Financial management Evaluation of Clustering Algorithms

Question: Discuss about the Financial management Evaluation of Clustering Algorithms. Answer: Company Introduction In Australia Boral are the largest building and construction material suppliers. It is the largest suppliers of material in all the territories and states. In this, report an analysis is made about the operating activity of the company. Analysis of theFinancial Statement The financial statement of a company is prepared to reflect the performance and activity of the company. The financial statement is an indispensible part for calculating the financial ratios (Vogel 2014). The profit and loss and balance sheet of the company is given below: Income Statement of BORAL LTD Amount in Million Particulars 2015 2016 Revenue $4,298 $4,311 Cost of revenue $3,039 $2,927 Gross profit $1,258 $1,384 Operating expenses Sales, General and administrative $1,984 $1,122 Other operating expenses ($912) ($40) Total operating expenses $1,072 $1,082 Operating income $186 $302 Interest Expense $76 $71 Other income (expense) $179 $53 Income before taxes $288 $284 Provision for income taxes $45 $32 Net income from continuing operations $243 $252 Net income from discontinuing ops $14 $4 Other Net income $257 $256 Net income available to common shareholders $257 $256 Earnings per share Basic $1 $1 Diluted $1 $1 Weighted average shares outstanding Basic $209 $201 Diluted $212 $203 EBITDA $614 $602 Table 1: Income Statement (Source: created by Author) BORAL LTD Balance Sheet Amount in Million 2015-06 2016-06 Assets Current assets Cash Cash and cash equivalents $ 506 $ 452 Short-term investments $ 10 $ 19 Total cash $ 515 $ 471 Receivables $ 660 $ 624 Inventories $ 538 $ 557 Other current assets $ 28 $ 32 Total current assets $ 1,741 $ 1,684 Non-current assets Property, plant and equipment Gross property, plant and equipment $ 5,400 $ 5,576 Accumulated Depreciation $ (2,952) $ (3,059) Net property, plant and equipment $ 2,448 $ 2,517 Equity and other investments $ 1,078 $ 1,078 Goodwill $ 209 $ 213 Intangible assets $ 18 $ 22 Deferred income taxes $ 244 $ 237 Other long-term assets $ 127 $ 49 Total non-current assets $ 4,124 $ 4,116 Total assets $ 5,865 $ 5,800 Liabilities and stockholders' equity Liabilities Current liabilities Short-term debt $ - $ 359 Capital leases $ 1 $ 1 Accounts payable $ 642 $ 608 Deferred income taxes $ 95 $ 37 Other current liabilities $ 185 $ 177 Total current liabilities $ 923 $ 1,182 Non-current liabilities Long-term debt $ 1,317 $ 1,009 Capital leases $ 4 $ 3 Deferred taxes liabilities Other long-term liabilities $ 97 $ 101 Total non-current liabilities $ 1,418 $ 1,112 Total liabilities $ 2,341 $ 2,294 Stockholders' equity Common stock $ 2,362 $ 2,246 Retained earnings $ 996 $ 1,098 Accumulated other comprehensive income $ 166 $ 162 Total stockholders' equity $ 3,524 $ 3,506 Total liabilities and stockholders' equity $ 5,865 $ 5,800 Table 2: Balance sheet (Source: created by author) Analysis of Key Financial Ratios The financial ratios are the comparison of the financial statement. The financial statement ratios are computed because it is useful to various stake holders. The stake holder that uses the computation of the financial ratios are the investors, creditors and management. It is regarded as the most commonly used tools for decoding the performance of the business (Kou et al. 2014). The most important features of the ratios are that they are easy to compute and simple to understand. The ratios are calculated based on the financial statement of the company provided below: The key financial ratios of the company Boral is given below: Key Financial Ratios Particulars 2015 2016 Debt Equity Ratio 0.37 0.29 Current Ratio 1.89 1.42 Quick Ratio 1.30 0.95 Return on Equity 7.29% 7.30% Net Profit Margin 5.98% 5.94% Inventory Sales Ratio 0.125 0.129 Table 3: Key financial ratios (Source: Created by Author) Debt Equity Ratio The debt to equity ratio is a liquidity ratio. The calculation is done by dividing the total debt to total equity. If the debt equity ratio of the company is high this indicates that the company is using more debt financing than the equity financing (Damodaran 2016). The formula that is used for calculating the debt equity ratio is given below: Debt equity ratio= Debt /Equity The calculation in the Table 3 shows that the debt equity ratio of the company in 2015 is 0.37 and in 2016 is 0.29. It is generally implied that low debt equity ratio means that there is stability in the company. The companies have higher solvency risk have high debt equity ratio. In the current scenario the debt equity ratio of the company has reduced marginally (Brigham and Ehrhardt 2013). That indicates that the solvency situation of the company has improved from 2015 to 2016. The long term debt of the company has reduced as a result the debt equity ratio of the company has also reduced. On analyzing the debt equity ratio it can be said that in 2015 the 37% of the assets have been financed by the long term debt. In 2016, the debt equity ratio indicates that the 29% of the total assets are financed by long term debt. Therefore based on the debt equity ratio it can be said that the solvency situation of the company has improved. Current ratio The current ratio is a liquidity ratio. This ratio measures the ability of the business to pay the short-term debt of the company with its current liabilities. The current liabilities are the debts that are due within the current year (Leary et al. 2014). It means that the business has limited time for raising funds for payment of liabilities. This means the businesses that have higher current assets can pay of their current liability without selling their long-term assets. The method for calculating the current ratio: Current ratio= Current Assets/ Current Liability The current ratio of the company in 2015 is 1.89 times and in 2016, it is 1.42. This means that in 2015 the company for every $1 current liability has $1.89 of current assets. In 2016, the company has $1.42 of current assets for every $1 of current liability. It means that the business has more assets to pay off the liability therefore higher current ratio is suitable for the company. However, very high current ratio specify that the business is not using the current assets is effectively. In general, the business should have current assets 2 times of the current liability. In this, case the current ratio of the company is less than 2 in both the years 2015 and 2016. In addition to this, the current ratio of the company has further reduced in 2016 from 2015. The reason for the reduction in current ratio is the reduction of the current assets and increase in current liability (Al Mamun 2013). Therefore, it can be said that based on the current ratio the company is not in the current s ituation. Quick ratio The quick ratio is also known as acid test ratio. This ratio indicates the repayment capability of the business to pay off its current liability with the current assets. The current asset in this case does not include the inventories. The formula for calculating the quick ratio is given below: Quick ratio= Current assets Inventories/ Current liability In this case, the quick ratio of the company in 2015 is 1.30 and in 2016 is 0.95. This means that in 2015 the company had enough quick assets to pay off the current liability of the company. However, in 2016 the company does not have enough quick assets to pay off the current liabilities (Weygandt et al. 2015). This indicates that in 2016 there can be a solvency issue that the company has might face. Therefore based on the ratio it can be said that the solvency situation of the company has declined. Return on Equity The return on equity is a profitability ratio that measures the ability of the business to earn profit from the shareholders fund. The Return on equity measures the ability of the management to earn profit from the shareholders fund (Spronk et al. 2016). The formula for calculating the return on equity is Return on Equity= Net Income/ Share holders equity In this case, the ROE of the company in 2015 is 7.29% and in 2016, it is 7.30%. The ROE of the company has remained stable. The reason is that the net income of the company has remained stable. Therefore, it can be said that the position of the business has remained stable. It is not a negative sign but this is not a positive of the company. Net Profit margin The net profit margin indicates the profit making ability of the business. The calculation of net profit margin ratio is given below: Net Profit margin ratio= Net Income/ Net Revenue The Net profit margin of the company in 2015 is 5.98% and in 2016 is 5.94%. The net profit margin of the company is stable in both the year. The reason is that the net income of both the year has remained stable (Spronk et al. 2016). The analysis of the net profit margin of the company indicates that the business has remained similarly profitable in both the years. This indicates that the business has not improved the performance of the company in the two consecutive years. Inventory Sales ratio The inventory sales ratio is useful because it indicates the manner in which the inventory is managed in the business. The formula for calculating the inventory sales ratio is: Inventory sales ratio= Inventory/ Revenue The increase in inventory to sales ratio indicates that the investment is growing more rapidly than the sales. In this case, inventory sales ratio is 0.125 in 2015 and it is 0.129 in 2016. The reason behind the increase in the Inventory sales ratio is increase and increase in inventory (Steidel et al. 2014). Conclusion The report indicates the performance of the business by calculating the key financial ratios. 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