Financial Statement Analysis

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 48 (13845 words) Published: March 26, 2013
Financial Statement Analysis

Financial Statement Analysis

page 1

Table of content

Executive Summary 1. 2. 3. 3.1. 3.2. 4. Introduction Corporate Governance Financial Analysis Efficiency & Profitability Liquidity & Leverage Conclusion

3 4 6 8 8 12 17 19


Financial Statement Analysis

page 2

Executive Summary

This report analyses and assess the current and future profitability, efficiency and financial stability of the McMahon Holdings Ltd. (MAH) and will be compared with two other companies from the same industry, which are UGL Holdings (UGL) and Downer EDI (DOW). The financial position and performances over the past five years are analysed by using key ratios, cash flow, common size and trend analysis. Furthermore, the companies’ financial health, long-term sustainability and future growth are being reviewed.

The result of the financial analysis shows a very volatile performance of MAH. In particular, in the years 2009 and 2011 they suffered from several internal and external events. All these had a negative impact on their EBIT Margin, ROA, ROE and the liquidity ratios. Especially, the debt ratio increased dramatically in the last three years. In addition, the changes in the executive team and publishing of incorrect profit expectations show an unethical behaviour and a missing risk management. This report additionally shows that MAH’s current position is not positive and the prospect of MAH’s future performances has a negative trend mainly in the area of credit control and liquidity management. Recent announcement about revising earning guidelines in September this year have also caused a downfall of MAH’s market share price. The recommendations to improve MAH’s financial situation would include, constantly decreasing the debt ratio and increase of liquidity. A sustainable growth rather than an extensive growth like the current aim of entering new markets would stabilise the company’s performance.

However, the information sources for this financial report is limited and based on past data. Since, changes in the industry and general economic effects cannot be predicted, therefore, all assumptions regarding the past and future behaviour of the three companies is limited to the available data.

Financial Statement Analysis

page 3

1. Introduction

The aim of this business report is to give a deeper insight into the capital goods sector in Australia and show the performance of three companies with different business structures over the last five years. The capital goods industry uses their manufacturing machinery to create capital goods and it contains aerospace, engineering and construction development projects.1 The main reason why this particular segment was chosen lies in the fact, that the capital goods market is sensitive to fluctuation of economic activities. This means that the performance of the companies in this sector will directly be affected by economic changes, like the global economic crises in 2009.2 How these companies coped with these dependences and how they could overcome this difficult period is being shown further ahead in the report.

The main company in this report is MAH with main pillars in mining, construction and operations in Australia, New Zealand, Asia and Africa.3 MAH performance struggled hugely in the last five years and in addition they were forced to revise their earnings guidelines for 2013 in September 2012 and again after they appointed a new CEO.4

One of the compared companies are UGL, a big player in the capital good sector with engineering, rail, resources and service divisions, and the other one is DOW a provider of engineering and infrastructure management and businesses in mining and rail.5 6

In order to compare their performances, the figures shown ahead depicts, how each division contributed to the total revenue for each year. The focus lays in the mining and construction business, the two main sectors of MAH.7

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