There are several internal and external factors which affect the present and future condition of the corporate. In this report, several financial tools such as ratio analysis, du Pont analysis, capital budgeting, and WACC methods have been used to identify whether the company has been performing well in market or not. In this report, financial analysis tools have been used to gauge the financial performance of financial accounting of Green Power Energy Limited. The main outcome of this report is that Green Power Energy Limited has destructed its business in the long run and resulted in the negative business throughout the time.
Green Power Energy Limited is an Australian company which is indulged in providing energy and search and development of coal to liquid project in Australia. It has several other subsidies which are engaged in providing energy support program to other corporations on a commercial level (Green Power Energy Limited (2018).
The present CEO Of Company is Gerard King who takes all the imperative decisions for the future growth of the business.
The below given are the key managerial person of the Green Power Energy Limited
|
Name |
Position |
Start Date |
|
Mr Gerard Arthur King |
Executive Director, Executive Chairman |
4 Nov 1985 |
|
Mr Edwin Edward Bulseco |
Non-Executive Director |
28 Mar 2017 |
|
Mr Simon Peters |
Non-Executive Director |
6 Dec 2016 |
(Yahoo Finance, 2017)
Shareholder details of the company
The ratio analysis tools are used to set the relation between two financial factors of the business and identify whether Green Power Energy Limited has been performing well or not
Throughout the time (Green Power Energy Limited, 2015).
Current ratio
The current ratio of Green Power Energy Limited divulged that how well company could manage its short term and long term liabilities by using the current assets (Green Power Energy Limited, 2017).
|
Liquidity ratio |
Years |
|
|
2017 |
2016 |
|
|
Current ratio |
.05 |
0.07 |
|
Quick ratio |
.04 |
0.06 |
Interpretation
Green Power Energy Limited has maintained its current ratio to .05 times in 2017 which is 0.02 points lower as compared to last year data. However, Green Power Energy Limited has lower down its current liabilities as compared to last year (Dahir, Mahat, and Ali, 2018).
Quick ratio
The quick ratio reflects Green Power Energy Limited’s immediate capacity to pay off its short term and long term debts from its current assets. It reflects that company has lower down its quick ratio by .02 points since last one year
|
Providing equation |
2014 |
2015 |
2016 |
2017 |
|
Net profit After tax/OE |
-0.6667 |
-0.5 |
-3 |
-0.5 |
|
EBIT/TA*NPAT/EBIT*TA/OE |
-0.6667 |
-0.5 |
-3 |
-0.5 |
This all amount of Green Power Energy Limited shows the negative results and depicts that soon company will destruct its business if it continues like this.
Debt to equity
The debt to equity of Green Power Energy Limited reveals the relationship between the debt and equity of the company. The ideal debt to equity of Green Power Energy Limited should be 70:30 i.e. 70 % part of the capital should be debt and 30% part of the capital should be equity. It is observed that company has lower down its financial leverage by increasing its total assets investment.
Computation of debt to equity of Company
|
Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1 |
1 |
1 |
1 |
|
B. Total assets |
3 |
3 |
1 |
4.00 |
|
(A/B) |
33% |
33% |
100% |
25% |
The debt to equity of Green Power Energy Limited has been zero which reflects that company is totally dormant and has no functioning throughout the time. However, the in 2016 it had 100% debt to equity in 2017 which reflected the highly risky business. In 2017 the debt to equity company went down to 25% which shows the positive results for the sustainable future of the company.
The gearing ratio of Green Power Energy Limited was 100% in 2014 which have been keeping maintained to 100% for last three years. After that Green Power Energy Limited lower down it’s gearing ratio to 67% in 2017 which is negative for business (Green Power Energy Limited 2017).
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
100% |
100% |
100% |
67% |
This gearing ratio reflects how well Green Power Energy Limited has been creating EBIT in its business to cover its interest payment.
The inventory turnover of the company has been zero as Green Power Energy Limited has failed to keep the inventory in its business. Since last three years, the business of Green Power Energy Limited has been dormant.
|
Efficiency ratio |
Years |
|
|
2017 |
2016 |
|
|
Inventory turnover ratio |
0 |
0 |
|
Asset turnover ratio |
0 |
0 |
|
Receivable turnover ratio |
0 |
0 |
|
Days’ sales in inventory |
0 |
0 |
|
Days’ sales in receivables |
0 |
0 |
(Green Power Energy Limited 2017)
Assets turnover ratio
The assets turnover ratio analyses ability of Green Power Energy Limited to create a return from the invested assets in the business. The company has been facing high loss which has negatively affected the invested assets in Green Power Energy Limited.
The debtor turnover ratio of Green Power Energy Limited has been zero as the company has no operations in its business which reflects that company is consistently decreasing the value of its assets.
The profitability ratio shows the relation between the net profit and turnover of the company. However, since last three years, the company has been dormant which divulges that it has no operation to run its business.
|
The rate of Return on Assets |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
-2 |
-1 |
-3 |
-2 |
|
B. Total assets |
3 |
3 |
1 |
4 |
|
(A/B) |
-66.67% |
-33% |
-300% |
-50% |
The return on assets of Green Power Energy Limited has a high loss due to its high operation fixed expenses which divulge that the shareholders who invested capital in this company have been facing high loss due to the negative business outcomes.
Return on equity
|
Rate of return |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders. |
-2 |
-1 |
-3 |
-2 |
|
B. Shareholder’s Equity |
3 |
17,981 |
1 |
4.00 |
|
(A/B) |
-66.67% |
-0.01% |
-300.00% |
-50.00% |
The return on equity of company reflects that % of earning available to shareholders. It is observed that Green Power Energy Limited has been dormant and drastically facing negative results which divulge that the shareholders who invested capital in this company have to bear the high loss in their invested capital.
Earnings per share
It is the amount of benefit available to shareholders throughout the time.
|
Market Value ratios |
Years |
|
|
2017 |
2016 |
|
|
Earnings per share |
(2.80) |
(7.40) |
|
P/E ratio |
– |
– |
|
Dividend payout ratio |
– |
– |
The market price of Green Power Energy Limited will be negative as the company has been dormant since last five years.
Price to earnings ratio
The price to earnings ratio is highly dependent upon the share price value of the company.
Dividend payment ratio
There has been no dividend payment made by Green Power Energy Limited since last five years. It is analysed that company will soon reach the point where it needs to take winding up procedure to pay off it short term and long term debts.
Share price graph of the Green Power Energy Limited
Graph reflecting the share price movement of Green Power Energy Limited and All ordinary share price index
The comparison between the Share price movement of Green Power Energy Limited and share price movement of all ordinary stock exchange
The share price movement of the company is highly based on the investment opportunity available to the investors, profitability of the company and financial leverage. The share price of Green Power Energy Limited will be negative in future for sure.
Green Power Energy Limited has been dormant and failed to run its business effusively. The loss in the company has been occurred due to the zero sales and increased operating fixed expenses. The share price trend of the company has been showing that the share price of Green Power Energy Limited will be negative soon.
Conclusion
If Green Power Energy Limited fails to take the revival strategies program then it will negatively impact the share price and will result to the destruction of the business of Green Power Energy Limited.
There are several factors which may have influenced the share price of Green Power Energy Limited
With the dormant business functioning of Green Power Energy Limited, management department of the company has given the following announcement which might positively and negatively impact the share price of Green Power Energy Limited.
The company will lower down the overall financial leverage by issuing more capital in the market.
The hiring of independent directors and appointing the audit committee will eventually increase the transparency of business.
Green Power Energy Limited will enter into the strategic alliance with other organizations which will assist it to revive in the market and operate its business profitability in long run.
The beta value of Green Power Energy Limited is negative which will assist it to grow effectively even if the market is sluggish in long run.
Stock information and Beta calculation
The beta is computed by using the excel formula and regression analysis in which correlation between the share price movement of the company and all ordinary index is measured (Green Power Energy Limited, 2015).
|
SUMMARY OUTPUT |
|
|
Regression Statistics |
|
|
Multiple R |
0.308992 |
|
R Square |
0.095476 |
|
Adjusted R Square |
0.054361 |
|
Standard Error |
0.022948 |
|
Observations |
24 |
|
ANOVA |
|||||
|
df |
SS |
MS |
F |
Significance F |
|
|
Regression |
1 |
0.001223 |
0.001223 |
2.322188 |
0.141787 |
|
Residual |
22 |
0.011586 |
0.000527 |
||
|
Total |
23 |
0.012808 |
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
|
Intercept |
0.010472 |
0.004754 |
2.202946 |
0.038371 |
0.000614 |
0.02033 |
0.000614 |
0.02033 |
|
X Variable 1 |
-0.00628 |
0.004121 |
-1.52387 |
0.141787 |
-0.01483 |
0.002267 |
-0.01483 |
0.002267 |
The beta value of Green Power Energy Limited has been showing the negative -.0062. It divulges that company will be positively impacted by the .0062% if market faces the sluggish market condition by 1 %.
|
E(R) = |
|
E(R) = expected Amount of rate of return |
|
= The Risk free % rate of return |
|
β = Computed Beta |
|
= Market premium risk factor (Green Power Energy Limited, 2017). |
Computation of the WACC of Green Power Energy Limited
|
Calculation of Required rate of return |
|
|
Risk-free rate (A) |
4% |
|
Beta (B) |
-0.006280593 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
3.96% |
Notes- RF is computed by using the return offered by 10-year treasury bonds.
The investment method followed by Green Power Energy Limited is not a conservative investment decision. The main reason to determine that Green Power Energy Limited has not been following conservative investment policy is related to its dormant business functioning. After analysing the annual report, it could be inferred that Green Power Energy Limited has invested AUD $ 23.45 million in its research and development and apart from that it has not invested capital in any of its business projects.
Green Power Energy Limited has doubt whether it will sustain its business in the long run or not.
Cost of capital= KE= 3.96%
CAPM model is used to compute the cost of equity.
Cost of debt- 0%
The cost of debt of the company is zero as Green Power Energy Limited has zero amounts of total liabilities in its books of account.
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 |
4 |
3.96% |
100% |
3.96% |
|
Debt |
0 |
0.00% |
0% |
0.00% |
|
Total capital |
4 |
WACC |
3.96% |
The weighted average cost of capital is too low which shows that company has created value in its investment
It is observed that if the company is having low WACC in its business then it will have high chances to increases its return on capital employed and select any particular project which will give it higher return on investment as compared to its WACC. If Green Power Energy Limited has the high weighted average cost of capital then it will eventually increase the financial leverage of the company.
The sluggish market condition and dormant business functioning will result to the destruction of business in the long run (Green Power Energy Limited. (2017).
After analysing the annual report of the company, it is found that the debt to equity of Green Power Energy Limited reveals the relationship between the debt and equity of the company. The company has invested 400% amount of capital in a total asset with a view to save it from the financial risk in future.
Computation of debt to equity of Green Power Energy Limited
|
Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1 |
1 |
1 |
1 |
|
B. Total assets |
3 |
3 |
1 |
4.00 |
|
(A/B) |
33% |
33% |
100% |
25% |
The debt to equity of Green Power Energy Limited has been zero which reflects that company is totally dormant and has no functioning throughout the time. However, the in 2016 it had 100% debt to equity in 2017 which reflected the highly risky business. In 2017 the debt to equity is 25% which is somehow the positive indicator for the future growth of the company (Ehiedu, 2014).
This ratio has been 100% since last three years. After that Green Power Energy Limited lower down it’s gearing ratio to 67% in 2017 which is negative for business (Green Power Energy Limited 2017).
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
100% |
100% |
100% |
67% |
This gearing ratio reflects how well Green Power Energy Limited has been creating EBIT in its business to cover its interest payment.
The dividend policy of Green Power Energy Limited is hard to determine at this point in time. However, before three years back, the company were following profit based dividend policy. Since last three years, the company has not been dormant nor has it been offering a dividend to its shareholders. Green Power Energy Limited has faced high loss in its business so no dividend was issued to shareholders for the same period of time. Green Power Energy Limited should focus on creating value first from its sales (Lisowsky, Minnis, and Sutherland, 2017).
To,
Directors of Green Power Energy Limited
Green Power Energy Limited has been dormant since last three years. It is observed that the management of the company needs to use the effective strategic program if they want the company to survive again in long run.
After analysing the annual report, it is advised to directors to take good steps to run the business of Green Power Energy Limited. The high financial leverage has been managed by infusing more capital in the total assets of the business. However, there are zero amounts of total liabilities of Green Power Energy Limited which reflects that company will not go to liquidation even if it does not have profit in its business. Nonetheless, loss in its operating activities is showing the negative impact on the business and its future outlook.
This could be inferred that if directors want Green Power Energy Limited to survive again then its business operation needs to be changed and proper efforts should be made to increase the overall sales throughout the time (Delen, Kuzey, and Uyar, 2013).
Conclusion
After analysing all the details and factors of the business of Green Power Energy Limited, it is inferred that company has kept its business dormant for very long time. It is analysed that Green Power Energy Limited has high financial leverage and maintained loss in its business since last three years. The profitability of company and efficiency to deploy cash in business has reflected the negative business outlook. If directors and managers of Green Power Energy Limited do not take imperative decisions then it might negatively impact the share price movement and future growth of Green Power Energy Limited. Now, in the end, it could be inferred that Green Power Energy Limited should enter into the strategic alliance with other companies If the management finds challenging to survive company in long run.
References
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.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.
Green Power Energy Limited (2015). Annual report. Available at https://www.greenpowerenergy.com.au/annual-reports/., Accessed on 22nd May 2018
Green Power Energy Limited. (2016). Annual report. Available at https://www.greenpowerenergy.com.au/annual-reports., Accessed on 22nd May 2018
Green Power Energy Limited. (2017). Annual report. Available at https://www.greenpowerenergy.com.au/annual-reports/., ., ., Accessed on 22nd May 2018
Green Power Energy Limited. (2018). Annual report. Available at https://www.greenpowerenergy.com.au/annual-reports/., ., ., , Accessed on 222nd May 2018
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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