AGL Energy Limited (Listed Company)
AGL Energy is the public limited company registered with Australian Exchange and it provides energy products and services to the Australian people. AGL Energy is the energy company that is involved in both generation and selling of electricity for residential and commercial use. Company uses thermal power, natural gas, wind power, hydroelectricity and coal in their power house to produce the electricity. AGL Energy is actively involved in reducing the green house gas emissions through providing the secure and affordable energy to customers. Company has an experience of 175 years in the field of generation and distribution of electricity and main distribution centre area is eastern Australia. In last five years, there has been continuous growth in the gross revenue of the company and management believes such performance in future years (Annual Report 2015: AGL Energy Limited). AGL limited believes in good dividend to their shareholders and it can be seen from last five years annual report. Extensive review of annual report for 2014 and 2015 has been done underneath with comparison to competitors company (Genesis Energy Limited).
Genesis Energy Limited deals in same industry as AGL Energy but it based in New Zealand. The shares are of the company are publicly traded and it is registered on the Australian Stock Exchange. Genesis Energy is the largest retailing company in field of electricity and natural gas with stake of 26 % and 42 % respectively. Company has about 636,676 customers in its retailing segment that makes it largest electricity and gas retailer in the New Zealand. Genesis is the diversified energy company that aims to provide their customers with smart, conventional and clean source of energy solutions and services. Company aims to give their 100% to save environment through balancing the use of resources and giving very less damage to environment. Genesis Energy Limited is fast growing company in the New Zealand and it has target to serve the maximum customers in the future. Company has maintained proper growth in last two years and earned sufficient profits to meet the shareholders need (Annual Report 2015: Genesis Energy Limited). It is company policy to pay highest dividends to their shareholders through maintaining good pace of growth in revenue as well in market price.
In order to recommend the investors to invest in the company or not it is required to analyze the company financial statements. Therefore, a ratio analysis has been done to find out performance of both AGL Energy Limited and Genesis Energy Limited. Comprehensive report is presented along with detail calculations in the appendix to help with. Profitability, Liquidity, Capital structure and Market performance ratios have been included in the ratio analysis and they are given as under.
Profitability ratios tell the earning capacity of the company. These ratios tell how much company has earned in previous years on different grounds like total assets, net sales etc (Fridson and Alvarez, 2011).
Return on assets: Return on assets ratio tell the total profits on total assets implied by the company in the current year. More the value of ratio more is beneficial for the company. AGL Energy Limited has earned 4.03 % net profit on total asset in year 2014 and in year 2015 it was reduced to 1.38 % showing the downfall by 2.65 % (Annual Report 2015: AGL Energy Limited). On the other hand, Genesis Energy Limited has earned 1.36 % of income on total assets in year 2014 and it was increased to 2.97 % in year 2015. Therefore, it can be said there is decreasing trend in return on assets for AGL Energy Limited whereas increasing trend for Genesis Energy Limited (Bull, 2007).
Net Profit Margin: This ratio shows the profit earned on total revenue. Higher the net profit more beneficial for the organization. It is calculated by dividing net profit to net revenue. Net profit margin of AGL Energy Limited was 5.46 % in year 2014 and it is decreased to 2.04% in year 2015. So, it represents downfall trend in the net profit ratio for AGL Energy Limited. Net profit margin ratio of Genesis Energy Limited was 2.45 % in year 2014 and it was increased to 5 % in year 2015, showing the increasing trend Annual Report 2015: Genesis Energy Limited).
Liquidity ratios tell the short term financial position of the company. Current ratio and quick ratio are two ratios that help in evaluating the liquidity performance of the company (Mumba, 2013).
Current Ratio: This ratio helps to know the short term liquidity position of the company and it is calculated by dividing current assets by current liabilities. To have the better liquidity position there is requirement to keep the current assets more as compare to current liabilities. It tells the company ability to pay off their short term liabilities during the period. On having looked at the current ratio of AGL Energy Limited it can be said that liquidity position of the company is good despite of slight downfall in current ratio in year 2015 (Annual Report 2015: AGL Energy Limited). Current ratio of AGL Energy Limited in year 2014 is 1.57 and in year 2014 it is 1.46. On the other hand, looking at the current ratio figures of Genesis Energy Limited, it can be conclude that company also has sound liquidity position in both the year. In year 2015, there was downfall in current ratio by 22% but company manages to keep the current ratio above its ideal mark of 1. Current ratio of Genesis Energy Limited in year 2014 is 1.45 and in year 2014 it is 1.12 Annual Report 2015: Genesis Energy Limited).
Quick Ratio: This ratio also tell the short term liquidity position of the enterprise but while determining the current assets it ignores inventory and prepaid expenses. It is similar to the current ratio but it tells clearer picture of the liquidity position of the company as it does not includes assets that are difficult to convert into cash and cash equivalents within the short span of time.
These ratios tell the structure of capital employed by the company to earn the revenue. Basically company employ owner’s capital to have capital funding but public limited company generates capital by issue of common shares in the open market and creating the debt from the bank. Two main ratios that help in evaluating the capital structure of the company are debt to equity ratio and equity ratio.
Debt to Equity ratio: Debt to equity ratio tells the amount of debt over the shareholder’s equity. Company having more equity capital as compare to debt capital assumes to be having better capital structure (Annual Report 2015: AGL Energy Limited). This ratio is calculated by total debt by total shareholder’s equity. In year 2014, AGL Energy limited has 0.86 debt as compare to equity and it got reduced to 0.80 in year 2015. Genesis Energy Limited has debt of 0.93 as compare to equity in year 2014 and there is no change in year 2015. So, there is decreasing trend in the ratio for AGL Energy Limited whereas no trend in case of Genesis Energy Limited Annual Report 2015: Genesis Energy Limited).
Equity Ratio: This ratio is defined as total shareholders equity divided by total assets. This ratio tells how much equity part is financed by the company in contrast to debt and current liabilities. AGL Energy Limited has an equity ratio of 0.54 in year 2014 and it got increased to 0.56 in year 2015. This shows an increasing trend for the company AGL Energy Limited. Genesis Energy Limited has an equity ratio of 0.52 in both the years with slight variation. So it can be said that there is no trend in the ratio for Genesis Energy Limited (Drake and Fabozzi, 2012).
Market performance ratios tell how well company has performed in the outside market. Market performance is the analysis of return earned by the shareholders.
Earning per share: This ratio tells net earnings earned by each shareholder in the company. AGL Energy Limited has earned $0.979 in year 2014 and $ 0.375 in year 2015 per share. On the other hand Genesis Energy Limited has earned $ 0.049 in year 2014 and $ 0.105 in year 2015. It reflects decreasing trend in respect to AGL Energy Limited and increasing trend for Genesis Energy Limited (Trading Economics, 2016).
Dividend per share: This ratio tells how much dividend is distributed by the company to each shareholder for the particular time period. Dividend includes interim dividend as well as final dividend for the calculation purpose (Brigham and Ehrhardt, 2011). AGL Energy Limited has distributed $ 0.603 and $ 0.665 in year 2014 and 2015 respectively. On the other hand, Genesis has given $ 0.146 and $ 0.121 per share for year 2014 and 2015 respectively.
On the basis of above analysis it is advised to the investors to not invest in AGL Energy Limited due to its decreasing profit in year 2015 and lower earning per share. It is suggest that people must invest in Genesis Energy Limited n order to have higher returns and lower risk.
Annual Report 2015. Genesis Energy Limited. [Online]. Available at: https://www.genesisenergy.co.nz/en_GB/reports-and-presentations
Annual Report. 2015. AGL Energy Limited. [Online]. Available at: https://www.agl.com.au/about-agl/media-centre/article-list/2015/august/agl-annual-report-2015
Brigham, E. F. and Ehrhardt, M. C. 2011. Financial Management: Theory and Practice. Mason: Cengage Learning.
Bull, R. 2007. Financial Ratios: How to use financial ratios to maximize value and success for your businesses. Elsevier.
Drake, P. P. and Fabozzi, F. J. 2012. Analysis of Financial Statements. John Wiley & Sons.
Fridson, M. S. and Alvarez, F. 2011. Financial Statement Analysis: A Practitioner’s Guide. John Wiley & Sons.
Mumba, C. 2013. Understanding Accounting and Finance: Theory and Practice. USA: Trafford Publishing.
Trading Economics. 2016. AGL Energy EPS Earnings Per Share. [Online]. Available at: https://www.tradingeconomics.com/agl:au:eps [Accessed on: 16 August, 2016].
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