Ayush answered on
Jun 03 2021
Annual Management Report
Australian Agriculture Enterprises
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Table of Content
1. Executive Summary 2
2. Liquidity Position 3
3. Stability 3
4. Profitability 4
5. The Value of Owner’s Equity 4
6. Recommendations 5
7. References 6
8. Appendices 7
Australian Agriculture Enterprises (AAE) is highly liquid. Its Bank Balance soared 1062% to $ 322,799 which was mainly driven by Canola, Wheat, and Sheep Trading. The firm has done most of its business in the 4th Quarter. The firm is in a stable position with mainly Short-Term Debt in the form of Creditors and GST. Its Long-Term Debt is decreasing. On the profit side, the firm has earned a Net Profit of 51% at Return of Capital of 8.3% in the period 1-Jan -31-Dec 2019. The firm has done reasonably well on the Gross Margins per Ha, DSE, and Animal. The value of equity has not changed much. The business and land contributed to new equity. The firm needs to improve its wheat inventory turnover. Also, it needs to rope in new suppliers rather than depending on only one. Further, it needs to negotiate better terms with suppliers. The Land Usage methods are advised to improve Gross Margins per Ha. The firm is advised to put some more money into Short-Term Securities.
We analyze the performance of Australian Agricultural Enterprises by assessing Liquidity, Stability, Profitability, the value of the owner equity, and finally make some recommendations for improving future prospects of the business.
ent Ratio of the business has increased by 0.8 times from 6.8 times in 1-Jan to 7.6 times on 31-Dec. The Liquidity Ratio[footnoteRef:2] has increased a whopping 1062% going from 0.2 times in 1-Jan to 2.4 times on 31-Dec (Figure 1). This growth is attributed to Bank Balance which grew from a mere $ 11,000 to $ 322,799. The firm also received a GST component & refund worth $ 121,826 while a total GST payment made by the firm was $ 79, 037. Account Receivables (AR) went up by 77% going from $ 157,090 in 1-Jan to $ 278,460 on 31-Dec (Figure 2). This increase was mainly because of Escort Grains (Canola) which saw a rise of 213% from $72,100 to $ 225,720. Graincrop (Wheat) saw a moderate rise of 34% from $ 5,120 to $ 6,880 but the quantum was small as compared to Escort Grains. Treasury Wine Estates (TWE) and Western Wool Buyers (WWB) reduced their AR by 29% and 74% respectively with TWE
inging down its AR from $ 55,000 to $ 39,300 and WWE down from $ 24,870 to $6,560. The Wheat inventory has shot up by 5697% going from $ 3,300 in 1-Jan to $ 191,290 on 31-Dec. Account Payable (AP) also went up by 153% from $ 53,942 to $ 136,216 (Figure 2). The GST payable increased by 336%; going from $ 12,730 in 1-Jan to $55,518 on 31-Dec 2019. The firm had done most of its sales in the 4th quarter. The firm also made some fixed term investment the value of which stood at $ 30,000 in 1-Jan fetched a interest income $ 2,063. Also, an additional investment of $ 10.000 was made and stood at $ 40,000 on 31-Dec 2019. Overall, the firm is in a solid liquidity position and has generated lots of cash. [2: Liquidity Ratio includes only Bank Balance]
Figure 1: Cu
ent and Liquidity Ratio
Figure 2: Account Receivable and Payable
The firm’s Debt to Equity ratio has gone up by 34% from 2.2% in 1-Jan to 2.9% on 31-Dec. This rise in Debt to Equity is due to a rise in Cu
ent Liabilities which account payable only and which comprises of credit owed to Orange Rural and Australian Taxation Office in the form of GST. The credit owed to Orange Rural nearly doubled in the period of 1-Jan - 31-Dec 2019 from $ 41,212 to $ 80,698. The GST also surged by more than 3 times as mentioned in the liquidity section. However, these are a form of Short-Term Debt (STD) and should not be a wo
y. However, the firm was using Overdraft facilities the interest of which was a heavy payment of $ 13, 172. The company also took Long-Term Debt (LTD) in 2007 to acquire a property, the interest of which is paid quarterly. The principal outstanding was at the beginning of the year $ 115,000 came down by 3% to $ 111,680 at the end of the year. Thus, we can say that it is STD that is contributing to the rise of the Debt to Equity ratio while LTD is decreasing. STD has a life of a maximum of 1-Year. It also signifies a better relationship between Creditor (Orange Rural in this case) and the firm. The firm is quite stable.
The Net Profit Ratio was 51% for the period of 1 -Jan to 31-Dec 2019 while the Return of capital[footnoteRef:3] (RoC) was 8.3% for the same period. The overall Expense Ratio was approximately 50% while the Livestock Expense Ratio[footnoteRef:4] and Crop Expense Ratio[footnoteRef:5] stood 14% and 40% respectively. The Expense Ratio was mainly driven by expense on Crop, Livestock and Permanent Labour. The permanent labour received a monthly payment of $ 4,780. Also, they received payment of $ 7,250 in the March and July. The overall permanent labour expense for the year stood at $ 62,300. Other expenses were minor in quantum and consisted of Fuel & Oil, Rent & Rates, Accountant, Insurance cost, and Telephone cost. Repair was major expense comprise of Plant Repair and Structural Repair. The overall repair cost was $ 13, 822. Of the crop expense, only 5% was spent on seeds while 28% was spent on Canola followed by Wheat, the expense was 26% (Figure 3). Orange and Grapes formed 21% and 19% expense portion respectively. Of the Livestock expense, 53% was spent to raise Sheep followed by 26 % to grow Pasture and 21% on to raise Cattle (Figure 4). [3: Net Profit before Interest and Tax calculated...