WMS Assignment Cover Sheet

Family Name: Nguyen Ngoc First Name: Khanh

Student ID Number: 1614422

Paper Code: ACCTN101

Tutorial/Group: 8

Assignment Name:
Case study
assignment
Due Date: 20 May

Please fill in the above information and then save this page as the first page of your assignment to be
submitted.

Case study assignment

Name+ID: Nguyen Ngoc Khanh-1614422 Do Trong Viet -1614411

 Nguyen Mai Phuong-1614420 Do Gia Bach-1614390

Le Tuan Dung-1614368

1. Introduction

This study is being created to assess the financial situation and activities of Synlait Milk
Limited and the a2 Milk Company from June 30, 2018 to June 30, 2020 in order to identify
which company should be the portfolio's starting point. Financial ratios and cash flow
statements will be used to examine and understand financial data from these organizations.
Before providing suggestions, non-financial variables such as sustainability and corporate
social responsibility activities of the two firms will be reviewed.

2. Introduction about company

The A2 Milk Company Limited was created in February 2000 based on the simple but
significant realization that various cows generate different milk proteins that interact
differently in people's bodies. It is dedicated to advancing scientific knowledge, operational
expertise, and the global commercialization of premium A2 Milk products. It now sells a
variety of items in Australia, New Zealand, the UK, and China, with plans to expand further.
Another company, Synlait, was founded in 2000, it produces a range of nutritious milk
products that give actual advantages for human health and wellness by combining
experienced and sustainable agricultural techniques with cutting-edge manufacturing
technologies to achieve the mission of "Doing Milk Differently For A Healthier World."

3. Report about the financial statement of both A2 and Synlait Milk Companies

3.1: Adequacy of the Cash Flows

 Cash Flow Statement of Synlait Milk Limited

Cash Flow Statement of A2 Milk Company Limited

In operating activities, A2 company’s inflow each year has increased from
231,108,000 NZD in 2018 to 427,411,000 NZD in 2020. During the same period of
time, the inflow of Synlait also increased from 98,390,000 NZD to 103,761,000 NZD.
=> This is positive since it indicates that the main element of the firm is growing more
lucrative.
In investing activities, both A2 and Synlait companies have outflow each year. The
spending on investment of A2 was 20,919,000 NZD in 2018 and then increased to
29,078,000 in 2020; this was a slight rise. In comparison, the number of Synlait was
bigger than the number of A2 by around 5 to 8 times when it had a significant increase
of over 100,000,000 NZD from 119,434,000 NZD in 2018 to 223,246,000 NZD in
2020.
=> This information is good because each company has bought more assets each year,
which has helped to produce higher inflows from operating activities.
In financing activities, the information of A2 Dairy Company and Synlait Dairy
Company has shown two opposite trends. In 2018, A2 had an inflow of more than
7,000,000 NZD while Synlait had an outflow of more than 20,000,000 NZD. The
situation was reversed in 2020.
=> Overall, the closing cash held of A2 has increased in 2020 while this money of
Synlait is negative. It means that the firm has borrowed money to buy assets that have
helped them to become more profitable.

3.2: Calculate the ratios

a) The ratios table of A2 Milk Company

2020 2019 2018

Profitability

(385,837/1,730,696)*1 (287,741/1,300,750)*100 (195,684/922,677)*100

Net Profit Margin
00= 22,29% = 22,12% = 21,20%
Net
Profit/Sales*100

(385,837/1,134,062)*1 (287,741/787,854)*100 = (195,684/555,709)*100

Return on Equity
00 = 34,02% 36,52% = 35,21%
Net Profit/Total
Equity*100

(385,837/1,453,317)*1 (287,741/1,006,970)*100 (195,684/716,218)*100

Return on Assets
00 = 26,54% = 28,57% = 27,32%
Net Profit/Total
Assets*100

Asset
Management

762.122\147.332 = 587.295\108.453 = 5.42 458.005\64.101 = 7.15

Inventory
5.17 times times times
Turnover

Cost of Goods
Sold/Inventory

1.300.750/317.771 = 4.09
Fixed Asset
1.730.696/324.771 = times 922.677/216.516 = 4.26
Turnover
5.33 times times

Sales/Fixed Assets

1.300.750/1.006.970 = 922.677/716.218 = 1.29

Total Asset
1.730.696/1.453.317 = 1.29 times times
Turnover
1.19 times

Sales/Total Assets

Liquidity

1,128,546/305,427 675,699/205,389 506,062 /166,749

Current Ratio
= 3,69:1 =3,28:1 =3,03:1
Current
Assets/Current
Liabilities

(1,128,546-146,332) (675,699-108,453) (506,602-64,101)

Quick Ratio
/305,427 /205,389 / 166,749

(Current Assets – =3.21:1 =2,76:1 = 2.65:1

Inventory)/Current
Liabilities

Financial
Structure

1,134,062/1,453,317 787,854/993,740 555,709/722,578

Equity Ratio
*100 *100 *100

Total Equity/Total =78,03% =79,2% =76,9%

Assets*100

547,721/389 = 1,4
Times Interest
times
Earned

Profit before
Interest &
Tax/Interest

Growth

(1,730,696-1,300,750)/ (1,300,750 -922,677)/ (922,677- 549,526)/

Turnover Growth
1,300,750 *100% = 922,677 * 100% = 40.88% 549,526 * 100% =
%
33.05% 67.90%
(Current Sales –
Previous Sales)

/Previous
Sales)*100

(385,837- 287,741)/ (287,741- 195,684)/ (195,684 -90,646)/

Net Profit Growth
287,741 * 100% = 195,684* 100% = 47.04% 90,646* 100% =
%
34.09% 115.88%

(Curr Net Prof –

Prev Net
Prof)/Prev Net
 Profit)*100

b) The ratios table of Synlait Milk Company

2020 2019 2018

Profitability

(74,309/1,302,025)*100 (82,239/1,024,305)*100 = (74,533/879,001)*100 =

Net Profit
= 5,7% 8.02% 8.47%
Margin
Net
Profit/Sales*100

(74,309/604,507)*100 = (82,239/492,359)*100 = (74,533/424,745)*100 =

Return on Equity
12.29% 16.7% 17.54%
Net Profit/Total
Equity*100

(74,309/1,489,521)*100 (82,239/1,150,387)*100 = (74,533/793,681)*100 =

Return on Assets
= 4.98% 7.14% 9.39%
Net Profit/Total
Assets*100

Asset
Management

1.098.292\269.384 = 837.976\164.849 = 5.08 712.533\145.404 = 4.9

Inventory
4.08 times times times
Turnover
Cost of Goods
Sold/Inventory

1.302.025/1.103.131 = 1.024.305/867.811 = 1.2 879.001/550.895 = 1.60

Fixed Asset
1.2 times times times
Turnover
Sales/Fixed
Assets

1.302.025/1.489.521 = 1.024.305/1.150.387 = 879.001/793.681 = 1.11

Total Asset
0.87 times 0.89 times times
Turnover
Sales/Total
Assets

Liquidity

386,390/384,738 282,576/372,826 = 0,76:1 .239,835/236,694 =

Current Ratio
=1,00:1 1,01:1
Current
Assets/Current
Liabilities

(386,390-269,384) (282,576-164,849) (239,835-145,404)

Quick Ratio
/384,738= 0,30:1 /372,826 = 0,31:1 /236,694 = 0,39:1
(Current Assets –
Inventory)/Curre
nt Liabilities

Financial
Structure
Equity Ratio
606,484/1,492,266*100 492,359/1,148,004*100 424,744/793,681*100

Total
Equity/Total =40,6% = 42,8% = 53,5%

Assets*100

123,291/19,777 = 6,23 124,508/8,819 = 14,11 113,085/8,969 = 12,6

Times Interest
times times times
Earned

Profit before
Interest &
Tax/Interest

Growth

(1,302,025- 1,024,305)/ (1,024,305 - 879,001)/ (879,001-758,994)/

Turnover Growth
1,024,305 * 100% = 879,001 *100% = 16.53% 758,994 *100% =
%
27.11% 15,81%

(Current Sales –
Previous
Sales)/Previous
Sales)*100

(74,309-82,239)/ 82,239 (82,239- 74,553)/ 74,553 (74,553- 39,530)/ 39,530

Net Profit
*100% = -9.64% *100% = 10.31% *100% = 88.60%
Growth %

(Curr Net Prof –

Prev Net
Prof)/Prev Net
Profit)*100
c) Report to an Investor

This report will discuss financial ratios from the areas of profitability, asset management,
liquidity, financial structure, market, and growth, before drawing conclusions and making a
recommendation.

Profitability

Profitability is the basic objective of all commercial endeavors. The firm will not exist in the
long run if it is not profitable. As a result, analyzing present and previous profitability and
estimating future profitability is critical. Managers are continuously looking for methods to
increase the business's profitability (Understanding Profitability | Ag Decision Maker, 2019).
 ● Net Profit Margin

Net profit after taxes is compared to net sales in the net profit ratio. This is a profit margin
metric since it analyzes final earnings to total corporate costs.
This ratio demonstrates that A2 was the more lucrative of the two companies; during a three-
year period, it increased from 21,20% to 32,82%, in contrast to Synlait, which declined from
8,47% to 5,7% and has a lower overall ratio.
=> A2's capacity to earn profits has improved since profits have increased faster than costs
whereas Synlait's costs are rising faster than its earnings.
=> Investors might assess if the Synlait firm needs to use its expenses more efficiently to
make profits, or if overall sales and demand are too weak to generate a profit and are
dropping. This has the potential to harm investments.

=> A2 Milk is a good option, with more efficient expenditure, increased earnings, and
payouts for shareholders to add to their portfolio.

● Return on Equity
ROE: demonstrates how effectively a company's equity is utilized to produce profits.
For investors, the ratio essentially illustrates how excellent returns on stock
investments have been for the two firms over the last three years, and it may be used
to compute the number of dividends received by investors.
Over the previous three years, A2 Milk's stock value has improved as its equity
returns have increased (31.75% to 34,02% ).
=> The quick growth in their returns is appealing to investors since it shows that the
equity in A2 would likely continue to rise as a consequence in the future, enhancing
their portfolio.
Synlait, on the other hand, declined during a three-year trend from 17,54% to 12,29%,
indicating that profitability was equal to equity spent and that investors would earn
lousy dividends from 2018 to 2019.
=> The declining trend also suggests that Synlait will earn lower profits than equity
for the next few years, which is unappealing to investors. Another indicator of A2
Milk's advantage versus Synlait in terms of profitability is the ratio, which makes it a
more profitable investment.
● Return on Assets

ROA: Distributes net income by the total asset value of a company to determine how
effective its assets are in generating profits.
A2 milk experienced a brief but significant increasing trend over the last three years,
rising from 27.32% to 28.57% in 2018-2019 and then falling to 26.54% in 2020. This
demonstrates that they purchased assets that have significantly improved their
business performance.
=> This is an appealing quality to investors since it demonstrates that they have a
strong company focus and inefficient asset acquisition.
Synlait, on the other hand, has a 9.39% decrease to 4.98%, implying that they may be
invested in failing assets to create profits.
=> Investors will be chastised for reaping the largest payouts from earnings. Thus, the
investor's objective is to have an appealing portfolio and A2 Milk acquires assets
more effectively to do this as the rate says, they will be engaged in these.
Asset Management

● Inventory Turnover

The inventory turnover ratio determines how many times a company was able to
market the value of its year-end merchandise within a fiscal quarter. It evaluates how
well they manage their assets. Lower ratios indicate bad sales and inventory
overstocking, whereas higher ratios indicate good asset administration, resulting in
revenues, dividends, and profits.

Inventory Turnover decreases over a three-year trend for both a2 company (7.15 to
5.17) and Synlait firm (4.9 to 4.08), indicating a poor inventory management tendency
for both organizations. The A2 firm, however, has higher ratios than Synlait Company
with less than two times.

● Fixed Asset Turnover

 A ratio that calculates the number of times revenues are a multiple of the balance-
sheet value of fixed assets to gauge an organization's activity over time. Overall, the
A2 Milk Company demonstrated an upward tendency, growing from 4.3 times in
2018 to 5.3 times in 2020. In 2019, however, there was a slight decline to 4.1 times.
=> This was a positive trend, indicating that A2 has effectively managed its fixed
assets to create revenue. The data provided is appealing to an investor.
On the other hand, Synlait shows a declining tendency from 1.6 times in 2018 to 1.2
times in 2019 and remains the same through 2020. => It is clear that the A2 firm will
be a superior investment in terms of increasing volumes to the Synlait company.

● Total Asset Turnover

Total asset turnover ratio is calculated by dividing sales by total assets. It educates
shareholders about how successfully a company's assets generate revenues and
profits, which is an important part of asset management.
The graph demonstrates that both A2 and Synlait had a declining tendency. Over the
last three years, A2 decreased from 1.9 to 1.2 times, whereas Synlait decreased from
1.1 to 0.9 times.
=> This demonstrates that neither of the two corporations has lately done a better job
of maintaining the efficiency of their goods. As they did before the rise, the two
companies must better spend their income on more efficient assets. Despite this, A2
has a bigger revenue than Synlait.
Liquidity
● Current Ratio

In both 2020 and 2018, the current Synlait milk ratio was above the optimum 1:0
ratio, at 1,01 and 1,04, respectively.
=> These two ratios also showed liquidity concerns during these periods, which is
concerning for the business's performance because we would anticipate sufficient
cash flow to fulfill these short-term obligations.
Over the last three years, A2 Milk Company Ltd.'s current ratio was improved from
3.03 to 3.69.
=> Because the trend remained consistent and there were no exceptions, a positive
prediction could be confidently projected.
● Quick Ratio

The fast ratio is identical to the current ratio in that it incorporates a firm's liquid
assets in the bank balance and shows if a company can fulfill obligations in a shorter
period.
Synlait's ratio declined during the last three years (0.39 to 0.30), remaining below the
value of 1.
 => They are technically bankrupt and won't be able to satisfy debt commitments soon
using their liquid assets.
A2 Milk avoided bankruptcy, and its ratio increased throughout this time (2,65 to
3,21)
=> It indicated that its assets were outpacing its liabilities.

Financial Structure

● Equity Ratio

For investors, this graph effectively demonstrates how well the two firms' stock
investments have performed over the last three years, as how much money they have
divided. The stock value of A2 Milk was increasing as equity returns climbed over the
previous three years (76,9 to 78,03 percent ). However, Synlait has fallen during a three-
year period (from 53,5 to 40,6%) and now stands at 1. This demonstrates that profit
equals equity used, implying that dividends will be below from 2017 to 2018.
● Time Interest Earned

The standard benchmark is between 3 and 5, the number is risky when it is below 3,
and when the number is above 5, it is very favorable. The ratio of Synlait Company
increased from 12,6 times in 2018 to 14,11 times in 2019, but it decreased to less than
 7 times in 2020.
=> The company's profit before taxes and interest might easily pay its interest
expenditure several times over because even the lowest ratio in 2020 was also well
above the comfortable benchmark.
However, the Interest Expense was increasing more than twice in 2020 due to the
increase in the loan balance. This is the second year that the whole world keeps
suffered the serious effects of the COVID epidemic.
=> in the next 1 or 2 years, this ratio may fluctuate but not increase significantly.
=> by using this ratio, the investors can measure Synlait's ability to meet its debt
obligation based on its current income, in this situation, Synlait can pay their interest
very well
=> it can borrow more money to invest in the future and expand its business
Growth
● Turnover Growth
The turnover growth rate depicts the percentage increase in income over time.
Businesses with a fast rate of revenue growth are frequently experiencing rapid
expansion, extending their market share, or entering new markets or regions.

● Net Profit Growth

Net profit growth accurately represents the company's resource allocation. As a result,
a consistent net profit increase demonstrates the Company's financial strength.

The two-line graphs show the fluctuation in the net profit growth rates and the change
in the turnover growth rates of the two companies in 2018, 2019, and 2020. Overall,
the net profit growth rates of both dairy companies net profit declined significantly
over the period. While the turnover growth rate of the A2 Milk Company limited
decreased gradually over three years, Synlait's turnover rate rose slightly from 2018 to
2020.
 In 2018, the A2 milk company had a turnover growth rate of 67.90%, then slowly
dropped to 40.88% the following year, and the number hit 33.05% after two years and
this was also the lowest number in all three years. Similar to the turnover growth
figures, the rate of net profit growth of the A2 Milk Company also tends to decrease
over time because of the drop from 115.88% to more than 68% after one year, and in
the final year of the period, the rate fell further to 34.09%.
=> The A2 Milk Company Limited has had both net profit growth and turnover
growth rates falling dramatically over the three years assessed in this report. This
shows that the a2 milk company is in a decline and is becoming a company that
investors will invest less in.

In the Synlait company, like the A2 milk, its net profit growth rate also had a large
figure in 2018, 88.60% but in the following year, that number dropped to just 10.31%.
In 2020, the rate of the company's net profit is negative, Synlait's net profit did not
grow but became backward by 9.64% compared to the previous year.
=> Synlait company has had a declining net profit growth rate since 2019 but growth
numbers are almost flat in 2020. Besides, its turnover growth rate increased slightly in
all three years. This shows that profits are still increasing, so the company is still
operating stably and has growth potential.

4. Non-financial analysis:
4.1 corporate social responsibility
- The A2 milk company's corporate social responsibility policy focuses on three main
aspects: people, the environment, and the country's economy. First, the company invests
heavily in training and creating jobs for local people, they ensure the quality of their products
does not affect human health. Secondly, the A2 milk company realizes the enormous impact
of climate change over the past decade compared to the industry, it needs to collaborate to
manage the risks and opportunities that come with lowering its carbon footprint. Finally, the
company spends a large amount of its money to provide food and treatment for children in
remote areas, which has contributed to the economies of many countries invested by the
company. (Building a Sustainable Business - The A2 Milk Company, n.d.)
- Just like the a2 milk company, Synlait company's CSR policies are also related to people
and the environment. In terms of people, Synlait ensures the health and well-being of its
employees and customers. The company also invests heavily in finding and developing the
country's talents. Second thing, this company is targeting zero-carbon and GHG reductions
off-farm. For a low-emissions future, they are reinventing every part of our company. Finally,
Synlait strives to work with supply chain partners that share a commitment to environmental,
social, and economic sustainability and act on that commitment. (Synlait Milk, n.d.)

4.2: the current economic climate

- The company revealed its updated growth strategy in October 2021, which has been tailored
to China's fast-changing infant milk formula (IMF) market dynamics. The corporation has
laid out its medium-term sales and EBITDA margin targets. Companies moved onto the
execution phase of their growth strategy review, which is focused on implementing their
strategic priorities and related projects, which are in their beginning phases and developing
well.
According to the firm, market conditions were difficult in 1H22, with the China IMF market
losing 3.3 percent of its value due to the cumulative impact of a reduced birth rate, while the
Australian and US (premium) liquid milk markets grew.

- Synlait Milk, a dairy producer, is expecting a big loss as a result of Covid-19-related

interruptions.
The company now expects a full-year loss of between $20 million and $30 million, down
from $75.2 million last year. According to Synlait, shipment delays will cause certain sales to
occur after the balance date.
Lower prices for some products due to timing and an excess of product, as well as a
conservative attitude to its stocktake of how much product it has and what it will be worthy
and affect the result.
4.3: sustainable business practice innovation
To maximize the sustainability of the practice of the two businesses, their operations must be
planned such that they do not constitute an impediment or burden to the well-being of people
and the environment. Simultaneously, these procedures and designs promote corporate
growth. It attempts to boost our social effect, environmental and influence on people's lives.
The firms are searching for innovation by investing in technology, infrastructure, and land
management, which is enhancing their dairy profitability and lowering their environmental
impact by installing solar panels and energy efficiency equipment to reduce dependency on
on-grid electricity. Tim Billing, an inventive farmer, highlighted how the two processes work
well with the operation, the solar panels sometimes giving 100 percent of the electricity for
the grain milling when operating in the middle of the day (Landcare Australia Ltd, n.d.). He
also stated that the heat recovery system includes two inverters that are synced with the
dairy's operations and use energy from the sun when it is available.

5. Appendices
We will use the Five Forces Model of Michael Porter to analyze the competitive advantages
in the external factors which have a significant impact on the business result of both A2 and
Synlait Milk Company and how those companies tackle problems.
5.1: Threats of New Entrants
Many new firms jump into the markets that are able to compete directly with A2 and Synlait
Companies in terms of lower pricing strategy, reducing costs, and providing a new value
proposition to the customers, the new China infant formula milk company - Junlebao is an
example (Fern Fort University, n.d).
=> these 2 companies do innovation inside the firms by spending more on marketing and
product development to gain the growth in the quality of milk-related products to satisfy not
only old customers but also attract new customers.
5.2: Bargaining Power of Suppliers
Almost every company in the Food, Beverage, and Tobacco industry gets the raw material
from many sources outside. Therefore, those suppliers totally can negotiate to earn higher
profit from their buyers, otherwise, the supply process may be interrupted anytime when 2
sides do not gain an agreement on the price (Fern Fort University, n.d).
=> these 2 companies try to multiply the diversity of their supplier and prepare the substitute
to deal with the growth in the price of one material.
5.3:Bargaining Power of Buyers
In the Milk industry in detail and in the Food, Beverage, and Tobacco industry in general,
there is no monopoly company so the buyers or customers always have many choices for one
kind of product in the same sector. As a result, they totally can pick a cheaper product if they
are sensitive to the price.
=> In order to face it, A2 and Synlait can concentrate more on selling the experience than
selling only their original products.

5.4 & 5.5: Threats of Substitute Products or Services and Rivalry among the existing
competitors
The survival of existing opponents in Food, Beverage, and Tobacco will bring the threats of
substitute products or services because those companies compete with each other and they
may share almost similar market sector.
=> Each company obtains and maintains its own competitive advantage such as a very
signature product which makes the customers remember about them right away when they
hold that product

Word count: 2904

REFERENCES

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Fern Fort University. (n.d). The A2 Milk Company Limited Porter Five Forces Analysis.
http://fernfortuniversity.com/term-papers/porter5/asx/672-the-a2-milk-company-limited.php

Fern Fort University. (n.d). Synlait Milk Limited Porter Five Forces Analysis.
http://fernfortuniversity.com/term-papers/porter5/asx/672-the-a2-milk-company-limited.php

Synlait Milk. (n.d.). Sustainability. https://www.synlait.com/sustainability/

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