carbon_conscious_2012.xls | |
File Size: | 192 kb |
File Type: | xls |
Analysis of Carbon Conscious:
Analysing Carbon Conscious using ratios:
Carbon Conscious Net Profit Margin for the year ending 2010 was 4.6% and the Net Profit Margin for the year ending 2011 was 12.6%. This indicates that for every dollar of sales, Carbon Conscious is currently making 12.6 cents of net income or profit. Companies Net Profit Margin increased substantially in the last one year. Hence, Carbon Conscious is performing reasonably well by managing costs and expenses related to its sales and services compared to the previous year.
Company’s Return on Assets i.e. the amount of net profit after tax compared with company’s total assets was 3.5% in 2010 and 5.6% in 2011. Though firms return on assets in 2011 is bit better than 2010, its return on assets is still low. This exhibits that Carbon Conscious is not utilising the economic resources very efficiently. Another reason for the lower return on assets could be because company bought newer assets lately which will be obviously at much higher price so it exhibits lower profits on the newer assets (Cunningham 2012, p. 323). Return on assets ratio helps decision makers to evaluate how well a business has met its profit objectives in relation to the resources invested. Unfortunately Carbon Conscious is not earning satisfactory rate of return on its assets in the last two consecutive years.
The Total Asset Turnover Ratio i.e. company’s sales against the total assets was 0.77 in 2010 and 0.44 in 2011. According to Investopedia (2012), the Total Asset Turnover ratio is used to measure company’s efficiency of utilising its assets to create the income. It is good for the company if this ratio is higher. This ratio demonstrates that for every dollar worth of assets, Carbon Conscious is generating 44 cents of sales which is quite average. I think Carbon Conscious asset turnover ratio is average because company purchased assets (land) and started building the inventory (plantation) recently. These assets are likely to help the firm to generate more income and better asset turnover in the near future.
Carbon Conscious Current ratio was 0.60 in year 2010 and 0.81 in year 2011. This demonstrates that company’s short-term economic situation is not that great. Firms current liabilities are more than current assets hence the working capital is negative. This might have serous impact to run the business smoothly. In the current financial circumstances having higher debt may be an expensive liability. In this situation it is advisable for the company to explore various strategies and approaches to reduce this very high level of debt to prevent any global financial system melt down endangering viability of the operation of the company.
Debt represents all the liabilities that company pays interest on. Trade and other payables; Interest-bearing liabilities and deferred tax liability are the three types of liabilities disclosed in the Carbon Conscious balance sheet. Trade payables are non-interest bearing and are normally settled on 30-day terms (Carbon Conscious 2011, p. 44). Interest is paid on interest-bearing liabilities as per the Note 13 on page 46 of the Carbon Conscious Annual report. So in the Debt to Equity Ratio calculations, for the debt, I have taken the Interest-bearing liabilities amounts from the balance sheet.
Carbon Conscious Debt to Equity Ratio was 22.3% in 2010 and 66.1% in 2011. This ratio is very high that means Carbon Conscious is using lot of debt to run the business which is a very risky decision. I read in the news that capital-intensive industries seems to have a debt to equity ratio of 2 and other small companies tend to have a debt to equity ratio below 0.5. If the company is using lot of debt to operate the business, it is good to reduce the taxes but company can go bankrupt if finances are not managed properly.
Carbon Conscious Equity ratio i.e. equity compared with the total assets was 55.5% in 2010 and 53.0% in 2011. This represents that around 53% of the firm’s assets are financed by its shareholders. According to Moneyzine (2012), low equity ratio will yield good outcome for equity investors provided the firm earns more return on assets compared to the interest they would pay to creditors. A high equity ratio is safe for equity investors if the company goes bankrupt as major assets are financed by equity investors not from the creditors. If majority of the assets are financed by creditors, in the situation of liquidity, creditors would get paid first not the share holders.
Market Ratios
The Earnings per share (EPS) was $0.80 cents per share in 2010 and $1.68 cents per share in 2011. Price to Earnings Ratio was 11.27 in 2010 and 10.13 in 2011.
From the readings on the web I understand that a rule of thumb in investment circles is that the shares of speculative companies should not be invested if their Price to Earnings ratio is above the range of 10 to 12. In 2010, with Earnings per share of $0.80 cents, and a Price to Earnings ratio of 11.27, the company share price seemed to be fully priced in. Carbon Conscious is still a speculative share as it doesn’t have well established revenue streams and the operations are not financed from the revenue rather operations are financed by debt/equity.
It is also observed in 2011 that the Earnings per share had improved to $1.68 cents per share while the Price to Earnings Ratio is 10.13 which is maintaining in the range of 10 to 12. In future if the expectation is that the EPS can go up, then this company is investment grade provided its debt can be brought down significantly to reduce the Debt to equity ratio.
I got the market price from the internet. The market price was $0.09 on 30th June 2010 and $0.17 on 30th June 2011. I got no. of issued ordinary shares from the annual report. These are 39,741,707 in 2010 and 52,831,213 in 2011 (Carbon Conscious 2011, p. 40).
The Return on Equity (ROE) was 6.90% in 2010 and 13.25% in 2011. According to BeginnersInvest (2012), the Return on Equity ratio assists investors to compare the financial returns of companies of similar category of ventures. From the readings on the web I understand that a firm with high return on equity is able to create more cash within the business. Though higher return on equity is better, I think Carbon Conscious current return on equity is quite acceptable because even the biggest companies in America have an average return on equity of less than 20%.
Overall the company is in an average financial position.
Is it a Risky investment?
With the analysis and reading about carbon related companies it appears to me that the investment in the companies that are in the market for greenhouse gases reduction is highly speculative and risky. It is more risky especially in this uncertain economy. The extreme risk of losing the entire investment is also very high.
My personal opinion about analysing Carbon Conscious:-
I am happy to have an opportunity to analyse Carbon Conscious. The company is focussing on environmental protection and greenhouse gases reduction. Though investing in the company appears to be financially risky but the company is doing the ethical thing which is remarkable. I have learned a lot by analysing this company. This exercise has helped to form interest in protecting the environment and the financial investments as well.
Annual report
Annual report looks professional and seems to contain the relevant and truthful information. Still I felt like it is a sales document especially when I was reading through Chairman’s notes. It sounds too good to be true. It also gives an impression that they are trying to convince people to invest in their company by exhibiting all the positives and emphasizing that the company has great prospects. The report and the web site appear to be flash. I was surprised to find that the report did not include the no. of employees working for the company.
Initially I had trouble understanding what Interest-bearing liabilities, Deferred tax liability, Share based payments, and Reserves are. I was very curious to know about these financial terms. Finally it made perfect sense when I read the foot notes and searched on Google to find some definitions. CQU moodle Assignment 1 forum was a great help. I like this quote about curiosity “Curiosity about life in all of its aspects, I think, is still the secret of great creative people” (Leo Burnett).
Is the business diversified? or all the eggs kept in one basket?
I don’t like the idea of keeping all eggs in one basket. I have been thinking whether this company is diversified. I am pleased to read that Newzleand expansion (Chairman’s report) is a good diversification move and within the operational area for Carbon conscious. I believe it is the modest expansion of the operations.
Is the company in the right hands?
The crucial thing for any business to succeed is to be in the right hands. Directors seem to have good academic qualifications and experience in the financial systems. I believe this company is in good capable hands. All the directors have more than 20 years of experience. The only possible drawback is that very few directors seem to have direct knowledge and experience about the company’s operations. This can lead to the financial decisions that may impact operations adversely leading to the failure of the company. I believe this problem can be managed by directors working collaboratively respecting each other’s ideas. I feel CEO’s salary is high for Carbon Conscious. CEO’s current salary is $ 309, 669 when the company’s profit is $854, 762 per annum.
I read this quote online "I am pleased to say that our results are very much in line with plan. All we have to do now is find out what the plan was." said by a CFO (Author unknown). Hope all the companies don’t run the business like this.
Is the company ethical? Values of the company
I trust the most important thing for any company is to look after their employees and provide a safe environment for them so that they go back home safe. I also think “happy people are busy people”. If the company looks after its employees, employees will be very loyal to the company. That is the foundation for the success of any company. I did not find a word “safety” in the whole annual report that is a bit of concern for me. I call Carbon Conscious as an “ethical” company because the firm is involved in planting trees, assisting farmers, fighting against global warming and climate changes. I am glad to see that the company has a good vision.
Recommendations to reduce fraudulent financial reporting:
The Treadway Commission recommended four actions to reduce fraudulent financial reporting:
1. Establish an organizational environment that contributes to the integrity of the financial reporting process.
2. Identify and understand the factors that lead to fraudulent financial reporting
3. Assess the risk of fraudulent financial reporting within the company.
4. Design and implement internal controls to provide reasonable assurance of preventing fraudulent financial reporting.
Graphic Organisers that demonstrate the process of performing financial ratio analysis:
Analysing Carbon Conscious using ratios:
Carbon Conscious Net Profit Margin for the year ending 2010 was 4.6% and the Net Profit Margin for the year ending 2011 was 12.6%. This indicates that for every dollar of sales, Carbon Conscious is currently making 12.6 cents of net income or profit. Companies Net Profit Margin increased substantially in the last one year. Hence, Carbon Conscious is performing reasonably well by managing costs and expenses related to its sales and services compared to the previous year.
Company’s Return on Assets i.e. the amount of net profit after tax compared with company’s total assets was 3.5% in 2010 and 5.6% in 2011. Though firms return on assets in 2011 is bit better than 2010, its return on assets is still low. This exhibits that Carbon Conscious is not utilising the economic resources very efficiently. Another reason for the lower return on assets could be because company bought newer assets lately which will be obviously at much higher price so it exhibits lower profits on the newer assets (Cunningham 2012, p. 323). Return on assets ratio helps decision makers to evaluate how well a business has met its profit objectives in relation to the resources invested. Unfortunately Carbon Conscious is not earning satisfactory rate of return on its assets in the last two consecutive years.
The Total Asset Turnover Ratio i.e. company’s sales against the total assets was 0.77 in 2010 and 0.44 in 2011. According to Investopedia (2012), the Total Asset Turnover ratio is used to measure company’s efficiency of utilising its assets to create the income. It is good for the company if this ratio is higher. This ratio demonstrates that for every dollar worth of assets, Carbon Conscious is generating 44 cents of sales which is quite average. I think Carbon Conscious asset turnover ratio is average because company purchased assets (land) and started building the inventory (plantation) recently. These assets are likely to help the firm to generate more income and better asset turnover in the near future.
Carbon Conscious Current ratio was 0.60 in year 2010 and 0.81 in year 2011. This demonstrates that company’s short-term economic situation is not that great. Firms current liabilities are more than current assets hence the working capital is negative. This might have serous impact to run the business smoothly. In the current financial circumstances having higher debt may be an expensive liability. In this situation it is advisable for the company to explore various strategies and approaches to reduce this very high level of debt to prevent any global financial system melt down endangering viability of the operation of the company.
Debt represents all the liabilities that company pays interest on. Trade and other payables; Interest-bearing liabilities and deferred tax liability are the three types of liabilities disclosed in the Carbon Conscious balance sheet. Trade payables are non-interest bearing and are normally settled on 30-day terms (Carbon Conscious 2011, p. 44). Interest is paid on interest-bearing liabilities as per the Note 13 on page 46 of the Carbon Conscious Annual report. So in the Debt to Equity Ratio calculations, for the debt, I have taken the Interest-bearing liabilities amounts from the balance sheet.
Carbon Conscious Debt to Equity Ratio was 22.3% in 2010 and 66.1% in 2011. This ratio is very high that means Carbon Conscious is using lot of debt to run the business which is a very risky decision. I read in the news that capital-intensive industries seems to have a debt to equity ratio of 2 and other small companies tend to have a debt to equity ratio below 0.5. If the company is using lot of debt to operate the business, it is good to reduce the taxes but company can go bankrupt if finances are not managed properly.
Carbon Conscious Equity ratio i.e. equity compared with the total assets was 55.5% in 2010 and 53.0% in 2011. This represents that around 53% of the firm’s assets are financed by its shareholders. According to Moneyzine (2012), low equity ratio will yield good outcome for equity investors provided the firm earns more return on assets compared to the interest they would pay to creditors. A high equity ratio is safe for equity investors if the company goes bankrupt as major assets are financed by equity investors not from the creditors. If majority of the assets are financed by creditors, in the situation of liquidity, creditors would get paid first not the share holders.
Market Ratios
The Earnings per share (EPS) was $0.80 cents per share in 2010 and $1.68 cents per share in 2011. Price to Earnings Ratio was 11.27 in 2010 and 10.13 in 2011.
From the readings on the web I understand that a rule of thumb in investment circles is that the shares of speculative companies should not be invested if their Price to Earnings ratio is above the range of 10 to 12. In 2010, with Earnings per share of $0.80 cents, and a Price to Earnings ratio of 11.27, the company share price seemed to be fully priced in. Carbon Conscious is still a speculative share as it doesn’t have well established revenue streams and the operations are not financed from the revenue rather operations are financed by debt/equity.
It is also observed in 2011 that the Earnings per share had improved to $1.68 cents per share while the Price to Earnings Ratio is 10.13 which is maintaining in the range of 10 to 12. In future if the expectation is that the EPS can go up, then this company is investment grade provided its debt can be brought down significantly to reduce the Debt to equity ratio.
I got the market price from the internet. The market price was $0.09 on 30th June 2010 and $0.17 on 30th June 2011. I got no. of issued ordinary shares from the annual report. These are 39,741,707 in 2010 and 52,831,213 in 2011 (Carbon Conscious 2011, p. 40).
The Return on Equity (ROE) was 6.90% in 2010 and 13.25% in 2011. According to BeginnersInvest (2012), the Return on Equity ratio assists investors to compare the financial returns of companies of similar category of ventures. From the readings on the web I understand that a firm with high return on equity is able to create more cash within the business. Though higher return on equity is better, I think Carbon Conscious current return on equity is quite acceptable because even the biggest companies in America have an average return on equity of less than 20%.
Overall the company is in an average financial position.
Is it a Risky investment?
With the analysis and reading about carbon related companies it appears to me that the investment in the companies that are in the market for greenhouse gases reduction is highly speculative and risky. It is more risky especially in this uncertain economy. The extreme risk of losing the entire investment is also very high.
My personal opinion about analysing Carbon Conscious:-
I am happy to have an opportunity to analyse Carbon Conscious. The company is focussing on environmental protection and greenhouse gases reduction. Though investing in the company appears to be financially risky but the company is doing the ethical thing which is remarkable. I have learned a lot by analysing this company. This exercise has helped to form interest in protecting the environment and the financial investments as well.
Annual report
Annual report looks professional and seems to contain the relevant and truthful information. Still I felt like it is a sales document especially when I was reading through Chairman’s notes. It sounds too good to be true. It also gives an impression that they are trying to convince people to invest in their company by exhibiting all the positives and emphasizing that the company has great prospects. The report and the web site appear to be flash. I was surprised to find that the report did not include the no. of employees working for the company.
Initially I had trouble understanding what Interest-bearing liabilities, Deferred tax liability, Share based payments, and Reserves are. I was very curious to know about these financial terms. Finally it made perfect sense when I read the foot notes and searched on Google to find some definitions. CQU moodle Assignment 1 forum was a great help. I like this quote about curiosity “Curiosity about life in all of its aspects, I think, is still the secret of great creative people” (Leo Burnett).
Is the business diversified? or all the eggs kept in one basket?
I don’t like the idea of keeping all eggs in one basket. I have been thinking whether this company is diversified. I am pleased to read that Newzleand expansion (Chairman’s report) is a good diversification move and within the operational area for Carbon conscious. I believe it is the modest expansion of the operations.
Is the company in the right hands?
The crucial thing for any business to succeed is to be in the right hands. Directors seem to have good academic qualifications and experience in the financial systems. I believe this company is in good capable hands. All the directors have more than 20 years of experience. The only possible drawback is that very few directors seem to have direct knowledge and experience about the company’s operations. This can lead to the financial decisions that may impact operations adversely leading to the failure of the company. I believe this problem can be managed by directors working collaboratively respecting each other’s ideas. I feel CEO’s salary is high for Carbon Conscious. CEO’s current salary is $ 309, 669 when the company’s profit is $854, 762 per annum.
I read this quote online "I am pleased to say that our results are very much in line with plan. All we have to do now is find out what the plan was." said by a CFO (Author unknown). Hope all the companies don’t run the business like this.
Is the company ethical? Values of the company
I trust the most important thing for any company is to look after their employees and provide a safe environment for them so that they go back home safe. I also think “happy people are busy people”. If the company looks after its employees, employees will be very loyal to the company. That is the foundation for the success of any company. I did not find a word “safety” in the whole annual report that is a bit of concern for me. I call Carbon Conscious as an “ethical” company because the firm is involved in planting trees, assisting farmers, fighting against global warming and climate changes. I am glad to see that the company has a good vision.
Recommendations to reduce fraudulent financial reporting:
The Treadway Commission recommended four actions to reduce fraudulent financial reporting:
1. Establish an organizational environment that contributes to the integrity of the financial reporting process.
2. Identify and understand the factors that lead to fraudulent financial reporting
3. Assess the risk of fraudulent financial reporting within the company.
4. Design and implement internal controls to provide reasonable assurance of preventing fraudulent financial reporting.
Graphic Organisers that demonstrate the process of performing financial ratio analysis:
Financial Analysis using Microsoft Excel (screen shot):
References:
BeginnersInvest. (2012). Retrieved from
http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-return-on-equity.htm
Carbon Conscious. (2012). Retrieved from
http://www.carbonconscious.com.au/pages/what-we-do/FAQs.html
Cunningham, B.M., Nikolai, L.A., Baley, J.D., Kavanagh, M., Slaughter, G., & Simmons, S. (2012). Accounting: Information for Business Decisions. Sydney, NSW, Australia: Cengage.
Investopedia. (2012). Retrieved from
http://www.investopedia.com/terms/a/assetturnover.asp#axzz25szLO2RB
Moneyzine. (2012). Retrieved from
http://www.money-zine.com/Definitions/Investing-Dictionary/Equity-Ratio/
Bibliography:
Horngren, C., Harrison, W., Best, P., Fraser, D., Willett, R. (2010). Accounting, 6th edn. Frenchs Forest: Pearson Education Australia.
Turner, M.C. (2012). ACCT11059 Study Guide. Retrieved from CQU moodle.
BeginnersInvest. (2012). Retrieved from
http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-return-on-equity.htm
Carbon Conscious. (2012). Retrieved from
http://www.carbonconscious.com.au/pages/what-we-do/FAQs.html
Cunningham, B.M., Nikolai, L.A., Baley, J.D., Kavanagh, M., Slaughter, G., & Simmons, S. (2012). Accounting: Information for Business Decisions. Sydney, NSW, Australia: Cengage.
Investopedia. (2012). Retrieved from
http://www.investopedia.com/terms/a/assetturnover.asp#axzz25szLO2RB
Moneyzine. (2012). Retrieved from
http://www.money-zine.com/Definitions/Investing-Dictionary/Equity-Ratio/
Bibliography:
Horngren, C., Harrison, W., Best, P., Fraser, D., Willett, R. (2010). Accounting, 6th edn. Frenchs Forest: Pearson Education Australia.
Turner, M.C. (2012). ACCT11059 Study Guide. Retrieved from CQU moodle.