Comprehensive Financial Analysis Report: AMP Limited Capital Structure

This report provides a comprehensive financial analysis of AMP Limited, examining its capital structure, including the proportions of equity and debt. It calculates the Weighted Average Cost of Capital (WACC) and uses the Capital Asset Pricing Model (CAPM) to determine the expected rate of return. The report compares AMP Limited's capital structure with that of its competitor, Westpac Bank, and analyzes key financial ratios such as current ratio, debt-to-equity ratio, and return on equity. It highlights significant changes in the company's capital structure over the past three years and identifies and discusses the risks faced by AMP Limited, including insurance, liquidity, and strategic risks, along with the company's risk management strategies. The analysis concludes with an assessment of AMP Limited's financial performance and investment potential, suggesting that the company is performing well and that investment is a proactive measure, provided the risks are effectively managed.

Running head: AMP LIMITED 0
AMP LIMITED

Executive Summary
The AMP limited is a company which is found in the year 1849 deals with the financial
services and therefore the company have undertaken an analysis of the Capital structure and
the ratios of the company. The company is basically a competitor of the Commonwealth
Bank and the Westpac bank. The AMP Limited is listed on the Australian Stock Exchange
and S&P 50 index.

Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Current capital structure.............................................................................................................3
Weighted Average Cost of Capital.........................................................................................3
CAPM calculation......................................................................................................................5
Comparison of the Capital structure..........................................................................................5
Ratios..........................................................................................................................................6
Significant changes over the past three years............................................................................8
Risk identification and management..........................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

Introduction
The AMP Limited company is the Australian based company providing the facilities
of the superannuation and the investment products, insurance and the financial services
including the home loans. The company is currently operating at $972 million and the below
report has been subsequently designed in order to present the data regarding the capital
structure of the company the ratio analysis and the Expected rate of return the company is
going to get (AMP Limited, 2018).
Current capital structure
The capital structure of the AMP limited is determined below. The bifurcation is done
on the basis of the Equity and the Debt. The Equity component is 79% and the debt
component is 21% (Robb & Robinson, 2014).
Weighted Average Cost of Capital
Beta Risk free
rate of
return
Capital
Return
Ke =
Cost of
Equity
1.47 3.06% 8.54% 11.12%
Risk free rate of
return
Credit
Spread
(1-Tax Rate) Kd =
Cost of
Debt
3.06 3.22 0.75 4.69%
Current capital structure of AMP
2017
Equity 7283 79%
Debt 1976 21%
9259

Weighted average Cost of Capital
E/(E+D)*
COST OF
EQUITY
+ D/(E+D)*
COST OF
DEBT
9% 1% 10%
The weighted average cost of capital is the rate used by the company to make an
assessment of the financial assets. The organisations cost of capital is basically the WACC.
The major cause can only be reflected in case of the fluctuations are prevailing in the external
market and not by management. The above table reflects the cost of capital to the AMP
Limited company at 10% (Fernandez, 2017).
CAPM calculation
The CAPM calculation is basically done on the basis of the cost of equity and cost of
debt component. In comparison to return of the market the WACC return is expected to be at
in a range of 10% (Campbell, Giglio, Polk & Turley, 2018).
Comparison of the Capital structure
The firm’s capital structure of the APM limited is compared with its competitor
Westpac bank of Australia.
Current capital structure of AMP
EQUIT
Y DEBT

AMP Limited 7283 1976
79% 21% 9259
Westpac Bank 612 1856
25% 75% 2468
The above table describes the opposite situations of both the companies. The debt
component of the Westpac Company is higher than the AMP Limited at 75%. On the
contrary the Equity component of the company is 7283 which showcases 79% in the year
2017. This means that the equity component of the AMP Limited shall be balanced as too
much risk will create hassled situations for the company. On the other hand the debt
component of the Westpac Company is higher which ultimately is providing the gauge to the
company against the tax provisions (Riyadi, 2017).
Ratios
Liquidity Ratio
Current ratio
2016-
2017
2017-
2018
Current Assets 116735 121038
Current Liabilities 15335 16758
7.61 7.22
Leverage Ratios
Debt to Equity
Ratio
2016-
2017
2017-
2018
Debt 5241 7283
Equity 7462 1976
0.70 3.69
Net Profit Ratio 2016- 2017-

2017 2018
Net Profit * 100 -344 848
Sales 14799 18361
-2.32% 4.62%
Return on Equity
2016-
2017
2017-
2018
Net Income -344 848
Average Equity 7990.5 7332
-4.31% 11.57%
P/E ratio
2016-
2017
2017-
2018
Market Price 2.99 3.19
EPS
-
0.04305
0.11565
7
-69.45 27.58
Ratio analysis is an important tool that is used by the company to figure out where is
the company, where it wants to reach. The ratios are basically the key metrics which help in
determining how healthy the company and the variances can also be figured out. The current
ratio of the company is 7.61 which are higher than the year 2017-2018 which is too high for
the company. The debt to equity ratio of the company was 0.70 in the year 2016-2017 where
the debt was lower in comparison to the current year the debt to equity ratio is just the
reversal of the company which is reported at 3.69. The net profit of the company has
improved in comparison to the previous year where the company was in the losses such as
2.32%. The return on equity has also been improved in relation to the previous year where the
return on equity was reported at -4.31%. Overall the company has improved in comparison to
the last year and there is still some room for the improvement (AMP Limited, 2018).

Significant changes over the past three years
2015 2016 2017
Equity 8519 56% 7462 59% 7283 79%
Debt 6664 44% 5251 41% 1976 21%
15183 12713 9259
In the course of recent years the capital structure of the AMP Limited has been
changed as far as the equity and the debt is concerned. In the year 2015 the equity part was
56% and obligation was 44% which was an equal proportion as the organization was ready to
go for debt alongside getting the advantages of the risk of the and the reduction in the tax
component. Anyway the debt segment began to diminish in the year 2016 and at last fell off
to 21% out of 2017. Henceforth, the organization shall maintain an alignment between the
debt and equity.
Risk identification and management
The directors could figure out the risks associated with the AMP Limited and the
same has also been reported in the Annual report of the AMP limited. The annual report also
determines the risk environment of the company and builds the effective risk management in
order to cater the sustainability and enhance the brand image of the company. Moreover in
the year 2107 the AMP constantly implemented the new strategies to fight against the
different type of the risks as disclosed by the director of the company. The seven material
risks which are determined by the directors are the insurance, liquidity, concentration,
strategic, market, credit and the operational risk (Almeida Hankins & Williams, 2017). This
insurance risk of the company has been amended by providing the fixed return on the
premium paid by the employees. The concentration risk has been followed up by the top level

management. The credit risk has been not disclosed clearly. The risks mirror the effectiveness
of the company and the same has been reported by the Directors of the company. The
strategic risk on the other hand has been improved by the company by implementing through
organising the events to discuss the strategic objectives of the company. Thereafter the
insurance and the market risk is managed by the Capital risk and the Compliance Committee
and the company is also facilitating the exposure to make sure that all the risks are carefully
analysed. This way the portfolio of the company has also been improved. The liquidity risk
has been escalated on the basis of the period of 5 years and it increased from 1463 to 3456.
Therefore the internal analysis of the factors is scrutinized throughout the years to identify the
variances (AMP Limited, 2018).
Conclusion
Henceforth, the altogether few of the risks are under process for the purpose of the
solution; rest apart the performance of the coampny is sound is sound. The company has also
performed well in case of the ratios as compared to the previous year. Moreover since
according to the CAPM model the expected return for the company is 10% and hence it is a
proactive investment. Therefore is can be concluded that the company is performing towards
the new edge and the investment will provide the future returns if the risks are minimised
effectively.

References
Almeida, H., Hankins, K. W., & Williams, R. (2017). Risk management with supply
contracts. The Review of Financial Studies, 30(12), 4179-4215.
AMP Limited, (2018). Annual report. Retrieved from
http://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_AMLTY_2017
.pdf
Campbell, J. Y., Giglio, S., Polk, C., & Turley, R. (2018). An intertemporal CAPM with
stochastic volatility. Journal of Financial Economics, 128(2), 207-233.
Fernandez, P., (2017) Is It Ethical to Teach That Beta and CAPM Explain Something?. New
York: Springer
Riyadi, S. (2017). Financial performance efficiency of Indonesia government banks in
improving profitability. International Journal of Financial Innovation in
Banking, 1(3-4), 239-252.
Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), 153-179.