Financial Analysis of Acrux Limited

This report provides a comprehensive financial analysis of Acrux Limited, a pharmaceutical company. It includes the company's ownership and governance structure, fundamental ratios, liquidity ratios, long-term solvency, asset management, profitability ratios, market value ratios, and monthly share price and index movement. The report also covers internet research on financial measures, beta, required rate of return as per CAPM, conservative investment, weighted average cost of capital (WACC), debt ratio, dividend policy, and a letter of recommendation.

Finance for Business
Reference style: Harvard
Company name: Acrux Limited
Contents

Snapshot of company.......................................................................................................................3
Ownership governance structure.....................................................................................................3
Ownership structure.....................................................................................................................3
Governance structure...................................................................................................................3
Fundamental ratios and interpretation.............................................................................................4
Liquidity ratios.............................................................................................................................4
Long-term solvency.....................................................................................................................4
Asset management.......................................................................................................................5
Profitability ratios........................................................................................................................6
Market value ratios......................................................................................................................7
Charts and report of monthly share price and index movement......................................................7
Charts...........................................................................................................................................7
Report..........................................................................................................................................9
Internet Research...........................................................................................................................10
Financial measures.........................................................................................................................10
Beta............................................................................................................................................10
Required rate of return as per CAPM........................................................................................10
Conservative investment............................................................................................................11
Weighted average cost of capital (WACC)...............................................................................11
The implication of higher WACC.............................................................................................11
Debt ratio.......................................................................................................................................12
Dividend policy.............................................................................................................................12
Letter of recommendation..............................................................................................................13
References......................................................................................................................................14
Snapshot of company
Acrux Company is having a history of 20 years it was established in the year 1998. Acrux
Company works in the industry of pharmaceutical and generates a major portion of its revenue

by developing and commercializing of pharmaceuticals. This company is having code “ACR” on
the Australian stock exchange. The company is having business in US, Australia, and Europe.
Company’s market capitalization is of AUD 28.309 million and stock price of the organization
on ASX is AUD 0.17 17 (Yahoo 2018).
Ownership governance structure
Ownership of the organization holds by the persons who invest in the company with the
expectations of profits and have right on the profits of the organization after paying all external
obligations of the organization. In the company, such ownership is held by the shareholders of
the company. On the other hand governance of the organization holds by the persons who
manage the operating and other activities of the organization. In the company, such governance
is held by the board of directors and key management persons of the organization (Lemmon &
Lins 2003).
Ownership structure
A person alone and with its associates, having voting power and control on the organization for
5% of total voting rights and control in the organization is known as a substantial shareholder
(Clearstream 2011). In the Acrux Company, on 31 August 2017, no person alone and with its
associates, having voting power and control on the organization for 5% of total voting rights and
control in the organization, hence no person of the organization is substantial shareholder of the
organization. In addition to this, on 31 August 2017, no person alone and with its associates,
having voting power and control on the organization for 20% of total voting rights and control in
the organization.
Governance structure
In the organization, there are 7 directors, details regarding their position, qualification, and
shareholding is asunder,
Name Ross
Dobinson
Bruce
Parncutt
AO
Timothy
Oldham
Geoff
Brooke
Simon
Green
Michael
Kotsanis
Tim
Bateman
Position Non-
Executive
Chairma
n
Non-
Executi
ve
Director
Non-
Executiv
e
Director
Non-
Executiv
e
Director
Non-
Executiv
e
Director
Managin
g
Director
and
Chief
Executiv
e Officer
Chief
Financial
Officer
and
Company
Secretary
Qualification BBus
Acc
BSc,
MBA
BSc
(Hons),
LLB
(Hons),
MMBS,
MBA
BSc
(Hons),
PhD
BSc,
MBus
BBus
(Acc)

PhD
Number of
shares hold
1,372,593 Nil 16,150 75,750 Nil Nil Nil
In the Acrux Company, no person from governance holds substantial interest n company and no
other substantial shareholder is mentioned by the organization. Hence it can be concluded that
the company is not a family company and a genuine public company.
Fundamental ratios and interpretation
Liquidity ratios
Year ending June 2016 June 2017
Current assets $ 34,143 $ 39,597
Current liabilities $ 5,738 $ 3,362
Current ratio 5.95 11.78
Cash and equivalents $ 29,360 $ 33,974
Current liabilities $ 5,738 $ 3,362
Cash ratio 5.12 10.11
Liquidity ratios of the organization are an indicator of short-term asset management and short-
term solvency of the organization. Current ratio and cash ratio denotes the number of times
current assets and cash respectively maintained by the organization comparison of its short-term
liabilities (Kimmel, Weygandt & Kieso 2009). In the present case, the company is increasing its.
current ratio and cash ratio, which is a good short-term solvency sign. However, having such a
higher liquidity ratio shows the vacant resources of the organization. Hence organization should
put its vacant liquid resources in a productive profit-making activity.
Long-term solvency
Year ending June 2016 June 2017
Borrowings $ 0 $ 0
Total assets $ 53,371 $ 47,306
Debt assets Ratio 0% 0%
Borrowings $ 0 $ 0
Total equity $ 43,889 $ 43,925
Debt equity ratio 0% 0%

Long-term solvency ratios show the capital structure of the organization. It denotes the
percentage of borrowings in the organization in comparison to the total assets and total equity
contribution in the organization. The capital structure of the organization could be created by
using equity or debt or both (Lemmon & Lins 2003). However, each source of funding has
different attributes hence enjoying all attributes organization should have all sources of funding.
Acurx Limited is only using equity source of funding for the capital structure of the organization
and having nil debt equity and debt to total assets ratios.
Asset management
Year ending June 2016 June 2017
Sales $ 28,557 $ 23,934
Accounts receivable $ 4,783 $ 5,623
Accounts receivable turnover 5.97 4.26
Number of days in the year 360 360
Accounts receivable turnover $ 6 $ 4
Average collection period 60.30 84.58
Sales $ 28,557 $ 23,934
Accounts Payable $ 1,900 $ 1,819
Accounts Payable turnover 15.03 13.16
Number of days in the year 360 360
Accounts Payable turnover $ 15 $ 13
Accounts Payable turnover in days 23.95 27.36
Sales $ 28,557 $ 23,934
Net fixed asset $ 262 $ 778
Fixed asset turnover 109.00 30.76
Sales $ 28,557 $ 23,934
Total asset $ 53,371 $ 47,306
Total asset turnover 0.54 0.51
Asset management ratios of the organization show how assets of the organization are used by the
company in sales generated by the way of total assets turnover ratio and fixed assets turnover
ratio. In addition to this, it also measures how many times organization turns its inventory,
debtors, and payables by the way of inventory turnover, receivable turnover, and payable
turnover ratios respectively. Moreover, it calculates a number of days in which debtors of the
organization ay their dues to the organization and number of days in which organization pays its

due to creditors by the way of receivables and payables days (Weygandt, Kimmel & Kieso
2015).
In the present case, the organization is generating lower sales from its assets from total assets
and fixed assets. In addition to this turnover times of debtors and receivables is also declining. In
turn receivables and payable days increasing. All such results are showing inefficient asset
management by the organization in the year 2017.
Profitability ratios
Year ending June 2016 June 2017
Net profit after tax $ 12,981 $ (243)
Sales $ 28,557 $ 23,934
Net Profit ratio 45% -1%
Operating profits $ 18,092 $ (94)
Sales $ 28,557 $ 23,934
Operating Profit ratio 63% 0%
Operating profits $ 18,092 $ (94)
Equity $ 53,371 $ 47,306
Return on equity 34% 0%
Net profits after taxes $ 12,981 $ (243)
Assets $ 53,371 $ 47,306
Return on Assets 24% -1%
Profitability ratios of the organization are a profit percentage measurement for the organization.
Increasing trend of this ratio must be there for getting a better performance scale. Net profit ratio
and operating profit ratio of the organization denotes the percentage of sales which converted by
the organization in net profits and operating income respectively. In addition to this, return on
assets and return on equity ratios shows the return earned by the organization from assets and
equity investment respectively (Weygandt et al. 2010).
In the present case all profitability ratios i.e. net profit ratio, operating profit ratio, return on
equity and return on assets showing a declining percentage. Such declining percentage denotes
the declining performance of the organization.
Market value ratios
Year ending June 2016 June 2017
Common stockholders’ equity $ 53,371 $ 47,306
Number of Outstanding shares $ 166,521,711 $ 166,521,711

Book value per share (in AUD) $ 0.32 $ 0.28
Market price per share $ 0.74 $ 0.22
Book value per share $ 0.32 $ 0.28
Market/Book ratio 231% 77%
Net income $ 12,981 $ (243)
weighted average number of share outstanding 166521711.00 166521711.00
Earnings per share ratio (in cents) $ 7.80 $ (0.15)
Market price per share $ 0.74 $ 0.22
Earnings per share (in cents) 7.80 (0.15)
Price earnings ratio 0.09 -1.51
Market value ratios are the most important ratios for the person making an investment in the
shares of the organization. Book value per share represents the per share value as per the
financial records of the organization. Such value is increased with the increase in the
accumulated profits of the organization. In the present case, such value is having declining trend
which is not a good indicator.
Earnings per share of the organization show the profits made by the organization for each share
in the organization. This ratio is also having a declining trend in the organization. It is not a good
indicator.
Charts and report of monthly share price and index movement
Charts
Acrux Company Index Acrux Company Index
Apr-16 $ 0.62 5316 Apr-17 $ 0.28 5947.6
May-16 $ 0.72 5447.8 May-17 $ 0.26 5761.3
Jun-16 $ 0.72 5310.4 Jun-17 $ 0.22 5764
Jul-16 $ 0.74 5644 Jul-17 $ 0.30 5773.9
Aug-16 $ 0.38 5529.4 Aug-17 $ 0.26 5776.3
Sep-16 $ 0.33 5525.2 Sep-17 $ 0.15 5744.9
Oct-16 $ 0.34 5402.4 Oct-17 $ 0.17 5976.4
Nov-16 $ 0.32 5502.4 Nov-17 $ 0.15 6057.2
Dec-16 $ 0.31 5719.1 Dec-17 $ 0.15 6167.3
Jan-17 $ 0.31 5675 Jan-18 $ 0.17 6146.5
Feb-17 $ 0.29 5761 Feb-18 $ 0.16 6117.3
Mar-17 $ 0.29 5903.8 Mar-18 $ 0.16 5868.9
Source: (ASX 2018), (ASX 2018)

Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
$-
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
Monthly share price movement of company
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
4800
5000
5200
5400
5600
5800
6000
6200
6400
Monthly ASX index movement

Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
$-
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
$7,000.00
Monthly share price and index movement
Acrux Company All ordinary index
Report
Introduction
The focus of this report is towards the monthly share price of the Aurux limited company and
ASX index movement during last two years. This report will make comment regarding the
volatility of Aurux limited company’s stock price.
Findings and explanations
Charts and data regarding the stock price of the organization denote that company is having
declining trend in its share price from last two years, however, market index is having an upward
movement. In addition to this, it can also be seen that stock price and the index of the stock
exchange showing a significant monthly movement.
Conclusion

Significant monthly movement in stock price shows that share price of the organization is
volatile (Commonwealth Financial Network 2008). However, opposite trends of share price and
the index denote that company is having a negative correlation with the market movements.
Internet Research
On the internet, there is no news regarding the merger, disinvestment and other significant matter
related to the organization. Only the reports of the periodical profits were internet available
resource regarding the organization which can influence the share price of the organization.
On 20 February 2018, company’s half years profit reports were put on the portal such reports
shows a declining in the profits by 238%. Such news results in the decline in the share price of
the organization (Intelligent investor 2018). On the same date, a half-yearly presentation was
also given by the organization which also puts the negative impacts on the share price of the
organization.
Financial measures
Beta
The beta of the stock refers is a measure of the stock’s volatility of the organization. The higher
beta of the stock denotes that organization’s stock’s price is highly influenced by the market
reactions. The positive beta of the stock denotes that stock price of the company’s share is
having a positive correlation with the market index.
For example, if the company is having beta 2 then it denotes that when the market goes up by 1%
then the stock price of the organization will go up by 2%. In the same way, if the company is
having beta -2 then it denotes that when the market goes up by 1% then the stock price of the
organization will decline by 2%.
In the present case beta of the Acrux company is 1.23 (Reuters 2018). It denotes that when the
market goes up by 1% then the stock price of the organization will go up by 1.23% and when
market decline by 1% then stock price of the organization will decline by 1.23%.
Required rate of return as per CAPM
The required rate of return is the return rate which is expected by the shareholders of the
organization against the beta risk borne by them. Higher the beta risk of the stock higher will be
the required rate of return expectations of the organization. In the present case financial measures
of the organization required to calculate required rate of return as per capital asset pricing model
is as follows,
Risk free rate of return 4%
Market risk premium 6%

Beta of the stock 1.23
The required rate of return of the organization as per this model is 11.38% i.e. 4 %+( 6%*1.23).
Conservative investment
Conservative investment refers to the investment which could provide the required rate of return
to the shareholders of the organization against the beta risk is boned by the shareholders of the
organization. In the present case required a rate of return is 11.38%, if the actual return is equal
to or higher than 11.38% then such investment is conservative otherwise not.
Weighted average cost of capital (WACC)
Weighted average cost of capital of the organization is a measure of total cost borne by the
organization from the funding of capital from various sources (Fernandez 2015). Under the
calculation of this measure following steps need to be accomplished by the organization
1. Calculation of after-tax cost of capital for each source of finance
2. Calculation of weight for each source of finance on the basis of funding from that source
3. Application of cost of capital for each source of finance to the respective weight
4. Sum of all applied the weighted cost of capital
In the present case, the organization is having only equity source of capital funding hence weight
of this source will be 100% and weighted average cost of capital of the organization will be
equal to the cost of equity. In the present case cost of equity of the organization is 11.38% hence
weighted average cost of capital of the organization also becomes 11.38%.
The implication of higher WACC
Investment projects are evaluated by the management of the organization by using various
capital budgeting techniques. Under these techniques future expected cash flows of the
organization’s prospective investment projects is calculated for concluding the decision of
accepting and rejecting the project. Such present value calculation of the organization’s
prospective investment is made on the basis of the weighted average cost of capital of the
organization. Higher weighted average cost of capital of the organization results in the lower
present value of the cash flows. Such lower present value of cash flows makes a prospective
investment inefficient to accept.
Hence higher weighted average cost of capital of the project may result in losing a profitable
project due to higher expectations of the organization to meet costs. Hence organizations should
try to maintain the lower weighted average cost of capital so that management of the
organization would not lose prospective investment projects having lower profit expectations.

Debt ratio
Year ending June 2016 June 2017
Borrowings $ 0 $ 0
Total assets $ 53,371 $ 47,306
Debt assets Ratio 0% 0%
Borrowings $ 0 $ 0
Total equity $ 43,889 $ 43,925
Debt equity ratio 0% 0%
Debt ratios denote the percentage of borrowings in the organization in comparison to the total
assets and total equity contribution in the organization. The capital structure of the organization
could be created by using equity or debt or both (Lemmon & Lins 2003). However, each source
of funding has different attributes hence enjoying all attributes organization should have all
sources of funding. Acurx Limited is only using equity source of funding for the capital structure
of the organization. Additionally, the company is not showing any changes in the borrowings
during the last two years. Changes in the equity are only because of retained earnings, no other
changes like share buyback of share issue are shown by the company.
Dividend policy
Year ending June 2016 June 2017
Dividend paid $ 9,992.00 $ 0
Weighted average number of share outstanding 166521711 166521711
Dividend per share ratio (in cents) 6 0
Dividend per share (in cents) 6 $ 0
Earnings per share (in cents) 7.8 -0.15
Dividend payout ratio 77% 0.00%
Dividend per share $ 0.06 $ 0
Market price per share $ 0.74 $0.22
Dividend yield 8% 0%
In the year 2017 company’s dividend is declined in addition to this company’s return in the year
2017 was also negative. However, in 2016, the company paid 77% of dividend as a return to
shareholders. Hence it can be concluded that organization is having a dividend policy to pay a
dividend from the profits of the current year.

Letter of recommendation
Mr. Investor
Dear sir
Subject: recommendation regarding the investment in Acrux Limited
The analysis regarding the various financial and nonfinancial aspects of the company shows
following results,
1. Declining profitability
2. Inefficient asset management
3. The higher cost of capital
4. Higher beta
5. Lower return for the shareholders
6. Lower dividends
Hence it is advised to you that you should make an investment in any other ASX listed company
in place of Acrux Limited.
Yours truly
Investment adviser

References
ASX 2018, ACR Charting, viewed 1 May 2018, <https://www.asx.com.au/prices/charting/?
code=ACR&compareCode=&chartType=LINE&priceMovingAverage1=&priceMovingAverage
2=&volumeIndicator=BAR&volumeMovingAverage=&timeframe=monthly>.
ASX 2018, End of Month Values, viewed 1 May 2018,
<https://www.asx.com.au/about/historical-market-statistics.htm>.
Clearstream 2011, Disclosure Requirements - Australia, viewed 1 May 2018,
<http://www.clearstream.com/clearstream-en/products-and-services/market-coverage/asia-
pacific/australia/disclosure-requirements---australia/7380>.
Commonwealth Financial Network 2008, What’s Stock Market Volatility?, viewed 1 May 2018,
<http://www.commonwealth.com/RepSiteContent/stock_volatility.htm>.
Fernandez, P 2015, 'WACC: definition, misconceptions and errors'.
Intelligent investor 2018, Appendix 4D and half yearly report to 31 december 2017, viewed 1
May 2018,
<https://www.intelligentinvestor.com.au/company/acrux-ACR-13779/announcements>.
Kimmel, PD, Weygandt, JJ & Kieso, DE 2009, Financial accounting: Tools for business
decision making, 5th edn, John Wiley & Sons.
Lemmon, ML & Lins, KV 2003, 'Ownership structure, corporate governance, and firm value:
Evidence from the East Asian financial crisis', The journal of finance , vol 58, no. 4, pp. 1445-
1468.
Reuters 2018, Acrux Ltd (ACR.AX), viewed 1 May 2018,
<https://in.reuters.com/finance/stocks/overview/ACR.AX>.
Weygandt, J, Kimmel, P & Kieso, D 2015, Financial & managerial accounting, John Wiley &
Sons.
Weygandt, J, Kimmel, P, KIESO, D & Elias, R 2010, 'Accounting principles', Issues in
Accounting Education, vol 25, no. 1, pp. 179-180.
Yahoo 2018, Acrux Limited (ACR.AX), viewed 1 May 2018,
<https://nz.finance.yahoo.com/quote/ACR.AX/>.