The key drivers of your firm's past economic profit (Abnormal OI) are Return on Net operating assets
Question:
The key drivers of your firm's past economic profit (Abnormal OI) are Return on Net operating assets (RNOA), cost of capital and Net operating assets (NOA). The two key accounting drivers of RNOA are Profit margin (PM) and Asset turnover (ATO). The key accounting drivers of your firm's Free cash flow (OI - NOA) are Operating income (OI) and Net operating assets (NOA).
Comment on what is driving or causing your firm's economic profit and Free cash flow over the past four years to be at the levels they are. If your firm's economic profit and Free cash flow are negative (or positive), what is causing them to be negative (or positive)? If they are large numbers, what is causing them to be so large? If they are small numbers, what is causing them to be so small? If they changed a lot over these years, why did they? If they stayed much the same, why was this?
Comment on your firm's key accounting drivers, what is driving your firm's economic profit and Free cash flow. Which are the most important or critical?
What similarities or differences are there between your different firms' key accounting drivers? What similarities or differences are there between the economic profit and Free cash flow of your different firms? Why is this? What is causing these similarities or differences? What insights have you gained by 'breaking into bits' your firm's financial statements? What insights have you not gained?
Include your commentary on your firm's ratios and what is driving your firm's economic profit and Fee cash flow.
| ABC | |||||
| RATIOS | |||||
| Years ended 30 June | |||||
| 2019 | 2020 | 2021 | 2022 | ||
| Profitability Ratios | |||||
| Net Profit Margin | Net profit after tax/Sales | -137.2% | -100.8% | -19.9% | -41.1% |
| Return on Assets | Net profit after tax/Total assets | -72.6% | -52.5% | -13.8% | -52.3% |
| Efficiency (or Asset Management) Ratios | |||||
| Total Asset Turnover Ratio | Sales/Total assets | 0.53 | 0.52 | 0.69 | 1.27 |
| Current Asset Turnover Ratio | Sales/Current assets | 0.8 | 0.9 | 1.3 | 2.5 |
| Liquidity Ratios | |||||
| Current Ratio | Current assets/Current liabilities | 3.5 | 6.4 | 2.8 | 3.0 |
| Quick Ratio 1 | (Current assets - inventory - prepayments)/Current liabilities | 2.8 | 5.5 | 2.2 | 1.5 |
| Quick Ratio 2 | (Current assets - inventory - prepayments - receivables)/Current liabilities | 2.3 | 4.6 | 1.5 | 1.0 |
| Financial Structure Ratios | |||||
| Debt/Equity Ratio | Debt/Equity | 2395% | 115% | 151% | 308% |
| Equity Ratio | Equity/Total assets | 4.0% | 46.5% | 39.9% | 24.5% |
| Times Interest Earned | Earnings before interest & tax/Interest | (3) | (1) | 15 | (77) |
| Market Ratios | |||||
| Earnings per Share (EPS) | Net profit after tax/Number of issued shares | (10.54) | (3.38) | (1.52) | (18.42) |
| Dividends per Share (DPS) | Dividends/Number of issued shares | 0.00 | 0.00 | 0.00 | 0.00 |
| Dividend Yield Ratio | Dividends per share/Market price per share | 0.00 | 0.00 | 0.00 | 0.00 |
| Price Earnings Ratio | Market price per share/Earnings per share | (0) | (0) | (0) | (0) |
| Net Asset Backing per Share Ratio | Net assets (ie Total equity)/Number of shares issued | 0 | 0 | 0 | 0 |
| Market/Book Ratio | Market price per share/Net asset backing per share | 135 | 6 | 8 | 8 |
| Ratios Based on Reformulated Financial Statements | |||||
| Dividend Payout Ratio | Dividends/Comprehensive income (CI) | 0% | 0% | 0% | 0% |
| Return on Equity (ROE) | Comprehensive Income (CI)/Shareholders' equity | -1820% | -113% | -35% | -213% |
| Return on Net Operating Assets (RNOA) | Operating income (OI) after tax/Net operating assets | -120% | -54% | -38% | -86% |
| Net Borrowing Cost (NBC) | Net financial expenses after tax/Net financial obligations | -59% | 763% | 63% | -4% |
| Profit Margin (PM) | OI after tax/Sales | -96% | -45% | -25% | -40% |
| Operating Liability Leverage (OLLEV) | Operating liabilities/Net operating assets | 0.43 | 0.40 | 0.60 | 0.44 |
| Financial Leverage (FLEV) | Net financial obligations/Shareholders' equity | 9.49 | (0.08) | 0.14 | 1.41 |
| Return on Operating Assets (ROOA) | (OI after tax + implicit interest after tax)/Operating assets | -83% | -37% | -22% | -58% |
| Operating Liability Leverage Spread (OLSPREAD) | ROOA - short-term borrowing rate (after tax)1 | -88% | -37% | -22% | -58% |
| Asset Turnover (ATO) | Sales/Net operating assets | 1.26 | 1.22 | 1.53 | 2.16 |
| Growth in Sales | Change in sales/Prior period's sales2 | -58% | 20% | 20% | 12% |
| Growth in Operating Income | Change in OI after tax/Prior period's OI after tax | 4 | -44% | -33% | 81% |
| Growth in Net Operating Assets | Change in NOA/Opening NOA | 4 | 24% | -4% | -20% |
| Growth in Shareholders' Equity | Change in shareholders' equity/Opening shareholders' equity | 4 | 1317% | -23% | -62% |
| Free Cash Flow | YES - NOA | 4 | (3,675,390) | (1,594,092) | (2,304,133) |
| Implicit interest after tax | Short-term borrowing rate (after tax)1 x Operating liabilities | 86,474 | 99,603 | 142,115 | 83,597 |
| Economic profit | (RNOA - cost of capital3) x NOA | -5156426 | -3110659 | -2194773 | -3577667 |
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