Financial Analysis of A2 Milk: Performance, Ratios, NPV

This assignment analyzes the overall performance of A2 Milk, including financial analysis, ratios, and NPV calculation. It also provides recommendations and conclusions.

Running Head: FINANCE 0
Finance
(Student Name)

FINANCE 1
Table of Contents
Introduction......................................................................................................................................2
Financial Analysis of A2 Milk........................................................................................................2
Analysis of A2 Performance through Ratios...............................................................................3
Non- Current Asset Analysis.......................................................................................................4
Calculation of NPV......................................................................................................................5
Latest Shares and Bonds Issue by A2 Company..........................................................................8
PE Ratio....................................................................................................................................9
Share Price Movement.............................................................................................................9
Recommendations..........................................................................................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

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Background of the Company
A2 Milk is one of the foremost companies in the international marker. It is considered as the fast
growing consumer group organization that offers product related to the milk which is available to
Australian as well as New Zealand nation. The company as established in the year 2003 as well
as has settled to shape a share market for fair finished 3.5% (Pal et al., 2015). The main
competitive advantage of the company is it delivers pure dairy mark that is fully natural as well
as addictive free. A2 Milk Company of Australia is one of the main creators of A2 milk,
newborn method as well as other dairy products that is supplied in the local with the international
market. The company has headquartered in Sydney, Australia. A2 Milk Company is the heir of
A2 Corporation Limited. The main focus of the organization was on the breeding program of
dairy program for the development of herds that will be producing for A2 Milk (A2 Milk, 2019).
Purpose
The main purpose of this assignment is to analyze the overall performance of the company and
its growth and challenges that is faced by the organization. Furthermore, with the help of the
analysis it can be easily analyze the opportunities that are waiting for the organization and threats
that are included in the market to the certain extent.
Findings
In the following part there will be detailed analysis of the overall performance of A2 Milk in
which the profit or the revenue that is earning form the market will be analyze with the liabilities
that will required to pay by the organization will be analyzed in such report. With the help of
NPV, planning for the project can be analyzed in a proper manner with the issuance of share in
the market will be analyzed in the market.
Financial Analysis of A2 Milk
A2 milk is one of the companies that deliver product which is wholly related to the milk. A2
Milk is ironic in A2 Beta casein protein in which the revenues it’s one of very rare makes of milk
that is allowed of the A1 beta casein. The main corporate model of A2 Milk is to majorly
emphasis on the customer fronting goods with a target on the functional food market were a first-

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class can also be generated. The customers have been obtainable pure 100% A2 shaped milk that
has no jeopardy of wellbeing subjects; greater fascinated casein-protein as well as can assists
with the peptic happiness while partaking an obvious real milk taste. A2 milk is considered as
the premium as well as healthier product that aim in digestion as compared to rest of the milk
(Nystrom and Winston, 2016). In the year 2007, the selling of the A2 milk enhanced with the
great speed in Australia as well as New Zealand. It is the milk that is acquired from specific
breeds as well as varieties of cows which helped in producing the beta casein protein in their
milk with a protein at number 67. It contains more nutrients as comparison to the regular milk
due to the reason it compromise of nutrients including potassium, calcium, protein as well as
vitamin D (Esty and Fisher, 2019).
Analysis of A2 Performance through Ratios
Calculation of ratios Horizontal Analysis
Capital Structure Ratios 2019 2018 2017
Debt to Total Assets
Total debt 0.21 0.22 0.30
Total Assets
Proprietary Ratio
Proprietors Funds 0.79 0.78 0.67
Total Assets

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Debt to Equity Ratio
Debt 0.26 0.29 0.42
Equity
Liquidity Ratios 2019 2018 2017
Current Ratio
Current assets 3.29 3.12 2.52
Current Liabilities
Quick Ratio
Quick assets 2.76 2.72 2.25
Current Liabilities
Cash Ratio
Cash+ Bank Balance+ Marketable
securities 0.94 0.96 0.89
Current Liabilities

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In order to analyze the capital structure as well as liquidity of the company, it can be found that
the company grows efficiently from the year 2017 to 2019. the liquidity ratio of the company
represent that the assets of the organization increase every year by 2.52 to 3.29 that showcase
that the company do not highly rely on the loans and other debts to run the business. The quick
ratio represent that the company has sufficient amount that can be liquid quickly. The cash ratio
of the company represents. The cash ratio of the company shows that the company has low cash
in hand that can create an issue for the organization while they need the amount in urgency,. The
liabilities of the company is high than the liquid cash (ASX, 2019).
Moreover, in order to analyze the capital structure of the organization, it represent that the assets
of the company is higher than the debt at every situation. It is one of the positive aspects for the
company as they are not highly relying on the market for debt. The company has also not raise
the amount by issuing the shares that showcase that the earning of the business is advanced than
any other businesses to the certain extent. The debt to total-assets showcase that the debt of the
organization is low and the total assets of the company is high. Therefore, it can have the
probability for the organization to raise the funds to the certain extent. The proprietary ratio
showcase that the shareholder of the organization is low than its total assets that showcase that
the company has vacant assets that is required to be invested to raise the funds and earn
maximum revenue of the organization to the certain extent. Debt equity ratio represent that the
organization raise its funds majorly from equity rather than from debt which increase the sharing
of the profits to the certain extent.
Therefore, both ratios showcase that the company is growing from years to years and it less rely
on the debt and equity that make the company more strong other than competitive companies. It
makes the company more competitive in the market to the certain extent. The company has an
option to raise its funds through debt and can also issue the shares to raise the funds in an
effective as well as efficient manner.
Non- Current Asset Analysis
Non-Current Assets 2019 2018 2017

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Long Term Investment 286807 186862 62049
Property Plant & Equipment 10296 9701 8358
Goodwill 7957 10209 10041
Intangible Assets 4363 4080 2192
Other Assets 8348 5664 3002
Deferred Long-Term Assets 7683 4861 1954
Total Non-Current Assets 325454 221377 87596
Non-current assets are the assets other than current assets. Therefore, the non-current assets of
the company A2 Milk are increases and decreases to the certain extent. The long term investment
of the organization increases every year from 2017 to 2019. The property plant as well as
equipment of the company is also enhanced every year. However, the goodwill of the
organization decrease in the year 2019 while comparing to the goodwill in the 2018. It may
occur due to the certain reasons that may affect the overall performance of the company to the
certain extent. The intangible assets of the organization are also increases every year while
comparing it for the three years. It showcase that the company is growing in an effective and
efficient manner to the certain extent.
The depreciation method that is approved inA2 Milk while calculating the actual value of the
organization is straight line method. Such method is used by the organization every year that
make them ease to identify the actual value of its fixed assets to the certain extent.

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The depreciation moves the cost of an asset to Depreciation Expense during the useful life of the
assets. The account that is involved in the recording the depreciation is known as depreciation
expense. In order to analyze the operating cash flow of the organization, the depreciation is not
mention in the cash flow due to the main reason; the company has adopted direct method in its
organization (Annual Report, 2019).
Calculation of NPV
Calculation of net present value base value
0 1 2 3 4
Year 0 Year 1 Year 2 Year 3 Year 4
Cash inflows
Sales
revenu
e
11250000
.00
11250000
.00
11250000
.00
11250000
.00
Upgra
de
Total
Sales
11250000
.00
11250000
.00
11250000
.00
11250000
.00
Initial Outflow 2500000.

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00
Less: Cash
Outflow
Upgra
de
Variab
le
Cost
6750000.
00
6750000.
00
6750000.
00
6750000.
00
Fixed
Cost
450000.0
0
450000.0
0
450000.0
0
450000.0
0
Less: Working
Capital
800000.0
0
NPBDT
1700000.
00
4050000.
00
4050000.
00
4050000.
00
4050000.
00
Less:
Depreciation
2375000.
00
2375000.
00
2375000.
00
2375000.
00
NPBT
1675000.
00
1675000.
00
1675000.
00
1675000.
00
Less: Tax @ 30%
1215000.
00
1336500.
00
1336500.
00
1336500.
00
NPAT 460000.0 338500.0 338500.0 338500.0

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0 0 0 0
Add:
Depreciation
2375000.
00
2375000.
00
2375000.
00
2375000.
00
Add: Salvage
Value
800000.0
0
NPAT
2835000.
00
2713500.
00
2713500.
00
3513500.
00
12% discount rate 1.00 0.89 0.80 0.71 0.64
Present value
1700000.
00
410714.2
9
269850.1
3
240937.6
1
215122.8
7
NPV
2836624.
90
Calculation of
Depreciation
2500000-500000/4
2375000
Calculation of net present value base value (Best Scenario)

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0 1 2 3 4
Year 0 Year 1 Year 2 Year 3 Year 4
$ $ $ $ $
Cash inflows
Sales
revenu
e
16200000
.00
16200000
.00
16200000
.00
16200000
.00
Upgra
de
Total
Sales
16200000
.00
16200000
.00
16200000
.00
16200000
.00
Initial Outflow
2500000.
00
Less: Cash
Outflow
Upgra
de
Variab
le
Cost
5400000.
00
5400000.
00
5400000.
00
5400000.
00

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Fixed
Cost
350000.0
0
350000.0
0
350000.0
0
350000.0
0
Less: Working
Capital
800000.0
0
NPBDT
1700000.
00
10450000
.00
10450000
.00
10450000
.00
10450000
.00
Less:
Depreciation
2375000.
00
2375000.
00
2375000.
00
2375000.
00
NPBT
8075000.
00
8075000.
00
8075000.
00
8075000.
00
Less: Tax @ 30%
3135000.
00
3448500.
00
3448500.
00
3448500.
00
NPAT
4940000.
00
4626500.
00
4626500.
00
4626500.
00
Add:
Depreciation
2375000.
00
2375000.
00
2375000.
00
2375000.
00
Add: Salvage
Value
800000.0
0
NPAT 7315000. 7001500. 7001500. 7801500.

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00 00 00 00
12% discount rate 1.00 0.89 0.80 0.71 0.64
Present value
1700000.
00
4410714.
29
3688217.
47
3293051.
32
2940224.
39
NPV
16032207
.47
Calculation of net present value base value (Worst Scenario)
0 1 2 3 4
Year 0 Year 1 Year 2 Year 3 Year 4
$ $ $ $ $
Cash inflows
Sales
revenu
e
7200000.
00
7200000.
00
7200000.
00
7200000.
00
Upgra
de

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Total
Sales
7200000.
00
7200000.
00
7200000.
00
7200000.
00
Initial Outflow
2500000.
00
Less: Cash
Outflow
Upgra
de
Variab
le
Cost
8100000.
00
8100000.
00
8100000.
00
8100000.
00
Fixed
Cost
550000.0
0
550000.0
0
550000.0
0
550000.0
0
Less: Working
Capital
800000.0
0
NPBDT
1700000.
00
-
1450000.
00
-
1450000.
00
-
1450000.
00
-
1450000.
00
Less:
Depreciation
2375000.
00
2375000.
00
2375000.
00
2375000.
00

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NPBT
-
3825000.
00
-
3825000.
00
-
3825000.
00
-
3825000.
00
Less: Tax @ 30%
-
435000.0
0
-
478500.0
0
-
478500.0
0
-
478500.0
0
NPAT
-
3390000.
00
-
3346500.
00
-
3346500.
00
-
3346500.
00
Add:
Depreciation
2375000.
00
2375000.
00
2375000.
00
2375000.
00
Add: Salvage
Value
800000.0
0
NPAT
-
1015000.
00
-
971500.0
0
-
971500.0
0
-
171500.0
0
12% discount rate 1.00 0.89 0.80 0.71 0.64
Present value
1700000.
00
-
3026785.
71
-
2667809.
31
-
2381972.
60
-
2126761.
25

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NPV
-
8503328.
87
In order to analyze the scenario of the company, in the best situation, the NPV of the
organization is high at greater level. It show case that the company is performing well in the
organization in the case its sales and revenue enhance as well as at such situation, the company
can able to give great return to other as well as cam able to control over its cost in an effective
and efficient manner.
In the worst situation where the sales of the company decrease the NPV of the organization goes
down. It represent that the company is struggling with its operating activities that create great
loss to the organization to the certain extent. In order to analyze the best and worst scenario, the
difference in such NPV is huge it mean a little change in the flow of the organization can affect
the NPV of the organization at greater level.
Therefore, it can be concluded that the NPV of the organization is highly sensitive that can affect
the organization at greater level (Smit and Trigeorgis, 2017).
Latest Shares and Bonds Issue by A2 Company
The company has issued worth $1.26 million to the chief executive as well as to the managing
director of the company as a part of the deal to lure her away from her previous employer. The
shares were issued in the year 2019 and it was private placement. The company has reviewed
that the time based rights were granted as a one of transition benefits as compensation for the
forfeiture of the incentive that is entitlements from her former employer (McCauley and Shu,
2019). The company has also issued shares of $2970000 from the market. The floating cost that
occurs while issuing the snares was $41000 and $2929000. The issuance was successfully
completed by the organization in an effective and efficient manner. The issues of such securities

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help in raising the funds of the company to the certain extent as well as also help in managing the
organization an effective manner. It has adopted both method private issuing and public offering
to the organization that help in managing the business more appropriately. The debt equity ratio
of the company will decrease due to increase in the equity of the company (Shao and Ritter,
2018).
P/E ratio and Share Price of A2 Milk
The PE ratio of A2 Milk Ltd in the year 2017 is 65.90 that decrease to 41.22 in the year 2018as
well as that is further decrease to 34.91 in the year 2019. It is shown in the graph through which
it can be understand in more effective manner (Morning Star, 2019).
PE Ratio
Market Value Per Share
Earnings Per Share
PE Ratio 2017 2018 2019
= 65.9 41.22 34.91

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1 2 3
1980
2000
2020
2040
2060
2080
2100
=
PE Ratio
The graph represent that the market price of the company decreases from year to year that does
no show the positive sign of the company to the certain extent. The market price can be decline
with some reasons that can affect the overall profitability of the company at greater level.
Share Price Movement
Date Open High Low Close* Adj. close**
1-Sep-19 13.5 14.56 12.23 12.25 12.25
1-Aug-19 16.91 17.06 13.14 13.55 13.55
1-Jul-19 13.86 17.3 13.82 17.12 17.12
1-Jun-19 14.68 14.72 12.86 13.85 13.85
1-May-19 15.23 15.77 14.34 14.68 14.68
31-Mar-19 13.62 16.08 13.57 15.96 15.96

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28-Feb-19 13.65 14.38 12.85 13.62 13.62
31-Jan-19 12.13 14.23 11.8 13.77 13.77
31-Dec-18 10.32 12.14 9.93 12.08 12.08
30-Nov-18 10.1 10.68 9.81 10.32 10.32
31-Oct-18 9.72 10.49 9.16 9.81 9.81
1-Oct-18 10.3 10.49 8.14 9.72 9.72
1-Sep-18 11.33 11.84 10.18 10.24 10.24
1-Aug-18 9.6 11.91 9.26 11.5 11.5
1-Jul-18 10.52 10.91 9.45 9.6 9.6
1-Jun-18 9.7 11.41 9.4 10.52 10.52
1-May-18 11.36 12.39 9.19 9.93 9.93
31-Mar-18 11.46 12.58 10.83 11.31 11.31
28-Feb-18 12.21 13.21 11.26 11.46 11.46

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31-Jan-18 8.32 13.78 7.7 12.23 12.23
31-Dec-17 7.37 8.56 6.97 8.29 8.29
30-Nov-17 7.6 7.63 6.82 7.37 7.37
31-Oct-17 7.34 8.05 6.33 7.59 7.59
1-Oct-17 5.92 7.91 5.91 7.62 7.62
1-Oct-17
1-Nov-17
1-Dec-17
1-Jan-18
1-Feb-18
1-Mar-18
1-Apr-18
1-May-18
1-Jun-18
1-Jul-18
1-Aug-18
1-Sep-18
1-Oct-18
1-Nov-18
1-Dec-18
1-Jan-19
1-Feb-19
1-Mar-19
1-Apr-19
1-May-19
1-Jun-19
1-Jul-19
1-Aug-19
1-Sep-19
0
2
4
6
8
10
12
14
16
18
20
Open
High
Low
Close*
Adj. close**
The graph is showcase that the share price of the company is not fluctuating at higher level in the
year 2019. In the year 2018, it fluctuates to the certain extent and in the year 2017, it was at low
price as comparison to both years (Yahoo Finance, 2019).

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Recommendations
The overall performance of the company is going great. However, at the certain point it is
required for the company to focus over so that it can able to compete in the international market.
The recommendations are explained in the below points:
 It is highly recommended that the organization should invest its amount in the productive
market or the assets in the productive market that will help the company to use its assets
in more effective and efficient manner.
 Furthermore, it is required for the company to enhance its debt as it has been analyzed
that the company majorly rely on the equity rather than by raising funds from debt. It
enhances the overall cost of the company to the certain extent. Therefore, it is highly
required for the company to raise its funds from debt to control over the cost to the
certain extent that will help in enhancing the overall profitability of the company in an
effective and efficient manner.
 It is highly recommended that the company should maintain some cash in hand to cope
up from the challenge of emergency that will help the company to get ready for the
unforeseen factors to the certain extent.
 The NPV of the company is highly sensitive. Therefore, it is required for the organization
to focus over its overall cash inflow and out flow in an effective manner. A minor
fluctuation in such ratio can give loss or profit to the company at high degree.
Conclusion
From the above analysis, it can be concluded that a company is managing its business efficiently
to the certain extent. The company is majorly known for the milk related product that helps the
organization to grow in the international market to the certain extent. The company deliver
quality and premium product to its consumers. Its milk is free from A1 that contain protein and
vitamins to the certain extent. The company is successfully expanded its business in the
Australian and New Zealand market that enhance its revenue and growth in an effective manner.
In order to analyze the internal performance of the company, the funds of the company are
majorly based on equity rather than on debt. It enhances the cost of the company as well as
affects the revenue of the company to the certain extent. Moreover, the company manages its

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current liabilities and assets in an effective manner. The current liability of the organization is
low as well as the assets of the company is high that enhance the capital structure of the company
to the certain extent. Furthermore, the current NPV of the company is efficient. However, any
changes in the inflow or outflow of the company can affect its NPV to the certain extent. the
company has also issued new shares in the market. it has issued both public offering as well as
private placement that enhance the capital structure of the organization to the certain extent.
therefore, it is required for the company to adopt some of the strategies such as increase debt,
raising funds, managing liquidity that will help the organization to cope up from the challenges
that is actually faced by the company to the certain extent.

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References
A2 Milk. (2019) About Us [Online] Available from: https://thea2milkcompany.com/our-
businesses/ [Accessed on 25/09/19]
Annual Report. (2019) Financial Statement [Online] Available from:
https://thea2milkcompany.com/wp-content/uploads/The-a2-Milk-Company_FY19-Annual-
Report_double-pages-1.pdf [Accessed on 25/09/19]
ASX. (2019) Key Stastics [Online] Available from: https://www.asx.com.au/asx/share-price-
research/company/A2M/statistics/shares [Accessed on 25/09/19]
Esty, B. and Fisher, D. (2019) The a2 Milk Company. HBS Strategy Case, (719-424).
McCauley, R.N. and Shu, C. (2019) Recent renminbi policy and currency co-
movements. Journal of International Money and Finance, 95, pp.444-456.
Morning Star. (2019) Valuation of company [Online] Available from:
https://www.morningstar.com/stocks/xasx/a2m/analysis [Accessed on 25/09/19]
Nystrom, J. and Winston, D.R. (2016) A2 milk marketing and human health. Journal of Animal
Science, 94, pp.18-18.
Pal, S., Woodford, K., Kukuljan, S. and Ho, S. (2015) Milk intolerance, beta-casein and
lactose. Nutrients, 7(9), pp.7285-7297.
Shao, D. and Ritter, J. (2018) Closed-End Fund IPOs: Sold, Not Bought. Critical Finance
Review, 7(2), pp.201-240.
Smit, H.T. and Trigeorgis, L. (2017) Strategic NPV: Real options and strategic games under
different information structures. Strategic Management Journal, 38(13), pp.2555-2578.
Yahoo Finance. (2019) The a2 Milk Company Limited [Online] Available from:
https://in.finance.yahoo.com/quote/A2M.AX/history?