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Financial Statement Analysis

I. Introduction

AirXpanders, Inc is well known Australian based organisation in the Healthcare Equipment and Supplies industry.  The current CEO of the company is Scott Dodson that has more than 25 years of experience in the medical sector. The home address of the company is Level 13, 41 Exhibition St Melbourne VIC 3000. The company annual represents its financial statement and the last date of ending the financial year was 31 December 2016. The company deals in the healthcare industry due to this, its product and service are relevant from this industry. The main products of the company are Medical technology, Medical devices, Durable medical equipment, Surgical instruments and Pharmacopoeia etc (AirXpanders, 2017). The company deals worldwide and its main geographic areas are Australia and the USA. SingerLewak is an independent auditor of AirXpanders, Inc. The auditor said that the financial statement of the company is good and it involves the correct information. The current share price of AirXpanders is AUD 0.76 (14 Sep 2017). On the same date, there have been no recent dividends for this stock (AirXpanders, 2017).

II. Overview of industry and company plan

The Australian medical equipment industry of Australia is growing good. Australia has a good relationship with the other contraries that provide benefit to this industry. Australia is night largest industry in importing medical equipment from the outside of the country. In this, 80% of the medical equipment are imported from the USA, Japan and UK. In Australia, the income per capita is high so that Australian people are able to purchase a full range of medical equipment. But, at the same time, it is also found that market industry growth has been remaining 1.3% in the last five years since 2012-17 (Zhang, et. al. 2017). It is not good growth as compared to other industries. So it can be said that there is moderate growth in this industry. In Australian medical equipment industry, there are 10123 employees are involved.  At the same time, the numbers of the companies are rapidly increasing in this industry that indicates to increase in the competition. In Australia, 80% of medical equipment companies are situated in New South Wales, Victoria and Queensland (Folland, et. al. 2016). Hence, it can be said that the current situation of the industry is not much good but it is moderate. At the same time, there is a good opportunity for companies to get an advantage in this industry because the demand for medical products and healthcare services is expected to grow in the future (Wang, et. al. 2016).

AirXpanders, inc future plan 

In the list of the future plan, the company is going to adopt new fiscal policies and standards in accounting standards. This standard will apply on 1 January 2018. At the same time, the company also has a plan to increase the fund amount by equity and debt. AirXpanders has never paid the dividend and there has no plan to pay dividends in future. But, the company is planning to provide the company’s stock among the employees and its consultants.

III. Financial Statement Analysis

Statement of financial performance

In millions of USD change %
2014 2015 2016 2015 2016
Gross profit/ loss -16,12,981 -39,72,707 146%
Income from operation -6371480 -11080403 -1,91,23,078 74% 73%
Net income -6977751 -1,11,61,345 -1,94,22,897 60% 74%

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The above table depicts that the company is regularly facing loss and the amount of the loss is increasing year by year. In 2015, it can be seen that net loss increased by 60% from the last year 2014. Furthermore, in 2016, it increased 74% that is not a good indicator for the future of the company. Hence, the company should take action to increase the revenue and decline expenses to change the loss in profit.

The company follow the US GAAP in preparing the financial statements. The management of the company is responsible to fairly prepare the financial statement of the company (Harris, et. al. 2016). The used policies of the accounting standard are able to consider all the financial information of the year with including the subsidiaries of AirXpanders, Inc. In this, the amount related to the previous year is reclassified to develop transparency in the financial statements (Pingle, 2013). It has no impact on the financial statement or position of the company.

Statement of financial position

Year 2014 2015 2016
assets 21,37,797 2,08,97,503 1,55,29,021
liabilities 4325174 38,52,288 33,59,852
equity -2187377 1,70,45,215 1,21,69,169

Compare operating cash flows with the net income

  2014 2015 2016
Operating cash flow -6791056 -10834973 -19154263
Net income -6977751 -1,11,61,345 -1,94,22,897

From the above comparison of the net income and operating cash flow, it is found that the company is not performing well. This comparison also shows that the value of the net income is more negative as compared to operating cash flow. But at the same time, the flow of both is equal in the trend analysis. At the same time, it also found that the company is expanding through investing activities. It is because, in 2014, 2015, 2016, the company was spent 95874, 839975 and 1150865 in purchasing property and equipment (Sabre and Ketz, 2014).

Even though, a company raises fund from both financial source such as debt finance and equity finance but the ratio of raising fund from both are different in the context of each company. In the reference of AirXpanders, it is identified that company the main source of finance is equity because the company the value of equity is 12169169 (78.36%) in the total capital. Due to this, it can be said that it is a risky situation for the equity shareholder of the company (Shepherd, 2015). But, at the same time, a low debt-equity ratio indicates stable business finance.

IV. Ratio Analysis

All figures in ($’ M)          
Ratio Formula 2016 2015 2014 Industry
Liquidity ratios
Current ratio (Current Assets/Current Liabilities) 4.17 7.22 1.18 3.18
Current Assets 14 20 1.87
Current Liabilities 3.36 2.77 1.59
Receivable turnover ratio Sales revenues /Avg. account receivable 4.75 3.625 5
Average account receivable 0.12 0.08
sales revenue 0.57 0.29 0
Average days’ sales collected avg. account receivable / sales revenue * 365 76.84 100.69 73
Inventory turnover Cost of sales /Inventory 3.22 3.60 2.33
inventory 1.41 0.53 0.17
cost of sales 4.54 1.91
Average days’ inventory on hand Inventory /cost of sales * 365 113.36 101.28
Long term solvency ratios
Debt to equity ratio Debt / Equity 10.00% 15.18% -162.56% 49.05%
Debt 1.2 2.58 3.56
Equity 12 17 -2.19
Interest coverage ratio EBIT / annual interest expense 31.83 27.75 32.00
EBIT -19.1 -11.1 -6.4
Annual interest expense -0.6 -0.4 -0.2
Profitability ratio
Net profit margin net income / net sales -3333% -3793% -437.89%
Net income -19 -11 -6.98
Net sales 0.57 0.29 0
Total asset turnover net sales / average total assets 3.56% 1.38% 0.00% 0.91
net sales 0.57 0.29 0
average total assets 16 21 2.14
Return on assets net income / total assets -119% -52% -326% 1.14%
Net income -19 -11 -6.98
Total assets 16 21 2.14
Return on equity Net income / average shareholder equity -158% -65% 319% 11.21%
Net income -19 -11 -6.98
Shareholder equity 12 17 -2.19
DuPont analysis Profit margin*total assets turnover * financial leverage -11.88% -7.95%             –
Profit margin        -33.33     -37.93
Total assets turnover            0.04        0.01             –
Financial leverage            0.10        0.15        -1.63
Cash flow adequacy Ratios
Cash flow yield Free cash flow per share/current market price per share -6.53 16.71
Free cash flow per share -7.64 17.46 -3.57
Current MPS 1.17 1.045
Cash flows to sales (Cash from operating activities ÷Net sales) -33.33 -37.93
Cash from operating activities -19 -11 -6.79
Net sales 0.57 0.29 0
Cash flows to assets (Cash from operating activities ÷Net assets) -1.19 -0.52 -3.17
Cash from operating activities -19 -11 -6.79
Total assets 16 21 2.14
Free cash flow -7.64 17.46 -3.57 -0.07
Market strength Ratios
price-earnings ratio MPS/EPS -4.5 -3.26563 35.79
MPS 1.17 1.045
EPS -0.26 -0.32 -0.17
Dividend yield Annual Dividend / Current Stock Price 0 0
MPS 1.17 1.045
Annual dividend 0 0 0

Liquidity ratio

It is one of the most significant ratios that are helpful to identify the liquidity position of the firm. It shows the ability of a company to pay its short term liabilities. The above table shows that AirXpanders liquidity position fluctuates. In 2015, the liquidity performance of the company declined but the company improved it again (Graham and Smart, 2011). Along with this, the company is performing well as compared to the industry in the context of liquidity because current ratios are 4.17 and 3.18 of company and industry respectively.

Long term solvency ratio

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It is also a key ratio such as liquidity and profitability ratio. It is helpful to measure a firm‘s capacity to meet its liabilities. It shows that whether the cash flow of the company is enough to pay its short term and long term liabilities. In the context of AirXpanders, it is identified that the company is more dependent on equity finance (Harris, 2014). It is because the debt-equity ratio is 10% that declined from 15.18% (2016). It means that there is a risky situation for shareholders.

Profitability ratio

In the financial ratio, the profitability ratio depicts the profitability situation of the company from the operating activities. It also shows the firm ability to generate the earning as compared to expenses or cost. The above ratio table shows that the company is facing loss in the last three years because its profit margin ratios are -3333% and -3793% in 2016 and 2015 in the given order (Herman, 2011). At the same time, it also found that overall industry performance is worst because the industry ratio is -437.89%.

Cash flow adequacy ratio

It ratio is calculated to measure the cash sufficiency in the operation. It depicts that capacity to pay its ongoing expenses (Jochimsen and Thomasius, 2014). In the context of this ratio, it is found that cash flow from yield is -653 and 16.71 in 2016 and 2015. Moreover, cash flow to sales is -33.33 and -3793 in 2016 and 2015. At the same time, cash flow from assets and free cash flow are -1.19 and -764 for the financial year 2016. All the findings show the cash flow adequacy is declining of AirXpanders.

Market strength ratio 

This ratio is important for investors because its shows the company strengths for paying a dividend to its shareholders (Sridhar, et. al. 2015). In this, the price-earnings ratios of AirXpanders are -4.5 and -3.26 for the financial years 2016 and 2015. At the same time, the industry ratio is 35.79 that means the company is back from the industry. The dividend yield ratio is null because the company has never paid dividends.

V. Conclusion

From the above discussion, it is found AirXpanders is unable to generate profit from in the healthcare equipment industry. Along with this, it is found that the overall performance of the industry is not good due to AirXpanders is not getting profit. Hence, it is recommended to AirXpanders that it should minimise its expenses to earn profit. Additionally, it should also concern to increase debt to equity ratio. On the basis of the overall analysis, it can be said that AirXpanders is not a strong performer. It has never paid dividends and not future plans so that investment decisions will not be good in this.

References

AirXpanders (2017) Annual report [Online] Available at:   http://www.asx.com.au/asxpdf/20160330/pdf/4364tdsf0w4xfp.pdf  (Accessed: 14 September 2017)

AirXpanders (2017) Annual report [Online] Available at:   https://www.google.co.in/search?q=auditor+report++of+AirXpanders%2C&oq=auditor+report++of+AirXpanders%2C&gs_l=psy-ab.3…9108.9649.0.10210.3.3.0.0.0.0.163.478.0j3.3.0….0…1.1.64.psy-ab..0.0.0.frxg8TW-vrE   (Accessed: 14 September 2017)

Folland, S., Goodman, A.C. and Stano, M. (2016) The Economics of Health and Health Care: Pearson International Edition. Routledge.

Graham, J. and Smart, S. (2011) Introduction to Corporate Finance: What Companies Do. 3rd and. USA: Cengage Learning.

Harris, C. (2014) Fixed and Variable Costs: Theory and Practice in Electricity. USA: Palgrave Macmillan.

Harris, E.P., Harris, E.P., Northcott, D., Northcott, D., Elmassri, M.M., Elmassri, M.M., Huikku, J. and Huikku, J. (2016) Theorising strategic investment decision-making using strong structuration theory. Accounting, Auditing & Accountability Journal, 29(7), pp.1177-1203.

Herman, R. (2011) The Jossey-Bass Handbook of Nonprofit Leadership and Management. US: John Wiley & Sons.

Jochimsen, B. and Thomasius, S. (2014) The perfect finance minister: Whom to appoint as finance minister to balance the budget. European Journal of Political Economy, 34, pp.390-408.

Pingle, M. (2013) BASIC ACCOUNTING CONCEPTS: A Beginner’s Guide to Understanding Accounting. USA: Xlibris Corporation.

Sabre, R. M. and Ketz, J. E. (2014) Corporate Planning and LAN: Information Systems as Forums. USA: Academic Press.

Shepherd, R. W. (2015) Theory of Cost and Production Functions. USA: Princeton University Press.

Sridhar, S., Shetty, S. and KB, K., (2015) Personality and Investment Decision Making of Individuals.

Wang, S., Wang, B. and Watada, J. (2016) Adaptive Budget-Portfolio Investment Optimization under Risk Tolerance Ambiguity. IEEE Transactions on Fuzzy Systems.

Zhang, Y., Qiu, M., Tsai, C.W., Hassan, M.M. and Alamri, A. (2017) Health-CPS: Healthcare cyber-physical system assisted by cloud and big data. IEEE Systems Journal, 11(1), pp.88-95.

 

 

   

 

 

 

 

 

 

 

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