712 Financial Reporting and Controls

Analysis of Financial Statements of Fishers and

Paykel Healthcare Corporation Limited

Submitted By:
Akash Narvaria
687082453
Contents
Introduction....................................................................................................................................3
Analysis of Ratios...........................................................................................................................4
Liquidity......................................................................................................................................5
Current Ratio............................................................................................................................5
Acid–Test Ratio........................................................................................................................5
Solvency.......................................................................................................................................7
Interest Cover...........................................................................................................................7
Gearing.....................................................................................................................................7
Profitability.................................................................................................................................8
Sales Revenue Growth.............................................................................................................8
Earnings per Share (EPS).........................................................................................................8
Return on Asset........................................................................................................................9
Gross Profit Margin..................................................................................................................9
Conclusion and Recommendations.........................................................................................10
Appendix...................................................................................................................................12
Introduction

Fisher & Paykel Healthcare Corporation Limited (FPH) is a producer and supplier of healthcare
products. FPH is a pioneer in medical equipment and systems for respiratory care, acute care,
and obstructive sleep apnea treatment. The Company has a constant progress plan to supply an
ever-expanding spectrum of new medical devices to help patients. It has a global sales network,
and sells its products directly to healthcare and hospitals all over the globe. Since the outbreak of
COVID-19, the Company's focus has been on manufacturing and supplying products that are
directly involved in treating patients with COVID-19 while also ensuring a continuing supply of
its other products (NZX, n.d.).
This report provides financial insight of FPH financial statements to the potential investors. It
evaluates the Company's performance of the financial years 2019, 2020 and 2021. The report
analyses the audited annual statements and performs financial analysis by using ratio analysis,
trend analysis calculated from income statements, balance sheets, and notes to determine the
Company's profitability, gearing and efficiency ratios. It is also comparing FPH with its
competitors to give a better understanding of its performance. Different sections of the report
evaluates the various ratios such as – quick-ratio, working-capital, and current-ratio to provide
information related to the liquidity of the organisation. It also assesses the profitability of the
organisation by assessing the return on assets, return on equity and gross profit margin and
reasons for the change in the same. For an investor, it is quite important to analyse the financial
statements and verify if the Company is sound and liquid. This report determines whether the
Company is good for the investment.

In the conclusion and recommendations section, this report will give reasons to invest in this
Company on the basis of analysis and research.
Analysis of Ratios
Liquidity

The liquidity ratio is used to asses that if the business will meet its obligations or not as or when
they become due.
The working capital of FPH is 271 million for the year 2021, it represents the Company has
enough liquid funds to meet its debts.
Current Ratio
The current-ratio measures short term solvency of the organisation. It indicates the availability of
2 dollars of current assets for every one dollar of current liability. The higher the current-ratio,
the greater the margin of safety and considered to be satisfactory.
2021 2020 2019
2.15 1.55 2.47

Current-ratio is quite high and has improved in 2021, which is a good sign. The reason for that is
the Company has invested money in short-term investments which increased by nearly 8% in
2021 (refer appendix). Also, Company has paid off the borrowings which resulted in less current
liabilities in 2021. The Company activities expose it to a variety of financial risks, market risk,
credit risk and liquidity risk. Therefore, the Board has approved new policies and guidelines for
the Company that identify and evaluate risks and authorise various financial instruments to
manage financial risks.
Acid–Test Ratio
Quick-Ratio shows a relationship between quick or liquid assets and current liabilities. An asset
is liquid if it can be converted into cash immediately or reasonably soon without loss in its value.
1:1 considered to be satisfactory.
2021 2020 2019
1.52 1.11 1.73

The quick-ratio has increase in 2021 but considerably less as inventories are stated at the lower
of cost or net realisable value.
 Current Assets
16.00%
14.00% 13.508%13.041%

12.00% 11.279%
10.209%
10.00%
7.666%
8.00%
6.00% 5.415%
4.676% 4.689%
3.994%
4.00%
2.00%
0.00%
2019 2020 2021

Cash and Cash equivalents Short term investments Inventories

Figure 1

As per figure 1, the current assets have increased and the short term investment has increased
significantly in these three years. The NZD appreciated significantly from 31 March 2020 to 31
March 2021. This resulted in the majority of currency derivatives being in a liability position as
at 31 March 2020 to now be in an asset position at 31 March 2021. All currency derivatives
continued to be effective hedges.

Current Liabilities
14.00%
12.00% 11.188% 11.540% 11.243%
10.00%
8.00%
6.00% 5.617%

4.00%
2.00% 1.434%
0.573%
0.00%
2019 2020 2021

Interest-bearing liabilities Trade and other payables

Figure 2

Interest bearing liabilities has declined over the years to 0.57% (as shown in figure 2). However,
Trade and other payables has very little change. Trade and other payables represent liabilities for
goods and services provided to the Group prior to the end of the financial period which are
unpaid. The amounts are unsecured and are usually paid within 60 days of recognition.
Solvency
Solvency ratio helps to identify if a Company meets its long term financial obligation.
Interest Cover
2021 2020 2019
30% 10% 12%

The interest cover ratio indicated the Company’s ability to cover its interest expense from
recurring operations. Mix of high interest cover and low gearing (refer below gearing ratio)
added benefit of making short term borrowing easy available and a liquidity problem less likely.

Gearing
2021 2020 2019
-27.20% -4.30% -6.70%

It helps to evaluate a business long term flexibility. If a Company is under lots of debt, that
makes the firm more risky as Company has to pay the interest whether it makes profit or not.
FPH has paid its liabilities, therefore, their gearing ratio has decreased.

Long Term Liability

130

125

120

115

110

105

100
2019 2020 2021

Figure 3

The Long term liability has increased over the years and non-current liability is constant in 2020
and 2021 (refer to figure 3). During the year, the Group adopted NZ IFRS 16 ‘Leases’ (NZ IFRS
16). The Group recognised additional lease assets of $29.4 million, and $35.2 million of lease
liabilities as at 1 April 2019, with a reduction in retained earnings of $3.8 million, that resulted in
more liabilities.
Profitability and Efficiency
This ratio assess the business’s ability to generate earnings comparative to its revenue, operating
costs or shareholders’ equity over time.
Sales Revenue Growth
2021 2020 2019
56% 18% 9%

The revenue for 2021 is 56% which is more that the double of last year’s, which is a good sign.
The unprecedented result was due to Constant Currency removes the impact of exchange rate
movements. Also, sale revenue increased by the Hospital product group due to COVID-19, this
includes products for invasive ventilation, noninvasive ventilation and surgery, as well as the
hardware and consumables used to deliver Optiflow nasal high flow therapy (Biospace, n.d.).
Earnings per Share (EPS)
Shareholders are keen to know the EPS because it shows the profit available to common
shareholder on per share.

Company EPS
F&P Healthcare Corp $0.91
Ryman Healthcare $0.85
Third Age Health Ltd $0.11

FPH has the highest EPS as compared to its competitors. The CEO salary explains why EPS is
greater, compensation for CEOs has a significant impact on performance, but it is only one
factor. However, Investors will have the opportunity to participate in major strategic initiatives
and chance to get engage in future growth of the Company. (Simply Walls, n.d.).

1.0 0.9
0.9
0.8
0.7
0.6 0.5
0.5
EPS

0.40.4
0.3
0.2
0.1
0.0
1 Year2 3

Figure 4

EPS has increased by 82% in 2021 (refer figure 4).

Return on Asset (ROA)
2021 2020 2019
40.92% 28.05% 26.10%

ROA measures the profit earned by total asset, this ratio tells how much Company is earning
with investing in assets. If a Company generating more sales by investing in more assets that
means they are utilizing the resources. However, if Company’s sales decreasing while ROA is
higher this means it is not investing on right investments. FPH’s sales and ROA are increasing
which is a good indicator. As per graph 4, the total assets of FPH are considerably increasing.

Total assets
2500.0

2000.0

1500.0

1000.0

500.0

0.0
2019 2020 2021
Figure 5

Gross Profit Margin

2021 2020 2019
63.2% 66.1% 66.9%

The Gross Profit margin measures the share of each sales dollar available to pay other expenses
and provide gains to owners. COVID-19 impacted the costs for the full financial year. Gross
margin decreased by 295 basis points for the year to 63% or a 165 basis points decline in
constant currency. This includes increased freight costs and high air freight utilisation which
adversely impacted constant currency gross margin by approximately 230 basis points. Freight
and additional COVID-19 related costs were offset by overhead efficiencies due to volume
increases outpacing overhead cost growth during the year.
Conclusion

This report discussed the analysis of financial statements by calculating and interpreting the
various ratios with the prime goal of whether to invest the capital in the Company or not.
By calculating liquid ratios, that the Company is sound and liquid and can cover its obligations
on time. By Solvency ratios, also identified that the organisation has a good mix of gearing and
interest ratios, and the organisation is in a condition that it cover its debt. Lastly, profitability
ratios indicate that the Company is sound and profit-making. Due to COVID-19, there is a surge
in demand for medical equipment therefore, the sales revenue has increased dramatically.
However, COVID- 19 caused a drop in the gross margin ratio due to high costs for freight. It also
performed better than its competitors (refer to appendix). Also, the firm has experienced growth
in investments, sales and EPS. Overall it was a very good year for FPH.

As per the calculations and references, it is recommend investing in the Company as it is sound
and liquid and making profits. Also, most of the ratios show positive results irrespective of the
situation due to COVID-19. It has a good future where investors can make good profits and
future decisions.
References

Bio Space. (n.d.). Home Respiratory Therapy Emerges as Top-selling Homecare Setting
Solution in 2020. Retrieved from

https://www.biospace.com/article/home-respiratory-therapy-emerges-as-top-selling-homecare-
setting-solution-in-2020/

NZX. (n.d.). Company Research. Retrieved from

https://Companyresearch-nzx-com.ezproxy.auckland.ac.nz/deep_ar/newpage.php?
pageid=prof&default=FPH

Simply walls ST. (n.d.). This Is The Reason Why We Think Fisher & Paykel Healthcare
Corporation Limited's (NZSE:FPH) CEO Deserves A Bump Up To Their Compensation.
Retrieved from

https://simplywall.st/stocks/nz/healthcare/nzx-fph/fisher-paykel-healthcare-shares/news/this-is-
the-reason-why-we-think-fisher-paykel-healthcare-cor \
Appendix
FPH Common Size Balance Sheet
NZD NZD NZD
  2019 2019 2020 2020 2021
Assets          
Current Assets          
Cash and Cash equivalents 48.2 3.99% 67.1 4.676% 97.3
Short term investments 92.5 7.67% 77.7 5.415% 280.3
Trade and other receivables 157.9 13.09% 222.7 15.519% 222.5
Inventories 136.1 11.28% 146.5 10.209% 270.6
Derivative financial instruments 19.2 1.59% 4.1 0.286% 42.9
Tax receivable 1.4 0.12% 0.6 0.042% 6.4
Total Current Assets 455.3 37.73% 518.7 36.146% 920.0
           
Non-Current assets          
Derivative financial instruments 47.0 3.89% 14.1 0.983% 104.0
Other receivables 2.6 0.22% 2.3 0.160% 7.6
Property, plant, and equipment 601.4 49.84% 735.3 51.240% 882.1
Intangible assets 61.5 5.10% 73.9 5.150% 80.0
Deferred tax assets 38.9 3.22% 90.7 6.321% 81.3
Total assets 1206.7 100.00% 1435.0 100.000% 2075.0
           
Liabilities          
Current Liabilities          
Interest-bearing liabilities 17.3 1.43% 80.6 5.617% 11.9
Lease Liabilities 0.0 0.00% 11.6 0.808% 14.7
Trade and other payables 135.0 11.19% 165.6 11.540% 233.3
Provisions 4.9 0.41% 5.0 0.348% 15.6
Tax payable 24.4 2.02% 35.4 2.467% 149.6
Derivative Financial instruments 2.8 0.23% 36.4 2.537% 2.4
Total current liabilities 184.4 15.28% 334.6 23.317% 427.5
Non-current liabilities          
Interest-bearing liabilities 69.0 5.72% 22.0 1.533% 62.8
Lease Liabilities 0.0 0.00% 22.0 1.533% 29.0
Provisions 2.2 0.18% 1.5 0.105% 10.5
Other payables 12.7 1.05% 19.8 1.380% 22.8
Derivative financial instruments 1.9 0.16% 61.3 4.272% 1.5
Deferred tax liabilities 23.3 1.93% 0.0 0.000% 0.0
Total Non-current liabilities 109.1   126.6   126.6
Total liabilities 293.5 24.32% 461.2 32.139% 554.1
           
Equity          
Share capital 221.0 18.31% 225.4 15.707% 249.1
Retained earnings 549.2 45.51% 686.3 47.826% 1029.2
Reserves 144.8 12.00% 62.1 4.328% 242.6
Total equity 913.2 75.68% 973.8 67.861% 1520.9
Total liabilities and equity 1206.7 100.00% 1435.0 100.000% 2075.0

FPH Common Size Income

Statement

NZD NZD NZD

  2019 2019 2020 2020 2021
Operating Revenue 1070.40 100.0% 1263.70 100.0% 1971.20
Cost of Sales -354.60 -33.1% -427.90 -33.9% -725.60
Gross Profit 715.80 66.9% 835.80 66.1% 1245.60
Other Income 5.00 0.5%   0.0%  
Selling, general and -327.80 -30.6% -338.00 -26.7% -396.60
administrative expenses
Research and development -100.40 -9.4% -118.50 -9.4% -136.70
expenses
Total Operating expenses -428.20 -40.0% -456.50 -36.1% -533.30
Operating profit before 292.60 27.3% 379.30 30.0% 712.30
financing costs
Financing income 3.30 0.3% 2.20 0.2% 1.50
Financing expense -2.50 -0.2% -3.90 -0.3% -5.00
Exchange loss on foreign -2.20 -0.2% -7.10 -0.6% 9.40
currency interest-bearing
liabilities
Net Financing Expense -1.40 -0.1% -8.80 -0.7% 5.90
EBIT 291.20 27.2% 370.50 29.3% 718.20
Tax expense -82.00 -7.7% -83.20 -6.6% -194.00
Profit After Tax 209.20 19.5% 287.30 22.7% 524.20

Company Comparison
Company Market Price EPS P/E Ratio Net Yield
F&P Healthcare Corp $31.01   $0.91 34.04912 1.22541
Ryman Healthcare $13.65   $0.85 16.13243 1.64103
Third Age Health Ltd $2.32   $0.11 21.71919 1.68483