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TEAM 6 - ACCOUNTING
ACCT5602 Accounting
Team based exercise number 1
Team name_____TEAM 06___________________________________________
You have been given summary data for Woodside and Santos from the Morning Star
data base. Using primarily this data and other information you can access compare
the two companies and answer the six questions listed below. Be sure to clearly
explain your assessment and indicate which company you believe has performed
better or is in a preferred position.
1) In terms of profitability which company has performed better in recent
years? Why?
a. Response:
The following ratios have been considered in arriving at our decision regarding
which company is performing better in recent years:
FINANCIAL RATIOS
12/11 12/12 12/13
WPL SANTOS WPL SANTOS WPL SANTOS
Net Profit Margin (%) 34.46 17.30 32.47 13.14 28.72 13.84
Return on Equity (ROE) % 13.07 5.05 13.61 4.61 11.18 4.93
Return of Assets (ROA) % 7.59 3.30 8.96 2.78 7.96 2.66
Asset Turnover 0.21 0.17 0.26 0.19 0.25 0.18
OTHER
Earnings per share (EPS)
after Abnormals 187.43 84.50 352.58 54.10 237.5 53.1
b. Net Profit Margin:
From the figures presented above, it is clear that the Net Profit Margin (NPM) for WPL
is higher than Santos for the following reasons:
The net profit for WPL is higher with respect to sales over three years
compared to Santos, in which means WPL has better performance.
The high ratio for WPL shows that its management of expenses, including
taxes, depreciation and interest are controlled better comparing with Santos;
Even though WPL has higher profit margins compared to Santos, the trend
of its profit margin is declining;
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TEAM 6 - ACCOUNTING
The margins indicate that for WPL, the company’s sales revenue is
increasing as indicating from the financial statement.
c. Return On Equity
From the figures, it is also clear that this benchmark for assessing
profitability ratios between the two companies is higher for WPL compared to
Santos. The high ratio for WPL indicates that the company uses its assets
well to generate income. This means that WPL has a higher level of
management performance in this case compared to Santos;
The high net income is driving the high ratio that we have observed in WPL.
In this case, the average total shareholders’ equity remains stable, and the
net income drives the ratio margin.
d. Return On Assets
Average total assets are similar for both companies, therefore the ROA is
being driven by a higher net income generated by WPL compared to Santos.
Over the last three years, the average total assets for WPL was $24,282.6 m
compared to Santos average of $17,819.30 m. However, the average net
income for the last three years in WPL is $2,148.1 m and for Santos is
$595m. From this, it is clear that the net income is driving the high ratio in
WPL;
e. Asset Turnover
The average net sales for WPL for the last three years is $6154.4m and
$3,387.6m for Santos. The net sales for WPL are almost twice the net sales
for Santos, yet the asset values for both are almost similar. Consequently,
WPL will have a better Asset Turnover compared to Santos;
f. Eps After Abnormals
Since the EPS measures earnings in relation to every share, the EPS values
are more valuable compared to the Santos, which may well be a good
indication of the profitability of WPL relative to Santos.
2) Which company has better managed inventories and debtors? Why?
a. Inventory Turnover
From the table below, it is clear that WPL has a better management of
inventories since the turnover is considerably higher compared to Santos.
This may means that Santos has on average a more unsold inventory
compared to WPL.
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ACCT5602 Accounting Team based exercise number 1 Team name_____TEAM 06___________________________________________ You have been given summary data for Woodside and Santos from the Morning Star data base. Using primarily this data and other information you can access compare the two companies and answer the six questions listed below. Be sure to clearly explain your assessment and indicate which company you believe has performed better or is in a preferred position. 1) In terms of profitability which company has performed better in recent years? Why? a. Response: The following ratios have been considered in arriving at our decision regarding which company is performing better in recent years: FINANCIAL RATIOS 12/11 12/12 12/13 WPL SANTOS WPL SANTOS WPL SANTOS Net Profit Margin (%) 34.46 17.30 32.47 13.14 28.72 13.84 Return on Equity (ROE) % 13.07 5.05 13.61 4.61 11.18 4.93 Return of Assets (ROA) % 7.59 3.30 8.96 2.78 7.96 2.66 Asset Turnover 0.21 0.17 0.26 0.19 0.25 0.18 OTHER Earnings per share (EPS) after Abnormals 187.43 84.50 352.58 54.10 237.5 53.1 b. Net Profit Margin: From the figures presented above, it is clear that the Net Profit Margin (NPM) for WPL is higher than Santos for the following reasons: The net profit for WPL is higher with respect to sales over three years compared to Santos, in which means WPL has better performance. The high ratio for WPL shows that its management of expenses, including taxes, depreciation and interest are controll ...
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