-1173.26%

Other

     

Total Equity

100.00%

101.63%

69.29%

Table 4: Horizontal Analysis (Financial statement of Acumentis Group Limited)

Source: (Annual report, 2017 and Annual report, 2019)

Financial Ratio Analysis of Acumentis Group Limited

Profitability Analysis

Calculation of Profitability Ratios of Acumentis Group Limited

 

2017

2018

2019

Financial Data

 

Figures in $'000

Earnings before interest and tax/Operating profit

 

 $ 5,653.00

 $ (15,428.00)

Revenue/Sales

 

 $ 43,157.00

 $ 42,995.00

Net profit/Net Income

 

 $ 4,140.00

 $ (15,148.00)

Shareholder's Equity

 $ 35,052.00

 $ 35,625.00

 $ 24,287.00

Average shareholder's Equity

 

 $ 35,338.50

 $ 29,956.00

Profitability Ratios

Formula

2018

2019

Operating Profit Ratio

Operating Profit/Revenue

13.10%

-35.88%

Net profit margin

Net profit/Revenue

9.59%

-35.23%

Return on Equity

Net profit/Average shareholder's equity

11.72%

-50.57%

Table 5: Profitability Ratios of Acumentis Group Limited

Source: (Annual report, 2017 and Annual report, 2019)

  • Operating Profit Ratio: Operating Profit Margin is regarded as a performance ratio that provides a depiction of the amount of profit realized from the operations before meeting interest and tax expenses. The ratio for Acumentis has declined from 13.10% to (-35.88%) which depicts that the company has realized financial loss in the year 2019. This is mainly due to a decline in the revenue potential of the company after it has been suspended from bank valuation panels after the occurrence of cyber incidents which has resulted in declining the forecast profitability of its major business units.

  • Net Profit Margin: The ratio illustrates revenue realized by a company after meeting the operating expenses such as interest, taxes, and dividends. The ratio has declined from 9.59& to (-35.23%) during 2018-2019 depicting that it has high operating expenses as compared to the overall revenue and thus it is incurring a major financial loss.

  • Return on Equity (ROE): This ratio depicts the profits attained by a company over the equity resources contributed by the owner. The company is not able to realize any profit on the equity funds and has provided losses for its shareholders as illustrated from the results of the ratio that has declined from 11.72% to (-50.57%). The LMW has significantly invested in enhancing its IT platform and the loss in revenue from the suspense of its valuation panels has resulted in a reduction of the profits over the equity resources (Kosowski and Neftci, 2015).

Assets Analysis-Efficiency ratios

Calculation of Efficiency Ratios of Acumentis Group Limited

 

2017

2018

2019

Financial Data

 

Figures in $'000

Total assets

 $ 54,267.00

 $ 40,761.00

 $ 36,861.00

Average Total Assets

 

 $ 47,514.00

 $ 38,811.00

Sales

 

 $ 43,157.00

 $ 42,995.00

Account receivables

 $ 5,294.00

 $ 5,306.00

 $ 3,832.00

Average account receivables

 

 $ 5,300.00

 $ 4,569.00

Efficiency Ratios

Formula

2018

2019

Asset Turnover ratio

Sales/Average Total assets

0.91

1.11

Account receivables turnover ratio

Sales / Average account receivables

8.14

9.41

Debtors collection period

(365*Average account Receivables)/Sales

44.82

38.79

Table 6: Efficiency Ratios of Acumentis Group Limited

Source: (Annual report, 2017 and Annual report, 2019)

  • Asset Turnover Ratio: This efficiency ratio gives a depiction of a company's capability to attain sales from the use of the assets. The ration for the company has increased from 0.91 to 1.11 which is mainly due to a decline in the asset position as compared with the sales over the financial period 2018-2019.

  • Accounts receivables turnover ratio: This ratio has increased from 8.14 to 9.41 for the company which is good for the company reflecting the improved efficiency in the collection of credits. It can be said that it has a high-quality customer base which is efficient in paying its debt obligations in an efficient manner

  • Debtors Collection Period: The collection period has declined from 44.82 to 38.79 reflecting that the company has improved the efficiency of its credit policy as it is taking fewer days in the collection of debt from the customers (Atrill, McLaney and Harvey, 2015).

Working Capital Ratios (Liquidity ratios)

Calculation of Working Capital Ratios of Acumentis Group Limited

 

2018

2019

Financial Data

Figures in $'000

Current assets

 $ 8,839.00

 $ 7,219.00

Current Liabilities

 $ 4,669.00

 $ 8,608.00

Cash flow from operations

 $ 1,737.00

 $ 56.00

Working Capital Ratios

2018

2019

Current Ratio

1.89

0.84

Operating cash flow ratio

37.20%

0.65%

Table 7: Working Capital Ratios of Acumentis Group Limited

Source: (Annual report, 2017 and Annual report, 2019)

  • Current Ratio: The ratio gives a depiction of current assets possessed concerning the current liabilities. The ratio has decreased from 1.89 to 0.84 which represents a decline in the ability of the selected company to meet its liabilities position. This is mainly due to the financial losses realized by it in the year 2019 and heavy cash paid for its acquisition of the unit of Taylor Byrne that has resulted in the weakening of its current asset position.

  • Operating Cash Flow Ratio: There is a large reduction in the ratio of the company from 37.20% to 0.65% over the financial period 2018-2019. This is mainly due to the large reduction in the net operating cash flow maintained by the company with excessive outflows resulting from its major acquisitions (Ali and Babak, 2013).

Gearing Ratios (Capital Structure ratios)

Calculation of Gearing Ratios of Acumentis Group Limited

 

2018

2019

Financial Data

Figures in $'000

Total Liabilities

 $ 5,136.00

 $ 12,574.00

Shareholders’ Equity

 $ 35,625.00

 $ 24,287.00

Net Finance Cost

 

 $ 160.00

EBIT

 $ 5,653.00

 $ (15,428.00)

Total Assets

 $ 40,761.00

 $ 36,861.00

Gearing Ratio

2018

2019

Debt to Equity

14.42%

51.77%

Debt Ratio

12.60%

34.11%

Interest coverage ratio

N/A

-96.43

Table 8: Gearing Ratios of Acumentis Group Limited

Source: (Annual report, 2017 and Annual report, 2019)

  • Debt to Equity Ratio: The ratio gives a depiction of the proportion of debt and equity maintained by a company within its capital structure. There is a large increase in the ratio from 14.42% to 51.77% over the financial period 2018-2019 which signifies that the company has largely increased its debt borrowings concerning the equity base. The additional debt has been raised by the company for restructuring the company and investing in its IT infrastructure platforms.

  • Debt Ratio: It provides a depiction of the amount of leverage possessed by a company and the ratio has increased from 12.60% to 34.11% over the financial years 2018-2019. This signifies that the company is financing more of its asset base from debt as compared with the equity.

  • Interest Coverage Ratio: The ratio is used for determining the ability of a company for meeting the interest expenses on the outstanding debt. There is a negative coverage ratio in the financial year 2019 which means that the company is not able to cover effectively its interest obligations (Zainudin and Hashim, 2016).

Key Financial Issues that Have Inferred from The Financial Analysis

Working Capital or credit risk

Working capital represents the resources required for the daily business process and it is represented as current assets less current liabilities. Working capital risk arises from cash and cash equivalents, trade receivables, and investments (Held to maturity). This risk is measured by analyzing the Ageing Analysis Credit Ratings (Annual report, 2019). The carrying amount of the current level of financial assets reflects maximum credit risk exposure. Credit risk represents the financial loss to the entity if the counterparty or customer fails to meet their contractual obligations (Ahrendsen and Katchova, 2012). Following tables reflects the aging of the trade and other receivables at the end of the reporting period:

Trade and other receivables

Gross Amount to be received

Impairment

 

$’000

$’000

Not past due

3031

0

Past due 0-30 days

326

0

Past due 31-120 days

225

0

Past due 121-365 days

337

250

 

$3919

$250

Table 9: Aging of the Trade and Other Receivables

Source: (Annual report, 2019)

Liquidity Risk

Liquidity risk exposure arises from the borrowings and other liabilities and it is measured through rolling cash flow forecasts. This risk can be managed by making sure all the available borrowings facilities. This risk arises when an entity will not able to meet its financial obligations as and when they fall due (Ak, Dechow, Sun and Wang, 2013). As per the annual report, the company has sufficient cash on demand to pay for the operational expenses for a period of 45-60days and it also includes the servicing of the financial obligations (Annual report, 2019).

Conclusion

Based on the financial statement analysis of Acumentis Group Limited, it has been found that the financial performance of the company had been worst in the year 2019 in the year 2019 as compared 2018 financial performance. Acumentis Group Limited has suffered a loss of $15148 thousand in the year 2019 and the main cause of this loss was lower revenue from the newly acquired companies with a resultant increase in operating expenses. It has been reported in the annual report of the respected company that there was suspension from the banking valuation due to major cyber frauds that have been occurred past few years which has caused the ethical misconduct and loss of brand value within the Australian Market. There was credit risk that Acumentis Group Limited has been facing due to an increase in financial commitments and an increase in response time from the customers and other counterparties. However there was no liquidity risk at the end of the financial year 2019, however, it is highly expected that financial performance will not improve in the year 2020 than there might be going concern issue in the next financial year.

References

About Acumentis. 2020. [Online]. Available at: https://www.acumentis.com.au/about-acumentis/ [Accessed on: 30 May 2020].

Ahrendsen, B., and Katchova, A. 2012. Financial ratio analysis using ARMS data. Agricultural Finance Review, 72(2), 262–272.

Ak, B., Dechow, P., Sun, Y., and Wang, A. 2013. The use of financial ratio models to help investors predict and interpret significant corporate events. Australian Journal of Management, 38(3), 553–598.

Ali Faez, and Babak Eslam. 2013. The effect of financial ratios on systematic risk index. Management Science Letters, 3(11), 2775–2780.

Annual report. 2017. Acumentis Group Limited. [Online]. Available at: https://www.acumentis.com.au/investor-centre/annual-reports/ [Accessed on: 30 May, 2020].

Annual report. 2019. Acumentis Group Limited. [Online]. Available at: https://www.acumentis.com.au/investor-centre/annual-reports/ [Accessed on: 30 May, 2020].

Atrill, P., McLaney, E., and Harvey, D. 2015. Accounting : an introduction (Sixth adaptation edition.). Melbourne, Vic: Pearson.

Frino, A., Chen, Z., and Hill, A. 2013. Introduction to corporate finance (5th edition.). Frenchs Forest, NSW: Pearson Australia Group.

Kosowski, R., and Neftci, S. 2015. Principles of financial engineering (3rd ed.). London, England: Elsevier.

Pressley, S. 2020. Property Market Outlook. [Online]. Available at: https://www.propertyology.com.au/australian-property-market-outlook-2020/ [Accessed on: 30 May 2020].

Zainudin, E., and Hashim, H. 2016. Detecting fraudulent financial reporting using financial ratio. Journal of Financial Reporting and Accounting, 14(2), 266–278.

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