Shareholders and Governance
It is evaluated that management and directors of company needs to make effective use of financial tools which could be used to analysis the financial performance of Company. The ratio analysis, top down analysis, bottom up analysis and du Pont analysis could be used to evaluate the financial performance of company. In this report, capital structure of the company and profitability of the company has been analyzed by using the effective strategic financial tools. .
It is evaluated that the AMP Australia is the New Zealand Company which has been providing superannuation benefit, investment products and financial and banking service. It has been providing its financial and advisory services to investors to make the good value on their investment (AMP limited. (2018).
The main CEO of Company is Craig Meller who undertakes all the strategic and managerial decisions to strengthen the business functioning of organization (AMP Limited. 2017).
|
Rank |
Name |
Age |
Company |
Compensation |
shares |
|
2 |
George R. Roberts |
74 |
KKR & Co LP |
113,712 |
44,650 |
|
3 |
Henry R. Kravis |
74 |
KKR & Co LP |
113,434 |
44,650 |
|
4 |
Hock E. Tan |
66 |
Broadcom Inc |
103,211 |
98,323 |
|
5 |
Rob Roy |
49 |
Switch Inc |
94,638 |
89,444 |
|
6 |
Alex A. Molinaroli |
Johnson Controls International PLC |
78,282 |
9,042 |
|
|
7 |
Michael Rapino |
52 |
Live Nation Entertainment Inc |
70,616 |
58,632 |
|
8 |
Yasuhiro Sato |
65 |
Mizuho Financial Group Inc |
70,000 |
0 |
|
9 |
Mario J. Gabelli |
75 |
GAMCO Investors Inc |
69,414 |
0 |
|
10 |
Leslie Moonves |
68 |
CBS Corp |
69,333 |
43,696 |
|
11 |
Christopher Terrill |
50 |
ANGI Homeservices Inc |
68,798 |
3,800 |
|
12 |
Andrew N. Liveris |
63 |
DowDuPont Inc |
65,689 |
12,174 |
|
13 |
Jeffery Fairburn |
51 |
Persimmon PLC |
63,697 |
0 |
|
14 |
W. Nicholas Howley |
65 |
TransDigm Group Inc |
61,023 |
0 |
|
15 |
Douglas R. Lebda |
48 |
LendingTree Inc |
59,591 |
0 |
|
16 |
Simon Anthony Peckham |
55 |
Melrose Industries PLC |
57,849 |
0 |
|
17 |
Douglas S. Ingram |
55 |
Sarepta Therapeutics Inc |
56,866 |
11,608 |
|
18 |
Thomas E. Dooley |
Viacom Inc |
53,648 |
0 |
|
|
19 |
Ronald Clarke |
62 |
Fleetcor Technologies Inc |
52,644 |
15,127 |
|
20 |
Stephen Kaufer |
55 |
TripAdvisor Inc |
47,933 |
28,578 |
|
21 |
Gregory B. Maffei |
56 |
Qurate Retail Inc QVC Group |
47,810 |
2,293 |
|
22 |
Stephen B Burke |
59 |
Comcast Corp |
46,537 |
5,338 |
|
23 |
Brian Duperreault |
70 |
American International Group Inc |
43,087 |
11,157 |
|
24 |
Kathleen Eisbrenner |
NextDecade Corp |
43,086 |
42,145 |
|
|
25 |
Dirk Van de Put |
57 |
Mondelez International Inc |
42,443 |
30,002 |
(Yahoo Finance, 2017).
There are several shareholders who have bought the shares in AMP Limited. However, there are main five shareholders
HSBC Custody.
JP Morgan
Citi Corp
National Nominee
(AMP Limited. 2017).
The ratio analysis is used to establish the relation between the two financial factors. (AMP Limited, 2015).
Current ratio
The current ratio of company divulges how well company pay off its short term long term debts out of the available current assets (AMP Limited, 2017).
|
Liquidity ratio |
Years |
|
|
2017 |
2016 |
|
|
Current ratio |
.0025 |
.0031 |
|
Quick ratio |
.0025 |
.0031 |
Interpretation
The AMP Company has maintained stable financial current ratio. However, in 2017, company has kept 0.025 current ratio which reflects that company has lower down its investment in its current assets which will eventually increase its burden to maintain effective.
Quick ratio
The quick ratio of company is equal to its current ratio. It is evaluated that company has not maintained inventory in its business.
|
Providing equation |
2014 |
2015 |
2016 |
2017 |
|
Net profit After tax/OE |
0.55154 |
0.475979385 |
0.42241 |
0.34557 |
|
EBIT/TA*NPAT/EBIT*TA/OE |
0.55154 |
0.475979385 |
0.42241 |
0.34557. |
Debt to equity
The debt to equity of company has increase throughout which shows that company has increased its financial leverage throughout the time. It is evaluated that the debt to equity of company has been 95% in 2017 which reflects that company needs to lower down its cost of capital if it wants to maintain its business in long run (AMP Limited. 2015).
Computation of debt to equity of Company
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1,26,470 |
1,30,813 |
1,32,519 |
140802 |
|
B. Total assets |
1,34,855 |
1,39,708 |
1,40,060 |
1,48,085.00 |
|
(A/B) |
94% |
94% |
95% |
95% |
Interpretation
The debt of equity of company has been around 95% which shows that company need to lower down its debt portion to make its business less risky in long run. In addition to this, company has kept high financial leverage which eventually impacts the cost of capital and will increase the overall return on capital employed.
Significant Announcements
The gearing ratio shows company’s ability to cover its interest payment out of the available earnings before interest and tax (AMP. 2017).
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
5% |
6% |
4% |
4% |
The gearing ratio of AMP Limited is too low which reflects that company has to increase its profitability if it wants to add value in its investment.
The inventory turnover ratio of company is zero which reflects that company has not been having inventory turnover ratio (AMP Limited. 2017).
|
Efficiency ratio |
Years |
|
|
2017 |
2016 |
|
|
Inventory turnover ratio |
0 |
0 |
|
Asset turnover ratio |
0.120 |
2.10 |
|
Receivable turnover ratio |
0 |
0 |
|
Days’ sales in inventory |
0 |
0 |
|
Days’ sales in receivables |
0 |
0 |
(AMP, 2017)
Assets turnover ratio
The assets turnover ratio of AMP is too low which divulges that if company does not increase its profitability then it will eventually increase the overall outcomes (AMP Limited. 2016).
Debtor turnover ratio
The debtor turnover ratio of AMP Company has been increased which reflects that company has maintained its busienss more effectively. .
The profitability ratio divulges AMP Company’s ability to earn profit from its overall turnover (AMP Limited. 2017).
Return on assets
|
1. Rate of Return on Assets |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
884 |
972 |
-344 |
848 |
|
B. Total assets |
1,34,855 |
1,39,708 |
1,40,060 |
1,48,085 |
|
(A/B) |
0.66% |
1% |
0% |
1% |
The return on assets of AMP Company has been zero since last four year. However, in 2017 the return on assets increased to 1 % which reflects the positive indicator for the future growth of the business.
|
2. Rate of Return on Equity |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders. |
884 |
972 |
-344 |
848 |
|
B. Shareholder’s Equity |
8,186 |
17,981 |
7,462 |
7,202.00 |
|
(A/B) |
10.80% |
5.41% |
-4.61% |
11.77% |
The return on equity of company has been very low and shown the negative results. It is observed that company has increased its overall turnover since last two years. It has also positively impacted the share price of company and return on capital employed at large (AMP Limited. 2017).
Earnings per share
The earning per share of AMP company has shown the negative outcome which have occurred due to the negative profitability and negative business outcome in market (AMP Limited. 2017).
|
Market Value ratios |
Years |
|
|
2017 |
2016 |
|
|
Earnings per share |
– 2.80 |
– 7.40 |
|
P/E ratio |
– |
– |
|
Dividend pay-out ratio |
– |
– |
The market ratio of company has been negative which reflects that if investors invest capital in AMP then they will have to face high loss in their investment capital (AMP Limited. 2017).
Price to earnings ratio
The price earnings ratio has increased by 10% since last one year. It has reflected that AMP Company is surviving its business by implementing effective business strategies.
Dividend payment ratio
The dividend payment ratio of company has been negative which reflects that company has not been paying any dividend to its shareholders. It may negatively impact the share price movement of company in long run.
The share price movement of AMP Limited has been increasing since last two years. However, the share price movement is too slow as compared to the market growth of AMP Limited
Capital Asset Pricing Model
After analysing the share price and beta of Company, it could be inferred that company has faced high fluctuation in its share price which reflects the negative results throughout the time. Company needs to increase its profitability if it wants to increase its overall share price in market (Morningstar, 2017).
Conclusion
Now in the end, it could be inferred that AMC Company first needs to lower down its debt portion if it want to sustain its busienss in long run. The share price movement is highly affected by the long term sustainability.
These are the announcement which has been affecting the business functioning and share price movement of the AMP Company throughout the time.
The AMP Company has increased its equity funding in its busienss which will positively impact the share price movement of Company.
The Strategic alliance of AMP will reflect that company will easily win over the market by lower down its overall cost of production (AMP Limited. 2017).
The investment of the company has been increased in the research and development department which reflects that company will assist in creating value in its business (AMP Limited. 2017).
Stock information and Beta calculation
The beta value has been computed by using the regression analysis and Data analysis in excel sheet (AMP Limited. (2015).
The beat calculation below
|
SUMMARY OUTPUT |
|
|
Regression Statistics |
|
|
Multiple R |
0.16907 |
|
R Square |
0.02858 |
|
Adjusted R Square |
-0.0156 |
|
Standard Error |
0.02378 |
|
Observations |
24 |
|
ANOVA |
|||||
|
|
df |
SS |
MS |
F |
Significance F |
|
Regression |
1 |
0.00037 |
0.00037 |
0.64736 |
0.42967 |
|
Residual |
22 |
0.01244 |
0.00057 |
||
|
Total |
23 |
0.01281 |
|
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
Intercept |
0.00972 |
0.00489 |
1.9878 |
0.05942 |
-0.0004 |
0.01987 |
-0.0004 |
0.01987 |
|
X Variable 1 |
0.06239 |
0.07754 |
0.80459 |
0.42967 |
-0.0984 |
0.2232 |
-0.0984 |
0.2232 |
The beta value of the AMP Company reflects that .062 points which reflects that if market value changed by 1 % then there will be changes in the share price value of AMP Company with the .62% in same direction.
|
E(R) = |
|
|
E(R) = expected Amount of rate of return |
|
|
= Risk free % rate of return |
|
|
β = Computed Beta |
|
|
= Market premium risk factor (AMP Limited, 2017). |
|
|
Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
0.062389179 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.37% |
(Please see the excel)
Notes- RF= It is the risk free rate of return which is computed by using the government securities and bonds.
The main investment method which AMP Company has been following is conservative investment method. It is observed that company has increased its investment in the research and development department. It is observed that conservative investment strategy is fruitful when company is facing high amount of loss or high financial leverage.
It is observed that the AMP Company has lower cost of capital which shows that if company increases its investment in other projects then it should better off to invest its capital in other projects which offers higher return on capital employed (AMP Limited. 2017).
The AMP Limited should use aggressive investment strategy to create value on its investment. It has followed the conservative investment strategy to expand its business slowly due to the sluggish market condition (Mohanram, Saiy, and Vyas, 2018).
Dividend Policy
Computed Cost of Capital through Capital Assets Pricing model
Cost of capital= KE= 4.37%
The computation of the cost of capital is done by using the CAPM model
Cost of debt- 1.93%
The cost of debt is computed by using the interest payment and debt funding (Brigham, and Ehrhardt, 2013).
WACC = cost of debt* portion of the debt capital+ cost of Equity * portion of the Cost of equity
|
WACC |
Capital Amount |
Cost of capital |
% of portion |
WACC |
|
Equity |
7,202 |
4.37% |
5% |
0.21% |
|
Debt |
1,40,802 |
0.42% |
95% |
0.40% |
|
Total capital |
1,48,004 |
WACC |
0.61% |
The weighted average cost of capital reflects that company has created good value in its investment.
The weighted average cost of capital is computed by using the proportionate basis formula which is used to compute the overall cost of capital of AMP Business (AMP Limited. 2017).
It is observed that if AMP Company will have higher WACC in its business then it will increase the financial leverage of company. In addition to this, it will also affect the choice of the investment method which Company could take to increase the overall outcomes of its business. Higher WACC has two negative impact which might negatively provide the result such as lower return on capital employed and increased financial leverage (Goldmann, 2017).
Stable Debt to equity ratio of company
Debt to equity
The debt to equity of company has divulged the high financial leverage. It is considered that the debt to equity of company has been 95% in 2017 which reflects that company needs to lower down its cost of capital if it wants to maintain its business in long run.
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1,26,470 |
1,30,813 |
1,32,519 |
140802 |
|
B. Total assets |
1,34,855 |
1,39,708 |
1,40,060 |
1,48,085.00 |
|
(A/B) |
94% |
94% |
95% |
95% |
The debt of equity of company has been around 95% which shows that company need to lower down its debt portion to make its business less risky in long run. In addition to this, company has kept high financial leverage which eventually impacts the cost of capital and will increase the overall return on capital employed (Sharma and Mehra, 2017).
The gearing ratio shows company’s ability to cover the interest payment from its EBIT (AMP. 2017).
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
5% |
6% |
4% |
4% |
The gearing ratio of AMP Limited is too low which reflects that company has to increase its profitability if it wants to add value in its investment (De Franco, Kothari, and Verdi, 2011).
After analysing the annual report of company, it could be inferred that company has not been issuing any amount of dividend to its shareholders since last five years (Lisowsky, Minnis, and Sutherland, 2017). The dividend policy of AMP Company is profit based dividend policy. It shows that Company will pay dividend to its shareholders when they will have profit in their busienss. It is analyzed that increased profitability of company will result to increased amount of dividend payment to shareholders. However, due to the sluggish market condition, company has failed to give dividend to its shareholders which will also negatively impact the share price of company in long run (Wang, 2014).
Ratio Analysis
To,
Directors of AMP Limited
After analysing the capital structure and profitability, efficiency of company, it could be advised to directors and board of members that company need to lower down its financial leverage. However, the gearing ratio of company is way too low which reflects that company has low interest payment (Chen, et al. 2018). In 2016 AMP Company had negative business outlook and had to incur loss in its business throughout the time. It is analyzed that irrespective of the negative business performance, company has increased its profit in 2017 which reveals that company is pushing itself for the future growth. The main advice for the board of directors and members are related to the financial leverage and profit earning capacity of company. IF directors want AMP Company to survive in long run then they will have to lower down the financial leverage by redeeming debt portion and have to push themselves for the increased revenue output in organization. The aggressive investment strategy of the company will also assist in create value on the investment and AMP Company could expand its business slowly due to the sluggish market condition (Foster, 2014).
Conclusion
It is analyzed that by using ratio analysis, top down analysis, bottom up analysis and du Pont analysis, management and investors could evaluate the financial performance of company. However, in context with the investors, if they want to create value on their investment then they should keep their money invested in AMP Company for long run. Otherwise they will have to face high loss if the capital is invested in short run. In addition to this, the inventory turnover ratio of company is zero which reflects that company has not been having inventory turnover ratio and it does not have to block capital in its busienss. High capital structure and lower weighted average cost of capital reflects the positive indicators which reflects that company will be having high return on capital if it invest its capital in the particular projects. Now in the end, it could be inferred that AMP Company has been trying to survive in market by infusing the effective financial strategic work program. It is analysed that company need to expand its business by increasing the overall production level and following the effective financial strategic program.
References
AMP Limited (2015). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf.,m., Accessed on 22nd May 2018
AMP Limited. (2016). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., Accessed on 22nd May 2018
AMP Limited. (2017). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., ., Accessed on 22nd May 2018
AMP Limited. (2018). Annual report. Available at https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., ., , Accessed on 222nd May 2018
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.
De Franco, G., Kothari, S.P. and Verdi, R.S., 2011. The benefits of financial statement comparability. Journal of Accounting Research, 49(4), pp.895-931.
Foster, G., 2004. Financial Statement Analysis, 2/e. Pearson Education India. 35(1), pp.144-192.
Goldmann, K., 2017. Financial liquidity and profitability management in practice of polish business. In Financial Environment and Business Development (pp. 103-112). Springer, Cham.
Mohanram, P., Saiy, S. and Vyas, D., 2018. Fundamental analysis of banks: the use of financial statement information to screen winners from losers. Review of Accounting Studies, 23(1), pp.200-233.
Morningstar, 2018 retrieved, Available at https://www.morningstar.com/funds.html/ Accessed on 22nd May, 2018
Sharma, A. and Mehra, A., 2017. Financial analysis based sectoral portfolio optimization under second order stochastic dominance. Annals of Operations Research, 256(1), pp.171-197.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.
Yahoo finance, 2018 Available at https://in.finance.yahoo.com/., Accessed on 22nd May, 2018
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