Investment Analysis Report for Adcorp Australia Limited (AAU)

This investment report provides a financial analysis of Adcorp Australia Limited (AAU), examining its profitability, liquidity, and market position to determine its investment potential. The report highlights the company's recent net loss, increasing production costs, and decreasing revenue, impacting its profitability. It also assesses the company's liquidity ratios and cash flow, revealing a decrease in operating cash flow and challenges with expense management. The market analysis discusses the decreasing trend in earnings per share and the impact of competition. The report concludes that while the company is not recommended for short-term investment due to its current strategic changes and cash constraints, it could be considered for long-term investors interested in the marketing and advertising industry. The report also provides recommendations for existing shareholders.

Wealth Management Report

Table of Contents
Executive Summary...................................................................................................................1
Analysis......................................................................................................................................1
Profitability.............................................................................................................................1
Liquidity and Financial Stability............................................................................................1
Market Analysis......................................................................................................................2
Cash Flow...............................................................................................................................3
Interpretation..............................................................................................................................4
Conclusion..................................................................................................................................4

Adcorp Australia Ltd (ASX: AAU)
Executive Summary
This is an investment report for the potential investors to determine whether the company
under review is worth investing for short term or long term opportunities. Various financial
and non-financial parameters have been analysed which provide the basis for
recommendations.
The company chosen for analysis is Adcorp Australia Limited (AAU) which offers creative
advertising and marketing solutions across various media. The company provides its services
across Australia and New Zealand and has been in operations since 40 years (Jones and
Brown, 2009). The company is listed in Australian Stock Exchange and follow all the
corporate governance policies related with governing bodies.
Company Logo
Analysis
Profitability
The most recent annual reports of the company represent a net loss of $ 2,084,743 which is
around 41.3 % increase in loss as compared to the previous year. Such an increasing loss has
been due to the higher production costs of the company. The production cost of the company
increase by 254% in the year 2018 when compared with the last year. The company also
experienced a decrease in revenue by 3.87% which further pushed the profits on the lower
side.

2017 2018
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12000
14000
16000
PROFITABILITY
Profit Revenue Column1
The graph shows the net income of the company in the last five consecutive years.
Liquidity and Financial Stability
The liquidity ratios of the company is slightly decreasing from the last year. The current ratio
has been 0.70 and 0.88 for 2018 and 2017 respectively (Klement, Greenrod and O’Neil,
2013). The decrease of around 0.18 points has been due to the decrease in cash flow from the
operating activities which has brought down the current assets of the company. The current
ratio and the quick ratio of the company is same as there is no inventory for the two years of
analysis.

2017 2018
0
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14000
Liquidity Ratio: current and quick ratio
Current assets minus inventory Current Liabilities Column1
Market Analysis
Adcorp Australia Limited has experienced a decreasing trend in earnings per share of the
company. The continuous losses experienced by the company leads to negative earnings for
the shareholders of the company (MANISHA B, 2012). The decreasing performance of the
company in terms of increasing production costs is one of the reason the company is losing
its competitiveness in the market.
Year ended (All
values in AUD
thousand) 2018 2017 2016 2015 2014
Profit before tax -2317.2 -1043 -601 217 -2747
Earnings per share -0.01 -0.01 0 0 0.04
Share price 0.007 0.007 0.014 0.024 0.05

cents cents cents cents
The share price of the company has quickly adjusted to the decreasing financial performance
of the company and is showing a decreasing trend.
Cash Flow
The net operating cash flow for the company has decreased by 325% to (-476.3) thousand
AUD. This has been due to the lower net income for the current year which created a
downward pressure on the cash from operations. Another aspect which is evident from the
financial results of the company is that the company is facing poor operational capabilities.
The company experienced considerable increase in its operating costs which led to the
growth of the competitor companies. The poor expense management internally is one of the
concern areas which require management intervention. This negative cash flow from

operations is a situation of ‘cash burn’. This is also one of the risky situation as soon the
company might run out of its cash reserves.
The net cash flow from the investing activities has decreased by 47.82% to (-2177.5)
thousand AUD. The capital expenditure of the company in fixed and other assets has
increased in the year 2018 and the company is seen investing in improving the infrastructure
capabilities of the company (Ting, 2017).
And the net cash flow from the financing activities has improved by 106466% to 1065.7
thousand AUD. The company has experienced funds from various source of finance which
has led to positive cash flow.
Thus the final effect on the free cash flow has been a decrease by 144% from the previous
year period. This decrease in the cash balance for the year 2018 has affected the short term
liquidity position of the company in a negative way. The company would eventually be seen
in the market raising capital to meet its operational needs. With the current cash positions, the
company would not be able to sustain for long term. Short term liquidity is one of the
important determinant of the success of any organization. Adcorp Australia also requires to
cut down on its overhead costs to make is business more competitive.
Interpretation
The company is subjected to the cyclical nature of the consumer market. Thus during the
times of recession or slow down, the company experiences less business and growth.
However during the global economic growth, the company faces improvement in its earnings.
This market is also characterised by the high level of competition from the other companies.
The competitor companies provide similar solutions at competitive rates.
These non-financial factors affect the external and internal working environment of the
company which have direct effect on the profitability and financial performance. According
to Australian Market Research Report, the advertising agencies in Australia is expected to
grow at 3.3% annually in the coming years.

Conclusion
Finally based on the above analysis of the financial and non-financial measures of the
performance of the company, this investment is not recommended for short term investors.
The company is going through strategic changes where huge investments are being made in
improving the quality of solutions and infrastructure capabilities. For this reason the company
has seen a significant increase in its cost of production in the current year which would be
eventually lowered as the company would experience economies of scale through higher
production. But the positive results of these strategic changes would only be experienced
after a period of 3 to 5 years.
Thus the investors looking for long term returns and an exposure to the marketing and
advertising industry in Australia can consider this option. However the returns and
performance should be closely monitored to track the improvement in returns which would
attract investors.
For any existing investors of the company, the shareholders are at higher risk and might look
for opportunities to diversify in other companies. The company is facing severe cash
constraint and the growth can only be attained through additional funding.

References
Jones, T. and Brown, J. (2009). Integrating Asset-Liability Risk Management with Portfolio
Optimization for Individual Investors. The Journal of Wealth Management, 12(3), pp.51-
60.
Klement, J., Greenrod, J. and O’Neil, J. (2013). Optimal Domestic Equity Allocations for
Australian Investors and the Role of Franking Credits. The Journal of Wealth
Management, p.130712044810008.
MANISHA B, R. (2012). Financial Performance Analysis. Global Journal For Research
Analysis, 3(5), pp.9-10.
Ting, H. (2017). Factors Affecting Wealth Management Services: From Investors’ and
Advisors’ Perspectives. The Journal of Wealth Management, 20(1), pp.17-29.