Managing Finance Research Paper 2022

Running head: MANAGING FINANCE
Managing finance
Name of the student
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Table of Contents
Introduction......................................................................................................................................2
Overview of Aurizon Holdings Limited..........................................................................................3
Sydney Airport.................................................................................................................................3
Compartive Financial statement analysis........................................................................................4
Profitability ratio analysis comparison between Aurizon and Sydney Airport...............................4
Liquidity ratio analysis comparison between Aurizon and Sydney Airport....................................7
Investment ratio comparison between Aurizon and Sydney Airport...............................................8
Capital structure of Aurizon and Sydney Airport............................................................................9
Historical Weighted Average Cost of Capital...............................................................................10
Discounted cash flow technique....................................................................................................10
Relative Valuation of Aurizon and Sydeny Airport......................................................................12
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................14

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Introduction
This paper focus on the subject of key finance that specifically acknowledge the concepts
of finance such as financial statement analysis, the concerned risk analysis and return, capital
structure and the valuation of shares to the specified two companies named as Aurizon Holdings
Limited and SYD Airport. The aim of this paper to evaluate the comoany’s financials and make
understand the investors wheater the company’s position is good or bad for investment.
Overview of Aurizon Holdings Limited
Aurizon holdings Limited, is working as rail freight, which is publicly listed comoany in
Australia. This company was owned by Government of Queensland, in the late 2010, it was
being listed on Australian Securities Exchange. It is the world’s largest rail freight company and
top 50 ASX company. In every year, the company usually transports more than 250 million
tonnes of Australian commodities, connecting miners, primary procedures and industry with
international and domestic markets. The company provides customers integrated freight and
logistic solutions over the extensive national rail and road network. The company also preserves
and operates coal rail network, which is one of the world’s largest. The company also helping the
regional Australia by providing the bulk commodities to the world. Foe achieving this the
company has three major avenues: Network, Coal and Bulk. The success and value of the
company is linked with the key demand drivers of the Australian resources sector in the global
markets and the ongoing strength of the Australian economy. The vision of the company is to be
the first choice for the solution of bulk commodity transport. To grow the regional Australia by
delivering bulk commodities to the world (annualreports.com, 2020).

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Traded symbol: AZJ. ASX
Market price: 4.5700
Sydney Airport
Sydney Airport/ Kingsford Smith is an international airport in Sydney, Australia. The
airport is listed with the ASX, Sydney Airport Group. It is the world’s largest continuously
operated commercial airports. The company vison is to provide the world class airport
experience and foster the growth os Sydney airport oer the advantages of people. It indicates the
world’s most popular infrustracture, this sirport provides an international gateway and transport
network which ususlly connects more than 90 destination all over the world. It also make a
important involvement to the local and national economies, generating $38 billion in an
economic movement a year. This contributaion is equivalent to 6.8% of the NSW economy and
translates into more than 338500 for the people of Sydney. The location results both the business
and tourism which helps to increase the major strength for the society.
Trade symbol: SYD
Market price: 6.28
Compartive Financial statement analysis
The paper researches a comparative financial statement analysis for both the company.
Through the financial statement analysis it takes some of the ratio evaluation like profitability
ratio, liquidity ratio and investment ratio.

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Profitability ratio analysis comparison between Aurizon and Sydney Airport
Profitability ratio- the profitability ratio is one of the financial metrics which is used by the
investors that evaluate the ability of a company to generate income, relative to revenue, balance
sheet assets, operating costs and stockholders’ equity duting a detailed period of time. It is
indicating how well a company utilizes its assets to deliver profit and value to shareholders. A
high ratio indicates that the company is performing well to generate revenue, cash flow and
profits.
The study analyze all the above metioned ratios and compare for both the company for
the period of 2014 to 2018. Ratios are notified as follows:
Gross profit margin
This ratio implies that the company’s capability to convert their sales at the different
degree of measurement. Here, the Aurizon company shows a contineous growth over the years,
also the Sydney Airport shows the same. It means the company is performing well to generate
their profit. But their average shows 90% and 28% respectively for Aurizon and Sydney airport.
High for Aurizon.

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EBIDTA margin
This ratio states a profitability of a company before taking into the account non operating
items. It is the better indicator for the company’s performance. Both the company is gradually
increasing their respective EBIDTA margin. Their averages of Aurizon is 41% whereas the SYD
airport is 81%. Sydney Airport group shows better EBIDTA margin.
Operatring Profit Margin
Operating profit margin ratio shows the strength of the company’s management. The
calculated average for Aurizon is 25% and SYD is 54%.
Net profit margin
Net profit margin is the bottom line, it shows a clear picture of the company that how
profitable is the company after all expenses (Egam, Ilat & Pangerapan, 2017). The aggregate is
7% and 20% respectively for Aurizon an Sydney airport. Therefore the SYD shows better in this
case.
Operating cash flow
This ratio is measuring the company’s ability to generate cash from sales. Keeping the
higher ratio indicates more cash available from sales to pay for the suppliers. Here the average
for the both the company indicates the Aurizon is better that having a good operating cash flow
ratio in comparison to SYD. Aurizon is 9% and SYD is 7%.

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Return on assets
As the name suggest, it shows the percentage of net earnings of the company’s total
assets. For the Aurizon the average is 2.31% and for the Sydney airport is 2.26%.
Return on invested capital
The average looks 4% and 7% respectively for the Aurizon and Sydney airport. This ratio
generally provides of capital including both bondholders and shareholders. The ROE
encompases its scope since the income has generated by its shareholders. For Aurizon 4% and
for Sydney it is 7%.
Return on Equity
This ratio expresses the percentage of net income which is related to the stockholder’s
equity. it indicates the rate of return from the investment which the businessman put his money
through the equity. the average return on equity of Aurizon is 4.18 whereas the Sydney Airport is
having 38.50% ROE, which is far better than Aiurizon.
Sum of all the averages for both the company it is clearly says that average profitability is
higher for Aurizon as 166.32 better than SYD Airport.

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Liquidity ratio analysis comparison between Aurizon and Sydney Airport
Below mentioned table shows the liquidity position for both the company are as follows:
This ratio encompasses a financial ratio that the existing current assets are sufficient to
meet the short term liabilities. This ratio includes the current ratio and quick ratio (Rahayu &
Hari, 2016).
Current ratio- this type of ratio indicates, the proportion of the companys current assets to its
current liabilities. Here the calculated average current ratio over five years of Aurizon is 1.12
and for the Sydney airport it is 0.85. larger the ratio better than the smaller one.
Quick ratio- it is also a gauge the company’s liability. The quick ratio compares total amount of
cash+ marketable securities+ accounts receivable to the current liability. Aurizon and Sydney
Airport, both the company shows 0.81 and 0.75 as average quick ratio respectively.
Sum of Average liquidity ratio over the five years 1.93 and 1.60 respectively for Aurizon
and SYD airport. So it is better for Aurizon having a little better liquidity position.
Investment ratio comparison between Aurizon and Sydney Airport
Investment ratio indicates the performance of the company’s shares. Discussing about the
investment ratio generally talks about the ROI, that Return on Investment.
Following table clearly shows the return on investment for both the companies and
compare between them.

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Generally ROI, calculated as EBIT divided by the company’s capital employed. Return
On Investment measures the efficiency of an investment or compare the the efficiency of a
number of different investment. High ROI indicates the investment’s gains compare favaourably
to its cost. The average shows Aurizon is having better ROI in comparison to Sydney.
Capital structure of Aurizon and Sydney Airport
The capital structure of the company, is the particular combination of debt and equity
which is used by the company to finance to its overall operations and growth.
Generally when it is require to describe the capital structuer of the company, it takes the
debt to equity ratio (Yasa, & Wirawati, 2016) into consideration. Which indicates the how much
risk is associated of the company’s borrowing practice.
Aurizon is using more equity than its debt, therefore the company maintains a
conservative capital structure, whereas The Sydney Airport is having more debt than it equity
thus the company maintains more aggressive capital structure. Aurizon continuously increase
their debt position and for equity postion consistently downgrading. Sydney Airport increasing
their debt consistently over the year but they drastically dectrreasing their equity position over

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the next 5 years. Thus the aggressive capital structure indicates the higher growth rates and lower
growth rates is indicating by the conservative capital structure.
This paper also analyse debt to equity ratio to define the capital structure for both the
company. Here Sydney Airport shows more external or creditor financiang than Aurizon.
Therefore, SYD is using their corporate strategies more efficiently.
Historical Weighted Average Cost of Capital
This section defines the weighted average cost of capital for both then companies, below
mentioned structure shows the WACC for Aurizon and Sydney Airport.
Discounted cash flow technique
To evaluate the value of the company’s shares this research used to DCF technique. This
approach is used to estimate the value of the investment on the basis of future cash flow. The
discounted cash flow method use to determine the valuation of the company’s share.
It is the method to calculate intrinsic value. Aurizon’s valuation of shares are as follows:

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Therefore the share is overvalued, The calculated value is 2.09 and the current market price is
2.9.
Sydney’s DCF value shows as below:

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The above screenshot shows the intrinsic value of shares is 1544.24 and the current market price
is 6.28.
Relative Valuation of Aurizon and Sydeny Airport
The relative valuation method allows to determine the value of an investment by
comparing the similar entities. To assess the relative valuation it takes price to book value ratio
into consideration.
Price to Book value ratio
Price to book value ratio compares wheather the stock of the company is undervalued or
overvalued. It reflects the attachment of market participants to a company’s equity value related
to its equity.
The price to book value ratio for both the companies are listed below:
For Aurizon Holdings Limited, price to book value ratio is 3.81 which is overvalued as
the theory suggests >1 indicates overvalued.

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The Sydney Airport Limited Stapled Securities’s share is under valued as it is <1.
As the case suggests that $75,00,000 is inherited from late aunt, so now it is require to
invest in either of the mentioned shares. After the above analysis and calculation, it recommends
to invest in the Sydney Airport Limited Stappled Securities.
Justification
This paper analyse and evaluate the ratio and shares valuation of both the companies.
After calculating the shares it has observed that the SYD shares is undervalued and the financial
position is better than the other. As the stock is undervalued that there is a possibility to move
upward the shares. Also this company takes an aggressive strategy which will have a high
growth return as discussed above. The dividend policy that both of the company followed
constant growth model over the years.
Conclusion
After examining this paper can conclude that ratio analysis is the essential part to
evaluate the companys performance. This study will help to the investor to assess the company
stock based on the different valuation model. The importance of the financial analysis of an
investor is a key factor to park their money into the stocks. In this research paper, two company
named as Aurizon Holdings and Sydney Airport are evaluated on the basis of their financial
statistics. Ratio analysis has taken an crucial part of this company analysis and valuation of the
company’s shares are indicates the intrinsic value of the stock of the selected company by using
the DCF approach.

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