Statement of Cash Flows Analysis

The assignment requires an analysis of a statement of cash flows spanning four fiscal years (ending June). The data includes details on operating, investing, and financing activities. Students should examine trends, identify key drivers of cash flow changes, and draw conclusions about the company's financial health and cash management practices.

Running Head: Finance For Business
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Project Report: Finance for business

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Contents
Introduction.......................................................................................................................3
1. Company description...............................................................................................3
2. Ownership structure governance.............................................................................3
3. Performance ratios...................................................................................................4
4. Changes in stock price.............................................................................................6
5. Significant factors....................................................................................................7
6. Calculation of CAPM and beta values.....................................................................7
7. WACC calculations.................................................................................................8
8. Debt ratios................................................................................................................9
9. Dividend policy......................................................................................................10
10. Recommendation and Conclusion.........................................................................10
References.......................................................................................................................11
Appendix.........................................................................................................................12

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Introduction:
Finance for business report explains about the various tools through which the
performance, actual position, activities, changes into the stock performance etc could be
evaluated easily. This report has been prepared on Genesis Energy Limited. It is an
Australian company which is managing its operations and business into electricity industry.
For evaluating the actual position and performance of the company, financial statement of the
company has been analyzed. Further, the stock price of the company has been compared with
the Australian stock prices and additionally, the total cost of capital has been evaluated to
identify the best investment proposal of the company. This report assists the company and the
investors to evaluate the position of the company so that a better conclusion could be get.
1. Company description:
Genesis Energy Limited is basically a New Zealand company which has been listed in
the industry of electricity generation and LPG and electricity natural gas. This company has
also been registered in the ASX by the name of GNE.AX. This company is one of the largest
electricity and LPG and natural gas retailers in the Australian market. The market share of the
company is increasing continuously and currently the 39% of electricity market of Australia
is owned by the company (Home, 2018). The company is currently employed 860 people.
Further, the total assets and total equity of the company has been enhanced.
2. Ownership structure governance:
Ownership governance structure is an important part of corporate governance of an
organization. It manages the elements of finance of the company through merging various
theory of agency. The ownership structure of the company has been analyzed and the
following data has been found:
Substantial stakeholders:
The figure 1 explains that the people with higher than 20% shareholding is only one
which name is Her Majesty. This is holding 51.23% share of the company. In addition, there
are only 2 investors who are holding more than 5% stock of the company. The name of the
holder is HSBC Nominees (New Zealand) Limited and the total ownership is 5.17%
(Annual Report, 2018).

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Figure 1: Ownership structure
(Annual Report, 2018)
Main people:
The chairman of the company is Jennifer Shipley. He is working with the company
since 2009. The board members of the company are Mark cross, John Leuchars, Maury
Leyland, Douglas McKay, Timothy Miles and Paul Zealand. And the CEO of the company is
Marc England who is working since 2016 with the company (Reuters, 2018). Further, it has
been evaluated that none of the investors are with the same surname in the top 20
shareholders of the company and none of the shareholder are holding more than 5% stock of
the company.
3. Performance ratios:

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Performance ratios are the part of ratio analysis study. This ratio includes various ratios
which are used by the professionals to manage and administer the financial changes and the
performance of the company. Following are the study few performance ratios of the
company:
Return on assets (ROA):
Return on assets ratio explains about the total profit of company which has been
earned in context with the total assets of the company. The return on assets calculations of the
company explains that the return on assets is 2.82% which is expressing about moderate
performance of the company (Morningstar, 2018).
Return on assets= NPAT/ total Assets
119/4219
2.82%
(Gapenski, 2008)
Return on equity (ROE):
Return on equity ratio explains about the total profit of company which has been
earned in context with the total equity of the company. The return on equity calculations of
the company explains that the return on equity is 6.00% which is expressing about moderate
performance of the company.
Return on Equity= Net profit after tax/
ordinary equity
119/1982
6.00%
(Morningstar, 2018)
Debt ratios:
Debt ratio explains about the total liability of company which has been managed in
context with the total assets of the company. The debt ratio calculations of the company
explain that the capital structure of the company is 53.02% which is expressing about huge
liabilities of the company in context with the total assets of the company.
Debt Ratios = Total Liabilities/
total assets
2237/4219
53.02%

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Further, it has been explained that the EBIT, TA, EBIT and OE decides the return on
equity of the company which could be proven through the following equation:
EBIT / TA * NPAT / EBIT * TA/ OE = NPAT / OE
(137/4219)*(119/137)*(4219/1982) (119/1982)
6.00% 6.00%
TA/OE:
Total assets and operating equity are the main elements of an organization which is
stated in the financial position statement. Both of these figures are important for the
professionals to evaluate the performance of the company. Mainly, these figures impact on
the ROA and ROE of the company. The following equation makes it easy for the
professionals to understand it:
TA/TE = (NPAT/ Total
assets)/(NPAT/TE)
TA/TE =Total assets/TE
ROA and ROE:
In addition, the ROE of the company is 6% whereas the ROA of the company is
2.82% which explains that the ROE is significantly more than the ROA of the company. The
main reason behind this difference is following accounting equation:
Total assets = total liabilities + Total shareholder equity
(Glajnaric, 2016)
4. Changes in stock price:
Below given graph, figure 2 explains about the changes into the stock price of GEN.AX
and stock price of AORD. It explains about the relationship among the stock price of both
stocks.

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Figure 2: Changes into stock price
(Yahoo Finance, 2018)
Evalaution:
The above graph, figure 2 explains that the Stock price pg GEN is quite stable in
nature. No more changes have taken place into the stock price of the company in last 2 years.
On the other hand, AORD stocks explain that the stock price is quite volatile and it changes
rapidly. The Correlation of both the stock explains about 0.83 similarities which explain that
the stock price of both the stocks is related to each other. Changes into one stock make an
impact on the other stock as well.
5. Significant factors:
The stock price of GNE.AX has been quite stable in last 2 years. Though few positive
as well as negative changes have taken place into the performance of the company. The
changes into the stock price have been taken due to various market and internal changes. The
stock price on 05-01-2016 has been reduced due to industry factors (AFR, 2018). Further, the
stock price on 26-01-2016 has been changed due to the dividend announcement of the
company (ASX, 2018). More to it, the stock price of 14-03-2016 has been enhanced by 4%
due to new project of the company (Bloomberg, 2018). At the same time, the stock price of
the company has been changed on 8-10-2017 due to the less divided announcement of the
company and the law suit wining has also enhanced the stock price of the company on 14-8-
2017 (Yahoo Finance, 2018).
6. Calculation of CAPM and beta values:

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i) Beta:
Beta calculations express about the systematic risk of the company. The beta of the
company is 0.1018 which explains that the risk level of the company is quite lower.
ii) CAPM:
CAPM calculations are as follows:
Calculation of cost of equity (CAPM)
RF 4.00%
RM 6.00%
Beta 10.18%
Required rate of return 4.20%
iii) Explanation:
The above table explains that the required rate of return of the company is 4.20%
which explains that if the company wants to enhance the funds by raising the equity capital
than they are required to pay 4.20% of total profit as dividend amount to the shareholders of
the company (Morningstar, 2018).
7. WACC calculations:
i) WACC calculations are as follows:
Calculation of WACC
Price Cost Weight WACC
Debt 1,249 5.60% 0.69816 0.0391
Equity 540 4.20% 0.30184 0.01269
1,789 Kd 5.18%
Working note:
Calculation of cost of debt
Outstanding debt 1,249
interest rate 8%
Tax rate 0.3
Kd 5.60%
Calculation of cost of equity
(CAPM)

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RF 4.00%
RM 6.00%
Beta 10.18%
Required rate of return 4.20%
(Reuters, 2018)
ii) Evaluation:
The above table explains that the cost of equity of the company is 4.20% and cost of
debt of the company is 5.6% which explains that if the company wants to enhance the funds
through equity capital than they are required to pay 4.20% as dividend to the shareholders of
the company and at the same time, for raising the funds through debt, company has to pay
5.6% of total profit as interest amount to debt holders. The current cost of capital of the
company is 5.18% which is quite moderate. If the company would raise the debt more than
equity than the total cost of the company would be more.
8. Debt ratios:
i) Optimal capital structure:
Optimal capital structure is a level of debt and equity of the company where the risk
of the company and the cost of the company are lower. The following calculation of debt
ratio explains that the company is required to reduce the level of debt and must enhance the
equity to manage the optimal capital structure.
2017 2016
Debt Ratios = Total Liabilities/ total
assets
Total Liabilities/
total assets
2237/4219 1787/3778
53.02% 47.30%
ii) Gearing ratios:
Further, the gearing ratio of the company has been evaluated and it has been found that
the gearing position of the company has been enhanced. The company has lowered the short
term liabilities and the total liabilities have been enhanced by the company. Due to it, the
gearing ratio of the company has been enhanced (Dixon and Monk, 2009). Director has not
mentioned anything about it in their annual report.

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2017 2016
Gearing ratios = Total Liabilities/
Capital employed
Total Liabilities/ Capital
employed
2237/(4219-228) 1787/(3778-346)
56.05% 52.07%
9. Dividend policy:
The company is following the relevant dividend policy which explains that the dividend
amount must be given to the stockholders of the company to motivate them and attract more
investors towards the company. Company is continuously giving a good % of profit as
dividend to the stockholders (Gapenski, 2008). Currently, 8% dividend amount has been
given to the stockholders of the company.
10. Recommendation and Conclusion:
To,
Client.
Date: 28th Jan 2018.
Dear Client,
It is a pleasure to recommend you that the company Genesis Energy Limited is a good
opportunity in terms of investment. The risk and return of the investment of the company
is quite in the favour of the investors. According to the evaluation, it is one of the best
companies to make an investment. The short term as well as long term returns of the
company is quite better. Overall, an investor should invest in Genesis Energy Limited to
enhance the return.
Faithfully,
Financial analyst.

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References:
AFR. 2018. Stocks. viewed Jan 29, 2018, http://www.afr.com/research-tools/GNE/company-
profile/operational-history
Annual Report. 2018. GENESIS ENERGY LIMITED. viewed Jan 29, 2018,
https://gesakentico.blob.core.windows.net/sitecontent/genesis/media/content/investors/other/
gene1127-gear17-annual-report-web-spreads.pdf
ASX. 2018. GENESIS ENERGY LIMITED. viewed Jan 29,
2018,https://search.asx.com.au/s/search.html?
query=GENESIS+ENERGY+LIMITED+&collection=asx-meta&profile=web
Bloomberg. 2018. GENESIS ENERGY LIMITED. viewed Jan 29, 2018,
https://www.bloomberg.com/quote/GNE:AU
Dixon, A.D. and Monk, A.H., 2009. The power of finance: accounting harmonization's effect
on pension provision. Journal of Economic Geography, 9(5), pp.619-639.
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Glajnaric, M., 2016. The importance of dividend paying stocks. Equity, 30(2), p.6.
Home. 2018. GENESIS ENERGY LIMITED. viewed Jan 29, 2018,
https://www.genesisenergy.co.nz/
Morningstar. 2018. GENESIS ENERGY LIMITED. viewed Jan 29,
2018,http://financials.morningstar.com/cash-flow/cf.html?t=GNE&region=nzl&culture=en-
US&platform=sal
Reuters. 2018. GENESIS ENERGY LIMITED. viewed Jan 29,
2018,https://www.reuters.com/finance/stocks/company-officers/GNE.AX
Yahoo Finance. 2018. GENESIS ENERGY LIMITED. viewed Jan 29,
2018,https://nz.finance.yahoo.com/quote/GNE.AX/history?
period1=1451586600&period2=1514658600&interval=1d&filter=history&frequency=1d

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Appendix:
GENESIS ENERGY LTD (GNE) CashFlowFlag INCOME STATEMENT
Fiscal year ends in June. NZD in millions
except per share data.
2017-
06
2016-
06
2015-
06
2014-
06
Revenue 1934 1994 2078 1997
Cost of revenue 1318 1382 1464 1339
Gross profit 615 612 614 658
Operating expenses
Other operating expenses 479 451 460 526
Total operating expenses 479 451 460 526
Operating income 137 161 154 132
Interest Expense 62 65 68 69
Other income (expense) 93 157 54 9
Income before income taxes 168 253 140 72
Provision for income taxes 49 69 36 22
Net income from continuing operations 119 184 105 49
Net income 119 184 105 49
Net income available to common
shareholders 119 184 105 49
Earnings per share
Basic 0.12 0.18 0.1 0.05
Diluted 0.12 0.18 0.1 0.05
Weighted average shares outstanding
Basic 1000 1000 1000 1067
Diluted 1000 1000 1000 1067
EBITDA 404 446 364 297
GENESIS ENERGY LTD (GNE) CashFlowFlag BALANCE SHEET
Fiscal year ends in June. NZD in millions
except per share data.
2017-
06
2016-
06
2015-
06
2014-
06
Assets
Current assets
Cash
Cash and cash equivalents 28 35 21 23
Short-term investments 26 20 34 20
Total cash 54 55 55 43
Receivables 225 189 188 216
Inventories 80 79 80 94
Other current assets 13 9 24 4

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Total current assets 372 332 346 357
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 3522 3339 3215 3253
Accumulated Depreciation -90 -83 -240 -152
Net property, plant and equipment 3432 3256 2975 3101
Equity and other investments 40 53 54 8
Goodwill 230 103 103 103
Intangible assets 142 31 25 26
Other long-term assets 4 4 25 35
Total non-current assets 3847 3446 3182 3272
Total assets 4219 3778 3528 3629
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 11 136 118 12
Accounts payable 180 167 158
Deferred income taxes 3
Other current liabilities 37 43 34 231
Total current liabilities 228 346 310 247
Non-current liabilities
Long-term debt 1249 776 840 977
Deferred taxes liabilities 575 484 397 384
Other long-term liabilities 185 181 155 141
Total non-current liabilities 2009 1441 1393 1502
Total liabilities 2237 1787 1703 1749
stockholders' equity
Common stock 540 540 540 540
Retained earnings 477 522 499 540
Accumulated other comprehensive
income 966 930 786 801
Total stockholders' equity 1982 1991 1825 1881
Total liabilities and stockholders' equity 4219 3778 3528 3629
GENESIS ENERGY LTD (GNE) Statement of CASH FLOW
Fiscal year ends in June. NZD in millions
except per share data.
2017-
06
2016-
06
2015-
06
2014-
06
Cash Flows From Operating Activities
Other non-cash items 248 325 318 304
Net cash provided by operating activities 248 325 318 304
Cash Flows From Investing Activities
Investments in property, plant, and -32 -28 -36 -66

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equipment
Property, plant, and equipment reductions 0 6 1 0
Acquisitions, net -355
Purchases of intangibles -23 -11 -10 -16
Sales of intangibles 0
Other investing activities -4 -1
Net cash used for investing activities -410 -32 -49 -83
Cash Flows From Financing Activities
Debt issued 501 100 193 167
Debt repayment -125 -155 -256 -195
Repurchases of treasury stock -1
Cash dividends paid -164 -162 -146 -121
Other financing activities -58 -62 -63 -71
Net cash provided by (used for) financing
activities 154 -279 -272 -220
Net change in cash -7 14 -2 1
Cash at beginning of period 35 21 23 23
Cash at end of period 28 35 21 23
Free Cash Flow
Operating cash flow 248 325 318 304
Capital expenditure -55 -38 -50 -83
Free cash flow 194 286 269 220
Supplemental schedule of cash flow data
Cash paid for income taxes -51 -25 -36 -13