Executive Summary
This paper provides a detailed analysis on the financial performance of Aristocrat Leisure Limited. Moreover, human resources issues have been also explored, and their contribution towards the performance of the company analysed. Finally, proposed recommendations are given, which are aimed at increasing the productivity of this company.
Introduction
Aristocrat Leisure Limited (ALL) is an international company, which is based in Australia, and it has been in the gaming business for the last 50 years. The company has enjoyed remarkable performance due to its strong brand. Moreover, these outstanding achievements made by the company could be attributed to a strong vision and hard work, which is well illustrated as follows: “Imagination, focus and creativity play major roles in achieving this vision (“Aristocrat Leisure Limited (a)” 2009, par. 3). In addition, the company’s management works closely with all the stakeholders to see that the business succeeds. These stakeholders include, but are not limited to the industry regulators, stockholders, creditors, and the government. The following paragraph provides an overview on the company’s organisational structure.
Organizational Overview and Structure
Aristocrat Leisure Limited’s performance is greatly affected by both economic factors and internal management structures. Economically, global recessions adversely affect the performance of the business. Moreover, internal management structure and leadership style affect employee’s productivity. For instance, the human resources managers have to put in place attractive bonus schemes and favourable to motivate the employees of the company to work harder in their respective areas of duty.
Aristocrat Leisure Company maintains a strong lead among its competitors in this sector, such as Melco Crown Entertainment (MPEL) Limited. This claim is supported by the fact that “ALL is the largest gaming machine company in Australia and a premium supplier to the international gaming industry” (“Aristocrat Leisure Limited” 2012, par. 1). This is a large company since it has an international outlook because it operates in several, countries across the world.
In fact, Aristocrat Leisure Limited (ALL) operates as a developer, manufacturer and distributor of gaming machines and systems in Australia, New Zealand, the Americas, Japan/Asia Pacific, South Africa and Europe (“Aristocrat Leisure Limited” 2012, par. 1). In addition, it has been witnessed from the previous discussion that the company operates in about 200 areas of jurisdiction across the world. This represents the company’s demographic coverage across the globe. This company operates through its well designed strategy that is geared towards attaining its growth and expansion. This is well supported by the following illustrations:
“ALL aims to be a leading global provider of gaming solutions by maintaining market leadership in Australia and New Zealand, expanding its business into key international markets, increasing sales of gaming and progressive linked jackpots and developing the most entertaining games software” (“Aristocrat Leisure Limited” 2012, par. 2). Indeed, these gaming services have proved to be profitable business ventures for the company, as will be explored under the financial analysis. Such success and growth can be attributed to proper management of the human resources capital.
Financial Performance Indicators
Company based financial analysis has been a predominant topic in the contemporary financial markets. Every investor is quick to evaluate and thereby clearly understand the fair and true standing of any company in which he/she intends to invest. The financial markets as well as the global and technological developments have made it easier for individual investors to access financial information of any entity in the market.
Therefore, every company is increasingly becoming articulate in providing financial information to all its stakeholders in order to remain relevant and of financial standing in the face of its clients as well as other outside stakeholders. As much as the management of any company requires financial information to forge their decision-making, the other stakeholders have increasingly become wary of the significance role of the financial information in ensuring the safety of their investments. In this regard, the paper seeks to compute and evaluate the financial position of Aristocrat Leisure Limited.
As such, the paper will utilize appropriate ratios as the financial key performance indicators, industry wide analysis and the analysis of the performance of the company. Moreover, the paper will provide an indication of the whether the company is operationally capable of sustaining the reported financial profits as well as the company’s liquidity (Bill & Charan 2011, p.27). The significant events in the last five years and the impacts of the human resources management are well illustrated using the following financial analysis. This also provides analysis on the financial strength and weakness of the company.
Ratio Indicators Analysis
Aristocrat Leisure Limited’s Debt and Safety Ratios
The Gross Gearing (D/E) ratio of Aristocrat Leisure Limited is 59.99, 250.82, 87.32, 162.70, and 103.67 percent for the years 2007, 2008, 2009, 2010, and 2011 respectively. The trend of the debt percentage of the total asset shows that the company’s shareholders have increasingly improved their stake in financing the operations of the company between the years 2007 and 2008, but a significant drop of negative 163.50% (250.82 – 87.32) was realized in 2009. In the year 2010, the shareholder had (100- 162.70) % financing portion, but this has since improved to (100 – 103.67) % in the year 2011. This shows that the lenders have financed 103.67 percent of the capital employed in Aristocrat Leisure Limited in the year 2011.
Net Interest cover ratio for the company was established 55.13, 10.72, 12.22, 8.53, and 5.15 in the years 2007, 2008, 2009, 2010, and 2011 respectively. This ratio shows the number of times the charged interest is covered by the ordinarily available cash that could be used for their payment. Thus, the positive 12.2 for the year 2009 indicates that the company is charged interest that it is sufficiently capable of paying since it has much of comparable ordinarily available cash.
The ability of the company to cover its interest charges could evidently be associated to the increasing values in the revenues of the company and the resultant increase in the cash and cash equivalent components of Aristocrat Leisure Limited. The increase in revenue is further attributed to the improved efficiency and effectively with which the company operates to serve its clients as well as a motivated team put in place by the human resources management.
The current ratio of Aristocrat Leisure Limited was 1.35:1, 1.23:1, 0.81:1, 1.86:1, and 1.78:1 for the years 2007, 2008, 2009, 2010, and 2011 respectively. The significant movement of the company’s current ratio in the year 2010 from the low of 0.81:1 in the previous year to a high of 1.86:1 clearly indicates the sufficiency in terms of liquidity in the company. This is because current ratio implies that the company operates over a higher margin of safety as is the conventional expectation. Indeed, for a company to have a satisfactory current ratio, it must attain a two to one (2:1) current ratio.
In this regard, the Aristocrat Leisure Limited with a current ratio of 1.86:1 presents a higher level of current assets to current liabilities and this indicates the sufficiency of the company’s ability to meet its current obligations. There is no likelihood of liquidity problem in the company, if the trend in the last five year is something to go by. This could be attributed to sound management of human resources and financial management policies, which have been put in place. However, 1.78:1 current ratio of the company is lower than that of Melco Crown, which stood at 2.50:1 (“Melco Crown Entertainment Limited” 2012, p.1).
Aristocrat Leisure Limited’s quick ratio is 0.16:1, 1.02:1, 0.68:1, 1.38:1, and 1.38:1 in the years 2007, 2008, 2009, 2010, and 2011 respectively (“Aristocrat Leisure Limited Annual Report 2011”, p.61). Given that a quick ratio of 1:1 is what is considered as a satisfactory financial condition, Aristocrat Leisure Limited is thus not sufficiently liquid. The ratio of 1.38:1 shows that even if the company’s inventories are not sold, Aristocrat Leisure Limited will still able to meet its current liabilities incase they need to be paid immediately. Further, the ratio indicates significant stability (1.38:1 for both 2010 and 2011) from the results of the previous year and this indicates presence of operational excellence within the company in the current year.
Aristocrat Leisure Limited’s profitability
The group net profit margin for Aristocrat Leisure Limited is established to be 9.39, 8.02, 12.81, 12.97, and 21.97 percent in the years 2011, 2010, 2009, 2008, and 2007 respectively (“Aristocrat Leisure Limited Annual Report 2010”, p.56). The relatively decreasing positive value trend indicates the management’s inefficiency in converting each $ sales into net profit. The margin ratio also indicates the firm’s inability to withstand adverse economic conditions. In the year 2007, the company had a margin rate of positive 21.97%, but this only declined significantly to a low of positive 12.97% in the year 2008, after the disturbing economic down turn in the year 2008-2009. This shows the Aristocrat Leisure Limited’s inability to withstand the effects of the economic slowdown that began in the year 2008.
Moreover, the company has presented a relatively decreasing rate of its Earnings Before Interest and Taxes (EBIT) margin ratio from the comparative year 2007 to the year 2010, but it has increased slightly in the year 2011. The values are 29.53% for 2007, 19.68% for the year 2008, 18.71% for the year 2009, 11.86% for the 2010 and an average increasing positive value of 15.06 % in the year 2010 (“Aristocrat Leisure Limited Annual Report 2011”, p.57).
This is indicative of the fact that Aristocrat Leisure Limited is currently inefficient in generating profits from the assets employed in the firm (Brealey & Myers 2008, p.47). This inefficiency could be attributed to the dynamic structural demands of the service market and how Aristocrat Leisure Limited has mastered the art of servicing its clients using the appropriate and relevant approaches. The human resources managers of the company need to motivate their employees to attend to their clients diligently so as to increase productivity.
Aristocrat Leisure Limited also presented a relatively decreasing rate of its Earnings Before Interest, Taxes, and Amortization (EBITA) margin ratio from the comparative year 2007 to the year 2010, but it has increased slightly in the year 2011. The values are 30.06% for 2007, 20.23% for the year 2008, 19.36% for the year 2009, 12.80% for the 2010 and an average increasing positive value of 16.00 % in the year 2010 (“Aristocrat Leisure Limited Annual Report 2011”, p.57). This is indicative of the fact that Aristocrat Leisure Limited is currently inefficient in generating profits from the assets employed in the firm.
The company has shown a relatively decreasing rate of its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin ratio from the comparative year 2007 to the year 2010, but it has increased slightly in the year 2011. The values are 32.77% for 2007, 23.41% for the year 2008, 23.42% for the year 2009, 17.28% for the 2010 and an increasing positive value of 20.34 % in the year 2010. This is indicative of the fact that Aristocrat Leisure Limited is currently inefficient in generating profits from the assets employed in the firm. In comparison, the Aristocrat Leisure Limited average EBITDA ratio for the five years was higher than that of Melco Crown, which stood at 12.76 (“Melco Crown Entertainment Limited” 2012, p.1)
The return on equity ratio (ROE) of the Aristocrat Leisure Limited has been on a relatively decreasing trend in the last five years. The company achieved a return on equity of 77.21% in the year 2007, 72.80% in the year 2008, 75.19% in the year 2009, 28.74% in the year 2010, and 25.95% in the year 2011. This implies that despite the economic turbulence in the year 2008, the company’s ratio did not drop to the worrying zone or even to the negative values as did many companies over the same period. This is due to the fact that the return on equity increased from 72.80% in 2008 to 75.19% in 2009. This was a clear indication that the leverage efforts of the stakeholders during the economic instability of the year 2008-2009 were sufficient enough to sustain the company.
The percentage return on assets (ROA) for Aristocrat Leisure Limited has not shown a significant change in the last five years, though it has on been on a decline trend. A slight increase in percentage has been realized in the year 2011, which showed a 2% increase (11.24% – 9.24%). The values are stable between 15.43 and 15.89 percent. In the year 2009, the asset turnover averaged at 15.89%, which decreased to 9.24% in the year 2010.
Similarly, in the year 2008, the asset turnover was at the ratio of 15.43 percent and this improved to a stable 15.89 and 9.24 percent in the subsequent two years; 2009 and 2010. Moreover, the significant decrease in the ratio between the year 2007 and the year 2008 (from a positive high of 31.18% to a low of 15.43%) could be attributed to the related impact of the economic slowdown that began in the year 2008. The improvement in the ratio in the year 2011 (11.24%) indicates the effectiveness of the Aristocrat Leisure Limited’s human resources and financial management in utilizing the assets of the company to earn revenue.
Moreover, the success of this company is attributed to its corporate branding of gaming services, which are efficient in meeting the demands of the customers (Dobbs, Huyett & Koller 2009, p.87). As a result, there is a high level of trust placed upon the services of this company. The company has sold more of these services over the years, thus making it to be in a position of building a strong brand identity.
Besides, the human resources management of the company should strive to maintain this brand identity through corporate social responsibility, which is done through free incentive services given to the community (Libby & Short 2005, p.63). However, the company is neither planning to enter any merger arrangement nor restructuring its current business. Essentially, more acquisition plans are underway due to the fact that the company is expanding its operations in the global markets.
Role of HR Department and human resources effectiveness
The human resources department in collaboration with the finance management is concerned with the measurement of intangible assets of the company. These intangible assets include goodwill, patent, and copyright of the company. They are re-evaluated and amortized over the years to ascertain their current market value. This enables both the human resources and the finance departments to know the exact worth of the company’s intangible assets. It is important to note that the human resources capital, also form part of the company’s intangible assets since they are evaluated on their performance and productivity. This is done to encourage the employees to work harder towards producing the highest output.
The company has currently employed about 2000 staff members across the globe, as mentioned in the previous discussions. The board of directors of the Aristocrat Leisure Limited consists of six members. They include:
“ Ian D Blckburne, a Non-Executive Chairman, Jamie R Odell, a Chief Executive Officer and Managing Director, David C P Banks, a Non-Executive Director, Roger A Davis, a Non-Executive Director, Rosalind Dubs, a Non- Executive Director, Lewis (Kelly) Flock, a Non-Executive Director, and Stephen W Morro, a Non-Executive Director” (“Aristocrat Leisure Limited (b)” 2009, p. 1)
In addition Karen Berman, Joe Knight, and John Case postulated that: “The art of accounting and finance is the art of using limited data to come as close as possible to an accurate description of how well a company is performing (Berman, Knight & Case 2008, par. 5). Moreover, the number of the HR staff working in the company composed of the human resources and the remuneration committee that is led by RV Dubs (“Aristocrat Leisure Limited Annual Report 2010”, p.3).
HR metrics should quite in line with the organisation’s strategy that is aimed towards attaining growth, expansion, and increased sales. Therefore, the HR metrics regarding employees’ recruitment and training are geared towards efficiency, coupled with cost cutting measures. The HR ensures that the resources of the company are properly utilised according to their intended purposes. In fact, during the recruitment processes only the best qualified, competent, and experienced employees are hired by the human resources.
This helps in reducing costs on hiring redundant and non-performing employees who require more resources for training. As a result, this helps in increasing productivity. It is also evidenced that such practices help in reducing cases of high employee turnover since competent and well-motivated staff tends to stay longer in the company. Furthermore, cases of potential employee turnovers are well planned for in advance. This would mean training junior employees on the job as a sign of readiness for such eventualities. Finally, the company should employ the use of HRIS system, oracle systems, and per-pay databases to manage remuneration as well leave-days (Pandey 2008, p.39). This makes the human resources management easier since the company’s staff members are growing.
Conclusion
Considering the value with which prospective investors assesses the financial statements and further importance that they attach to the various significant financial ratios, the report sought to elucidate the underlying financial conditions of Aristocrat Leisure Limited. In this regard, the paper evaluated the profitability ratios and the ability of the company to sustain the current profits in the foreseeable future. As a result, the analysis of the profitability capacity of Aristocrat Leisure Limited has indicated that the company is sufficiently profitable and given the other prospects in terms of liquidity, operational efficiency and the leverage capacity attained through proper human resources as well as sound financial management practices put in place.
Therefore, it is imperative to conclude that the company is worth investing in. Further, the study on the performance of the Aristocrat Leisure Limited together with the human resources management analysis also indicates positive growth prospects. The human resources managers of the company should adopt bonus incentive schemes such as defined benefit pension schemes, which are geared towards motivating the employees of the company. Other measures to be put in place are monetary and non-monetary rewards such free leisure trips and holidays. Finally, performance measures such as balance scorecard to be put in place to monitor and evaluate the employees’ productivity. Consequently, these human resources’ measures will improve the company’s efficiency and productivity.
References
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Aristocrat Leisure Limited 2009 (b). Web.
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Aristocrat Leisure Limited Annual Report 2011. Web.
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Brealey, A & Myers, C 2008, Corporate Finance: Capital Investment and Valuation. McGraw-Hill, Washington DC.
Dobbs, R, Huyett, B & Koller, T 2009, The CEO’s Guide to Corporate Finance, Havard University Press, New York.
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