Broome Port Authority Trend Analysis in Financial Performance - Example

Broome Port Authority Trend Analysis in Financial Performance Name Tutor Unit Code Executive Summary The analysis of a company’s financial performance is an integral part of decision making for all interested parties, both internal and external. Broome Port Authority has shown a healthy financial performance from 2010 to 2014. Despite the severe effects that affected the port’s operations in 2010-11, the port was able to rise strongly in 2013 through to 2014 as operations improved. In the 2010-11 first half, the Montara oil spill affected the Browse Basin drilling operations and in the second half the government suspension of cattle exports reduced vessel visits. The events reduced the profitability, liquidity, operating cash flow, and capital structure in 2100. However, in 2013 the port operations improved greatly and the Broome Port Authority posted the best financial performance over the five year period. In general, Broome Port Authority has a low profitability level. The port’s liquidity has been very much impressive including the high operating cash flow. The port’s financial stability has also been good given that the Broome Port Authority does not have a big debt component that can impede its future operations and financial stability. The trend analysis shows that negative effects on operations can severely harm the financial performance of the port. But with good investments and management, the port was able to rise again and post impressive performance. Table of Contents Executive Summary 2 Introduction 4 Discussion 4 Broome Port Authority Operations 4 Ratio Analysis 5 Conclusion 12 References 12 Introduction The analysis of a company’s financial performance is an integral part of decision making for all interested parties, both internal and external. It mirrors the company’s financial performance over a given period of time and can offer guidance on future expectations. This reports analyses the financial performance of Broome Port Authority as from financial year 2010 to 2014. First, the report analyses the organisation’s activities including the events that could have affected its operations. This is followed by a ratio analysis, with a focus on profitability, liquidity and capital structure. Finally there is a conclusion. Discussion Broome Port Authority Operations Broome Port is the largest deep-water access port that handles logistics in the rural area of Western Australia in Kimberley region. The port’s land area is shielded between Pilbara Port and Port of Darwin. Broome Port has a naturally maintained wharf by the tidal flow at about 10 metres. It is connected to the coastal main road by a new logistics access strip that bypasses the town. The port has other facilities that include a fuelling station, security gatehouse, public walkway, car parking, slipway, a modern hospital, and a booming tourism and hospitality industry. It is a supply route for the Kimberley region with required fuel supplies and imported construction material. It is also a centre of onshore and offshore projects and undertakings (Broome Port Authority, 2015c). The port has been successful in its operations. It greatly supports north-western Australia’s Browse Basin oil and gas industry, which accounts for around 47 per cent of its revenues, together with the Kimberley region break-bulk shipping, tourist shipping, livestock exports, fishing and aquaculture industries, and fuel tanker operations. However, in the first half of 2010-11 the port was severely affected by a sudden fall in business operations due to reduced offshore Browse Basin drilling operations. This came after the Montara oil spill. As a result, authorisation processes for offshore drilling approvals were suspended. The port’s troubles were compounded by the Federal Government’s move to suspend live cattle exports in the second half of the year. These two activities usually account for around 65 per cent of Broome Port’s total annual revenues ((Broome Port Authority, 2015b). Ratio Analysis Ratios are mainly used in financial analysis, which is what many investors look out for in making investment decisions. Ratios are used because they are simple to understand, calculate, and interpret. There are various ratio categories around which financial analysis is conducted (Deegan, 2009). Each category focuses on a particular financial aspect as discussed below; Profitability Ratios Profitability ratios review earnings performance relative to the investment or revenue. The ratios assess the capacity of the management as well as the company’s actions in bringing in returns (Bazley & Hancock, 2010). Figure 1: Broome Port Authority Net Profit Movement 2010 – 2014 Table 1: Broome Port Authority Profitability Ratios 2010 – 2014 Ratio 2010 2011 2012 2013 2014 Return on shareholders’ equity 6.20 -0.60 0.40 17.66 8.65 Return on Assets 3.80 -0.32 2.23 9.79 4.86 Profit margin 8.24 -0.83 5.16 16.55 10.48 Figure 1 shows declining net profits in 2011 before picking up in 2012. In 2013, Broome Port realised huge net profits with a slight decline in 2014. The same in reflected by all ratios, as indicated by table 1. The poor performance in 2011 is attributed to the Montara spill that led to a 17 per cent drop in the port’s logistics and shipping operations compared to the previous years’. The offshore oil and gas use of the wharf shrunk by 41 per cent in line with the shrunk Browse Basin exploration operations. There was also a reduced berth occupancy to a monthly average of 30 per cent from 37 per cent in 2010. This reduced business activities were further worsened by Australia’s suspension of live cattle exports that affected cattle shipments from Broome towards the end of the financial year. As a consequence, vessel visits during 2010-11 went down by 16 per cent. This led to a net loss of $109,000 in 2013 as well as reduced profitability (Broome Port Authority, 2015b). In the 2012-13 reporting period, the port’s profitability went up exponentially. During this period, Broome Port total cargo throughput reached a new record of 528,785 tonnes of high value cargoes. The vessels visits during the period went up by 25 per cent compared to 2011-12. Moreover, the offshore oil and gas use of the wharf was greater as Browse Basin exploration activities increased. The period’s berth occupancy monthly average was 41 per cent compared to 30 per cent during 2011/12. In the course of the first half, occupancy was higher due to increased activity in support of Barrow Island logistics. As a result 2013 net profit and profitability rose steadily (Broome Port Authority, 2015c). In 2014, the financial performance went down. During 2013-14, Broome Port experienced a general 12 per cent drop in vessel visits compared to 2012-13. This is mainly because the Gorgon project logistics was completed and some activities shifted there to support Broome. Also the overall commercial vessel visits went down slightly due to the end of coastal trade services. The monthly average berth occupancy for the 2013-14 period averaged 33 per cent compared to 41 per cent during 2012-13. The occupancy was affected by a passing cyclone in February that caused the port to be closed and constrained local shipping activities. As a result 2014 net profit and profitability fell (Broome Port Authority, 2015d). Liquidity Ratios Financial managers and other users of financial statement information use liquidity ratios to judge whether a company can meet up its short-term obligations. The ratios therefore offer a fine way of establishing whether a company is projected to keep on as a going concern at ease (Anthony & Breitner, 2010). Figure 2: Broome Port Authority Current Assets and Current Liabilities 2010 – 2014 Table 2: Broome Port Authority Liquidity Ratios 2010 – 2014 Ratio 2010 2011 2012 2013 2014 Current ratio 2.67 2.278 0.41 3.57 3.08 Broome Port’s liquidity was over 2 times in 2010 and 2011 but fell sharply to a poor 0.41 times in 2012. However, the port’s liquidity jumped to 3.57 times in 2013 and slightly went down by 0.49 points in 2014. The poor performance in 2012 was due to the severe effects of 2011 whereby the Montara spill brought down the port’s operations. The Broome Port Authority had to incur more debt so as to revive the port’s operations. Due to a proper working capital management, the Broome Port Authority realised greater liquidity in 2013 amid improved port performance. There was a slight fall in 2014 as the port’s activities decreased. Cash Flow from Operations This represents the cash generated from the company’s normal operations. It is important in indicating the stability of the main operations and evaluate the solvency (Jackling et al., 2010). Figure 4: Broome Port Authority Cash Flow from Operations 2010 – 2014 Table 4: Broome Port Authority Cash Flow from Operations 2010 – 2014 2010 2011 2012 2013 2014 Cash flows from operations 1970000 541000 417000 6406000 4276000 Broome Port’s operating cash flow signals the impact of the severe events in 2011 with reduced operating cash flow and the increased port operations in 2013, as indicated in figure 3 and table 3. Capital Structure Ratios As much as a company’s current operational performance is vital, it should be able to meet up its long-term obligations to continue surviving. Capital structure ratios are used to evaluate the company’s financing structure against its investments (Steven, 2012). Figure 3: Broome Port Authority Total Assets and Total Liabilities Movement 2010 – 2014 Table 3: Broome Port Authority Capital Structure Ratios 2010 – 2014 Ratio 2010 2011 2012 2013 2014 Debt ratio 0.39 0.44 0.44 0.45 0.44 Interest cover 3.60 0.67 2.43 8.15 4.47 Debt Cover 4.68 0.90 3.66 12.36 7.13 Broome Port showed a good financial stability over the five year period albeit the severe effects in 2011 that brought down the stability. The port’s total assets are far much more than the total liabilities. The debt ratio went up from 0.39 to 0.44 in 2011 and has been virtually constant up to 2014. In general, Broome Port Authority has a low profitability level. The port’s liquidity is very much impressive along with high operating cash flow. The port’s financial stability is also good as it does not have a big debt component that can impede its future operations. Conclusion The trend analysis shows that negative effects on operations can severely harm the financial performance of the port. Broome Port went from a profit making territory in 2010 to making a loss in 2011. But with good investments and management, the port was able to rise again and post impressive performance. The port returned to profitability in 2012 and the performance was even better in 2013. In 2014 the performance went down as some of the port’s operations were moved in support of Barrow Island logistics. References Anthony, R.N. and Breitner, L.K. 2010, Essentials of Accounting: International, 10th edn, Pearson. Atrill, P. McLaney, E. Harvey, D. and Jenner, M. 2010, Accounting: An Introduction, 4th edn, Pearson. Bazley, M. and Hancock, P. 2010, Contemporary Accounting, 7thedn, Cengage Learning. Broome Port Authority, 2015a. 2010-2011 Annual Report. Broome Port Authority, 2015b. 2011-2012 Annual Report. Broome Port Authority, 2015c. 2012-2013 Annual Report. Broome Port Authority, 2015d. 2013-2014 Annual Report. Chiappetta, B., Shaw, K., Wild, J. 2009, Principles of Financial Accounting. 19th edn. McGraw-Hill/Irwin. Deegan, C. 2009, Financial accounting theory, 3rd edn, McGraw-Hill, North Ryde. Hoggett, J.L. Edwards, C. Medlin, and Tilling, M. 2012, Financial Accounting, 8th edn, John Wiley & Sons. Horngren, C. Harrison, W. Bamber, L. Best, P. Fraser, D. and Willett, R. 2010, Accounting, 6th edn, Pearson. Jackling, B. Raar, J. and McDowall, T. 2010, Accounting: A Framework for Decision Making, 3rd edn, McGraw-Hill. Steven, M.B, 2012, Business Ratios and Formulas: A Comprehensive Guide, 3rd edn, Wiley. Read More