Financial Viability Of Antilles Oil And Gas

Calculating the daily stock price returns and market index return over the period of three years

Discuss About The Financial Viability Of Antilles Oil And Gas.

The overall assessment aims in detecting the financial viability of Antilles Oil and Gas NL and Australis Oil and Limited, which could be used for investment purposes. In addition, the calculation of return from investment has mainly helped in improving the level of returns, which could be generated from investment. Furthermore, relevant calculation of WACC is mainly conducted to detect the minimum returns, which could be provided from an investment. management, the evaluation of dividend policy is also conducted to understand the benefits, which could be generated by the organisation over the period of time. The investment sections have mainly helped in improving the level of return, which could have generated from investment. The evaluation of annual report and current dividend policy mainly helped in detecting the investment opportunity presented to the investor. Lastly, adequate recommendations are provided, which indicates whether investment in Antilles Oil and Gas NL and Australis Oil and Limited is a viable provision for the investors.

The above table mainly helps in depicting the overall systematic risk, unsystematic risk, and total risk for the both Antilles Oil and Gas NL and Australis Oil and Limited. From the evaluation it is detected that overall risk of Antilles Oil and Gas NL has mainly increased during the period of three fiscal years. Moreover, the risk of Australis Oil and Limited has also increased, which can be seen from the evaluation of the above table. This relevantly indicates that the risk involved in investment in both the companies are relevantly high. Furthermore, from the evaluation it is also detected that only the unsystematic risk of both companies is relevantly increasing, as the systematic risk is in control, while changing significantly with the beta of the company. From the evaluation it has also indicated that the overall risk of both the companies has mainly increased over the period of time. In this context, Imrohoroglu & Tuzel (2014) stated that companies having the higher risk involved in investment mainly increases the chance of share price decline, while hampering the investment capital of the investors. On the other hand, Mishra (2015) criticises that companies having higher risk involved in investment needs to provide more returns as per the calculation of Capital Asset Pricing Model (CAPM).

From the evaluation it has relevantly detected that Antilles Oil and Gas NL has the higher total risk involved in investment, where during the risk has increased from 6% to 6.49%. This relevant increment in the risk rate directly indicates the financial performance of the organisation over the period of time, where risk involvement is high. However, the comparison of both company’s risk, Australis Oil and Limited risk is relevantly low in comparison to Antilles Oil and Gas NL. According to Villadsen et al., (2017), investors use the risk detection process to understand the impact price volatility of the capital marketing could have on their particular investment, while increase the probability of incurring loss from trades. Hence, from the evaluation it could be understood that that the risk involved in investment will directly have an impact on performance of investments conducted in stocks.

Determining total risk, systematic risk, and unsystematic risk of the companies over each of the year

The above table mainly represents the calculation of Weighted Average Cost of Capital (WACC), which might help in understanding the level of minimum returns that needs to be provided by the organisation. In addition, from the evaluation it is also detected that Australis Oil & Gas Limited has no debt involved in their operations, which indicates that no interest or finance cost is been conducted by the organisation. This no debt accumulation has mainly allowed Australis Oil & Gas Limited to minimise the level of interest payment and cash outflow from the organisation. the above calculation of WACC mainly represents the minimum change in cost of equity, which has altered over the period of three fiscal years. The change in value of cost of equity is due to the alteration in the risk or beta attribute of the company, which has mainly increased over three fiscal years, while increasing the value of WACC from 1.77% to 3.89%. The increment in the current weighted average cost of capital has mainly indicated the rising value of cost of capital for the company. In this contest, Frank & Shen (2016) stated that investors with the help of WACC is able to understand the level of minimum returns, which needs to be provided by the company. Furthermore, investors use the calculation of WACC to depict the level of returns from investment while maximising the profits from the trade.

From calculation in the above table Weighted Average Cost of Capital has mainly helped in improving the level of returns, which could be generated from a particular investment. Moreover, the changes in the value of WACC is due the alteration in cost of capital for the company. In addition, the company does not have any kind of debt accumulation, which is adequality depicted in the annual report of Antilles Oil and Gas NL. Furthermore, from the evaluation it has also indicated that the due to the non-presence of debt the changes in cost of equity is directly affecting WACC value of the organisation. cost of equity calculation is conducted to understand the level of risk and minimum return, which needs to be provided by the company to its respective shareholders. The changes in beta valuation and market return has mainly determined the minimum return, which the company needs to provide over the period of time. Baker & Wurgler (2015) argued that companies having beta more than 1 directly indicates the volatility gains from the constant change in prices of the capital market. The calculation also helps in detecting the level of returns, which could be generated from the company and detect the level of risk involvement, which the investor needs to bear for generating the anticipated return.

Calculating weighted average cost of capital (WACC) for each of the years for both the companies

From the evaluation of the annual report both the companies have not declared any dividends till date, which directly puts the dividend pay-out ratio for the companies at the level of 0. Both Antilles Oil and Gas NL and Australis Oil and Limited has not provided any kind of dividends to its shareholders, which relevantly indicates the dividend policy that has been maintained by the companies. In addition, the evaluation has also indicated that both the companies have not provided dividends due to different reasons, where the management leaned on non-dividend payment method. According to Travlos, Trigeorgis & Vafeas (2015), companies with no dividend payment methods are not able to attract investors, as investors need constant income from their investment. Kajola, Adewumi & Oworu (2015) further indicated that investors rely on the valuation process, which substantially declines for the company if dividends are not being paid on regular basis, while maintaining the growth level.

The above figures represent the declaration that has been provided by Antilles Oil and Gas NL and Australis Oil and Limited regarding the non-declaration of annual dividends during last three fiscal years. The evaluation indicates that dividend pay-out ratio has relevantly declined to zero, while reducing the level of returns, which could be generated from investment. Both the companies have chosen the No Dividend Policy, which has relevantly depicted in their annual report, where no dividends have been paid. The company’s performance is considered to be one of the major factors in the adoption of the No Dividend Policy.

The performance of Australis Oil and Limited has been declining over the period of three fiscal years, which could be identified from the net loss incurred by the company in year on year basis. The company’s expenses have increased exponentially, which has reduced the significance of the revenues, which has been generated. The actual revenue of the company has been close to zero during 2015 and 2016, which indicates the low financial capability of the organisation in maintaining the required profits for their investors. hence, the adoption of No Divided Policy is necessary, as the management is not able to acquire the required funds to support its operations. This is the main reason behind the low share value of Australis Oil and Limited, which is been traded in the ASX market. The changes in share value is due the improvement in the current financial progress of the company, where the losses have been declining and revenues in 2017 is generated.

Comparing and contrasting the dividend policy of the two companies over the period of three years by calculating dividend pay-out ratio and detecting the pattern in share price change by drawing the dividend theory

The decline in loss has relevantly depicted over the period of time, which indicates the financial stability that has obtained by the company. In addition, the company has chosen the No Dividend Policy, as it is not able to generate the required profits for supporting its dividend policy. Moreover, the company is incurring loss, which is directly hampering its capability to support future dividend payments. The company’s performance has mainly improved over the period, which has enabled the management to reduce the level of losses from operations. In this context, Kajola, Desu & Agbanike (2015) stated that the company only pays dividends if they are able to acquire the required level of income during the operations. The improvements in the financial position has been reflecting in the share valuation that has improved over the period of three years. Both revenues and expenses has mainly declined, while the reduction in revenues less than the expenses, which has reduced value of the losses incurred during 2017.

After evaluating the financial performance, risk attributes and dividend policy of Antilles Oil and Gas NL and Australis Oil and Limited relevant investment opportunities is detected. From the evaluation it is detected that investment in both the companies is a risky endeavour, where the financial progress is seen but future returns are not anticipated. Hence, the investment value of $10 million cannot be invested in Antilles Oil and Gas NL and Australis Oil and Limited, as the financial progress is not adequate. Hence, investment of $100,000 in both companies can be conducted seeing the progress made in its financial division. Therefore, investment in the company is only viable if it starts to earn profits and declare dividends to its shareholders.

Conclusion:

The financial evaluation mainly helped in detecting the investment opportunity in Antilles Oil and Gas NL and Australis Oil and Limited. The current evaluation directly indicated the low possibility of investments, which could be conducted by an investor. Hence, an investment of $100,000 can be conducted for instance, while increment in investment could be conducted when the organisation starts to make profits and give out dividend payments.

References:

Antillesoilandgas.com.au. (2018). Antillesoilandgas.com.au. Retrieved 27 July 2018, from https://www.antillesoilandgas.com.au/reports/2017

Australisoil.com. (2018). Investors | Australis Oil & Gas . Australisoil.com. Retrieved 27 July 2018, from https://www.australisoil.com/irm/content/annual-reports.aspx?RID=418

Baker, M., & Wurgler, J. (2015). Do strict capital requirements raise the cost of capital? Bank regulation, capital structure, and the low-risk anomaly. American Economic Review, 105(5), 315-20.

Frank, M. Z., & Shen, T. (2016). Investment and the weighted average cost of capital. Journal of Financial accounting Economics, 119(2), 300-315.

?mrohoro?lu, A., & Tüzel, ?. (2014). Firm-level productivity, risk, and return. Management Science, 60(8), 2073-2090.

Kajola, S. O., Adewumi, A. A., & Oworu, O. O. (2015). Dividend pay-out policy and firm financial performance: Evidence from Nigerian listed non-financial firms. International Journal of Economics, Commerce and Management, 3(4), 1-12.

Kajola, S. O., Desu, A. A., & Agbanike, T. F. (2015). Factors influencing dividend payout policy decisions of Nigerian listed firms. International Journal of Economics, Commerce and Management, 3(6), 539-557.

Mishra, C. S. (2015). Risk and Return. In Getting Funded (pp. 193-218). Palgrave Macmillan, New York.

Travlos, N. G., Trigeorgis, L., & Vafeas, N. (2015). Shareholder wealth effects of dividend policy changes in an emerging stock market: The case of Cyprus.

Villadsen, B., Vilbert, M. J., Harris, D., & Kolbe, L. (2017). Risk and Return for Regulated Industries. Academic Press.

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