Accent Group Limited

ASX CODE: AX1

FIN600 TX 2019
NAME: STUDENT ID:
Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

Executive Summary

This financial analysis report focused on to analyze the financial performance of Accent

Group Limited, an Australia and New Zealand based, apparel, footwear and accessories’

distribution, retailing and franchising company to make investment decisions. Financial ratio

analysis is performed that include profitability, efficiency, liquidity and capital structure ratios

to evaluate the financial health of the company. The data was obtained from the annual report

of the company for two years i.e. 2019 and 2018. The results of analysis revealed that the

company is profitable as indicated by high net profit margin, return on assets, return on

equity, earnings per share etc. in both years of analysis. The company is efficient in

generating revenues with the utilization of its assets as indicated by better results of asset

turnover ratio, cash flow return on assets and fixed assets turnover ratio. The liquidity

position of the company is better as indicated by higher current ratio. As per capital structure

analysis of the company, the company is low leveraged as the debt is lesser than equity and

the results of debt to equity ratio, debt ratio and equity ratio have supported this conclusion.

However, the financial performance of the company indicated by ratio analysis was better on

2018 as compare to 2019. This report will be useful for the investors to make investment

decisions in this company and for management to know about the financial performance of

the company from various prospects. It is suggested to invest in this company but it is a risky

investment.

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Assignment – Accent Group Limited (AX1)

Contents Page Number

1 Introduction - Background and Business 3

2 Company Analysis - Current Financial performance, economic outlook 3

3 Ratio Analysis 4

3.1 Profitability ratios 4

3.2 Efficiency ratios 9

3.3 Liquidity ratios 11

3.4 Gearing ratios 12

4 Recommendations and overall assessment 15

5 References/Bibliography 18

Appendices – attached Excel Spreadsheet 19

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

1 Introduction

1.1 Background and Business

The past name of Accent Group Limited was RCG Corporation Limited. Accent Group

Limited is a publicly listed company in ASX with code of AX1. The head office of the

company is situated in Waterloo, New South Wales but it operates in New Zealand and

Australia.

In Australia and New Zealand, Accent Group Limited running its distribution network and

retailing business of footwear. The company is running near about 420 stores in both

countries. There are four types of stores being operated by Accent Group Limited i.e. Athletic

footwear’s The Athlete’s Food, Platypus for multi branded sneakers, Hype DC for premium

sneakers, Podium Sports for apparel and athletic footwear on stores. Accent Group Limited

have multiple brands that are being operated in stores in both Australia and New Zealand.

The brands such as Merrell, Vans, Sketchers, CAT, Dr Martens, Timberlands, Saucony,

Sperry Top-Sider, Stance and Palladium are being operated by Accent Group Limited in its

stand-alone stores across New Zealand and Australia. The company is being managed by

CEO Daniel Agostinelli.

2 Company Analysis

2.1 Financial statements, Current Financial performance, economic

outlook

The investors and traders are interested in Accent Group Limited (ASX: AX1) as it related to

consumer discretionary sector. During the recent trading session, Accent Group Limited

increased share price by 3%. Market capitalization means the market value of outstanding

shares of a company. The market capitalization of AX1 is $574031211.776.

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

The annual report revealed that Accent Group Limited have incurred revenue of

AUD$796,263 thousands at the end of year 2019. The profit from the year was AUD$51,889

thousands. The share price was $1.39 per share. The EPS was 10.02 cents and the company

had declared 8.25 cents per share dividend. Total assets and Total equity of the company was

$669599 thousands and $403337 thousands. The net worth of the company was $403337

thousands.

3 Ratio Analysis

Gopinathan Thachappilly (2009), explains that analysis of financial statements assists

investors to evaluate the performance of a company to decide whether to make investment in

that stock. Different ratios like profitability ratios, efficiency ratios, liquidity ratios and

gearing ratios are analyzed to investigate performance of company from different aspects.

Lucia Jenkins (2009) states the financial ratio analysis provide clear picture about financial

soundness of the company.

3.1 Profitability and Market ratios

Profitability ratios

James Clausen (2009) explains that ratios of profitability make analysis of income statement

and balance sheet. As indicated by Gopinathan Thachappilly (2009) that there are certain

profitability ratios that best evaluate the financial performance of the company so the

investors can use this analysis to make financial decisions. Now the analysis of the ratios one

by one will be done and explained that what each ratio tell about the performance of Accent

Group Limited during 2019 and 2018.

Industry
(see appendix for calculations) June 30, 2019 July 1, 2018
average
Return on assets 8.1% 8.4% 9.4%
Return on equity 13.1% 13.0% 15.6%
Net profit margin 6.5% 7.3%
Gross profit margin 57% 58% result %
Expense ratio/Cost to Income 90% 91% result %

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Assignment – Accent Group Limited (AX1)

ratio
Cash return on sales 8% 10% result %
$0.1002 per
Earnings per share $0.082 per share $0.49
share
Price earnings ratio 13.9 times 20 times 25 times
Earnings yield 7.2% 5.0% result %
$0.0825 per $0.0675 per
Dividends per share $xx per share
share share

a. Return on Assets

Profitability of a company is measured on the basis of expenses and cost of doing business. A

comparison is made between profits and assets to analyze the ability of the company to in

utilizing assets to make revenues and earn incomes.

For 2019, the return on assets are 8.1% that is better than as compare to prior year 2018 that

has 8.4%. Accent Group Limited was in profit in these years that results in positive return on

assets. However, this ratio declined in year 2019 due to increase in total assets of the

company. It is concluded that management of the company is efficient in utilizing its assets to

earn profits. As far industry average is concerned of this ratio, it is also positive but better

than Accent Group Limited with ROA ratio of 9.4%.

b. Return on Equity

Return on Asset (ROE) is most concerned ratio for the investors of the as it is measure of

profitability of the company relative to shareholder’s equity. Return on Equity ratio in 2019 is

positive with the percentage of 13.1%. The same ratio in 2018 was 13.0%. The ROE ratio is

improved in 2019 with respect to prior year. Positive return on equity means that company is

earning profits during these years with the investment of equity funds in the business. Accent

Group Limited remained effective in using equity to generate revenues and incomes. As far

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Assignment – Accent Group Limited (AX1)

industry average is concerned of this ratio, it is also positive but better than Accent Group

Limited with ROE ratio of 15.6%. It is favorable to investors in this company.

c. Net Profit Margin

Net profit margin indicates the ability of the company to earn income from its sales. The net

profit margin of the company is 7% and 7% for year 2019 and 2018 respectively. It shows

that the company is profitable over the period analyzed and its profitability remained same in

2019 as compare to 2018 as the revenues and profits were both increased. The spending of

the company are more than earnings.

d. Gross Profit Margin

It is another measure of profitability. Gross profit margin shows the percentage profits of the

company after deducting cost of goods sold. The gross profit margin of the Accent Group

Limited was 57% and 58% in 2019 and 2018 respectively. The gross margin ratio was

declined in 2019 slightly in due to increase in cost of sales. It shows company is profitable

and the sufficient revenues are incurred to meet the cost of goods sold.

e. Expense Ratio

It measures the expenses of doing a business with respect to revenues. Means how much

expenses are relative to its related revenues. It is expressed in percentage.

For Accent Group Limited, the expense ratio is 90% for 2019 which indicates the good

position as expense are 90% of the revenues incurred by the company. This ratio was also

good during 2018 with ratio of 91% which indicates the expenses or cost to generate this

revenue was 91%. However, the ratio of 2019 is better. It shows that how much this company

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Assignment – Accent Group Limited (AX1)

is effective and efficient in doing business with possible minimum expenses and costs. It will

make investors more interested.

f. Cash Return on Sales

It is proportion of cash generated from business to sales. It shows the effectiveness of the

company to generate cash from its revenues. The cash return on sales ratio for Accent Group

Limited was 8% positive and in 2018 it was 10% positive. The reason behind better cash

return on sales ratio is the net cash from operating activities is positive i.e. cash was increased

in both years. This ratio was better in 2018 as compare to ratio of 2019.

g. Earnings per Share

Investors are willing to pay more on the shares of those companies that have higher EPS as it

can lead to higher dividends.

For Accent Group Limited, the earnings per share is $0.1002 and it was $0.082 per share in

2018. In 2019, the EPS has improved. The company has incurred profit per share in both

years analyzed due higher revenue as compare to costs and expenses. As the industry average

is concerned, the EPS of industry is $0.49 per share. It is an indication that company is

performing under as compare to industry and earning lower profits for shareholders.

h. Price Earnings Ratio

Price Earnings (PE) ratio is measure of marketability of the company. It is ratio between

share price and EPS. PE ratio of 2019 was 13.9 times and it was higher in 2018 with the

figures of 20 times. The PE ratio is decreased during 2019 due to decline share price. The PE

ratio of the Accent Group Limited indicates that the stocks are overvalued. The industry

average of PE ratio is 25 times. The PE ratio of company is lower.

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Assignment – Accent Group Limited (AX1)

i. Earning Yields

Earning yield ratio is a ratio of EPS to share price. For Accent Group Limited, the earning

yield ratio was 7.2% in year 2019 and it was 5% in year 2018. The profits per share are less

as compare to share price. In 2019, the EPS was 7.2% of share price in market and in 2018,

the EPS was 5% of share price in market.

j. Dividend per Share

This ratio is measure of how much dividend is paid by the company to its each shareholder in

the full accounting year. The investors pay more attention to this ratio while evaluating the

financial performance in order to make investment decisions. During recent years, Accent

Group Limited paid $0.0825 total dividend per share. In prior year, the company had paid

$0.0675 total dividend per share. The DPS paid in 2019 was higher than DPS paid in 2018.

3.2 Efficiency ratios

It is a comparison between incomes and expenses of a company. It explains the ability of the

company in using assets and liabilities in generating incomes. Following are the main

efficiency ratios which are being analyzed to know the financial position of the company.

(see appendix for

Industry average
calculations) June 30, 2019 July 1, 2018
Asset turnover 1.25 times 1.16 times 1.27 times
Cash return on assets 0.1031 times 0.1159 times -
Fixed Asset turnover 1.71 times 1.59 times -

i) Asset Turnover Ratio

Maria Zain (2008) stated that asset turnover ratio is the most important ratio to analyze

efficiency of the management in doing business. During 2019, the asset turnover ratio was

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

1.25 times and in 2018 the asset turnover ratio was 1.16 times. It is the clear indication of

efficiency of the company in generating revenues from assets as the revenues are more than

assets which means that assets are used efficiently. The industry average is also greater than 1

and its numbers are 1.27 times. Company’s performance is lower than its industry.

iii) Cash Return on Assets

Cash return on assets ratio for Acacia Limited was 0.1031 times and 0.1159 times in 2019

and 2018 respectively. It shows that cash inflow from operating activities was generated by

the use of assets. The positive cash or increased cash flow from operating activities is the

reason behind positive cash return on assets ratio. It shows the efficiency of the business in

generating cash from usage its assets. This ratio was declined in 2019 due to decrease in cash

inflow from operating activities.

iv) Fixed Asset Turnover

Mtetwa (2010) states fixed assets are those assets which do not change within a

years. Fixed assets turnover ratio of this company was 1.71 times and 1.59 times in 2019 and

2018 respectively. It shows that revenues are more than fixed assets and company remained

efficient in generating revenues with the use of fixed assets. In 2019, the ratio was improved

slightly due to improvement in revenues.

3.3 Liquidity ratios

Multiple ratios are used to determine the ability of the company to meet its short-term

obligations. It explains the financial soundness of the company that is a major concern for the

investors and lenders. It is mainly analysis of the company’s current assets with respect to

liabilities and revenues.

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

(see appendix for

June 30, 2019 July 1, 2018 Industry average
calculations)

Current ratio 1.22:1 1.27:1 2.43:1

Quick ratio 0.43:1 0.49:1 1.58:1

Receivables turnover 33 times 38 time 74.39 times

Average collection period 11 days 9.5 days result days

i. Current Ratio

James Clausen (2009) states that liquidity of company is the financial position to meet the

short-term obligations. Current ratio of the company was 1.22:1 and 1.27:1 during 2019 and

2018 respectively. It show that company has more liquid assets to pay its short term debt. It is

interesting for the creditors and investors. It show that the company is strong financially.

However, industry average also good with ratio of 2.43:1. The current ratio of the company is

less than industry average which indicates lower liquidity.

ii. Quick Ratio

All current assets other than inventories are quack assets. This ratio indicates the level of

quick assets available in relation to current liabilities.

In 2019, the quick ratio was 0.43:1 and in 2018, the quick ratio was 0.49:1. It shows that

company do not have enough quick resources to meets its current liabilities. The industry

average is strong with ratio of 1.58:1. According to results of this ratio, the liquidity position

is poor as compare to industry.

iii. Accounts receivable turnover

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

Accounts receivables are compared with the revenues of the company to calculate the

receivable turnover ratio. For this company, the account receivable turnover ratio was 33

times and 38 times in year 2019 and 2018 respectively. It show that company had collected

its 33 and 38 times its receivables in both years. In 2019, the ratio was declined and it is a

clear indication that the company was less efficient in 2019 in using its assets, extending

credit and collecting receivables. The customer base of the company is good that repays its

loans. In 2018 the ratio was higher. Jo Nelgadde (2010) describes that it is the management

ratio that analyzes account receivables by dividing revenues over it.

iv. Average Collection Period

Average collection period is number of days in which company collects its account

receivables. The average collection period ratio for Accent Group Limited is 11 days in 2019

and 9.5 days in 2018. It shows the efficiency of the company in collecting its debt within a

month. It took short time to collect its receivables. Average collection period ratio is better in

2018 and company was able to collect its debt within a month. The company is efficient in

collecting its debt.

3.4 Gearing ratios

Debt management is being described by Gopinathan Thachappilly (2009) as it includes debt

to equity ratio, debt ratio, equity ratio and cash debt coverage ratio. It describe the level of

leverage in the capital structure. It explains the financial health and policies related to debt.

(see appendix for calculations) June 30, 2019 July1, 2018 Industry average

Debt to equity ratio 66.01% 54.30% 18.96%

Debt ratio 40% 35% result%
Equity ratio 60% 65% result%
Cash debt coverage 365% 304% result%

Interest cover ratio 20 times 14.3 times -

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

i. Debt to Equity Ratio

This ratio provide information regarding the percentage debt with respect to equity which

means extend to which company is using credit financing. This company was 66.01% in 2019

and 54.30% in 2018. It shows the company was more leveraged during 2019. However, this

ratio was better in 2018 as the debt level was lower with respect to equity. The industry trend

is better as compare to Accent Group Limited.

ii. Debt Ratio

It is ratio of total liabilities to total assets. Debt ratio was 40% in 2019 and 35% in 2018. It

means that company have less total liabilities as compare its total assets. 40% assets which

were purchased with debt in 2019. It indicates poor financial health as compare to prior year

as debt level was higher.

iii. Equity Ratio

It is ratio of total equity to total assets which means that how much assets are purchased with

equity. Equity is the amount invested by the owners in the company. In 2019, the equity ratio

was 60% while in 2018, it was 65%. The results of this ratio indicates the strong financial

health of the company as most of the assets are funded by equity and belongs to the owners of

company. It is favorable to the investors.

iv. Cash Debt Coverage

In financial analysis, it is crucial ratio that determines the strength of company to meet its

debt from cash as cash is the most ready to use asset. It is average total liabilities to cash

inflow from operating activities ratio. The cash debt coverage ratio was 365% and 304% in

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Assignment – Accent Group Limited (AX1)

2019 and 2018 respectively. It shows that company do not has generated enough cash to meet

liabilities in these two years. The reason behind poor result is that cash was lesser as compare

to total liabilities in those two years.

v. Interest Coverage Ratio

This ratio is calculated by dividing earnings before interest and tax on interest expense

(EBIT). It shows the ability of the company in number of times to meet interest expense from

its EBIT. For Accent Group Limited, interest coverage ratio was 20 times and 14.3 times in

2019 and 2018 respectively. The results were better in 2019 due to increase in EBIT.

4 Recommendations and overall assessment

4.1. Company’s Performance in 2019:

The revenues are increased, the net profit is increased. Total assets and equity have

increased. Overall results of financial analysis revealed that Accent Group Limited does not

performed well as compare to year 2 (2018). The ratio which performed low in 2019 are

profitability (ROA, gross profit margin and cash flow return on asset), liquidity (current ratio,

quick ratio, receivable turnover ratio and average collection period), and gearing ratio (debt

to equity, debt ratio and equity ratio).

4.2. Future Success

The board of directors and management of the company are expecting that company will

grow in the future. There are opportunities to grow in future like opening 40 new stores. And

acquiring stores can increase revenues by $1.5m. The company will grow its two brands i.e.

Platypus and Hype with differentiation. A plan to open new The Trybe stores kids products

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

(Annual Report, 2019). It is expected that the company will be able to generate sufficient

cash flow to meet the administrative and operational expenditures. The company is

financially strong and have chances to be successful.

4.3. Likelihood of Acquisition or Merger

Accent Group Limited is planning to acquire stores with existing brand banners. The

financial analysis of revealed that company is in profit and liquidity position is strong. And

assets are in strong position. The chances of a merger or being acquired by other are low.

Insolvency Ethics

The insolvency practitioner must make sure that all concerned parties get their fair part. The

creditors are given maximum protection. The directors should be advised to avail options

within code of law. The insolvency practitioner has responsibility to the creditors. The

recommendations should be provided to company regarding future fate of the company to

continue or to dissolve the company. The code ethics are published by IESBA (International

Ethics Standards Board of Accountants).

4.4. Suggestions for Success

The company need to focus on its profitability, liquidity and efficiency as some of these

indicators are declined as compare to previous year. After the detailed analysis of financial

reports through ratio analysis, it is suggested that the company needs to enhance its revenues

to increase the profitability of the company. Revenues can be increased through increasing

customer base. Acquiring new projects will also help the company to enhance its earnings.

The growth plan as discussed future success section will provide great opportunities of

growth and success.

4.5. Impact of External Factors

Political factors have influence on the profitability of the company. Accent Group Limited is

running retailing business and it is most vulnerable to political changes. Macro-economic

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Assignment – Accent Group Limited (AX1)

factors such as rate of interest, inflation rate, foreign exchange rate and efficiency of market

in nation’s economy need to be considered while evaluating financial performance of the

company. Environmental factors such as weather, climate change, and waste management

factors have influence on the revenues and profits of the company.

4.6. Investment in this Company

This company is profitable as indicated by the outcomes of financial analysis. The company

had declared a dividend of $0.082 in last year. The share price has an increasing trend.

However, the recent improvement in financial performance during 2019 suggest that this

company will grow in future. And it has strong liquidity position and less risky capital

structure i.e. lower debt as compare to equity and assets. It is suggested to invest in this

company but it is a risky investment due to price volatility.

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Student name – ID FIN600 TX 2019
Assignment – Accent Group Limited (AX1)

5 Bibliography

1. Annual Report, 2019, http://onlinereports.irmau.com/2019/AX1/

2. Thachappilly, Gopinathan. (2009). “Profitability Ratios Measure Margins and

Returns: Profit Ratios Work with Gross, Operating, Pretax and Net Profits”. Journal

of profitability ratio measure margin and return.

3. Clausen, James. (2009). “Accounting 101 – Financial Statement Analysis in

Accounting: Liquidity Ratio Analysis Balance Sheet Assets and Liabilities‟‟, Journal

of financial statement.

4. Mtetwa, Munya. (2010). “Fixed Assets: Capital Expenditure ‟‟, Journal of fixed

assets in accounting.

5. Nelgadde, Jo. (2010). “Debt Collection and Debt Recovery Tools: Using Credit

Insurance and Debt Collection Agencies ‟‟, Journal of debt collection and debt

recovery tools.

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Assignment – Accent Group Limited (AX1)

Appendices – attached Excel Spreadsheet

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