The main aim of this report is to conduct research and analyze the performance or operation of the company. The report contains interpretation of data and summarization of findings for explaining the financial management of the company. The company selected for the analysis is Med Advisor. The company is engaged in improving health by connecting the medical professions with the patients. The purpose of the report is to provide a detailed analysis for that it have been classified into four segments.
The analysis of the annual report indicates that there are no long or short-term debts in the balance sheet of MedAvisor. This is good sign from the point of view of solvency and liquidity that the company does not have any debts in balance sheet. It means that there is no chance or probability of risk of bankruptcy in the company (Franks 2014). The rate of growth of the company has shown some concern on the decision of zero debt taken by the business. The company in the previous year had unsecured convertible loans. This has been paid in the present year and at the current situation, there are no long or short-term debts. The Long-term debts includes the bonds, debentures, term loans etc and short-term debts includes the promissory notes, short-term loans etc. These are usually utilized by the businesses for meeting its long and short-term needs of finances. The analysis indicates that the company currently fulfills all the short and long-term need of fund through reserve and owned capital.
The capital structure is defined as the source of funds that the business uses in conducting its operation and supporting. The analysis of the company indicates that the capital structure of the company does not have debt. On the other, hand the industry and the competitors of the company uses debt in their capital structure (Beaumont 2015).
The company Med Advisor belongs to a technology and innovation industry. The company is engaged in developing software that is useful to an individual for administration of medication in Australia. This admirable app helps in ordering regular supplies of medicines and administering them in proper manner (Loughran and McDonald 2016). This influences the software and pharmacy industry in the market. The present rate of growth that the business is rapidly flourishing and attracting the potential investors towards the company as result, it has reduced the need for the debts in the recent years.
The cost of debt for Med Advisor is zero in the end of the financial year as per financial report because there are no long or short-term debts in the company.
The cost of Equity is termed as the rate of return that a business pays to investors. The Capital Assets Pricing Model is commonly used for calculating the cost of equity. In this model, the expected return on equity or cost of equity is calculated by adding the risk free rate of return with the expected premium for the risk (Benson et al. 2014). The calculation of the cost of equity is provided below:
|
Statement Showing calculation of Cost of Equity |
|
|
Particulars |
Amount |
|
Risk Free rate of return |
2.76% |
|
Market Rate of return |
5.50% |
|
Beta |
-0.01 |
|
Cost of Equity |
3% |
The calculation shows that the cost of equity of the company is 3%.
The company Med Advisor’s revenue as per the annual report for the year ended 2016 was $ 1,762,000 as compared to the year 2015 was $ 1,904,000. This means a negative trend that is decline in revenue can be observed.
The earnings of Med Advisor in 2016 was detected that is in negative amount of $ 3,071,062 as compared to the year 2015 amount in negative was $ 546,123. This means that the loss in 2016 has increased as compared to 2015.
The Earnings per share of MedAdvisor for loss on operations that is in basic loss per share in 2016 negative amounts to 0.55 cents and in 2015 negative amounts to 0.45. The percentage change in EPS of loss has increased by 22.22% as compared between 2016 and 2015. The dividend is not declared by the company in the start of a year by the MedAdvisor.
The Growth expectation of MedAdvisor for 2016 is a steady natural expansion in number of patients. The company plans to achieve this by new and innovative marketing scheme that is applied in the current financial year (Al?Hadi et al. 2017). The enlargement of number of pharmacy has gained from the spreading out of different channels of sales through our tactical alliances with various companies. The increasing number of the patient has improved our importance with the chief producers and new tie-ups have been made.
The PE ratio is a popular indicator for valuation of investments. The PE ratio can be used to determine the value of the company. In the current case, the company does not have earning but has incurred losses (McLaney and Atrill 2014). Therefore, PE ratio cannot be applied for calculating the PE ratio.
The company can value its company by using the dividend growth model and the PE ratio. In the current case, the company has not declared dividend so the dividend growth model cannot be applied in valuing the company (Brief and Peasnell 2013). Therefore, it can be said that for this company PE ratio is appropriate for valuing the company.
The additional data that may be used for evaluation of the stocks of a business are the dividend per share, net profit after tax, market capital and the change of earning per share of the business to its peers (Gippel et al. 2015).
The Med Advisor does not have any debt in its capital structure so the cost of equity of the company is Weighted Average Cost of Capital (WACC) of the company.
The rate of tax for the company computation of Weighted Average Cost Calculation is 30.3%. The tax rate is applied for calculating for cost of debt and interest bearing securities.
The difference between the cost of debt and cost equity are due to the following reasons:
The current liabilities can be included while computing the cost of the capital. The main pros of including the current liability in the cost of capital are deductible to tax. On the other hand, the major cons of involving the current liabilities that will increases the dangers in cost of the capital (Christensen and Kent 2016).
Major value of WACC computation:
The major value in Med Advisor for WACC calculation is cost of equity, as there is no existence of any amount of debt. The investors will consider the business as good enough for creation of its decisions relating to investments.
The company has utilized the WACC in deciding upon investments in office furniture, leasehold improvement and office equipments.
The Capital structure is a way the business manages its finance in the whole operations and expansion by utilizing the financing sources. In the company Med Advisor, it has equity capital but does have any debt (Wood 2016).
The optimal capital structure is given as the finest ratio of debt to equity at that the business can make the most of its worth. If the capital structure involves more and more portions of debt it will construct a business more loaded for compensating the interests and exposes this to greater risk that will build the business more loaded situations. This may make the conditions in the economy of a business harsher.
The financial performance of MedAdvisor is being evaluated as per the earning per share of the company is in negative amount of $ 0.55 Cents. The diluted earnings per share are a negative amount of $ 0.55 Cents. The growth from services in respect to revenues has increased by 24% from the year 2015 to 2016.
The present price of each share of MedAdvisor on 18/10/2017 is $ 0.036. The average traded volume is 590,848 units on each day. The P/E ratio of MedAdvisor is – 7.20 and market capitalization is $ 34.03 Million. MedAdvisor has displayed a record-breaking revenue growth in service sector and profits have increased. The MedAdvisor has no debts so it will prevent from the bankruptcy risk (Choi and Young 2015). The net income of the company has fallen and facing more and more losses from the last few years.
The financial analysts has observed and critically evaluated the company MedAdvisor that is facing losses and does not pay any dividends. The earnings per share is also unfavorable but the growth displayed by the company and revenue has jumped at 24% increase. The potential of growth in this company is huge and investing on this company is risky (Gerrans et al. 2015). The strategy for short-term is not to invest in this company but as per long term this company does have the potential to provide good amount of return on investment in the near future.
Therefore, I totally have the same views as the reports of the financial analyst’s as debt is composed in the capital structure is zero that means no chance of bankruptcy risk. As per the below figure, we can clearly observe the true potential of the company MedAdvisor.
The other most relevant item for the company is the feature that is uniquely facilitated by the Med Advisor is GP link as this is one of the first in class trait that connects the patients with its practitioners of medicine (Beekes et al. 2015).
Conclusion
As from the above discussion, we can conclude that the company MedAdvisor has a greatly dependent on the equity and does not have any debt in the business. This system prevents the chances of bankruptcy of the business.
Reference
Al?Hadi, A., Chatterjee, B., Yaftian, A., Taylor, G. and Monzur Hasan, M., 2017. Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia. Accounting & Finance.
Beaumont, S.J., 2015. An investigation of the short?and long?run relations between executive cash bonus payments and firm financial performance: a pitch. Accounting & Finance, 55(2), pp.337-343.
Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in Australia: a re?examination. Accounting & Finance, 55(4), pp.931-963.
Benson, K., Faff, R. and Smith, T., 2014. Fifty years of finance research in the Asia Pacific Basin. Accounting & Finance, 54(2), pp.335-363.
Brief, R.P. and Peasnell, K.V. eds., 2013. Clean surplus: A link between accounting and finance. Routledge.
Cheng, P., Man, P. and Yi, C.H., 2013. The impact of product market competition on earnings quality. Accounting & Finance, 53(1), pp.137-162.
Choi, Y.S. and Young, S., 2015. Transitory earnings components and the two faces of non?generally accepted accounting principles earnings. Accounting & Finance, 55(1), pp.75-103.
Christensen, J. and Kent, P., 2016. The decision to outsource risk management services. Accounting & Finance, 56(4), pp.985-1015.
Franks, J., 2014. LibGuides: Graduate Accounting Empirical Research: Accounting & Finance Databases.
Gerrans, P., Faff, R. and Hartnett, N., 2015. Individual financial risk tolerance and the global financial crisis. Accounting & Finance, 55(1), pp.165-185.
Gippel, J., Smith, T. and Zhu, Y., 2015. Endogeneity in Accounting and Finance Research: Natural Experiments as a State?of?the?Art Solution. Abacus, 51(2), pp.143-168.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A survey. Journal of Accounting Research, 54(4), pp.1187-1230.
McLaney, E.J. and Atrill, P., 2014. Accounting and Finance: An Introduction. Pearson.
Wood, D.A., 2016. Comparing the publication process in accounting, economics, finance, management, marketing, psychology, and the natural sciences. Accounting Horizons, 30(3), pp.341-361.
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