The CSL Limited (Commonwealth Serum Laboratories) Limited was formed in 1916 in Australia to service the country’s health needs. The company is a global leader in the specialty biotechnology industry. It develops innovative influenza vaccines and biotherapies that save lives and assist persons with life-threatening health circumstances. CSL is the major supplier of antivenoms and vaccines since 1916 and the sole producer of blood products (blood plasma). The firm has more than 25000 workers and operates in over 35 countries across the globe, with manufacturing facilities globally, and headquartered in Parkville, Victoria (IBISWorld, 2022). The company is listed on the Australian Stock Exchange as CSL: ASE.
Financial Ratio Analysis
Table 1: CSL Limited Ratio Analysis
|Return on Equity||56.68%||64.42%|
|Earnings per Share (cents)||$5.22||$4.63|
|Dividend per share (cents)||$2.10||$1.94|
|Cash flow ratio||1.17 Times||1.16 Times|
The profit margin for CSL Limited increased from 28.12% in 2020 to 28.74% in 2021 as shown in Table 1 above. The percentage value shows how many profit cents the company has earned for each dollar of sales. For example, CSL in 2020 attained a 28.12% profit margin implying that it generated an EBIT of $0.2812 for each dollar of revenue generated. Similarly, in 2021 the firm generated 0.2874 for each dollar of revenue earned (Lessambo, 2018). CSL Limited has a higher profit margin, which is always preferable because it implies the business generates more income from its revenues; thus showing the company’s profitability.
Return on Equity (ROE)
The ROE for the company decreased from 64.42% in 2020 to 56.68% in 2021 as illustrated in Table 1 above. The ratio measures the capability of a company to generate profits for investments of its shareholders in the business. The ratio reveals how much profits each dollar of shareholders’ equity earns. Investors desire to get high ROE as this shows that the company is utilizing its funds effectively (Písař, 2019). Mostly, an ROE of 15-25% is favorable; hence, CSL limited ROE of 64.42% to 56.68% is still under favorable performance despite its decline.
Earnings per Share (EPS)
The CSL Limited EPS increased from $4.63 in 2020 to $5.22 in 2021 as shown in Table 1 above. It is computed as the profit of the firm divided by its number of shares. The value of EPS acts as the company’s profitability indicator to analysts and investors mostly utilize the EPS ratio to compare the earnings of various firms. A higher figure is preferred because it shows good performance in the company’s profitability (Bamber and Parry, 2020). Hence, CSL Limited EPS increased to $5.22 showing better profitability for its shareholders, and the ratio measures the firm’s performance in the market.
Dividend per Share (DPS)
The company’s DPS ratio increased from $1.94 in 2020 to $2.10 in 2021 as demonstrated in Table 1 above. DPS is the total of declared dividends paid by the firm for each common share outstanding. It is computed by the sum of dividends paid by the number of shares issued. Higher DPS stocks offer more income even though often come with higher risk (Scott, 2018). Hence, an increase to $2.10 shows better performance as shareholders receive more income and this ratio determines the company’s performance in the market.
Cash flow ratio
The CSL Limited cash flow ratio increased from 0.16 times in 2020 to 0.17 times in 2021 as displayed in the table above. A higher ratio, more than once, shows that the firm has earned more cash in the period than what is required to settle its short-term obligations. However, a less than one ratio shows that the firm has generated less cash to settle its short-term liabilities. CSL limited from 2020 to 2021 has recorded a cash flow ratio of below one; thus, the company is experiencing short-term cash flow issues in its operations (Sekhar, 2020). This ratio measures CSL’s limited liquidity position in the industry.
Analysis of the Company’s Financial Position
Liquidity position of CSL Limited
Table 2: Current Ratio for CSL Limited
|current ratio||2.38||3.01||Current ratio=Current assets/current liabilities(Times)|
Table 2 above shows that the current ratio for CSL Limited decreased from 3.01 times in 2020 to 2.38 times in 2021. The current ratio shows the firm’s ability to settle its current obligations within a year with its short-term assets. In many cases, a current ratio of between 1.5 times and 3.0 times is favorable and acceptable. However, a less than one current ratio may demonstrate that the company is experiencing liquidity issues and cannot be financially stable (Sekhar, 2020). In the case of CSL Limited, the current ratio is above 1.5 times showing that it is favorable and acceptable despite dropping from 3.01 times to 2.38 times.
The Company’s Long Term Financial Solvency
Table 3: CSL Limited Debt Ratio
|Debt ratio||53.84%||57.79%||Debt ratio=Total liabilities/Total assets*100|
The debt ratio for CSL Limited decreased from 57.79% in 2020 to 53.84% in 2021 as shown in Table 3 above. The debt ratio informs the investors of the amount of money that creditors have contributed instead of the company’s shareholders. If this ratio is below 50%, then most of the firm’s assets are funded through shareholders’ equity. If this ratio is more than 50%, then most of the firm’s assets are funded through debt. In the case of CSL Limited, the debt ratio dropped from 57.79% to 53.84%, which shows that the company’s assets are mostly financed via debts. However, the company is striving to reduce its debt burden to below 50% as shown by a decrease of 3.95%. A debt ratio of 60% or more makes it difficult for the company to borrow funds but a lower debt ratio implies better creditworthiness (Çalıyurt, 2019). CSL Limited debt ratio is below 60% thus, the firm is not currently exposed to financial risk issues.
Analysis of the Company’s Sustainability
CSL Limited’s Sustainability Vision and Strategy
CSL Limited’s sustainability vision is to have a sustainable future for its workers, donors and patients, communities, and motivated by innovative science and the value-driven culture in the organization. The company provides many products comprising pharmaceuticals, nutrition products, and animal health. The firm strives to create all its operations and activities more sustainable for the ecosystem and its business by concentrating on three major sustainability pillars: people, profit, and the planet (earth). The company engages in programs that provide opportunities to the society where they operate by providing jobs and establishing partnerships with societies across the world. Further, the company adopted the Montreal Protocol’s principles that advocate for a reduction in chlorofluorocarbons (HCFCs) and Chlorofluorocarbons (CFCs) emissions. The company works on lowering its environmental effect by not using CFCs in their product manufacturing and recycling products. CSL Ltd focuses on improving profits whereas decreasing its environmental effect (Çalıyurt, 2019). The firm supports its workers to assist in attaining the three sustainability pillars via incentive programs referred to as Global incentives.
CSL Limited’s Sustainability Strategy and Activities Create Value
The company’s sustainability strategy and activities create value, support, and contribute to the United Nations’ sustainable development goals. The firm has a comprehensive and complete sustainability plan in corresponded with the 2030 Agenda for sustainable development comprising executing a supply chain practice that resolves trade-offs based on time, quality, mobility, land use, and cost (IBISWorld, 2022). Besides, the firm creates value from sustainably manufacturing goods via its trading of stocks that promote social effect funds and via its engagement in Community Learning Tree.
CSL Limited’s Approach to Environmental and Climate Change Performance
The company centers on four major areas of performance to promote its climate change and environmental practice, which comprises the avoidance of wastage and minimization through recycling materials and reducing consumption. In addition, the company focuses on recycling, by offering a social responsibility for the resources management and buying renewable energy sources (IBISWorld, 2022). Further, this firm concentrates on reducing carbon dioxide footprint via combining carbon-neutral goods with consumer supply chains and choosing alternatives in manufacturing systems to more sustainable options, for example, renewable energy sources and substitutes for plastic use.
CSL Limited’s Approach to Community/Social/People
Because of the company’s nature of work they do and the effect it has on communities, the firm has established a strong commitment to community engagement and social responsibility. For instance, they participate in programs that entail assisting local communities by donating computers to schools, provision of stable employment opportunities for employees, and providing sponsorships to students (Bamber and Parry, 2020). Further, they work with enterprises and other companies to establish sustainable solutions beyond their companies.
Environmental and Social Performance of CSL Limited
Currently, stakeholders and investors have become growingly aware of the significance of sustainability. They are considering the environmental and social performance of the firm as a means to generate value for and benefit the community and stakeholders. The company’s environmental responsibility is under their corporate policy and involves the reduction of chemicals, recycling, and energy reduction (Bamber and Parry, 2020). CSL Limited’s social responsibility needs to support a good working environment for workers, create job opportunities for underprivileged social group members, and provide care for individuals in need.
The client who intends to invest in one of the blue-chip shares of the ASX needs to consider investing in CSL Limited due to the following parameters as revealed through financial ratio analysis. According to the client’s investment criteria, CSL Limited has met almost all the parameters from profit margin at 28.74%, ROE at 56%, EPS at $5.22, current ratio at 2.38 times, and debt ratio at 53.84%. The company only registered an operating cash flow ratio of below 1 for both financial years but this is bound to change considering it has a stable current ratio. The company has shown potential for growth in all its aspects and involves in sustainable business processes and activities.
CSL Limited’s Material Risks
Material risks for this company operate in a constantly changing and fast-paced environment of technology, science, and healthcare. Hence, they are exposed to risks inherent in the global biotechnology sector, specifically the blood plasma therapies sector. These risks include product quality and patient safety, product innovation and competition, market access, privacy and cybersecurity, people and culture, supply, capacities, and operations (IBISWorld, 2022). CSL manages its risk through disruptive risk mitigation and the preparation for clutching opportunities.
Recommendations and Conclusion
CSL Limited is an ideal company for one to should invest in because of its profitability as revealed through profit margin and ROE ratios. The company’s profit margin ratio is above 28%, its ROE is over 50% showing a better performance. Investors should invest in CSL Limited based on its market performance ratios as all present increasing values. EPS value increased from $4.63 to $5.22 implying investors get more return for capital invested in the company. Further, they will get more dividends for their investments in the company as shown by a continuous increase in DPS from $1.95 to $2.1.
CSL Limited is an ideal company to invest in because of its stable liquidity position. The company’s current ratio has been maintained at more than 1.5 times within these two financial years. The financial solvency of the company is relatively stable as the debt ratio ranges between 50% and 60%. Besides, the company has embedded sustainability in its operations and activities to enhance future performance. However, one could fail to invest in CSL Limited as per its operating cash flow ratio which is below the minimum ratio of one required in the industry.
CSL Limited has displayed better performance based on the financial analysis conducted on its financial statements. The firm shows better performance in profitability ratios, market performance ratios, liquidity ratios, and solvency ratios. However, the firm has revealed underperformance in cash flow from operating activities as shown in the cash flow ratio. In addition, CSL Limited has put in place measures that enhance its sustainability in the industry.
Bamber, M., and Parry, S. (2020). Accounting and finance for managers: A business decision making approach. Kogan Page.
IBISWorld. (2022). Industry market research, reports, and statistics. IBISWorld – Industry Market Research, Reports, & Statistics.
Lessambo, F. I. (2018). Financial ratios analysis. Financial Statements, 9(5), 207-247.
Písař, P. (2019). European SMEs’ value management based on controlling, financial analysis and ratios – empirical study. Investment Management and Financial Innovations, 16(4), 277-289.
Scott, P. (2018). Introduction to accounting (3rd ed.). Oxford University Press.
Sekhar, C. (2020). Financial ratio analysis: 45 ratios with theory & interpretation of financial statements can useful for students, job interviews, investors, fund managers.. (2nd ed.). Chandra Sekhar.
Çalıyurt, K. T. (2019). Ethics and sustainability in accounting and finance, volume I. Springer.
Appendix A: Financial Statements
Appendix B: Calculation of Ratios
|Amount $||Amount $|
|Return on Equity||56.67378569||64.41877566||#NAME?|
|Earnings per share||5.218335211||4.630560483||#NAME?|
|No. of shares||455,125,994||454,048,707|
|dividend per share||2.104911635||1.944945523||#NAME?|
|No. of shares||455,125,994||454,048,707|
|cash flow ratio||1.166999613||1.161942564||#NAME?|
|Net cash flow from op.a||3,621,900,000.00||2,488,300,000.00|