BUSN1001 Assignment

Business Report

Introduction
Objectives and Techniques
The objectives of this report are to analyse Navitas Limited (NVT) if NVT is a good company to
invest on, to compare NVT and a competitor using various analysis, to provide the insight of
NVT and the economy. For this, we are separating it to Business and Strategic Analysis for
theoretical analysis of the company, and Financial Analysis for the quantitative analysis of the
company.
Competitor
The chosen competitor is G8 Education Limited (GEM). As opposed to NVT, GEM is not a
global provider in higher education and vocational training. But GEM is the leading child care
centre operation in Australia, which makes GEM an indirect competition when it comes to
investment. The disadvantage of using GEM as competitor is both NVT and GEM do not offer
similar services and they are not at the same size in terms of companys structure.
Structure
This introduction aims to give you an overview of the report, followed by Business and
Strategic Analysis. Here we look into the companys business activities and strategies, the
economy and the industry outlook, and the companys future profitability. For Financial

Analysis, we will be comparing with the ratio analysis, trend analysis and common size analysis
with a chosen competitor, industry statistics with Education and Training industry and other
available media information. We will be able to judge the financial strengths and weaknesses of
NVT with Financial Analysis. We then conclude it with recommendations whether NVT is a
good company to invest on.
Brief Conclusion
For risk-neutral or risk-lover investors, the recommendation after the analysis would be NVT is
a good company to invest on. However, if the investor is risk-adverse, it is advisable to not
invest in NVT due to the uncertainties in industry and economic outlooks, even though the
business and strategic analysis provide positive outlooks.
Business and Strategic Analysis
Business Activities
Navitas separated their business activities into three parts, University Programs, SAE Institute,
Professional and English Programs (PEP). With its University Programs, Navitas offers preuniversity and university programs across different countries. With SAE Institute, Navitas
provides higher and vocational education, offering studies on audio and film production; and
creative media. (Navitas 2015)
With its Professional and English Programs (PEP), Navitas pairs professional degrees with
placement service. This program is aimed at international students, migrants and refugees to
equip them with proficiency in English and preparation for work. Additionally, under PEP, the
Navitas Resources Institute provides corporate clients a customised program to build workforce
capability. On the other hand, Cadre develops online learning test and knowledge sharing
solutions. (Navitas 2015)
Economy Outlook and the Implication on its Future Profitability

The economy is moving towards further modernisation. This results in decline in the
manufacturing and agricultural industry but an increase in services in terms of share of output
(Australian Industry Report 2014). The Australians standard of living is considered high where
Australians enjoy high quality of goods and services. This is proven with Organisation for
Economic Co-operation and Development (OECD)s Better Life Index, where Australia is
ranked at 10th among 30 developed countries (OECD Australia 2014). In February 2015, the
Reserve Bank of Australia reduces the cash rate (RBA 2015). Subsequently it affects the
Australian currency where it depreciates to its lowest in six years (ABC 2015).
In general, it is fair to say that as income increases, there is an increase in demand for goods and
services. Since NVT covers a wide range of education services, this indicates possible higher
profit in the future as the demand for quality services in general should increase. With a
weakened Australian currency and lower interest rate, NVT might experience an increase in
foreign investment since the currency is affordable. NVT might not be doing well in the
domestic economy since it is more expensive to consume other goods and services, which might
indirectly affect the proportion spent on education services like NVT. However, domestic
demand on education in Australia has been high, hence it is likely that the proportion spent on
education services will remain.
Industry Outlook and the Implication on its Future Profitability
NVT falls under the Education and Training industry under the Social Service Sector (Industry
2015, p. 71). The industry has strong growth over the past five years with high demand from
domestic students (Ibisworld 2015). While this looks surprising, 25% out of the 1.3 million
students enrolled in universities of Australia was international students (Ibisworld 2015). The
number has been falling as Australian currency was high over the past years (SMH 2014). With
the lower Australian currency, the industry is looking optimistic with more international

students to enrol. As for the vocational training industry where NVT is also part of, the industry
is estimated to grow at a rate of 5% in the next 5 years (Ibisworld 2015).
The industry is looking optimistic with expected higher enrolment from international students
and continuing support from domestic market. With the expected growth in education and
training sector, NVT would benefit since it covers higher education and vocational training. The
lower Australian currency might encourage migration where itd benefit the third business unit,
PEP.
Company Outlook and the Implication on its Future Profitability
In early February 2015, NVT loses one of the university partner, Macquarie University (ABC 2
2015). This news resulted in a fallen of share price and reduction in profitability. However this
is offset by the increase of enrolment due to weakening of Australian currency as mentioned
above. NVT brands themselves as a global leader in providing higher education and vocational
training service, which is true. NVT has a strong network across the globe, providing customers
easy access to global education (Navitas 2015). However NVT also faces competition from
institutions like universities and colleges.
By just looking at companys outlook, it is difficult to judge its future profitability. This would
be better examined by using the Financial Analysis below.
Companys Strategy and the Implication on its Future Profitability
NVT has sound plans in improving the company, domestically and internationally (Navitas
Annual Report 2014). Competitively, NVT in 2014 is focusing on the continuing expansion of
its first business activity, University Programs. NVT also seeks improvement in the second
business activity, SAE Institutes internal capability and product expansion. NVT will also be
undergoing review of the Sales and Marketing function with expansion of the resources in
respective countries.

Corporately, NVT will strengthen the senior management capability across divisions and to roll
out scorecard approach in measuring and communicating strategy. NVT has a strategy map and
has addressed the business risks with suggested solution plans.
NVT management has certainly put thoughts into the strategies to improve the company
competitively and corporately. While the outcome has yet to be observed, NVTs detailed plan
and risk management policy are confidence booster for investors. If NVT can follow the
strategic plan and with positive economic activities, future profitability is looking optimistic.
Financial Analysis
Ratio Analysis - Current Ratio
NVT Current Ratio for 5 Years
2014

2013

2012

2011

2010

0.529

0.524

0.450

0.473

0.531

GEM Current Ratio for 5 Years

2014

2013

2012

2011

2010

1.435

2.001

1.306

1.001

1.826

A higher current ratio means a higher liquidity for the company (Porter & Norton 2006 p. 78,
79). NVTs current ratio has been consistent at around 0.5, it means that NVTs current assets
would not be enough to cover the current liabilities. As compared to GEM, its current ratio has
been more than 1.000 since 2010 which put GEM in a better and assuring position than NVT in
comparing current ratio.
Ratio Analysis - Profit Margin
NVT Profit Margin for 5 Years

2014

2013

2012

2011

2010

5.45%

10.32%

10.75%

12.24%

11.30

GEM Profit Margin for 5 Years

2014

2013

2012

2011

2010

11.23%

12.51%

11.08%

11.96%

5.24%

A high profit margin indicates a good control in terms of expenses. The ratio represents the
company is generating revenue and minimising its expenses at the same time (Porter & Norton
2006 p. 80). NVT was consistent between 2009 and 2013 before plunging to 5.45%, this could
be explained with the appreciation of Australian dollar causing a decrease in enrolment for
international students. For GEM, they have managed to stay at a consistent profit margin since
2011.
Ratio Analysis - Debt to Equity Ratio
NVT Debt to Equity Ratio for 5 Years
2014

2013

2012

2011

2010

2.454

2.063

1.727

1.733

2.558

GEM Debt to Equity Ratio for 5 Years

2014

2013

2012

2011

2010

0.853

0.581

0.477

0.640

0.668

NVT has more debt than stockholders equity as compared to GEM which always has less debt
than equity (Porter & Norton 2006 p. 490). However it does not mean NVT is performing badly
than GEM. It means that the company has a higher leverage where the extra borrowed money
can be used to benefit the company and stockholders.

Ratio Analysis - Time Interest Earned Ratio

NVT Time Interest Earned Ratio for 5 Years
2014

2013

2012

2011

2010

17.548

13.316

15.878

35.145

848.246

GEM Time Interest Earned Ratio for 5 Years

2014

2013

2012

2011

2010

7.528

10.311

11.582

12.522

5.597

Both companies have a small amount of interest obligations compared to their income available
to meet those obligations. With these ratios, creditors are confident that each company will be
able to meet its interest obligations on its long-term debt.
Profitability
Ratio Analysis - Earnings per Share
NVT Earnings per Share for 5 Years (000 cents)
2014

2013

2012

2011

2010

21.8

19.9

19.5

21.7

18.8

GEM Earnings per Share for 5 Years (000 cents)

2014

2013

2012

2011

2010

16.15

11.28

8.95

9.27

3.20

Higher earnings per share have indicated that NVT is more established. But GEM has the
advantage with higher rate of increment and this places GEM as an attractive investment to
provide higher returns.

Ratio Analysis - Price/Earnings Ratio

NVT P/E Ratio for 5 Years
2014

2013

2012

2011

2010

23.3%

32.3%

24.1%

18.1%

20.5%

GEM P/E Ratio for 5 Years

2014

2013

2012

2011

2010

25.8%

28.0%

18.2%

4.9%

29.4%

Plotting NVTs and GEMs P/E Ratio to graphs, we could see fluctuations from 2010 2014.
P/E ratio is often thought as the quality of the company earnings (Porter & Norton 2006 p.
659). A high P/E ratio might indicate the share being overpriced and a low P/E ratio might
indicate the share being underpriced. The NVTs EPS and P/E ratio are similar which indicate a
fairer return to investors.
Ratio Analysis - Dividend Payout Ratio
NVT Dividend Payout Ratio for 5 Years
2014

2013

2012

2011

2010

0.463

0.513

0.518

0.553

0.569

GEM Dividend Payout Ratio for 5 Years

2014

2013

2012

2011

2010

0.004

0.003

0.002

0.00001

0.003

NVT has paid a higher and consistent dividend which makes it more interesting than GEM, this
is reasonable as NVT is a bigger and global company as compared to GEM.

Ratio Analysis - Dividend Yield Ratio

NVT Dividend Yield Ratio for 5 Years
2014

2013

2012

2011

2010

1.988

1.586

2.149

3.429

2.772

GEM Dividend Yield Ratio for 5 Years

2014

2013

2012

2011

2010

0.014

0.011

0.012

0.022

0.011

NVT provides a higher dividend yield which once again a better choice than GEM.
Trend Analysis Balance Sheet

Trend Analysis for NVT

Trend Analysis for GEM

50%

600%

0%

400%

-50%

2014

2013

2012

2011

200%
0%

-100%

-200%

2014

2013

2012

Retained Earnings

Retained Earnings

Borrowings

Borrowings

Cash and cash equivalents

Cash and cash equivalents

2011

In Trend Analysis for Balance Sheet, we can see that there is sudden reduction 2014 for retained
earnings for NVT as compared to be consistent retained earnings for GEM. This is largely due
to difference in foreign exchange. For non-current liabilities, GEM has increased massively
which GEM will have to account for payback in the future. NVT has a consistent cash and cash
equivalents in the current assets which make it a safer investing choice.
Trend Analysis Income Statement

Trend Analysis for NVT

Trend Analysis for GEM

30%

120%

20%

100%

10%

80%

0%
-10%

60%
2014

2013

2012

2011

40%

-20%

20%

-30%

0%
2014

-40%
Revenue

Profit

Income

Revenue

2013

2012
Profit

2011
Income

A trend analysis in income statement shows that even revenue has increased for NVT, the profit
and income decreased due to large amount of expense. This could be worrying as the drastic fall
brings a pessimistic outlook for the company. Whereas GEM has been improving since 2012,
with its revenue, profit and income increase.
Common Size Statements Analysis
Using Vertical Analysis, from NVTs balance sheet in 2014 (GEM Annual Report 2014), cash
and cash equivalents increase from 7.80% in 2013 to 9.83% in 2014. Total current assets
increase from 23.66% in 2013 to 27.65%. Total current liabilities increases from 45.16% in
2013 to 52.26% in 2014. The increase is balanced by a decrease in retained earnings, from 5.53%
in 2013 to 2.46% in 2014.
From NVTs income statement in 2014 (NVT Annual Report 2014), we use revenue as the
benchmark.

Profit for the year decreases from 10.26% in 2013 to 5.78% in 2014. Total

comprehensive income for the year 10.32% in 2013 also decreases from 5.45% in 2014. This is
the profit margin, as calculated above.
From GEMs balance sheet in 2014, cash and cash equivalents decrease from 23.66% in 2013 to
12.05% in 2014. Total current assets also decrease from 26.57% in 2013 to 14.82%. Total

current liabilities decreases from 13.28% in 2013 to 10.33% in 2014. The slight decrease is
balanced by an increase in borrowings, from 22.91% in 2013 to 35.20% in 2014.
From GEMs income statement in 2014, we use total revenue as the benchmark. Profit for the
year decreases slightly from 11.31% in 2013 to 10.73% in 2014. Total comprehensive income
for the year 12.51% in 2013 also decreases from 11.23% in 2014. This is the profit margin, as
calculated above.
Comparison with Industry Statistics
Under the Australian Securities Exchange (ASX), NVT is classified under Consumer Services.
Referring to Appendix, the industrys average P/E ratio is 22.133 with a market share of 3.64%
in 2014. Based on the ratio analysis above, NVTs 2014 P/E ratio is 23.3% which is on par with
the industry.
Comparison with Other Information

Trend Analysis for Higher

Education Programme

Trend Analysis for NVT

25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%

Retained
Earnings

Borrowings
2013 2012 2011

35%
30%
25%
20%
15%
10%
5%
0%

Retained
Earnings
Borrowings

2013

2012

2011

Cash and
cash
equivalents

Here we exclude the data for 2014 as the 2014 financial report for Higher Education Providers
(Finance Publications 2010-2013) compiled by the Department of Education and Training has
not been released. This is different from ASXs classification of customer service. The analysis
includes private higher education and vocational training which NVT is classified in it. For
borrowings, NVT has not been the same as what majority of the other higher education

institutions, this could be due to NVTs different company approach. For retained earnings,
NVT is not exactly following the trend of others either. However, NVT has been doing better in
terms of cash and cash equivalents in their current assets, which is above 12% for three years as
compared to the total of a maximum of 7% from the industry.
Financial Strength and Weaknesses of NVT
Based on ratio analysis, NVT does not look convincing with its recent current ratio, profit
margin, debt-to-equity ratio. However, NVT did well at the profitability ratio with a higher Time
Interest Earned Ratio, EPS, P/E Ratio. The solvency ratio for NVT is also better with higher
Dividend Payout Ratio and Dividend Yield Ratio. NVT biggest weakness is the downfall in
2014 which might make existing and potential investors lose confidence. The sharp reduction in
profit margin is not optimistic and NVT has to hope that they can rebound from it.
Conclusion and Recommendation
Summary
NVT is a unique provider for education. There is no close substitute of NVT, at least not in the
region of Australasia. The business and strategic analysis alone could not tell us if NVT is a
good investment but pairing up with Financial Analysis, it gives a good indication. NVT is a big
and long-term company which has a slip in 2014 due to economy outlook. The company has
been consistent and doing well in other aspects in the previous years.
Limitations and Improvements
NVTs closest competition would be private and public universities however there is not an
education group which comprises pre-university, university, vocational training and English
program under the same roof. The comparison is not exactly the best we could come up with. If
the competitor does not have to be listed under ASX, there is a better way to compile those
institutions which provide similar services. As for the industry classification in ASX, NVT is

classified under consumer services which also include hotel and gaming services. When it
comes to industry statistics, it is not the best representation of NVTs true industry classification.
This could be improved by looking purely at the Education and Training sector under the Social
Service industry.
Conclusion
NVT is a good company to invest on but not in these two years. Judging by the economy
outlook, it is still uncertain of the change in Australian currency though a lower currency would
mean a better profitability in the market. As a risk-adverse investor, this is not recommendable.
It is also due to the ambiguity after the lost of a big university partner. It is uncertain that if NVT
can recover its revenue from this loss.
Judging by the industry and company outlook, the company is looking for improvement and as a
risk-adverse or a risk-lover investor, you can consider NVT as a good company to invest as it
has a good chance for higher profit margin and dividend after a bad year. It might not be as good
as the years before 2013, but it should give a fair return.

Appendix Reference List

Navitas (2015), Navitas Limited <http://www.navitas.com/about> Accessed 28th April 2015
Australian Industry Report (2014), Department of Industry, <
http://www.industry.gov.au/industry/Office-of-the-ChiefEconomist/Publications/Documents/Australian-Industry-Report.pdf>, Accessed 28th April 2015
OECD (2014), Organization for Economic Co-Operation and Development, <
http://www.oecdbetterlifeindex.org/countries/australia/ >, Accessed 28th April 2015
RBA (2015), Reserve Bank of Australia, <http://www.rba.gov.au/media-releases/2015/mr-1501.html>, Accessed 28th April 2015
ABC (2015), Australian Broadcasting Corporation, <http://www.abc.net.au/news/2015-0316/how-low-can-sliding-australian-dollar-go/6321882>, Accessed 28th April 2015
SMH 2015, Sydney Morning Herald, <http://www.smh.com.au/business/markets/australiandollar-hits-new-2014-high-20140409-36e40.html>, Accessed 28th April 2015
IBIS (2015), IBISworld <http://www.ibisworld.com.au/industry/default.aspx?indid=600>,
<http://www.ibisworld.com.au/industry/default.aspx?indid=601>, Accessed 28th April 2015
ABC 2 2015, Australian Broadcasting Corporation, <http://www.abc.net.au/news/2015-0203/navitas-shares-drop-on-fall-in-profit/6066040>, Accessed 28th April 2015
Porter, Gary & Norton, Curtis (2006), Financial Accounting: The Impact on Decision Makers
(5th Edition), South-Western College Pub
Finance Publication (2010-2013), Department of Education and Training,
<http://www.education.gov.au/finance-publication>, Accessed 4th May 2015

Appendix Financial Analysis

Ratio Analysis - Current Ratio
Ratio Analysis - Profit Margin
Ratio Analysis - Debt to Equity Ratio
Ratio Analysis - Time Interest Earned Ratio
Ratio Analysis - Earnings per Share
Ratio Analysis - Price/Earnings Ratio
Ratio Analysis - Dividend Payout Ratio
Ratio Analysis - Dividend Yield Ratio
All ratios are calculated using the financial statements of NVT available on <
https://navitas.com/corporate/investors> and GEM available on <
http://g8education.edu.au/investor-information/annual-reports/> and formulas from the textbook.
Trend Analysis Balance Sheet
NVT

2014

2013

2012

2011

Retained Earnings

17,973

39,666

37,986

45,145

Borrowings
Cash and cash
equivalents

123,530

148,226

133,308

135,833

111,836

96,230

81,719

72,592

2014
15,242

2013
16,099

2012
5,900

2011
-

352,944

110,436

46,532

1,638

120,804

114,043

21,790

14,166

8,016

GEM
Retained Earnings
Borrowings
Cash and cash
equivalents

2010

2014

2013

2012

2011

36,741

NVT
Retained
Earnings

-55%

4%

-16%

23%

-17%

11%

-2%

0%

61,727

Borrowings
Cash and cash
equivalents

16%

18%

13%

18%

GEM
Retained
Earnings

2014

2013

2012

2011

-5%

173%

Borrowings
Cash and cash
equivalents

220%

137%

6%

423%

2010
-

0%
54%

77%

Source: NVT and GEM annual reports 2010 - 2014

Trend Analysis Income Statement
NVT

2014

2013

2012

2011

2010

NVT

2014

2013

2012

2011

20%

6%

7%

16%

Revenue

878,219

731,734

688,530

643,812

556,743

Revenue

Profit

50,802

75,051

73,620

77,234

62,813

Profit

-32%

2%

-5%

0%

Income

47,871

75,542

74,019

78,823

62,886

Income

-37%

2%

-6%

25%

GEM

2014

2013

2012

2011

GEM

2014

2013

2012

2011

2010

Revenue

491,288

275,165

179,991

137,950

66,392

Revenue

79%

53%

30%

108%

Profit

52,731

31,072

19,209

17,250

3,480

Profit

70%

62%

11%

0%

Income

54,127

34,345

19,841

16,465

3,480

Income

58%

73%

21%

Source: NVT and GEM annual reports 2010 - 2014

Common Size Statements Analysis

All ratios are calculated using the balance sheet and income statement of NVT and GEM for
2014.
Comparison with Industry Statistics
Average P/E

%Market

Jan

22.9

3.6

Feb

21.8

3.7

Mar

21.8

3.6

Apr

22

3.6

May

22.4

3.6

June

21.9

3.6

July

22.9

3.7

Aug

22.8

3.7

Sept

21.6

3.7

Oct

22.9

3.7

Nov

21.7

3.7

Dec

20.9

3.5

AVERAGE

22.13333333

3.641666667

Source: Average P/E ratio and Market Share, ASXs Consumer Service Sector from Jan 31 2014
Dec 31 2014, AFRsmartinvestor <http://www.afrsmartinvestor.com.au/sharetables/archive/?searchType=monthly>

Comparison with Other Information

NVT

2013

2012

2011

2010

NVT

2013

2012

2011

4%

-16%

23%

Retained Earnings

39,666

37,986

45,145

36,741

Retained Earnings

Borrowings
Cash and cash
equivalents

148,226

133,308

135,833

11%

-2%

0%

96,230

81,719

72,592

61,727

Borrowings
Cash and cash
equivalents

18%

13%

18%

HEP

2013

2012

2011

8%

8%

6%

10%

32%

11%

0%

7%

4%

HEP

2013

2012

2011

2010

Retained Earnings

26,609,239

24,659,443

22,881,279

21,519,804

Retained Earnings

Borrowings
Cash and cash
equivalents

2,904,224

2,650,757

2,007,416

1,813,430

3,537,193

3,535,365

3,307,761

3,171,973

Borrowings
Cash and cash
equivalents

Source: NVTs Annual Report 2010-2013 and Finance Publication 2010-2013