Initial Analysis
Discuss about the Managing Decisions for AGL and Genesis Energy Limited.
AGL Energy Limited has an experience of 175 years and at the present provides the services of gas, electricity and solar PV to more than 3.7 million customers who reside in the areas of Queensland, New South Wales, Victoria and Australia. It is one of the leading companies, providing electricity services in the market of Australia and the largest ASX listed developer, operator and owner of generation of renewable energy sources in Australia. They are at the present moment the organization is endeavoring to reduce the emission of greenhouse gases while providing the services to its esteemed customers as that would be beneficial for both energy conservation and also the preservation of the environment (Wolf, 2008). Genesis Energy Limited on the other hand is a diversified energy company which is in the business of selling electricity and natural gas and LPG to its customers. It is the largest retailer of electricity and gas in New Zealand. Through the two retails brands of the organization the organization provides its products and services to about 25% of the household of New Zealand. The two retail brands of the company are Genesis Energy and Genesis Online. These two companies work in the same market and thus can be considered as competitors.
Income Statement
The income statement shows the financial performance of an organization for a period of time. It is considered as an essential part of financial statements showing the position of the company in the market. Income statement shows revenue, expense, other comprehensive income and profit or loss of the company (Elliott & Elliott, 2008). The income statement of AGL Energy Limited and Genesis Energy Ltd shows the net income of the companies for the year 2014 and 2015.
Balance Sheet
Balance sheet shows the assets, liabilities and equities of an organization for a period of time. The ratio analysis of the companies can be done with the help of balance sheet to determine the business of the company. Balance sheet of a company includes noncurrent assets, current assets, noncurrent liabilities, current liabilities and equity (Helbæk, Lindest, & McLellan, 2010). Current assets include items such as cash, account relievable, prepaid expenses and inventory. Current liabilities include items such as payable, accrued expenses and short term debt. Balance sheet of AGL Energy Limited and Genesis Energy Ltd shows Assets, liabilities and equity of the companies for the year 2014 and 2015.
Cash Flow Statement
Cash flow statement shows the inflow and outflow of cash of an organization. The business activities that generate and also use cash are investments, operations and financing. Cash flow of statement of AGL Energy Limited and Genesis Energy Ltd shows the flow of cash for the year 2014 and 2015.
Profitability Ratio
Profitability ratio measures the profit making potentiality of the company; it helps in assessing company’s financial performance, its capacity of making profit, as well as a profit which is left over from the earned income after the entire deduction of cost and expenditure connected to the earning of the income (Castagna & Fede, 2013). Profitability can be measured by Return on asset as well as net profit margin. Return on asset, simply refers to the return on the investment of any assets, it is a financial indicator which assess the profitability of a company and it is connected to the total assets of the company. ROA provide adequate idea about the asset using efficiency of the management in order to generate money (Keys to profitability, 2003). Furthermore, net profit margin is the margin that earned after deducting cost and expenses from the gross earnings. It is mainly a percentage of the income after deducting the entire expenses interest, tax etc.
Liquidity is mainly the availability of the liquid assets for a company; it is mainly the cash assets. It measures the capability of a company to pay the debt and obligation of the company along with its margin of safety. It is mainly of two types’ current ratio and quick ratio.
Current ratio measure the capability of a company in order pay short term along with long term debts, to measure the ability the current cumulative asset of the company and current cumulative liabilities of the calculated (Pástor & Veronesi, 2002).
Quick ratio use to measure liquidity of a company, it is familiar as acid test ratio, it compares the cumulative cash plus marketable securities plus account receivables of the company to the current liabilities.
The debt to equity ratio is defined as debt ratio used in order to measure the financial leverage of a company and is calculated by the process of dividing the total liabilities of the company with that of the equity of the shareholders (Clatworthy, 2005). This ratio shows the amount of debt being used by a company in order to finance its assets in comparison to the amount which is present in the equity of the shareholders.
Profitability Ratio
The equity ratio can be said to be a very good indicator of leverage used by an organization (Troy, 2005). The proportion of the total assets that is financed by the stockholders instead of the creditors is measured through Equity Ratio.
Earnings per Share
Earnings per share are referred to as the portion of profit of an organization which is allocated for each outstanding share of the common stocks. The profitability of a company is indicated by the Earnings per Share or EPS of that company (Bragg, 2006). During the time of calculation one should use weighted number of shares in order to get an accurate answer as the number of outstanding shares can go through a change over a period of time.
Dividend per Share
Dividends per share can be defined as the amount of dividends that the share holders get from the company on a per share basis (2015 International valuation handbook, 2016). It is the total amount of the dividends issued by a company for each and every ordinary share outstanding.
Financial ratios of a company show the profitability, liquidity and efficiency for a period of time. The profitability ratio shows the profit margin, liquidity ratio shows the liquidity level and efficiency ratio shows the efficiency of the company (Helbæk, Lindest, & McLellan, 2010).
Profitability Ratio
Net Profit Margin
The net profit margin shows the profit eared by the companies for a period of time. It shows the financial position of the companies. The net profit margin of AGL Energy Ltd has decreased from 5.97% in the year 2014 to 2.04% in the year 2015. Therefore, it shows that the profit margin of the company has decreased. The net profit margin of Genesis Energy LP has increased from 2.76% in the year 2014 to 18.81% in the year 2015 which shows strong financial performance of the company.
Return on assets
Return on assets show the profitability of an organization in relative to the total assets. The return on assets of AGL Energy Ltd has decreased from 4.17% in the year 2014 to 1.46% in the year 2015. Return on assets of Genesis Energy Ltd has increased from 3.49% in the year 2014 to 9.72% in the year 2015. Therefore, it shows that Genesis Energy Ltd is much more efficient than AGL Energy Ltd in utilizing its assets appropriately (Hillier, 2010).
Current Ratio
Current ratio shows the ability of a firm to pay off debts and obligations. The current ratio of AGL energy ltd is above one in the year 2014 and 2015 which is a positive sign for the company. The current ratio of Genesis Energy Ltd has increased from 0.98 in the year 2014 to 1.01 in the year 2015 (Holton, 2012).
Liquidity Ratio
Quick ratio
The quick ratio of AGL Energy Ltd has decreased from 0.95 to 0.88 and Genesis Energy LP has increased from 0.68 to 0.89. Therefore, it shows that both the companies have the ability to pay off the debts.
Debt to Equity Ratio
Debt equity ratios show the proportion of debt and equity used by the company to finance all its assets. Debt equity ratio of AGL Energy Ltd has decreased from 0.48 in the year 2014 to 0.39 in the year 2015. Debt equity ratio of Genesis Energy LP has increased from 1.3 in the year 2014 to 1.44 in the year 2015. Therefore, it shows that the debt level of Genesis Energy LP is higher than AGL Energy LP.
Equity Ratio
Equity ratio shows the leverage level used by the company. It measures the proportion of assets that are invested by stockholders (Stittle & Wearing, 2008). The equity ratio of AGL Energy Ltd remains the same in both the year and equity ratio of Genesis Energy Ltd has increased from 2.63 to 2.69 from 2014 to 2015.
Earnings Per share
The earnings per share of AGL Energy Ltd has decreased from 1.02 to 0.33 and Genesis Energy Ltd increased from 1.18 to 4.09 from 2014 to 2015. Therefore, its shows Genesis earnings is higher than AGL energy ltd per share
Dividend Per share
The dividend per share of AGL Energy Ltd has decreased and Genesis Energy Ltd has increased from the year 2014 to 2015. Therefore, it shows the dividend per share of Genesis Energy Ltd is higher than AGL Energy Ltd.
Conclusion
The financial statements of a company show the financial performance for a period of time. It shows the profit or loss, liquidity and efficiency of the companies. The financial ratios are calculated to determine and evaluate the performance of the companies in present and comparing it with future. The analysis has been on AGL Energy Ltd and Genesis Energy Ltd to determine and evaluate their performance as well as comparing them in order to take investment decision. However, financial analysis has some limitations as it does not include any internal and external factor that imposes significant impact on the operations of an organization such as stakeholders attitude, quality of product and services and competition in the market. However, the analysis will help to determine and evaluate the financial performances of the companies.
The financial analysis of both the companies shows that the performance of Genesis Energy LP is much better than AGL Energy Ltd. The net profit margin and return on assets of Genesis Energy Ltd is much higher than AGL Energy Ltd. The Current ratio and quick ratio also shows the companies would be able to pay off their obligations. The debt equity ratio of the companies is also not so high and equity ratio is also appropriate. Therefore, overall analysis shows that the investors should invest into Genesis Energy LP in order to get maximum returns.
References
Castagna, A. & Fede, F. (2013). Measuring and managing liquidity risk. Chichester, West Sussex, U.K.: Wiley.
Keys to profitability. (2003). Sewickley, Pa.
Pástor, L. & Veronesi, P. (2002). Stock valuation and learning about profitability. Cambridge, MA.: National Bureau of Economic Research.
2015 International valuation handbook. (2016). Hoboken, New Jersey.
Bragg, S. (2006). The ultimate accountants’ reference. Hoboken, NJ: John Wiley & Sons.
Clatworthy, M. (2005). Transnational equity analysis. Chichester: Wiley.
Troy, L. (2005). Almanac of business and industrial financial ratios. Chicago: CCH.
Elliott, B. & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall.
Helbæk, M., Lindest, S., & McLellan, B. (2010). Corporate finance. New York: McGraw-Hill.
Hillier, D. (2010). Corporate finance. London: McGraw-Hill Higher Education.
Holton, R. (2012). Global finance. Abingdon, Oxon: Routledge.
Stittle, J. & Wearing, B. (2008). Financial accounting. Los Angeles: SAGE Publications.
Wolf, M. (2008). Fixing global finance. Baltimore, Md.: Johns Hopkins University Press.
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