The report is intended to analyze the present financial position of UGL Limited. For the purpose of financial performance analysis, ratio analysis of last three years (2016, 2015, 2014) has been computed. The key ratios discussed in the report includes profitability ratio such as Net Profit Margin, Return on Equity, Gross Profit Margin, Cash return on sales and Return on assets. The report is further discussed the efficiency ratios which has included the key ratios such as Assets turnover ratio, Receivables Collection Period and inventory turnover period. In order to assess the liquidity position, the main ratios include current ratio, quick ratio and times interest earned ratio. The solvency position of UGL Limited has been discussed with analyzing the debt to equity ratio and total debt to total asset ratio. The final part of the discourse has discussed about the share market performance of the company by analyzing several parameters such as Price Earnings Ratio, Earning Price Per Share and payout ratio.
UGL is identified as a diversified company, providing services associated to critical assets and aims toward sustaining and enhancing the environment for the society. The main capability of the company has been extended across the broad range of services, which are whole of life solutions for diverse industries. The company achieves this by utilizing innovative and sustainable technologies. The company has been further identified to be the partner with balls largest blue-chip companies and government agencies, public institutions and private enterprises. Based on the corporate information it has been further observed that UGL Pty Limited is a wholly owned subsidiary of CIMIC Group Limited, which is an Australian publicly listed company (Ugllimited.com. 2017).
Some of the main services provided by the company includes providing engineering services, construction, manufacturing, operations, maintenance, supply chain and technical services, overhaul, project delivery and implementation, asset management, drafting services, decommissioning, operations, product solutions, parts and supplies ordering, project delivery and project implementation (Ugllimited.com. 2017).
The sector -wise segmentations of the company have been discussed below as follows:
Throughout Australia, the company has been operating for more than a century and making progress in all possible areas of rail transportation. The company has been identified as a leading manufacturer and through life asset provider of services for real space, freight rolling and several types of rail infrastructure solutions. UGL Limited has further expanded its market with key alliance partners such as GE transportation for delivering innovative, high-performance locomotives, along with MTR Corporation for providing top notch rail network operations with most amount of cost efficiency (Ugllimited.com. 2017).
Transport & Technology Systems
The transport and technology Systems has been identified with an indication of road infrastructure project. In 2005, the company took over Alstom’s transport business, which operated in Australia and New Zealand. This substantially strengthened the design and delivery capability of both road and rail networks. The technology Systems Inc has been identified with defense clients, broadcast, transport and integrated approach for telecommunication systems (Ugllimited.com. 2017).
The company has been further recognized to be a pioneer in transmission, generation and distribution of electricity. UGL has been able to maintain itself as delivering a maintaining a high technical and complex project within the power sector. UGL Ltd has been further able to develop a long-term strategy partnership with the major form of companies such as GE and various types of other OEM partners (Ugllimited.com. 2017).
the company some of the main strength has been seen in terms of being a leader in terms of wastewater treatment, construction, engineering and maintenance services. The full range of operations services provided by the company provides a detailed, comprehensive and long-term operations design, which supports efficient maintenance of the needs of urban clients associated to water (Ugllimited.com. 2017).
UGL takes pride in being a long-term partner of Australian defense Force thereby offering a comprehensive and integrated solution for all the major types of defense assets including manufacturing, maintenance, designing, supplying and refurbishment of the defense equipments. The company further optimizes the defense assets through life, minimizes life-cycle costs, and maximizes the whole of life asset value (Ugllimited.com. 2017).
The profitability ratio of the company has been discussed by considering the following financial measures such as Net Profit Margin, Return on Equity, Gross Profit Margin, Cash return on sales and Return on assets.
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a) Profitability Ratio Analysis:- |
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UGL Limited |
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|
Particulars |
2016 |
2015 |
2014 |
|
Revenue (A) |
1939479 |
2011156 |
1819326 |
|
Net Profit/Loss (D) |
-103124 |
-232373 |
68507 |
|
Avg. ordinary shareholders’ equity(H) |
383089 |
810252 |
1157541 |
|
Gross Profit (B) |
-122893 |
-351426 |
31823 |
|
Net cash from operating activities (E) |
-77060 |
64985 |
62072 |
|
Average Total Assets (F) |
1211203.5 |
2114881 |
2952381 |
|
Net Profit Margin (D/A) |
-5.32% |
-11.55% |
3.77% |
|
Return on Equity (A/H) |
-27% |
-29% |
5.92% |
|
Gross Profit Margin (B/A) |
-6% |
-17% |
2% |
|
Cash return on sales (E/A) |
-4% |
3.23% |
3.41% |
|
Return on assets (D/F) |
-0.085 |
-0.110 |
0.023 |
The grass profit margin ratio is computed by dividing the gross profit/loss by net sales. The main analysis shows that UGC Limited has depicted a decreasing trend of grass profit over the years. Despite of earning higher revenues in 2015 and 2016 compared to 2014, the company has incurred gross loss in 2015 and 2016, this is the main reason of negative gross profit ratio in 2015 and 2016. The same has been reflected in the gross profit ratio of the company with a decrease of -17% in 2015 and -6% in 2016. The graphical representation of the gross profit margin has been illustrated below as follows:
The net profit margin is calculated by dividing net profit/loss by total revenue. The depictions made from the net profit margin has been able to show that the company had incurred losses amounting to AUD (232373) million in 2015 and AUD (103124) million in 2016. This is the main reason of decreasing net profit margin from 3.77% in 2014 -11.55 % in 2015 and -5.32% in 2016. The graphical representation of the net profit margin has been illustrated below as follows:
The computation of return on equity has been done by dividing the total revenue of the company by average ordinary shareholders’ equity. Due to a drastically decreasing value of average ordinary shareholders’ equity, it has been seen that the company’s return on equity has shown a decreasing trend from 5.92% in 2014 to -29% in 2015 and -27% in 2016. The graphical representation of the return on equity has been illustrated below as follows:
The Cash return on sales has been computed by dividing the Net cash from operating activities with the total revenue of the company. The Net cash from operating activities has shown a decreasing trend with AUD 62072 in 2014 to AUD 64985 in 2015 and AUD (77060) in 2016. This decrease in the value of net cash from operating activities as negatively affected the cash return on sales and it has decreased from 3.43 % in 2014 to 3.23% in 2015 and -4% in 2016. Hence, it can be seen the company has lost its ability to generate cash profits in the recent years. The graphical representation of cash return on sales has been illustrated below as follows:
The final ratio under profitability has been calculated by dividing the net profit/loss by average total assets. The company’s return on assets has seen with a decreasing trend in the recent times. The average total assets have also shown a decreasing trend. The graphical representation of return on assets has been depicted below as follows:
The computation of the efficiency ratio has been considered by evaluating the key ratios such as Assets turnover ratio, Receivables Collection Period and inventory turnover period.
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b) Efficiency Ratio Analysis:- |
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UGL Limited |
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|
2016 |
2015 |
2014 |
|
|
Revenue (A) |
1939479 |
2011156 |
1819326 |
|
Trade and other Receivables (B) |
195762 |
231062 |
219702 |
|
Cost of Goods Sold (D) |
14409 |
24842 |
22480 |
|
Average Total Assets (F) |
2114881 |
1211203.5 |
2952381 |
|
Average Inventory (E) |
248595.5 |
282382 |
335626 |
|
Assets turnover (A/F) |
0.917 |
1.660 |
0.616 |
|
Receivables Collection Period (365/(A/B)) |
36.84 |
41.93 |
44.08 |
|
Inventory Turnover Period (D/E)) |
5.796 |
8.797 |
6.698 |
The computation of asset turnover ratio has been done by dividing the total revenue of the company with average total assets. This is the ability of the company to utilize the assets to generate sales. The asset turnover ratio is in seen to be the highest in 2015 with 1.66. It has been further seen to be the lowest with 0.616 in 2014. The graphical representation of asset turnover ratio has been depicted below as follows:
The calculation of this ratio is done by dividing the total revenue with trade and other receivables by 365 days. This ratio is able to determine the frequency of converting the receivables into cash. The decreasing trend of this ratio clearly indicates that company’s duration of paying to its debtors has increased significantly in the recent times. This is clearly not a favorable situation for UGL. The graphical representation of receivables collection position has been depicted below as follows:
The formula for computing this ratio is done by dividing cost of goods sold by average inventory. This ratio further shows the frequency of the company to convert the available stock for sales. They inventory turnover ratio in 2014 was 6.69, this however decreased to 8.79 in 2015 and slightly improved with 5.79 in 2016. The graphical representation of inventory turnover position has been depicted below as follows:
Some of the main competitions of the liquidity ratio has been shown by current ratio, quick ratio and times interest earned ratio.
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c) Short-Term Liquidity Ratio Analysis:- |
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UGL Limited |
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|
2016 |
2015 |
2014 |
|
|
Total Current Assets (A) |
544590 |
666620 |
636721 |
|
Inventory (B) |
252102 |
245089 |
319675 |
|
Total Current Liabilities (F) |
683806 |
651616 |
319675 |
|
EBIT (D) |
-134506 |
-87643 |
105000 |
|
Interest Expense (E) |
10650 |
22046 |
16670 |
|
Current Ratio (A/F) |
0.80 |
1.02 |
1.99 |
|
Quick Ratio [(A-B)/F) |
0.43 |
0.65 |
0.99 |
|
Times interest earned (D/E) |
-12.63 |
-3.98 |
6.30 |
The computation based on the current ratio has been able to depict that the company’s ability to pay its current liabilities from the current assets has decreased in the recent times. This is evident with a decreasing current ratio of 1.99 in 2014 to 1.02 in 2015 to 1.02 in 2016. The graphical representation of current ratio has been illustrated below as follows:
Quick Ratio
The quick ratio has been able to depict that the company’s ability to repay the current liabilities with the quick assets has reduced over time. The quick rotation has been seen with a declining trend of 0.99 in 2014 to 0.66 in 2015 to 0.43 in 2016. The graphical representation of quick ratio has been depicted below as follows:
Times interest earned
This ratio shows the ability of company to pay the interest expense with the earnings generated before interest and tax. This has been seen with a declining trend and the graphical representation for the same is presented below:
The solvency ratio analysis has been done by calculating the debt equity ratio and total debt to total assets ratio.
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d) Solvency Ratio Analysis:- |
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UGL Limited |
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|
2016 |
2015 |
2014 |
|
|
Shareholder’s Equity (B) |
325207 |
429054 |
1172274 |
|
Total Debt (D) |
64635 |
-33694 |
566713 |
|
Total Assets (E) |
1183174 |
1239233 |
2990529 |
|
Debt Equity Ratio (D/B) |
0.20 |
-0.08 |
0.48 |
|
Total Debt To Total Assets (D/E) |
0.05 |
-0.03 |
0.19 |
This ratio depicts the ability of company to repay the debts with the equity available. The computation is done by dividing the total debt/long term borrowings with total shareholder’s equity. The declining trend of debt equity ratio clearly shows that the company has been unable to support the growth activities over the years. The graphical representation of this has been shown below as follows:
This represents the portion of the assets, which are funded by the debt. The analysis shows that large portions of the company’s assets are funded from the long term borrowings.
The main considerations of this analysis have been done by computing Price Earnings Ratio, Earning Price per Share and payout ratio.
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e) Share Market Performance Ratio |
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UGL Limited |
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|
2016 |
2015 |
2014 |
|
|
Market price per share (A) |
2.125 |
1.845 |
7.54 |
|
Earnings per shares (B) |
-65 |
-142 |
37.3 |
|
Earnings (D) |
-103124 |
-232373 |
68507 |
|
No. of Shares (E) |
163509945 |
166511240 |
166511240 |
|
Cash Dividends (F) |
NA |
9991 |
14116 |
|
Price Earnings Ratio (A/B) |
-0.03 |
-0.01 |
0.20 |
|
Earning Price Per Share |
-65.00 |
-142.00 |
37.30 |
|
Payout Ratio |
NA |
0.0060 |
0.0085 |
The main calculation of this ratio shows the expected returns from the share of the market. The higher ratio means that market has high expectations from the company even though the present earnings have been not justified for such a high price. The ratio has shown a declining trend in the recent years and this has been evident with a declining price earnings ratio with -0.01 in 2015 and -0.03 in 2016.
The earnings divided by total number of shares depict this ratio. The declining trend of earnings per share clearly shows the degrading condition of the company. The graphical presentation of EPS has been presented below as follows:
Due to declining profits and earnings per share, the company’s payout ratio has shown some drastic trend in the recent times. In 2016, the company was nodding a position to pay its shareholders. The graphical representation has been depicted below
Conclusion
The discussions based on several types of ratio analysis shows the declining trend of UGL Limited in terms of profitability, efficiency, solvency, liquidity position and share market performance. The company’s financial position is in an alarming condition with a declining debt equity ratio and dividend payout ratio. Despite of increasing the revenues over the years the company has been unable to generate adequate net cash from the operating activities. This has resulted in such poor figures for net profit margin, gross profit margin and various types of other profitable ratio analysis. The ratio comparison has been further done with the data available on morning Star. Although there are some changes in the numerical values but the main assumption of declining trend can be made from the given data.
The main recommendation to UGL Ltd would be to reduce its reliance on long-term borrowings. This has been the main reason behind its high amount of dependency on debts to finance its assets. The same has been depicted in declining figures for Total Debt to Total Assets ratio. The company further needs to convert the receivables into cash more quickly. This can be done by following up with the debtors and asking them to pay the receivables in a shorter deadline. The increasing time of receiving the amount from debtor has been evident with decreasing figures for receivables collection period over the three years. The company also needs to take measures to sell its inventory at a faster pace and improve the inventory turnover ratio. By taking the aforementioned measures, UGL Limited will be able to improve its financial position to a significant level.
Reference List
Brigham, EF & Ehhardt, MC 2014, Financial Management Theory and Practice, Cengage Learning, NY.
Ugllimited.com. (2017). Corporate Overview – UGL Limited. [online] Available at: https://www.ugllimited.com/corporate-overview [Accessed 18 May 2017].
Ugllimited.com. (2017). Corporate Overview – UGL Limited. [online] Available at: https://www.ugllimited.com/corporate-overview [Accessed 18 May 2017].
Ugllimited.com. (2017). Defence Solutions | Defence Assets – UGL Limited. [online] Available at: https://www.ugllimited.com/defence [Accessed 18 May 2017].
Ugllimited.com. (2017). Rail Manufacturers, Products, Parts & Consulting – UGL Limited. [online] Available at: https://www.ugllimited.com/rail [Accessed 18 May 2017].
Ugllimited.com. (2017). Transport & Technology Systems – UGL Limited. [online] Available at: https://www.ugllimited.com/transport-technology-systems [Accessed 18 May 2017].
Ugllimited.com. (2017). Water Treatment Plants and Wastewater Treatment Solutions – UGL Limited. [online] Available at: https://www.ugllimited.com/water [Accessed 18 May 2017].
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