Financial Analysis of Beach Energy and Santos Limited

RUNNING HEAD: FINANCE FOR BUSINESS
Financial analysis

Finance for business 2
Contents
Introduction.................................................................................................................................................3
Overview of the Companies........................................................................................................................3
Beach Energy Limited.............................................................................................................................3
Santos Limited.........................................................................................................................................4
Calculation and analysis of performance ratios...........................................................................................4
Short term solvency.................................................................................................................................4
Long term solvency.................................................................................................................................6
Asset utilization.......................................................................................................................................7
Profitability ratios....................................................................................................................................8
Market value ratios..................................................................................................................................9
Graphs and comparison of share price movements....................................................................................10
Share valuation..........................................................................................................................................11
Recommendation Conclusion....................................................................................................................12
References.................................................................................................................................................13
Appendix...................................................................................................................................................15

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Introduction
The report summarizes the financial analysis of Beach energy limited and Santos Limited for the
past two years. It gives a brief overview about the companies and their core activities along with
the explanation of their competitive advantages. It also includes the performance analysis with
the help of various categorized ratios. Furthermore, the analysis is also supported by graphical
presentation and comparison of share price movements with the changes in the market indices.
The value of stock of Beach energy and Santos limited are calculated by applying the Constant
Dividend Growth Rate Model and the outcome is compared with the current share prices in order
to conduct the valuation of companies’ stock. After conducting the whole analysis,
recommendation has been provided to the investors regarding the selection the company for the
purpose of making investment. The report also helps in determining the corporation which is
financially sound and healthy. In the last, a conclusion is given which summarizes the overall
findings of the analysis.
Overview of the Companies
Beach Energy Limited
It is an Australian company engaged in the business of oil and gas exploration, production and
development and investment in the resource industry. The core activities of the company involve
exploration and development of hydrocarbons. Beach Energy operates through segments named
as Cooper Basin, Other Australia and International. Cooper Basin deals with selling of oil and
gas products from Australian production. The international segment is involved in seeking
interest in the areas outside Australia. The segment of Other Australia deals with the off shore

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and on shore production and exploration of the resources. The activities of the company involved
the sale of oil and liquid hydrocarbons. The competitive advantage of the company is that it can
pull back its annual capital expenditure by taking the advantage of weak prices. This will help
the company to focus more on its core activity areas like Cooper Basin. Currently, company’s
share is trading at AUD $2.14 with a market cap of $4,531.29 million (Reuters. 2018).
Santos Limited
It is an Australia based natural gas company that is engaged in the development, production and
exploration of natural gas both on-shore and off-shore. Products developed by the company
include Liquid petroleum gas (LPG), ethane, methane, Coal seam gas (CSG), condensate and oil
and others. The operating areas of the firm comprises by its segments are Cooper Basin,
Northern and Western Australia, Gladstone LNG and Papua New Guinea (PNG). Santos has its
operations established in Asia and Australia and it performs its operations through it segments.
The competitive advantage of Santos is that its gas resources are acquired at substantial discount.
Moreover, its capital efficient expansion from its existing liquefied natural gas (LNG) base is
considered to be a cost advantage for the company. The company is listed on ASX with a ticker
STO.AX having a market capitalization of $8,519.11 million with a share price of AUD $7.33
(Reuters. 2018).
Calculation and analysis of performance ratios
Short term solvency
 Current ratio: It is a financial metric which measures the financial strength of the
company by determining its capability in paying off the current liabilities with the use of
its current assets (Saleem and Rehman, 2011).