Accounting for Managers

This document provides an analysis of the capital structure of CSL Limited over a period of three years. It also discusses the utilization of the capital structure with relevant practical and theoretical approaches. Additionally, it provides relevant information about a proposed project to the CEO of OnePack's, including investment appraisal techniques and sensitivity analysis.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student:
Name of the University:
Authors Note:

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1
Table of Contents
Introduction:...............................................................................................................................2
Task 1:........................................................................................................................................2
1. Analysing the capital structure of CSL Limited over the period of three years:...................2
2. Utilising the capital structure of CSL Limited with the help of relevant practical and
theoretical approach:..................................................................................................................4
Task 2: Providing relevant information of the proposed project to the CEO of OnePack’s with
relevant justification from investment appraisal techniques and sensitivity analysis................5
Conclusion:................................................................................................................................9
References and Bibliography:..................................................................................................10

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Introduction:
The main evaluation that has been conducted in the overall assessment is directly
related to the capital structure analysis the CSL limited and investment approach then used
for analysing a proposed project. Moreover, from the relevant evaluation, it can be detected
that the overall capital structure of the organisation is mainly evaluated to determine the
financial viability of their current options and the measure that has been made to secure
investment decisions. In the similar process, the analysis has been conducted on different
investment appraisal techniques and sensitivity analysis on the project that is presented to
Onepack Limited.
Task 1:
1. Analysing the capital structure of CSL Limited over the period of three years:
Capital Structure and Payout Ratios:-
Particulars 2016 2017 2018
Total assets
$ 10,774.50 $
9,122.70
$ 7,562.70
Total liabilities
$ 6,694.60 $
5,958.90
$ 4,995.90
Total equity
$ 4,079.90 $
3,163.80
$ 2,567.20
Dividend per share 1.720 1.360 1.260
Earnings per share 3.822 2.937 2.689
Debt ratio 0.62 0.65 0.66
Equity ratio 0.38 0.35 0.34
Debt to equity ratio 1.64 1.88 1.95
Dividend payout ratio 45.00% 46.31% 46.86%
The capital structure composition of CSL Limited is mainly depicted in the above
table, where the efficiency and financial stability conditions of the organisation is mainly
evaluated in the above table. From the relevant analysis, it can be detected that all three

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components such as total assets, total liabilities and total equity of the organisation has
mainly increased over the period of three years. Hence, the analysis can eventually help in
determining the actual financial performance of CSL Limited over the period of three years.
2016 2017 2018
-
0.50
1.00
1.50
2.00
2.50
Capital Structure and Payout Rati os
The information provided in the above graph directly states about the financial
performance of the organisation over the period of time. Hence, from the analysis, it is
determined that the total debt composition of the company’s capital structure has mainly
improved over the period of time. The debt composition of CSL Limited from 2016 to 2018
has mainly increased from the levels of 0.62 to 0.66, which is negatively affecting the total
solvency conditions of the organisation (Csl.com 2019). From the analysis, it is detected that
the organisation has been accumulating debt to support its operations over the period of three
years, which is the main reason why the debt level has increased, while equity levels have
declined. Guinnane and Schneebacher (2018) mentioned that the increment in debt levels of
an organisation directly increases the insolvency conditions and finance cost, which might
negatively affect the profit conditions of the organisation.
In the similar instance, the equity level of the company has mainly declined from the
levels of 0.38 in 2016 to 0.34 in 2018, which is the main reason behind the declining capital

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structure composition of CSL Limited. Serrasqueiro and Caetano (2015) stated that with the
help of capital structure able to analyze the level of return that could be generated by the
organization. In the similar process, it could be identified that the overall debt to equity ratio
of the company has a relative to increase during the past three financial years. This is also due
to the level of increment in debt capital in comparison to equity capital. Therefore, the
finance cost of the company is relatively high which is reducing the level of income
generated from the overall operations.
The dividend payout ratio analysis has relatively indicated the overall progress in
dividend payments of CSL Limited over the period of 3 financial years. The company has
been providing higher level of dividends over a period of 3 years in comparison to its overall
earnings per share. This is relevantly increasing the dividend payout ratio of the organization
and indicating about the level of income that could be generated by investors after investing
in the company. This is the main reason why the overall dividend payout ratio has increased
from 45% in 2016 to 46.86% in 2018.
2. Utilising the capital structure of CSL Limited with the help of relevant practical and
theoretical approach:
The capital structure condition of CSL Limited has relatively declined over a period
of 3 years, which can be identified from the above calculations. Moreover, the analysis of the
capital structure can be conducted on theoretical basis where Modigliani and Miller Theorem
can be utilized for understanding the impact of capital structure on the valuation of the
organization. The evaluation of Modigliani and Miller theorem directly indicates about the
relevant assumptions, which has been made by the authors regarding the capital structure of
an organization. The major assumption of the theorem is to neglect the overall transaction
cost that is incurred by investors while conducting the trade in a particular investment.

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Moreover, the theorem further states that there will be no impact of debt on the capital
valuation of the organization. Both assumptions that were presented in the theoretical
approach are relatively not appropriate as the assumptions would not hold ground in Real
world practices. Hence, the current capital structure conditions of the organization in
accordance with the theoretical approach is appropriate and does not need any kind of
alterations to increase its valuation in future (Lin 2017). Therefore, adequate improvements in
the capital structure conditions of CSL Limited need to be conducted, as the company is
nearing towards higher debt accumulation, which is directly affecting its solvency conditions.
The use of equity capital and reduce in debt exposure will also reduce the finance cost and
increase the level of net profits generated from operations.
Task 2: Providing relevant information of the proposed project to the CEO of
OnePack’s with relevant justification from investment appraisal techniques and
sensitivity analysis
MEMORANDUM
To,
The CEO,
OnePack Limited
From: The Manager
Date: 11th June 2019
Subject: Understanding the performance of the project under different investment appraisal
techniques and sensitivity analysis
After evaluating the performance of the project relevant explanation has been
presented to identify the financial viability and the need for the commencement of the
project. Critical analysis has been conducted on the overall project by detecting the overall
free cash flow, investment appraisal techniques and sensitivity analysis.
Analysing the cash flow presented from the project:

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Particulars 0 1 2 3 4 5 6
Revenue
$
440,000
,000.0
$
460,020
,000.0
$
480,950,
910.0
$
502,834
,176.4
$
525,713
,131.4
$
549,633
,078.9
Variable cost
$
(27,000,
000.0)
$
(24,786,
000.0)
$
(22,753,
548.0)
$
(20,887,
757.1)
$
(19,174,
961.0)
$
(17,602,
614.2)
Administrative
and general
expenses
$
(4,000,0
00.0)
$
(4,000,0
00.0)
$
(4,000,0
00.0)
$
(4,000,0
00.0)
$
(4,000,0
00.0)
$
(4,000,0
00.0)
Marketing cost
$
(13,000,
000.0)
$
-
$
-
$
-
$
-
$
-
Depreciation
expense
$
(5,000,0
00.0)
$
(5,000,0
00.0)
$
(5,000,0
00.0)
$
(5,000,0
00.0)
$
(5,000,0
00.0)
$
(5,000,0
00.0)
Profit before
tax
$
391,000
,000.0
$
426,234
,000.0
$
449,197,
362.0
$
472,946
,419.3
$
497,538
,170.4
$
523,030
,464.7
Tax
$
(117,30
0,000.0)
$
(127,87
0,200.0)
$
(134,759
,208.6)
$
(141,88
3,925.8)
$
(149,26
1,451.1)
$
(156,90
9,139.4)
Profit after tax
$
273,700
,000.0
$
298,363
,800.0
$
314,438,
153.4
$
331,062
,493.5
$
348,276
,719.3
$
366,121
,325.3
Cash flow
$
(35,450,
000.0)
$
278,700
,000.0
$
303,363
,800.0
$
319,438,
153.4
$
336,062
,493.5
$
353,276
,719.3
$
375,521
,325.3
The above table provides information about the overall cash flow that has been
calculated for the project. This cash flow has been derived by analyzing the relevant level of
revenues and expenses incurred over a period of 6 years. The analysis directly indicated that
the variable cost conditions of the project are relatively related to an increment of 2% and a
reduction of 10% cost. This relevant analysis would eventually help in determining the level
of expenses that will be conducted by the project over a period of time. The project also
analyses the administrative and general expenses, which is fixed throughout the six years of
the project. On the contrary, the marketing cost of the project is only incurred on the first year
after which there is no it expenses on marketing that need to be conducted by the project.
Moreover, depreciation expenses also calculated to include all the relevant investment on the

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machinery that is purchased for the project. Thus, cash flow conditions of the project is viable
and can be further used in investment appraisal techniques (Harris 2017).
Evaluating the investment appraisal techniques for analysing the efficiency of the project:
Yea
r Cash flow
Discount
rate Dis-cash flow Cum-cash flow
0
$ (35,450,000.0) 1.0
0
$ (35,450,000.0) $ (35,450,000.0)
1
$ 278,700,000.0 0.9
2
$ 255,688,073.4 $ 243,250,000.0
2
$ 303,363,800.0 0.8
4
$ 255,335,241.1 $ 546,613,800.0
3
$ 319,438,153.4 0.7
7
$ 246,664,865.0 $ 866,051,953.4
4
$ 336,062,493.5 0.7
1
$ 238,075,142.9 $ 1,202,114,446.9
5
$ 353,276,719.3 0.6
5
$ 229,605,627.9 $ 1,555,391,166.3
6
$ 375,521,325.3 0.6
0
$ 223,911,096.8 $ 1,930,912,491.6
NPV $ 1,413,830,047.2
Payback period 0.1 years
IRR 795%
Profitability index 40.9
The calculations in the above tables directly represent the discounted cash flow and
values from the investment appraisal methods of the project. The valuation is directly
indicating about the overall performance that could be generated by the project over a period
of time. The analysis for the indicated that the overall discounted period cash flow has a
positive value which represents the net present value of the project. This positive net present
value state financial viability of the project and indicate about the positive cash inflow that
would be generated over the period of six years. Further analysis indicates that the payback
period of the overall project is within one year, as the initial investment is relatively low in
comparison to the high level of revenue generated in first year. Moreover, the internal rate of

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return calculation as indicated a value of 795%, which has been derived as the overall income
of the project is higher in comparison to other costs and expenses. This is the main reason
why the project is so lucrative that the organization need to commence it as quickly as
possible. The further analysis of the investment appraisal techniques are conducted on
profitability index, which also indicate a positive attribute. The values of profitability index
are at the levels of 40.9, which are directly indicating a higher level of revenue that can be
generated by the project after its commencement. Therefore, after the analysis of the overall
investment appraisal technique, it can be identified that the project is financially viable and
would generate high level of income for the organization in the long run (Throsby 2016).
Understanding the impact of sensitivity analysis on the project:
Sensitivity analysis
Sale Value NPV IRR Profitability index
$ 13,750,000.0 $ 44,182,189.0 24.8% 1.28
$ 27,500,000.0 $ 88,364,377.9 49.7% 2.56
$ 55,000,000.0 $ 176,728,755.9 99.3% 5.11
$ 110,000,000.0 $ 353,457,511.8 198.6% 10.22
$ 220,000,000.0 $ 706,915,023.6 397.3% 20.44
$ 440,000,000.0 $ 1,413,830,047.2 794.6% 40.88
$ 660,000,000.0 $ 2,120,745,070.8
1191.9
% 61.32
$ 990,000,000.0 $ 3,181,117,606.1
1787.8
% 91.99
$ 1,485,000,000.0 $ 4,771,676,409.2
2681.8
% 137.98
$ 2,227,500,000.0 $ 7,157,514,613.8
4022.6
% 206.97
$ 3,341,250,000.0 $ 10,736,271,920.7
6033.9
% 310.45
The information provided in the above table directly highlights the overall changes in
the sensitivity conditions of the project. Hence, the sensitivity analysis depicts that even after
reducing the overall value of the project by 50% the overall NPV, IRR, and profitability
index is positive. The sales value on the first year of the project is relatively altered by 50%,

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which represent a new who sales value for the first year under different circumstances.
Hence, it could be identified the project after receiving tremendous decline in its overall
revenues is still considered to be a viable investment option. This would eventually allow the
organization to generate high level of revenues and improve with current financial conditions
after implementing the proposed project.
Conclusion:
The overall assessment has directly analyzed the capital structure conditions of CSL
Limited, which indicates that adequate improvements in the capital structure needs to be
conducted. The financial performance of the company will eventually increase if the
accumulation of debt capital is reduced, as it will help in minimizing the finance cost and
maximizing the solvency position of the organization. From the relevant analysis of the
assessment, it has directly indicated that the project is reliable and would generate high level
of revenues for Onepack Limited. Hence, the project should be selected by Onepack Limited,
as it satisfies all the requirement of the investment appraisal techniques used for calculating
its financial viability.

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References and Bibliography:
Awojobi, O. and Jenkins, G.P., 2016. Managing the cost overrun risks of hydroelectric dams:
An application of reference class forecasting techniques. Renewable and Sustainable Energy
Reviews, 63, pp.19-32.
Brisley, R., Wylde, R., Lamb, R., Cooper, J., Sayers, P. and Hall, J., 2016. Techniques for
valuing adaptive capacity in flood risk management. Proceedings of the ICE-Water
Management, 169(2), pp.75-84.
Brusov, P., Filatova, T., Orekhova, N. and Eskindarov, M., 2018. New meaningful effects in
modern capital structure theory. In Modern Corporate Finance, Investments, Taxation and
Ratings (pp. 537-568). Springer, Cham.
Csl.com. 2019. Annual Reports. [online] Available at:
https://www.csl.com/investors/financial-results-and-information/annual-reports [Accessed 11
Jun. 2019].
Guinnane, T.W. and Schneebacher, J., 2018. Capital Structure and the Choice of Enterprise
Form: theory and history. Yale University Economic Growth Center Discussion Paper,
(1061).
Harris, E., 2017. Strategic project risk appraisal and management. Routledge.
Lin, N., 2017. Building a network theory of social capital. In Social capital (pp. 3-28).
Routledge.
Onatca Engin, S.N., Unver Erbas, C. and Sokmen, A.G., 2019. Pecking Order Theory in
Determining The Capital Structure: A Panel Data Analysis Of Companies in
Turkey. Business and Economics Research Journal, 10(3), pp.687-698.

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Serrasqueiro, Z. and Caetano, A., 2015. Trade-Off Theory versus Pecking Order Theory:
capital structure decisions in a peripheral region of Portugal. Journal of Business Economics
and Management, 16(2), pp.445-466.
Throsby, D., 2016. Investment in urban heritage conservation in developing countries:
Concepts, methods and data. City, Culture and Society, 7(2), pp.81-86.