Financial Analysis of Beach Energy Limited and Senex Energy Limited

This report provides a comprehensive financial analysis of Beach Energy Limited and Senex Energy Limited, two prominent Australian oil and gas companies. The analysis utilizes various financial ratios, including liquidity, solvency, asset utilization, and profitability ratios, to evaluate the companies' performance and financial health. The report examines the companies' short-term and long-term solvency, asset efficiency, and profitability, highlighting key strengths and weaknesses. The findings are then used to provide recommendations for optimizing the companies' financial performance and capital structure.

HC2091 Business Finance
1

Contents
Introduction......................................................................................................................................3
Company’s Overview......................................................................................................................4
Content.............................................................................................................................................5
Recommendation:..........................................................................................................................13
Conclusion:....................................................................................................................................14
References:....................................................................................................................................15
2

Introduction
This report deals with the evaluation of the two companies’ performances and the operations by
analysing their financial accounts. For this analysis the secondary information has been taken
from the annual report of both the companies so that the technical issues of the organization can
be highlighted. The ratios which are calculated to evaluate the financial performance are the
liquidity ratios, short term solvency ratios, asset utilization ratio, profitability ratios and the
market value ratios. The short term ratios are calculated so as to evaluate the short term liquidity
of the organization. These financial ratios can be used by the investors to take investment related
decisions. These ratios will examine the strength and the weaknesses of Beach Energy Limited
and Senex Energy Limited. The various ratios calculated will provide the understanding about
the liquidity, efficiency and the profit condition of the organization so that financial position can
be examined in the competitive market.
3

Company’s Overview
The Senex Energy Limited is the oil and gas production as well as the exploration independent
company in Australia. The Senex aims at providing valuable Australian east coast gas and oil
resources. Its mission is to deliver the outcomes which are profitable by attracting and retaining
the people who are talented in particular sector. The company announced the revenue of $70.4
million in 2012. According to the survey of 2013 there were 150 numbers of employees working
in the organization for providing valuable services to the customers. The company was founded
on 15 August 1984 and has the headquarters in Queensland Australia.
Beach Energy Limited was founded in 1961 and got listed in ASX in 1962. It is also the oil and
gas production and exploration company which focuses on delivering sustainable growth in
terms of shareholders value. The strategy of the organization is to build the contemporary gas
business in basins of east coast and to maintain the financial strength. The company also
provides various values such as of safety, creativity and respect so that the employees can get
motivated and the helps in increasing the values of the organization. It basically focuses on the
copper basins which are resource rich with the gross acres of about 69,000 km square.
4

Content
Short term solvency ratios:
The short term solvency ratios are determined by calculating the liquidity ratios of the company
which includes current ratio and quick\k ratio of the company. The short term solvency ratios are
helpful in determining the ability of the company to pay off its short term liabilities with the
available short term assets of the company. This type of ratio calculation is crucial for lenders
and creditors in order to take their investment decision regarding the investment to be made in
company. The creditors and lenders of the company will be interested in taking knowledge about
the ability of the company to fulfil the funding requirement in respect of paying the short term
liabilities (Ranti, 2013).
Current ratio – The current ratio of the company is calculated by comparing the current assets
of the company with all the current liabilities of the company. The current assets of the company
include the assets which are readily convertible into cash and have the ability to settle the current
liabilities of the company immediately. The calculation of this ratio n includes inventory as a
current assets which is generally not considered as much liquid for the company.
Quick ratio – The quick ratio of the company measures the ability of the company to pay its
current liabilities with all available most liquid assets of the company which does not include
inventory. In calculation of quick assets there is no inventory involved in current assets and
therefore it is a sound measure of recognizing the paying ability of the company.
Liquidity Ratio
Particulars Beach
Energy Limited
($)
Senex
Energy Limited
($)
Current Assets 521.9 162907
Current Liabilities 126.2 29666
5

Inventories 50.1 11577
Current ratio=Current Asset/Current
Liabilities
4.14 5.49
Quick ratio=Current
asset-inventories/Current Liabilities
3.74 5.10
Analysis = The current ratio of the company is 4.14 and 5.49 which represents that the company
has more than sufficient assets available in order to pay its short term liabilities. However this
ratio also indicates the inefficiency of the company to maintain adequate current assets as only
excessive current bassets represents the blockage of funds which increases the cost of capital of
company. Therefore the ratio should be controlled up to the level of 1.
The quick ratio of the company Beach Energy Limited is 3.74 and Senex Energy Limited is 5.10
which shows that excessive quick assets has been maintained in the company which must be sold
or transferred in order to reduce the cost of capital of company. The current liabilities should be
controlled up to the level of 1 only (Ranti, 2013).
Long term solvency ratios:
The long term financial ratios are concerned with determining and evaluating the long term
financial position of the company by considering the capital structure of the company. The
information about the debt structure and the asset structure of the company helps in evaluating
the efficiently with which the assets have been utilized in the company and the capital has been
allocated to conduct the operational functions of company.
Financial Leverage Ratio
Particulars Beach
Energy Limited ($)
Senex
Energy Limited ($)
Total Liabilities 491.1 74008
6

Total Assets 1893.1 513493
Total Equity 1402 439485
Debt Ratio=Total Liabilities/Total assets 0.26 0.14
Debt to Equity Ratio=Total
Liabilities/Total equity
0.35 0.17
Equity Ratio=Total Equity/Total Assets 0.74 0.86
Analysis – The debt equity ratio of the company helps in determining the dependency of the
funds on external funds in order to finance the business of company. It can be observed that debt
equity ratio of Beach Energy Limited is higher in comparison to the Senex Energy Limited
which is 0.35. This represents that the proportion of debt in comparison to equity is only 35%
which is muck lower than what is called an optimum debt equity ratio for this industry. The ratio
of 1 is considered sound for this type of business. The low debt equity ratio represents the
dependency of the company on equity funds to finance the business but results in heavy cost of
capital (Nesticò & Pipolo, 2015).
The debt ratio of Beach Energy Limited is 0.26 and the equity ratio of Senex energy Limited is
0.86 which is higher in comparison to other company. By analysing and comparing these ratios
with industry ratios in which the company is operating it can be established that there is a need to
make optimize this capital structure by modifying the capital structure of company. The debt
portion of the companies needs to be increased in order to achieve the minimum level of cost of
capital and achieving the objectives of company (Soondur, 2016).
Market value ratios:
The market value ratios are calculated by the users in order to evaluate whether the market prices
of the shares of company are undervalued overvalued or is at the par with the market. The
calculation of these ratios will help the investors in making investment decision in the company.
7

Market value ratios
Particulars Beach
Energy Limited
Senex
Energy Limited
Market value per share 1 0.35
Earnings per share 8.62 -1.8
Dividend paid 28 0
Price earnings ratios= MPS/EPS 0.122 -0.194
Dividend yield=Total dividend paid per
year/ Market price
0.1160092
81
0
Analysis = The market price analysis of the company represents that the market price of beach
Energy limited is much l\higher than the market price of Senex energy limited however the
earnings earned for the equity shareholders of company is 8.62 for beach Energy Limited and -
1.8 for Senex Energy Limited. The price earnings ratio thus represents that investors will be
attracted in investing in the Beach Energy Limited shares as the type of stock is giving more
earnings by investing an adequate amount of funds (Nesticò & Pipolo, 2015).
By analysing above table it can be established that there was no dividend paid by the company
Senex Limited in the year 2017 however Beach Energy Limited has paid the dividend of 0.116 in
the year 2017 and this will be considered for investing purposes in the business. The investment
should be made in the shares of Beach Energy Limited as it will give more return in comparison
to the Senex energy Limited.
8

Asset Utilization ratios:
The asset utilization or efficiency ratios helps in determining the ability of the company to use of
assets employed in earnings the revenues and profits for the shareholders and company. This
ratio helps in depicting the efficiency of operations and evaluating the productivity of the
company in context of market scenarios.
Efficiency Ratios
Particulars Beach
Energy
Limited ($)
Senex
Energy
Limited ($)
Average accounts receivable 100.25 12428.5
Revenue 649.3 43649
Average Inventory 63.65 12793.5
Average accounts payable 78.3 14165.5
Cost of sales 463.4 43582
Total assets 1893.1 513493
Accounting Receivable turnover=Revenue/
Average accounts receivable
6.5 3.5
Inventory Turnover=cost of sales/Average
Inventory
7.3 3.41
Total assets Turnover=Revenue/Total assets 0.3 0.09
Accounts Payable Turnover=Cost of
sales/average accounts payable
5.918 3.077
9

Average collection period=365/Accounts
receivable turnover
56.4 103.9
Average payable period=365/Accounts
Payable turnover
62 119
Analysis = The analysis is provided for each and every ratio calculated:
Accounts receivable turnover ratio – The accounts receivable turnover ratio helps the company
in analysing the ability to efficiently issue the credit to its customers and collecting the debts on
time without risking the liquidity position of the company. The accounts receivable ratio for
beach Energy limited is too high which indicates that the management is extending higher credits
to the customers however the ratio for Senex Limited is low which provides an opportunity to the
company to collect the tied up funds form its credit customers (Soondur, 2016).
Inventory turnover ratio – The inventory ratio helps in analysing the efficiency with which the
inventory has been used by comparing the cost of goods sold with average inventory of the
company. The measure is about the times when the inventory has been converted into the
finished goods stock. The inventory ratio is too high in the case of Beach Energy limited which
is 7.3 and this shows that the company is taking too long to sell its inventory during the period.
However the inventory ratio for Senex Limited is adequate and sufficient in order to achieve the
efficient levels.
Accounts payable turnover ratio – The accounts payable turnover ratio helps in evaluating the
supplier payment and the credit policy of the company. The company should be efficient enough
to pay its suppliers on time in order to maintain its reputation in a sound way. The ratio of the
company is average which represents that the company is paying adequately to its suppliers and
this will help the company in maintaining sufficient level of stock and inventory during the
production operations. The ability of the company to pay off its suppliers will also affect the
credit policy adopted by the lenders in long run (Arruda, et. al., 2015).
10

Profitability ratios:
The profitability ratio of the company helps in determining the operational efficiency of the
company in order to achieve the basic purpose of the business which is to earn profits during the
period. The calculation of net profit ratio, gross profit ratio and return on equity and assets ratio
will help in determining the effectiveness with which the operations has been conducted in the
business and the company. The profit margin will then be compared with the industry ratios and
other competitors in the market in order to achieve and acquire an optimum level of profitability
to be achieved by the company. Also this ratio will help in analysing the investment making
decision of the company as the motive of the investor is to earn profits (Buehlmaier & Whited,
2016).
Profitability Ratios
Particulars Beach
Energy Limited
($)
Senex
Energy Limited
($)
Net Profit 185.9 67
Operating Profit 321.7 22661
Net Income 649.3 43649
Total Assets 1893.1 513493
Net Equity 1402 439485
Capital employed= (Total Assets- Current
Liabilities)
1766.9 483827
Net profit=Net profit/ revenues 0.29 0.002
11

Operating profit=Operating profit/
revenues
0.50 0.52
Return on assets=Net income/ total assets 0.34 0.09
Return on equity=Net income/ Net equity 0.46 0.10
Return on Capital employed= Net profit/
Capital employed*100
10.52 0.00014
Analysis = The interpretation of above ratios is provided below:
Net profit ratio – The net profit ratio of the company is obtained after incurring administration
and selling cost form the gross profits acquired by the company. The net profits represent the
ability of the company to earn profits while conducting business operations. By analysing the net
profit margin for both the companies it can be established that it is too low and there is a need to
control the expenditures associated with companies and achieving more revenues (Buehlmaier &
Whited, 2016).
Operating profit margin – The operating profits of the company does not include the investing
income of the company and helps in evaluating the operational efficient and effectiveness of the
company. The operating margin of company is low in comparison to other companies and
competitors and therefore there is a need to control the operating expenditures in relation to the
operating income of company.
Return on assets – The return on assets indicates the ability of the company to earn profits while
utilizing the assets of company and this can be measured with the help of current assets with the
net income obtained by the company during the year. The same is not sufficient for the company
in order to achieve its objectives.
Return on equity – The return on equity is a margin ratio which helps in depicting the
effectiveness with which the equity has been utilized in the company. The return on equity for
both the companies is low and there is a need to utilize and allocate the equity in a proper
manner.
12

Recommendation:
After analysing the calculation performed above and conducting the financial analysis for Beach
Energy Limited and Senex Energy Limited it can be recommended that the company does not
have an appropriate capital structure in order to use its assets and equity in proper manner. The
ratio of the companies indicates that the financial position and performance of Beach Energy
Limited is sound in comparison to Senex energy Limited which represents that the investor
should consider the decision of making investment in Beach Energy Limited. The above analysis
also shows that the management needs to adopt proper strategies in order to optimize the current
structure and profitability position of the company (Arruda, et. al., 2015).
13

Conclusion:
The above report helps in concluding that financial analysis of the company can be performed by
working out various ratios which represents the operational efficient and functionality of the
company. The above analysis for both the companies shows that the financial position and
performance of the company during the period and the investors needs to take a reasonable care
while taking the investment decision in the company. By comparing the performance of both the
companies it can be established that investment option concerned with Beach Energy limited will
be a better choice for the investor as the company is having sound capital structure in comparison
to Senex Energy Limited. Also the annual reports of the company are that the future prospects of
the company are sound.
14

References:
 Baltes, N., Dragoe, A.G.M. and Ardelean, D.I., 2015. Study regarding the determination
of the financial performance of a company through market rates. Studia Universitatis Vasile
Goldis Arad, 24(3), pp.1-10.
 Bordo, M. D., & Haubrich, J. G, 2017. Deep recessions, fast recoveries, and financial
crises: Evidence from the American record. Economic Inquiry, 55(1), 527-541.
 Buehlmaier, M.M. and Whited, T.M., 2016. Are financial constraints priced? Evidence
from textual analysis.
 Nesticò, A. and Pipolo, O., 2015. A protocol for sustainable building interventions:
financial analysis and environmental effects. International Journal of Business Intelligence
and Data Mining, 10(3), pp.199-212.
 Ongore, V.O., Peter, O.K., Ogutu, M. and Bosire, E.M., 2015. Board composition and
financial performance: Empirical analysis of companies listed at the Nairobi Securities
Exchange. International Journal of Economics and Financial Issues, 5(1), p.23. Ranti,O,.2013. Determinants of Dividend Policy: A study of selected listed Firms in
Nigeria. Change and Leadership,
 Soondur. S.A.K,. 2016. Determinants of the Dividend Policy of Companies Listed on the
Stock Exchange of Mauritius. Conference on Global Business, Economics, Finance and
Social Sciences, Paper ID: M619 .
 Susko, D., Karunatillake, S., Kodikara, G., Skok, J.R., Wray, J., Heldmann, J., Cousin, A.
and Judice, T., 2017. A record of igneous evolution in Elysium, a major martian volcanic
province. Scientific Reports, 7.
 Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
 Yee,TC,. 2017 Dividend Pay-Out Policy and Firm Performance. Journal of Arts & Social
Sciences, Vol 1, Issue 1, 45‐52 (2017)
15