Capital structure analysis of AMP Limited

RUNNING HEAD: ACCOUNTING AND FINANCE
Capital structure analysis

Accounting and finance 2
Part B
Executive summary
The report provides an analysis of AMP Limited in terms of its capital structure and risk
management. It commences with a short introduction about the company and later on analyse the
current capital structure along with the WACC of the company. It is observed that the firm relies
more on equity and has low WACC as compare to its cost of equity. In the later part, the capital
structure is compared with CBA and significant changes in the same are identified. The report
also analysed the key financial ratios of AMP which suggested that the firm should minimize its
liquidity ratio and improve its profitability.
In addition, risks identified by the directors are explained and shows how they are addressed by
the company. It is observed that out of the seven material risks, AMP failed to manage three
risks during the year 2017. In the end the conclusion has been given including the findings of the
report.

Accounting and finance 3
Introduction
AMP Limited is an Australia based financial service company which is involved in the business
of providing financial services to the customers across the country. The company was founded in
1849 and got listed on ASX. It operates in Australia and New Zealand and deals in providing
superannuation and investment products, insurance and financial advice, home loans and others.
The report critically evaluates the capital structure of the firm and provides insights about the
fact that whether the company is able to maximize the shareholders’ wealth (Reuters. 2018).
Part 1
 Current capital structure of the firm
Amount Weight
Total
equity $7,283.00 79%
Total Debt $1,976 21%
$9,259.00 1.00
According to the annual report of 2017, the company has equity equal to 79% and debt
comprises of 21% out of the total debt and equity component. Having a high equity element
determines that AMP is less risky in financial terms and relies heavily on equity (Robb &
Robinson, 2014).
 Weighted average cost of capital
Particular
s Amount
Weights
(A) Cost of capital (B) A*B