Fourth Assignment Notes PDF

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4/ Operating Management Evaluation It was found that ABL’s pre-tax profit margin was 9% higher that the industry average, showing that the companies’ differentiation strategy, as mentioned in report one was effective. (IBISWorld Industry Averages, 2017) (Palmes, Gan & Vu pg. 7, 2017). The table in section three showed a consistent growth trend in operating cash flow to sales, showing evidence to better efficiencies to creating more cash flow to sales units each year. However analysts found that in comparison to industry average, ABL required 15 more days to collect receivables in the year of 2015 (IBISWorld, 2017). Executives should closely view their accounts receivable in the following years so that ABL would not endanger its cash flows. Debt Policy Evaluation The majority of ABL’s debt is comprised of trade payables and unsecured bank loans, the latter being the largest. Analysts believe that the strong asset to liability ratio of 3:1 (stated in section 4 of this report) does not require immediate action was a suitable level of debt for an industry of its nature. Growth Rate Evaluation ABL’s growth rate was set increase by 1.6% each year for the five currently following years and due to its competitive strategy of being able to supply customers with their product demands (IBISWorld Growth & Ratios, 2017). Analysts believe that this growth rate will footprint from its three prong strategy of cost management, special market access and particularly its business acquisitions for years to come. Earnings Quality Evaluations There was a $62M difference between operating cash flow and net income in year 2016. Two years prior to that, there was only a $20M difference (see section two of this report). This meant that ABL had more money coming in, but profited relatively less. Analysts connected that this substantial change was due to ABL alleviating proportional debts in 2016 (refer to section three, table of investment activities), so that the drastic change wasn’t of improper nature but more of a management decision. In summary, Analysts have recommended to stay consistent with their three prong strategy as it was growing the company year after year, and in contrast, monitor accounts receivable closely and apply measures if found appropriate. 5/ The Industry and Strategy Analysis report clearly outlined the three prong strategy of Adelaide Brighton Limited. Operational Improvements, acquisitions and capitalising on exclusive ABL only benefits in lime production. (Palmes, Gan & Vu pg. 6, 2017). Analysts decided to connect the financial policies and strategy policies of the company through the given numbers of the financial statements where then, analysts would link the changes in the financial statements to events outlined in the notes to financial statements. Thus, proving the connections between the two policies. Operational improvements Balance Date

Table xx: Selected Financial Ratios for ABL (IBISWorld Growth & Ratios, 2017). 31-Dec31-Dec31-Dec31-Dec31-Dec2015 2014 2013 2012 2011

Profit Margin (%) Revenue per Employee ($'000 per person) NPAT per Employee ($'000 per person)

20.2 1,056.8

17.4 968.0

17.0 948.2

150.0

122.6

116.2

17.6 745.5

18.8 695.5

95.6

92.8

Analysts believe that the ratios above in the table are evidence of Operational Improvements, as profits and employee ratios are dependent on the costs of the business. Operational Improvements was defined by ABL Annual Report 2016 as ‘reducing costs and streamlining business process’ (Adelaide Brighton Limited pg, 4, 2016) The profit margin was calculated as net income over net sales. This ratio shows how much money a company keeps after expenses. So, in the highlighted portion above, ABL kept 20.2 cents for every dollar the company earned in revenue. Revenue and Net Proft After Tax (NPAT) showed how much revenue and profit respectively for every employee. The table showed that ABL has improved in the ratios for the given period. Analysts could connect this the notes of the financial statements. Examples included ABL renegotiations of utilities contracts, layoffs, and alternative use of materials, all which resulted in reduced costs of $16 million in 2016 (Adelaide Brighton Limited pg 51, 2016) Acquisitions ABL defined their acquisitions as accretive, meaning gradual addition of entities to ABL to increase shareholder value, as a consolidated entity (Investopedia Staff, 2017). As an example, in 2014 ABL acquired two companies where the majority gain was aside from the net asset, but from goodwill as well (Adelaide Brighton Limited pg 106, 2014). Meaning that ABL strategically chooses the companies it acquires. Lime production benefits ABL achieved it’s lime strategy through acquiring statutory approvals to low cost reserves of the material in Western Australia (Adelaide Brighton Limited pg, 4, 2016). Through a combination of the negotiations of the utilities contracts reported above, the large operating capacity of ABL and the statutory approvals, ABL created a competitive advantage in the industry.

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Adelaide Brighton Limited. (2016). Adelaide Brighton Limited Annual Report 2016 . Adelaide: Finsbury Green.

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Adelaide Brighton Limited. (2014). Adelaide Brighton Limited Annual Report 2014 . Adelaide: Finsbury Green....