Monday, December 9, 2019
Principals of Financial Markets Group Buddy Platform Limited
Question: Discuss about thePrincipals of Financial Markets Groupfor Buddy Platform Limited. Answer: Introduction Buddy Platform Limited and Appen Limited are ASX listed Software and Services companies as of September 22, 2016. A Financial analysis is done in order to critically understand and examine the current and future financial health of the two companies. Managers of companies like Buddy Platform Limited and Appen Limited need to understand the top down and bottom level elements of company in order to plan for its future. Financial situation of the company and financial trends of Australia and the Software Services industry is examined and then recommendations are made based on the discussions. Appen Limited APX: Appen Limited APX offers expert services in more than 150 languages and partners with significant ecommerce companies. Appen service solutions helps local companies interact and expand to global levels (Appen 2016). Engaging prodcuts are created and companies are able to create a wide variety of content with the Appen products. The company website states as its mission, To bring together the best of human intelligence and technology to accelerate global technology solutions, bridging gaps between people and communities with our network of language and culture specialists in over 150 languages, deep linguistic expertise and strong project management (Appen, 2016). Buddy Platform Ltd (BUD): As compared to Appen Limited which is the speech software services industry, Buddy platform presents data management solutions for companies that want to be connected with the Internet of Things IoT, appliance, sensors and the service sector. It is a more integrated set of technology and solutions. The companys motto is to present a single industry that relies on and works with the IoT framework as its central framework. In particular, the company seeks to provide an integrated management data platform where three main processes would be core (Buddy Platform, 2016). These are the Connect APIs, the process and the integrations. Top-Down Analysis The top down analysis is presented as two main divisions which are that of the strengths and weaknesses in economic trends in the country that could support the Software services industry and the two companies. Top down analysis is useful for evaluating the economic trends of the country in an international setting and also in its impact on the industries. Creating long range plans for the business is possible only if these economic impacts are studied in advance. Some of the general strengths of the economic environment of Australia are that of how the company is situated in economic growth. While most countries are seeing a moderate or less than moderate level of growth, Australian economic growth is quite balanced (Makin, and Narayan, 2013). The economic freedom score is a global measure used to indicate the form of economic freedom that the country has when pursuing its business and trade investments and interactions. Its economic freedom score is 803 and its economic freedom status is free and in terms of global ranking it comes 5th and in the Asia Pacific region it is cored 4th. This score and rank system shows Australia is a notable success when it comes to rule of laws, open markets and regulatory efficiency in the country. This in turns leads to the country being a very attractive investment destination, with a very competitive and a very skilled workforce. The open market system helps companies like Appen and Buddy Platform to source across multiple clients in a competitive but fair environment. Buddy platform more specifically operates with multiple clients from many industries and hence would be aided much if multiple sectors invest for their businesses in Australia. Buddy Platform would be able to expand on their clientele better. The Gross domestic product or the GDP of the country is significant when understanding the macro economic environment. GDP is the economic measure used to show the economic state of a country. The Gross domestic product is a monetary measure (Makin, and Narayan, 2013). The market value of the goods and services that were produced or were consumed in a year is called the GDP. A negative GDP usually is indicative of a country that is in recession. GDP is strongly connected with the employment and income earning opportunities that exist for the individual in the country. The Australian GDP is rated at $1.1 trillion and has seen a 2.7% growth in current times, the GDP per capita is rated at $46,433 per capita. The growth indicates that the countrys economic situation is well enough to support the industry. Adjusting for inflation, the country still has a health stream of FDI inflow at around $51.9 billion (The Heritage Foundation, 2016). The information and technology sector in many developed nations such as even the United States suffers from the lack of skilled workforces for companies to sustain, however Australia does not have this issue as it has skilled workforces readily available. Furthermore, the Government does not operate many of the industries like it did in the past. In more current times, the majority of the industries are private. This is the case with computer and services industry too. While facilitating competitive growth, the Government is able to actually control much of its financial debts compared to other countries. Telecommunications, computer and information services hence remains one of the main service exports in that country. Companies like Buddy Platform and Appen will hence are in a supportive environment. However, in comparison to the other export services that are being conducted, it can be seen that transport, education, financial services and others are at the top of the list. Source: Australian Government, 2015 Government understands the need for an ICT economy and hence provides support for the telecommunication sector and the related services from software development services, to installation and more. Statistics show that in more current years, the commercial transactions have increases. As of 2014 it was established that around 94.7 per cent of businesses had internet access and of this around 56.0 percent use the internet for making mail orders and delivery as well. Estimations on internet income show that it is nearly around $266.8 billion dollars with a better increase from the past (Australian Government, 2015). With this kind of internet and information technology usage it follows that the local business will invest in integrated platforms such as the one Buddy Platform and Appen have to offer. Bottom-up Analysis The bottom up analysis involves analysis of the internal environment of the companies and its financial aspects, such as that financial statements. Different statements use within the company and which are disclosed could be used for the analysis. Some of the documents that are usually used are that of the balance sheet, the income statement and the cash flow statement (White et al, 2003). The Balance sheet presents the financial and physical resources that is possessed by the company and that which the company can make use of for future operations and activities. Since it indicates the current financial situation of the company, this is important for analyzing its performance. Assets and liabilities are two main elements considered in the balance sheet. Assets are both current assets such as that of cash, and cash equivalents and noncurrent assets could be assets of fixed property and more. It is not just the number of assets that is of use in financial analysis, but also the makeup of assets. Liabilities, the current liabilities and more are also listed in the balance sheet. Short term loans and liabilities are of special interest to the financial analyst (Kothari, and Ball, 1994). Secondly, the income statement is useful to understand the performance of company and its income drawn over a specific period of time. Income statement elements such as that of the revenues earned, expenses incurred, and net profit or loss are of significance to the financial analyst. Operating costs and the net income line are two important elements that are considered in the analysis (Kothari, and Ball, 1994). The cash flow statement is also considered here. The cash flow statement is such that it does not take into account, the non-cash accounting items such as depreciation. Only the actual money that was generated by the company given a specific time period is usually given here and hence it is a much more accurate measure of the cash inflow and the cash generated (Kothari, and Ball, 1994). In addition to the proper analysis of these statements, different financial ratios are also calculated. Current, quick and liquidity ratios can be calculated for and used to understand the state of the company. Current ratio is the Current Assets/Current Liabilities ration. This measure shows how much the company is capable of paying of its monetary obligations. The general ratio expected is 2:1. A low ratio would indicate the company is not in a healthy financial position and might not be able to meet obligations. On the other hand, when the company has a high ratio then it means that company should invest its monetary surpluses. The quick ration or the acid test is Receivables/ Current Liabilities. The ideal ratio here is 1:1. Low ratio indicates the company relies more on its inventory. The debt/equity ratio is also calculated to understand how the company has a low debt (safe to be within the 50-80 percent of equity range). The return on equity ratio is made use of to calculate profitability. 10-14 percent of ROE indicates security in future growth. Investments can hence be planned around this percentage. Appen Limited (APX): Valuation Ratios 2015 2014 P/E RatioTTM 29.1 84.15 Price to SalesTTM 3.16 167.57 Price to Cash FlowMRQ 140.62 134.32 Price to Free Cash FlowTTM 47.15 419.66 Price to BookMRQ 10.11 8.82 Price to Tangible BookMRQ 15.47 31.14 Profitability Profitability: TTM vs 5 Year Average Margins TTM (%) 5 Year Avg. (%) Gross margin TTM (%)47.97% 5 Year Avg. (%)0% Gross marginTTM 47.97% 83.84% Gross Margin5YA - 81.99% Operating marginTTM 19.64% 14,175.98% Operating margin5YA - -99.63% Pretax marginTTM 16.43% 14,161.75% Pretax margin5YA - -105.97% Net Profit marginTTM 11% 14,165.55% Net Profit margin5YA - -107.36% Per Share Data Revenue/ShareTTM 1.02 0.88 Basic EPS 0.09 0.1 Diluted EPS 0.09 0.06 Book Value/ShareMRQ 0.32 0.77 Tangible Book Value/ShareMRQ 0.21 -0.17 Cash/ShareMRQ 0.13 0.15 Cash Flow/ShareTTM 0.13 0.21 Management Effectiveness Management Effectiveness: TTM vs 5 Year Average Margins TTM (%) 5 Year Avg. (%) Return on Equity Return on Investment TTM (%)37.43% 5 Year Avg. (%)0% Return on EquityTTM 40.29% -527.23% Return on Equity5YA - -1.52% Return on AssetsTTM 28.88% 0.66% Return on Assets5YA - 8.35% Return on InvestmentTTM 37.43% -3.63% Return on Investment5YA - 2.77% Growth EPS(MRQ) vs Qtr. 1 Yr. Ago 96.26% 67.65% EPS(TTM) vs TTM 1 Yr. Ago 390.41% -9.89% 5 Year EPS Growth - 3.87% Sales (MRQ) vs Qtr. 1 Yr. Ago 49.12% 65.19% Sales (TTM) vs TTM 1 Yr. Ago 67.47% 397.85% 5 Year Sales Growth - 11.28% 5 Year Capital Spending Growth - 32.22% Financial Strength Quick RatioMRQ - 2.17 Current RatioMRQ 3.39 2.33 LT Debt to EquityMRQ 0.02% 25.43% Total Debt to EquityMRQ 0.02% 30.96% Efficiency Asset TurnoverTTM 2.62 0.96 Inventory TurnoverTTM - 22.59 Revenue/EmployeeTTM - 289.34K Net Income/EmployeeTTM - 15.88K Receivable TurnoverTTM 8.99 11.06 Dividend Dividend Yield 1.53% 2.28% Dividend Yield 5 Year Avg. - 3.41% Dividend Growth Rate - 9.42% Payout Ratio 26.35 50.02 TTM =Trailing Twelve Months5YA =5-Year AverageMRQ =Most Recent Quarter Table -1: Financial data for Appen Limited (Source: Investing.co.au) The above table indicate that Appen limited companys financials are in good shape. The companys sales, P/E ratio, cash flow, free cash flow, operating margin and all are increasing over the time of its establishment. Revenue share, return on equity, return on investment and return on assets have grown to quite good level that means the companys financials are growing and the company is growing too. Debt to equity ratio has reduced to 0.02% from 25.43% that means the companys obligations have reduced to quite lower level in comparison to last year. Hence, the companys leverage ratio has reduced, which leads towards the investment in the company in terms of equity than debt. Overall, from the above financial analysis it is understood that companys financial are growing rapidly, including its sales, assets etc with decrease in the liabilities. This is a good indicator to the companys towards being self-sustained organization in upcoming years with good returns on the investments. Buddy Platform Limited (BUD) This company has no enough data to be produced for key ratios hence the financial analysis is generally based on available some debts on the company on which the company running for long. Based on available data below, Fiscal data as of Jun 30 2015 (IN MILLIONS OF AUD) 2015 2014 2013 Operations Net income -- -- -- Depreciation/depletion -- -- -- Non-cash items -- -- -- Cash taxes paid, supplemental -- -- -- Cash interest paid, supplemental -- -- -- Changes in working capital 0.02 -0.05 -1.22 Total cash from operations -0.47 -0.84 -1.84 Investing Capital expenditures -0.08 -0.22 -0.22 Other investing and cash flow items, total 0.03 0 0.11 Total cash from investing -0.05 -0.22 -0.11 Financing Financing cash flow items -0.02 -0.15 -0.06 Total cash dividends paid -- -- -- Issuance (retirement) of stock, net 0.49 2.2 1.25 Issuance (retirement) of debt, net -- -- -- Total cash from financing 0.46 2.05 1.19 Net change in cash Foreign exchange effects -- -- -- Net change in cash -0.07 0.99 -0.76 Net cash-begin balance/reserved for future use 1.14 0.15 0.91 Net cash-end balance/reserved for future use 1.07 1.14 0.15 Supplemental income Depreciation, supplemental -- -- 0 Cash interest paid, supplemental -- -- -- Cash taxes paid, supplemental -- -- - Table: 2 Financial data for Buddy Platform Limited (Source: Investing.co.au) The financial statements of the company indicate that the company is in its initial stage and not much great financial activities are happening. The company has no revenue or operating cash in its accounts. There is no cash and any kind of asset investing in the company. The company is purely running on investors money and hence the working capital is fixed from the beginning that is being used for the company operations. In this scenario, the companys growth is a question market based on the available finance hence this is understood that companys financial are in trouble in coming time. Summary and Recommendations The purpose of the financial analysis is to understand the form of financial environment the companies are situated in. Both the macro level financial environment and the micro or company level financial situation needs to be understood before any form of planning can be done for the future. Now in the case of Appen Limited and Buddy platform, it can be said that they are well supported when it comes to macro-economic environment. There are some challenges in the form of competitive industry, however, the general economic support extended would be helpful to handle this. It is recommended based on top and down level analysis, that companies must work on the competitive criterias and overcome threat of future losses. This is most important to work for Buddy platform limited than Appen Limited cause the financial condition of Buddy platform limited is highly worse than Appen limited. Buddy platform will need to work on newer strategies for increasing its operating cash. References Appen. (2016). Connect + Empower Communities Worldwide, Retrieved Sep 22, 2016 at: https://appen.com/company/mission/ Australian Government. (2015). Australian Industry Report, Retrieved Sep 22, 2016 at: https://www.industry.gov.au/Office-of-the-Chief- Buddy Platform Ltd(ASX:BUD) 2016, Retrieved Sep 22, 2016 at: https://www.google.com/finance?cid=15717700 Kothari, S.P. and Ball, R., (1994).Financial statement analysis. Mcgrew-Hill Companies. Makin, A.J. and Narayan, P.K., (2013). Re-examining the twin deficits hypothesis: evidence from Australia.Empirical economics,45(2), pp.817-829. The Heritage Foundation. (2016). Australia, Retrieved Sep 22, 2016 at: https://www.heritage.org/index/country/australia White, G.I., Sondhi, A.C. and Fried, D., (2003).The analysis and use of financial statements(Vol. 1). John Wiley Sons.