Applied Finance: Project Report on Financial Statement and Market Performance of Caltex Australia

Running Head: Applied Finance
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Project Report: Applied Finance

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Executive summary:
Identification over the financial statemenent and market performance of an
organization is quite important before making any decision about the investment in the
company. In the report, various financial key indicators of the company has been studied in
order to identify the investment level of Caltex Australia. The study explains that risk and
return position of the company is quite better in the industry. Further, the ownership structure
and rules have been managed by the company according to Australian policies only. The
other factors also define about better position of the company. the report concludes that the
investment into the company would offer higher return to the investors.

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Contents
Corporate governance.......................................................................................................5
Chief executive officer.................................................................................................5
Ownership structure......................................................................................................6
Conflict between bondholders and shareholders..........................................................7
Financial market consideration.....................................................................................8
Social constraints..........................................................................................................9
Recommendation on corporate governance..................................................................9
Risk and return................................................................................................................10
Estimating historical risk parameters..........................................................................10
Estimating default risk and cost of debt.....................................................................12
Estimating cost of capital............................................................................................14
Earnings and cash flow...................................................................................................15
Analyzing existing investment...................................................................................15
Assessing competitive strength...................................................................................18
Sustainability and competitive strength......................................................................20
Financial sources............................................................................................................20
Assessing current financing........................................................................................20
Benefit of debt............................................................................................................21
Cost of debt.................................................................................................................22
Dividend policy..............................................................................................................23
Historical dividend policy analysis.............................................................................23
Firm characteristics.....................................................................................................23
Cash/ trust nexus.........................................................................................................24

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Peer group...................................................................................................................24
Valuation.........................................................................................................................25
FCFF approach...........................................................................................................25
DDM approach...........................................................................................................26
PE approach................................................................................................................26
Conclusion:.....................................................................................................................27
References.......................................................................................................................28
Appendix.........................................................................................................................30

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Corporate governance:
Corporate governance structure of Caltex Australia has been studied in the report. The
study explains that a number of guidelines have been set by the business in order to manage
the corporate governance structure of the company. Company follows a straight style to
manage the corporate governance of the company.
Chief executive officer:
Chief executive officer (CEO) of the company is Julian Segal. He has been the chief
executive officer if Caltex Australia since December, 2016. He is also one of the boards of
director members of the company and commercially driver senior manager whose main focus
is towards the innovation solution and customer centric solution to the customers which
improves the operational efficiency and overall performance of the company (Annual report,
2018).
Julian Segal is not connected as family to the business. He has been appointed as CEO
of the comapny because of his efficiency level and great performance in the organization. He
has worked in the organization from a long time and has experience of nearly 30 years in
various firms which have helped Julian to be at CEO position (Annual report, 2018). CEO is
the only person who also holds a set in non executive officers of the company.
Further, it has been investigated that Julian has earn $ 22,23,500 in the year of 2018
which includes salaries and various other remuneration such as bonus, LT etc. The annual
report (2018) of the company explains that bonus and LTI of the CEP depends on the
performance of the company. Since, last 2 years, this amount has been improved due to the
better performance of the company.
(Annual report, 2018)

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Further, it has been investigated that 325,585 shares are held by Julian in the company
which involves the direct interest and indirect interest f the company. Below image describes
about the classification of shares of Julian in the company.
Ownership structure:
The annual report (2018) of company explains that all the directors have stocks of the
company for direct interest and non direct interest. Below is the report of directors along with
the number of shares held by them in last financial year?
(Annual report, 2018)
Further, it has been recognized that top 20 stockholders of the company are various
financial institution and Bhang Corporation. They held 83.38% of total stock of the company.

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(Annual report, 2018)
Through the study over top 20 stockholders of the company, it has been recognized
that there is no executive and non executive director exist in the top 00 stockholders of the
company. Further, none of their relative held more stock in their kitty. It explains that proper
ownership structure guidelines re followed by the company so that no decision could be made
by the stakeholders for their own benefit rather than the stockholder’s benefit.
Conflict between bondholders and shareholders:
Caltex Australia’s debt structure has been studied further in order to identify the bond
performance of the company. On the basis of bond structure of the company, it has been
found that all the debt of the company is secured. Below is the detail about the bonds of the
company:
Issuer Caltex Australia
Bond type Coupon bonds
Placement method Open subscription
Placement type Public
Par amount, integral multiple 100,000 AUD

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Nominal 100,000 AUD
Outstanding principal amount 100,000 AUD
Amount 150,000,000 AUD
Placement date 17/04/2008
Maturity date 15/4/2027
Floating rate No
Coupon Rate 7.25%
Current coupon rate 7.25%
Day count fraction 2
Coupon frequency 2 time(s) per year
Interest accrual date 30th June
Related issues
Caltex Australia, 4% 17apr2025,
AUD
Caltex Australia, FRN 15sep2037,
AUD
(Bloomberg, 2018)
On the basis of further study, it has been recognized that the debt are convertible and
debt holders are free to convert it into cash and equity at any time. The company has
contacted with various regulatory agencies to run the bonds and manage the financial
performance of organization at better level.
On the basis of S&P ratings, it has been found that the debt type of company is A
which explains that the risk level of debt of the company is quite lower along with that,
timely payment of interest is done by the company in order to manage the performance and
other obligations of the company.
Financial market consideration:
Further, the stock market performance of the company has been studied and it has
been found that stock trading of the company is at higher level.