AMD (Blackmore's accounting analysis）

BLACKMORES LIMITED ACCOUNTING ANALYSIS
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TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc51245055 \h 32. Blackmores Limited Background PAGEREF _Toc51245056 \h 33. Accounting Disclosures PAGEREF _Toc51245057 \h 3a. Changes in Accounting Policies PAGEREF _Toc51245058 \h 3b. Reporting Segments PAGEREF _Toc51245059 \h 4c. Five Years Figures of Net Profits and Income Taxes PAGEREF _Toc51245060 \h 44. Accounting and Market Valuation PAGEREF _Toc51245061 \h 45. Additional Disclosures PAGEREF _Toc51245062 \h 5a. Key Management Personnel (KMP) PAGEREF _Toc51245063 \h 5b. Auditor and Its Payment PAGEREF _Toc51245064 \h 5c. Major Investors and Shareholdings PAGEREF _Toc51245065 \h 56. Analysis of Financial Statement of Blackmores Group PAGEREF _Toc51245066 \h 66.1. Trend Analysis for Previous Five Years PAGEREF _Toc51245067 \h 66.2. Ratio Analysis PAGEREF _Toc51245068 \h 7a. Profitability Ratios PAGEREF _Toc51245069 \h 7b. Asset Efficiency Ratios PAGEREF _Toc51245070 \h 8c. Liquidity Ratios PAGEREF _Toc51245071 \h 9d. Capital Structure Ratios PAGEREF _Toc51245072 \h 9e. Market Performance Ratios PAGEREF _Toc51245073 \h 106.3. Impact of COVID-19 Pandemic PAGEREF _Toc51245074 \h 117. Investment Recommendations PAGEREF _Toc51245075 \h 118. Conclusion PAGEREF _Toc51245076 \h 13Reference List PAGEREF _Toc51245077 \h 14Appendixes PAGEREF _Toc51245078 \h 15Appendix A: Consolidated Statement of Profit or Loss for 2019 and 2020 PAGEREF _Toc51245079 \h 15Appendix B: Consolidated Statement of Financial Position for 2019 and 2020 PAGEREF _Toc51245080 \h 15Appendix C: Consolidated Statement of Cash Flows PAGEREF _Toc51245081 \h 17Appendix D: Financial Ratios Conducted in Excel PAGEREF _Toc51245082 \h 18Appendix E: Trend in Share Prices of Last Three Years PAGEREF _Toc51245083 \h 18
Blackmores Limited Accounting Analysis
1. Introduction
Investors require new stock investment opportunities to achieve a higher rate of returns on financial capital. Diversification in the stock portfolio also helps to minimize the total risk. The human capital of the investor plays an important role in the determination of suitable stock investment. High-risk stock options may generate more returns, but investment objective usually vary, such as; an investor may require low-risk stock in their portfolio to generate a stable rate of returns. The report presents a complete financial analysis of the Blackmores Group and also present investment recommendations. Ratio and trend analyses are used to evaluate the financial statements to identify the significant insights, and then recommendations provide support to the investor to make a relevant investment decision.
2. Blackmores Limited Background
It is an Australia-based public listed company that provide natural health products for the people and animals (IBISWorld, 2020). Company has operations in countries like Australia, New Zealand, Malaysia, Singapore and South Korea. Group’s total revenue growth has decreased from 36.50% in 2015 to -3.48% in 2018 and then risen to 1.75% in 2019 (IBISWorld, 2020). In the current year, the financial performance has experienced different challenges because of COVID-19. Group’s revenue is reduced by 3% to $568 million, EBIT decreased by 62% to $29 million, net profit after tax is $18 million with a reduction of 66%, and most importantly, no dividend is paid to the shareholders in 2020 (Blackmores, 2020).
3. Accounting Disclosures
Group’s annual reports in 2019 and 2020 suggest that there are significant changes related to the accounting policies.
a. Changes in Accounting Policies
1. In 2019, AASB 15 revenue from contracts with customers was replaced with the AASB 118. AASB 15 requires more detailed disclosure of the transactions (Blackmores, 2019, p.86). However, the new AASB 15 has not created any impact on the consolidated balance sheets and income statements.
2. Requirements of AASB 9 is also changed related to the calculation of impairment losses on the financial assets in 2019. The new requirements state that doubtable debts should be termed as the credit loss allowance (Blackmores, 2019, p.86).
3. In 2020, AASB 16 is changed with the AASB 17. As per new standard, the accounting requirements for the leases are changed, such as; company need to consider the operating leases as a lessee and should also recognize the right-to-use asset. AASB 16 created a significant impact on the income statement in the form of interest and depreciation expenses (Blackmores, 2020, p.106).
b. Reporting Segments
Table 1: Size and Profitability of Group’s Segments (Blackmores, 2020, p.17)
Segments

Revenue generated

Market shares

Blackmores Australia and New Zealand

$227 million

16%

Blackmores China

$103 million

2% increase in market share in 2020

Blackmores International

$139 million


BioCeuticals Group

$99 million

18% of Australia’s total
VDS cold and flu segment

c. Five Years Figures of Net Profits and Income Taxes
Table 2: Net Profits and Income Taxes (Blackmores, 2020, p.43)
Years

2016

2017

2018

2019

2020


‘$000

‘$000

‘$000

‘$000

‘$000

Net profits

100,008

59,013

70,005

53,469

18,114

Income Taxes

43,179

22,962

27,281

20,947

7,411

4. Accounting and Market Valuation
Table 3: Market Capitalization and Net Assets

‘$000

‘$000

Market capitalization (Yahoo, 2020)

1,282,000




1,282,000

Net assets:



Total assets

561,132


Total liabilities

(254,493)


Net Assets


306,639




The difference in the net assets and market capitalization


975,361

The figures given in the table indicates that there is a large difference of $975,361,000 in the market capitalization and total net assets. Net tangible assets have increased from $122,508,000 in 2019 to $233,815,000 in 2020 (Blackmores, 2020, p.43). However, the large difference is because of the increase in total equity. Group’s total shareholders equity has increased from $207,292,000 in 2019 to $305,295,000 (Blackmores, 2020, p.43). It is a clear fact that the Group has developed a new policy to raise additional resources through equity finance.
5. Additional Disclosures
Additional disclosures evaluation helps to identify and understand the Group’s expenses.
a. Key Management Personnel (KMP)
Table 4: Remunerations of Non-Executive KMPs (Blackmores, 2020, pp.52-71)

Fees and allowances

Short-term employment benefits

Post-employment benefits

Total


$

$

$

$

David Ansell

146,538

0

13,921

160,459

John Armstrong

146,538

134

13,921

160,593

Christine Holman

155,116

0

14,736

169,852

Brent Wallace

254,000

0

20,882

274,882

Table 5: Remunerations of Executives KMPs (Blackmores, 2020, pp.52-71)

Short-term employment benefits

Post-employment benefits

Other long term employee benefits

Share-based payments

Total


$

$

$

$

$







Marcus Blackmore

375,595

21,003

0

0

396,598

Alastair Symington

1,403,634

21,003

0

0

1,424,637

Senior Executive






Gunther Burghardt

321,272

10,501

0

0

331,773

b. Auditor and Its Payment
Deloitte Touche Tohmatsu has conducted the audit of Blackmores Group.
Payment to the auditor of the parent entity is $320,774 in 2019 and $455,534 in 2020 (Blackmores, 2020, p.124).
c. Major Investors and Shareholdings
* Founder, MC Blackmore owns 17.62%
* HSBS limited Australia Limited owns 11.68%,
* JO Morgan Nominees Australia Limited owns 11.27%,
* Citicorp Limited owns 4.78%,
* National Nominees Limited owns 4.10% in total quoted equity securities as of 29th July 2020 (Blackmores, 2020, p.126).
6. Analysis of Financial Statement of Blackmores Group
The technique of ratio analysis is used to analyze financial statements in excel. The previous five years of key figures for profits and cash flows are also examined to identify the relevant trends. Results of the key financial ratios with the formulas are mentioned in appendix D.
6.1. Trend Analysis for Previous Five Years
The trend for key financial figures reflects that the Group has not become successful in achieving high financial performance in the last five years. Justification can be presented for weak financial performance in the current year of 2020 because of pandemic situation. However, the financial figures from 2016 to 2019 also do not reflect the strong financial health.
Table 6: Key Figures for Profit and Cash Flow Figures
 Years

2016

2017

2018

2019

2020

 

$'000

$'000

$'000

$'000

$’ 000

Revenues

595,705

530,550

579,535

588,914

568,353

EBIDTA

151,766

90,773

106,556

87,322

50,676

EBIT

144,734

82,550

97,708

76,554

29,383

Profit Before Tax

142,924

78,372

93,778

71,559

23,470

Profit After Tax Attributable to Shareholders

100,008

59,013

70,005

53,469

18,114

Cash Generated from Operations

123,022

95,310

90,131

51,806

75,870

Interest Expense

1,810

4,182

3,931

4,995

5,913

From the above table, it is determined that the Group has not achieved any success to achieve stable growth rates in terms of revenues. Group’s EBIDTA has also fluctuated a lot and reduced rapidly from $151,766,000 in 2016 to $50,676,000 in 2020. There are different reasons for the reduction in EBITDA and EBIT in the last five years. Data for the last two years suggests that total ...