Financial Analysis Report: ACL Energy and Origin Energy Limited

This report provides a comprehensive financial analysis of ACL Energy and Origin Energy Limited. It examines their financial positions and performance using various financial statements and ratio analysis, including liquidity, solvency, efficiency, profitability, and market value ratios. The analysis aims to identify which company is more suitable for investment by comparing key financial metrics and trends over a period. The report highlights the importance of financial statement analysis for stakeholders and investors in evaluating a company's current abilities and future opportunities. The analysis includes a detailed overview of each company, followed by a comparative assessment of their financial health, providing valuable insights into their strengths and weaknesses. The report also emphasizes the importance of the balance sheet and other financial statements in understanding a company's performance and making informed investment decisions.

Business Finance
Financial Analysis

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Executive summary
This report is being presented in order to analyze the financial position and performance of
ACL energy and Origin Energy Limited. This report will compare the financial performance
of both the companies with each other in order to identify which company is suitable for
investment.

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Table of Contents
Executive summary....................................................................................................................1
Introduction................................................................................................................................3
ACL Energy...........................................................................................................................3
Origin Energy Limited...........................................................................................................4
Analysis of Financial Statement.............................................................................................5
Ratio Analysis....................................................................................................................6
Conclusion................................................................................................................................13
Recommendation......................................................................................................................15
References................................................................................................................................17
Appendix..................................................................................................................................21
Appendix 1...........................................................................................................................21

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Introduction
The analysis of the financial reports or statements is very important for the stakeholders and
investors like government and lender. The investors look to identify present abilities of a
company and future opportunities by evaluating the financial reports or statements
(Robinson, Henry, Pirie and Broihahn, 2015). Financial analysis is said to be a procedure if
measuring projects, businesses, budgets and other financial entities to define their suitability
and performance. Classically, financial analysis is utilized to examine whether an entity is
steady, wealthy, liquid or lucrative enough to permit a financial investment (Weaver, 2011).
While observing a particular company, a financial expert conducts examination by
concentrating on the balance sheet, cash flow statement, and income statement. Financial
statements are utilized to measure the set financial policies, recognizing companies or
projects for the investment purpose, economic trends, and creating long-term strategies for
the activities of the business (Lee and Lee, 2016).
This report highlights the analysis of financial reports of two companies namely ACL energy
and Origin Energy Limited. Ratio analysis is one of the measures that will help in
understanding the better position of the companies. The ratio analysis is said to be a
quantitative analysis of the data confined in financial statements of a company. Ratio analysis
is utilized to measure different aspects of the financial performance and operations of a
company like its liquidity, solvency, efficiency, and profitability. The investors of both the
companies will get help from the ratio analysis as a reference because it identifies the
financial health of a company. The report will discuss and compare five important ratios i.e.
Liquidity ratio, Solvency ratio, Efficiency ratio, Profitability ratio, and Market value ratio.

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ACL Energy
ACL Limited is the Australian Biotechnology company listed in Australian Stock exchange.
It has specific proficiency in the chemistry that has been involved in the development and
discovery of the products of human therapeutic. Antithrombotic drug and generic
fondaparinux of ALC Limited Company is said to be a near-term opportunity that helps in
targeting the multi-billion dollar market of heparin-drug and is predictable to be creating
company’s revenues in 2012.
One of the most advanced products of ALC energy limited company is HA-irinotecan
anticancer product and is probably to start Phase III scientific trials in 2011. It is formed with
ALC’s HyACT technology which collects the drug i.e. chemotherapeutic drug irinotecan
along with hyaluronic acid (HA). In 2007, ALC reported that excellent outcomes from Phase
II scientific trial: HA-irinotecan not just permitted more irinotecan cycles to be managed of
the cancer patients, but also formed statistically important disease monitor and a repetition in
development free survival.
The platform of VAST drug discovery m of ALC aims at G-protein coupled receptors
(GPCRs). Presently partial of drugs are up to target the market GPCRs and signify around
US$100 billion in sales. VASTTM a said to be a revolutionary drug discovery technology
involves numerous drug entrants in initial development stages. This technology’s main
advantage is that it can be used to target anyone and the target structure is nor important to be
known (Linked In, 2017).
Origin Energy Limited
Origin is a public energy company listed in Australian Stock Exchange with headquarter in
Sydney. The company was established in 2000, due to the demerger of the conglomerate of
Australia i.e., Boral Limited, which observed the energy business shaped as an innovative

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company, distinct from the construction and building material business. The SAGASCO
business is part of Origin Energy Company as part of the demerger. In 2001-02, Origin
Energy acquired a retailer of Victorian electricity license from the distributors CitiPower and
Powercor. In 2004, the SEAGas pipeline was finished and custom-built, which aided to relate
the South Australian and Victorian gas markets. In this time duration, Origin Energy
Company got 50% interest in the Company Kupe Gas Field and accomplished to gain 51.4%
interest in Edison Mission Energy in the Contact Energy of New Zealand. Origin added its
53% shared its shares to the market in Contact Energy in 2015. In 2006 the government of
Queensland broadcast the sale of the company i.e. Sun retail private limited, the former arm
of retailing of Energex to Origin for $1.200 billion. Sun retail comprised 8, 40,000 industrial,
commercial and residential customer accounts and 55,000 LPG customers (Origin Energy,
2018).
Analysis of Financial Statement
The financial report is formed with the help of general or information and requirement of the
user. The information that is transferred by the financial reports is not precise or directed in
the direction of any particular goals like the lending decision or investment decision
(Birchall, 2014). Therefore, it becomes very important to evaluate the financial reports or
statements by applying various techniques and tools to excerpt applicable and exact
information (Stickney, Weil, Schipper and Francis, 2009). The investors are very enthusiastic
to acknowledge the financial weaknesses and strength of the company. In order to know this,
comparative ratio analysis is performed which involves liquidity, solvency, profitability, and
efficiency of the company. The company’s financial ratios are compared with its major
competitor in order to know its financial strength and weaknesses. Further, analysis of ratio is
also very helpful in measuring the trends in the financial report and company’s position,

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which is also said to be important while taking the decisions of investment (Fabozzi and
Drake, 2009).
Besides ratio analysis, the Balance sheet is also a very important financial statement as it
reflects a picture of the company's performance. The balance sheet is not officially needed for
very small reports of business or even taxes; it can be useful in defining the company's health.
Deprived of the knowledge of simple principles of accounting, it might be irresistible to think
of making a balance sheet. Though, creating a balance sheet can be simple for a small
company and can even make automatically by most traditional or online accounting software
(Sage, 2015).
Being the manager of a company, profit and loss statement or balance sheet can be prepared
to know about the performance of the business. These statements help in providing a
snapshot of the company’s performance. The balance sheet is a changing document in which
business regularly writes about new assets that are acquired and new liabilities that business
has undertaken. While updating regularly, the balance sheet will provide potential investors
and lenders the material they require to take learned decisions about advancing resources or
money (Anaejionu, 2018).
Ratio Analysis
Liquidity Ratio
Liquidity ratios evaluate the ability of the company to recompense debt duties and its margin
of safety by calculating the metrics comprising the operating cash flow ratio, quick ratio, and
current ratio. Current liabilities are examined in terms of liquid assets in order to assess the
coverage of short-run debts in an emergency (Tracy, 2012). Bankruptcy experts and loan
inventors make use of liquidity ratios to assess issues related to going concern because of
liquidity ratio support in specifying the position of the cash flow. Liquidity ratio is useful

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when they are applied in comparative form. This evaluation can be done externally or
internally. For instance, the internal analysis in terms of liquidity ratio includes using periods
of multiple accounting that are stated for using the same methods of accounting. Associating
different time periods with the current operations permits experts to trail variations in the
business. Generally, the ratio of higher liquidity designates that a business is very liquid and
has healthier treatment of outstanding debts (Accounting tools, 2017).
In respect to ACL Limited, it has been observed that the Current ratio of the company is
comparatively high in the year 2017 i.e. 24.05 and current ratio in 2016 i.e. 13.35 (Yahoo
Finance, 2018). This reflects that company is trying to improve its position in the market.
Further, in case of Origin Energy Limited, it has been observed that it is also trying to
improve its performance in the market because its current ratio in 2016 was 0.24, whereas in
2017 it increased and reached to 1.30 (Yahoo Finance, 2018). It reflects that company is
trying its efforts to enhance the performance however the percentage of improvement is
higher in ACL Limited as compared to Origin Energy Limited (Appendix 1).
2017 2016 2015
-
5.00
10.00
15.00
20.00
25.00
Current Ratio
ACL Limited
Origin Energy Ltd
The quick ratio was also analyzed to be reflecting the similar trend in both the companies. In
the matter of ACL Limited, the quick ratio was observed to be 4.43 in 2015, 13.35 in 2016,
and 24.05 in 2017, it states that 2017's quick ratio is 6 times higher than the ratio of 2015
(Market Index, 2018). On the other side, in case of Origin Energy limited the quick ratio is

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0.42 in 2015, 0.22 in 2016, and 1.26 in 2017 (Appendix 1). It can be seen that the quick ratio
is also in the increasing phase however at slow speed.
2017 2016 2015
-
5.00
10.00
15.00
20.00
25.00
Quick Ratio
ACL Limited
Origin Energy Ltd
Financial Leverage Ratios (Solvency)
Solvency or Financial Leverage ratios are said to the main metric utilized to evaluate the
ability of the enterprise in order to meet its debts. This ratio reflects whether a cash flow of
the company is enough to fulfill its long-term and short-term liabilities. The lower solvency
ratio of the company will result in the probability that it will be defaulting on its debt
obligations (Bragg, 2012).
The solvency ratio is one of the metrics that is utilized to define the solvency of the company.
Other ratios of solvency are comprised of total debt to total assets, interest coverage ratios,
and debt to equity (Leach, 2010). On the other hand, the solvency ratio is a complete
evaluation of the solvency, as it evaluated cash flow in place of net income by comprising
depreciation to measure the capacity of the company to stay flooded. It evaluates the capacity
of the cash flow in regards to all the liabilities, rather than just short-term debt. Through this
method, solvency ratios measure a long-term health of the company by assessing its long-run
debts and interest on the debt (Ramachandran, 2013).
From the ratio analysis, it can be observed that the Interest time’s ratio is reflecting negative
trends in both the cases of companies. In case of ACL Limited, the performance is very poor

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(Morning Star, 2018). Whereas in the case of Origin energy limited the trends is negative i.e.
(2.42) in 2015, (1.50) in 2016, and (1.57) in 2017, which reflects that the trends are negative,
however, company has tried to improve its performance from 2015 to 2017 (Appendix 1).
Therefore, it can be said that Origin Energy Limited Company is at a better position as
compared to ACL Limited Company, though it needs to implement some other strategies in
order to survive in the market and come up with new and innovative offerings.
Efficiency or turnover ratios (350)
The efficiency ratios are also called activity ratios. The evaluation of efficiency measures a
company’s ability to utilize assets and liabilities to measure liabilities. These ratios measure
how a company can use assets to create revenues and represents the ability to manage assets.
The efficiency ratios are used by the management to improve company as well as investors
and creditors to know creditability and profitability of the company (Heikal, Khaddafi &
Ummah, 2014). The most prominent ratios are taken for this purpose such as inventory
holding days and accounts receivable days have been computed as shown below in the charts:

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From the above chart, it can be observed that account receivable days are maintained at the
inconstant level by ACL energy limited. The account receivable was maintained at 9 days in
2016. However, in the case of Origins energy limited, the columns in the chart are
representing a falling trend. In 2015, the company maintained account receivables at 66 days
which decreased to 64days in 2016 and then 61 days in 2017 (Council, 2016 ). The decrease
in account receivable days represents that the management has been competing with regard to
the collection of account receivables. The major cause of the decrease in account receivable
days seems to be conservative policy followed by the company to increase it’s market share.
On the other side, ACL energy limited is facing downfall in demand which is leading to the
financial crisis (Samuelsen, et. al. 2017). Therefore the company should try to maintain
account receivable days low to tight it’s working capital condition.

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The comparative position in respect to inventory holding days is observed to be quite
different. It can be perceived that ACL energy limited is trying to keep inventory holding
days at very lower side whereas Origin energy limited has maintained high inventory holding
days in 2015 and 2016. But now it has considerably lowered inventory holding days (Azzi,
et.al. 2014). ACL energy limited maintained inventory holding days whereas the other
company gone up from 9 days in 2015 and 2016. The company tried to keep average 7 days
in last three years. The Origin energy limited has experienced good growth in demand which
seems the main reason for maintaining a high stock of goods.
Profitability ratios
The profitability ratios are used to evaluate company’s ability to generate earnings compared
to the expenses and costs incurred during a specific period of time. It shows how well a
company uses its assets to create profit and value for shareholders and investors (Nimtrakoon,
2015). A higher ratio means the business is performing well by creating revenues, profits and
cash flow. These ratios are more useful when they are used to compare two companies. In
this way, it can be said that the profitability ratios are more useful for ACL energy and Origin
energy.
In order to analyze the profitability of both companies, return on equity and net margin ratios
are considered prominent. The net margin ratio shows the revenue of company after