Based on the same company chosen in the group report, perform financial analysis and prospective analysis as if you were a business analyst. Specifically, reformat the company’s financial statements...

Table of Content
    Sl. No.
    Topics
    Page No.
    1
    Introduction to company…………………………………………………….
    2
    2
    Financial Statement Analysis-Briefing………………………………...
    2
    3
    Reformatting of Financial Statement……………………………………
    3
    4
    Ratio and cash flow analysis ……………………………………………….
    3
    5
    Forecasting………………………………………………………………………….
    9
    6
    Valuation of the company using Different Model………………….
    9
    7
    Sensitivity Analysis: …………………………………………………………….
    20
    8
    Conclusion and Future Prospects of the company…………………
    23
    9
    References…………………………………………………………………………...
    24
Introduction to company:
For the purposed of financial analysis of this task CSL limited has been selected, CSL limited is a Biotechnology company working in the healthcare sector of Australia. The company’s ticker symbol shows simply “CSL”, its leading organization of healthcare sector in Australia.
CSL is a global pharmaceutical company that is based in biotechnology and involved in the business of preparing medicines. The company was founded in 1916 as Commonwealth Serum Laboratories. The company is also involved in performing detailed research related to the biopharmaceutical and allied products. They manufactured the product and also involved in its marketing. They are involved in two businesses Seqirus & CSL Behring.
Financial Statement Analysis:
In the business world, decision making based on financial and accounting information from companies corresponds to a subject of great importance and intense study by academic circles and executive training. These records demonstrate the life of the company and allow a complete analysis of its situation. The administration of this data is the responsibility of the financial administrator, who collects it, structures it and analyzes it, generating essential information for the decision-making process. The importance of knowing how the financial statements is structured and how to analyze them helps the financial administrator to make decisions that enable great financial returns and growth for the company. With this knowledge, they can also identify and discover the financial policy of competitors, and adopt criteria that can overcome them.
With the advent of technology and the availability of information in real-time, what generates value and creates differential is the quality, precision and security of the information presented. Financial analysis and statements are important, as they present the current situation of a company, its financial capacity to settle/contract debts and financing, its growth or indebtedness and the tendency for investments. As some indexes are historical, they allow you to view facts and compare the current economic and financial situation in the market in which you operate. The analysis of financial statements has both internal and external uses. Internal use includes performance evaluation and planning for the future; the external includes analysis carried out by creditors and potential investors, evaluation of competitors, and performance estimates to acquire another company.
1. Reformatting of Financial Statement – Please refer attached appendix
2. Ratio and cash flow analysis
                                            (US$ million)
· DuPont analysis
In DuPont analysis, we break down Return on equity into three parts. ROE is equal to profit margin multiplied by asset turnover multiplied by financial leverage.
Financial Leverage
Profit Margin
Assets Turnover
ROE     = Net income/ sales * Sales/Average Assets * Average Assets/Average Shareholders’ equity
= [2,102.7/9,150.8] * [9,150.8/ [(15,464.7+12,314.4)/2] * [{(15,464.7+12,314.4)/2}/(6527.6+5251.3)/2]
=2,102.7/6527.6+5251.3)/2
    =2,102.7/5889.4
    =0.357
    =35.7%
· Return on equity (ROE)
ROE    = Net Income / Average Shareholders’ equity
    =2,102.7/5889.45
    =0.357
    =35.7%
· Return on Net Assets (RONA)
RONA    =Net Profit / (Fixed assets + net working capital)
            Where, Net Working Capital    = Current Assets – Assets Liabilities
                            =6,446.2 – 2,141.5
                            =4,305
Therefore, RONA = 2,102.7 / (9,018.5+4,305)
         = 2102.7/13,323.5
         =0.1578
         =15.78%
Return on Net Assets represents how much a company’s Fixed assets and Working capital can perform. Fixed assets and Working capital represent the investment by the company in the business. To measure this performance, Net Profit is divided by the sum of Fixed Assets and Working Capital.
· Profit Margin
Profit margin represents is the ratio of profit by sales. It can be gross profit margin or net profit margin.
    Gross Profit Margin     = Gross profit / Net Sales
= (Net Sales – Cost of Goods Sales) / Net Sales
                = (9150.8-3924.4)/9150.8
                =5226.8/9150.8
                =0.57118
                =57.12%
It means that CSL is making Gross profit of $57.12 on sale of $100.
    Net Profit Margin    =Net Operating Profit / Net Sales
                =2203.34 / 9150.8
                =0.2408
                =24.08%
It means that CSL is making Net Operating profit of $24.08 on sale of $100.
· Assets Turn Over Ratio (ATO)
ATO    = Net Sales / Average Operating Assets
    = Net Sales / (Opening operating Assets + Closing operating Assets)/2
    =9150.8 / (9903.8+12502.9)/2
    =9,150.8/22,407.7
    =0.82
    
It represents the efficiency of the Assets of the company to generate sales. It is calculated by dividing net sales by the average assets of the company.
· Financial Leverage (FLEV)
FLEV    = Average Financial Obligation/Average Shareholders’ equity
    = [(4652.5+5975.2)/2] / (6527.6+5251.3)/2
    =5313.9/5889.45
    =0.9023
    =90.23%
It represents how much debt a company is using to finance its assets. High leverage represents the company is highly leveraged which means it is using a high amount of debt to finance its assets. It is calculated by dividing Average assets by average Shareholders’ equity.
· Net Borrowing Cost (NBC)
NBC    = Net Interest Expense / Average Obligation
    = (Finance Cost – Finance Income-tax shield) / Average financial obligation
    = (150.8-7-43.14) / (5,975.3+4652.5)
    =100.66/5,313.9
    =0.0189
    =1.89%
Net borrowing cost of the company is at 1.89% which is very low. Due to decrease in finical borrowing of the company net borrowing cost has drastically reduced over the period of last 5 years. (Refer appendix, Ratio analysis sheet.)
· In-depth Breakdown and Analysis of Profit Margin Ratio
Gross Profit Margin     =57.12%
    Net Profit Margin    =24.08%
· Gross profit margin represents the efficiency of the operation of the company. It shows how well the company perform its operation and how good is its executive manager is doing in generating revenue taking into the cost of the operation. In the case of CSL Limited, the Gross margin of 57.12% reflects that it can generate 57.12% of gross profit from its operation.
· The company also incurred other expenses apart from the cost of goods sold like interest expenses on its borrowing, taxes, administrative expenses etc. Net profit margin takes into the cost of goods sold and all other expenses and represents the performance of the company in totality. In this case, CSL limited is having a Net Profit Margin of 24.08% which indicates it is making a profit at the rate of 24.08% from revenue earned by it.
· Liquidity, Solvency and Cash flow ratios
Liquidity, Solvency and Cash flow ratios show how well the company is in covering its debt. These ratios represent the capability of the company to fulfil its long term as well short-term debt obligation. It may possible that the company is earning profit at a higher rate but it may not be able to serve its debt obligation due to bad realisation capacity. Some Important Liquidity, Solvency and Cash flow ratios in respect of CSL limited has been calculated below:
Liquidity Ratio
· Current Ratio     =Current Assets / Current Liabilities
=6,446.2 / 2,141.5
=3.010
The current ratio tells us about the liquidity of the company i.e., its ability to pay short term debt (falling due within 1 year). CSL Limited, Current ratio of 3.010 indicates that it covers its current liabilities three times which is good. But it also indicates that it is not using its current assets efficiently or it is not obtaining finance well or is not managing its working capital at optimum level.
· Quick Ratio     = Quick Assets / Current Liabilities
= (cash & cash equivalents+ Marketable Securities + Account receivable) / Current Liabilities
= (1,194.4+1,703.9) / 2,141.5
=2,898.3 / 2141.5
=1.3533
The basic idea before Quick Ratio is that all current assets cannot be immediately realised to dispose of its current liabilities. Therefore, only those current assets item like cash & cash equivalents, Marketable Securities, Account receivable as taken. These items are called Quick assets. In the case of CSL Limited Quick ratio of 1.3533 which is greater than indicates 1 that it is fully sufficient to serve its short-term obligations.
Solvency Ratio
· Interest Coverage Ratio        = Cash Flow from operation + Net interest Expense + Tax expese / Net Interest Expense
= (2488.3+150.8-7.0+470.0)/(150.8-7.0)
= 3102.1 / 143.8
=21.57
Interest Coverage Ratio indicates the company’s ability to pay its interest obligation. It is calculated by dividing Earnings Before Interest and Tax by Interest Expense. Here in case of CSL Limited Interest Coverage Ratio of 18.89 indicates it has earned a profit of 18.89 times to pay its debts. A higher result indicates less debt burden on the company.
    
· Debt to Assets Ratio        = Debt / Assets
= (Short Term Debt + Long Term Debt) / Total Assets
= 8,937.1/ 15,464.7
=0.5779
The debt to Assets ratio indicates the proportion of assets that are financed by the debt. Here Debt to assets ratio of 0.5779 indicated that about 57.79 assets...