Introduction
The objective of this report is advise and recommend whether Restaurant Brand New Zealand Limited or Xero Limited is the better company to work for in relation to long-term employment. As companies that have the capacity to provide their employees with stable, long-term employment usually show strong growth and are thriving economically in their chosen market. This report is also based on the financial information provided by the NZX Company Research database from the past three years and articles sourced from NEWZTEXT in order to present a comprehensive view of how each company is performing in the current environment.
Restaurant Brands New Zealand Limited or RBD as listed on the NZX Company Research database is a corporate franchisee and manages some of New Zealand’s popular multi-chain food outlets, including KFC, Pizza Hut, Starbucks and most recently, Carl Jr. As at February 2015, RBD had 181 stores nationwide including 91 KFC, 46 Pizza Huts, 26 Starbucks and 18 Carl Jr stores and 4,000 employees combined and serves over 60,000 customers per day (Restaurant Brands New Zealand Limited, 2016).
Xero Limited or XRO as known on the NZX Company research database is a cloud-based accounting software that assists small businesses thrive in the competitive market (Xero, n.d). XRO employs around 1,300 staff with one global team and has already expanded into the Australian, United Kingdom and United States markets (Xero Limited, 2016). XRO was founded by Rod Drury and his personal accountant and officially formed in 2006 in Wellington, New Zealand (McKenzie, 2013). XRO currently has 600,000+ subscribers and has shown tremendous growth, as the amount of paying customers grew from 284,000 paying users in 2014 to 475,000 in 2015 (Xero Limited, 2016).
Report Body
This section of the report analyses and compares the financial performance position of RBD and XRO and evaluates them using their cash flow statements and relevant statistical measures retrieved from the NZX Company Research database. All momentary figures are expressed in million figures (+000).
Liquidity
The current ratio compares the current assets of an organisation with their current liabilities to measure the liquidity of an organisation in terms of whether they are able to meet their short-term obligations (Lawrence, Davey, & Low, 2012). RBD’s current ratio has shown an increasing trend over the past three years. Figures in 2013 were 0.15 then a slight increase to 0.17 in 2014 and there was a significant increase to 0.41 in 2015. Meaning, that for every $1 of current liabilities, RBD currently has $0.41 of current assets to meet its short term obligations. XRO’s current ratio has been outstanding over the three years, even though it has shown drastic fluctuation. The current ratio was 10.83 in 2013, then it rose to 13.30 in 2014 but then decreased to 9.63 in 2015. This means that for every $1 of current liabilities, XRO have $9.63 of current assets. Therefore, XRO is able to meet their short term obligations, whereas RBD is unlikely to and doesn’t meet the ideal relationship 2:1.
The quick asset ratio measures the company’s ability to meet its short-term debts not obligations like the current ratio and therefore provides an accurate measure of liquidity as inventory and prepayments are excluded from current assets as they cannot be easily converted into cash (check text book) (Lawrence, Davey, & Low, 2012). RBD’s quick ratio has started off in 2013 as 0.09 over the year there was a slight increase to 0.12 in 2014 and showed another increase to 0.20 in 2015. This means for every $1 of current liabilities RBD has $0.20 of current assets. As an ideal quick ratio is 2:1, but RBD’s is 0.2 and therefore making it unlikely for RBD to meet its current debts. However, XRO’s quick ratio has also fluctuated just like their current ratio. It was 10.83 in 2013, rose to 13.30 in 2014 but then it showed a decrease to 9.63 in 2015.
Asset Management
Fixed Asset turnover ratio (FAT) concentrates on the company’s fixed assets and how efficiently they are being used to generate revenue for the company (Lawrence, Davey, & Low, 2012). XRO has shown an increasing FAT over the past three years from 5.37 in 2013 and showed a significant increase 7.11 in 2014 and a slight increase to 7.45 in 2015. Meaning, that XRO efficiently used their fixed assets to generate revenue over the past three years. RBD has also experienced a small increase over the past three years from 3.98 in 2013 to 4.34 in 2014 and 4.09 in 2015. This is also a favourable trend but to a lesser degree because the fixed assets are still being used effectively to generate revenue for the company.
Total Asset turnover ratio (TAT) focuses on how effectively the company is using all of their assets to generate revenue (Lawrence, Davey, & Low, 2012). The TAT ratio is sometimes used to compare how the company is performing in comparison to previous years and to other companies in the same market (Lawrence, Davey, & Low, 2012). XRO’s TAT has stayed relatively the same over the past three years from 0.42 in 2013 showed a slight decrease to 0.3 in 2014 and finally, increased to 0.4 in 2015. This means, XRO’s net sales are 0.4 times more than the company’s total assets which is less than ideal in terms of generating revenue. Whereas RBD is experienced a slight increase from 3.35 in 2013 to 3.66 in 2014 and then showed a slight decrease to 2.91 in 2015. Meaning that RBD has not been using their assets effectively to generate revenue.
Financial Structure
Shareholders equity ratio uses how much control the organisation has over the daily operations of the company and measures how much funding a company has in comparison to its shareholders (Lawrence, Davey, & Low, 2012). XRO has shown an favourable equity ratio and stayed relatively stable from 91.63% in 2013 to 92.88% in 2014 and then showed a decrease to 89.55% in 2015. Conservative companies prefer to be around to 50% equity margin (Lawrence, Davey, & Low, 2012) therefore, XRO has almost complete control of the business. Whereas RBD has less than ideal equity ratio with 44.69% in 2013 and showed an increase to 51.42% in 2014 and experienced a decrease to 40.59% in 2015. Therefore, RBD has a say in its daily operations the majority of the funding is provided by shareholders. This is potentially due to RBD purchase of several Carl Jr’s in 2014 while the decline in 2015 might be due to RBD’s sell-down of Pizza Hut’s as part of a sell-down (Restaurant Brands New Zealand Limited, 2016).
Times interest earned ratio (TIE) indicates to its financial users the percentage of revenue that covers all interest expenses before interest and tax deductions (Lawrence, Davey, & Low, 2012). XRO has no applicable data before 2015 and is currently at a TIE of -2697.24 this is an extremely concerning ratio as it indicates XRO cannot cover any of its interest obligations and is unable to take on any more debt. While, RBD has experienced an favourable increasing trend from 13.61 in 2013 to 17.04 in 2014 and to 34.71 in 2015. Meaning RBD can easily pay all of its interest obligations and can afford to take on substantial debt.
Profitability
The Net Profit Percentage Measures the amount of net profit generated from sales revenue of the company (Lawrence, Davey, & Low, 2012). XRO has experienced a unfavourable decrease over the past three years from-36.24% in 2013, -48.37% in 2014 and -54.47% in 2015. This is a negative trend which means that XRO are not making as much profit off their revenue in comparison to previous years meaning there is an increasing amount of expenses in ratio to sales which has a negative effect for the company. Whereas, RBD had a NP% of 7.02% in 2013, 8.33% in 2014 and 9.03% in 2015. RBD trend is the opposite to XRO, they had a positive trend meaning that they are better dealing with their expense each year. RBD has the upper hand on NP% as they have a positive trend and continue to make profit whereas XRO is struggling.
Return on assets percentage (ROA%) measures how effectively the company is using their total assets to generate profit and tells us the return that they are making (Lawrence, Davey, & Low, 2012). XRO’s ROA% was -11.88% in 2013, -11.85% in 2014 and -17.95% in 2015 which is a fluctuating negative trend as they improve slightly in the second year to only fall hard in the last year. This shows that XRO purchase a lot of assets in 2015 which did not benefit profits. RBD’s ROA% was 18.53% in 2013, 23.78% in 2014 and 20.61% in 2015. Here we see an increase as overall we have a positive move as RBD gets a better ROA% in 2015 compared to 2013, this shows that they are utilising their assets better. Again we see RBD having it over XRO in the profitability ratios as they continue to have increasing trends and surplus as XRO is running at a deflect year to year.
Growth
Turnover growth show the proportion of income growth compared with the previous accounting period (Lawrence, Davey, & Low, 2012). For XRO their turnover growth was 101.5% in 2013, 79.57% in 2014 and 76.7% in 2015. Although this is a decreasing trend these are outstanding growth show that year after year they continue to expand the business. RBD had Turnover growth of only 1.2% in 2013 but increased to 5.57% in 2014 and again to 9.19% in 2015, this slow increasing trend is expected as RBD is a well-established brand that has already hit maturity. XRO has the better potential for growth as they are a new and innovative company.
Net income growth measures the percentage of sales after cost of goods sold and expenses are taken into account (Lawrence, Davey, & Low, 2012). For XRO Net income growth is -82.73% in 2013, -146.11% in 2014 and -95.62% in 2015. This is a fluctuating decrease which shows that XRO are continuing to struggle with their expense as a lot of research and development has happened in the past few years starting up the company. RBD’s Net income growth was -4.54% in 2013, 23.48% in 2014 and 19.43% in 2015 which is a fluctuating increase showing that they are continually bettering their cost management
Market Test
The P/E ratio shows the relationship between the current share price and the per-share earnings (Lawrence, Davey, & Low, 2012). XRO’s P/E ratio was -110.34 in 2013, -140.62 in 2014 and -54.56 in 2015. RBD’s P/E ratio was 16.19 in 2013, 12.9 in 2014, and 14.69 in 2015.
The Adjusted share price is the stock price at the end of the day as per balance day minus the dividends (Lawrence, Davey, & Low, 2012). XRO’s ASR was 1102 in 2013, 3223 in 2014 and 2410 in 2015. While RBD’s was 285 in 2013, 282 in 2014 and 382 in 2015. With both company’s trends increasing there are positive signs for the future.
Cash Flow
The cash flow statement provides users financial information about cash being generated and used during the company’s financial year and is separated into the following four areas: operating, investing, financial activities and the net cash inflow/outflow at the end of each financial year.
The net operating activities for RBD had a fluctuating net cash inflow. In 2013 the net cash inflow was $34,765, it then decreased to $32,652 in 2014, and it then rose again in 2015 to $36,625. RBD’s sales have increased over the years. However, their cash outflow has also, as they have been paying more to their suppliers. Whereas XRO’s cash is showing an overall outflow. From $-7,532 in 2013 to a substantial increase to $-38,623 in 2015. This is a result of the expenses being higher than the sales.
Net investing activities for RBD has fluctuated from -$19,832 in 2013 to -$10,063 in 2014 then to -$33,024 in 2015. This is an unfavourable trend for RBD, as they should be investing into less fixed assets. While XRO’s net investing activities are increasing from -$13,270 in 2013 to -$27,380 in 2014 then to -$49,758 in 2015. However, XROs fixed assets are lower compared to RBD’s fixed assets.
Net financing activities for RBD has fluctuated over the three years. From -$14,835 in 2013 to -$22,617 in 2014 then to -$2,796 in 2015. These figures are mostly made up from dividends paid. While in comparison XRO has a more significant net financing figure. In 2013 their net financing activities figure was $59,982, it then dramatically increased to $180,054 in 2014 then decreased to $132,154 in 2015. This fluctuation is a result of XRO has sold $72,172 worth of shares to the market.
Net cash flows for RBD has been fluctuating from $98 in 2013 to -$28 in 2014 then to $805 in 2015. 2014 was the only year where there had been an outflow of cash, where in 2013 and 2015 was the years where RBD had an inflow of cash. XRO’s also shows a dramatic fluctuating trend where its $39,180 in 2013 than $131,655 in 2014 and then was $43,773 in 2015.
Non-Financial Information
XRO has partnered with Paymark in an effort to eliminate paper receipts in New Zealand electronic business (Anthony, 2015) by working on mechanisms to allow eReceipts to uploaded directly into XRO’s accounting software therefore, eliminating the need for paper receipts as Paymark processes more than three quarters’ of all electronic transactions in the retail market in New Zealand (Anthony, 2015). This shows the company willingness to be involved in environmental sustainability initiatives.
XRO was rated as one of New Zealand coolest companies to work for by Stuff. They provided a snapshot of the benefits that XRO employees have access to including; “pool tables, beanbags and video conferencing suites as well as free fizzy drinks, PlayStations and an in office barrister” (McConnell, 2016). Employees also have a favourable long-term employment incentive which involves having “your own a little chunk of Xero" (McConnell, 2016) as stated by the head of mobile, Luke Gumbley. Staff are further motivated by being encourage to treat "everyday is causal Friday" which also encourages enthusiasm (McConnell, 2016). This award along with the following piece implies that XRO encourages its employees to have a good work-life balance and empowers employees by allowing them to believe that management trusts their employees to finish all the tasks required of them and contribute to the company’s success.
KFC who is owned by RBD in October 2013 laid off 17 disabled workers as a result of a store restructure which eliminated “limited duties” roles in the company. However, workers were offered their jobs back shortly after as a result of widespread public outrage by RBD, fuelled by the media. Now the staff members involved are now employed within RBD they are back with appropriate training (Snow, 2013). This has a negative impact on RBD as they lacked concern for employees until the media and public got involved showing as a company they lack social responsibility.
RBD in April 2015 abolished the use of zero-hour contracts in their company giving employees job stability and if a staff member leaves the existing hours will have offered to existing staff first before looking externally these changed were to be implemented in July 2015 (NZ hearld, 2015). This also shows again how RBD caves to media and public pressure and does the socially expected action but calls into question RBD’s triple bottom line and their position on corporate social responsibility and how they treat their employees in their company throughout the organisational hierarchy.
Conclusion and Recommendation
The objective of this report is advise and recommend whether Restaurant Brand New Zealand Limited or Xero Limited is the better company to work for in relation to long-term employment. Xero Limited has a better liquidity and debt management as well as net cash flow than Restaurant Brand New Zealand Limited. However, Restaurant Brand New Zealand Limited has a higher profitability than Xero Limited. From an employment perspective, the liquidity and debt management of a firm are the aspects that matter. Liquidity show the ability of the firm to meet current obligations including salaries while debt management show the bankruptcy risks. Therefore, Xero Limited is better. Besides, Xero treats its employees better than Restaurant Brand New Zealand. I recommend that Restaurant Brand New Zealand should improve its liquidity and gearing ratios. Besides, it should enhance employee terms and engagement.
References
Restaurant Brands New Zealand Limited (2016) 2015 Annual report of the Restaurant Brands New Zealand Limited. Retrieved from
Xero Limited (2016) 2015 Annual report of Xero Limited. Retrieved from
Lawrence, S., Davey, H. and Low, M. (2012) Accounting at Work: in Business, Government and Society. 5th edn. Auckland, N.Z.: Pearson Education New Zealand
https://www.xero.com/nz/about/
McKenzie, H. (1 May, 2013) Xero: a billion-dollar software company that had five years in stealth at the bottom of the planet. Retrieved from https://pando.com/2013/05/01/
Anthony, J. (30 April, 2015) Xero and Paymark team up for paperless receipt service. Retrieved from http://www.stuff.co.nz/business/68161778/Xero-and-Paymark-team-up-for-paperless-receipt-service
McConnell, G. (4 May, 2016) 5 of New Zealand’s coolest companies. Retrieved from http://www.stuff.co.nz/business/better-business/79404352/5-of-new-zealands-coolest-companies
Snow, A. (20 October, 2013) Axed staff get jobs back. Retrieved from http://www.nzherald.co.nz/restaurant-brands-nz-ltd/news/article.cfm?o_id=173&objectid=11142909
NZ Herald, (9 April, 2015) Restaurant Brands say no to zero hour contracts. Retrieved from http://www.nzherald.co.nz/restaurant-brands-nz-ltd/news/article.cfm?o_id=173HYPERLINK "http://www.nzherald.co.nz/restaurant-brands-nz-ltd/news/article.cfm?o_id=173&objectid=11429902"&HYPERLINK "http://www.nzherald.co.nz/restaurant-brands-nz-ltd/news/article.cfm?o_id=173&objectid=11429902"objectid=11429902
http://companyresearch.nzx.com.ezproxy.waikato.ac.nz/deep_ar/newpage.php?pageid=arepHYPERLINK "http://companyresearch.nzx.com.ezproxy.waikato.ac.nz/deep_ar/newpage.php?pageid=arep&default=RBD"&HYPERLINK "http://companyresearch.nzx.com.ezproxy.waikato.ac.nz/deep_ar/newpage.php?pageid=arep&default=RBD"default=RBD URL from Annual reports
Appendices
