Financial Analysis Of Integrated Media Technologies Ltd

Short term and long term debts of company

In this report, financial analysis and computation of weighted average cost of capital has been taken into consideration. There are several points which are included by company while evaluating its business performance and optimum capital structure.

Integrated Media Technologies Ltd is a technologies investment, product development and distribution company. This company has been running its business on international level

After evaluating the annual report of company, it is considered that Integrated Media Technologies Ltd was not having short term debts in 2015 and after that it increased its short term debt to AUD $ 4 million. However, company has maintained AUD $ 3 million short term debt as compared to industrial average debt (Integrated Media Technologies Ltd, 2016).

The debt and equity structure of company is very viable and has increased its total debt by approximately AUD $ 1 million in one year. In addition to this, equity capital of company has also increased through the time. Company has lower equity capital as compared to industrial average debt. However, debt to equity consistency of company is not effective and company has high financial leverage (Integrated Media Technologies Ltd, 2016).

Integrated Media Technologies Ltd has zero level of short term debt in 2015 which increased to AUD $ 4 million in 2016. However, company still has maintained low level of short term debts as compared to its industrial average debt. In addition to this, to match with the industrial average debt, company should have increased its long term debt but due to high financial leverage company has reduced its long term debt to AUD $ 21 million (Integrated Media Technologies Ltd, 2016).

Computation of cost of debt is 6%

 2. Company’s cost of equity 

Cost of equity – It is the amount of payment which is required to be made to equity investors for their capital. It could be computed as below (Rau and Spinler, 2017)

Cost of equity= RF+(RM-RF)Beta    

(Integrated Media Technologies Ltd, 2016).

(Bloomberg, 2017).

The revenue of company has increased by 100% in 2016 as compared to last year data. In addition to this, company has also increased its earning to ADU $ 4 million which is 100 % more as compared to last year data. There is only .17 points changes in its EPS in 2016 as compared to 2015. This has shown that company has increased its business efficiency with a view to increase its overall earning. 

Consistency of debt structure of company

(Integrated Media Technologies Ltd, 2016).

Integrated Media Technologies Ltd has shown increasing trend of its revenue. On the basis of past data, company has expectation of increase in its revenue to AUD $ 31.8 million in 2020 (Kundakchyan and Zulfakarova, 2014).

Note= PE ratio has been computed on the basis of MPS and EPS of company. It has been evaluated that there is no dividend paid to the shareholders so is there no growth rate. Company will have zero level of PE ratio.

PE ratio of industry is undertaken on the basis of PE ratio of industry. Therefore, market price of company would be AUD $ 54.8.

Computation of market price of share by following DGM model method

-D1/KE-G

Note- There is no dividend payment and no growth for the company therefore; market price of company would be zero in the market.

There are various information’s which could be used by company to value of the assets such as goodwill, impairment test, applicable international rules and regulations, revenue and market price of company.

Tax rate is the amount of rate which reduced the cost of debt by the amount of benefit available for company by using debt interest. Therefore, set tax rates should be used by company to reduce the cost of debt by the certain tax rate (Yahoo finance, 2017).

Cost of debt or expenses paid to rise debt funding is tax deductible expenses. In addition to this, cost of equity is comparatively set high due to high expectation of shareholders. Interest on debt is the charge on the profit. Therefore, the cost of debt should be set low as compared to cost of equity computed by company for its equity investment.

Current liabilities are not included while computing cost of capital of company. It is evaluated that WACC only assign weight to long term debt and equity capital while computing weighted average cost of capital.

In WACC the major values are Tax rate, long term debt and equity capital would play important role. In addition to this, debt assigned to debt and equity will also be taken into consideration.

There are several investment decisions made by company by using weighted average cost of capital. However, company has reduced its overall cost of capital by increasing its debt portion and reducing its equity capital investment. In addition to this, company has invested its money in its other business units after using WACC method to determine whether the accepted project would give higher return as compared to its project cost of capital (Yahoo finance, 2017). 

Company and industry operates its debt to influence the proportion of short-term to long-term debts

Integrated Media Technologies Ltd has zero level of short term debt and total AUD $ 24 million  in 2015 which increased to AUD $ 24 million in 2016 with a view to match with the industrial total average debt. However, company still has maintained zero level of short term debts as compared to its industrial average debt. In addition to this, to match with the industrial average debt, company should have increased its long term debt but due to high financial leverage company has reduced its total debt to AUD $ 25 million (Rau and Spinler, 2017).

Company has not maintained effective capital structure. It has to reduce its overall cost of capital and reduced its financial leverage. Company should raise capital for its business through share capital and also reduce its debt portion by redeeming its debt holders due. Company should hold 30 to 7- debt to equity ratio. In this 70% of equity and 30 % would be debt.

Company has increased its overall earning and market price. In addition to this, company has to identify all the internal and external factors before implementing proper level of strategic planning. Company has increased its overall earning but as compared to its market Player Company has shown less increment in its market price and profit earning (Yahoo finance, 2017).

The main current news of company is related to showing

The main uniqueness of company is to sell its cost effective and unique products in market to satisfy its clients’ needs and demand. Company is having effective strategic alliance and made effective communication between all of its business units. Company has developed shareholders

Conclusion 

After evaluating various factors and data of the company, it is evaluated that company could use WACC and cost effective method to identify the best possible investment options. Now in the end it could be inferred that, reducing debt of the company will simultaneously decrease the overall financial leverage of company.

References

Bloomberg, 2017 retrieved on 16th October, 2017 from www.bloomberg.com.au

Bloomberg, 2017, government security retrieved on 16th October, 2017 https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia

Integrated Media Technologies Ltd, 2016, annual report, retrieved on 16^th octomber, 2017 from https://imtechltd.com/files/Half%20year%20report%202017.pdf

Kundakchyan, R.M. and Zulfakarova, L.F., 2014. Current issues of optimal capital structure based on forecasting financial performance of the company. Life Science Journal, 11(6s), pp.368-371.

Rau, P. and Spinler, S., 2017. Alliance formation in a cooperative container shipping game: Performance of a real options investment approach. Transportation Research Part E: Logistics and Transportation Review, 101, pp.155-175.

Weston, J.F., 2016. 1991: Some Financial Perspectives on Comparative Costs of Capital. In The Best of Business Economics (pp. 203-211). Palgrave Macmillan US.

Yahoo finance, 2017 retrieved on 16^th October, 2017 from https://in.finance.yahoo.com/

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