Financial performance in Organisation Assignment

Financial performance of two
companies 1) Jupiter Energy
Ltd ASX code -JPR GI
financial performance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Describing operation and competitive advantage of both selected organization...............1
2. Calculation and comparison of past 3 years.......................................................................2
3. Analysing share price movements of companies on monthly basis over last two years..14
4. Identifying factors leading to influence prices of shares..................................................15
5. Computation of beta and expected rates of return by incorporating CAPM of ASX listed
companies.............................................................................................................................16
6. Comparing dividend policies of companies.....................................................................17
7. Recommending client regarding inclusion of organisation in his portfolio.....................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Financial statements plays very important role for assessing financial performance and
wealth of organization in appropriate manner. The present report will discuss about Jupiter
energy Ltd and Oil Search Ltd as both comprise in similar industry. It will provide brief
description of operation and comparative advantage of both organization. It would signify
performance comparison with application of financial ratio. It will analyse monthly share price
movements within 3 years. In the similar aspect, it will determine significant factors which might
influence share price of our both selected organizations. Further, it will extract value of beta and
expected rate of return with application of CAPM. It will determine and compare dividend policy
along with recommendation.
1. Describing operation and competitive advantage of both selected organization
Oil Search Ltd: It was founded in 1929 and in 2006 it was responsible for GDP of Papua
as 13%. It is the largest gas and oil exploration and development organization which is situated
in Papua New Guinea. This organization also operates in Yemen, Libya, Egypt and Kurdistan
region of Iraq. In year 2013, it was listed on Dow Jones Sustainability Index Australia. Its major
operation is via PNG business unit, exploration and various other segments. It is engaged in
production, and sale of crude oil, natural gas, naphtha, liquefied natural gas, power generation
activities and major refined products. It believed in competitive entry price. There is presence of
significant appraisal along with upside exploration within leases. It has observed Oil search
leverage along with core competencies for managing local stakeholders and operation in remote
location and rebalancing its portfolio of organization between gas and oil. In the similar aspect,
characteristics of high performance culture considers commitment of innovation and wish to seek
or create innovative opportunities for competitive advantage (Annual Report of Oil search Ltd.
2017).
Jupiter Energy Ltd: It operates as production and oil exploration organization in
Kazakhstan. It is based in West Perth, Australia. It has acreage in Kazakhstan with ownership of
100% block 31. Majority of its employees are based on Aktau Office, the operational centre of
business entity with location of 80 km from block 31. It has strong belief on local content and
focused to local employment on basis of employees of Aktau being Kazakh. It is currently
generating three wells on Akkar East field with their own trial production license (Jupiter Energy
Ltd, 2018). The company is performing towards returning its 2 west Zhetybai well to trial
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production in third quarter. It has only capability for selling oil which is produced in Trial
Production period in domestic market.
In year 2008, it had acquired 100% of block 31 which is situated in oil rich Mangistau
which is near to port city of Aktau. This organization has proven in country management team
through experienced, international board for possessing skills, network, knowledge and attention
to detail required for operating in efficient aspect. The topside infrastructure is referred as key
element for moving toward long term production and attainment of self funding for various other
developments.
2. Calculation and comparison of past 3 years
Liquidity ratio
Current ratio:
JPR 2015 2016 2017
Current Asset 1882256 772855 577089
Current liability 1342472 755133 877359
Current ratio 1.40 1.02 0.66
Oil search 2015 2016 2017
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Current Asset 1141915 1134038 1287360
Current liability 576599 551837 626776
Current ratio 1.98 2.06 2.05
Interpretation: The above two graphs are indicating liquidity position of both
organization. Graph 1 depicts Jupiter Energy Ltd's position. The ideal ratio is of 2:1 but from
year 2015 to 2016 it ios decreasing because of proportion of current asset and current liability.
The organization is not capable to meet its obligations from its current asset. However, Oil
Search Ltd shows proper position of liquidity as in year 2015 it was in sufficient but in 2016 and
2017, it copes up by 2.06 and 2.05 respectively. The liquidity position of Oil Search Ltd is good
as it can repay its obligations from current asset.
Quick ratio:
JPR 2015 2016 2017
Inventory 68535 17886 18352
Quick Asset 1813721 754969 558737
Current liability 1342472 755133 877359
Quick ratio 1.35 1.00 0.64
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2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Q uic k ratio
Oil search 2015 2016 2017
Inventory 136786 106817 95018
Quick Asset 1005129 1027221 1192342
Current liability 576599 551837 626776
Quick ratio 1.74 1.86 1.90
2015 2016 2017
1.65
1.70
1.75
1.80
1.85
1.90
1.95
Q uic k ratio
Interpretation: The above graph is depicting quick ratio of both organization. The ideal
ratio is of 1:1. Jupiter Profit Ltd was exceeding as of 1.35: 1 but it started decreasing till 2017
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which signifies it is not capable to repay its short term obligations from current liability.
However, Oil Search Ltd was in very good position to repay its short term obligations in short
duration from its quick assets. As in year 2015 it was enough but it started raising so it should
keep appropriate watch on its quick assets to utilise it's each resource.
Profitability ratio
 Gross margin ratio:
JPR 2015 2016 2017
Gross profit 417408 0 0
Sales 3896359 0 0
Gross margin ratio 0.107 0 0
2015 2016 2017
0.000
0.020
0.040
0.060
0.080
0.100
0.120
5
G ros s m argin ratio

2015 2016 2017
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
G ros s m argin ratio
Oil Search 2015 2016 2017
Gross profit 803917 464955 730953
Sales 1585728 1235908 1446001
Gross margin ratio 50.70% 37.62% 50.55%
2015 2016 2017
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
G ros s m argin ratio
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Interpretation: The above graph is depicting gross margin ratio of Jupiter energy Ltd
and Oil Search Ltd. Jupiter energy Ltd is facing very drastic situation as it is facing so many
challenges which are very difficult to face as there is absence of revenue and gross profit as well.
However, there is no competition among both organization. Oil Search Ltd has gross profit of
50.70% which was reduced in 2016 because of gross profit, but it is managed in 2017 to give
proper ratio of gross profit.
 Net Profit ratio:
JPR 2015 2016 2017
Net profit -10982261 -107474870 -8076857
Total assets 76897616 47557048 49200046
Return on asset -14.28% -225.99% -16.42%
2015 2016 2017
-300.00%
-250.00%
-200.00%
-150.00%
-100.00%
-50.00%
0.00%
Net profit ratio
Oil Search 2015 2016 2017
Net profit -39382 89795 302092
Sales 1585728 1235908 1446001
Net profit ratio -2.48% 7.27% 20.89%
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2015 2016 2017
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Net profit ratio
Interpretation: Net profit ratio is termed as very important measure of profitability as
Jupiter energy Ltd is not capable for earning net profit which is moving negative from past three
consecutive years. However, Oil Search Ltd was also not capable to generate net profit in year
2015 but in 2016 and 2017 it started improving and as an outcome it accomplished positive
image. In year 2016 it was 7.27% and in 2017 it was 20.89% which shows that organization is
improving its profitability position (Annual Report of Jupiter Energy Ltd, 2017).
Return on equity:
JPR 2015 2016 2017
Profit after tax -10982261 -107474870 -8076857
Equity share capital 41654900 3711247 -3584203
Net worth 41654900 3711247 -3584203
Return on equity -26.36% -2895.92% -225.35%
Oil Search Ltd 2015 2016 2017
Profit after tax -39382 89795 302092
Equity share capital 4709361 4725316 4937754
Net worth 4709361 4725316 4937754
Return on equity -0.84% 1.90% 6.12%
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2015 2016 2017
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Return on equity
Interpretation: The table are indicating return with reference to equity as there is
presence of one graph which is of Oil Search Ltd which has positive return. It was giving
negative return because of less profit after tax but it raised in year 2016 and 2017 by 1.90% and
6.12% respectively. It reflects good indicator as an organizational context. However, Jupiter
Energy Ltd was not capable to earn net profit so his return were in losses (Annual Report of Oil
search Ltd, 2016).
 Return on Asset
JPR 2015 2016 2017
Net profit -10982261 -107474870 -8076857
Total assets 76897616 47557048 49200046
Return on asset -14.28% -225.99% -16.42%
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2015 2016 2017
-250.00%
-200.00%
-150.00%
-100.00%
-50.00%
0.00%
Return on as s et
2015 2016 2017
Net profit -39382 89795 302092
Total assets 10342834 10126129 10512498
Return on asset -0.38% 0.89% 2.87%
2015 2016 2017
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Return on as s et
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Interpretation: The above graph is depicting return with context of asset as Jupiter
Energy Ltd is not capable for achieving return because of net loss instead of net profit. However,
Oil search annual report was not capable for accomplishing return because of net loss in year
2015 as it took various measures for generating return and as positive outcome 0.89% in 2016
and 2.87% in 2017 (Annual Report of Jupiter Energy Ltd, 2016).
Capital structure
 Debt to equity ratio
JPR 2015 2016 2017
Total liabilities 33372417 43090668 51906890
Stockholder's equity 41654900 3711247 -3584203
Debt to equity ratio 0.801 11.611 -14.482
2015 2016 2017
-20.000
-15.000
-10.000
-5.000
0.000
5.000
10.000
15.000
Debt to equity ratio
Oil Search Ltd 2015 2016 2017
Total liabilities 4012278 3758906 3424776
Stockholder's equity 4709361 4725316 4937754
Debt to equity ratio 85.20% 79.55% 69.36%
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2015 2016 2017
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Debt to equity ratio
Interpretation: The above graphs are depicting debt to equity ratio, in which Jupiter
Energy Ltd does not have optimal capital structure. However, Oil Search Ltd is having huge debt
as compared to equity from 2015 to 2017.The ideal ratio is of 40:60 as it is trying to balance but
it reached to 69.36% in 2017 which is also risky.
 Equity ratio:
2015 2016 2017
Total assets 76897616 47557048 49200046
Stockholder's equity 41654900 3711247 -3584203
Equity ratio 1.846 12.814 -13.727
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2015 2016 2017
-20
-15
-10
-5
0
5
10
15
E quity ratio
2015 2016 2017
Total assets 10342834 10126129 10512498
Stockholder's equity 4709361 4725316 4937754
Equity ratio 2.19 2.14 2.12
2015 2016 2017
2.08
2.1
2.12
2.14
2.16
2.18
2.2
2.22
E quity ratio
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Interpretation: The equity ratio signifies leverage used through company as it measure
proportion of total asset which is financed through stockholders as it is opposed to creditors.
Jupiter Energy Ltd ratio has various fluctuation which reflects bad position of company.
However, Oil search Ltd shows stable ratio as 2.19, 2.14 and 2.13 respectively which reflects
positive image of organization (Oil search Ltd, 2018).
3. Analysing share price movements of companies on monthly basis over last two years
Illustration 1: Stock chart of Jupiter Energy Ltd Source: Historical chart of Jupiter Energy Ltd.
2018
Illustration 2: Stock chart of Oil Search Ltd Source: Historical chart of Oil Search Ltd. 2018
It can be analysed that share price of two companies have been undertaken for last three
years on monthly basis. Jupiter Energy Ltd and Oil Search Ltd both listed on ASX have
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performed well over the years. From the chart, it can be assessed that monthly share price of
Jupiter Energy Ltd was good in mid-2017 as figure of share was around 0.25 AUD. It was good
over the years but has gradually decreased in September 2018 up to a high extent. This is evident
from graph that current share price of Jupiter Energy Ltd is priced at 0.04 which is all time low
for the company and it is required that firm should perform better so that EPS (Earnings Per
Share) can be effectively enhanced in forthcoming periods.
On the other hand, Oil Search Ltd has been performing well in the past years which is
shown in chart as it was around 7.50 in last 2016 and 2017 financial years. The share price has
effectively enhanced in August and September 2018, as it is currently all time high in market and
reached to 8.74 share price. This shows that company is efficient in meeting out its operational
activities and as a result, profit has significantly reached high because of good performance of
share in market and Price Earnings ratio 38.21 while of Jupiter Energy Ltd is zero. On the other
hand, beta value of Jupiter Energy Ltd -0.34 which is negative means that inverse relation to
market is possible, not good for investors as it will move opposite to market. While, beta of Oil
Search Ltd is 0.86 implying that beta is less than 1 and shares are less volatile which is beneficial
for investors as returns will be generated in long-run. Thus, overall performance of shares and
volatility in market, Oil Search Ltd is better.
4. Identifying factors leading to influence prices of shares
There are factors which have much influence of share prices of company. These factors
are listed below-
1. Industry wide factors-
Oil and gas industry is highly competitive and at the same time, various factors such as
customer responsiveness, demand, good record of deliveries and exploration practices form
important part of company and if it does not perform as per industry wide factors, then it is likely
that shares are influenced up to a high extent (Damodaran, 2016).
2. Merger and Acquisitions-
Mergers and acquisitions are another way of influencing share prices of company. It is
reflected from the fact that Inter Oil Exploration is being acquired by Oil Search Ltd and other
acquisition slated to be held in forthcoming periods. This means that by acquiring other firm,
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share price is affected up to a major extent. Moreover, through acquisition, structure of
management also tends to change (Rocheteau, Wright and Zhang, 2018).
3. Unusual write-offs-
Sometimes debtors pay the amount after long time and till they pay, firm makes entry of
bad and doubtful debts and close account. However, they make payment afterwards but till that
time, organisation already write-off the same. Hence, because of such write-offs, share prices
tend to change or gets influence up to a major extent (Dang and Forsyth, 2016.). This affects
price of shares in the market.
4. Impact of competitors-
The competitors implement strategies which can have influence over price of shares. This
is because strategies to outreach rivals in industry is made and as such, it has direct influence on
market and eventually price gets affected. Oil research Ltd and Jupiter Energy Ltd are major
competitors in oil and gas industry which leads influencing share prices.
5. Management changes-
It is another reason by which share prices gets affected quite easily of company.
Management structure has direct influence over external operational activities because duties and
responsibilities tend to change and as a result, due to such change, share prices affects.
5. Computation of beta and expected rates of return by incorporating CAPM of ASX listed
companies
Jupiter Energy Ltd
Particulars Amount
Beta -0.34
Risk free rate (Rfr) 5.00%
Market risk premium (Rm – Rf) 6.00%
Expected rate of return 10.00%
Required rate of return (Rf + beta 2.96%
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(Rm – Rf))
Oil Search Ltd
Particulars Amount
Beta 0.86
Risk free rate (Rfr) 5.00%
Market risk premium (Rm – Rf) 6.00%
Expected rate of return 10.00%
Required rate of return (Rf + beta
(Rm – Rf)) 10.16%
It can be interpreted that beta values have been calculated for organisations listed on
ASX. Table shows that risk free rate is expected to be 5 % and market risk premium is 6 %. On
the other hand, beta value calculated turns out to be 0.86 for Oil Search Ltd and of another
company is -0.34. This implies that required rate of return for Oil Search Ltd is 10.16 % and of
Jupiter Energy Ltd is 2.96 %. While, expected rate of return is taken as 10 % for both companies.
The calculation is done with the help of incorporating CAPM so that it riskiness of securities
may be analysed in a better way (Chandra, 2017).
On the other hand, CAPM is used on to carry out whether securities are risky for the
perspective of investors. In relation to this, negative value of beta means that shares of Jupiter
Energy Ltd will not be stable in accordance to the market and will have inverse relationship in
comparison to market. While, shares of Oil Search Ltd will perform well in relation to market as
beta is less than 1 and volatility is less and hence, investors would attain higher returns in long-
run. Thus, as per the CAPM, Oil Search Ltd is suitable for investors.
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6. Comparing dividend policies of companies
Dividends are termed as part of profits being shared in equal proportion to investors on
shares held by them in a better way (Low, Yao and Faff, 2016). It is required that organisation
should pay dividend in order to satisfy them which will attract shareholder's to invest more in
company. It can be assessed that Jupiter Energy Ltd has bad financial performance in two
consecutive years i.e. 2016 and 2017. This shows that company has no revenue in financial years
and as a result, has not paid dividend. While, Oil Search Ltd is one of the biggest company and
has effectively attained profits over the year. 19.83 cents per share has been paid by firm which
was just 5.90 in earlier year. In relation to this, proportionate dividend policy has been followed
by Oil Search Ltd, in which it pays between 35 % to 50 % of net income to shareholder's which
is beneficial to them as short-term and long-term returns are provided to them. Hence, due to
higher amount of payment of dividends, investors will get benefits from company.
7. Recommending client regarding inclusion of organisation in his portfolio
To,
The Client,
Date – 24th September 2018
Hereby it can be recommended to client that investment should be made in high
performing company which offers good dividends per share. Moreover, profitability position of
organisation also tends to be major reason by which investment can be made. Jupiter Energy
Ltd and Oil Search Ltd are two firms of which financial ratios are calculated for last three years.
It clearly shows that performance of Jupiter Energy Ltd is poor as it is earning losses for
consecutive years. While, Oil Search Ltd has performed well which is highlighted in a better
way with help of ratios. Gross profit ratio was 37.62 % in 2016 and reached to 50.55 % in next
year and as such, performance is good. Value of beta is also good of Oil Search Ltd which is
0.86 highlighting clearly that investor should invest in it this company only so as to maximise
returns.
CONCLUSION
Hereby it can be concluded that investment should be made in profitable firms. The
outcome that is generated from report is that client must invest in Oil Search Ltd as overall
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financial health of company is good. Moreover, Shareholders should offered with higher returns
as they provide equity financing to company so that it may easily finance its activities in the best
way possible. In this manner, client will be beneficial as beta value of company is less than 1
implying that shares are less volatile and constant returns will be accomplished by investor in
long-run. Hence, investment must be made in Oil Search Ltd for increment in dividends.
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REFERENCES
Books and Journals
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Dang, D. M. and Forsyth, P. A., 2016. Better than pre-commitment mean-variance portfolio
allocation strategies: A semi-self-financing Hamilton–Jacobi–Bellman equation
approach. European Journal of Operational Research. 250(3). pp.827-841.
Low, R. K. Y., Yao, Y. and Faff, R., 2016. Diamonds vs. precious metals: What shines brightest
in your investment portfolio?. International Review of Financial Analysis. 43. pp.1-14.
Rocheteau, G., Wright, R. and Zhang, C., 2018. Corporate finance and monetary
policy. American Economic Review.108(4-5). pp.1147-86.
Online
Historical chart of Jupiter Energy Ltd. 2018 [Online]. Available Through:
<https://www.reuters.com/finance/stocks/chart/JPR.AX>.
Historical chart of Oil Search Ltd. 2018 [Online]. Available Through:
<https://www.reuters.com/finance/stocks/chart/OSH.AX>.
Jupiter Energy limited. 2018.[Online]. Available through:<http://www.jupiterenergy.com.au/>.
Oil search Limited. 2018. [Online]. Available
through:<https://www.bloomberg.com/research/stocks/private/snapshot.asp?
privcapId=875091>.
Annual Report of Oil search Limited. 2017. [Online]. Available
through:<http://www.oilsearch.com/__data/assets/pdf_file/0009/19737/
HC_OS_AR17_final.pdf>.
Annual Report of Oil search Limited. 2016. [Online]. Available
through:<http://www.oilsearch.com/__data/assets/pdf_file/0003/7788/170407-OSH-2016-
Annual-Report.pdf>.
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