Company Performance Analysis: Origin Energy

Company Performance Analysis: Origin Energy
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Abstract
This report has been prepare din the context of examining the annual reports of a selected
ASX listed entity over the past three financial years. As such, it has initially discussed the
operation and comparative advantage of the selected company. It has them undertaken the
examination of its financial performance over the period by calculation and interpretation of the
profitability and operational efficiency ratios. The sensitivity analysis has also been done to
evaluate the market sensitivity of the company. This is followed by calculation of dividend
payout ratio, identification of marketable securities and examination of the systematic and
unsystematic risks related with the business operations. It has been indicated that the company is
not in a good state of profitability in the present and is not recommended to the investors to
invest within the company on the basis of its dividend payout and earnings per share ratio.
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Contents
Part I: Introduction...........................................................................................................................4
Part II: Financial Analysis of selected company (All these parts will provide in detail in complete
file)...................................................................................................................................................4
2.1: Description of the company..................................................................................................4
2.2: Use of Ratio Analysis to evaluate the financial performance of Origin Energy..................5
Profitability Ratios of Origin Energy.......................................................................................5
Operating Efficiency Ratios.....................................................................................................8
2.3: Management of cash through of marketable securities by Origin Energy..........................10
2.4: Sensitivity Analysis of the given data.................................................................................11
2.5: Risk Analysis (Systematic and Unsystematic Risk)...........................................................16
Systematic risks......................................................................................................................17
Unsystematic risk...................................................................................................................18
2.6: Dividend Payout Ratio and dividend policy adopted by Origin Energy............................19
Part III: Recommendation Letter...................................................................................................19
Part IV: Conclusion.......................................................................................................................20
References......................................................................................................................................21
Appendix........................................................................................................................................22
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Part I: Introduction
Potential investor’s require detailed examination of the company financial performance
before making the valuable decision of investing the funds and becoming the shareholder. In
order to analyse the company financial performance there is need to evaluate lot of financial data
present in the annual reports of the company. It is the responsibility of company’s management
to prepare and publish their annual reports so that investors can use them for analyzing the
financial performance of the company. Investment decision requires investing of current funds
into the long term project to earn the best holding period returns and it is the reason why
evaluation of financial information becomes very important for success of such investment
opportunities. The conception of financial information implies all such information that have
been presented in the audited financial statements of an organization that can be used to ascertain
the financial performance and financial position of such company which investors seeks to make
investment. So it is highly important that appropriate financial tool must be used to evaluate the
financial performance of the company.
The purpose of this report is to analyse the financial performance of one of company
listed on ASX. The aim is to provide the investment advice to potential the investor who seeks to
make investment in the selected company. The company selected for the purpose of analysis is
Origin Energy. Origin Energy deals electricity, natural gas, solar, and LPG and this company is
listed on ASX. Comprehensive examination of the firm’s financial performance has been
performed based on the latest financial statements of Origin Energy. Annual reports of last three
years has been extracted from the investor’s relation section of the company and based on that
financial analyse has been performed. Financial tools used to evaluate the financial statements of
Origin Energy include ratio analysis, cash management analysis, risk analysis and dividend
performance.
Part II: Financial Analysis of selected company (All these parts will provide in detail in
complete file)
2.1: Description of the company
Origin Energy is a publicly listed energy company of Australia that has been
headquartered within Sydney and is traded on Australian Stock Exchange (ASX). It is an
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integrated energy company that is involved in large-scale exploration, production, generation and
sale of energy product and services to domestic and commercial use within Australia. The core
business activities of the company include retailing of energy products and supplying the
customers electricity, natural gas, LPG and solar. It is also involved in creating renewable energy
and as such is continually seeking investment within wind, solar and storage technologies. It is
also emphasizing towards exploring the reserves of natural gas for developing it as a future
source of energy (Who we are: Origin Energy, 2017).
The company has attained a leading position within the energy sector of Australia
involved in providing electricity to about 4.2 million customers. It aspires to attain number one
position within the renewable energy sector of Australia by continuously focusing on reducing
its carbon footprint through investing in exploration and creation of renewable energy products.
It has launched its carbon reduction scheme within the year 2007 to achieve reduction in its
carbon emission and ensuring the environment protection. In this context, it has also acquired
Eraring Energy, the largest power station of Australia and its cogeneration business provides
low-carbon energy products to the customers within Victoria. The geographic foot print of the
company extends to Australia and New Zealand. The company is a recognized member of the
‘We Mean Business’ coalition that emphasizes on taking adequate action on climate change. IT
has also become the first energy company within Australia in the financial year 2015 to sign up
seven commitments in regards to climatic changes. The progress made by the company in the
key areas for monitoring the climatic changes has been provided within the public disclosures.
The progress made by the company in reducing its carbon footprint and developing energy
products through renewable sources have enabled it to gain competitiveness within the energy
sector of Australia. The natural gas portfolio of the company also enables it to achieve a core
competency within the energy sector of Australia (Who we are: Origin Energy, 2017).
2.2: Use of Ratio Analysis to evaluate the financial performance of Origin Energy
Profitability Ratios of Origin Energy
Financial Data used to calculate profitability ratio
Financial Items 2015 2016 2017 2018
Amount in $ Million
Net profit after tax $ $ $
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(576.00) (2,223.00) 221.00
Net Sales
$
11,923.00
$
13,646.00
$
14,604.00
Shareholder's equity
$
14,159.00
$
14,530.00
$
11,418.00
$
11,828.00
Average shareholder's
equity
$
14,344.50
$
12,974.00
$
11,623.00
Total Assets
$
33,367.00
$
28,898.00
$
25,199.00
$
24,257.00
Average total assets
$
31,132.50
$
27,048.50
$
24,728.00
Profitability Ratio
Ratios Formula 2016 2017 2018
Net profit ratio Net profit/Sales -4.83% -16.29% 1.51%
Return on equity
Net profit after
tax/Average shareholder's
equity
-4.02% -17.13% 1.90%
Return on total assets Net profit after
tax/Average total assets -1.85% -8.22% 0.89%
(Origin Energy: Annual Report, 2016); (Origin Energy: Annual Report, 2017) and (Origin
Energy: Annual Report, 2018)
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