Financial

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 25 years 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, it 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 at the world wide and its main geographic areas are Australia and USA. SingerLewak is 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). In the same date, there have been no recent dividends for this stock (AirXpanders, 2017).

II. Overview of industry and company plan

The Australia medical equipment industry of Australia is growing good. Australia has good relationship with the other contraries that provide benefit to this industry. Australia is night largest industry in importing the medical equipments from the outside of the country. In this, 80% of the medical equipments 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 Australia 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% medical equipment companies are situated in New South Wales, Victoria and Queensland (Folland, et. al. 2016). Hence, it can be said that current situation of the industry is not much good but it is moderate. At the same time, there is good opportunity for companies to get advantage in this industry because the demand for medical product 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 standard in accounting standard. This standard will apply on 1 January 2018. At the same time, company also has plan to increased the fund amount by equity and debt. AirXpanders has never paid the dividend and there has no any plan to pay dividend in future. But, company is planning to provide company’s stock among the employees and its consultants.

III. Financial Statement Analysis

Statement of financial performance

In millions of USDchange %
20142015201620152016
Gross profit/ loss-16,12,981-39,72,707146%
Income from operation-6371480-11080403-1,91,23,07874%73%
Net income-6977751-1,11,61,345-1,94,22,89760%74%

 

The above table depicts that 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 last year 2014. Furthermore, in 2016, it increased 74% that it not good indicator for future of the company. Hence, company should take action to increase the revenue and decline expense to change the loss in profit.

The company follow the US GAAP as the 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 polices of the accounting standard is able to consider all the financial information of the year with including the subsidiaries of AirXpanders, Inc. In this, the amount related to previous year is reclassified to develop the transparency in the financial statements (Pingle, 2013). It has not impact on the financial statement or position of the company.

Statement of financial position

Year201420152016
assets21,37,7972,08,97,5031,55,29,021
liabilities432517438,52,28833,59,852
equity-21873771,70,45,2151,21,69,169

 

 

Compare operating cash flows with the net income

 201420152016
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 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, flow of both is equal in the trend analysis. At the same time, it also found that company is expanding through investing activities. It is because in 2014, 2015, 2016, the company was spent 95874, 839975 and 1150865 in purchasing of property and equipment (Sabre and Ketz, 2014).

Even through, a company raises fund from the both financial source such as debt finance and equity finance but 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 company the value of equity is 12169169 (78.36%) in the total capital. Due to this, it can be said that it is risky situation for the equity shareholder of the company (Shepherd, 2015). But, at the same time, a low debt equity ratio indicates to stable business finance.

IV. Ratio Analysis

All figures in ($’M)     
Ratio Formula201620152014Industry
Liquidity ratios
Current ratio(Current Assets/Current Liabilities)4.177.221.183.18
Current Assets14201.87
Current Liabilities3.362.771.59
Receivable turnover ratioSales revenues /Avg. account receivable4.753.6255
Average account receivable0.120.08
sales revenue0.570.290
Average days’ sales collectedavg. account receivable / sales revenue * 36576.84100.6973
Inventory turnoverCost of sales /Inventory3.223.602.33
inventory1.410.530.17
cost of sales4.541.91
Average days’ inventory on handInventory /cost of sales * 365113.36101.28
Long term solvency ratios
Debt to equity ratioDebt / Equity10.00%15.18%-162.56%49.05%
Debt1.22.583.56
Equity1217-2.19
Interest coverage ratioEBIT / annual interest expense31.8327.7532.00
EBIT-19.1-11.1-6.4
Annual interest expense-0.6-0.4-0.2
Profitability ratio
Net profit marginnet income / net sales-3333%-3793%-437.89%
Net income-19-11-6.98
Net sales0.570.290
Total asset turnovernet sales / average total assets3.56%1.38%0.00%0.91
net sales 0.570.290
average total assets16212.14
Return on assetsnet income / total assets-119%-52%-326%1.14%
Net income -19-11-6.98
Total assets16212.14
Return on equityNet income / average shareholder equity-158%-65%319%11.21%
Net income -19-11-6.98
Shareholder equity 1217-2.19
DuPont analysisProfit 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 yieldFree cash flow per share/current market price per share-6.5316.71
Free cash flow per share-7.6417.46-3.57
Current MPS1.171.045
Cash flows to sales(Cash from operating activities ÷Net sales)-33.33-37.93
Cash from operating activities-19-11-6.79
Net sales0.570.290
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 assets16212.14
Free cash flow-7.6417.46-3.57-0.07
Market strength Ratios
price earnings ratioMPS/EPS-4.5-3.2656335.79
MPS1.171.045
EPS-0.26-0.32-0.17
Dividend yieldAnnual Dividend / Current Stock Price00
MPS1.171.045
Annual dividend000

 

Liquidity ratio

It is one of the most significant ratios that is helpful to identify 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 is fluctuated. In 2015, liquidity performance of company declined but company improved it again (Graham and Smart, 2011). Along with this, company is performing well as compared to industry in the context of liquidity because current ratios are 4.17 and 3.18 of company and industry respectively.

Long term solvency ratio

It is also 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 cash flow of company is enough to pay its short term and long term liabilities. In the context of AirXpanders, it is identified that company is more depended on the equity finance (Harris, 2014). It is because debt equity ratio is 10% that declined from 15.18% (2016). It means that there is risky situation for shareholders.

Profitability ratio

In the financial ratio, the profitability ratio depicts 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 company is facing loss from the last three year because its profit margin ratio 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 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 are -653 and 16.71 in 2016 and 2015. Moreover, cash flow to sales are -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 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 year 2016 and 2015. At the same time, industry ratio is 35.79 that mean company is back from the industry. Dividend yield ratio is null because company has never paid dividend.

V. Conclusion

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

 

 

   

 

 

 

 

 

 

 

Leave a Comment