Calculation of Performance Ratios

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FINANCE

Amaysim
Executive Summary
To analyse the business it is important to have an in-depth evaluation of the business function
together with the financials. The performance of a business can be ascertained through the
business function and its performance in the share market. In this report, the analysis of
Amaysim is done that is listed on the ASX. The report initiates with the business function
followed by the corporate governance. Ratio analysis is being done to know the performance
of the company in terms of various parameters. Further, the WACC and beta is computed to
know the risk worthiness. Further, the debt ratio is computed to know the level of debt of the
company. It is then followed by the recommendation.
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Contents
Introduction...........................................................................................................................................3
1. Company profile............................................................................................................................4
2. Corporate Governance..................................................................................................................5
Substantial stakeholders....................................................................................................................5
3. Calculation of Performance Ratios.................................................................................................6
 Liquidity ratios...............................................................................................................................6
 Profitability ratios..........................................................................................................................7
 Efficiency ratios..............................................................................................................................8
 Market value share........................................................................................................................8
4. Graphs...........................................................................................................................................9
5. Announcements..........................................................................................................................10
6. Beta computation........................................................................................................................10
8. Debt ratio.....................................................................................................................................12
9. Dividend.......................................................................................................................................12
Recommendation and Conclusion.......................................................................................................14
References...........................................................................................................................................15
Appendix.............................................................................................................................................17
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Introduction
In this report, AMAYSIM Limited listed on the ASX is selected for the purpose of study.
Before investing in a particular company it is important that the investors needs to have a
crystal clear view of the company’s functioning. This stretches from the ratio analysis to the
stock movement because one factor does not decide the functioning of the company.
Therefore, to understand the performance of the company, a comprehensive examination of
the various factors is evaluated. The scenario of the company depends on the acts of the
company. The company also tried to indulge into the business sector with the help of merging
with the Australian broadband services private limited in August 2016 which have helped
them a lot in order to accelerate the broadband services strategy and then create a leverage of
their status in the market. Also in the year 2017, the company have decided to use new
marketing techniques in order to enhance the broadband services by improvising new
unlimited data plans, no lock-in contracts, no activation fees and no expenses to be incurred
while switching plans.
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Amaysim
1. Company profile
The AMAYSIM Limited Australia is a multiversity business that has been based on the
innovative technology and the main focus for them is to provide the best experience to their
customers. The company deals in the business of light and LED business model in which the
customer plays a very important role and no contracts are being taken so that the prices can
be transparent for the mobile devices, Broadband, and energy. After the company has
launched the BYO mobile services in the year 2010 it has observed use growth and the
mobile subscriber base have come up to approximately 1.07 million and those leading them
to become one of the largest mobile operators in Australia (Amaysim, 2017).
AMAYSIM Limited brand is powered by the Optus 4g+ network and is said to have one of
the best customer bases because of the top-notch service they have been providing them for
years. They make attractive offers to the customers by making simple and amazing mobile-
first customer experience platforms that are easy to understand and also very price efficient
so that major groups of the society can buy the product without hesitation (Parrino et. al,
2012). The customers have been given the service in which they are able to contact the care
service centre whenever they want so that the customer will not face any problem and also
give a good review for the product (Amaysim, 2017). The main focus of the company is to
improve the Technology and the customer base that will help them to grow with the help of
advancing new products and services regularly and keeping them involved in the process of
buying and selling. The strategy has made the form to a call from the mobile services
provider to become a big business that offers mobile phones, devices, broadband services,
and energy.
The company has also tried to improve the status of its energy providing branch by merging
with click energy group Holdings Private Limited which is an online Australian energy-
related retailer offering electricity and gas to the consumers. Also, it was observed that the
strategy of the firm was very similar to the merging company which will be helpful in
aligning their work with the management team and thus helps in enhancing the large-scale
operations that will be conducted by the firm in near future. It has been noticed that over
800,000 households have been indulged with the company in order to get the cross cell
potential at its best (Amaysim, 2017). The company has also made an execution team which
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Amaysim
have made strategies in order to make progress in this field and this work hard in order to get
all these products in the market under the name of AMAYSIM Limited thus making this very
important step in order to gain future importance in the cross-selling potential which will be
unlocked by the application of these kind of strategies. The company has made it clear that it
will be enhancing the technology platform and thus making the trademark of the company-
centric approach so that it may prevail in almost all Australian household in any form of
energy or service (Merchant, 2012).
2. Corporate Governance
The Board of Directors of the company has the duty of putting the business on the right track.
The company referred to here is Amaysim Group. The Board dominates the functions a.ong
with the financial position and thus the output presented by the company. Board decides the
strategy to be followed so that the business gets stronger with time and also decides the
investment sector along with the amount to be invested (Amaysim, 2017). The core of the
Board is to raise the performance rate of the company so as to increase the share price and the
generated revenue. It is the Board who is to see the expansion of the Amaysim Group. It is
the duty of the company to see that all the presented information by the company is made
available to the customers as soon as possible. Rules associated to the timely delivering of
essential and fair information by the company must be made as per the ASX Listing Rules
and the Corporations Act. The policies followed by the company show that how the outlets
of the Amaysim should work and what kind of working atmosphere should exist. Legal
guidance is also necessary for the expansion so that the outlets carry on their duty under the
legal rules and regulations that are framed as per the policies of the company.
Substantial stakeholders
Name Equities %
Investmentaktiengesellschaft für langfristige Investoren TGV 27,094,691 12.9%
FIL Investment Management (Hong Kong) Ltd. 11,016,638 5.23%
Steamboat Capital Partners LLC 10,518,562 4.99%
Merlon Capital Partners Pty Ltd. 10,219,822 4.85%
Challenger Ltd. (Investment Management) 10,219,822 4.85%
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Amaysim
VP Bank AG (Private Banking) 10,162,583 4.82%
Investors Mutual Ltd. 9,515,156 4.51%
Colonial First State Asset Management (Australia) Ltd. 9,423,658 4.47%
AustralianSuper Pty Ltd. 9,264,873 4.40%
Antares Capital Partners Ltd. 8,761,330 4.16%
Name Board Relationships
Andrew Reitzer 23 Relationships
Julian Ismet Ogrin 7 Relationships
Maria Anne Martin 7 Relationships
Peter J. O'Connell 9 Relationships
Jodie Sangster 5 Relationships
3. Calculation of Performance Ratios
 Liquidity ratios
This type of ratios plays a key role when the company wants to analyze the Debt obligations.
It helped the company in order to analyze the type of investment it has which can be created
or turned into cash on a short-term basis. If the analysis of the liquidity ratio states that it is
not up to the mark then the company is not able to provide the debt obligations up to the
period of 1 year which states that the company is ineffective towards liquidity (Ross et. al,
2014). Also, the efficiency ratio plays an important role when the assessment of a company
takes place. This ratio helps to find the effectiveness of the firm and is more or less
equivalent to the liquidity ratio because of the method it uses to calculate the ratio. In the end,
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Amaysim
it is clear that the management will be unable to use the funds and this will also be restricted
from earning profits (Petty et. al, 2012).
2016 2017
current ratio = CA/Cl 0.34285714 0.6031746
liquid ratio =quick assets/ current liabilities 0.34285714 0.6031746
The current ratio is used to find out that the rotation of words can be made with the help of
debtors and a stock present in the company or not. The main purpose is to clear the creditors
with the help of debtors and stock and as dividing current assets of the company with its
current liabilities (Melville, 2009). The quick ratios are used by the company in order to
evaluate the liabilities that it has to pay so that a better and clear view of the current ratios can
be included because there is the absence of stocks in this ratio (Lapsley et. al, 2012).
The quick ratio of the company is said to be one is to one that states that the liquidity strength
is good and also the company can meet the future applications in order to indulge in business
applications. Also, the fixed asset ratio of the company is depicting a uniform nature does
reflecting utilization of the Assets of both years and making it profitable for the firm.
As per the liquidity, it can be commented that the company is facing huge issue because the
current assets are insufficient to meet the liabilities. The standard ratio should be 1:1 that
indicates $1 of current asset for every $1 of current liabilities (Merchant et. al 2012).
However, both the current ratio and the quick ratio projects weakness in the company’s
liquidity and hence, will be difficult when it comes to the payment of liabilities.
 Profitability ratios
These types of ratios can be used in order to calculate the general earnings with respect to the
cost and other expenses that are incurred by the firm generally. The high value of ratios
depicts the superiority of the firm in the market in relation to its competitors. The difference
between the previous year’s ratio and the current ratio is also high then a positive working
environment of the firm is estimated thus making it very profitable as the net profit margin,
gross profit margin, and return on equity and return on assets will increase (Brealey et. al,
2011). Determination of this kind of profit margins will help the firm to determine the usage of
materials And Labour which have been used in the manufacturing process.
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2016 2017
Net Profit Margin [(Net Profit after tax/Sales Revenue)*100] 4.95867769 3.82165605
Gross Profit Margin [(Gross Profit /Sales Revenue)*100] 100 100
As per the gross profit and net profit margin, it can be commented that the company is
generating profit. The gross profit is intact at 100% because whatever is produced is sold and
hence a strong figure. In addition, the net profit margin of the company has dipped in the year
2017 owing to the increment in the operating expenses.
 Efficiency ratios
The efficiency ratio can be described as the ratio that is used to denote how efficiently the
company utilizes the assets, as well as liabilities internally. The efficiency ratio computes the
turnover or receivables and the payment associated with the liabilities (Bodie et. al, 2014).
From the computation of working capital ratio and the asset turnover ratio, the efficiency of
AMAYSIM is done. The working capital ratio of the company is not formidable because
there are more of current liabilities as compared to the current assets. It would be difficult to
honor the obligations (Amaysim, 2017). On the other hand, the asset turnover ratio projects
that the assets has been utilized in an effective manner because it is positive in nature
however, the percentage is too low and has dipped in the year 2017.
2016 2017
Working capital ratio 0.34285714 0.6031746
Asset Turnover ratio = sales/ Avg total assets 2.06837607 1.53170732
 Market value share
EPS is an indication of the profit that is reaped by the company. The book value is positive
however, dipped in the year 2017. Moreover, the book value of the share increased in the
year 2017 meaning that a proportionate increment happened in 2017.
Market Value ratio
EPS (LOSS) 0.07 0.05
Book value per share 0.06 0.17
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4. Graphs
From the chart it is clear that the chart of the company follows the all ordinary index and is
projected above in the chart. However, it needs to be noted that in the time of ups and downs
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it fails to match the line. In short, when there is a volatility, it fails to consider the line (Porter
& Norton, 2014).
5. Announcements
At the half year ending, the output shared by Telco showed that the total revenue which was
generated at the time was about $292-$294 million and in this, the company only generated
$17-$18 million. It was in these circumstances that the company raised the bar for the mobile
users by 10 percent but then also the APRU decreased to $22.46 which showed the downfall
to be of 7 percent which was similar to the downfall of the total revenue generated
(Amaysim, 2017).
The company in its presentation showed that the cheaper plans introduced by the company
was opted for by the customers which recharged with decreased data top-up and this
decreased the overall revenue. It shares have been seen to be unstable. It was seen to increase
by $1.50 in February 2015 but then it collapsed. Amaysim has been facing stiff competition
from Aldi who has been in the same field. They both are the seller of the Optus Spectrum
Extra features are the ones that allow Amaysim to dominate the market and that is the online
mode which attracts customers to join with a penny to spare and the cheaper plans have also
been a boon against the other telcos companies
The increment in the number of customers has led to increase in EBITDA of the Amaysim
Group which is seen to be beneficial for revenue generation
6. Beta computation
i. Beta is a measurement of the volatility of the stock in comparison to the market as
a whole. For Amaysim, the beta stands at 1.57. Since, the beta of the stock is more
than 1 it indicates that the volatility of the stock is more as compared to the market
volatility (Marsh, 2009).
ii. CAPM
E(R) = RFR + βstock (Rmarket – RFR)
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Amaysim
= 0.04 + 1.57 ( 6-4 )
=3.18
iii. Amaysim cannot be said to be a safe or an investment that is conservative in
nature because the stock has the beta of more than 1 meaning huge volatility will
be faced by the stock in comparison to the market.
WACC
i. Weight of equity = E/ (E+D)
= 76/(76+216)
= 76/292
=0.26
Weight of debt = D/(E+D)
= 216(76+216)
=0.73
Cost of equity = 0.04+ 1.57 * (6-4) = 3.14%
Cost of debt = 787/ = 3.868%
WAC = E(E + D) * Cost of equity + D/ (E+D)* Cot of debt* (1- tax rate)
= 0.26 * 0.031 + 0.73* 360 * (1- 40%)
=0.008 + 157.68
=157.688%
iv. Implications of higher WACC
The increase weighted average cost of capital in relation to a firm's business signifies the
tendency to encounter a loss or risk based on the announcement in the affairs of the
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organization. The increase will also depict the high demand of investors towards a return.
Also during the time of making investments, it will be harder for the firm to make decisions
because of the higher weighted average cost of the capital. Also, the data of WACC debt
obligations will help the form to evaluate the net expenses that have been taken place in
financing resources (Berk et. al,, 2015). The improper management of the company can also
be the reason for this. Hence it is observed that the company is trying to decrease the capital
caused by overcoming the weighted average cost of capital and using cheaper finance sources
which are present in the society. After analysis of all the above statement it is clear that
WACC results in additional risks and expenses for the entire company and also it can be said
that an additional amount of risk in the company is experienced when the expenses overcome
its expectations.
8. Debt ratio
The debt ratio indicates the composition of debt that a company uses in the capital structure.
Higher composition of debt can hamper the progress of the company because more of funds
will go towards payment of interest. Therefore, it is feasible to have a ratio of debt below .50.
In the present scenario, the debt ratio is below .50 indicating that the company uses low level
of debt for the performance and going by the liquidity status of the company, it can be
commented as the best plan (Laux, 2014).
The total liabilities has enhanced in the year 2017 indicating that the company has increased the
liabilities base. This indicates that there has been no repayment of debt. The company is utilizing the
debt structure by the regular payment of interest.
Debt Ratio 2016 2017
TL 84 216
TA 117 293
TL/TA 0.295584784 0.2078037
9. Dividend
It has been clearly announced that a dividend of $0.05 per share will be distributed to the
shareholders on Wednesday, October 25, 2017. So it would be very beneficial for the
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customers in order to invest in the company’s equity share because of the high return that it
may provide in the near future and also giving them an assured dividend. The AMAYSIM
Australia Limited seems to look attractive from over the view of its financial statement that
declares the dividend of 4.72%. This may be a rising concern for the investors as they need to
carefully analyze the financial statements of the form before making any decisions regarding
the investments that they are going to make. The current payout ratio of the stock has been
issued as 149 percent which states that the dividend of the firm is not well covered by the
revenue the organization has incurred in recent years (Amaysim, 2017). Also, the analysis of
the firm expects a dividend of around $0.159 and EPS to increase to $0.22 which should
make the dividend expected future payout ratio to 72%.
The payout ratio of the organization is the indicator of the company’s strength to provide the
customers with a dividend in order to keep them happy. The company should also take in
consideration that how frequently have it provided the customers with the dividend (Leo,
2011). If a person wants to invest in a particular kind of stock then the best stock would be
dividend stock because of their stable income generating abilities. But the present conditions
make the point to be realizing that the company AMAYSIM Australia Limited has a point in
business where it is not able to provide the customer with proper dividend investment. The
company has been consistently paying dividends from 2 years to the customers in order to
keep them happy but the company should also seek the advice of the finance managers and
then provide evidence to customers but not so frequently. For reliable players in the industry,
it has been seen that 10-year minimum track record is used in order to provide a dividend to
the customers.
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Recommendation and Conclusion
Going by the discussion from the annual report, it can be said that the company Amaysim
could not performed effectively in the year 2017. The liquidity position of the company is
weak and hence, if any obligations arise then it would be difficult for the company to repay
the debts. The debt structure of the company indicates that low level of debt has been used
that strikes the concept that the growth will be limited. If the company wants to expand then
it needs to stress upon the debt requirement and further enhance its position of liquidity.
Since, it is related to innovative technology, the company can expect a promising future
ahead. However, going by the current status, it would be feasible not to invest in the company
because it has shown no momentum and solidity in its functioning.
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References
Amaysim. (2017) Amaysm Annual report and accounts 2017 [online]. Available at:
https://investor.amaysim.com.au/irm/PDF/1425_0/FullYearResultAnnouncement [Accessed
18 May 2018]
Arnold, G. (2010) The Financial Times Guide to Investing. Prentice Hall.
Berk, J, DeMarzo, P. and Stangeland, D. (2015) Corporate Finance. Canadian Toronto:
Pearson Canada.
Bodie, Z, Kane, A. and Marcus, A. J. (2014) Investments. McGraw Hill
Brealey, R., Myers, S. and Allen, F. (2011) Principles of corporate finance. New York:
McGraw-Hill/Irwin.
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management. [online]. 9(3), p. 291-292. DOI:
https://doi.org/10.1111/1468-0408.00081
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from:
https://www.emeraldinsight.com/doi/abs/10.1108/01140581211283904 [Accesssed 18 May
2018]
Ross, S., Christensen, M., Drew, M., Bianchi, R., Westerfield, R. And Jordan, B.(2014)
Fundamentals of Corporate Finance, 7th ed. North Ryde: McGraw-Hill Australia Pty Ltd.
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. [online]. 44(4), 380-382. DOI:
https://doi.org/10.1080/00014788.2014.897867
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
Marsh, C. (2009) Mastering financial management. Harlow: Financial Times Prentice Hall.
Melville, A. (2013) International Financial Reporting – A Practical Guide. 4th edition.
Pearson, Education Limited, UK
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from
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https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
[Accessed 18 May 2018]
Needles, B.E & Powers, M. (2013) Principles of Financial Accounting. Financial Accounting
Series: Cengage Learning.
Parrino, R, Kidwell, D. & Bates, T. (2012) Fundamentals of corporate finance. Hoboken,
Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012)
Financial Management: Principles and Applications, 6th ed. Australia: Pearson Education
Australia.
Porter, G. and Norton, C. (2014) Financial Accounting: The Impact on Decision Maker.
Texas: Cengage Learning
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Appendix
Financial statements
AMAYSIM AUSTRALIA LTD (AYS) CashFlowFlag BALANCE SHEET
Fiscal year ends in June. AUD in millions except per share data. 2016-06 2017-06
Assets
Current assets
Cash
Cash and cash equivalents 13 18
Total cash 13 18
Receivables 10 35
Prepaid expenses 1 3
Other current assets -1 19
Total current assets 24 76
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 4 7
Accumulated Depreciation -3 -3
Net property, plant and equipment 1 3
Equity and other investments 1
Goodwill 53 146
Intangible assets 23 64
Deferred income taxes 1
Other long-term assets 14 3
Total non-current assets+A47 93 217
Total assets 117 293
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 14
Accounts payable 11 21
Deferred income taxes 1 10
Deferred revenues 7 10
Other current liabilities 50 71
Total current liabilities 70 126
Non-current liabilities
Long-term debt 83
Deferred taxes liabilities 5
Pensions and other benefits 0 1
Other long-term liabilities 14 2
Total non-current liabilities 14 91
Total liabilities 84 216
Stockholders' equity
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Amaysim
Common stock 63 115
Other Equity 3 0
Retained earnings -33 -39
Accumulated other comprehensive income 0
Total stockholders' equity 32 76
Total liabilities and stockholders' equity 117 293
AMAYSIM AUSTRALIA LTD (AYS) CashFlowFlag INCOME
STATEMENT
Fiscal year ends in June. AUD in millions except per share data. 2016-06 2017-06
Revenue 242 314
Gross profit 242 314
Operating expenses
Sales, General and administrative 38 37
Other operating expenses 189 262
Total operating expenses 227 299
Operating income 15 16
Interest Expense 2 3
Other income (expense) 5 9
Income before taxes 18 21
Provision for income taxes 6 10
Net income from continuing operations 12 12
Net income 12 12
Net income available to common shareholders 12 12
Earnings per share
Basic 0.07 0.06
Diluted 0.07 0.05
Weighted average shares outstanding
Basic 177 188
Diluted 186 195
EBITDA 26 34
Ratios
LIQUIDTY RATIOS
2016 2017
Current Assets 24 76
Current Liabilities 70 126
current ratio = CA/Cl 0.342857143 0.6031746
Liquid ratio
24 76
Current Assets 24 76
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Inventory - -
Current Liabilities 70 126
liquid ratio =quick assets/ current liabilities 0.342857143 0.6031746
MARKET BASED RATIO 2016 2017
EPS (LOSS) 0.07 0.05
Debt Ratio 2016 2017
TL 84 216
TA 117 293
TL/TA 0.295584784 0.2078037
PROFITABILITY RATIOS
Net Profit Margin
2016 2017
Net Income 12 12
Sales Revenue 242 314
Net Profit Margin [(Net Profit after tax/Sales Revenue)*100] 4.95867769 3.82165605
Gross Profit Margin
2016 2017
Gross Income 242 314
Sales Revenue 242 314
Gross Profit Margin [(Gross Profit /Sales Revenue)*100] 100.00 100.00
Efficiency Ratio
Working capital ratio 2016 2017
Current Assets 24 76
Current Liabilities 70 126
Working capital ratio 0.34285714 0.6031746
Asset Turnover ratio
2016 2017
Sales Revenue 242 314
Average total assets 117 205
Asset Turnover ratio = sales/ Avg total assets 2.06837607 1.53170732
Market Value ratio
EPS (LOSS) 0.07 0.05
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Book value per share 0.06 0.17
21