Managing Finance | Case Study Report

MANAGING FINANCE 1
MANAGING
FINANCE

MANAGING FINANCE 2
Executive summary:
This report aims selecting two comapneis that are listed on ASX. The companies chosen are
AusNet Services Limited and AGL Limited. Both of these companies belong to the industry
of “Utilities”. The report contains the financial analysis of these companies. Also, it talks
about the weighted average cost of capital, capital structure, and financial ratios. In the end it
talks about the relative book value per share of these companies. Form the report, it can be
stated that an investment should be done in AGL Limited since it seems to be improving in
terms of its efficiency and effectiveness.

MANAGING FINANCE 3
Contents
Introduction:...............................................................................................................................4
Financial analysis:......................................................................................................................4
Profitability ratios:...............................................................................................................11
Liquidity ratios:....................................................................................................................12
Investment ratios:.................................................................................................................13
Capital structures of the companies:........................................................................................14
Historical weighted average cost of capital:............................................................................17
Discounted cash flow approach:..............................................................................................19
Relative valuation which is based on a market to book value ratio:........................................21
Conclusion:..............................................................................................................................22
References:...............................................................................................................................23
References...........................................................................................................................23
Appendix:................................................................................................................................24

MANAGING FINANCE 4
Introduction:
The first company chosen for the purposes of this assignment is AusNet Services which is a
company incorporated in Australia and is an energy company. The company is listed on the
Australian Securities Exchange and also on the Singapore Exchange. The shares to the extent
of 31.1% has been owned by Singapore Power and to the extent of 19.9% by the State Grid
Corporation of china and the remaining % has been owned by the public at large. Singapore
Power has been owned by Singapore investment fund Temasek which is owned by the
Singapore government. Sate Grid company is the company which is an electric company
owned by the state and has a monopoly over the country of China and is also the largest
utility company in the world (AusNet Services, 2020).
The second company chosen for review is AGL Energy Limited which is again a listed
company on Australian Stock Exchange. This is the company which is involved in the
activities of generation, retailing of electricity and has for the residential and the commercial
purposes. The company generates energy from various power stations and use the thermal
power, natural gas, wind power along with hydroelectricity, solar energy etc. sources (AGL
Limited, 2020).
Financial analysis:
The following table shows the calculated ratios:
30 June ended
Particulars Formula (Amounts in $ in millions)

MANAGING FINANCE 5
LIQUIDITY
RATIOS
FORMULA 2018 2017 2016 2015 2014
Current ratio
Current
Assets/Curre
nt liabilities
1.649046
794
1.327352
618
1.327352
618
1.405013
709
1.574792
244
Current
Assets
3,
806.00
3,
625.00
3,
625.00
3,
587.00
3,
411.00
Current
Liabilities
2,
308.00
2,
731.00
2,
731.00
2,
553.00
2,
166.00
Quick Ratio
(Acid test)
(Current
assets –
Inventory)/C
urrent
liabilities
1.488734
835
1.198828
268
1.198828
268
1.242851
547
1.486611
265
Current
Assets less
inventory
3,
436.00
3,
274.00
3,
274.00
3,
173.00
3,
220.00
Current
Liabilities
2,
308.00
2,
731.00
2,
731.00
2,
553.00
2,
166.00
-

MANAGING FINANCE 6
Cash flow
ratio
0.924610
052
0.326254
119
0.326254
119
0.464551
508
0.322714
681
Cash flow
from
operations
2,
134.00 891.00 891.00
1,
186.00 699.00
Current
Liabilities
2,
308.00
2,
731.00
2,
731.00
2,
553.00
2,
166.00
PROFITABI
LITY
RATIOS
Gross Profit
margin
Gross Profit/
Turnover
(Sales)
23.03% 11.55% 11.55% 1.53% 12.25%
Gross profit
2,
952.00
1,
453.00
1,
453.00 171.00
1280
Sales
12,
816.00
12,
584.00
12,
584.00
11,
150.00
10445
Net profit
margin
Earnings
Before
Interest and
tax/Turnover
(Sales)
19.23% 7.85% 7.85% -2.30% 9.37%
EBIT 2,

MANAGING FINANCE 7
464.00 988.00 988.00 -256.00 979.00
Sales
12,
816.00
12,
584.00
12,
584.00
11,
150.00
10,
445.00
Return on
equity
Earnings
After Tax/
Average
Shareholders
’ funds
19.88% 6.95% 6.44% -4.96% 7.64%
EAT
1,
587.00 539.00 539.00 -407.00 570.00
Average
equity
7,
982.00
7,
750.00
8,
370.50
8,
201.50
7,
464.00
Return on
total assets
Earnings
After Tax/
Average
Total Assets
10.91% 3.71% 3.54% 1.45% 4.15%
EAT
1,
587.00 539.00 539.00 218.00 570.00
Average
Assets
14,
548.50
14,
531.00
15,
218.50
14,
983.50
13,
750.00
INVESTME
NT RATIOS

MANAGING FINANCE 8
Earnings per
share
Earnings
After Tax/
Number of
ordinary
shares in
issue
2.352113
362
28.53764
176
0.798858
918
22.20724
043
1.018366
788
EAT
1,
587.00 539.00 539.00
14,
983.50 570.00
Number of
shares 674.71 18.89 674.71 674.71 559.72
Dividends per
share
Total
ordinary
dividends/
Number of
ordinary
shares in
issue
0.117 0.091 0.068 0.064 0.063
Dividend
78.94 1.72 45.88 43.18 35.26
Number of
shares 674.71 18.89 674.71 674.71 559.72
Dividend
Dividend per
share/
4.97% 0.32% 8.51% 0.29% 6.19%

MANAGING FINANCE 9
payout ratio
Earnings per
share
DPS
0.12 0.09 0.07 0.06 0.06
EPS
2.35 28.54 0.80 22.21 1.02
Dividend
Yield (%)
Dividend per
share x 100%
/Market price
per share
0.60% 0.44% 0.40% 0.48% 0.59%
DPS * 100 0.117 0.091 0.068 0.064 0.063
MPS 19.66 20.58 16.95 13.22 10.75
Price
Earnings
Ratio (PE
Ratio)
Market price
per
share/Earnin
gs per share
MPS
19.66 20.58 16.95 13.22 10.75
EPS
2.35 28.54 0.80 22.21 1.02
CAPITAL
STRUCTUR

MANAGING FINANCE 10
E RATIOS
Debt Ratio
Long Terms
Debt/
(Shareholder
s Funds +
Long Term
Debt +
Current
Debt)
25.57% 28.19% 27.76% 28.26% 32.08%
(All non-
current
labilities
except
provisions)
Long term
debt
3,
432.00
3,
633.00
3,
638.00
4,
189.00
4,
274.00
Shareholders
’ funds
8,
390.00
7,
574.00
7,
926.00
8,
815.00
7,
588.00
Long term
debt
3,
432.00
3,
633.00
3,
638.00
4,
189.00
4,
274.00
Current
payables+
borrowings
Current debt
1,
598.00
1,
680.00
1,
541.00
1,
820.00
1,
462.00
Debt to
Equity Ratio
Long Term
Debt x
100%/
40.90584
029
47.96672
828
45.89957
103
47.52127
056
56.32577
754

MANAGING FINANCE 11
Shareholders
’ Funds
Long term
debt * 100
3,43,
200.00
3,63,
300.00
3,63,
800.00
4,18,
900.00
4,27,
400.00
Equity
8,
390.00
7,
574.00
7,
926.00
8,
815.00
7,
588.00
Ausnet Services:
31 March ended
Particulars Formula (Amounts in $ in millions)
LIQUIDITY
RATIOS
FORMULA 2018 2017 2016 2015 2014
Current ratio
Current
Assets/Curre
nt liabilities
1.000760
456
0.833608
956
0.625380
402
0.988115
557
0.640097
841
Current
Assets 921.20 655.30 822.00
1,
563.10 758.90
Current
Liabilities 920.50 786.10
1,
314.40
1,
581.90
1,
185.60
Quick Ratio
(Acid test)
(Current
assets –
0.954807 0.778526 0.611305 0.975851 0.604419

MANAGING FINANCE 12
Inventory)/C
urrent
liabilities
17 905 539 824 703
Current
Assets less
inventory
878.90 612.00 803.50
1,
543.70 716.60
Current
Liabilities 920.50 786.10
1,
314.40
1,
581.90
1,
185.60
-
Cash flow
ratio
0.962954
916
0.944917
949
0.540170
42
0.485239
269
0.615890
688
Cash flow
from
operations
886.40 742.80 710.00 767.60 730.20
Current
Liabilities 920.50 786.10
1,
314.40
1,
581.90
1,
185.60
PROFITABI
LITY
RATIOS
Gross Profit
margin
Gross Profit/
Turnover
(Sales)
90.78% 90.35% 92.67% 91.44% 36.00%
Sales-external Gross profit 1, 1, 1, 1, 647.7

MANAGING FINANCE 13
maintenance
and
contractors
services,
materials
733.80 700.00 778.30 677.00
Sales
1,
909.80
1,
881.50
1,
919.00
1,
833.90
1799.4
Net profit
margin
Earnings
Before
Interest and
tax/Turnover
(Sales)
-40.16% -42.96% -40.46% -42.90% 36.00%
EBIT
-766.90 -808.20 -776.50 -786.70 647.70
Sales
1,
909.80
1,
881.50
1,
919.00
1,
833.90
1,
799.40
Return on
equity
Earnings
After Tax/
Average
Shareholders
’ funds
8.03% 7.03% 14.38% 0.68% 5.18%
EAT

MANAGING FINANCE 14
291.40 255.10 489.30 22.60 178.30
Average
equity
3,
627.20
3,
627.70
3,
403.30
3,
346.70
3,
440.85
Return on
total assets
Earnings
After Tax/
Average
Total Assets
2.40% 2.18% 4.12% 0.20% 1.72%
EAT
291.40 255.10 489.30 22.60 178.30
Average
Assets
12,
136.90
11,
716.25
11,
869.65
11,
337.80
10,
347.25
INVESTME
NT RATIOS
Earnings per
share
Earnings
After Tax/
Number of
ordinary
shares in
issue
0.080873
567
0.070799
063
0.138314
111
3.270299
114
0.052648
674
EAT
291.40 255.10 489.30
11,
337.80 178.30
Number of
shares
3,
603.16
3,
603.16
3,
537.60
3,
466.90
3,
386.60

MANAGING FINANCE 15
Dividends per
share
Total
ordinary
dividends/
Number of
ordinary
shares in
issue
0.0836 0.0836 0.0853 0.088 0.0925
Dividend
301.22 301.22 301.76 305.09 313.26
Number of
shares
3,
603.16
3,
603.16
3,
537.60
3,
466.90
3,
386.60
Dividend
payout ratio
Dividend per
share/
Earnings per
share
103.37% 118.08% 61.67% 2.69% 175.69%
DPS
0.08 0.08 0.09 0.09 0.09
EPS
0.08 0.07 0.14 3.27 0.05
Dividend
Yield (%)
Dividend per
share x 100%
/Market price
543.85% 562.28% 691.92% 786.49% 925.65%

MANAGING FINANCE 16
per share
DPS * 100 0.0836 0.0836 0.0853 0.088 0.0925
MPS 1.5372 1.4868 1.2328 1.1189 0.9993
Price
Earnings
Ratio (PE
Ratio)
Market price
per
share/Earnin
gs per share
19.01 21.00 8.91 0.34 18.98
MPS
1.54 1.49 1.23 1.12 1.00
EPS
0.08 0.07 0.14 3.27 0.05
CAPITAL
STRUCTUR
E RATIOS
Debt Ratio Long Terms
Debt/
(Shareholder
s Funds +
Long Term
Debt +
Current
Debt)
62.27% 58.93% 57.90% 61.53% 54.75%

MANAGING FINANCE 17
Non-current
borrowings
Long term
debt
7,
099.70
6,
266.90
6,
054.20
6,
439.40
5,
395.60
Shareholders
’ funds
3,
556.00
3,
698.40
3,
557.80
3,
248.80
3,
444.60
Long term
debt
7,
099.70
6,
266.90
6,
054.20
6,
439.40
5,
395.60
Current
payables+
borrowings
Current debt
745.80 669.70 843.50 776.70
1,
015.60
Debt to
Equity Ratio
Long Term
Debt x
100%/
Shareholders
’ Funds
199.6541
057
169.4489
509
170.1669
571
198.2085
693
156.6393
776
Long term
debt * 100
7,09,
970.00
6,26,
690.00
6,05,
420.00
6,43,
940.00
5,39,
560.00
Equity
3,
556.00
3,
698.40
3,
557.80
3,
248.80
3,
444.60
Profitability ratios:

MANAGING FINANCE 18
Profitability ratios indicates the performance of the company and show how profitable the
company is. It indicates how profitable and how efficiently the funds of the owners of the
company have bene invested into the company and being utilised (Clear tax, 2020).
These ratios compare the accounts contained in the statement of income and the categories
that show the ability of the company to generate in profits from carrying on the business
operations. These are the ratios that help on focussing on the return on investment of the
inventory of the company and other assets. These ratios shows how well these companies are
bale to earn profits from its business operations.
The investors and the creditors use these ratios for the purposes of judging the return on
investment of the company. These are based upon the relative level of resources and the
assets. These are the ratios that help in judging whether the company is able to generate
enough profits from operations through employment of the assets of the company. These are
the ratios that are related with the efficiency ratios since they help in ascertaining the fact of
how well these companies are able to use the assets for the purposes of generating profits.
Profitability is of an utmost importance for the concept of solvency and going concern (My
accounting course, 2020).
The profitability ratios for AGL Limited show an increase over the period of 5 years. This is
good since more profits means more cash available at hand to make future expansions, to
grow business, to expand market operations and more dividend payable to the investors.
The profitability ratios of AusNet have also improved over the years but its net profit margin
has reduced over these years. This makes it risky for making an investment since loss means
efficient management of the company.

MANAGING FINANCE 19
Liquidity ratios:
The liquidity ratios are the ratios that helps in the measuring of the ability of the company to
meet its debt which is of short term in nature or are payable within an operating cycle. These
ratios are calculated by the way of dividing cash and other such liquid assets by the short
term borrowings and the current liabilities. They indicate the number of times, the company
would be able to pay the short term debt and the short term obligations as and when they
become due. A ratio of more than 1 is usually considered to be hood since it shows a higher
margin of safety when it comes to the company possessing the current liabilities. When these
ratios are more than 1, then it merely shows the obligations which are of a short term in
nature are fully covered. The higher this ratio, the higher is the margin of safety of the
company in respect of the current liabilities of the company. The ratio of more than 1 shows a
good financial health of the company and is less likely to face financial constraints in the
future. Examples of these ratios include the current ratio, quick ratio, etc. for the purposes of
analysing different things, different assets are used. In some calculations, inventory is used
and in some, cash and cash equivalents are used (Ready ratios, 2020).
The liquidity ratios AGL Limited have improved over the period of 5 years. Since the ratios
are more than 1, it is in a good financial health and is could be said that it would not face any
cash crunch in neat future alteast. Its cash flow ratio is below 1 though which means less cash
available for its disposal.

MANAGING FINANCE 20
The liquidity ratios of AusNet Services have improved over the period of 5 years. Since the
ratios are more than 1, it is in a good financial health and is could be said that it would not
face any cash crunch in neat future alteast.
Investment ratios:
The asset management ratios are the ratios that shows how efficiently the assets of the
company have been employed towards the generation of the profits for the owners of the
company these ratios do not directly affect the company performance but even then these are
important for the management since they indicate the efficiency of the assets employed.
The following are some of the important ratios that should be calculated for the purposes of
ascertaining the efficiency of the company:
Gross dividend yield ratio is the ratio that helps in comparing the dividend on each share of
the company and the market price of each share. This yield helps in ascertaining the return
which an investor is wanting on his investment into the company.
Gross percentage yield is the yield that helps in calculating the annual amount of the dividend
on each share and comparing it with the nominal value of each share of the company. This
ratio is important for comparing the dividends being paid by the company on yearly basis.
The dividend cover helps in comparing the earnings of the company which are profits earned
after taxes and are for the ordinary shareholders of the company. This ratio helps in
comparing this with the total amount of the dividend paid to the shareholders of the company.
It shows the chances with which the company would be able.to maintain the current level of
dividend in the years to come. If this ratio comes out to be close to 1, then it means that the
company has exhausted all its earnings towards payment of the dividends to the shareholders.

MANAGING FINANCE 21
The next ratio is the earnings per share which shows the connection between the earnings
earned by the company and the average number of shares held by the company. This shows
the growth of the company over the years. As per the regulations, the listed companies are
duty bound to disclose the basic as well as the diluted earnings on each share. This has to be
reported on the face of the statement or profit and loss. And as per the FRS 22 which deals
with Earnings per shares, requirements in detail have been sets out which states that the way
following which the Earnings per shares would be calculated. The companies that prepare the
IAS accounts, the companies have to follow the rules and regulations stated herein IAS 33
Earnings per share.
Then the last ratio is the price to earnings ratio which helps in comparing the market price of
the share and the earnings on each share of the company. When this ratio is high, then it
shows that the market expected earnings would increase in the years to come. This is also
affected by other factors such as the increase in the price of the share in the hope of a
takeover (Science direct, 2020).
All of the calculated investment ratios shows an improvement over the years. This is again a
very good sign since that makes an investment in AGL Limited a very attractive investment.
When compared with ratios of AusNet Services, the calculated ratios shows a fall during
these years.
Capital structures of the companies:
The following table shows the capital structure of the companies:
AGL:

MANAGING FINANCE 22
Particulars Formula (Amounts in $ in millions)
LIQUIDIT
Y RATIOS
FORMU
LA
2018 2017 2016 2015 2014
CAPITAL
STRUCTU
RE
RATIOS
Debt Ratio
Long
Terms
Debt/
(Sharehold
ers Funds
+ Long
Term Debt
+ Current
Debt)
25.57% 28.19% 27.76% 28.26% 32.08%
(All
noncurrent
labilities
except
provisions)
Long term
debt
3,
432.00
3,
633.00
3,
638.00
4,
189.00
4,
274.00
Sharehold
ers’ funds
8,
390.00
7,
574.00
7,
926.00
8,
815.00
7,
588.00

MANAGING FINANCE 23
Long term
debt
3,
432.00
3,
633.00
3,
638.00
4,
189.00
4,
274.00
Current
payables+
borrowings
Current
debt
1,
598.00
1,
680.00
1,
541.00
1,
820.00
1,
462.00
Debt to
Equity
Ratio
Long
Term Debt
x 100%/
Sharehold
ers’ Funds
40.90584
029
47.96672
828
45.89957
103
47.52127
056
56.32577
754
Long term
debt * 100
3,43,
200.00
3,63,
300.00
3,63,
800.00
4,18,
900.00
4,27,
400.00
Equity
8,
390.00
7,
574.00
7,
926.00
8,
815.00
7,
588.00
(AGL Limited-annual reports, 2020)
(Yahoo finance, 2020).
AusNet:
Particulars Formula (Amounts in $ in millions)

MANAGING FINANCE 24
LIQUIDIT
Y RATIOS
FORMU
LA
2018 2017 2016 2015 2014
CAPITAL
STRUCTU
RE
RATIOS
Debt Ratio
Long
Terms
Debt/
(Sharehold
ers Funds
+ Long
Term Debt
+ Current
Debt)
62.27% 58.93% 57.90% 61.53% 54.75%
Non-current
borrowings
Long term
debt
7,
099.70
6,
266.90
6,
054.20
6,
439.40
5,
395.60
Sharehold
ers’ funds
3,
556.00
3,
698.40
3,
557.80
3,
248.80
3,
444.60
Long term
debt
7,
099.70
6,
266.90
6,
054.20
6,
439.40
5,
395.60

MANAGING FINANCE 25
Current
payables+
borrowings
Current
debt 745.80 669.70 843.50 776.70
1,
015.60
Debt to
Equity
Ratio
Long
Term Debt
x 100%/
Sharehold
ers Funds
199.6541
057
169.4489
509
170.1669
571
198.2085
693
156.6393
776
Long term
debt * 100
7,09,
970.00
6,26,
690.00
6,05,
420.00
6,43,
940.00
5,39,
560.00
Equity
3,
556.00
3,
698.40
3,
557.80
3,
248.80
3,
444.60
(AusNet Limited-annual reports, 2020)
(Yahoo finance, 2020).
The debt to equity ratio is the ratio which helps in calculating the weight of the total amount
of debt and the total amount of the financial liabilities as against the total amount of the funds
invested by the shareholders. This ratio shows the % of the funds invested into the company.
It shows whether the debt has been used or equity has been used for the purposes of financing
the business operations of the company.
The total debt is the sum total pf the short term dent and the long term debt along with the
other such fixed obligations which are incurred in the normal operating cycle of the company.

MANAGING FINANCE 26
When the company creates a debt, then the schedule helps in splitting out the liabilities by
some specific pieces. All the current and the non-current liabilities that are reported in the
statement of financial position are not considered as debt.
When the debt to equity ratio is high, then it merely means that the company is able to service
its debt obligations and the majority of the business operations are being financed through
debt. This means a fixed costs for the company.
Not all current and non-current liabilities are considered debt. Below are some examples of
things that are and are not considered debt. It is generally stated that the debt to equity ratio
should be low which in turn would lower down the weighted average cost of capital or
WACC (Corporate finance institute, 2020).
The debt to equity ratio for AGL Limited comes out to be 56.32% in the year 2019 when
compared with the year 2014 during which it stood at 40.9%. This shows that the debt to
equity ratio has fallen during these years. This a good sign since that means that the company
is less levered and lesser amount of business operations are being financed through debt of
the company. More financing through debt is considered risky since debt means fixed costs
of interest. The company will have to pay even if it earns losses.
The debt to equity ratio for AusNet Services comes out to be 199.65% in the year 2019 when
compared with the year 2014 during which it stood at 156.63%. This shows that the debt to
equity ratio has risen during these years which makes the company risky for making an
investment.

MANAGING FINANCE 27
Historical weighted average cost of capital:
The weighted average cost of capital is the cost of capital which includes the financing of the
business operations through common shares, preference shares and debt. The cost of each
type of capital is the weighed as the % of the total amount of the capital invested into the
business and is then summed up (Corporate finance institute, 2020).
WACC is a sort of a reality check for the investors since this is the return that they are
earning on their hard earned investment. But it is also true that the investors have trouble in
calculating this since it includes a lot of information which is though available but is not easy
to find.
The following table shows the historical weighted average cost of capital:
AGL
2019 2018 2017 2016 2015 2014
(Amounts in $ in millions)
WAC
C 6.27%
7.52
%
7.53
%
10.73
%
6.37
% 8.12%
7.7
6%
Cost
of
debt: 4.79%
5.23
%
4.72
%
8.01
%
3.83
% 4.42%

MANAGING FINANCE 28
Financ
e costs,
net 193.00
22
0.00
22
4.00
21
8.00
23
0.00
21
9.00
Borro
wings
(curren
t plus
non-
current
) 2,850.00
2,96
3.00
3,34
6.00
3,10
8.00
3,88
2.00
3,71
4.00
Taxes/
Profit
before
taxes
Tax
rate 29.24%
29.50
%
29.45
%
-
14.14
%
35.31
%
25.00
%
Cost
of
equity
: 1.47%
2.29
%
2.80
%
2.73
%
2.54
% 3.70%
Using
CAPM
model
Rf+Beta* (Market rate
of return-Rf)

MANAGING FINANCE 29
Beta 0.292557
0.292
557
0.292
557
0.292
557
0.292
557
0.2925
5733
Rf 0.98%
2.13
%
2.86
%
2.75
%
2.48
% 4.12%
Market
rate of
return 2.67%
2.67
%
2.67
%
2.67
%
2.67
% 2.67%
Ausnet Services Limited
2019 2018 2017 2016 2015 2014
(Amounts in $ in millions)
WAC
C 4.16%
4.93
%
5.79
%
6.67
%
2.82
% 6.94%
5.2
2%
Cost
of
debt: 2.63%
2.62
%
2.99
%
3.95
%
0.28
% 3.29%
Financ
e costs,
net 305.90
28
3.90
28
4.10
29
2.30
31
3.60
34
2.30
Borro
wings
(curren
7,946.40 7,56
5.10
6,66
5.30
6,89
7.70
7,21
6.10
6,06
9.20

MANAGING FINANCE 30
t plus
non-
current
)
Taxes/
Profit
before
taxes
Tax
rate 31.73%
30.05
%
29.78
%
6.86
%
93.62
%
41.62
%
Cost
of
equity
: 1.53%
2.31
%
2.80
%
2.72
%
2.54
% 3.65%
Using
CAPM
model
Rf+Beta* (Market rate
of return-Rf)
Beta 0.326428
0.326
428
0.326
428
0.326
428
0.326
428
0.3264
2769
Rf 0.98%
2.13
%
2.86
%
2.75
%
2.48
% 4.12%
Market
rate of
2.67% 2.67
%
2.67
%
2.67
%
2.67
%
2.67%

MANAGING FINANCE 31
return
The WACC calculated above shows an average of 7.76% for AGL Limited and 5.22% for
AusNet Services. The higher the WACC, the better it is for the company since it shows a
higher return on the investment made by the company.
Hence, when compared, AGL Limited has a higher return on its investment.
Discounted cash flow approach:
The following table shows the desired calculations:
AGL Limited
Particulars 2019 2018 2017 2016 2015 2014
Net cash flows
over the years -348 309 -98 -7 -207 185
Increase
-
2.1262
-
4.1531 13
-
0.9662
-
2.1189
0.7271
2
Years
Future expected
cash flows for 5
-
601.04
533.68
-
169.26
-12.09
-
357.51
319.51
7

MANAGING FINANCE 32
years
PVF using
WACC
9.58%
PVF
0.9125
8
0.8327
9
0.7599
9
0.6935
5
0.6329
1
0.5775
8
0.5270
9
NPV
-
548.49
444.44
5
-
128.63
-
8.3849
-
226.27
184.54
7 0
265.69
9
Ausnet Services
Particulars 2019 2018 2017 2016 2015 2014
Net cash flows
over the years -348 329.4 -112.6 -441.7 473.3 -131.2
Increase -2.0565 -3.9254 -0.7451 -1.9332 -4.6075
-
2.6535
Years 1 2 3 4 5
Future expected
cash flows for 5
-338.77 329.4 -112.6 -441.7 473.3 -131.2

MANAGING FINANCE 33
years
PVF using
WACC
7.26%
PVF
0.9323
1
0.8692
1
0.8103
8
0.7555
2
0.7043
9
0.6567
1
NPV -315.84
286.31
8 -91.248 -333.72
333.38
6 -86.16
-
207.26
The discounted flow technique of calculating Net Present value has been used above. In this,
an average of net cash generated from the statement of cash flows has been taken and
increase is then multiplied to predict the future cash flows that would entail to the company.
The NPV for AGL comes out to be $265 million whereas the NPV for AusNet Services
comes out to be $ -207.26 million which in turn means a cash outflow.
Since the cash flow in AGL comes out to be positive, an investor would be more inclined in
making an investment into it.
Relative valuation which is based on a market to book value ratio:
The following table shows the desired calculations:
C Company Se Market Shares of Sh Net Market to Market

MANAGING FINANCE 34
o
d
e
ct
or Cap
ordinary
shares in
issue
ar
e
Pr
ice
31.
03.
20
Book
Value
Book
Value
1.03.20
Cap x
Market
toBook
Value
G
N
E
GENESIS
ENERGY
LIMITED
Ut
ilit
ies
26
970,00,
000.00
10723,65,805
.00
2.5
15
2150
8,00,0
00.00 1.25
33712,50,0
00.00
I
F
N
INFIGEN
ENERGY
Ut
ilit
ies
4
943,51,
000.00
10518,10,638
.00
0.4
7
583
3,02,0
00.00 0.85
4201,98,35
0.00
M
C
Y
MERCURY
NZ
LIMITED
Ut
ilit
ies
57
900,00,
000.00
13720,37,915
.00
4.2
2
3537
0,00,0
00.00 1.64
94956,00,0
00.00
M
E
Z
MERIDIAN
ENERGY
LIMITED
Ut
ilit
ies
111
750,00,
000.00
27660,89,109
.00
4.0
4
5457
0,00,0
00.00 2.05
229087,50,
000.00
N
E
W
NEW
ENERGY
SOLAR
Ut
ilit
ies
3
604,10,
000.00
3604,10,000.
00 1
356
2,15,7
65.00 1.01
3640,14,10
0.00
P
O
3
PURIFLOH
LIMITED
Ut
ilit
ies
866,90,
000.00
394,04,545.0
0 2.2
3
5,84,3
68.00 24.19
20970,31,1
00.00

MANAGING FINANCE 35
206
034,51,
000.00 Total
386568,43,
550.00
(Yahoo finance-INFIGEN, 2020)
(Yahoo finance-Genesis Energy, 2020)
(Yahoo finance-Mercury NZ, 2020)
(Yahoo finance-Meridian Energy, 2020)
(Yahoo finance-New Energy Solar, 2020)
(Yahoo finance-Purifloh Limited, 2020)
(Annual report-INFIGEN, 2020)
(Annual report -Genesis Energy, 2020)
(Annual report -Mercury NZ, 2020)
(Annual report -Meridian Energy, 2020)
(Annual report-New Energy Solar, 2020)
(Annual report-Purifloh Limited, 2020)
The market to book ratio is the ratio which helps in the valuation of the current market value
relative with its book value. In case, the calculated ratio is less than 1, it means that the stock
is undervalued and hence, a bad investment and vice versa (Corporate finance institute,
2020).
From the calculations, it can be seen that the shares of AGL Limited would serve as a better
investment for an investor.

MANAGING FINANCE 36
Conclusion:
From the above calculations, it would be wise to state the fact that from a point of view of an
investor who I just willing to make an investment of his hard earned money for the purposes
of earning capital gains and some returns, an investment into AGL Limited would be done.
This is line with the fact that AGL limited has improved when compared with its competitor
AusNet Services. The majority of the ratios of AGL Limited, be it liquidity ratios,
profitability ratios, investment ratios and the capital structure ratios, all have improved which
makes an investment into AGL Limited a viable option.

MANAGING FINANCE 37
References:
About us. (2020). Retrieved 11 April 2020, from https://www.agl.com.au/about-agl/who-we-
are/our-company
About Us. (2020). Retrieved 11 April 2020, from https://www.ausnetservices.com.au/Misc-
Pages/Links/About-Us
AGL Energy Limited - AnnualReports.com. (2020). Retrieved 11 April 2020, from
http://www.annualreports.com/Company/agl-energy-limited
AGL historical prices. (2020). Retrieved 11 April 2020, from
https://finance.yahoo.com/quote/AGL.AX/history?
period1=1404086400&period2=1561852800&interval=1mo&filter=history&frequency=
1mo
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https://finance.yahoo.com/quote/AST.AX/history?
period1=1396224000&period2=1553990400&interval=1mo&filter=history&frequency=
1mo
AusNet Services - AnnualReports.com. (2020). Retrieved 11 April 2020, from
http://www.annualreports.com/Company/ausnet-services
Debt to Equity Ratio - How to Calculate Leverage, Formula, Examples. (2020). Retrieved 11
April 2020, from https://corporatefinanceinstitute.com/resources/knowledge/finance/
debt-to-equity-ratio-formula/
GNE historical prices. (2020). Retrieved 11 April 2020, from
https://finance.yahoo.com/quote/GNE.NZ/

MANAGING FINANCE 38
IFGNF historical prices. (2020). Retrieved 11 April 2020, from
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Investment Ratio - an overview | ScienceDirect Topics. (2020). Retrieved 11 April 2020,
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Profitability Ratios | Example | My Accounting Course. (2020). Retrieved 11 April 2020,
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wacc-formula/
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2017)/about_us/investor/pdfs/2019/fy19%20results/genesis-energy-2019-annual-
report.pdf

MANAGING FINANCE 39
Annual report 2019. (2020). Retrieved 11 April 2020, from
https://www.infigenenergy.com/wp-content/uploads/2019/08/Annual-Report-2019-
Final-1.pdf
Annual report 2019. (2020). Retrieved 11 April 2020, from
https://www.meridianenergy.co.nz/assets/Investors/Reports-and-presentations/Annual-
results-and-reports/2019/91eab4a432/2019-Integrated-Annual-Report.pdf
Annual report 2019. (2020). Retrieved 11 April 2020, from
https://www.newenergysolar.com.au/sites/default/files/nes_annual_report_2019_final_re
duced.pdf
Annual report 2019. (2020). Retrieved 11 April 2020, from
https://purifloh.com/wp-content/uploads/2020/03/44fk379nhv3397.pdf
MCY historical prices. (2020). Retrieved 11 April 2020, from
https://finance.yahoo.com/quote/MCY.NZ/history?p=MCY.NZ
MEL historical prices. (2020). Retrieved 11 April 2020, from
https://finance.yahoo.com/quote/MEL.NZ/history?p=MEL.NZ
Mercury Annual Report 2019. (2020). Retrieved 11 April 2020, from
https://issuu.com/mercurynz/docs/mercury-ar19_production_pp7_full_hi
Appendix: