Company Description
This report has been prepared to analyse the financial performance of Konekt Limited (KKT) Health Care. There are several financial tools such as ratio analysis, bottom up analysis and share price movement analysis of company has been taken into consideration. This report has reflected ownership of Konekt Limited (KKT) Health Care and how performance ratio could help in evaluating the financial performance of Company.
Konekt Limited (KKT) Health Care is organizational health and risk management solutions. It has increased its share price movement throughout the time.
The CEO of company is Richard who takes all the imperative decisions.
The Gary Barber is the key persons who work as manager of company (Konekt Limited, 2015).
Owner of company
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Konekt Limited (KKT) Health Care |
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|
Particulars (Amount in Million |
2014 |
2015 |
2016 |
2017 |
|
AUD$ |
AUD$ |
AUD$ |
||
|
EBIT |
1 |
2 |
3 |
4 |
|
Interest |
0 |
0 |
0 |
0 |
|
Net profit |
1 |
1 |
3 |
4 |
|
Total Assets |
13 |
16 |
25 |
28.00 |
|
Total Liabilities |
5 |
5 |
12 |
13 |
|
Shareholders’ Equity |
9 |
10 |
13 |
16.00 |
|
1. Rate of Return on Assets |
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|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
1 |
1 |
3 |
4 |
|
B. Total assets |
13 |
16 |
25 |
28 |
|
(A/B) |
7.69% |
6% |
12% |
14% |
It is evaluated that rate of return on assets of company has increased by 100% since last four years. It is analysed that company has increased its overall net income by 400% which is very good indicator for the business performance of company. Return on total assets is comparatively very high which also increases its return on capital employed.
|
2. Rate of Return on Equity |
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|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders. |
1 |
1 |
3 |
4 |
|
B. Shareholder’s Equity |
9 |
17,981 |
13 |
16.00 |
|
(A/B) |
11.11% |
0.01% |
23.08% |
25.00% |
It is evaluated that rate of return on equity is the % of return of equity available to equity shareholder. Konekt Limited (KKT) Health Care has increased its return on equity from 11% to 25% in 2017. Company has increased the return on equity by 14% since last four years. It is very good indicator and reflects positive value creation activities of organization.
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3. Debt Ratio |
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|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
5 |
5 |
12 |
13 |
|
B. Total assets |
13 |
16 |
25 |
28.00 |
|
(A/B) |
38% |
31% |
48% |
46% |
It is evaluated that the debt to equity ratio of company has increased by 8% since last four years. It is evaluated that company has increased its debt funding and total liabilities throughout the time. It is not good indicator for the organization. It increases the financial leverage of company and may also decrease the overall cost of capital of company. If company is having good amount of earning then increasing the financial leverage may be positive for the company as it increases the overall return on capital employed
This equation has been implemented to satisfy the both equation.
|
Providing equation |
2014 |
2015 |
2016 |
2017 |
|
Net profit After tax/OE |
0.11111 |
0.1 |
0.23077 |
0.25 |
|
EBIT/TA*NPAT/EBIT*TA/OE |
0.11111 |
0.1 |
0.23077 |
0.25 |
(Please see the excel sheet for the proper calculation)
The equation given above reflects equation equal to each other
It is analysed that share price movement of Konekt Limited (KKT.AX) is highly fluctuated. The share price of company has high ups and down in its business which is not good indicators for the organization. On the other hand, price movement of all ordinary indexes has less fluctuation in the share price movement since last two years. It is analysed that it is not good indicator for the organization as if investors investing in Konekt Limited (KKT.AX) may face high amount of loss in their investment (Burns and Walker, 2015).
- In 2017, company has high fluctuation in its share price therefore, in order to raise capital; it has increased its debt portion (Daunfeldt and Hartwig, 2014).
- Company has sold its share at overvalued amount which is higher than its intrinsic value.
Ownership-Governance Structure
Stock valuation and beta valuation of company
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Regression Statistics |
|
|
Multiple R |
0.01194041 |
|
R Square |
0.00014257 |
|
Adjusted R Square |
-0.0474697 |
|
Standard Error |
0.10831027 |
|
Observations |
23 |
|
ANOVA |
|||||
|
df |
SS |
MS |
F |
Significance F |
|
|
Regression |
1 |
3.51284E-05 |
3.5E-05 |
0.00299 |
0.956877441 |
|
Residual |
21 |
0.246353418 |
0.01173 |
||
|
Total |
22 |
0.246388546 |
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
|
Intercept |
0.02715672 |
0.024073982 |
1.12805 |
0.27202 |
-0.022907861 |
0.077221309 |
-0.022907861 |
0.077221309 |
|
X Variable 1 |
0.05090716 |
0.930291691 |
0.05472 |
0.95688 |
-1.883740324 |
1.985554638 |
-1.883740324 |
1.985554638 |
The beta value of company is .0509. It reflects that share value of company will be fluctuated by 50% as compared to market fluctuation in the same directions (Brigham and Ehrhardt, 2013).
E(R) =
E(R) = Expected rate of return
= Risk free rate of return
β = Beta
= Market Risk Premium (Zhu, 2014).
|
Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
0.050907157 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.31% |
(Please see the excel)
The required rate of return of company is 4.31. It is computed on the basis of computed beta, RF and market risk premium of company (Konekt Limited (KKT) Health Care, 2017).
It is analysed that company has highly profitable business. Therefore, the management department of company is more inclined towards expanding the business by increasing the overall productivity and efficiency of business. However, instead of investing capital in other business investment project, company has planned to invest capital in its value chain activities. Company has followed conservative investment policy plugging back more capital in its own business due to its own high profitable business (Daunfeldt and Hartwig, 2014).
Cost of equity (calculated through CAPM) =
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Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
0.050907157 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.31% |
Cost of Debt = 0%
WACC = Cost of debt (interest rate after tax) + cost of equity
|
WACC |
Capital Amount |
Cost of capital |
% of portion |
WACC |
|
Equity |
16 |
4.31 |
100% |
4.31 |
|
Debt |
– |
– |
||
|
Total capital |
16 |
WACC |
4.31% |
The cost of debt of company has been taken as zero. As company has zero interest payment therefore, company has zero cost of debt. The weighted average cost of capital of company is 4.31 (Konekt Limited (KKT.AX), 2016).
It is considered that if company is having higher WACC then it will impact the investment decision of company. It is evaluated that if company has higher WACC then they needs to accept the investment project which has higher return on investment. In this case, Konekt Limited (KKT.AX) has 4.31% WACC. It is very good indicator for the organization. It is considered that return on capital employed of company would be higher as company is having less weighted average cost of capital (Yahoo finance, 2018).
The debt ratio of company is increasing throughout the time. It is evaluated that debt ratio of company has increased from 38% to 46% in 2017. It is not good indicator for the organization as it will increase the overall financial leverage of company.
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
5 |
5 |
12 |
13 |
|
B. Total assets |
13 |
16 |
25 |
28.00 |
|
(A/B) |
38% |
31% |
48% |
46% |
If company is having good amount of earning then increasing the financial leverage may be positive for the company as it increases the overall return on capital employed..
It is observed that company has zero interest payment in its business. It has maintained zero gearing ratios (Konekt Limited (KKT) Health Care, 2014)
|
Gearing Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
Gearing Ratio |
0 |
0 |
0 |
0 |
Konekt Limited (KKT) Health Care has adopted profit based dividend policy. It is observed that company has paid increased dividend amount to its shareholder with the increasing net profit. It is observed that company has increased dividend payment to its shareholders which is very good indicator for the strong value of the company.
All the details and analysis made in this report has reflected that Konekt Limited (KKT) Health Care has increased its business efficiency and overall profitability of company has also increased by 100% since last four years. Therefore, it could be determined that investors should invest their capital in Konekt Limited (KKT) Health Care to create value. However, the share price movement is very high which not good indicator is for the investors. It is considered that investors should invest in Konekt Limited (KKT) Health Care for long run only for creating value on the investment.
Conclusion
It is considered that company has created value on its investment. Investors want to add Konekt Limited (KKT) Health Care Company in their portfolio then they should add this company for long run. However, they needs to assess the market risk premium, share price movement of company in determined approach.
References
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now.
Daunfeldt, S.O. and Hartwig, F., 2014. What determines the use of capital budgeting methods? Evidence from Swedish listed companies. Journal of Finance and Economics, 2(4), pp.101-112.
Konekt Limited (KKT) Health Care, 2014 annual report, Retrieved on 29th November, 2017 from https://www.konekt.com.au/wp-content/uploads/2012/05/Konekt-Annual-Report-2014.pdf
Konekt Limited (KKT) Health Care, 2015, annual report, Retrieved on 29th November, 2017 from https://www.konekt.com.au/wp-content/uploads/2012/05/Konekt-Annual-Report-2016.pdf
Konekt Limited (KKT) Health Care, 2016, annual report, Retrieved on 29th November, 2017 from https://www.konekt.com.au/wp-content/uploads/2012/05/Konekt-Annual-Report-2016.pdf
Konekt Limited (KKT) Health Care, 2017, annual report, Retrieved on 29th November, 2017 from https://www.konekt.com.au/wp-content/uploads/2012/05/Konekt-Annual-Report-2016.pdf
Yahoo finance, 2018, Konekt Limited (KKT) Health Care: Share price, retrieved on 19h January from https://in.finance.yahoo.com/
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