ACCT 20051 Accounting Information for Decision Making Assignment

ACCT 20051 Accounting Information for Decision Making Assignment

ACCT 20051 Accounting Information for Decision Making Assignment

Introduction

leading integrated energy companies AGL is one of the leading integrated energy companies of Australia which is having a large share in the ASX. The company is the developer of renewable energy generation throughout the country. The power generation portfolio of the company includes base, peaking and intermediate generation plant and renewable resources including hydro, wind, landfill gas, solar and biomass. The major competitor of the company is Genesis Energy Limited which is operating in diversified energy industry where it sells electricity, natural gas and LPG. The company itself generates electricity and trade in electricity also. Apart from this it also has investment of 31% in Kupe Joint venture which owns Kupe oil and gas field. In this way both the companies have diversified and expanded operations in energy and electricity industry and are in competition with each other.

Trend Analysis (Amount in $million)

The ratios for the trend analysis of the quantitative financial information of the company are calculated as follows:

Profitability Ratios

Return on Assets = Net Income after tax/ Total assets

Genesis Energy limited

Return on Assets for 2015 = 104.8/ 3,528
                                                = 0.03

Return on Assets for 2014 = 49.2/3,629.4
                                                = 0.014

The return on assets has increased substantially as compared to the previous year.

AGL Energy Limited

Return on Assets for 2015 = 630 / 15,833
                                                = 0.0397

Return on Assets for 2014 = 562/ 14,134

= 0.0397

Net Profit Margin = Net profit/ Total Sales

Genesis Energy Limited

Net Profit Margin for 2015 = 104.8/2,097.6
                                                = 0.05

Net Profit Margin of 2014 = 49.2/ 2,005
                                                = 0.025

AGL Energy Limited

Net Profit Margin for 2015 = 630/10,678
                                                = 0.059

Net Profit Margin of 2014 = 562/10,445
                                                = 0.054

Both the return on assets as well as the net profit margin of the company have remained constant over the two years period whereas the profitability ratios if the competitor company have increased substantially. Thus the profitability of Genesis has an increasing trend whereas the profitability of AGL is constant with high rate of return.

Liquidity Ratios

Current Ratio = Current assets/ Current liabilities

Genesis Energy Limited

Current Ratio of 2015 = 346.5/ 309.9

                                    = 1.12

Current Ratio of 2014 = 357.3/ 246.6

                                    = 1.45

AGL Energy Limited

Current Ratio of 2015 = 3,459/2,373

                                    = 1.46

Current Ratio of 2014 = 3,411/2,166

                                    = 1.57

Quick Ratio = Total Current assets – Inventory – Prepaid expenses / Current liabilities

Genesis Energy Limited

Quick Ratio of 2015 = 346.5 – 80 – 0/ 309.9

                                    = 0.86

Quick Ratio of 2014 = 357.3 – 93.8 – 0/ 246.6

                                    = 1.07

AGL Energy Limited

Quick Ratio of 2015 = 3,459 – 396 – 0/ 2,373

                                    = 1.29

Quick Ratio of 2014 = 3,411 – 191 -0 / 2,166

                                    = 1.49

The liquidity ratios of both the companies have decreased during the two years which means that the liquidity position of the company is showing a decreasing trend resulting in the reduction of asset efficiency to discharge the liabilities.

Capital Structure

Debt to Equity Ratio = Total liabilities / Total Equity

Genesis Energy Limited

Debt Equity Ratio of 2015 = 1,392.7/1,825.4

                                                = 0.76

Debt Equity Ratio of 2014 = 1,502.1/ 1,880.7

                                                = 0.80

AGL Energy Limited

Debt Equity Ratio of 2015 = 7,018 / 8,815

                                                = 0.80

Debt Equity Ratio of 2014 = 6,546 / 7,588

                                                = 0.86

Equity Ratio = Total Equity/ Total Assets

Genesis Energy Limited

Equity Ratio of 2015 = 1,825.4/3,528

                                    = 0.52

Equity Ratio of 2014 = 1,880.7/3,629.4

                                    = 0.52

AGL Energy Limited

Equity Ratio of 2015 = 8,815/ 15,833

                                    = 0.56

Equity Ratio of 2014 = 7,588/ 14,134

                                    = 0.54

A very small amount of change can be observed in the capital ratios of the company which means that the capital structure of the companies have not changed significantly. The capital structure of competitor is constant whereas the capital structure of company has changed in little proportion...

Market Performance

Earnings per share (EPS) = Earnings attributable to equity shareholders / Number of equity shares

Genesis Energy Limited

EPS OF 2015 = 104.8/999.5

                        = 0.1049

EPS of 2014 = 95.4/999.5

                        = 0.095

AGL Energy Limited

EPS OF 2015 = 630/674

                        = 0.964

EPS of 2014 = 562/ 560

                        = 0.969

Dividend per share = Dividend paid / Number of equity shares

Genesis Energy Limited

DPS OF 2015 = 0

DPS of 2014 = 0

AGL Energy Limited

DPS OF 2015 = 431.36/674

                        = 0.64

DPS of 2014 = 352.8/ 560

                        = 0.63

The market performance of both the companies has remained constant during the two years since there is not much change in the earnings and dividend per share.

Comparison of quantitative analysis of two companies

Ratios

Genesis Energy Limited

AGL Energy Limited

 

2015

2014

2015

2014

Return on Assets

0.03

0.014

0.0397

0.0397

Net Profit Margin

0.05

0.025

0.059

0.054

Current Ratio

1.12

1.45

1.46

1.57

Quick Ratio

0.86

1.07

1.29

1.49

Debt to Equity Ratio

0.76

0.80

0.80

0.86

Equity Ratio

0.52

0.52

0.56

0.54

Earnings per share

0.1049

0.095

0.964

0.969

Dividend per share

0

0

0.64

0.63

Profitability

On comparing the profitability ratios of both the companies it can be observed that AGL is more profitable than Genesis having higher profitability ratios. On year wise comparison it can be observed that the profits of the company Genesis have doubled as compared to previous year whereas the profits of AGL have remained constants during both the years with a very little change. Thus although Genesis is having lesser profit margins than AGL but it is likely to increase in future at a high growth rate as compared to profit margin and return on assets of AGL which is not expected to increase at a considerable growth rate (Sen, 2012).   

Asset Efficiency

The asset efficiency of the two companies can be determined by the current ratio and quick ratio which defines the efficiency of assets in context of meeting the current liabilities of the company. The current ratio of both the companies for both the years is more than one which means that the current assets are more than current liabilities and thus both the companies are in a position to discharge its current liabilities out of the c urgent assets. However these ratios have decreased as compared to previous year. Also the quick ratio of Genesis is less than one which means that the current assets other than the inventory of company are not sufficient enough to discharge the liabilities.

Liquidity

The liquidity position of both the companies is good due to positive cash flows for both the years. The free cash flows of Genesis for the year 2015 reported to be $197.7 million which is 22% higher than previous year whereas the Free cash flows of AGL reporte4d to be $295 million which have decreased as compared to previous year. The liquidity position of Genesis is stronger than AGL due to higher growth rate in cash flow over the year.

Capital Structure

The debt and equity ratios of the companies have remained constant over two years which means that a little change or no change has been taken in the capital structure of the companies. It can be observed that the equity of AGL has remained same with no change whereas the equity and debt structure if Genesis has changed. The debt is 0.80 times of equity of both the companies which means that both the companies have sound capital structure (Watson, 2016).

Conclusion

The analysis in this assignment has been done on the basis of data and information gathered from the annual reports of both the companies for two years Therefore the analytical comparison is based on the information of two years only. However all the ratios relevant for the comparison of financial performance and position have been calculated for both the companies for both the years which increase the likelihood of the comparison being accurate? The trend analysis and the quantitative information comparison will be helpful in making the recommendation about whether to invest or not in the two companies and if it is advisable to invest which company to invest in out of the two companies in the same industry.

Recommendation

On the basis of the analysis of trends in the financial ratios and quantitative information in relation to the two companies and the conclusions drawn from the analysis it can be recommended to the investors that in order to achieve long term profits and growth objectives, investment in company is a better option whereas for high return objective and short term profitability goals investment in competitor will be a better option. The company has a considerable EPS and is also paying dividends whereas the compet6itor is not paying dividends to its unit holders. Therefore the investors are recommended to invest their funds in the shares and units of the company and not in the shares or units of its competitor in order to earn returns on their investments and make optimum utilisation of their funds (Ahrendsen, 2012).

References

?en, Z. 2012, "Innovative Trend Analysis Methodology",Journal of Hydrologic Engineering, vol. 17, no. 9, pp. 1042-1046.

Bujaki, M. & Durocher, S. 2012, "Industry Identification through Ratio Analysis", Accounting Perspectives, vol. 11, no. 4, pp. 315-322.

Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS data", Agricultural Finance Review,vol. 72, no. 2, pp. 262-272.

Watson, N.E., Parsons, B.A. & Synovec, R.E. 2016, "Performance evaluation of tile-based Fisher Ratio analysis using a benchmark yeast metabolome dataset", Journal of Chromatography A, .

Keršuliene, V., Zavadskas, E.K. & Turskis, Z. 2010, "Selection of rational dispute resolution method by applying new step-wise weight assessment ratio analysis (Swara)",Journal of Business Economics and Management, vol. 11, no. 2, pp. 243-258.