With the increasing ramified changing economic factors, each and every organization needs to run business effective by using the financial tools and techniques in determined approach. There are several financial tools such as ratio analysis, capital budgeting analysis, top down analysis, bottom up analysis which could be used by the management of Company to increase the overall outcomes. It is observed that AMP Company has increased its profitability throughout the time.
The AMP Limited is a financial service company working in Australia and New Zealand providing superannuation benefits and investment products, insurance and financial advice and Banking product. It includes the entire home loan and saving account service for clients (AMP limited. (2018).
It is analysed that the CEO of Company is Craig Meller who takes all the managerial and operations decisions in effective manner.
|
Rank |
Name |
Age |
Company |
Compensation |
shares |
|
|
2 |
George R. Roberts |
74 |
KKR & Co LP |
113,712 |
44,650 |
|
|
3 |
Henry R. Kravis |
74 |
KKR & Co LP |
113,434 |
44,650 |
|
|
4 |
Hock E. Tan |
66 |
Broadcom Inc |
103,211 |
98,323 |
|
|
5 |
Rob Roy |
49 |
Switch Inc |
94,638 |
89,444 |
|
|
6 |
Alex A. Molinaroli |
Johnson Controls International PLC |
78,282 |
9,042 |
||
|
7 |
Michael Rapino |
52 |
Live Nation Entertainment Inc |
70,616 |
58,632 |
|
|
8 |
Yasuhiro Sato |
65 |
Mizuho Financial Group Inc |
70,000 |
0 |
|
|
9 |
Mario J. Gabelli |
75 |
GAMCO Investors Inc |
69,414 |
0 |
|
|
10 |
Leslie Moonves |
68 |
CBS Corp |
69,333 |
43,696 |
|
|
11 |
Christopher Terrill |
50 |
ANGI Homeservices Inc |
68,798 |
3,800 |
|
|
12 |
Andrew N. Liveris |
63 |
DowDuPont Inc |
65,689 |
12,174 |
|
|
13 |
Jeffery Fairburn |
51 |
Persimmon PLC |
63,697 |
0 |
|
|
14 |
W. Nicholas Howley |
65 |
TransDigm Group Inc |
61,023 |
0 |
|
|
15 |
Douglas R. Lebda |
48 |
LendingTree Inc |
59,591 |
0 |
|
|
16 |
Simon Anthony Peckham |
55 |
Melrose Industries PLC |
57,849 |
0 |
|
|
17 |
Douglas S. Ingram |
55 |
Sarepta Therapeutics Inc |
56,866 |
11,608 |
|
|
18 |
Thomas E. Dooley |
Viacom Inc |
53,648 |
0 |
||
|
19 |
Ronald Clarke |
62 |
Fleetcor Technologies Inc |
52,644 |
15,127 |
|
|
20 |
Stephen Kaufer |
55 |
TripAdvisor Inc |
47,933 |
28,578 |
|
|
21 |
Gregory B. Maffei |
56 |
Qurate Retail Inc QVC Group |
47,810 |
2,293 |
|
|
22 |
Stephen B Burke |
59 |
Comcast Corp |
46,537 |
5,338 |
|
|
23 |
Brian Duperreault |
70 |
American International Group Inc |
43,087 |
11,157 |
|
|
24 |
Kathleen Eisbrenner |
NextDecade Corp |
43,086 |
42,145 |
||
|
25 |
Dirk Van de Put |
57 |
Mondelez International Inc |
42,443 |
30,002 |
(Yahoo Finance, 2017).
Share holder details of company
The ratio analysis helps in evaluating the financial performance of AMP Limited by setting the relation between two factors. (AMP Limited, 2015).
Current ratio
The current ratio of AMP Limited has reduced which shows that company has lower down its investment in the current assets. However, company has zero investment in its inventory (AMP Limited, 2017).
|
Liquidity ratio |
Years |
|
|
2017 |
2016 |
|
|
Current ratio |
.0025 |
.0031 |
|
Quick ratio |
.0025 |
.0031 |
Interpretation
The AMP Limited has zero investment in its inventory and lowers down its investment in its current assets (Dahir, Mahat, and Ali, 2018).
This ratio reflects that company needs to increase its investment in its operating assets if it wants to create value in its investment. It will assist AMP Limited to meet the current demand of the client in market.
Quick ratio
The quick ratio of company is same as with its current ratio. There is no inventory and expenses which company needs to make for the better and effective functioning.
|
Providing equation |
2014 |
2015 |
2016 |
2017 |
|
Net profit After tax/OE |
0.55154 |
0.475979385 |
0.42241 |
0.34557 |
|
EBIT/TA*NPAT/EBIT*TA/OE |
0.55154 |
0.475979385 |
0.42241 |
0.34557 |
Debt to equity
The debt to equity of AMP Limited shows that company has high financial leverage in its business. It is considered that AMP Limited needs to lower down its debt portion if it wants to maintain effective sustainable business in long run. Nonetheless, reduction in the overall debt portion will also increase the cost of capital of the business.
Computation of debt to equity of Company
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1,26,470 |
1,30,813 |
1,32,519 |
140802 |
|
B. Total assets |
1,34,855 |
1,39,708 |
1,40,060 |
1,48,085.00 |
|
(A/B) |
94% |
94% |
95% |
95% |
Interpretation
The debt of equity of company has been around 95% which shows that company need to lower down its debt portion to make its debt to equity to 70:30 i.e. 30 % debt portion and 70% equity portion.
Gearing ratio discussion
The gearing ratio of Company is very low which shows that company has been paying very low interest payment on its debt portion (AMP. 2017).
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
5% |
6% |
4% |
4% |
This ratio shows that company will be solvency even if it has less return on its business.
The inventory turnover ratio reflects that company has zero inventory turnovers which show that company has not blocked capital in its business.
|
Efficiency ratio |
Years |
|
|
2017 |
2016 |
|
|
Inventory turnover ratio |
0 |
0 |
|
Asset turnover ratio |
0.120 |
2.10 |
|
Receivable turnover ratio |
0 |
0 |
|
Days’ sales in inventory |
0 |
0 |
|
Days’ sales in receivables |
0 |
0 |
(AMP, 2017)
The assets turnover ratio of AMP Company is too low which shows that company has been blocking less funds in its business.
The debtor’s turnover ratio of company has been kept zero due to its non-effective sales and loss of its business. Company has been dormant to manage its business.
The profitability ratio f AMP Company shows that company had faced loss in 2016 which converted into the profit in 2017.
Return on assets
|
1. Rate of Return on Assets |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
884 |
972 |
-344 |
848 |
|
B. Total assets |
1,34,855 |
1,39,708 |
1,40,060 |
1,48,085 |
|
(A/B) |
0.66% |
1% |
0% |
1% |
The return on assets of company has been zero in 2016 which increased to 1% in 2017. It is good start for the AMP Company to revive its busienss in long run.
Return
|
2. Rate of Return on Equity |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders. |
884 |
972 |
-344 |
848 |
|
B. Shareholder’s Equity |
8,186 |
17,981 |
7,462 |
7,202.00 |
|
(A/B) |
10.80% |
5.41% |
-4.61% |
11.77% |
The return on equity of AMP Company has increased to 11% which reflects that company has added value in its business. It is analyzed that as compared to 2016, AMP Company has increased its profitability which will positively impact the business of AMP Company.
Earnings per share
The earing per share of company which will be available to shareholders will be zero. Company will not give any benefit to its shareholders for some time period.
|
Market Value ratios |
Years |
|
|
2017 |
2016 |
|
|
Earnings per share |
– 2.80 |
– 7.40 |
|
P/E ratio |
– |
– |
|
Dividend pay-out ratio |
– |
– |
The market value ratio of company has shown the negative results.
Price to earnings ratio
The price earnings ratio has increased by 10% since last one year. It has reflected that AMP Company is surviving its business by implementing effective business strategies.
Dividend payment ratio
The dividend payout ratio of AMP Company is zero. It shows that company has been plugging back its profit in its business.
The AMP Limited has been performing well in market as since two years, it has increased the share price of company. The below give data shows the trend of share price of AMP Company and all ordinary index share.
The above graph reflects that AMP Limited has high fluctuation in its share price which shows that company has maintained highly unstable business in long run. It is observed the share price fluctuation in the share price have aroused due to negative factors of the market and sluggish market condition at large.
Conclusion
The lower profitability and high financial leverage of company have negatively impacted the share price movement of company. In addition to this, the beta of company is .62 which shows the positive indicator for the future growth of the business.
There are several announcement have been made which will directly and indirectly impact the share price movement of the AMP limited company.
Company has raised more capital in market by issue of shares.
The strategic alliance taken by AMP Company will positively increase the overall outcomes and assist in surviving the company in long run.
Company has made high amount of investment in its research and development department which will eventually create value on its investment in long run.
Stock information and Beta calculation
The beta calculation has been done by using the share price of the AMP Limited since last two years and all ordinary indexes (AMP Limited. (2015).
The beat calculation below
|
SUMMARY OUTPUT |
|
|
Regression Statistics |
|
|
Multiple R |
0.16907 |
|
R Square |
0.02858 |
|
Adjusted R Square |
-0.0156 |
|
Standard Error |
0.02378 |
|
Observations |
24 |
|
ANOVA |
|||||
|
df |
SS |
MS |
F |
Significance F |
|
|
Regression |
1 |
0.00037 |
0.00037 |
0.64736 |
0.42967 |
|
Residual |
22 |
0.01244 |
0.00057 |
||
|
Total |
23 |
0.01281 |
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
|
Intercept |
0.00972 |
0.00489 |
1.9878 |
0.05942 |
-0.0004 |
0.01987 |
-0.0004 |
0.01987 |
|
X Variable 1 |
0.06239 |
0.07754 |
0.80459 |
0.42967 |
-0.0984 |
0.2232 |
-0.0984 |
0.2232 |
The beta value of company is .062 which shows that if the market changes by 1 % then there will be changes in the price of AMP Limited by .062 points in the same direction.
E(R) =
E(R) = expected Amount of rate of return
= Risk free % rate of return
β = Computed Beta
= Market premium risk factor (AMP Limited, 2017).
|
Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
0.062389179 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.37% |
(Please see the excel)
Notes- the RF risk free rate of return has been computed by using the 10 years risk free rate of return.
After evaluating the annual report of company, it could be inferred that AMP Limited has been following the conservative investment method in its investment strategies. It is the investment strategies which are used by company when it found that company has no better options to create value on its investment.
It is evaluated that AMP limited has been facing loss in its business due to the negative business trend. It is analyzed that company has failed to create value in its busienss due to the sluggish market condition. The conservative investment method is followed to make the company survive in this market. However, in 2017, company had good amount of profitability in 2017 which shows that company will survive in long run effective.
Cost of capital= KE= 4.37%
The cost of capital is computed by using the CAPM model.
Cost of debt- 1.93%
The cost of debt is computed by using the interest payment and debt portion (Brigham, and Ehrhardt, 2013).
WACC = cost of debt* portion of the debt capital+ cost of Equity * portion of the Cost of equity
|
WACC |
Capital Amount |
Cost of capital |
% of portion |
WACC |
|
Equity |
7,202 |
4.37% |
5% |
0.21% |
|
Debt |
1,40,802 |
0.42% |
95% |
0.40% |
|
Total capital |
1,48,004 |
WACC |
0.61% |
The weighted average cost of capital is too low which shows that company has created value in its investment
The weighted average cost of capital of the AMP limited is very low which shows the positive indicator for Company to undertake the investment projects. It is analyzed that if AMP Limited has higher weighted average cost of capital then it will negatively impact the investment decisions of Company (AMP Limited. (2017).
The debt to equity of AMP Limited reflects that company has high financial leverage in its business. It is considered that AMP Limited needs to lower down its debt portion if it wants to maintain effective sustainable business in long run. Nonetheless, reduction in the overall debt portion will also increase the cost of capital of the business.
Computation of debt to equity of Company
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1,26,470 |
1,30,813 |
1,32,519 |
140802 |
|
B. Total assets |
1,34,855 |
1,39,708 |
1,40,060 |
1,48,085.00 |
|
(A/B) |
94% |
94% |
95% |
95% |
The debt of equity of company has been around 95% which shows that company need to lower down its debt portion to make its debt to equity to 70:30 i.e. 30 % debt portion and 70% equity portion. Since last five years, AMP Limited has maintained stable debt to equity ratio. However, there is very less interest payment which company needs to make and will reflects that company has to make very less amount of interest payment (Easton., et al., 2018).
The gearing ratio of Company is very low which shows that company has to pay very less amount of interest payment on its debts. It will also Company to increase its overall outcomes in effective manner (AMP.Limited 2017).
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
5% |
6% |
4% |
4% |
This ratio shows that company will be solvency even if it has less return on its business (Chen, et al. 2018).
Annual report on dividend policies of AMP Limited reflects that the company is following a profit based dividend policy in order to attract the investment. Only when company had profit in its business it issued the dividends to the customers. In the last five years company has not issued any dividend to the customers or shareholders, which shows that the company is continuously lacking in terms of promoter’s investment to regain or survive business making big loss to the AMP Limited. In this order just to regain the profit making business for the company, AMP Limited has followed some re-engineering strategies. However, in 2017, company has done a profit making business but it did not issue the dividends to its shareholders in order to plug back its sustainability of future investment. This resulted in less number of new investments for the company. After analysing the report, it is observed that this dividend policy based on profit is useful for AMP Limited to survive and perform well in sluggish conditions of the market (Lisowsky, Minnis, and Sutherland, 2017).
To,
Directors of AMP Limited
Company is facing the issues influenced by the several positive and negative impacts of the market condition. From the report analysis is has been recorded that the company is facing a loss in its business in long run. Irrespective this continuous poor performance company has made a profitable business in the year 2017 but company business also recorded high financial leverage and les return on capital employed that is not good for the company business in long run. Company has a zero inventory ratio as there was neither any cost of operation nor it made any sales. Company has maintained only its debt equity of 95% which is too high and will result to the less level of cost of capital and its business in the long term. Company had fluctuating share price which was very less in the year 2016 and higher in2017. This fluctuating share price is not good to attract new investment for company’s future business and making a negative impact on the company profile in the market. This can be inferred from the financial analysis that the lower cost of capital company is recording is the only element of the business making a positive impact on the business growth and this can be used by the management in preparing an effective strategy to maintain this lower cost of capital and regain the market value of company along with showing a profitable business (Altman, et al. 2017).
Conclusion
There are several financial tools that have been used to analysis and evaluate the financial performance of AMP Limited. It is observed from the above financial analysis that the company has faced a dramatic loss in the last five years. But in the year 2017, company has shown a profit comparative to that of in 2016. Including this fact, in the last five years graph of share price issued by the company has shown a total downfall of 10% which reflects a poor business of the company. The increasing profit and company’s ability to survive could be measured by using its gearing ratio and profitability which company has increased throughout the time. Now in the end, it could be inferred that AMP limited needs to increase the current assets and lower down the debt portion if it wants to survive in long run.
References
Altman, E.I., Iwanicz?Drozdowska, M., Laitinen, E.K. and Suvas, A., 2017. Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman’s Z?Score Model. Journal of International Financial Management & Accounting, 28(2), pp.131-171.
AMP Limited (2015). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf.,m., Accessed on 22nd May 2018
AMP Limited. (2016). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., Accessed on 22nd May 2018
AMP Limited. (2017). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., ., Accessed on 22nd May 2018
AMP Limited. (2018). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., ., , Accessed on 222nd May 2018
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.
Dahir, A.M., Mahat, F.B. and Ali, N.A.B., 2018. Funding liquidity risk and bank risk-taking in BRICS countries: An application of system GMM approach. International Journal of Emerging Markets, 13(1), pp.231-248.
Easton, P.D., McAnally, M.L., Sommers, G.A. and Zhang, X.J., 2018. Financial statement analysis & valuation. Cambridge Business Publishers.
Lisowsky, P., Minnis, M. and Sutherland, A., 2017. Economic growth and financial statement verification. Journal of Accounting Research, 55(4), pp.745-794.
Morningstar, 2018 retrieved, Available at https://www.morningstar.com/funds.html/ Accessed on 22nd May, 2018
Yahoo finance, 2018 Available at https://in.finance.yahoo.com/., Accessed on 22nd May, 2018
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