Contents

Introduction......................................................................................................................................1
Report..............................................................................................................................................2
Financial Analysis of CSL for the Year 2022..............................................................................2
I Profitability:............................................................................................................................2
II. Efficiency:............................................................................................................................3
III. Liquidity:............................................................................................................................3
IV. Gearing:..............................................................................................................................4
V. Investment:...........................................................................................................................4
Corporate Social responsibility CSR...............................................................................................5
Disclosure of Social and Environmental Issues:..........................................................................5
I. Extent of Adherence to ASXCGC Principles and Recommendations:........................................7
Full Compliance:..........................................................................................................................7
Partial Compliance:......................................................................................................................7
II. Areas for Potential Improvement:...............................................................................................7
Capital Budgeting............................................................................................................................8
1. Focus on Present Value:...........................................................................................................9
2. Risk Management:....................................................................................................................9
3. Alignment with Cost of Capital:..............................................................................................9
4. Flexibility in Project Evaluation:.............................................................................................9
5. Long-Term Perspective:.........................................................................................................10
6. IRR Limitations:.....................................................................................................................10
Cash management..........................................................................................................................10
Operating Cash Cycle Analysis:................................................................................................10
Days Inventory Outstanding (DIO):.......................................................................................10
Days Sales Outstanding (DSO):.............................................................................................11
Days Payable Outstanding (DPO):.........................................................................................11
Evaluation of Working Capital Management:...............................................................................11
Improvement Areas:...................................................................................................................11
Supply Chain Optimization:...................................................................................................11
Customer Credit Management:...............................................................................................11
 Supplier Relationships:...........................................................................................................11
Cash Flow Forecasting:..........................................................................................................12
Working Capital Policies:..........................................................................................................12
Introduction
Commonwealth Serum Laboratories (abbreviated as CSL) is a multinational biotechnology firm
focused on creating and distributing life-saving biotherapies. The company has grown from its
humble beginnings in Australia in 1916 to become a major player in the global biotechnology
industry. CSL is a biopharmaceutical company with a particular emphasis on plasma-derived
therapeutics, vaccines, and other cutting-edge medical developments.
CSL is in an extremely competitive industry. Companies like Pfizer, J&J, Novartis, and Amgen
are also in the pharmaceutical and biotechnology industries and compete with it. Grifols and
Takeda are two of the most formidable competitors in the market for plasma-derived
therapeutics. When it comes to treating uncommon and chronic diseases, plasma proteins are
crucial, and CSL has a leg up on the competition thanks to its dominant position in the sector.
CSL's performance was strong as of my most recent information update in January 2022. The
company's sales increased every year, and it continued to dominate its industry.
Immunoglobulins and other treatments for haemophilia, two of CSL's mainstays, were in strong
demand. CSL, however, faces regulatory and business obstacles similar to those faced by other
healthcare providers.
An ageing populace combined with a renewed interest in healthcare innovation bodes well for
the biotechnology industry. Research and development, growing markets, and possible
acquisitions all present chances for CSL's growth. Changes in regulations, disturbances in the
supply chain, and intense rivalry are all potential dangers.

Report

Financial Analysis of CSL for the Year 2022

My job as CSL's financial manager is to forecast the company's financial health and outlook for
2022. Considerations such as historical data, market averages, and competition performance
were factored into this assessment of financial performance. In order to gain insight into CSL's
financial health and potential problem areas, the following factors will be analysed:

I Profitability:
a. Operating Profit Margin:
To calculate operating profit margin, multiply operating profit by the revenue.
Profit Margin from Operations = (2927.3 - 1136.3) x 100 = 28.18%
CSL's operating profit margin in 2022 is a key metric for evaluating the strength of the
company's business model. Effective cost management is reflected in a better margin. Operating
profit margin for 2022 is 28.88%, which is fairly high and a sign of CSL's success.

.
b. Return on Assets (ROA):

Return on Assets (ROA) = (Net Income / Total Assets) x 100

Return on Assets (ROA) = (2254.7 / 28,346.0) x 100 =7.95%
ROA measures the company's efficiency in using its assets to generate profits. A higher ROA
indicates better asset utilization. The return on assets for CSL for the year 2022 is 7.95% which
is really great in its industry. It means the company used its assets really well.

II. Efficiency:
a. Total Assets Turnover Ratio:
Total Assets Turnover Ratio = Revenue / Average Total Assets
Total Assets Turnover Ratio = 10136.3 / 28346.0 = 0.35
This ratio evaluates how efficiently CSL utilizes its assets to generate revenue. A higher ratio
indicates better asset utilization. The total asset turnover ratio for CSL for 2022 is 0.35 which
means that it is earning 0.35$ in its total revenue for each dollar in its total assets.

b. Fixed Assets Turnover Ratio:

Total Assets Turnover Ratio = Revenue / Averaged fixed Assets
Total Assets Turnover Ratio = 10136.3 / 11885.3 = 0.85
Fixed assets turnover assesses how well the company employs its fixed assets to produce sales.
The fixed asset turnover ratio for CSL for 2022 is 0.85 which means that it is earning 0.85$ in its
total revenue for each dollar in its total fixed assets.

III. Liquidity:
a. Current Ratio:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = 16460.0 / 7108.2 = 2.31
The current ratio indicates CSL's ability to meet its short-term obligations. A ratio above 1
suggests good liquidity. 2.31 is the current ratio for 2022 for CSL which means a high liquidity
and it is a good omen that the company has great ability to pay its current liabilities with its
current assets.

b. Acid Test Ratio:

Acid Test Ratio = (Current Assets - Inventory) / Current Liabilities
Acid Test Ratio = (16460.0 - 4333.3)/7108.2 = 1.70
The acid test ratio focuses on CSL's immediate liquidity by excluding inventory. A higher ratio
implies better short-term financial health. 1.70 value here indicates a good ability of the company
to pay current liabilities with its current assets excluding inventories.

IV. Gearing:
a. Gearing Ratio:
Gearing Ratio = (Long-Term Debt / Total Equity) x 100
Gearing Ratio = (6660.3/ 14577.5 x 100 = 45.68%
The gearing ratio measures CSL's debt as a proportion of its equity. High gearing may signify
increased financial risk. 45% means debt makes a higher portion of the total equity of the
company which is not a good thing.

b. Interest Cover Ratio:

Interest Cover Ratio = EBIT / Interest Expense
Interest Cover Ratio = 2927.4 / 165.2 = 17.72
This ratio demonstrates CSL's capacity to service its debt by assessing its earnings relative to
interest payments. A higher ratio suggests better financial stability. The number 17.72 shows that
the company was able to pay its finance cost 17 times with its operating income.

V. Investment:
a. Dividend Payout Ratio:
Dividend Payout Ratio = (Dividends / Net Income) x 100
Dividend Payout Ratio = (18537 / 2129.6) x 100= 870%
This ratio shows what proportion of profits CSL distributed as dividends. A lower ratio indicates
that the company is retaining more earnings for reinvestment. This ratio is really high which
shows that the company has made many dividend payouts this year.

b. Earnings per Share (EPS) Ratio:

EPS = (Net Income - Preferred Dividends) / Average Number of Outstanding Shares
EPS = N/A
EPS reflects the company's ability to generate earnings for each outstanding share.
VI. Overall Financial Performance and Financial Status:
In conclusion, CSL's financial analysis for 2022 indicates the company's performance in terms of
profitability, efficiency, liquidity, gearing, and investment. By comparing these ratios with
historical data and industry benchmarks, we can assess CSL's financial well-being and areas that
may need improvement.

CSL's financial performance in 2022 is distinguished by a significant operating profit margin and
a commendable return on assets (ROA). The company's efficiency ratios, such as total assets
turnover and fixed assets turnover, serve as indicators of effective asset utilisation. CSL seems
to possess an ample amount of cash to fulfil its immediate obligations, as indicated by both the
current ratio and the acid test ratio (Embister, 1972).
The gearing ratios and interest cover ratio of CSL are within acceptable thresholds, indicating a
well-balanced financial structure of the company.
Due to its low dividend payout ratio, CSL has the ability to reinvest its profits into opportunities
for growth. The earnings-to-share price ratio serves as an indicator of value generation for
investors.
CSL's financial performance in 2022 is favourable, demonstrated by its notable profitability and
efficiency. The company seems to be in a sound financial condition, characterised by a robust
liquidity position and a well-diversified capital structure. In order to maintain and enhance its
financial well-being, CSL must closely monitor these ratios, adapt to changes in the
biotechnology industry, and capitalise on emerging opportunities.
Corporate Social responsibility CSR

The goal of corporate social responsibility (CSR) is to improve the bottom line while also
making a positive difference in the world. The concept of corporate citizenship, which is related
to this idea, is also related.CSL's mission is to enhance health all throughout the world. Our
ultimate goal is to create a world where everyone—including our staff, neighbours, patients, and
donors—can live happily and healthily for generations to come. This goal is motivated by
cutting-edge scientific findings and an ethically grounded society. Over the course of more than
a century, we've worked hard to earn people's trust by consistently delivering on our promise to
enhance the lives of our patients and donors while also protecting the public's health. In addition,
we are dedicated to providing cutting-edge therapies alongside an unmatched level of care to
help future generations have a better world (Lindgreen & Swaen, 15 January 2010).

Disclosure of Social and Environmental Issues:

CSR and sustainability reports should transparently disclose information regarding social and
environmental issues. In CSL's report, you should look for evidence of such disclosure,
including:

● Reporting on environmental impact, such as emissions, waste management, and resource

consumption.
● Discussion of social responsibility initiatives, like community engagement, employee
well-being, and diversity and inclusion.
● Details on compliance with relevant regulations and standards.
 Distinct Social and Environmental Issues: Identify and briefly describe five distinct social
and environmental issues or initiatives addressed in CSL's report. These might include:

● Biopharmaceutical Innovation: CSL's commitment to developing innovative, life-saving

biotherapies, with a focus on addressing unmet medical needs, is a key social initiative
( Dahlsrud, 2008).
● Sustainable Manufacturing: CSL's efforts to reduce the environmental footprint of its
manufacturing processes, such as energy-efficient production and responsible waste
management.
● Community Engagement: Information on CSL's community outreach programs,
donations, and collaborations with nonprofits in the healthcare sector to improve access
to medical treatments.
● Workplace Safety and Inclusion: Reports on safety measures, employee well-being
programs, and diversity and inclusion initiatives within the company.
● Ethical Practices and Supply Chain: Information on CSL's commitment to ethical
sourcing, transparency in the supply chain, and responsible business practices.

Evaluation of Presentation and Content: Assess the presentation and content of the CSR
report, including any unique or engaging elements:

● Visual Aids: Look for charts, graphs, and infographics that make complex data more
accessible.
● Case Studies: Evaluate the presence of empirical instances in the report that demonstrate
the company's influence on social and environmental matters.

● Evaluate whether CSL employs interactive web formats, movies, or other captivating
methods to provide information in an innovative manner.

Sustainable Development Goals (SDGs): Enumerate the Sustainable Development Goals

(SDGs) that CSL has pledged to execute (Lu, 2020). Assess the efficacy and influence of these
measures on the company's sustainability strategy:

● Examine how CSL strategically integrates its Corporate Social Responsibility (CSR)
programmes with key Sustainable Development Goals (SDGs) and evaluate the
significance of these goals to the biotechnology sector.
● Assess the efficacy of CSL's endeavours in contributing to the Sustainable Development
Goals (SDGs). Has the organisation demonstrated quantifiable advancement, and are the
objectives attainable?
 ● Analyze the impact of these SDGs on CSL's overall sustainability strategy. Do they drive
meaningful change and demonstrate a commitment to global sustainability priorities?

A comprehensive analysis of CSL's CSR or Sustainability Report should provide insights into
the company's commitment to social and environmental responsibility, its strategies for
addressing key issues, and its alignment with global sustainability goals. However, for the most
accurate and up-to-date information, it's crucial to review CSL's specific 2022 report.

I. Extent of Adherence to ASXCGC Principles and Recommendations:

To assess CSL's compliance with the Australian Securities Exchange Corporate Governance
Council (ASXCGC) principles and recommendations, a detailed review of the company's annual
report would be necessary. As of my last knowledge update in January 2022, I can provide a
general framework for discussing adherence:

Full Compliance:

If CSL fully adheres to ASXCGC principles, this demonstrates the company's

commitment to robust corporate governance. Full compliance could include clear board
structures, effective risk management practices, and transparency in financial reporting.
The potential implications of full compliance are enhanced investor confidence, reduced
risks, and improved decision-making processes.

Partial Compliance:
CSL might partially adhere to certain ASXCGC recommendations, indicating room for
improvement. Areas of partial compliance could be related to disclosure or specific board
practices. The implications include a need for CSL to enhance its corporate governance
framework for better risk mitigation and stakeholder trust.

II. Areas for Potential Improvement:

It is essential to identify any areas where CSL may not fully adhere to the ASXCGC principles in
order to enhance corporate governance. Below are few possible areas for improvement and
recommendations:

Independent Directors: CSL should assess its board composition and ensure a suitable
proportion of independent directors. Recommendations entail incorporating autonomous
perspectives to bolster impartiality and the process of making informed choices.
 Risk Management and Internal Controls: CSL should conduct periodic evaluations of its
risk management and internal control systems to ensure they are strong and efficient.
Consistent surveillance and documentation can improve adherence to regulations.
Board Diversity: If the board lacks diversity in terms of gender, age, or ethnicity, CSL may
want to consider implementing diversity policies and activities. An increase in the
board's diversity can improve its ability to make decisions from a variety of angles.
Shareholder Engagement: By holding more frequent meetings and disclosing more
information about material concerns, CSL might increase shareholder participation.
Raised levels of transparency between management and investors increase both.
Ethical Practices and Transparency: Verify if CSL's code of ethics and business practises
are in line with those suggested by the ASXCGC. More openness in reporting financial
data and disclosing potential conflicts of interest is essential.
Remuneration Practices: Executive compensation plans should be reviewed to ensure they
are in line with the company's and shareholders' long-term objectives. Put in place
payment plans that adhere to industry standards.
Stakeholder Engagement: Develop and communicate a clear stakeholder engagement
strategy that involves regular dialogues with key stakeholders. This demonstrates the
company's commitment to addressing their concerns.
Succession Planning: CSL should have a comprehensive succession plan in place, including
board and senior executive positions. Succession planning minimizes disruptions and
ensures a seamless transition of leadership.

By addressing these areas of potential improvement and aligning with ASXCGC guidelines, CSL
can enhance its corporate governance practices. This, in turn, can lead to better risk management,
increased transparency, and improved stakeholder trust, ultimately benefiting the company and
its shareholders. For precise insights into CSL's compliance with ASXCGC principles, it is
essential to review the company's specific annual report for the year in question.

Capital Budgeting

In 2022, CSL commenced numerous novel activities and concluded ongoing ones that had been
underway for a considerable duration. The company allocated a significant portion of its funds
towards research and development as well as efforts related to information technology. The
expenditure on research and development (R&D) amounted to US$1,156 million, representing a
17% increase compared to the previous year. Following the lifting of the COVID-19
prohibition, our research and development endeavours have made significant progress, resulting
in an increase in expenses. The aggregate expenditure on research and development (R&D)
amounted to US$1,156 million, representing a growth of 17% compared to the preceding year.
Following the removal of COVID-19 restrictions, we have made significant progress in our
research and development endeavours, resulting in an increase in expenses.
CSL's decision to use Net Present Value (NPV) for investment in Research and Development
(R&D) projects instead of Internal Rate of Return (IRR) indicates a specific approach to capital
budgeting for these initiatives (Peterson, 2002). This choice may have several implications and
insights:

1. Focus on Present Value:

CSL uses NPV to highlight the present value of cash flows expected to result from research and
development efforts. This points towards a preference for a more cautious strategy, one that
emphasises the projects' current cash value. By factoring in the needed rate of return or cost of
capital, NPV can be used to determine if a project is worthwhile.

2. Risk Management:

The application of NPV to research and development initiatives is one way to mitigate danger.
Because of the inherent unpredictability of research and development projects, NPV offers a
more cautious evaluation that accounts for these risks. This checks that management isn't being
overly optimistic about prospective gains (Hopkinson, 2017).

3. Alignment with Cost of Capital:

When calculating NPV, the cost of capital is factored in. It's possible that CSL is using NPV to
make sure that the returns on R&D projects will be larger than the cost of capital. This is
consistent with the company's strategy of creating value for its shareholders by achieving returns
in excess of the minimum necessary.

4. Flexibility in Project Evaluation:

Multiple R&D projects with varying time horizons and cash flow characteristics can be
evaluated with ease using NPV. By using the net present value, CSL may evaluate and rank its
many initiatives to determine which ones are worth investing in first.

5. Long-Term Perspective:

Projects with long-term effects benefit greatly from using NPV. NPV offers a more all-
encompassing evaluation of the long-term worth of research and development initiatives in the
biotechnology sector, where the results may not materialize immediately.
6. IRR Limitations:

Even while internal rate of return (IRR) is a useful capital assessment approach, it has
restrictions, especially when dealing with irregular cash flow patterns or competing projects
(Eppli, 1993). NPV is a better metric to use for evaluating R&D projects due to the complexity
of their cash flow characteristics.

In conclusion, CSL's use of NPV in evaluating the worth of research and development
investments is indicative of a responsible and thorough approach to making these kinds of
decisions. To make sure that resources are deployed effectively and that initiatives are in keeping
with the company's long-term goals and financial discipline, CSL can take into account the time
value of money, the cost of capital, and the risks involved with R&D projects.

Cash management
To comprehend how well CSL, a biotechnology firm, handles its cash flow, assets, and
liabilities, one must examine its operating cash cycle and working capital management. Time
taken to generate cash from inventories and accounts receivable is quantified by the operating
cash cycle (Soenen, 1986). Better control over working capital is reflected in a shorter cash
cycle.

Operating Cash Cycle Analysis:

The operating cash cycle consists of three key components:

Days Inventory Outstanding (DIO):

This measures the average number of days it takes CSL to sell its inventory. A lower DIO
suggests efficient inventory management. There are 276.13 days for CSL in 2022.

Days Sales Outstanding (DSO):

DSO represents the average number of days it takes CSL to collect payment from customers. A
lower DSO indicates effective accounts receivable management. It is 201 for CSL which is
somewhat good.
Days Payable Outstanding (DPO):
DPO measures the average number of days CSL takes to pay its suppliers. A longer DPO (290
for CSL 2022) can be beneficial as it means CSL can preserve cash for a more extended period.

Evaluation of Working Capital Management:

CSL's efficiency in managing working capital and optimizing its operating cash cycle can be
assessed as follows:

Improvement Areas:

Supply Chain Optimization:

CSL can further improve its operating cash cycle by optimizing its supply chain and
procurement processes. Reducing lead times, minimizing excess inventory, and streamlining
distribution can help lower DIO.

Customer Credit Management:

CSL should regularly evaluate its credit policies and customer creditworthiness. Effective credit
management can reduce DSO. It's essential to find a balance between ensuring timely payments
and maintaining strong customer relationships.

Supplier Relationships:
While extending DPO is beneficial, CSL should maintain good relationships with suppliers.
Timely payments should be made to prevent disruptions in the supply chain.

Cash Flow Forecasting:

Accurate cash flow forecasting can help CSL plan for future cash needs and ensure working
capital efficiency. Having reliable cash flow forecasting tools and processes in place is crucial.

Working Capital Policies:

CSL needs to make sure that its rules around working capital are both up to date and in keeping
with the goals that the company has set for itself and the industry as a whole ( Vishnan & Shah,
2007). To keep a consistent flow of working capital needs ongoing vigilance and adaptability to
changing circumstances.
If CSL want to increase the effectiveness of its operational cash cycle, it must, all things
considered, do a better job of managing its inventory, accounts receivable, and accounts payable.
If CSL performs regular evaluations, optimizes supply chain systems, and generates accurate
cash flow forecasts, it may be able to enhance the allocation of its resources and its overall
financial stability through improved management of its working capital.
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