Introduction

Solution

1. Calculation of ratios

1. Report to the management

The performance of the entity can be compared with the industry based on the below ratio analysis:

The current ratio of the entity states the ability of the entity in meeting the short-term obligations of the entity from the current assets of the entity. The current ratio of the entity is 0.685 whereas that of the industry average is 1.45. The entity needs to improve its current ratio by increasing the current assets and reducing the current liabilities of the entity. The liquid ratio states the ability of the entity in meeting the current obligations from the liquid assets of the entity. The liquid ratio of the entity is lower as compared with the industry average. The entity should efficiently manage its current and liquid assets for meeting the current need of the entity and cope with the industry performance (Kokemuller, Neil. 2022).

The debt-equity ratio shows the composition of the debt and equity in the capital structure of the entity and lower the ratio is beneficial for the entity. The debt-to-equity ratio of the entity is 0.87 times whereas that of the industry average is 1.60. It states that the entity is having a good debt ratio as compared to the industry average. The entity is having less component of debt in the capital structure of the entity which minimizes the riskiness for the entity. The earnings per share of the entity are low as compared with the industry average. The earnings per share can be improved by increasing the net income of the entity. The P/E ratio of the entity is slightly high as compared to the industry average.

The profitability condition of the entity is below as compared with the industry average. The return on equity of the entity is 8.046% whereas that of the industry average is 10.50%. The entity return on equity is low as compared with the industry and it states that the entity is generating less return to the shareholders in comparison with the industry. The entity needs to focus on increasing the profit of the entity. The net profit margin of the entity is 4.545% which is very low as compared to the industry average which is 22%. The entity needs to focus on the net income of the entity and the profitability can be increased by increasing the sales of the entity and controlling the expenses of the entity. The sales of the entity can be increased by increasing the advertisement and giving promotional offers. Further, the expenses should be controlled to increase the net income of the entity (O’Farrell, Renee 2022).

The interest coverage ratio of the entity is 2.667 times whereas that of the industry average is 4 times. The interest coverage ratio shows the ability of the entity in covering the interest expenses from the earnings before interest and taxes. A higher ratio is recommended for the entity as it suggests that the entity can easily cover its interest expenses. The entity should focus on this ratio to be at par with the industry average by increasing the income of the entity. In addition to this, the dividend payout ratio of the entity is 5% whereas that of the industry average is 20%. The dividend payout is very low as compared with the industry average and this can discourage the investors and shareholders of the entity. The entity should declare more dividends to attract more potential investors and to be at par with the industry average.

1. Identification of the sources of information on financial markets

There is a wide range of sources for the financial data which may be accessed to get statistics on the borrowings, investments, and new opportunities. The primary source of statistics are as below:

• Online web sites: In the current scenario, numerous websites might be offering the statistics associated with the company’s performance, borrowing possibility and current developments in the marketplace, Such businesses also are offering paid offerings wherein the top class statistics are furnished to customers as consistent with their customization and requirements.
• Newspaper and magazines: In the magazines and newspapers, the businesses and authorities corporations are publishing bids and tenders on an everyday foundation and the investor can observe primarily based totally on the statistics to get the brand new tenders and contracts.
• There are diverse corporations that are offering monetary offerings at nominal charges and the entities can get the data or information for the financial requirements.
• Many of the businesses also are publishing the statistics on their very own websites and hence the person can get the statistics.
• Many institutes are engaged in organizing webinars and seminars of the latest updates, enterprise developments, and such statistics may be acquired through those webinars as well.

1. Possible risks which the entity will face if the new outlet is opened in china

• If a brand-new undertaking is opened in China, then there are numerous risks and the entrepreneur needs to examine diverse components that are as below:
• If the commercial enterprise is opened via the everlasting establishment, then the overseas profits will now no longer be taxable in Australia due to the fact the quantity is already taxed in China and it will likely be allowed as an exemption in Australia.
• Further, the tax treaty signed with China additionally want to be referred and hence tax remedy may be
• The change in the rules of Chinese authorities needs to additionally be studied earlier than funding due to the fact change in the rules have a huge effect on new commercial enterprise establishing
• Further, the entity is likewise uncovered to forex risk so it has to cope with the hedging benefit or losses to keep away from unstable foreign exchange
• Further, the entity should also have the exit mode for funding so that it may withdraw its cash on liquidation of commercial enterprise easily (Australian Government).
• Further, the entity needs to additionally don’t forget sources of finance to be had in China in any other case the commercial enterprise can be exposed to scarcity of funds.

1. Determination of WACC

Cost of mortgage = 8.9%

Cost of debenture = 8.5%

Total amount of debenture = 550

Total amount of mortgage loan = 220

Tax rate = 30%

Calculation of cost of debt

After tax cost of debt = 8.614% *.70

= 6.03%

Calculation of cost of equity

Cost of equity = D1/P0+ growth rate

= (0.05*107%)/1.55+ 7%

=3.45% + 7% = 10.45%

Weight of equity = (1.55* 1150)/ (1.55* 1150) +770) = 69.83%

Weight of debt = 1- 69.83% = 30.17%

Calculation of WACC

References:

O’Farrell, Renee. (2022, January 27). Company Ratio Analysis. bizfluent.com. Retrieved from https://bizfluent.com/about-5367437-company-ratio-analysis.html

Kokemuller, Neil. (2022, January 27). How to Calculate Liquidity Ratios. bizfluent.com. Retrieved from https://bizfluent.com/how-7150256-calculate-liquidity-ratios.html

Australian Government. Exporting goods or services overseas – what you need to know. Retrieved from https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Doing-business-overseas/Exporting-goods-or-services-overseas—what-you-need-to-know/