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					         Toll Holdings Limited is Australia’s largest transport company, offering freight services in              Comment [HO]: No actual figures
warehousing, road, air, rail, and sea throughout 55 countries. The company’s common stock is a well-               please, just say that they all decreased
known and popular publicly traded security; however, a practical shareholder would be wise to                      and why this could be and what it could
consistently evaluate whether they should continue to be a common equity holder. Therefore the purpose             affect like the paragraph below.
of this response is to provide logical and coherent reasoning as to why a current shareholder should
remain as a shareholder in Toll Holdings Limited. The scope of the analysis will be limited to the                 Thanks :)
financial statements of the company for the years ended June 30, 2013, 2012, 2011, 2010, and 2009 as
                                                                                                                   Comment [HO]: How so? Mention why
well as the 2013 Annual Report. Unless explicitly stated, it is assumed that any financial trends noted
during the five above-mentioned years will continue. This assumption of general stability is the most
significant limitation of the analysis. Lastly, the analysis will focus on the general profitability, liquidity,   Comment [HO]: ROE decreased as well,
asset efficiency and gearing of the company without relying too heavily on any one financial ratio or class        not increased?
of financial ratios.                                                                                               Comment [HO]: This is very vague,
                                                                                                                   where was the effective use of the
         Since this analysis is focused on the risks and opportunities of a common shareholder, more
                                                                                                                   assets? Also, was it current or non-current
weight will be given to the profitability and asset efficiency ratios as these ratios are greater indicators of
                                                                                                                   and which asset category exactly?
whether the company’s stock will outperform the market than liquidity and gearing ratios. The company
liquidity is decreasing over the review period as can be seen from the current ratio, quick ratio and cash         Comment [HO]: …by how much?
flow ratio. The decrease in the liquidity is due to the relatively high increase in the current liabilities of
the company as compared to the relative increase in the current assets of the company. The relative
increase in the inventory has also impacted on the absolute liquidity of the company by decreasing the
quick ratio over the review period. But there is improvement was recorded in the interest coverage and
debt coverage ratios over the review period.

         The company’s profitability ratios indicate that there are problems. The company’s operating
profits margin, cash flow margin, return on assets, and return on equity have all deteriorated over the past
five years. This is concerning to the common shareholder as these ratios indicate that the common stock is
likely to underperform in the market. Also, it is important to note that the negative trend in profitability is
equally offset by the asset efficiency ratios of the company as asset efficiency has resulted in increase the
generation of the revenue through effective use of the assets but decrease in the operating margin due to
the increase in the costs has resulted in the decline in the overall profitability. Profit margin ratio, gross
profit margin ratio, cash flow to sales ratio and return on assets has decreased over the review period due
to the decrease in the profitability of the company from normal course of the business. Moreover, asset
turnover and sales to net working capital has shown improvement in the effective use of the operating
assets for the generation of the revenue. Fixed asset turnover, day’s inventory, day’s debtors and times
inventory has shown detrition due to this, the overall asset efficiency for the liquidity of the company has

         The company’s gearing ratios indicate that the company’s balance sheet is stable and there is
relative higher increase in assets as compared to debt and debt ratio has indicated that the company
dependence on the debt for the asset acquisition has increased as debt ratio has increased over the review
period indicating the increase in the asset financing through the use of debt is increasing. Similarly, the
company’s interest coverage ratio indicates that the company consistently has sufficient earnings to
service its debt; therefore, the company’s capital structure is very solid and is not a cause of concern for a
common shareholder or creditor.

        Based on the above analysis, it is recommended that the common shareholder hold their shares in
the company until the company issues public market debt or the common shareholder is able to participate
in the USPP (US Private Placement) Notes. This also assumes that the interest rate of that debt will
exceed the current 4.9% dividend yield (based on 12/31/13 closing price). Therefore, it is advised that the
current shareholder transitions from holding the company’s equity to becoming one of the company’s
creditors as soon as the interest rate on the debt exceeds the current dividend yield of the stock. This is the
recommended strategy as the liquidity and gearing ratios indicate that the company has low credit risk and
it is unlikely that the shareholder will earn a common equity return in excess of the dividend yield due to
the poor profitability ratios.


Profitability ratios
Asset efficiency ratios

Gearing ratios
Liquidity ratios

Additional calculations
Vertical Analysis: Profit and Loss Statement

Horizontal Analysis: Profit and Loss Statement
…next page.

Birt, J., Chalmers, K., Byrne, S., Brooks, A., & Oliver, J. (2012). Accounting: Business Reporting for
Decision Making (4th ed.). Milton, QLD: John Wiley & Sons Australia Ltd.,. (n.d.). UTi Overview - UTi Worldwide. Retrieved from
overview,. (2014). Toll Holdings Limited Names of Competitors. Retrieved from
information/cs/competition.Toll_Holdings_Limited.2c29e833e2349a5f.html,. (2013). Toll Holdings Limited - Retail. Retrieved from

McIlwraith, I. (2012). A nice little earner as Toll boss agrees not to compete. The Sydney Morning
Herald. Retrieved from

Morningstar DatAnalysis,. (1993). Toll Holdings Limited. Retrieved from

O'Sullivan, M. (2013). Conditions remain challenging for Toll. The Sydney Morning Herald. Retrieved

O'Sullivan, M. (2013). Toll yet to see real upturn. The Sydney Morning Herald. Retrieved from,. (2013). Toll Holdings Limited- Annual Report 2013. Retrieved from, (2013). Company Financials - UTI Mutual Fund. Retrieved from:

Whitefield, C. (2013). ASX - Toll successfully re-enters US Private Placement market.
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