Accounting and Finance Project Report: Analysis of AMP Limited
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Added on  2023/06/04
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This report analyzes the financial performance of AMP Limited, an Australian financial services company. It includes a study of the company's capital structure, cost of capital, financial ratios, and material risks.
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Running Head: Accounting and Finance 1 Project Report:Accounting and Finance
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Accounting and Finance 2 Executive summary The report has been prepared on various accounting and financial methods to measure that whether the stock position and the financial performance of the company is better in the industry or not. The report explains that few changes would help the business to improve the overall performance and the stock level in the market.
Accounting and Finance 3 Contents Part A:...............................................................................................................................4 Findings:...........................................................................................................................4 Decision process:..............................................................................................................4 Part B:...............................................................................................................................6 Introduction:.....................................................................................................................6 Debt and equity level:.......................................................................................................6 WACC:.............................................................................................................................6 CAPM:..............................................................................................................................7 Comparison of capital structure:.......................................................................................7 Financial ratios:................................................................................................................8 Changes in capital structure:.............................................................................................8 Material risk:.....................................................................................................................9 Conclusion:.....................................................................................................................10 References:.....................................................................................................................11 Appendix:.......................................................................................................................12
Accounting and Finance 4 Part A: All the required calculations have been done in the attached spreadsheet and it has also been added in the appendix area in the report file. Findings: According to the given case,Saturn Petcare Australia and New Zealand wants to invest into a new project “Buddy” but before the investment, company wants to make sure that whether it would be able to make enough funds from the business or would it be tough for the business to manage the cost of the company on the basis of the available return. Firstly, on the basis of normal estimated sales, the cash flow, NPV, payback and profitability index of the company has been evaluated and it has been found that the project is quite beneficial for the business as the NPV figures are positive and the profitability index and payback are also favouring about the project. Further, the scenario has been changed and the calculations have been done if the sales would be improved by 5%. On the basis of the calculations, it has been measured that the after tax cash flows of the business are $ 37,963,994. As well as, the NPV of the project would be $2,478,046. Whereas, if the scenario has been changed and the calculations have been done if the sales would be lowered by 5%. On the basis of the calculations, it has been measured that the after tax cash flows of the business are $ 33,348,376. As well as, the NPV of the project would be $ 5,93,865. On the basis of evaluation on all the three scenarios, it has been found that the NPV of the project would be positive and thus the investment must be done by Mr Quinlivan in the Buddy project (Wilson & Gilligan, 2012). This project would also improve the stock price in the market. . Decision process: Further, a different case of the company has been discussed where the company is planning to upgrade the manufacturing planets. Two replacement options has been seen by
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Accounting and Finance 5 the business and the capital budgeting process has been applied on both the projects to measure that which option is better for the company. On the basis of project A, $ 16,732 net profit has been realized by the project whereas the calculations of project B briefs that the total return from the project B would be $ 69,135. It explains that the project B is better choice for the purpose of investment.
Accounting and Finance 6 Part B: Introduction: The report has been prepared to identify the accounting and financial performance of AMP limited. Amp limited is an Australian company which offers the financial services in the Australian and New Zealand market. The capital structure, cost of capital, various risks and financial ratios of the company has been studied in the report to identify the financial position and performance of AMP limited. Debt and equity level: Debt and equity level of Amp has been studied firstly and it has been found that the equity holds the 87% and debt of the company holds the 13% share in the total capital of the company. (Annual report, 2017)
Accounting and Finance 7 WACC: The cost of capital of the company has been studied in the part and it has been recognized that the total cost of capital of the business is 10.41% which explains that the return of the company must be higher than the 10.41% (Mullins, Walker & Boyd, 2012). WACC calculations of AMP (Amount in millions) PriceCostWeightWACC Debt1,1163.85%0.130.52% Equity7,20211.42%0.879.89% 8,318Kd10.41% (Annual report, 2017) CAPM: Cost of equity through CAPM model has been calculated further to measure that how much return could be expected by the shareholders from the company. Below table represents that the required rate of return of the company is 11.42% (Higgins, 2012). The company is offering higher return against the risk i.e. 1.47. Calculation of cost of equity (CAPM) RF2.41% RM8.54% Beta1.470 Required rate of return11.42% (Annual report, 2017) Comparison of capital structure: The capital structure of the company has been compared with an Australian bank named by Australia and New Zealand bank to measure the industry’s capitals structure level. The below graph explains that the capital structure of ANZ is optimal and AMP are required to follow the same strategies in order to maintain the financial risk and reduce the level of cost of capital of the business.
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Accounting and Finance 8 (Annual report, 2017) Financial ratios: Financial ratios study has been performed further on the company and it has been found that the return on sales, return on assets and return on equity of the business is 13.16%, 0.57% and 11.64%. Further, it has been found that the inventory turnover and asset turnover level of the business is 30.12 days and 8.18 days which explains about better management of the assets and efficiency level of the business (Madura, 2011). In addition, the liquidity ratios explain that the current funds of the business are quite higher which improves the cost level of the business. Lastly, the study has been performed on the long term solvency ratios, and it has been found that the financial gearing position of the company is quite higher. Changes in capital structure: The changes in the capital structure in the last years could be found as below:
Accounting and Finance 9 Material risk: Material risk of the Amp limited has been discussed further in order to identify that in which kind of risk the company is involved and how these risks are affecting the stock position and the market capital of the business. Annual report (2017) of the company has cleared the 7 risk which are mainly associated with the company and affect all the factors of the company. The main material risk of the company isstrategic risk, credit risk, market risk, liquidity risk, operational risk, insurance risk and concentration risk. All of these risks are related to the different scenarios. Though, all of these could affect the stock price level of the business. In the reports of Financial Services Royal Commission, it has been found that the strategically risk and the liquidity risk of the business is higher. the reports of the commission has made it clear that because of the few mistakes of the management, the risk level of the company has been higher which have affected at the stock price of the company a lot (Home, 2018). The risk disclosed by the commission and the process explained that the reports were adequate and because of that, the investors have lose their interest in the stocks of the company. Though, the management has taken a further step and explained that the management was at mistaken place and the same issues would not be repeated again by the company. The news (2018) and annual report (2017) explained that the company is associating with all the risk mentioned in the annual report of the company. However, the level of the
Accounting and Finance 10 strategically risk and operational risk of the company is highest among all the risk. On the basis of last year evaluation, it has been found that the level of strategically risk has been improved in the business because of the ignorance of the management. However, after the disclosure by commission, the management has taken a strong step and which has helped the company to reduce the risk level and maintain better performance in the market so that the stock level of the business could also be managed at better level(Annual report, 2017). The last 3 year evaluation on all the material risk of the business explains that the main risk of the business is operational risk and strategic risk because these factors are changed by the company rapidly in order to assure that whether the position of the company is competitive(Annual report, 2017). The evaluation express that the level of operational risk is reducing and the level of strategically risk would be reduced by the business after the current announcement by the management of the business. Conclusion: On the basis of the study on Amp limited, it has been recognised that the financial gearing position of the company is not at all good. Few changes and the improvement in the debt level must be done by the business in order to improve the financial gearing level of the business and reduce the cost of the business. Further, it has been studied that the material risk has been managed by the business.
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Accounting and Finance 20 4,931 ,3849 1,376, 259 8 $ 5,144 ,484 0.23 3 $ 1,196, 442 9 $ 5,036 ,696 0.19 4 $ 976,1 45 10 $ 10,14 4,484 0.16 2 $ 1,638, 391 Total $ 20,59 3,865 $ - 20,000 ,000 NPV= Total Cash Inflow PV -Total cash outflow PV $ 593,8 65 Calculation of Net Present Value (option A) Year sCash OutflowCash InflowFactors P.V. ofCash Inflow P.V. of Cash Outflow 0$ -475,0001.000$-$-475,000 1$ 100,0000.943 $ 94,340 2$ 100,0000.890 $ 89,000 3$ 100,0000.840 $ 83,962 4$ 100,0000.792 $ 79,209 5$ 100,0000.747 $ 74,726 6$ 100,0000.705 $ 70,496 Total $ 491,732$-475,000 NPV= Total Cash Inflow-Total cash outflow $ 16,732 Calculation of Net Present Value (option B) Year sCash OutflowCash InflowFactors P.V. ofCash Inflow P.V. of Cash Outflow 0$ -475,0001.000$-$-475,000
Accounting and Finance 21 1$80,0000.943 $ 75,472 2$80,0000.890 $ 71,200 3$80,0000.840 $ 67,170 4$80,0000.792 $ 63,367 5$80,0000.747 $ 59,781 6$80,0000.705 $ 56,397 7$80,0000.665 $ 53,205 8$80,0000.627 $ 50,193 9$80,0000.592 $ 47,352 Total $ 544,135$-475,000 NPV= Total Cash Inflow PV -Total cash outflow PV $ 69,135 RATIOFORMULA Also referred to as… Profitability Ratios Return on sales (ROS)= Net income / Revenue13.16% Return on assets (ROA)= Net income / Total assets0.57% Return on equity (ROE) = Net income / Stockholders' equity11.64% Asset Management Efficiency Ratios Inventory turnover= Cost of goods sold / Inventory30.129744 Asset turnover= Revenue / Total assets8.1881061 Liquidity Ratios Current ratio = Current assets / Current liabilities3.1585071 Long-term Solvency ratios Debt ratio= Total liabilities / Total assets0.7833339
Accounting and Finance 22 Financial leverage= Total assets / Total equity20.332967