Sakae Sushi financial analysis
From the balance sheets, it can be seen that the current assets for the group are $19. 5 million in 2012 and $16. 7 million in 2011, while the current liabilities are $29 million for 2012 and $22. 5 million for 2011; the percentage difference between the current assets and current liabilities are 48. 7% and 34. 7% respectively. This shows that Sakae Holdings have problems dealing with short term debts. The non-current assets for the group are $65. 8 million in 2012 and $47. 7 million in 2011, while the non-current liabilities are $18. 4 million for 2012 and $14. 6 million for 2011. This shows that Sakae Holdings have absolutely no problems dealing with long term debts.
From the income statement, Sakae Holding’s group revenue in 2012 was $95. 9 million, showing an increase of 7. 5% variance when compared to $89. 2 million in 2011. The gross profit in 2012 and 2011 was $68. 7 million and $62. 8 million respectively. The percentage variance saw an increase of 9. 4%. The amount of expenses incurred in 2012 was $64. 1 million and $62. 1 million in 2011, showing an increased percentage variance of 3. 2%.
There was no profit in 2012 in which the group accumulated a loss of $6. 8 million while 2011 saw a profit of $5. 5 million, with a percentage variance of 223. 8%. Explain why sales, gross profit and net profit rose or fell. The Japan tsunami incident in 2011 is a probably factor that caused a dip in sales during that year, resulting in 2012 having “increased” sales and gross profits. The only net profit gained was in 2011, which was odd considering lower sales in comparison to 2012, which suffered an incredible loss.
The loss was mainly attributed to impairment loss on investments in associates that put them in the negative. Is gearing level appropriate to the company, given the economic outlook? Gearing level is measured using the debt-to-equity ratio for this report. Based on the figures from the relevant financial statements, the debt-to equity ratio measures 125%, a slight decrease from the previous year of 137%. This may goes to show that the company is starting to take corrective actions for this problem.
However, both these figures still indicate that Sakae Holdings Ltd. may be having trouble paying their long term debt and their ability to withstand operating losses incurred by the business is not that firm. Conduct horizontal and/or vertical analysis where appropriate Vertical Analysis Based on the above vertical analysis, it is certainly a good sign to see that the gross profit is 77. 09% of the total revenue. It is a very large percentage and goes to show that costs are controlled. However, both their administrative and other operating expenses were rather high at 41. 13% and 25. 78% respectively. Some action should be taken against it.
Horizontal Analysis The horizontal analysis revealed some major changes as compared to FY2011. Firstly, the loss for the year had a 223. 75% reduction and this is largely attributed to the investments loss that they suffered. Secondly, the other comprehensive income for the year had almost a 9 times increase of 931. 74% and this may be due to the selling of their non-current assets. Last but not least, the total comprehensive income for the year had an increase by 75. 05% mostly due to the proceeds from the other comprehensive income.
The above ratio analysis were conducted. Firstly, in terms of liquidity, Quick ratio was compared and it revealed that the company may not be as capable as the previous year to cover current liabilities with their current assets as there is a decrease of about 6%. Secondly, as for solvency capabilities of the company, Solvency ratio and Operating Cash flows to Total Liabilities ratio were compared. Both showed an increase especially for the operating cash flow to total liabilities ratio (84. 62%) and this showed that the company is better at paying liabilities based on their total assets and operating cash flows.
Thirdly, as for the activity ratios of the company, Total asset turnover was conducted but it showed that there is a 18. 84% reduction. This may mean that the managers did not do a good job to utilize the total assets to generate revenues. Last but not least, profitability of the company is measured using the Gross Operating Profit margin. There is a slight increase of 2. 86% and it is generally a good sign as it goes to show that management is able to generate sales and yet control expenses at the same time to generate gross operating profits.
Comment on key areas which warrant attention, e. g. steadily declining margins and non-recurring gains. Some of the key areas which warrant attention are the net profit of year 2012 which shows a negative figure of 6. 8 million from the year 2011 which shows a profit of 5. 4 million. This is worrisome as the Sakae Holdings is suffering a huge loss in the year 2012.
On top of that, there is also impairment loss on investments in associates which sources 10. 4 million for the occurring loss. A non-recurring gain is the investment property from zero in the year 2011 to 1. 9 million in the year 2012. Comment on the company’s cash position, e. g. is operating cash flow sound? Based on the cash flow statement, we can see that the net cash from operating activities increases from 4. 9 million to 11. 4 million which shows the amount of cash flow that manager can control.
This is a good sign that Sakae Holdings is making money and sourcing of funds from its daily operations. A negative amount of cash flows shows using of funds while a positive amount of cash flows shows sourcing of funds. Some examples of sourcing of funds in the year 2012 are Amortisation of prepaid lease, Write-off of property, plant and equipment, Impairment loss on investments in associates, Impairment loss recognised on trade receivables, and Interest expense. Overall, there is sufficient positive free cash flow in the year 2012 which amounts to 8. 7 million to sustain its business.