Suncorp Group Limited Financial Analysis Report

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Suncorp group Limited financial analysis report for investment
Abstract
This report is a financial analysis of Suncorp Group Limited which is an Australia based
banking and insurance company. The report studies major factors that can affect the
investment from the annual report and financial reports of the company and aims to
calculate and minimize the investment risk for the investor in question. The report
includes final recommendation for the investor with the point of investing in the company
as their institutional investment.
I. Introduction
As a group of investment analysts working in Australia, we need to provide investment
advice to one of our major institutional investor residing in the overseas about Australian
investment market. As an investor we have chosen Suncorp Group Limited which is
listed on ASX website as well. This report will be an evaluation of financial performance
of the company over the span of at least 3 years and will analyze how the company has
been performing in terms of financial ratios in the previous years. The company’s major
area of work and infrastructure has been described first so that the investor has an idea
about the nature and performance of the company which is then followed by critical
analysis of the company about its governance and sustainability policies. The major
accolades that a company has earned over recent years and which have made the
company trust worthy have also been discussed.
Since the availability of funds and liquidity are a major determining factors for an
investment, the company’s cash management has been studied as well and marketable
securities have been defined too. Next, we run a short sensitivity analysis of the
company on a given pre defined scenario and test it for changes in sales. This will
determine how volatile the company is. Various scenarios including loss and gain in
sales have been used to give a better idea to the client about the nature of the
sensitivity and as a performance indicator. The company’s dividend policy and dividend
payout ratio have also been discussed along with identifying some systemic and un-
systemic risks affecting the company. Lastly, a recommendation has been made based
on the financial analysis done in this report.
II. Financial Analysis of selected company
2.1. Description of the company
Suncorp Group Limited is a publicly registered company and it is based off in Australia.
The head office lies in Brisbane. Suncorp is primarily involved in banking and insurance
company along with additional services of wealth management and services including

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wealth products. The company has followed the TCFD recommendations for climate
based financial disclosures in its annual review so that comes across as a plus point for
the company. Historically, the company has been performing moderately well.
The company has worked well in the area of community governance and responsibility.
It has also worked in the area of rehabilitation of the migrants by providing refuge and
employment in their organization to the migrants. The company displayed a score of 7.3
on customer satisfactory score card which is pretty impressive score for a banking and
finance sector company. The company claims to have solved 92% level 1 complaints
from their customers within 5 days and the percentage of resolution of level 2 problems
being solved within a time span of 21 days was as high as 80 percent.
The company has bagged Money magazine Business Bank Accreditations award for
the Year 2018 and Money magazine Bank award for the Year 2018. The company is
also a winner of Cannes Lion International Festival of Creativity Silver Award of year
2017. Some other awards that the company has bagged in recent years-
 ANZIFF Australian Insurance Industry Awards Innovation of the Year 2017 for its
insurance product Suncorp Cyclone Resilience Benefit
 Best Finance IT Project 2018 in IT news benchmark awards for 2018
 Australian LGBTI Inclusion Awards 2018 by AWEI Bronze employer was won by
Suncorp Group Limited as well
The company deals effectively in governance, social and material environmental topics.
There are adequate section devotions in its annual reports for sustainable growth with
respect to climatic change impact on business and environment, the transitional and
physical risks involved, building resilience in its community and being ready with
disaster response program. Most importantly, the list of awards goes on to show that
the financial services and the products that the company provides are reliable and
responsive, and that they add value to the lives of their customers.
2.2. Calculation and analysis of selected performance ratios
Investment is a risk taking process and to ensure that a large amount of risk is
calculated, we need to run various financial ratio analyses before actually investing in a
company. Not only the financial ratio analysis helps us to determine current conditions
in the company, but it also helps in determining the trend over last few years so that the
investor can compare the same and make informed decisions. There are many financial
ratios with the help of which we can analyze the financial trends of a company like

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efficiency ratios, profitability ratios, risk ratio, solvency ratio etc. In this report, for
Suncorp Group limited, since we are majorly concerned with profits and returns on our
investment, we will analyze profitability ratio and efficiency ratio. Gross profitability ratio
is given by gross profit divided by total revenue multiplied by 100. The gross profitability
ratio for last 3 years is as follows-
Gross Profitability ratio
2018
total
revenue(in$M) 7509
Gross
profit(in$M) 259
GPR
3.44919
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2017
total
revenue(in$M) 17,395
Gross
profit(in$M) 1085
GPR
6.23742
5
2016
total
revenue(in$M) 7,797
Gross
profit(in$M) 533
GPR
6.83596
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As we can see from the data above, the profitability in terms of gross profits has
significantly reduced from 6.83% in 2016 and 6.23% in 2017 to almost fifty percent less
in year 2018 at 3.44%. Operating profitability ratios are determined by dividing profit
before taxes by total revenue and then multiplying by 100. The operating profits for
three consecutive years 2018, 2017 and 2016 are calculated as follows-
Operating Profitability

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Ratio
2018
total
revenue(in$M) 7509
Operating
profit(in$M) 544
GPR 7.24464
2017
total
revenue(in$M) 17395
Operating
profit(in$M) 1608
GPR
9.24403
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2016
total
revenue(in$M) 7797
Operating
profit(in$M) 759
GPR
9.73451
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Again we can spot a decrease in operating profitability ratio of Suncorp Group. From
9.73% in 2016, the operating profitability has decreased to 7.24% in year 2018. There
was no major decrease in profitability ratio in term of operating profits in year 2017. So
although we have seen a major decrease in one year in the profitability ratios, the effect
has also been implied from the major insurances that the company had to pay due to
increased disasters. In long run, the company seems to maintain its operating profits
more or less so this sounds safe in long run ("How to Calculate the Operating Profit
Margin", 2019) (Paramasivan & Subramanian, 2009) (Vaidya, 2019).
Return on average total assets in 2018 was 1.08% as compared to 1.11% in 2017. The
same was 1.08% in 2016 so we can say that there was no major depreciation in terms
of this profitability ratio when considering assets. When we consider shareholder’s
equity in terms of cash returns, the percentage had dropped down to 8.0% from 8.4% in
2017 and 8.2% in 2016. The profitability ratio for the shareholders as we can see is