Executive summary
Melbourne IT limited, founded in 1996 provides internet based technology services such as internet domain name, web hosting, online brand protection and promotion. The company operates through two major segments which are SMB solutions and Enterprise services.
The aim of this paper is to analyse the financial position of Melbourne IT limited through the use of financial ratios, based on the annual report for the periods December 2012 and 2013. Financial ratios are useful since they measure a company’s performance and give an overview of the financial situation. Ratios are also used to analyse trends and to compare a firms financial figures to other competitors within the same industry.
There three main ratios analysed
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Bazely and Hancock (2010)
During the period 2012 and 2013, the Operating profit margin decreased from 9.2% to 5.7%. This slight decline can be attributed to the decreased revenues and the increase in tax expenses.
The Net Profit Margin in 2012 was 10.5% while in 2013 it was 66.6%. This increase in the Net Profit Margin can be attributed to the increase in net profits after taxes despite the fact that there was a slight decrease in revenues.
During this period, the Return on Assets increased from 5.7% in 2012 to 34.6% in 2013. This implies the number of cents earned on each dollar of assets increased from 2012 to 2013. This shows that the business has become more profitable. Equally, the Return on Equity also increased from 12.0% in 2012 to 46.5% in 2013. This similarly implies that the company in 2013 was more efficient in generating income from new investment. This, also can be attributed to the sale of the Digital Business Brand which enabled the company appraise its strategic plan.
The Earnings Per share in 2012 and 2013 were $2.90. This is an indicator that the company is still profitable since the ratio is a constant. The price per earnings in 2012 was 12.5 and 17.7 in 2013. A decrease in the price per share may indicate a vote of no confidence to investors. However, this can be attributed to the industry sector as well the stock.
Liquidity ratios
Liquidity ratios measure the ability of a firm to meet its short-term obligations. A company that is not able
Net Margin is the ratio of net profits to revenues of a company. It is used as an indicator of a company’s ability to control its costs and how much profit it makes for every dollar of revenue it generates. Net Margin is calculated using the formula: Net Margin = (Net Profit / Revenues ) * 100 Net margins vary from company to company with individual industries having typically expected ranges given similar constraints within the industry. For example, a retail company might be expected to have low net margins while a technology company could generate margins of 15-20% or more. Companies that increase their net margins over time generally see their share price rise over time as well as the company is increasing the rate at which it turns dollars earned into profits.
In terms of industry profitability, it appears that profit margins have a tendency to fall. This is because competition is high and customers tend to buy low-priced high-value items. The average gross margin and net profit margin is 37.1% and 14.3%, respectively (MSN Money, 2010).
The Rate of Earnings has increased from the previous year. The company is in growing stage and the cost of machinery is huge that’s why the profit margin is low.
The analysis of the net income of the company shows that the net income increased by 11.20% in 2014 and reduced by 5.59% in 2015. This shows that the 8.31% increase in revenue in 2015 has been accompanied by a reduction in the net profit. The profit in 2015 however, remains to be higher than that of 2013. The reduction in net profit could be due to a greater increase in costs than revenue.
This gross margin has seen an average decrease of 0.72% since 2011, spiking at 60.03% in 2013. Its operating margin of 14.9% held second to its peers, as Verizon led with 21.5%, followed by T-Mobile with 10.2% and Sprint with 4.0%. Contrasting gross margin, the operating margin of AT&T has increased by an average of 1.52% in the last five years, spiking in 2013 at 23.67. AT&T also played second fiddle to Verizon in terms of net profit margin as AT&T’s 7.9% margin fell short of Verizon’s 10.4%, though trounced T-Mobile (3.9%) and Sprint (-4.5%). Net profit margin also saw an average increase since 2011, jumping 0.96% and spiking at 14.17% in 2013. In the last five years, sales increased by $9.28 billion on average, a favorable growth. With this rise revenues came a rise in costs in the same timeframe as the company incurred an average cost increase of $4.41
The operating margin ratio, also known as the operating profit margin, is a profitability ratio that measures what percentage of total revenues is made up by operating income (myaccountingcourse.com, 2017). The operating profit margin of Outdoors PLC in 2011 was 7.3% which went a slight down in 2013 by 0.3%. Operating profit margin of Outdoors PLC in 2015 was 7.8% with an overall increase over the 5 years’ period of 0.5%. The reasons for this increase might be an increase in gross profit margin which can either be because of sales revenue gone up or cost of goods sold declined and/or a decrease of operation costs (Marketing, other operating expenses etc..) over the 5 years. In general terms, normally a company should have approximately 25%
They experienced a substantial growth in 2013. They had the gross profit margin of 25.35 percent in 2012 and 26.66 percent in 2013, which is a 5.2 percent increases. (Gamble, Peteraf, & Thompson, 2015, p. 368, Exhibit 1). They expected additional growth to the company in over the year. Thus, they targeted to achieve $50 billion sales by 2018 fiscal year and 12 percent profit margins by 2015 fiscal year. (Gamble, Peteraf, & Thompson, 2015, p. 371). However, the increases in profit were not last forever. They had the gross profit margin of 24.83 percent in 2014, which was the declines of 6.87 percent compared to the previous year. (Gamble, Peteraf, & Thompson, 2015, p. 368, Exhibit 1). According to Cancino (2015), “We could be facing the largest single-year scale decline in the company’s history with income at barely half of its 2013 peak” (as cited in Chicago
Operating margin of the company also increase from 31.56% in 2012 to 33.09% in 2014 which is up 1.53% in three years. Again, OP margin shows company is improving in making gross profit by selling its services.
Operating profit margin figures in the table above show the return from net sales[13]. However profit margin ratios are high enough for the 3 years, there is a fall from 12.86% to 11.26% during 2011-12. Sales revenue increases with a higher rate than gross profit so there is a poor
Furthermore, in conjunction to considering Operating Margin, you would also consider Net Profit Margin. Exelon most current Net Profit Margin is 8.61%. Net Profit Margin is the Income after taxes divided by Total Revenue for the same interval of time. It is used to report the cost-effectiveness. A business that is growing its net earnings or reducing its costs is alleged to be improving. Net Profit Margin is expressed as the business “bottom line.” The bottom line also refers to any activities that may increase or decrease net earnings or a business’s overall profit (Investopedia, 2015).
The operating profit margin shows how much a company makes per dollar of items sold. This margin needs to be compared over time and with other companies to determine if the company 's margin is increasing. For this ratio, a higher number is better. In Table 2, Apple shows a larger number both years, with an increase in 2006. Dell 's increase was only a tenth of a percentage point.
The net profit margin of Poh Kong in year 2014 had increased from 1.67% to 1.80% in year 2015 and had dropped to 1.42% in year 2016. This shows that the net profit obtained from net sales is increased from year 2014 to 2015 but decreases from year 2015 to 2016.
Other indications of profitability are the ROA, ROE and the return on fixed assets indicators. Having them all decreasing with the exemption of one being Inventory turnover, increasing with 4.3 percent. This gives the impression of better management within efficiency of inventory, thus having a decline in ROA and ROE, falling by 7.9 percent and 9 percent in that order.
Net Profit Margin- The net profit margin of 18.34 percent for 2008 indicates that 18.34 cents of net income was generated for each dollar of sales. The significant increase of 7.83 percent, from 2007’s 10.51 percent, yielded an additional $1.84 billion in profit on the company’s $23.52 billion in revenue.
Both operating and net profit margin are also in an increasing trend (despite year 2008/09, a special year which financial crisis happened). But it is worth noting that the current margins are 12.08% and 10.12% respectively, which show a great difference from gross profit