Thorn Group Limited Investment Recommendation

This assignment presents a comprehensive analysis of Thorn Group Limited, focusing on its financial health, profitability, and risk factors. The writer evaluates the company's restructuring efforts and recommends including it in an investment portfolio based on its projected returns from the Radio Rentals business. The report cites relevant financial data, industry research, and academic references to support its arguments.

Running head: FINANCE FOR BUSINESS - MASTERS
Finance for business - Masters
Name of the university
Name of the student
Authors note

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FINANCE FOR BUSINESS - MASTERS
Table of Contents
Description of company:...............................................................................................................2
Ownership and governance structure of company:...................................................................2
Calculation of performance ratios:..............................................................................................3
Two graphs with the description of results:................................................................................4
Significant factors influencing the share price of Thorn Group:..............................................5
Calculation of Beta values and expected rate of returns:..........................................................5
Weighted average cost of capital:.................................................................................................5
Debt ratios for the past two years:...............................................................................................7
Dividend policy:.............................................................................................................................8
Letter of recommendation:...........................................................................................................8
References list:.............................................................................................................................10

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FINANCE FOR BUSINESS - MASTERS
Company Background:
The company that has been chosen for the purpose of the report is Thorn Group Limited.
The company had been established in the year of 1937 and had been Australia’s one of the top
financial service providers. This corporate entity aims to provide a vast range of financial
solutions for the purpose of meeting up to the growing demands of niche consumer and that of
the consumer markets. The core activities of the company range within the scope of developing
working capital and growth capital financial solutions for the small and medium sized
enterprises. It has been operating in a competitive market with Radio Rentals being a market
leader in terms of household goods and consumer leasing market (Thorn.com.au. 2018).
A particular event in the history of the company that provides a picture into the company
is that the company became an ASX listed company in the year of 2006. However, the
fundamental business of the company around which the business evolved is Radio Rentals,
which opened its first store in 1937. Radio Rentals then gradually became a household name
(Thorn.com.au. 2018).
Ownership and governance structure of company:
The names of the substantial shareholders that have been listed in the register of the
company for the financial year ended, 31st May, 2016 are as follows:
 Investor Mutual Funds – the percentage of issued capital that the entity holds is 7.62%
 Vinva Investment Management Limited – the percentage of issued capital that the entity
holds is 6.07%
 IOOF Holdings Limited – the percentage of issued capital that the entity holds is 5.94%

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FINANCE FOR BUSINESS - MASTERS
There have been no substantial shareholders, who hold more than 20% of the
shareholdings (Thorn.com.au. 2018).
The main people of the organization are as follows:
 The chairman – Joycelyn Morton
 The Board of Director – the directors of the company are Andrew Stevens, Peter
Hinley, David Foster, Oycelyn Morton, Jamed Marshall and Stephen Kulmar
 CEO – James Marshall
None of the shareholders had the same surname as any of the substantial
shareholders. Moreover, all the substantial shareholders have been corporate
entities
Performance Ratio Computation:
Trend
Particulars` 2013 2014 2015 2016 2013 2014 2015 2016
Net Profit/(Loss) after
Tax (NPAT) A
2802
1
2815
1
3059
3
2005
9
100.0
%
100.5
%
109.2
% 71.6%
Total Assets (TA) B
2213
56
2524
50
3764
67
4458
94
100.0
%
114.0
%
170.1
%
201.4
%
Ordinary Equity (OE) C
1553
73
1716
20
1894
88
1975
33
100.0
%
110.5
%
122.0
%
127.1
%
Total Liabilities D
6598
3
8083
0
1869
79
2483
61
100.0
%
100.0
%
231.3
%
307.3
%
Return on Assets (ROA)
E=
A/B
12.66
%
11.15
%
8.13
%
4.50
%
100.0
%
88.09
%
64.20
%
35.54
%
Return on Equity (ROE)
F=A/
C
18.03
%
16.40
%
16.15
%
10.15
%
100.0
0%
90.95
%
89.52
%
56.31
%
Debt Ratio
G=D
/B 0.298 0.320 0.497 0.557
100.0
0%
107.4
1%
166.6
2%
186.8
6%

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FINANCE FOR BUSINESS - MASTERS
The variable TA indicates total assets and variable OE indicates ownership equity and
these two variables are interrelated with ROA and ROE. An increase in total value of assets with
value of net profit remaining same indicates that there will be reduction in return on assets as
they are not utilized efficiently for generating profits. An increase in value of assets with profit
remaining same will generate lower debt equity ratio and therefore, there will be higher return on
equity. Therefore, the value of ROE and ROA is determined by the total value of assets and total
value of equity.
From the above table, it can be seen that return on equity (ROE) is greater than return on
assets (ROA) for all the four years. Both the concepts depict the efficiency of organization in
using resources for generating assets. Return on equity is less than return on assets because of
lower value of total ordinary equities compared to total value of assets. A healthy organization
always has total value of assets more than total equity because the values of assets are more than
equity when liabilities of organization have reduced
Two graphs with the description of results:
12/1/2015
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
Stock Price Movement
Thorn Group All Ord Index

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FINANCE FOR BUSINESS - MASTERS
As can be observed from the above prepared graph which reflects or compares the
movements in the share price index of the company to All Ordinary Index, a small change in the
All Ordinary Index has led to a large change in the share price index of the company. This means
that the shares of the company are volatile to a high degree. This is because a rise by nearly 5%
of the All Ordinary index leads to a rise in the share price index of Thorn Group Limited by
nearly 9%. This is evident from the above graph.
Significant factors influencing the share price of Thorn Group:
The significant factors that have been influencing the share price of Thorn Group is that
the debt of the company have been unprecedentedly high and has been reflecting an upward
rising trend from the past five financial years. The financial health of the company has not been
at par with the industry standards. Moreover, the firm has failed to derive the advantages of
financial leveraging thus, the share price of Thorn Group has been influenced in a negative way.
Beta and Rate of Returns of the company:
Particulars Amount
Beta of the company A 0.19
Risk Free Rate B 4%
Market Risk Premium C 6%
Required Rate of
Return D=B+[AxC] 5.14%
Trend
Particulars` 2013 2014 2015 2016 2013 2014 2015 2016
EBIT A
4259
5
4310
5
4883
7
3898
1
100.0
0%
101.2
0%
114.6
5%
91.52
%
Total Assets B
2213
56
2524
50
3764
67
4458
94
100.0
0%
114.0
5%
170.0
7%
201.4
4%

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FINANCE FOR BUSINESS - MASTERS
Net Profit/(Loss) after
Tax (NPAT) C
2802
1
2815
1
3059
3
2005
9
100.0
0%
100.4
6%
109.1
8%
71.59
%
Owner's Equity D
1553
73
1716
20
1894
88
1975
33
100.0
0%
110.4
6%
121.9
6%
127.1
3%
Return on Equity
E=(A/
B)x(C/A)x
(B/D)
18.0
3%
16.4
0%
16.1
5%
10.1
5%
100.0
0%
90.95
%
89.52
%
56.31
%
Weighted average cost of capital:
Particulars Amount
Weightag
e Cost
Return
Rate
Tax
Rate WACC
Total Long Term Debt 197873 50.04% 6512 3.29%
30.00
% 1.15%
Total Equity 197533 49.96% 5.14% 2.57%
TOTAL 395406 100% 3.72%
Conservative investment refers to that strategy of investment that aims at the preservation
of the portfolio value of the investment by investing in securities that carry lower risks such as
money market securities and the equities that are in the nature of large capitals.
Thorn Group Limited on the other hand makes use of conservative investment. This is
evident from the fact that the company makes no mention of investment in securities in its annual
reports. The substantial investments that have been undertaken by the company are the
improvements in the corporate governance structure of the company by the appointment of the
Chief Risk Officer. The further purchases that have been done by the company in the financial
year of 2016 increased the purchase ledger book by 35 percent with $12 million of purchases.
There has also been a mention of an investment in the unrated notes which is evident enough to
deduce the conclusion that the firm deals in conservative investment strategy (Jault 2015).

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FINANCE FOR BUSINESS - MASTERS
The implications that a higher WACC has on management evaluation on prospective
investment projects can be understood by the better understanding of the usefulness of the
Weighted Average Cost of Capital. The Weighted Average Cost of Capital is an important
financial tool in the hands of the management and can be evidently used for the computation of
the important metrics like the net present value. From the perspective of the management of a
company, the weighted average cost of capital refers to the blended cost that the company will
have to pay for utilizing the capital of the owners and the third party borrowers. To be more
precise, it refers to the minimum amount of return that should be ensured by the company for the
creation of value for the investors (Bodie,Kane and Marcus 2014).
A high weighted average cost of capital signifies that the investment project has higher
degrees of risk associated with them. This will result in the investors wanting more returns in
order to compensated for the assumed risks. Therefore, the implication of higher WACC implies
that there is a greater amount of risk to be assumed along with a increased amount of returns
from an individual investment project (Chandra 2017).
Debt ratios for the past two years:
There has been enough debt that has been incurred by the company over the past two
years. The debts that have been borrowed by the company amounted to a total of $240,000 for
the financial year of 2016 and $210,000 for the financial year of 2015. Furthermore, it has been
stated in the annual report of the company that the senior non-securitized debt increased from
$84 million to $116 million in the fiscal year of 2016. The debt ratios that have been computed
in this particular study for the consecutive financial year of five years represent an increasing
trend. This signifies that the total liability of the company has been increasing continuously
which is not at all healthy for business. This evidently proves that the debt structure of the

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FINANCE FOR BUSINESS - MASTERS
company has not been stable and that there is no established optimal structure for controlling the
amount of incurred debt by the organization (Cosio, Estrada and Kritzman 2015).
The gearing ratio of the company reflects an increased value of 53.2 % from 38.7%. this
means that the company has involved itself in borrowing more debts which has resulted in a rise
in the gearing ratio for the financial year of 2016. However, it has been mentioned in the annual
report of the company that the increase in the gearing ratio has been due to the funding of the
contribution of the company to the securitized vehicle in regards to equipment finance.
Furthermore, the company makes the payment or meets up to all the debt covenants as and when
they become due. It should be noted here that there have been no disclosures in the financial
report in regards to the financial instruments utilized for the repayment of the debts (Kashyap
2016).
Dividend policy:
There has been no dividend policy that has been mentioned in the annual report of the
company for the financial year of 2016. It is very important for a firm to have a dividend policy
of its own. A dividend policy of a company refers to the disclosure in the financial report of a
particular company that efficiently states the percentage of income that a company is ready to
pay out as dividends. An optimum dividend policy is the one, which adds to the value of the
firm. The absence of a particular dividend policy for thorn Group Limited indicates the fact that
the firm has been dealing in loss for the financial year of 2016 (Aouni,Colapinto and La Torre
2014).
Letter of recommendation:
Dear ABC,

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FINANCE FOR BUSINESS - MASTERS
Queensland
Australia
Respected Sir,
This letter is intended to list out the potential factors of the organization, Thorn Group
limited that make it worthwhile to be included in your investment portfolio. It is with much
motivation that I am willing to recommend Thorn Group Limited. The financial proceeding of
the firm though does not reflect any huge amount of profits gained by the company, I have been
an investor in the company and I have obtained enough returns from selected investment venture.
It is accepted that the returns from the company has not been high enough but they represent a
stable trend and ensure a continuous flow of income (Bi and Wu 2017).
It has been evident from the above discussions that the company lacks a proper debt
structure, which has resulted in unrestricted incurrence of debt that has in turn led to an
unprecedented rise in the total liabilities of the firm. This phenomenon is evident from the debt
ratio that has been computed in this particular project. However, it can also be concluded that the
establishment of an optimal debt structure will enable the business to enjoy the benefits of
financial leveraging that will ultimately lead to higher returns (Bonelli and Bossy 2017).
Moreover, it should not be forgotten that, Radio Rentals, the primary business of Thorn
Group Limited represents huge profitability and in all probabilities will result on optimum
returns from the undertaken investments.
The company as revealed in the financial is undergoing huge restructuring, including the
appointment of a risk officer. Thus, the issue of high risks associated with the investment will be,
in all probabilities, resolved (Kranner, Stoughton and Zechner 2017).

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FINANCE FOR BUSINESS - MASTERS
Thus, it is highly recommended that the organization Thorn Group Limited should be
included in your investment portfolio.
Thanking you,
ABC
Investment Company

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FINANCE FOR BUSINESS - MASTERS
References and Bibliography:
Aouni, B., Colapinto, C. and La Torre, D., 2014. Financial portfolio management through the
goal programming model: Current state-of-the-art. European Journal of Operational Research,
234(2), pp.536-545.
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Bonelli, M. and Bossy, M., 2017. Portfolio Management with Drawdown Constraint: An
Analysis of Optimal Investment.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Cosio, R.M., Estrada, J. and Kritzman, M., 2015. New Frontiers in Portfolio Management.
Jault, J.B., 2015. Investment Portfolio Management.
Kashyap, R., 2016. The Circle of Investment: Connecting the Dots of the Portfolio Management
Cycle... arXiv preprint arXiv:1603.06047.
Kranner, S., Stoughton, N. and Zechner, J., 2017. A Natural Experiment in Portfolio
Management.
Lashley, G., Parker, G., Singh, S., Wise, J. and Polwitoon, P., 2017. Managing Your Investment
Portfolio: All Things ETF.
Magazzini, L., Pammolli, F. and Riccaboni, M., 2016. Real Options and Incremental Search in
Pharmaceutical R&D Project Portfolio Management. Creativity and Innovation Management,
25(2), pp.292-302.

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FINANCE FOR BUSINESS - MASTERS
Schyns, P.F.M., 2016. The technological future of the wealth management industry for portfolio
management investment services (Bachelor's thesis, University of Twente).
Editorial, R. (2018). ${Instrument_CompanyName} ${Instrument_Ric}
Quote| Reuters.com. [online] U.S. Available at:
https://www.reuters.com/finance/stocks/overview/TGA.AX [Accessed 25 Jan.
2018].
Thorn.com.au. (2018). Available at:
http://www.thorn.com.au/irm/PDF/2165_0/AnnualReporttoShareholders2016
[Accessed 25 Jan. 2018].
Bi, F. and Wu, W., 2017, July. Research on portfolio management of university education funds
taking harvard university for example. In Industrial Economics System and Industrial Security
Engineering (IEIS'2017), 2017 4th International Conference on (pp. 1-5). IEEE.