FACULTY OF DESIGN AND CREATIVE TECHNOLOGIES

AUCKLAND UNIVERSITY OF TECHNOLOGY

TE WANANGA ARONUI O TAMAKI MAKAU RAU

School of Engineering

Master of Engineering Project Management

Name AKSHAY ALAGUNDAGI

ID Number 15876949

Paper Name ECONOMICS AND FINANCE FOR ENGINEERS

Assignment 1 – RATIO ANALYSIS

Number of words (excluding appendices)

• Please read and tick the boxes below before handing in your assignment

• If you are uncertain about any of these matters then please discuss them with your lecturer. Assignments will not
be accepted if this section not completed.

Where I have used someone else’s words or images, we have clearly indicated this by putting them inside
□
speech marks (if appropriate) and adding an in-text reference

Where I have used other people’s ideas or writing, we have clearly indicated this by putting them into our own
□
words and adding and adding the reference at the end of the sentence/paragraph.

Other than the above, this assignment

IS NOT copied from another student or previous assignment

□
IS NOT directly copied from books, journals or other materials
□
IS NOT cut and pasted from the internet
□
HAS NOT been handed in by one of us or anyone else in any other course
□
HAS NOT been done by someone else (e.g. friends, relative, professional)
□
I agree to this assignment being used (or copied) for academic purposes which shall include amongst other
things, external moderation, promotional work, sharing with fellow colleagues and others works of good quality
(and if I have any concerns, I will keep the lecturer informed)

……………AKSHAY ALAGUNDAGI …………………………………………25-08-2015…………

Signature Date
ECONOMICS AND FINANCE FOR ENGINEERS
ASSIGNMENT - 1

FINANCIAL ANALYSIS
ON
‘Fisher & Paykel Healthcare’

BY

AKSHAY ALAGUNDAGI – 15876949

MASTER OF ENGINEERING PROJECT MANAGEMENT

Introduction

The financial analysis provides clarification on the organisation’s financial health and performance.
The financial statements include an income statement, balance sheet and cash flow statement,
which represents the organisation’s previous performance, clarity in present financial condition and
a glance of its future potential.

In this report, the financial analysis is carried out on ‘Fisher & Paykel Healthcare’ by means of ratios
analysis for the year 2015 and 2014. The difference in the values obtained between current and past
year is interpreted.

Financial Analysis Ratios

1.0 Profitability Ratio: This ratio is a measure and method to calculate company’s profitability and
performance, associated with its expenditure and related expenses for a particular time period. The
ratios are:

Gross Pro it GP

.
Gross Pro it Margin =
Net Sales Revenue

Selling, General & &'() *+, )$ $ !-&

.  SG&    !"# $ =
Net Sales Revenue

2.0 Liquidity Ratio: This ratio is a measure to assess a company’s liquidity. It is associated with
company’s inventories, liquid assets and liabilities. The ratios are:

Current Assets (CA)

.
Current Ratio =
Current Liabilities (CL)

Current Assets − Inventories (Inv)

.  Quick Ratio =
Current Liabilities (CL)

3.0 Debt Ratio: This is the ratio for identifying a company’s overall debt. The higher the ratio,
represents the high financial risk of a company. The ratios are:

Total Liabilities (TL)

7.
Debt Ratio =
Total Assets (TA)

Long term Debt (LtD)

7. 7 Capitalisation Ratio =
Long term Debt + Shareholder ? s Equity (SE)

4.0 Gearing Ratio: This ratio is a measure of company’s commercial leverage representing the level
to which organisation’s activities are funded by its assets. The ratios are:

Total Debt (Long term debt + Short term debt) (TD)

C.
Debt − Equity Ratio (Gearing Ratio) =
Total Equity (TE)

Total Equity (TE)

C.  Equity Ratio =
Total Assets (TA)

5.0 Market Value Ratio: This ratio is used to identify the economic status of a company. The market
value ratios reflects in various ways to identify the value of the company’s stock. The ratios are:

Page | 1
 Price per Share (PPS)
D.
Price − Earning Ratio =
Earning per Share (EPS)

Price per Share (PPS)

D.  Price to Book Value Ratio =
Book Value per Share (BVpS)

1.0 Profitability:

RATIOS FORMULA CALCULATIONS & VALUE

2014 2015
Gross Profit Margin GP 365.398m 0.5860 410.979m 0.6112
GPM =
Net Sales 623.447m (58.6%) 672.348m (61.12%)
SG&A to Net Sales SG& 171.453m 0.2749 180.909m 0.2690
SG&  ! =
Net Sales 623.447m (27.49%) 672.348m (26.9%)

Interpretation
1. Gross Profit Margin projects the business profit gained by the organisation by effective selling of
its suite of offerings. It is very evident from the calculation that the value of 2014 (58.6%) in
comparison to 2015 (61.12%) has a difference of 2.52%, indicating a slight shoot up in the gross
profit. The appreciation of 2.52% is due to F&PH’s increased sales revenue, cost of sales, decreased
long term and short term debts and decreased borrowings compared to previous years.

2. SG&A to Net Sales represents the percentage value of selling, general and administrative
expenses to Net Sales of the organisation. As compared to the values of 2014 and 2015, it clearly
shows the SG&A expenses for the current year have increased 9.45m compared to previous year,
but when viewed proportionately with net sales, the percentage value of SG&A expenses has
decreased from 27.49% to 26.9% which indicates a good positive trend.

2.0 Liquidity:

RATIOS FORMULA CALCULATIONS & VALUE

2014 2015
Current Ratio CA 234.958m 1.8243 243.291m 2.0773
CR =
CL 128.790m 117.114m
Quick Ratio CA − Inv 234.958 − 94.475m 1.0907 243.291 − 96.143m 1.2564
QR =
CL 128.790m 117.114m

Interpretation
1. Current Ratio interprets whether an organization is capable to withstand the current liabilities
with its current assets. The optimal value for this ratio is 1 or more. The current ratio has increased
from 1.82% (2014) to 2.07% (2015) with growth of 0.25%. The value 2.07 clearly illustrates F&PH
currently has twice the current assets of its current liabilities, which is sufficient to cover the same.

2. Quick Ratio interprets the short term liquidity of the company more precisely than current ratio.
Though the inventory values increased 1.67m compared to previous year, there is also an increase in
the quick ratio value of from 1.09 to 1.25 reason being, increased current assets and decreased
current liabilities compared to previous year. Though inventories is deducted from current assets,
the value 1.25 clearly shows F&PH has sufficient current assets to cover its current liabilities.

Page | 2
3.0 Debt:

RATIOS FORMULA CALCULATIONS & VALUE

2014 2015
Debt Ratio TL 224.203m 0.3556 198.626m 0.2965
DR =
TA 630.325m (35.56%) 669.816m (29.65%)
Capitalisation LtD 63.570m 0.1353 51.342m 0.0982
CapR =
Ratio LtD + SE 63.570 + 406.122m (13.53%) 51.342 + 471.190m (9.82%)

Interpretation
1. Debt Ratio shows the organisation’s ratio of total liabilities to total assets in percentage. The ideal
value for this ratio is 50% or less. In comparison to values of 2014 (35.56%) and 2015 (29.65), there is
a difference of 5.91%, which indicates F&PH’s current year total liabilities have decreased and total
assets have increased in comparison to previous year, indicating a positive trend towards its assets.

2. Capitalisation Ratio represents the organization’s long term debt utilization for its permanent
funding. In comparison to the capitalization ratio value of 2014 (13.53%) to 2015 (9.82%), there
exists a difference of 3.71%. Firstly, which indicates F&PH’s long term liabilities have decreased and
shareholder equity have increased compared to the previous year. And secondly, F&PH has used less
amount of long term debt compared to its shareholders’ equity for its permanent funding.

4.0 Gearing:

RATIOS FORMULA CALCULATIONS & VALUE

2014 2015
Debt to TD 45.786 + 63.570m 0.2692 14.154 + 51.342m 0.1390
D: Eq R =
Equity Ratio TE 406.122m (26.92%) 471.190m (13.9%)
Equity Ratio TE 406.112m 0.6442 471.190m 0.7034
Eq R =
TA 630.325m (64.42%) 669.816m (70.34%)
Note: Total Debt (TD) = Short term Debt (StD) + Long term Debt (LtD)

Interpretation
1. Debt To Equity Ratio shows the value of organisation’s total debt to its shareholder’s equity. The
values of 2014 (26.92%) when compared to 2015 (13.9%) shows a drastic difference of 13.02%,
which is due to decrease in total debt and also increase in shareholder equity compared to previous
year. The drastic decrease in this ratio value indicates F&PH is performing well and reducing their
debts and also more shareholders are investing in its share, representing a very positive trend.

2. Equity Ratio shows the value of total equity to total assets of the organisation, representing the
total assets being funded by shareholder’s investment. The value of 2014 explains 64.42% of F&PH’s
total assets are funded by their shareholder’s investment. The value of 2015 (70.34%) compared to
previous year shows a growth of 5.92%. The upward trend interprets the company is performing
well, as a result the ratio is becoming healthier and the potential investors can effectively invest.

Page | 3
5.0 Market Value:

RATIOS FORMULA CALCULATIONS & VALUE

2014 2015
Price Earning Ratio PPS 4.25 24.795 6.58 33.115
PE R =
EPS ∗∗ 0.1714 0.1987
Price to BV Ratio PPS 4.25 5.923 6.58 7.953
P to BV R =
BVpS ∗ 0.7175 0.8273
Note: Price per share as on 31/03/2014 was 4.25 and as on 31/03/2015 was 6.58 in NZ$
**EPS = Net Income / No. of Shares Outstanding 2014 → 97.053m/565973595 =0.1714 NZ$
2015 → 113.173m/569548997 =0.1987 NZ$
*BVpS = Shareholders’ Equity / No. of Shares Outstanding 2014 → 406.122m/565973595 =0.7175 NZ$
2015 → 471.190m/569548997 =0.8273 NZ$

Interpretation
1. PE Ratio calculates the value of a share as per its earnings. The ratio value for the year 2014 shows
the price per share is 24.79 times its earnings per share. Which means, for every $ of earning,
investors have to pay $24.79 per share. Due to increased PPS and EPS, the value of 2015 (33.11)
compared to previous year shows a positive growth in PE ratio, indicating the value of share is
increasing in the share market and F&PH is potentially a good company for investing.

2. Price to Book Value Ratio interprets price of a share to its book value per share. As per the
calculation, F&PH’s price to BV ratio for the year 2014 is 5.92 which means the market value of the
share is 5.92 times for every $1 of its definite asset. The value of 2015 (7.95) illustrates the increase
in P to BV ratio value compared to previous year. The positive growth in the value interprets F&PH is
potentially performing very well, a good company to invest and investors can expect a high Return
on Investment (ROI).

Conclusion:

After carrying out Fisher & Paykel Healthcare’s financial analysis and interpreting all the ratio’s, the
values obtained for the year 2014 and 2015 illustrates that the company has obtained a positive
trend with respect to profitability, liquidity, debt, gearing and market values.

By interpreting the current year values with the previous year, one can conclude that the company is
performing very well with respect to increase in operating revenue, net profit, total assets,
shareholder’s equity, market value and also in covering their liabilities and debts.

This trend shows the company has greater potential in terms of growth, good future outcomes, and
it is a valuable company for the potential investors to invest and expect high returns on investment.

Page | 4