Ridley Corporation Limited (RIC), an Australia-based company found in 1987 that manufactures and markets animal nutrition solutions and solar salt, has two major businesses named Ridley AgriProducts and Cheetham Salt. The purpose of our report is to provide a comprehensive analysis of RIC’s past and current financial performance based on its financial statements. The first part in this report is a detailed ratio analysis with four different categories to evaluate the general performance of the organisation. The second part is cash flow analysis, which shows the company’s efficiency in using its cash resources. The third part shows the inventory situation and policies of the company which have significant influence on the company’s performance. The last part is an analysis of the company’s long-lived assets both tangible and intangible.
PART 1: RATIO ANALYSIS
According to 10-year total return diagram in the appendix, RIC’s total return is shown to have an overall under-market performance and thus, relatively low profitability. However, RIC’s profitability is increasing according to rising profitability ratios such as gross profit margin (from 9.53% to 10.35%), pre-tax profit margin (3.07% to 4.18%) and net profit margin (2.48% to 4.05%) in three-year basis of 2009-2011. Also, with an as-a-whole ROA increase from 3.19% to 5.81%, RIC is considered to be able to use its assets effectively to generate profit. Referring to Dupont analysis, ROE is the product of ROA and leverage ratio. Hence, the significant increase in ROE from 2009 (6.29%) to 2010 (10.37%) was mainly due to the growth in ROA from 3.19% to 6.11%, noting that leverage decreased from 1.97 to 1.70.
Liquidity measures company’s ability to meet its short-term obligations and how quickly assets could convert into cash. RIC has a better tendency for company’s liquidity as higher liquidity ratios indicate higher level of liquidity. In details, its current ratio, which expresses current assets in relation to current liabilities, increased from 1.45 in 2009 to 1.75 in 2011. The reason for this increase is that the total current assets are increasing slightly year by year (from $173,601,000 to $193,749,000), while the total current liabilities are decreasing from $121,107,000 to $110,453,000. Quick ratio is more conservative than the current ratio because it includes only the more liquid current assets in relation to current liabilities. The quick ratio for the company slightly decreased from 2009 to 2010 give an idea that even thought current ratio increased, it does not mean that the company’s liquidity has increased as the increase in current ratio was due to the large amount of inventory hold on hand. Note that quick ratio eventually increased from 0.78 to 0.93 in 2011 and indicated a higher liquidity. Moreover, cash ratio represents a reliable measure of entity’s liquidity in a crisis situation. In this case, cash ratio increased significantly from 0.002 in 2009 to 0.12 in 2011. This significant increase shows that the company has more cash available to cover liability than 2 years before (from $280,000 to $13,247,000). More detailed information is shown on table 3.
Solvency ratios measure the ability of a company to meet long-term obligations. Debt to assets ratio indicates the proportion of assets financed by debts. From 2009 to 2011, the debt to assets ratio continuous increased from 14.81% to 16.31% and end with 22.02% and the debt to equity ratio is also increasing from 25.13% to 27.7% then to 39.66%. From 2010 to 2011, these ratios increased sharply as RIC’s total debts which represented by current and non-current borrowings increased significantly, from $78,988,000 to $ 115,386,000 while the total assets and total equity grew steady in the past three years. Increase in such ratios indicates the solvency of the Ridley becomes weaker. The interest coverage ratio reveals whether the profits sufficient to...