Fisher & Paykel Healthcare Ltd and CSL Ltd. Analysis

1.      Introduction

Financial accounting plays an important role in keeping track of financial transactions. It is a process of recording and reporting business activities and transactions happening in the business. Accounting standards requires publicly traded companies to announce their earnings every year. This is important information for both manager and investors. It allows investors, managers and analysts to understand the company’s financial health allowing them to make informed decisions. Financial accounting allows recording, summarizing and reporting of economic activities and streams of transactions resulting from business operations over a specific period of time. Accounting standards are followed in the development and standardization of financial statements such as cash flow statements, balance sheet and income statements (Malis & Sačer, 2016).
Companies in various companies are required to follow specific accounting standards when developing financial statements. However, majority of publicly traded company follow the GAAP (general Accepted Accounting Principles) for companies in United States while companies from other countries follow international standards. However, regardless of which standard is followed, financial accounting helps with decision making by providing information for creditors to assess creditworthiness, liquidity and solvency of a business and providing financial health of a company providing securities.
This report provides a financial analysis of Fisher & Paykel Ltd. and CSL Ltd. The report will involve fundamental analysis of the two healthcare companies to evaluate which company is doing well financially. The report involves analysis of the two company’s balance sheet, cash flow statement and income statement.

1.1.            Company Overview

The healthcare industry is one of the most demanding industries  across the world. It is an industry faced by many challenges due to emergence and mutation existing diseases. Additionally, the intrinsic demand for healthcare services due to increase in prevalence of chronic diseases, population aging and need for increasing quality of life of people. Corporate, individuals and government sponsors continue to see great financial burdens when funding healthcare projects (Singhal, Latko, & Pardo, 2018). At the same time, complexities in operations and uncertainties face this industry. It thus provided an interesting study subject in the accounting sphere. This report analyses two major healthcare companies in New Zealand.

1.2.            Fisher & Paykel Ltd

Fisher & Paykel Ltd company was founded by two friends, Maurice Paykel and Woolf Fisher in 1934 a refrigerator company. By 2001, the company had divided its operations to healthcare and the other company still manufactures home appliances products. Fisher & Paykel Ltd. (ASX: FPH), manufactures, designs and markets acute care, respiratory care and obstructive sleep apenea care products. The company originated from New Zealand but now sells its products in about 120 countries across the world. Currently, the company’s main sales comes from imports with only 1 percent of revenue being generated from sales in New Zealand. By 2019, the company had recorded a sales revenue of NZ$1 billion, with its operating revenue going up by 9% (to NZ$1.07) billion.
The company’s increase in revenue was boosted by product innovation that has been as a result of a continued company culture of putting customers first. The company continuously improves value of products being offered to clinicians and patients (Asx.com, 2019).

1.3.            CSL Ltd.

CSL Ltd. Company is a healthcare company based in Australia. The company specializes in human diagnostics and pharmaceutical products from human plasma. The company has specialized in production of skin disorder remedies, infectious disease vaccines, immunoglobulins, antivenoms, pain medicine, pediatric and adult vaccines and anticoagulant products. The company was founded in 1961 in Australia.
The company can be classified as one of the biggest biotech companies. It develops and delivers innovative influenza and biotherapies vaccines that save people from life threatening medical conditions. The company currently competes with global biotechnology companies in providing in-licensed vaccines. As of 2019, the company’s revenue was US$8.539 and a net income of UU$1.919 billion. The company has a market cap of US$92 billion (Yoon, 2020).
 

1.3.1.      Similarities

The two companies have their similarities; first, they are both in the healthcare industry. Fisher & Paykel Ltd. Company focus on obstructive sleep apnea, acute care and respiratory care. Both companies offer specialized products for neonatal care and adult care. Fisher & Paykel Ltd. manufacture and distributes patient warming and neonatal care products, also providing infant resuscitators.

1.3.2.      Differences

However, despite the two companies being in the same industry, they have their differences. First, the two companies have specialized in different medical areas. Fisher & Paykel Ltd. for instance provides specialized gadgets for respiratory and body warming, while CSL company provides biotech products. CSL has mainly specialized in on protein science such as immunoglobulins and neurological conditions. The company also specializes in vaccine development. Additionally, the two companies are situated in two different countries; New Zealand and Australia.

2.      Technical Analysis

According to Alamry, (2020) financial analysis emerged in 1900 where analysis of financial positions were conducted. There are many methods used to analyse financial status of companies. Basically, financial analysis methods are used to have a better understanding of financial position of a company. They can also be used to compare two or more companies. Technical analysis is based on two methods of financial analys; ratio analysis and quantitative analysis. The two methods are generally to diagnise the situation of financial statements to highlight company strengths and weaknesses.
Ratio analysis methods are mostly prefered for their ability to compare two variables to establish which one is affecting the other. They can either be represented as ratios or as percentages. Ratio analysis is based on finding the common relationship to a particular study (Hasanaj & Kuqi, 2019).
This study examines which company will be profitable through implimenting profitability ratio analysis (ROA and ROE ratios). After calculating and analysing the data from financial reports, a conclusion and recommendation will be made.

2.1.            Profitability Analysis

2.1.1.      Return on Asset (ROA)

Return on Assets (ROA) is a financial calculation used to estimate profitability of a company. It utilizes company assets and net income to estimate how the company is able to use assets to make profits. Ideally, for a business to be efficient, it requires to be able to manage its assets. Resources are usually limited. Comparing company revenue to profits is an important financial metric since it shows the management how the business is utilizing its resources. Return on assets is one of the simplest method of comparing how a company uses its assets to run its activities and make profits.
The return on asset is calculated by the formula:
ROA = Net Income/ Total Assets
This analysis used past financial statements for the last 4 years (2017 to 2020). Data was collected from Morningstar website and processed using Microsoft Excel. Table 1 bellow shows the result obtained from Fisher & Paykel Ltd. and CSL Ltd.
Despite CSL company being bigger than FPH, the company shows better results in its ability to use its asset. Additionally, FPH shows promising results in terms of increasing return on asset over the years. The ROA ratio shows an increasing trend from 9.33 percent in 2017 to 11.57 percent in 2020. CSL Company on the other hand has a lower ROA and a declining trend from 2017 to 2020.

2.1.2.      Return on Equity

The return on equity was important in testing how much the investor expects to gain from their investment. It seeks to find out which company would yield more returns from investment. The ratio is also important in showing the investor on how well the two companies are able to manage available funds to make profits. The ratio is expressed as a percent to show how much an investor expects to gain for every dollar invested in the company. A high ROE means that the investor will be have high yields on investment. It is thus one of the most watched ratio in the financial market.
Return on Equity is calculated by the formula:
ROE= Net Income/ Average shareholder’s equity
The ratio is expressed as a percent. It can either be positive or negative. The net income is used in the calculation is used since it shows the amount left after all expenses and taxes have been deducted. The average shareholder on the other hand shows the amount being used in the investment. The ROE was calculated and expressed in percent in table 1.
CSL ROE shows fluctuations where the highest ROE rate was 23.92%in 2017 and lowest in 2020 with 13.09 percent. The company showed a decline in ROE in 2018 financial year. Similar to FPH Company shows better results in ROE with an increase gradually from 12.54 percent in 2017 to 17.06 percent in 2020.

Fisher & Paykel Healthcare Ltd (FPH) CSL Ltd (CSL)
Profitability Ratio 2020 2019 2018 2017 2020 2019 2018 2017
ROA 11.57% 9.66% 9.26% 9.33% 5.53% 8.87% 6.16% 10.07%
ROE 17.06% 13.19% 12.24% 12.54% 13.09% 20.53% 14.43% 23.92%

Table 1: Profitability Ratio

3.      Performance Ranking

Performance ranking was done according to the company stock and profitability performance. As discussed above, Fisher & Paykel Healthcare Ltd (FPH) showed better performance in terms of asset utilization. Secondly, according to ROE, the company showed better results in returning invested capital by investors. Lastly, according Fisher & Paykel Healthcare Ltd (FPH) stocks was NZD$32.20, while CSL Limited stock value was AUD$299.00 while showing a declining trend.
In conclusion, according to the analysis conducted, Fisher & Paykel Healthcare Ltd (FPH) would be a better company to invest. The stock price is fairly low and showing an increasing trend. Additionally, the fact that the company is able to maintain a consistent ROE ratio indicates that the stock will be less risky than that of CSL Ltd.
 
 

Open chat
Need assignment help?