Financial Analysis of Caltex Australia: Profitability, Efficiency, and Cash Management

Finance for business - Masters
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Abstract
This report has been undertaken to examine the financial performance of selected ASX
listed entity, that is, Caltex Australia. The financial performance as examined through the use of
analysis of ratios, cash management, sensitivity, dividend payout, systematic and unsystematic
risks ahs reflected that the company is presently not in a high state of growth and development, It
has weak profitability, cash management and efficiency position and therefore an investor need
to examine the future financial performance before taking any significant investment decision.
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Contents
Abstract............................................................................................................................................2
1. Introduction..................................................................................................................................4
2. Financial Analysis of Caltex Australia........................................................................................4
2.1: Description of the Company.................................................................................................4
2.2: Use of Ratio Analysis to evaluate the financial performance of Caltex Australia...............5
2.3: Cash Management Analysis...............................................................................................10
Part 2.4: Application of capital budgeting and sensitivity analysis...........................................11
2.5 Identification and Discussion of Systematic and Un-systematic Risk Impacting the
Performance of Caltex Australia...............................................................................................16
Unsystematic Risk.....................................................................................................................16
Systematic Risks........................................................................................................................17
Part 2.6: Calculation of dividend payout ratio and identification of dividend policy of Caltex
Australia Limited.......................................................................................................................19
3. Recommendation Letter.............................................................................................................21
4. Conclusion.................................................................................................................................22
References......................................................................................................................................23
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1. Introduction
The purpose of the present report is to develop an understanding of the methods used in
conducting financial analysis of a selected listed company within ASX. The financial analysis
has been performed through evaluation of the financial statements of the selected company. The
overall financial evaluation of the selected company is done for proving suggestions to
institutional investors for investing within the Australian market. The recommendations provided
through report will assist the investors to take correct investment decision based on the financial
outcomes of the company.
The ASX listed entity selected for financial evaluation purpose is Caltex Australia, a
transport based fuel supplier and convenience retailer of Australia. The report, in this context,
has performed financial analysis of the selected company through the use of ratio analysis,
evaluation of its cash management, performing sensitivity analysis, identifications of the
systematic and unsystematic risks and examination of its dividend policy. The recommendation
letter is provided to the institutional investors on the basis of overall evaluation conducted and
lastly the findings obtained are summarized in the conclusion section of the report.
2. Financial Analysis of Caltex Australia
2.1: Description of the Company
Caltex Australia Limited is a recognized Australian based Transport Company involved
in providing fuel and operates convenience stores across Australia. The core activities of the
company consist of purchasing, distributing and marketing of petroleum based products and also
operating its convenience stories. It is an ASX listed entity that has attained a leading position in
meeting the fuel needs within Australia. It has developed a flexible supply chain that has enabled
it to develop high quality fuel products to its diverse number of customer segments such as retail,
mining, agriculture, aviation, marine and automotive sector. In addition to this, it is also
recognized to be prominent convenience retailers within the country. It is only fuel and
convenience retailing company of Australia that is listed on the ASX. It has attained a unique
position among the refiner and marketers in Australia on the basis of carrying out its operations
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in an independent manner and all the decision-taking is with management and the Board (Caltex
Australia: Our Company, 2019).
2.2: Use of Ratio Analysis to evaluate the financial performance of Caltex Australia
Profitability Ratios of Caltex Australia
Financial Data of Caltex Australia for calculation of Profitability Ratio
Financial Items 2015 2016 2017 2018
Amount in $ Thousands
Operating profit
$
811,350.00
$
934,953.00
$
930,497.00
$
819,969.00
Net profit after tax
$
522,621.00
$
610,480.00
$
620,752.00
$
561,590.00
Net Sales
$
19,926,546.00
$
17,933,201.00
$
16,285,810.00
$
21,731,342.00
Shareholder's equity
$
2,787,805.00
$
2,810,215.00
$
3,107,901.00
$
3,389,064.00
Average shareholder's
equity
$
2,799,010.00
$
2,959,058.00
$
3,248,482.50
Total Assets
$
5,104,741.00
$
5,302,734.00
$
6,355,220.00
$
6,727,623.00
Average total assets
$
5,203,737.50
$
5,828,977.00
$
6,541,421.50
Profitability Ratio of Caltex Australia
Ratios Formula 2016 2017 2018
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Operating Profit Ratio
Operating
Profit/Sales 5.21% 5.71% 3.77%
Net profit ratio Net profit/Sales 3.40% 3.81% 2.58%
Return on equity
Net profit after
tax/Average
shareholder's equity
21.81% 20.98% 17.29%
(Source: Caltex Australia: Annual Report, 2016, Caltex Australia: Annual Report, 2017; &Caltex
Australia: Annual Report, 2018)
2016 2017 2018
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
5.21% 5.71%
3.77%3.40% 3.81%
2.58%
21.81% 20.98%
17.29%
Profitability Ratio of Caltex Australia
Percentage
(Source: Caltex Australia: Annual Report, 2016, Caltex Australia: Annual Report, 2017; &Caltex
Australia: Annual Report, 2018)
The profitability position of Caltex Australia can be analyzed by the use of following ratios:
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