MPA702-Financial Interpretation Analyses – Accounting & Finance Assignment Help

Assignment Task


Analysis And Interpretation Of The Performance Of Breville Group Ltd.

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Breville Group Ltd. is a multinational Australian marketer of primarily electrical home appliances, it is headquartered in the suburbs of Alexandria, Sydney. Breville is locally-owned and a publicly listed company which mainly derives revenue from designing, developing, marketing and distributing of consumer electrical goods. The organization operates throughout Australia, New Zealand, North America, Hong Kong and the United Kingdom with a staff of close to 600 emplyees (IBISworld, 2022). The organization was established in 1932 with an initial product line of manufacturing radios and later expanded into kitchen appliances in 1960. Kambrook, Ronson, Sage by Heston Blumenthal, Solis, Gastroback, Stollar, Catler, Bork and Riviera&Bar are brands that are owned by the Breville Group, also including Breville (worldwide excluding Europe) (BrevilleGroupLtd., n.d.). 

The following report analyses the financial statements of Breville Group Ltd. between the years of 2019-2021 using various accounting ratios including but not limited to profitability, solvency, and long T term/short T term ratios. The use of these ratios will allow users to draw comparisons with competitors as well as industry trends along with both internal and external factors that have affected any changes over the years. The conclusion of this analysis will also provide users with an overview facilitating the decision making process involved while determining if Breville Group Ltd. has a potential for investment future investment.

Profitability Ratios
Profit Margin:
The profit margin ratio is primarily used to gauge the degree to which a business is making money, in brief it can be said that the percentage figure indicates the number of cents the business has generated for each dollar of sales. Therefore based on the numbers of Breville Group Ltd. for the years 2019-2021 it can be seen that the profit margin has increased over the three years with 2021 being at the highest percentage amongst all three years and it can be said that the business was receiving 0.374 cents for every dollar of sales generated.

Profit Margin:

Gross Margin 
The gross margin/gross profit margin consists of primarily sales generated by the company less cost involved in creating or providing product, services, labour etc. typically labelled as the cost of goods sold. Essentially it indicates the amount of profit being made after paying off the cost involved in selling the goods, a high gross profit margin would mean that a company has the capacity to make a good amount of profit given that it controls its overhead costs. In terms of Breville, it can be observed that the gross profit margin has a decent increase between 2019-2020 and a slight dip between 2020-2021.

Return on Assets
This financial ratio indicates the profitability of a company in context of its total assets, investors can use ROA to analyze and determine the efficiency of company in terms of its use of its assets to generate a profit (HARGRAVE, 2022). This ratio is determined based on the company’s net income and its average assets, where a higher ROA would indicate that a company is more efficient and productive whereas a lower ROA would indicate room for improvement. Breville has increased its ROA over the years which shows that the company is managing its asset well and is increasing efficiency.

Return on equity
The focus of this ratio is in regards to measure the ability of an organization to generate profit from the investment provided by the shareholders of the company (FERNANDO, 2021). It also provides a representation of reinvestment for common stock investors and is done by dividing the net income by the shareholders equity, as seen below the ROE is steadily increasing over the years indicating that there is an improvement in the ability of the company to generate cash internally.

Efficiency Ratios
Cash flow to total assets
This is an efficiency ratio that rates the actual cash flow in the company assets without being affected by income or income measurements, this ratio is used to estimate when and what amount of cash would be available for funding future operations of the organization. This ratio can thus be used to prepare budgets as well as future performance predictions. The higher the ratio the more efficient the business is and in the case of Breville it can be observed that the organization faced a massive dip after 2019 in the year 2020 which was mainly caused due to the advent of COVID-19 and then recovered again to an extent in 2021

Asset Turnover Ratio
This ratio draws comparison between the value of a company’s sales relative to the value of its assets, the higher the ratio the more efficient the company would be at generating overall revenue from its assets and vice versa where if a company has a low asset turnover ratio it would indicate that it is not efficiently utilising assets to generate sales (HAYES, 2022).
Sales / Average Assets
(For 2019) = 759967/477558 = 1.59
(For 2020) = 952244/576965 = 1.65
(For 2021) = 1187659/701743.5 = 1.69

Inventory Turnover Ratio
This efficiency ratio determines the rate at which a company replaces inventory within a specified period due to sales, this ratio helps in allowing the business to make better plans in terms of pricing, manufacturing, marketing and purchasing decisions. This ratio is a good measure of company’s ability to generate sales from the use of inventory. Higher ratio would show that the company is selling its product quick and there is a high demand for the products, based on the analysis of Breville Group it can be said that the ratio is not steady and has dropped over the years.
(For 2019)     = 4.13    (For 2020)   = 3.88     
(For 2021)    = 2.64

Debtors’ turnover ratio
This ratio is also known as receivables turnover ratio and as the name suggests it is used in relation to determine the ability of the organization to manage credit extended to customers and the collection of this credit, a company cannot solely depend on cash flow and therefore debt management becomes a vital aspect of the business. A higher ratio indicates that the business is efficient in collecting the amounts due from creditors. In regards to Breville Group it can be observed that the ratio has increased over the years which implies that the company has improved efficiency in terms of collecting its credit sales. 
(For 2019) = 6.13                      
(For 2020) = 5.87 
(For 2021) = 8.62

Liquidity Ratios
Current Ratio

The current ratio of an organization determines its ability to pay off short terms debts usually in the span of one year, this provides an image to investors to understand better ways to maximize current assets to satisfy current debts and other payables (FERNANDO, 2021).  The ratio essentially helps in expressing the liquidity ability of a company which would translate as the more the liquidity the higher the capacity to meet short term liabilities. The average current ratios of companies in the industry of BRG is 1.6 with a standard deviation of 1.0. Breville has a CR of 2.1 which ranks in the 74.9% percentile for the sector (Finbox, 2022)
(For 2019) = 367988/143400           (For 2020) = 443328/181517
                    = 2.44                      = 2.57

(For 2021) = 473464/219085
                    = 2.16 

Current Ratio

Quick Ratio
This ratio has a lot of similarities with CR, however unlike CR which includes a larger range of liquefiable assets QR only includes the most easily liquidating assets excluding current assets such as inventory, prepaid expense since these would not be easy to convert into cash with an intention of meeting short term obligations. The industry average QR is 1.39 (Limited, 2022) and the latest QR for BRG is 1.14.

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