Financial Ratio Analysis of Aurizon Holdings Limited

This case study provides a trend analysis of the financial ratios of Aurizon Holdings Limited for the latest two financial years. It also discusses the company's corporate governance framework and its primary business of offering rail based freight services.

ACCOUNTING FOR BUSINESS
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The company allocated is Aurizon Holdings Limited.
PART 1
The various requisite financial ratios for the latest two financial years are as indicated below
(Aurizon, 2017;2018).
The requisite data used for computation of the above ratios is indicated as follows.
PART 2
The objective is to provide a trend analysis based on the above computed ratios.
Liquidity Ratios
The liquidity ratios are typically analysed in order to ascertain if the company would have
any short term liquidity crunch or not and to determine the ability of the company to
discharge the current liabilities based on the availability of the current assets (Damodaran,
2015). In relation to the liquidity ratios, it is apparent that there is a slight deterioration in the
liquidity ratios (i.e. current ratio, quick ratio and cash flow ratio) since the corresponding

value for as on June 30, 2018 is lower than the value as on June 30, 2017. However, this does
not have any significant implications for the company since the decrease is slight (Aurizon,
2018). As a result, it can be concluded that the company does not faces any short term
liquidity crisis based on the current financial statements (Arnold, 2015).
Profitability Ratios
It is apparent that the various ratios related to profitability have shown an improvement in
FY2018 over the last year FY2017. This is despite the fact that there was a slight drop in
operating revenues (barring the other income) in FY2018. The improvement in profits in
FY2018 is mainly on account of cost savings that the company has managed to achieve under
the Transformation program which aims for higher cost efficiency by lowering the various
operating costs. The net result is that while the company has made a loss in FY2017 from
continuing operations, it has made a about a $ 500 million profit after tax from continuing
operations (Aurizon, 2018). This augers well for the shareholders of the company and leads
to value creation for them (Parrino and Kidwell, 2014).
PART 3
Aurizon Holding Limited was set up in 2004 as QR National and was owned by the
Queensland government. However, over the years, the company has acquired other
companies is similar business and the Queensland government has also divested part of the
stake so that the organisation can be run commercially with highest level of operational
efficiency. The primary business of Aurizon Holding Limited is to offer rail based freight
services. In this regards, the company tends to provide rail transport to coal from mines in
Queensland and surrounding areas of NSW to port from where these are sent to their
respective export destinations. The company also is involved in containerized, general and
bulk freight businesses besides offering rail services related activities. The various segments
comprise of Commercial & Marketing, Operations, Network along with Other. The
responsibility of the Commercial & Marketing segment is to negotiate sales contracts with
various customers and engage in customer relationship. Besides, the Network segment is
engaged in management, operations and access providing to Central Queensland Coal Rail
Network This segment also looks into overhaul provisioning and maintenance of assets
related to rail networks. The timely delivery of various materials such as iron ore, coal and
providing intermodal haulage services is the responsibility of Operations segment. Further,

there are other aspects included such as operations at the yard, maintenance of fleet coupled
with environment, health and safety (IBIS, 2018).
The major competitors of the company are listed below (IBIS, 2018).
 Queensland Rail Limited
 KiwiRail Holding Limited
 Metro Trains Melbourne Pty Ltd
 Victorian Rail Track
PART 4
The corporate governance framework adopted by the company is derived from the principles
of corporate governance which have been advocated by the ASX Corporate Governance
Council. With regards to every principle that has been highlighted, the company takes
concrete measures in order to ensure that highest standards of internal governance are
maintained. Some of the measures in this regards are highlighted below (Aurizon, nd).
 The company ensures that the board members have specific roles and responsibilities
and also ensure that the board is diverse by having a formal policy of diversity in this
regards.
 The Chairman of board of directors is a non-executive independent directors besides
the majority of board members also belonging to the same category which ensures
that interests of the minority shareholders are not neglected.
 In order to promote ethical and responsible conduct, the company has put in a code of
conduct which ought to be observed by senior executives and board members.
 The audit committee is entirely composed of non-executive independent directors so
as to ensure no interference from management. Also, the external auditor is present in
the AGM for taking queries raised by shareholders.
 The company has various measures to promote communication and participation of
shareholders in the decision making of the company.
 Further, in order to manage risk, the company conducts annual risk review besides
having a risk committee in place for managing business risks.
It is therefore apparent that the company has in place the various regulations for ensuring
sound corporate governance practices. The only potential risk is derived from the

implementation of the same through the use of various internal and external controls coupled
with the underlying mechanism to punish the wrongdoers.
PART 5
The given case study has enabled me to derive a host of learning. The first aspect relates to
the analysis of the financial statements and computation of ratios for performance analysis.
Another aspect relates to the interpretation of the ratios in light of the information provided in
the annual report especially the directors’ report which provides key insights into the
operational performance of the company. Also, the use of notes to financial statements was
exhibited to some extent as the same had to be referred to enhance the understanding derived.
Besides, this case study helped me in understanding the importance of corporate governance
in the backdrop of the various principles introduced by ASX Corporate Governance Council.
Also, I came to realise that companies tend to take a host of measures in order to ensure
sound corporate governance practices since these are vital to the internal working of the
company and prevention of any frauds.

References
Arnold, G. (2015) Corporate Financial Management. 3rd ed. Sydney: Financial Times
Management.
Aurizon (2017) Annual Report FY2017, [Online] Available at
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_AZJ_2017.pdf
[Accessed September 16, 2018]
Aurizon (2018) Annual Report FY2018, [Online] Available at
https://www.aurizon.com.au/~/media/aurizon/files/investors/documents%20and
%20webcasts/2018/full%20year%20results/aurizon%20annual%20report%202018.pdf
[Accessed September 16, 2018]
Aurizon (n.d.) Corporate Governance Statement, [Online] Available at
https://www.aurizon.com.au/~/media/aurizon/files/company/governance/governance
%20statement/aurizon%20corporate%20governance%20statement.pdf [Accessed September
16, 2018]
Damodaran, A. (2015). Applied corporate finance: A user’s manual 3rd ed. New York:
Wiley, John & Sons.
IBIS (2018) Aurizon Holdings Limited: Segments, [Online] Available at
http://clients1.ibisworld.com.au/reports/au/enterprisefull/segments.aspx?entid=12874
[Accessed September 16, 2018]
Parrino, R. & Kidwell, D. (2014) Fundamentals of Corporate Finance, 3rd ed. London:
Wiley Publications