Corporate Annual Report Analysis: SEEK Limited
Financial performance and position of every company stand out as an integral part aspect of the company’s operations. It is upon the determination of the above features of a company that investors decide whether, and at what extent to invest in a company. In light of the above, there are various methods applicable for the purpose of determining both the performance and the position of a company. One of the most common and surest ways to achieve the above involves the determination of financial ratios with data from the financial statements. Upon the analysis of such ratios, it becomes easy to determine with ease key aspects of the company such as profitability, resource management, as well as the foreseeability of its business operations. In this report, the focus is on SEEK Limited. SEEK Limited is a publicly traded company listed on the Australian Stock Exchange (Google.com, 2015). In compliance with the accounting standards as well as the Company Act in Australia, SEEK Limited prepares annual financial reports every year for the purpose of the pursuit of enlightening its stakeholders about the fair position and business performance of the company. The analysis in this report relates to data from the FY 2015 Half Year Report (SEEK Ltd., 2015).
- Analysis of Recent Data
The first issue in determining the company’s performance and financial position is determining the profitability of the company. According to the data included in the financial statements in the annual stakeholder reports, it is possible to calculate various ratios that help in ascertaining the profitability of the company – profitability ratios. In respect to the act that profit maximization is the key business objectives of all organizations, profitability ratios are very widely used (Brigham and Houston, 2013).
One major profitability ratio is the Net Profit Margin, which is simply net income over net revenue. It features as an indicator of the ability of a company to translate its sales revenue into shareholder earnings. According to the data analysis, the Net Profit Margin for SEEK Ltd was 37.53%. The above figure means that for every 1 dollar generated by SEEK Limited, 0.3753 dollars are appropriated towards the shareholders. The above is an indication that SEEK Limited is profitable.
Another profitability ratio applicable in ascertaining the above is the Operating Profit Margin. The above is a ratio derived by dividing the operating income by the net revenue – operating income refers to gross income fewer expenses incurred for all operations. From the financial statements, the Operating Profit Margin for SEEK Limited was 43.28%. The above figure means that for every 1 dollar of revenue made by the company, 0.4328 dollars remains after the deduction of operational costs as well as the cost of sold goods. At 43.28%, the figure justifies the earlier conclusion that the SEEK Limited is profitable.
The profitability and performance of a company all depend on how well the company manages its resources. The major resources referred, in this case, are assets. It is from the assets of a company that income generation and the subsequent profitability become possible. With respect to the above indication that SEEK Limited is profitable, it is also correct to conclude that its resource management is okay as well. However, it is also possible to calculate some ratios from the financial statement data and ascertain the above conclusion.
The main ratios, in this case, include the Return on Assets and Return on Equity. To ascertain the return on assets, the net income of a company is divided by the total assets. The above thus portrays the effectiveness of a firm in utilizing its assets. The higher the Return on Assets, the higher the company’s efficiency is in terms of using its assets to generate earnings. The Return on Assets for SEEK Limited was 10.91%. The fact that it is a positive figure means that the management of SEEK Limited utilizes the assets appropriately since for every 1 dollar of its assets, it is 0.1091 dollars in net income.
While the Return on Assets focuses on income and assets, the Return on Equity measures income after dividends on the total equity by the shareholders (Lan, 2015). It thus measures the income level appropriated to shareholders with respect to the shareholders investment in the company. The Return on Equity for SEEK Limited was 26.62%. The above percentage implies that for every 1 dollar of the shareholder’s investment, SEEK Limited generated 0.2662 dollars towards its net income. The above ratio also justifies the fact that the management of SEEK Limited utilizes the resources of the company appropriately.
Another important aspect of business performance is determining the foreseeability of a company. In light of the above, it is important to consider the ability of a company to pay its short-term debts. For the above purpose, there is a set of helpful ratios – the liquidity ratios. There are a couple of useful liquidity ratios applicable in various cases. For SEEK Limited, the Current Ratio surfaces as the most readily applicable. Ideally, the Current Ratio is a measure of a company’s current assets over the current liabilities in the same period (Graham, Smart and Megginson, 2012). The Current Ratio for SEEK Limited was 1.46. The above figure means that the company was in a position to pay its debt 1.16 times over. As a result, it is clear that SEEK Limited can stay in operation in the short term.
Also too short term foreseeability, it is also important to consider the long-term survival of a company. To sufficiently determine the above, it is possible to make calculations by using data from the financial statements. The ratios used to determine the above are called solvency ratios. The Debt-to-Equity and the Interest Coverage ratios are good solvency ratios in the case of SEEK Limited. The Debt-to-Equity ratio measures a company’s debt capital of a firm with respect to the amount of equity it uses. The Debt-to-Equity ratio for SEEK Limited is 74.46. At the above point, it means that creditors invest 74.46 cents for every 1 dollar of SEEK Limited, leaving 23.54 cents to the share investors. Such a position is risky since the creditors have more control of the operations of the company than the shareholders. From the above conclusion, there are high chances that the company may fail to stay in operation in the long-term since it will be impossible for the company to settle such a debt. The above figures are in Figures 1, 2 and 3 in the Appendix.
- Trend Analysis (5 Years)
Trend analysis refers to the process of comparing useful business data as recorded over the time with the aim of identifying any consistency (Plewa and Friedlob, 1995). By undertaking a trend analysis, it is possible to develop and make strategic responses that are congruent with the company’s objectives (Stowe, 2007). To start with, the 2014 annual report includes a segment that analyzes the financial statement data relating to profitability, efficiency, and financial stability of SEEK Limited. According to Figure X, in the Appendix, the annual report incorporates data for years 2010, 2011, 2012, 2013 and 2014. According to the data above, it is clear that the SEEK Limited has grown immensely. To start with, the above analysis shows that the sales revenue has increased three times, rising from 280.7 to 756.4 million dollars from the year 2010 to the year 2014 respectively. More so, the five-year financial analysis for SEEK Limited in the same period shows that the after tax profit amount increased from 89.5 to 223.4 million dollars in the year 2010 and 2014 respectively. The above denotes a profitability increase of about three times in just five years.
Other than the above information occurring in the annual reports, analyzing data in other aspects not included above is helpful in understating the trend of the financial position for SEEK Limited. According to Figure 5, in the Appendix, the financial stability of the company is guaranteed since the trend indicates that the company is overly profitable, and its profitability is on the rise. With respect to the analysis of the financial statements of year 2014, it is clear that the SEEK Limited will continue in the same trend as indicated by the included estimates for the year 2015, 2016 and 2017 featured in Figure 5 as well. Figure 6 has similar positive actual data for the last five years and estimates for the next three years based on the consistency of the trend.
- Additional Annual Reports Analysis
Other than the basic measures and determiners of the growth and development of a company as determined by the observation and calculation of data from financial statements, company reports include other information applicable for the determination of the performance and financial position of the company. In the case of SEEK Limited, the annual reports include a section that focuses on the remuneration of the key stakeholders in the company such as the directors and other top management personnel. The rationale for considering the remuneration report as an indicator of the performance and financial position for the company finds its basis in the fact that the remuneration packages of the company’s top directors are commensurate with the performance of the company. The above case has a two sided relationship. First, the more profit a company makes, the better the directors are paid. Secondly, the more motivated the directors are, the better the company will perform, and the more they will end up getting as remuneration.
In the remuneration segment inside the annual reports, the SEEK Limited includes a five-year performance of the company indicated by Figure 4 in the Appendix. The above performance focuses chiefly on the company’s earning as well as the movement of the shareholders’ wealth. In light of the above, it reflects upon various aspects such as the share prices and total earned dividends per share. The changes over the years for the above features allow one to understand better the financial position as well as the business performance of a company. In the case of SEEK Limited, the share price rose from $7.01 into $15.85 from the year 2010 to the year 2014. In the same timeframe, the basic earnings per share also rose from 26.6 cents to 57.7 cents with the total dividend amount rising from 11.9 to 30.0 cents per share. In all the above three elements, the figures are approximately twice what they were five years ago. Therefore, it is possible to ascertain that there is indeed positive growth for SEEK Limited.
Other than director’s reflection on remuneration, the annual reports of SEEK Limited also include a section for the auditor’s report. The above section is also important in the determination of the financial position as well as the business performance of a company. The rationale for the above consideration finds its basis in the fact that the company’s external auditor ensures that the every information in the annual report reflects the true and fair situation in the company (Cascarino and Van Esch, 2007). In light of the above, the report by PricewaterhouseCoopers, SEEK Limited auditor helps the stakeholders for whom the financial records in the report are intended trust in them. As highlighted above, the use of audited financial statements eliminates the chances of bias in the recorded data, enabling the confident establishment of the true performance and financial position of the company.
- Reflection Summary
Analyzing information from the financial statements of a company is quite a demanding activity. The required information is not usually plainly observable or reachable. It requires patience as well as substantially wide research. In the pursuit of evaluating and analyzing SEEK Limited for the purpose of understanding various aspects with respect to business performance and financial position, several activities took place. It all started by finding relevant documents suitable for the completion of the task. SEEK Limited maintains an online database where it uploads its recent annual reports. As a result, we downloaded the last most recent annual reports by SEEK Limited from the company website.
With the last five reports, making the necessary analysis was easy. First, we analyzed the most recent annual report using the financial statement information in it to determine various aspects of business performance. After arriving at the various conclusions from the above first step, we continued and made a similar analysis of the same for the last five years. The above second analysis, trend analysis, helped in ascertaining and justifying the previous results. After the trend analysis, we went through the general structure of the company’s annual report in the pursuit of additional sections and provisions that would be useful in determining business performance and financial position of SEEK Limited as well.
Overall, the preparation of the above task was useful. It helped in nurturing basic accounting skills learned in class. Completing the task required the application of various principles and knowledge in the accounting discipline. In light of the above, by the time the task was over, we had put classroom lessons into practice. Moreover, we gained new skills and competency with respect to analyzing company financial statement data by learning more skills and methods in the process of completing the above task. Ideally, completing the above task has helped us gain more confidence with respect to analyzing and evaluating data from financial statements of companies.
The fact remains that one objective all businesses organizations have in common is profit maximization. In light of the above, every business organization, such as SEEK Limited, must ensure that its operations help in meeting the above provision. To ensure that it does, the company should determine the financial position as well as the performance of its overall operations. It is through the undertaking of such measures that a company effectively understands how well its operations are meeting both its mission and vision statements. Undertaking evaluative and analytical measures to ascertain the performance of its business, the management of a company clearly understands key aspects such as the profitability and the efficiency of its operations. More so, it helps in understanding the position of the company in the industry, clearly seeing forecasting its performance both in the short and in the long-run.
Brigham, E. and Houston, J. (2013). Fundamentals of financial management. Mason, Ohio: South-Western.
Cascarino, R. and Van Esch, S. (2007). Internal auditing. Lansdowne, South Africa: Juta.
Gibson, C. (2009). Financial reporting & analysis. Mason, OH: South-Western Cengage Learning.
Google.com, (2015). SEEK Limited: ASX: SEK Quotes & News – Google Finance. [Online] Available at: https://www.google.com/finance?cid=698484 [Accessed 5 Jun. 2015].
Graham, J., Smart, S. and Megginson, W. (2012). Introduction to corporate finance. Australia: South-Western/Cengage Learning.
Lan, J. (2015). 16 Financial Ratios for Analyzing a Company’s Strengths and Weaknesses. [Online] Aaii.com. Available at: http://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-strengths-and-weaknesses.touch [Accessed 5 Jun. 2015].
Plewa, F. and Friedlob, G. (1995). Understanding cash flow. New York: Wiley.
Reuters, (2015). SEEK Limited: Financials, earnings estimates and forecasts for SEEK Limited | SEK. [online] Available at: http://www.4-traders.com/SEEK-LIMITED-6497713/financials/# [Accessed 5 Jun. 2015].
Reuters.com, (2015). Seek Ltd (SEK.AX) Financials. [Online] Available at: http://www.reuters.com/finance/stocks/financialHighlights?symbol=SEK.AX [Accessed 5 Jun. 2015].
SEEK Limited, (2014). SEEK Limited Annual Report. Financial Reports. Melbourne: SEEK Ltd.
SEEK Ltd., (2015). FY 2015 Half Year Results. Financial Reports. Melbourne: SEEK Ltd.
Stowe, J. (2007). Equity asset valuation. Hoboken, N.J.: John Wiley.
Figure 1 – Liquidity and Solvency Ratios
Source: (Reuters, 2015)
Figure 2 – Profitability Ratios
Source: (Reuters, 2015)
Figure 3 – Ratios for Indicating Resource Management
Source: (Reuters, 2015)
Figure 4 – Trend Analysis (5 Years)
Source: (SEEK Limited, 2014)
Figure 6 – Trend Analysis for Profitability Ratios
Source: (Reuters, 2015)
Figure 7 – Trend Analysis for Balance Sheet Figures
Source: (Reuters, 2015)