HI-5002 Finance for Business: CIMIC Group Financial Analysis Report

This report provides a comprehensive financial analysis of CIMIC Group Limited, a major player in infrastructure, mining, and services. It begins with a company overview, detailing its core activities, markets, and historical context. The report then examines the company's ownership and governance structure, identifying key shareholders and board members. Fundamental financial ratios are calculated for the past two years, including short-term and long-term solvency, asset utilization, profitability, and market value ratios. A graph illustrates the movements in the monthly share price over the last two years, plotted against the All Ordinaries Index, followed by a discussion of significant announcements that may have influenced the share price. The weighted average cost of capital (WACC) and debt ratio are calculated, and the company's dividend policy is analyzed. Finally, the report concludes with a letter of recommendation to a client, providing an explanation of why CIMIC Group should be included in their investment portfolio. Desklib is your go-to for similar solved assignments and study tools.

HI – 5002 Finance for business
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Contents
Introduction:....................................................................................................................................3
1. Prepare a brief description of the company, outlining the core activities, the market(s) in
which it operates within and any factors in the companies’ history which you consider help
present a “picture” of your company...........................................................................................4
2. Specify ownership-governance structure of the company.......................................................5
3. Calculate the following Fundamental Ratios for your selected company for the past 2 years.
......................................................................................................................................................7
4. Prepare a graph / chart for movements in the monthly share price over the last two years for
the company that you are investigating. Plot them against movements in the All Ordinaries
Index.............................................................................................................................................9
5. Significant announcements which may have influenced the share price of your company...11
6. Financial data of the company...............................................................................................12
7. Weighted average cost of capital...........................................................................................13
8. The debt ratio of the company...............................................................................................14
9. Discuss what dividend policy of the management of the company appears to be
implemented. Explain any reason related to that particular dividend policy.............................15
10. Based on your analysis above, write a letter of recommendation to your client, providing
an explanation of why you would like to include this company in his/her investment portfolio.
....................................................................................................................................................16
Conclusion:....................................................................................................................................17
References:....................................................................................................................................18
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Introduction:
The report related to finance for business has been prepared to enhance the knowledge related to
financial concepts and fundamentals related to an enterprise. The report will include a
description about the company relating to its business operationsandhistory. The company will
be evaluated for the purpose of identifying the financial ratios and ownership structure of the
company. The corporate governance will thus be evaluated for the purpose of getting information
aboutcorporategovernance. The report will then present a graph related to share price structure of
company and the recent announcements and factors leading to fluctuations in share prices will be
discussed accordingly. Further the report will include the description about various cost of
capital associated with thecompany and these costs will beanalyzed for the purpose of making
investment decision. The dividend policy of thecompany will be explained for the purpose of
making informed decision and the letter of recommendation will be made to the investors for
taking investment decision.
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1. Prepare a brief description of the company, outlining the core activities, the market(s) in
which it operates within and any factors in the companies’ history which you consider help
present a “picture” of your company.
CIMIC Group Limited can be recognized as one of the largest infrastructure, mining, services
and public private partnership group which are engaged in the business of construction and
mineral and mining processing operations. The company is also engaged in maintenance services
which are also related with providing engineering services to the customers. The company has its
operations since 1899 and has been listed on the Australian Stock Exchange in 1962. The
corporate head office of thecompanyis situated at Sydney, Australia. The group has been
providing corporate governancestructures, leadership and financial strength to all of its operating
companies which are associated with it. The operations of thecompany are undermined by
integrity, accountability and innovation within the company. The principle adopted by the
company and the management helps in sharing languages and provide identity to CIMIC while
guiding the necessary actions for the company. The operations of the company are focused at
providing safety to its customers at all levels. Te solid foundation of thecompany with the robust
pipeline and the expertise possessed by all itspersonnel in delivering the complex construction
activities in mining and mineral extraction has provided the prospects for strong future which
will enhance the financial position of company (CIMIC Group Limited, 2017).
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2. Specify ownership-governance structure of the company.
Substantial shareholders of company: The substantial shareholders will refer to the individuals
or groups who together hold the significant portion of share capital associated with thecompany.
The substantial shareholders are thus presented below:
With higher than 20% of shareholdings – There is one major substantial shareholder of
company who holds thecorresponding number of equity securities in the company to which they
have a relevant interest and the information about the substantial shareholder is presented below:
Name No of shares Percentage of share holding
HOCHTIEF Australia
Holdings Limited and its
associates
235,668,760 71.88%
By recognizing the above fact it can be established thatthecompany is a family company which
holds that the major part of the decision making function is in the hands of HOCHTIEF Australia
Holdings Limited and its associates(CIMIC Group Limited, 2017). The company controls the
operationsand decision to be taken in thecompany.
With higher than 5% of shareholdings – No there are no other shareholders holding more than
5% of the equity share capital in company except HOCHTIEF Australia Holdings Limited.
Main people of corporate governance:
 The Chairman = Fernandez Verdes
 CEO = M Wright
 Board members =
Director name Special responsibility
Fernandez Verdes Executive Chairman
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M Wright Chief Executive Officer and Managing
Director
RUSSELL CHENU Independent Non‐executive Director
JOSÉ-LUIS DEL VALLE PÉREZ Non-executive Director
TREVOR GERBER Independent Non-executive Director
PEDRO LÓPEZ JIMÉNEZ Non-executive Director
DAVID ROBINSON Non-executive Director
PETER-WILHELM SASSENFELD Non-executive Director
KATHRYN SPARGO Independent Non-executive Director
No, as per the list of considerable shareholders as presented by thecompany in its annual report
there is no considerable shareholder included in the corporate governance of company and this
creates an independency in decision making of company(Flight Centre Travel Group, 2017).
No, there is no shareholder holding more than 5% of the shareholding of company and appointed
as director in company and this will lead to the conclusion that no ambiguity regarding the sound
corporate governancestructure is present in thecompany(Warren & Jones, 2018).
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3. Calculate the following Fundamental Ratios for your selected company for the past 2
years.
Short term solvency ratios:
Current asset ratio – The current ratio of thecompany is 1 in the year 2017 which has been
increased from 0.87 in the year 2016. This have resulted in increase in the current assets of
company and shows that there are adequate assets available within the company to discharge the
liabilities of company.
Quick ratio – The quick ratio helps in evaluating the position of highly liquid assets within
thecompany. The ratio shows that quick assets have been maintained in adequate proportion by
thecompany in order to cover all its liabilities. The same has also been increased in the current
year 2017 which strengthen its liquidity position(Warren & Jones, 2018).
Particulars 2017 ($) m 2016 ($) m
Current assets 5,302 5,075
Quick assets 5,059 4,814
Current liabilities 5,355 5,859
Current ratio 0.99 0.87
Quick ratio 0.94 0.82
Long term solvency ratios:
Debt equity ratio – The debt equity ratio n represents the optimum structure of
thecapitalemployed in company in relation to the operational activities of company. The debt
equity ratio of 2:1 is considered ideal for this type of company which has not been in the case of
Cimic Group Limited. Therefore there is a need to optimize the capital structure of
company(CIMIC Group Limited, 2017).
Particulars 2017 ($) m 2016 ($) m
Total debt 6,214 6,769
Total equity 3,357 3,291
Debt equity ratio 1.85 2.06
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Asset utilization:
Return on assets – The return on assets ratio is 7% in the year 2017 which has experienced an
increase of 2% in comparison to the last year. The efficiency has been achieved in utilizing the
assets of company and this has resulted in higher net profits for thecompany(Susko, et. al., 2017).
Particulars 2017 ($) 000 2016 ($) 000
Net Income 690.6 552.4
Total assets 9,572 10,060
Return on assets 7% 5%
Profitability ratios:
Net profit ratio– The net profit ratio of thecompany indicates that the company has performed its
operationsconstantly with same level ofefficiently over the last two years. There hasbeen no
major change in the net profits acquired by thecompany during the years.
Particulars 2017 ($) m 2016 ($) m
Net Income 690.6 552.4
Revenues 13,429.50 10853.6
Net profit ratio 5% 5%
Market value ratios:
Price Earnings ratio – The priceearnings ratio ofthecompany shows that there have been enough
returns for the shareholders of company and they are obtaining sufficient wealth while
performing in this company.
Particulars 2017 ($) m 2016 ($) m
EPS 2 2
Price 39 35
Price Earnings ratio 18 20
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4. Prepare a graph / chart for movements in the monthly share price over the last two years
for the company that you are investigating. Plot them against movements in the All
Ordinaries Index.
The graph related to share price of company is presented below:
(Source: CIMIC Group Limited, 2017)
(Source: CIMIC Group Limited, 2017)
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Introduction:
The report will be concerned with describing and presenting the information related to
correlation between the share price ofthecompany Cimic Group Limited with that of all ordinary
index. The volatility of share will also be evaluated in this report(Susko, et. al., 2017).
Content:
The share price chart presented above shows that the prices of share of company have been
fluctuating but maintain a long term increasing pattern in the market. The share prices have
increased significantly over the last few years and this represents the fact that the share is volatile
in the industry concerned.
Also there can be established a positive correlation between the share price and the all ordinary
index presented as the increasing pattern of all ordinary index has resulted in increase which is
constant for the share price of company.
Conclusion:’
Thus it can be concluded that the share price of the company is volatile in the current market
circumstances and the positive correlation can be observed between all ordinary index and the
market price(Warren & Jones, 2018).
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5. Significant announcements which may have influenced the share price of your company
CIMIC’S CPB CONTRACTORS PREFERRED FOR METRO TUNNEL RAIL
SYSTEMS (18 July, 2017) = There was a press release in which it was mentioned that the CPB
contractors have been selected by the government of Victoria for delivering the Metro Tunnel
Project Rail system Alliance which hasresulted in positive attitude of investors towards the
company. The contractors getting thecontract will result in higher profitability for thecompany.
CIMIC GROUP REPORTS CONTINUED MOMENTUM IN HY17 REVENUE (UP 28%
YOY) AND NPAT (UP 22% YOY) (18 July 2017) –Thecompanyhas reported a solid
performance in its operational activities and during the six months period ended 30 June 2017.
There were significant increase in the net profit after taxes reported by the enterprise, cash flows
concerning with the company and this resulted in strong financial position of company together
with the sound level of working capital in hand. The same resulted in increase in the share prices
of company as the efficient and effective results obtained increases the confidence of
shareholders to invest in company(CIMIC Group Limited, 2017).
CIMIC INVESTMENT HLG CONTRACTING AWARDED A$224M DUBAI PROJECT
(10 July, 2017) – It was amounted that Middle East‐based HLG Contracting, in which the
concerned group has an investment of 45% was awarded with revenue of AED619 million for
the construction of various projects. The achievement of such a source of revenue has resulted in
increase in share price of company.
CIMIC DIVESTS SHAREHOLDING IN MACMAHON (6 July, 2017) –Thecompany
announces the selling of 23.64% of its holding in McMahon Holdings Limited which was
concerned with ASX. The divestment in this type of investment has resulted in decrease in share
price of company.
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6. Financial data of the company
The beta of the company is 1.08 in respect of market and other factors.
The beta calculated for thecompany helps in evaluating and identifying the relationship between
various market factors and thefluctuation in the share price of company. This will help the
investor in assessing the effect of market conditions on the share price of
company(Nesticò&Pipolo, 2015).
Required rate of return = Rf + B (Rm – Rf)
= .04 + 1.08 (.06)
= .04 + .0648
= .1048
No this is not a conservative investment for the shareholder as there are high risks involved with
this type of investment.
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7. Weighted average cost of capital
The formula for the calculation of the weighted average cost of capital is mentioned below,
WACC = E / (E + D) * Cost of Equity + D /
(E + D) * Cost of Debt * (1 - Tax Rate)
= 14.15%
The high weighted average cost of capital represents the high expectations of the various
stakeholders of company and this will result in over pressuring situation for thecompany which
will result in complex returns. Therefore the high weighted average cost of capital is not suitable
for investment purposes(Soondur, 2016).
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8. The debt ratio of the company
Does it appear to be working towards the maintenance of a preferred optimal capital
structure?
The conservative debt policy has been maintained by thecompany in the year 2017 and 2016 as
the portion of debt is around 60% in relation to the equity represented in thecompany. The same
is working for thecompany as it is earning adequate returns for the shareholders(Nesticò&Pipolo,
2015).
Debt Ratio– Total Debt / Total Assets
Particulars 2017 ($) m 2016 ($) m
Total debt 6214.3 6768.7
Total assets 9571.5 10060.1
Debt equity ratio .649 .672
What have they done to adjust/amend their gearing ratio? Increase or repay borrowings?
Issue or buy back shares? Has the Director’s Report given any information as to why they
have made any adjustments?
It can be established that the cost of capital is excessive for thecompany which is resulting in
high expectation of shareholders and other stakeholders of company. Therefore the capital
structure need to be optimised and thus more long term debt should be applied inthecompany in
order to achieve the minimum cost of capital.
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9. Discuss what dividend policy of the management of the company appears to be
implemented. Explain any reason related to that particular dividend policy.
The dividend policy of the company is concerned with rewarding the shareholders by paying the
appropriate amount of dividend which is in line with the profits acquired by thecompany. The
group delivered on this approach again in this year and therefore declared the ordinary dividend
of 135 cents per share which comprises of the interim dividend of 60 cents per share for the
shareholders and final dividend of 75 cents per share for its shareholders(Soondur, 2016).
Thus it defines the policy of thecompanyregarding the dividend that the shareholders are
awarded with the dividend form the profits acquired by thecompany during the year and based
on the accumulated profits the dividends will bedistributed to the equity shareholders.
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10. Based on your analysis above, write a letter of recommendation to your client,
providing an explanation of why you would like to include this company in his/her
investment portfolio.
Letter of Recommendation
To,
The Client,
The letter of recommendation is in reference to your request regarding the consulting services
required for investment to be made in Cimic Group Limited. The various factors analysed
abovewillbe taken into consideration for recommending the option.
By recognizing the above facts and tables, it can be established that the company has been
making profits at a constant rate over the last few years. The financial ratio as calculated for the
company represents a strong financial position and performance in the market. This has resulted
in increasing pattern of share value of the company in the market and the industry concerned.
Thus the investment to be made in this company will be associated with higher returns. However
there is high risk associated with this type of investment asthe cost of capital is high in this type
of investment(Soondur, 2016).
Therefore it is recommended to make investment in the share of this company but maintain a
minimum portfolio for this type of shares. The high risk percentage in this type of ratio will also
result in high returns.
Thanks
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Conclusion:
The above report concludes that finance for business is a critical task to be performed by the
management of company in order to evaluate and analyse the performance and position of the
company in market. The calculation of various ratios for CIMIC Limited represents a strong
financial position in the market and industry concerned. Also the recognition of the fact relating
with the increase in the share price of company will help the investors in making the investment
in company. Thus it can be suggested that the shares of CIMIC Limited should be purchased and
included in the portfolio of investor.
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References:
 Buehlmaier, M.M. and Whited, T.M., 2016. Are financial constraints priced? Evidence
from textual analysis.
 CIMIC Group Limited, 2017. Annual Report 2017 CIMIC Group Limited, 2017.
[Online] Available
at: https://www.cimic.com.au/__data/assets/pdf_file/0005/35843/CIMIC-Annual-Report-
2017.pdf [Accessed: 24 May 2018].
 Nesticò, A. and Pipolo, O., 2015. A protocol for sustainable building interventions:
financial analysis and environmental effects. International Journal of Business
Intelligence and Data Mining, 10(3), pp.199-212.
 Ongore, V.O., Peter, O.K., Ogutu, M. and Bosire, E.M., 2015. Board composition and
financial performance: Empirical analysis of companies listed at the Nairobi Securities
Exchange. International Journal of Economics and Financial Issues, 5(1), p.23. Ranti,O,.2013. Determinants of Dividend Policy: A study of selected listed Firms in
Nigeria.Change and Leadership, Rjoub, H., Civcir, I., & Resatoglu, N.G., 2017. Micro and macroeconomic determinants
of stock prices. Romanian Journal of Economic Forecasting.
 Sharif, T., Purohit, H., & Pillai, R., 2015. Analysis of Factors Affecting Share Prices: The
Case of Bahrain Stock Exchange. International Journal Of Economics and Finance vol.7.
 Soondur. S.A.K,. 2016. Determinants of the Dividend Policy of Companies Listed on the
Stock Exchange of Mauritius.Conference on Global Business, Economics, Finance and
Social Sciences,Paper ID: M619 .
 Susko, D., Karunatillake, S., Kodikara, G., Skok, J.R., Wray, J., Heldmann, J., Cousin, A.
and Judice, T., 2017. A record of igneous evolution in Elysium, a major martian volcanic
province. Scientific Reports, 7.
 Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
 Yee,TC,. 2017 Dividend Pay-Out Policy and Firm Performance. Journal of Arts & Social
Sciences, Vol 1, Issue 1, 45‐52 (2017)
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