Financial Analysis of AMP: Capital Structure, Key Ratios and Risk Management

ACCOUNTING AND FINANCE
Executive Summary
The report has been prepared to analyse the financial of AMP, an entity listed on Australian
Stock Exchange. The analysis includes the following subject matter:
(a) Capital Structure of AMP for December ended 2017 accounts;
(b) Computation of Weighted Average Cost of Capital of the company;
(c) Computation the rate of return on equity;
(d) Comparison of capital structure of the company with the competitor;
(e) Analysis of Key ratios of AMP and
(f) Analysis of the change in Capital structure of the company over three year;
(g) Identification of material weakness and how company has managed the same to
generate wealth.

Introduction
AMP is engaged in Wealth Management Business and is listed on Australian Stock Exchange
too. Further, the segment of the business includes financial advisory, platform administration,
and superannuation especially unit-linked, managing of investment products, retirement
planning and related products. The company is also engaged in investment management
business and risk insurance. The company has a diversified portfolio and marks its presence
on two stock exchanges namely Australian and New Zealand stock exchange. (Reuters, 2018)
AMP current capital structure has been categorised into debt and equity by taking into fact
that only interest bearing liabilities has been taken into consideration. The same has been
detailed here-in-below:
Capital Structure of AMP for 2017
$ Mio
Sl No Particular Amount Amount
1 Contributed Equity 7283
2 Debt
-Current 13355
- Non-Current 7654 21009
( ASX Limited, 2018) (AMP Limited (AMP.AX), 2018)
On basis of the same, it can be understood that company is heavily debt ridden with debt
ranging to near about three times to equity and is substantially huge.
Further, the computation for firm’s weighted average cost of capital has been detailed here-in
–below:
Capital Structure of AMP for 2017
$ Mio
Sl
No Particular Amount Amount
1 Contributed Equity 7283
2 Debt
-Current 13355
- Non-Current 7654 21009
3 Finance Cost 585
4 Rate of interest on Debt (Overall) 2.78%
5 Subordinated Debt Interest Rate 6.88%
6 Beta 1.47
7 Market Rate of return 8.54%
8 Rate of interest on Government bond 10 year 2.66%
9 Required Rate of Return on Equity (Using CAPM) 11.30%

Computation of Weighted Average Cost of Capital
Sl No Particular Weight (A) Rate (B) Net (A*B)
1 Equity 7283 11.30% 823.2412
2 Debt Post Tax 21009 4.81% 1011.058
28292 1834.299
3 Rate 6.48%
On the basis of above, it can be understood that weighted average cost of capital of the
company is 6.48% as the company is trading on equity due to heavy reliance on debt.
The return of equity has been computed to understand whether sufficient return is generated
for the shareholders of the company. The computation of the same has been detailed here-in-
below:
Computation of Return on Equity
Sl. No. Particular Amount
1 Net Profit 848
2 Average Equity 7332
3 Rate of return 11.57%
Since the rate of return in terms of financial statement exceed the rate of return required
under CAPM computed value. The shareholders of the company are being taken care of.
Comparison of Capital Structure of the company with competitor
The competitor that has been chosen for analysis is Vontobel Holding AG which is the
registered private bank in Switzerland and holding company of the Vontobel Group. The
capital structure of the company has been detailed here-in-below:
Competitor Capital Structure- Vontobel Holding- 31-12-2017
CHF Mio
Sl No Particular Current Non Current Total
1 Equity 1025.8
2 Long Term Liability
- Provisions 25 25
-Loans 355 355
Total 1405.8
Since the company did not have any long term interest bearing loan another company has
been analysed to draw conclusion regarding the capital structure as the comparison with
aforesaid company shall not bear any result as AMP is debt ridden.