Finance Portfolio Management

This assignment analyzes the financial performance and strategic position of AGL Energy Limited and Amcor Limited. It includes a discussion on liquidity ratio, efficiency ratio, leverage ratio, and profitability ratio. The Fama French Three-Factor Model is also applied to evaluate investment performance.

Running head: FINANCE PORTFOLIO MANAGEMENT
Finance Portfolio Management
Name of the student:
Name of the university:
Author Note:

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................3
Financial Ratio Analysis........................................................................................................4
Efficiency Ratio.....................................................................................................................6
Leverage Ratio.......................................................................................................................7
Profitability Ratio.................................................................................................................10
Business and Analysis of the Strategic Position..................................................................11
Conclusion................................................................................................................................15

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Introduction:
The research is conducted on the two chosen company which is further listed in the
Australian Stock Exchange which are the AGL energy limited which is energy based industry
and the other company is the Amcor limited which is the utilities based industry. The chosen
company for this assignment are from different line of industry and detailed analysis has been
made in the following study.

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Discussion:
AGL energy limited is the Australian listed company which deals with the generation
and transaction of electricity and gas for domestic and commercial purpose. AGL energy
limited further provides electricity, natural gas, and telecommunication facilities to
commercial and domestic clients in the south-east New South Wales and Australian Capital
Terrain. The sustainable growth of AGL energy limited all over the world shaped a value
addition of the business. The company retains most of electricity proposals obtainable for
South Australia clients, with the changes being the discounts and other circumstances. The
responsibility towards the corporate sustainability development is that AGL energy takes
certain actions about the wellbeing of the community and the environment.
Amcor limited is also listed in the Australian Stock Exchange which deals with the
packaging of materials which consists the flexible packaging, inflexible containers, specialty
cartons, closures and services for food, beverage and many other similar products. This
company provides major packaging solution all over the world and thus considered as one of
the global packaging company.
In the research study of both the company, it is needed to analyze the key financial
ratios of the two business in order to understand the financial performance of the business in
that case. Ratio analysis is an important instrument which is adopted by the business as a
dimension of the financial statement analysis of the company. The key ratios of the company
must be analyzed in order to understand the current and the past financial performance of the
business.

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Financial Ratio Analysis
The financial ratio analysis plays significant role in order to understand the financial
performance of the company from the annual report of the last three years which are the
2018, 2017 and 2016. The values and the figures have been taken from the consolidated
income statement and balance sheet of the company.
Liquidity Ratio
Liquidity ratio is one of the significant financial ratios which specify that whether the
current assets of the business are adequate to meet the short and the long term obligations of
the business when it becomes outstanding. Under the liquidity ratio there are two ratios which
are the current ratio and the quick ratios (Robinson et al. 2015).
The analysis of liquidity ratio of the business, the performance of the working capital
of the business can be examined which is further known as the display of liquidity. The term
liquidity refers to the ability of a company to covert assets into cash quickly and cheaply. A
higher liquidity ratio of the company indicates that more liquidity has improved exposure of
the outstanding debts in the business. The evaluation is done on the past three year’s annual
report.
Liquidity ratio of AGL energy LTD:

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From the above evaluation of the current ratio of AGL energy limited it can be
interpreted that as the standard of the current ratio is 1:1. This further means that the current
ratio of the company is satisfactory. This indicates that the company have the capacity to pay
off its current liabilities by utilizing the current assets. The ratio was at peak in the year 2018
which was about 1.61.
The quick ratio of AGL energy limited indicates that the capacity of the company in
order to meet the short term obligation in the business by excluding the inventories from the
current assets. The standard quick ratio is 1:1 which indicates the company’s performance in
terms of liquidity is good as the ratio is above the standard.
Liquidity ratio of Amcor LTD:
From the above evaluation, it can be said that the current ratio of the company is
below the standard and in that case the company needs to take certain measures in order to
improve the capacity to pay off the debts in that case.
From the evaluation of the quick ratio it can be said that the ratio needs major
improvements and further as per the analysis the liquidity position of the company needs to
be improved by taking certain measures.

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Efficiency Ratio
The efficiency ratio of the company measures the expenses which is stated as a
percentage of revenue. This ratio helps to analyze the efficiency of the company to use its
assets and liabilities internally. An efficiency ratio of the company is evaluated to find out the
turnover of the receivables, repayment of the liabilities, and usage of equity and further the
general use of the machinery and inventory (Barr and McClellan 2018).
Efficiency ratio of AGL energy LTD:
In case of the accounts trade receivables ratio of the company it can be said that if the
payment is received by the company within the 30 to 60 days from the client. The average
trade receivables of AGL energy LTD is good and it was higher in the year 2016. After that
the ratio constantly decreases which is needed to be taken care of the company.
The accounts payable ratio of the company measures the rate at which the company
pay off its suppliers. The prospect of the ratio is better which indicates payables of the

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company to its suppliers is good. From the above evaluation of the ratio it can be said that
accounts payable ratio is satisfactory (Shoup 2017).
Efficiency ratio of Amcor LTD:
The above evaluated ratio of Amcor LTD it can be said that the receivables ratio of
the company is good along with the payables of the company. But in term of payables the
company is taking more time to pay off its suppliers of the business.
Leverage Ratio
The leverage ratio of the company is one of the several financial instruments which
estimates the ability of a company to meet its financial obligations in terms of short and long
term. It is a significant ratio which further evaluates the financial risks associated in the
investment process (McKinney 2015).

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Leverage Ratio of AGL energy LTD:
The debt-to-equity (D/E) ratio is evaluated by dividing the company's total liabilities
by its shareholder equity. These numbers are accessible on the balance sheet of a business's
financial statements. The ratio is used to evaluate a company's financial leverage. Debt to
equity ratio of the company must be within 1 to 1.5 and above that the ratio signifies that
company is unable to generate cash in order to pay off the liabilities. Hence the management
needs to take certain measures to pay off in time.
The debt to asset ratio is a leverage ratio which evaluates the amount of total assets
which are further financed by the creditors instead of investors. In other words, it shows the
percentage of assets which is financed by borrowing in comparison with the percentage of
resources that are financed by the investors. Debt to asset ratio must be less than 1 which
means that the company’s ratio in that case is good as the company is able to pay off its debt
in time (Smith 2017).
Equity to total Asset ratio is expressed as a percentage which is evaluated by dividing
total shareholders' equity by the total assets of the organization, and it further signifies the
amount of assets on which shareholders have a remaining claim. The figures used to calculate
the ratio are taken from the company balance sheet. Equity to Total Assets Ratio of the
company is good as the return generated out of the total assets is higher of the company.

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Leverage Ratio of Amcor LTD:
From the above evaluation it can be said that debt to equity ratio of the company must
be within 1 to 1.5 and above that the ratio signifies that company is unable to generate cash in
order to pay off the liabilities. The debt-to-equity (D/E) ratio is evaluated by dividing the
company's total liabilities by its shareholder equity. The figures are accessible on the balance
sheet of a business's financial statements. The liabilities of the company is gradually
increasing resulting in the higher ratio of the company. Hence the management needs to take
certain measures to pay off in time (Sekhar 2017).
Debt to asset ratio must be less than 1 which means that the company’s ratio in that
case is good as the company is able to pay off its debt in time. The debt to asset ratio is
considered as the leverage ratio which further evaluates the amount of total assets which are
further financed by the creditors instead of investors. In other words, it shows the percentage
of assets which is financed by borrowing in comparison with the percentage of resources that
are financed by the investors. In case of debt to asset ratio of the company the performance of
meeting the debts out of the assets is satisfactory (Luo and Wu 2016).
Equity to Total Assets Ratio of the company shows that the company’s asset is backed
by the equity shares. Equity to total Asset ratio is further expressed as a percentage which is
evaluated by dividing total shareholders' equity by the total assets of the organization. The

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ratio further signifies the amount of assets on which shareholders have a remaining claim.
The performance of the company as per the analysis is good in that case (Renz 2016).
Profitability Ratio
The profitability ratio of the company measures the profitability position of the
company in terms of the returns generated out of the revenue utilized by considering the cost
of sales of the company (Libby 2017).
Profitability Ratio of AGL energy LTD:
The return on asset ratio of the company in the year 2016 is negative as the net profit
in that year is comparatively lower (Matthew 2017). After that year, the management of the
company took certain measures which further improved the profit of the business and in the
year 2018 the company’s profit is at top notch (Liang et al. 2018).
The return on equity of the company in the year 2016 was negative and in the year in
the 2018 the profitability of the company was also higher which means the management
system in that case is effective as per the evaluation (Kopmann et al. 2017).

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Profitability Ratio of Amcor LTD:
From the above evaluation of the profitability ratio of Amcor limited, the return on
asset ratio of the company is positive and the return is generally increasing and in the year
2018 it was higher (Finkler, Smith and Calabrese 2018).
The return on equity in the year 2017 which is much higher as the risk taken by the
management in this case is higher which resulted in the higher return on equity of the
company (Kaplan and Atkinson 2015).
Business and Analysis of the Strategic Position
The analysis of the two company which are the AGL energy limited and Amcor
limited have been identified and the financial position of the business have been analyzed by
taking the major tool which is the ratio (Grennan and Michaely 2018). The business of both
the company is good and in such a situation the management of the company needs to further
utilize the remaining value in order to bring more profit in the business. The current strategy
adopted by the company has been duly analyzed which is effective as the management of the
company is strong (Ehrhardt and Brigham 2016).

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The strategic management position has been analyzed which further means that which
managers and the higher authorities make certain choices regarding the strategies of the
organization in order to accomplish the objective of the company as a whole. The strategic
management analyses the ratio and further based on their model the management of the
company takes decision regarding further development. In such a situation there are certain
steps which are undertaken by the management of the company in order to achieve its
strategic goals (Burtonshaw-Gunn 2017).
Business Analysis is the method of empowering certain changes within an
organizational setting, by defining the requirements and endorsing solutions that deliver value
to stakeholders of the business (Fracassi 2016). The financial reports prepared by the
management of the company is used by the stakeholders in order to understand the current
financial position of the business. Based on the evaluation where the ratio analysis is used as
a tool where the stakeholders of the company takes decision at the time of handing the
significant projects to the organization (Bowman 2016).
Fama French three factor model on Investment
The Fama and French Three-Factor Model (or the Fama French Model for short) is
also known as the asset pricing model is further an expansion of the capital asset pricing
model (CAPM). Here the risk factor of the company is evaluated by tallying size and value
risk factors to the market risk factor in CAPM. This model deals with various detail that
worth and further adjust the small capital outperforming funds on a regular basis (Chandra
2017). This model is basically used in order to evaluate the performance of the managers of
an organization.
The model of the CAPM deals with the single factor which is beta to associate a
portfolio valuation within the market. In certain circumstances it will be better for the

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company, to add a regression model which further gives a better r-squared fit. The Fama
French three factor model was developed by Gene Fama and Ken French (Cucchiella and
Rosa 2015).
The Fama and French model being complied with the three factors which are the size
of companies, book-to-market standards and extra return which is generated from the market.
Further it can be said that the three aspects used in this model are SMB (small minus big),
HML (high minus low) and the portfolio's return by deducting the risk free rate of return.
SMB actually deals with the openly traded businesses with small market caps which further
produce advanced returns, while HML on the other hand deals with the value of the stocks
with high book-to-market ratios that generate higher returns in contrast to the current market
(Gitman, Juchau and Flanagan 2015).
The effect on equity by applying the three factor model is that in this model the risk
associated with the investment in equity has been analyzed. To evaluate the portfolio return
of the company the three factor model has been evaluated in such circumstances (John Vitalis
et al. 2018).
Professional Fund Manager
Ethical behavior in the management level plays significant role in the organization
where in such circumstances the managers manages the existing clients and also takes
investment decision (John Vitalis et al. 2018). The manager in the organization should follow
the basic policies accustomed to further ensure that professional behavior. Hence the basic
norms must be followed by the managers.
The basic behavior of the managers must be examined if there lies certain problems
then the company must revise the present policies regarding the behavior. The interest of the

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client’s interests should always be considered at first place which is above the position of the
managers. The management and all the investment decisions must be dealt with great care by
the upper level management of the organization. In order to achieve the organizational goals
in the capital market it is the responsibility of the managers to reflect the action taken by
them in the organization along with the impact created on the society as a whole.
Effective behaviors of the managers definitely creates impact on the overall
management of fund. It is significant to have ample knowledge regarding the investment
strategy which must be adopted by the organization. The fluctuation in the market price of the
company must be noticed by the managers while investing and steps must be taken
accordingly in such circumstances (Bodie, Kane and Marcus 2015).
There also exist the conflict of interests among the parties which must be strictly
avoided at certain cost. Managers must disclose all the matters related to the ability in order
to manage the assets of the clients fully, independently and objectively. It is hence the
responsibility of the managers to remove such kind of conflicts with the clients (Härdle, Chen
and Overbeck 2017).

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Conclusion
From the above discussion it can be concluded that in case of managing the portfolio
of the company certain tools and techniques must be adopted by the management for the
purpose of analysis. In this assignment ratio is the main tool used by the management of the
company in order to analyze the financial position of the business. The detailed of the Fama
French models have depicted in the discussion of the study. The implication of the Fama
French Model in the three factor analysis on the mangers of the company have been
discussed and the mangers needs to take certain measures to further improve the ethics and
the principle behaviors enacted within the organization. In case of investment analysis it is
needed by the management to certain the risk factors by using the CAPM model. The risk
associated with the investment must be analyzed and hence strategic management decision in
that case is needed for the managerial decision making.

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