ACCT801

Accounting for Managers

Assignment Number 1
Streams: 222

Lecturer: Bing Dai

Student: Miguel Alvaro G Cuaresma 20220003
Words: 2192
Table of Contents
Introduction.................................................................................................................................................................3
Company background..............................................................................................................................................3
Financial information selected for analysis – importance and credibility..........................................................3
Financial analysis tools – appropriateness and limitations.................................................................................4
Financial analysis.......................................................................................................................................................5
Profitability................................................................................................................................................................. 5
Table 1 Summary of Profitability Ratios 2020-2023.........................................................................................5
Efficiency...................................................................................................................................................................6
Table 2 Summary of Efficiency Ratios 2020-2023...........................................................................................6
Liquidity......................................................................................................................................................................6
Table 3 Summary of Liquidity Ratios 2020-2023.............................................................................................6
Stability....................................................................................................................................................................... 7
Table 4 Summary of Stability/Gearing Ratios 2020-2023...............................................................................7
Market Performance.................................................................................................................................................8
Table 5 Summary of Investment Ratios 2020-2023.........................................................................................8
Overall evaluation...................................................................................................................................................10
Risk analysis.............................................................................................................................................................10
Financial Risks....................................................................................................................................................10
Non-Financial Risks...........................................................................................................................................10
External Factors.....................................................................................................................................................10
Internal factors......................................................................................................................................................12
Conclusion.................................................................................................................................................................13
Appendixes..................................................................................................................................................................14
Appendix 1 Common-sized Balance Sheet - Mainfreight 2019-2023.........................................................14
Appendix 2 Common-sized Income Statement - Mainfreight 2019-2023..................................................15
Appendix 3 year financial statements............................................................................................................15
References.................................................................................................................................................................. 15

Table of Tables

Table 1 Summary of profitability ratios 2020-2023..........................................................................................4

Table of Figures
Figure 1 Summary of profitability ratios 2020-2022.....................................................2
Figure 2 The Warehouse five-year share price...........................................................3

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Table of Appendixes
Appendix 1 Common-sized Balance Sheet -Warehouse 2020-2022.........................4
Appendix 2 Common-sized Income Statement..........................................................5
Appendix 3 Three-year Financial Statements............................................................5

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Introduction

Company background

Mainfreight is a global logistics provider offering managed warehouses, domestic and cross-border
transport, and international freight forwarding (Mainfreight, n.d.). Chairman founded the company
Bruce Plested in 1978. Composed of 11,000 employees operating across Australia, Asia, Europe,
New Zealand, and the Americas and is continuing to expand. Listed on the New Zealand Stock
Exchange, they are dedicated to their 100-year vision by employing the right people with the right
passion (Mainfreight, n.d.).

Financial information selected for analysis – importance and credibility

This study will tackle Mainfreight’s financial statements using its annual report, primarily focusing
on the balance sheet, income statement, cash flow statement, and associated notes to provide a
comprehensive view of Mainfreight’s profitability, operational efficiency, liquidity, stability, and
market performance from 2020 to 2023. These annual reports comply with the New Zealand
Accounting Standards Board's standards as approved by the External Reporting Board (XRB,
n.d.). The study will compare the performance of FedEx as the industry benchmark for a more
comprehensive assessment. This study will also evaluate financial and non-financial risks, as well
as internal and external factors that may impact the company in the next 5-10 years.

Accounting information is vital for decision-making for managers and various organisational
stakeholders (Striga, 2021). The information from the financial statements can be used to:

 Help decision-makers develop knowledge to prepare for unknown future decisions and
activities (Preston, 1986).
 Analyse the company’s strengths and weaknesses and facilitate financial communication
among managers (McKinnon & Bruns, 1992).
 Determine specific operational concerns and their implications (Hall, 2010).
 Identify and reduce costs, enhance operational efficiency, and determine the best ways to
enhance the company’s growth (Lyden, 2022).

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Financial analysis tools – appropriateness and limitations

This report will use financial ratios and risk analysis to assess the company's financial health and
performance to better understand its financial situation and make informed decisions about its
prospects.

Appropriateness:

 Financial ratio analysis will help us evaluate the company's financial position by comparing
different financial metrics such as profitability, efficiency, liquidity, stability, and market
performance
 Risk analysis will help us identify potential risks affecting the company's financial stability
and short- and long-term growth.

Limitations:

 Financial ratio analysis can be limited to the scope of evaluated historical data, and these
financial statements are based on accounting principles, methods, and classifications
chosen by the company (Faello, 2015)
 There is no definitive answer as to how much risk is acceptable, and it is difficult to quantify
the implications a risk may affect a company

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Financial analysis

Profitability

Table 1 Summary of Profitability Ratios 2020-2023

Mainfreight's operating profit ratio exhibited stability across the past four years, with a dip in 2022
swiftly rebounding to 19% in 2023 (Table 1). The decline in 2022 can be traced to substantial
operating costs, accounting for 64% of total revenue, influenced notably by the energy supply
shortage from the Russia-Ukraine conflict (Statista Research Department, 2023) and spiking fuel
prices. This consistent performance underscores the company's adeptness in profit generation
and resilience in managing operational costs.

Simultaneously, the return on assets (ROA) displayed a positive trajectory, rising from 25% in
2020 to an impressive 32% in 2023 (Table 1). This indicates Mainfreight's efficient utilisation of
assets for robust earnings. Moreover, the return on equity (ROE) improved steadily, climbing from
16% in 2020 to 25% from 2022 to 2023. Notably, this enhancement in shareholder returns may be
linked to Donald Braid's significant acquisition of NZ$678k in Mainfreight stock (Simply Wall St,
2023). Compared to FedEx, Mainfreight demonstrates more robust profitability figures, highlighting
its operational prowess, efficient asset utilisation, and significant returns for shareholders.

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Efficiency

Table 2 Summary of Efficiency Ratios 2020-2023

Efficiency measures how well a company utilises its resources to gain profit (Kenton et al., 2021).
Over the past four years, Mainfreight has experienced efficiency fluctuations across the ratios in
Table 2. The unfavourable numbers in 2020 could be attributed to the pandemic lockdown
disrupting the supply chain, resulting in poor logistics and transport performance (Xu et al., 2022).
In the succeeding years, the company has demonstrated increased efficiency in collecting cash,
as seen in the AR turnover and AR turnover ratios in days. In terms of asset utilisation to generate
income, the company demonstrated steady improvement in asset utilisation over the years.
Compared with FedEx’s efficiency figures in 2023, Mainfreight is much more efficient in all
aspects, as shown in Table 2. Overall, Mainfreight’s efficiency in collecting payments and asset
utilisation has shown improvement despite the slight decline in 2023 in asset utilisation.

Liquidity

Table 3 Summary of Liquidity Ratios 2020-2023

Over the last four years, Mainfreight's liquidity, shown in Table 3, has consistently grown in cash
flow. The current ratio, gauging the company’s ability to cover immediate liabilities with current
assets, exhibited a steady increase, implying improved capability in meeting short-term financial
obligations. This strengthening trend is similarly reflected in the quick ratio, reassuring

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Mainfreight's capacity to manage short-term liabilities, excluding inventory. Moreover, the
company's operating cash flow ratio surged notably from 0.54 in 2020 to 0.87 in 2023, indicating a
significant capacity to generate cash from operations for handling short-term debts.

While FedEx holds a marginal advantage in current and quick ratios, Mainfreight outperforms the
operating cash flow ratio. Overall, Mainfreight's liquidity trend signals enhancement and resilience
in fulfilling short-term financial obligations, underscoring the company's sound financial health and
ability to tackle immediate financial challenges, as demonstrated in Figure 1 and Table 3.

Stability

Table 4 Summary of Stability/Gearing Ratios 2020-2023

Gearing ratios measure a company’s financial leverage or risk level and are used to assess
investment risk (Kenton et al., 2022). Mainfreight’s debt ratio dropped from 58% in 2020 to 50% in
2023, while the equity ratio demonstrated the opposite pattern, rising from 42% in 2020 to 50% in
2023, demonstrating increased part of the company’s assets are covered by equity and the
company’s decreasing reliance on debt. Furthermore, the decreased debt-to-equity ratio in the last
four years signifies a transition towards a safer capital structure, indicating reduced financial risk
and firmer financial ground. Lastly, the increased interest-to-cover ratio showcases a steady
positive climb, signifying the company’s improving capacity to pay interest expenses from its
operations. Unlike FedEx’s figures, Mainfreight is less reliant on debt and has a more balanced
approach, contrary to FedEx’s much more aggressive and risky style. The figures in Table 4
demonstrate positive financial health, less reliance on debt, well-managed interest payments, and
is in good shape for the long haul. Additionally, the company has more than enough assets to
cover its short- and long-term liabilities (Simply Wall St, 2023).

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Figure 1 Financial Position Analysis 2023

(Simply Wall St, 2023)

Market Performance

Table 5 Summary of Investment Ratios 2020-2023

Mainfreight’s share price started at $51 in 2020, peaked at $83.95 in 2021, and then settled at
$70.01 in 2023. Simultaneously, the earnings per share (EPS) consistently increased from $1.58
in 2020 to $4.23 in 2023, signalling the company’s capacity to generate higher profits per share,
cultivating positive sentiments among investors. However, the price-to-earnings (P/E) ratio
declined from 32.28 in 2020 to 16.55 in 2023, possibly indicating mixed market sentiment or
potential undervaluation of the company’s stock concerning its earnings. Notably, the rising
dividend per share signals a favourable trend in Mainfreight’s dividend policy, potentially appealing
to investors seeking robust dividend yield ratios.

While Mainfreight lags behind FedEx across various metrics in Table 5, likely attributed to FedEx’s
larger size and firmer market position, Mainfreight’s consistent EPS growth and an upsurge in
dividend yield ratio indicate a sound financial standing and attractive dividends, potentially
garnering positive investor sentiment. Figure 2 suggests Mainfreight pays considerably less than
its competitors and other listed companies, possibly influencing the mixed market sentiment in
Table 5.

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Figure 2 Current Dividend Yield Vs Market & Industry

(Simply Wall St, 2023)

Figure 3 Mainfreight Ltd five-year share price

(Google, n.d.)

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Overall evaluation

From 2020 to 2023, Mainfreight showcased its ability to consistently generate profits and utilise its
assets efficiently, demonstrating its good corporate governance. Despite challenges such as the
COVID-19 pandemic and external factors leading to higher operating costs, the company exhibited
resilience and adaptability to remain profitable and, at the same time, increase dividend payments
to its shareholders. Overall, the company’s financial position is stable and secure for the
foreseeable future.

Risk analysis

Financial Risks

Mainfreight’s balanced investment strategy and sound risk management, as displayed in Table
4, highlight the company’s stability and capacity to meet short- and long-term debt obligations.
Meanwhile, the company’s improving liquidity figures, depicted in Table 3, indicate a consistent
rise, reinforcing its capability to generate cash flow or convert assets to cover liabilities.

Non-Financial Risks

External Factors

a. Economic conditions
Figure 4 Crude oil price chart 2014-2023

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 The constant rise in demand for oil directly affects the fluctuation in fuel prices, as
shown in Figure 4, which could highly impact the company’s operating costs.
(Macrotrends, 2023)

b. Political
 Global energy prices are continuously rising and are closely related to the Israel-
Hamas war (Cooban, 2023).
 The New Zealand elections' outcome has created uncertainty about the
government's plans and commitment to infrastructure development, which may
impact the company's operations. This was reported by Araullo in 2023. (Araullo,
2023).

c. Environmental
Natural disasters like hurricanes, floods, earthquakes, and climate change are major
causes of operational disruption for logistics companies. These events can damage
or obstruct critical transportation infrastructure such as roads, railways, ports, and
airports, leading to supply chain disruptions and increased operational costs
(SafetyIQ, n.d.). These incidents can result in operational disruptions, leading to
delayed deliveries, extra expenses, and dissatisfied clients.

d. Technological
Transportation and logistics heavily depend on technology, exposing them to
cybersecurity risks like hacking and system glitches. These threats can result in data
breaches, operational disruptions, and potential sabotage (SafetyIQ, n.d.).
Embracing and integrating appropriate modern technology can mitigate costs and
enhance operational efficiency.

e. Legal
Global companies operating in multiple countries would mean adapting to multiple
countries’ updates and changes in rules. Failure or non-compliance to such can
potentially lead to fines, operation disruption, and loss of licenses (SafetyIQ, n.d.).

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 f. Social & Cultural
Human involvement is an integral part of operations. The World Health Organization
states that transportation accidents and collisions are the primary global cause of
fatalities (SafetyIQ, n.d.). The severity of these accidents can significantly impact
operations.

Internal factors

g. Corporate Governance
Chapman (2022) reported that Mainfreight has a board of six directors and
holds the record for the longest average length of tenure at 19.34 years
among all the listed companies on the New Zealand Stock Exchange.
Furthermore, Simply Wall St (2023) reported that the Chief Financial Officer
Tim Williams is set to retire in June 2024. Depending on the circumstances,
this development can positively or negatively impact the company.

h. Sustainability

Mainfreight’s commitment to sustainability to realise its 100-year vision has

been its guiding heritage. The concept has been working for the company
over the last 45 years by investing in its people and communities and
reducing its environmental footprint from operations. Sustainability will not be
much of an issue for the company as long as it continues the strategy it is
currently using (Mainfreight, 2023).

i. Operational risks

Personnel management, internal fraud, and poor maintenance of transport

vehicles are among the types of risk to consider in operational risk (Vicente,
2023). The impact of such will be highly dependent on the internal processes
and how the company would take preventive measures to keep smooth
operations.

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Conclusion

This report has analysed Mainfreight’s financial performance from 2020 to 2023 and used FedEx’s
performance as a benchmark. The most concerning areas for the company are:

1. Environmental uncertainty.

Environmental uncertainty due to climate change brings about frequent extreme weather
events like hurricanes, thunderstorms, and earthquakes, causing disruptions like flooding,
road damage, flight cancellations, and port congestion. While these events are
unavoidable, implementing ethical practices, operating corporately socially responsible, and
strategic plans—like adopting eco-friendly transportation and adopting digital operations for
paperless transactions—can help battle climate change and minimise its effect on
operations.

Concurrently, staying abreast of the latest technologies is crucial for operational efficiency.
Employing process automation, minimising human intervention, automating repetitive tasks,
and optimising delivery routes and schedules based on traffic, weather, and delivery history
are recommended for efficiency enhancement (Gomes et al., 2023).

2. Economic factors

The rise in total revenue corresponded with the surge in operating costs due to external
factors such as rising fuel costs brought by the Ukraine-Russia conflict. Transitioning to a
low-emission road fleet by investing in hybrid, electronic, and hydrogen-powered vehicles,
alongside utilising coastal shipping and rail, is a crucial strategy to combat rising fuel costs
and address environmental concerns. This transition reduces operating costs and aligns
with global commitments to lower emissions and combat climate change. Collaboration with
government bodies and other companies operating in the country is also recommended to
create mutually beneficial agreements, focusing on enhancing public infrastructure like
roads, railways, and ports. Operating ethically and socially responsibly is vital, aiming for
greater good outcomes for society, such as operating with a focus on environmental
sustainability and workforce safety. By undertaking these measures, Mainfreight can
significantly reduce costs while contributing to a sustainable future whilst contributing
positively to the society.
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14
Appendixes

Appendix 1 Common-sized Balance Sheet - Mainfreight 2019-2023

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Appendix 2 Common-sized Income Statement - Mainfreight 2019-2023

Appendix 3 year financial statements

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References

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Cooban, A. (2023, October 13). Oil and gas prices are climbing again as supply risks multiply.
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