University Finance Report: Financial Analysis of AMP Company

This report presents a financial analysis of AMP Company, examining its performance using various financial tools and ratios. It includes an overview of AMP Limited, its governance and ownership structure, and a detailed analysis of its short-term and long-term solvency ratios, asset utilization, profita...Read More

RUNNING HEAD: Financial analysis of AMP Company
1
Name of the student
Topic- Financial analysis of AMP Company
University name

Table of Contents
Introduction...........................................................................................................................................3
1. Description of AMP Limited.....................................................................................................3
2. Governance and Ownership structure............................................................................................4
3. Performance ratio analysis of AMP Limited..................................................................................7
Short term solvency ratio...................................................................................................................7
Proving the equation.........................................................................................................................9
Long term Solvency ratios.................................................................................................................9
Asset utilization...............................................................................................................................10
Profitability ratios............................................................................................................................11
Market value ratios..........................................................................................................................13
4. Share price graph of the AMP Limited........................................................................................14
4.1 Graph reflecting the share price movement of AMP Company and All ordinary share price
index 14
4.2 The comparison between the Share price movement of AMP Limited and share price movement
of all ordinary stock exchange.........................................................................................................14
5. Announcements...........................................................................................................................16
6. Research via internet....................................................................................................................16
6.1 Beta calculation...................................................................................................................16
6.2 Computation of required rate of return by using CAPM method...............................................17
6.3 Determining the investment method (Conservative investment)................................................17
7. Computation of the weighted average cost of capital...................................................................18
7.1 Computed Cost of Capital through Capital Assets Pricing model........................................18
7.2 Implications that a higher WACC on investment decision........................................................18
8. Debt ratio consideration of AMP Limited....................................................................................19
8.1 Stable Debt to equity ratio of company..........................................................................................19
Dividend policies of company..............................................................................................................20
Letter of recommendation..................................................................................................................20
Conclusion...........................................................................................................................................21
9. References...................................................................................................................................22
10. Appendix.................................................................................................................................24

Financial analysis of AMP Company 3
Introduction
It is evaluated that management and directors of company needs to make effective use
of financial tools which could be used to analysis the financial performance of Company.
The ratio analysis, top down analysis, bottom up analysis and du Pont analysis could be used
to evaluate the financial performance of company. In this report, capital structure of the
company and profitability of the company has been analyzed by using the effective strategic
financial tools. .
1. Description of AMP Limited
It is evaluated that the AMP Australia is the New Zealand Company which has been
providing superannuation benefit, investment products and financial and banking service. It
has been providing its financial and advisory services to investors to make the good value on
their investment (AMP limited. (2018).

2. Governance and Ownership structure
The main CEO of Company is Craig Meller who undertakes all the strategic and managerial
decisions to strengthen the business functioning of organization (AMP Limited. 2017).
Rank Name Ag
e
Company Compensatio
n
shares
2 George R.
Roberts
74 KKR & Co LP 113,712 44,650
3 Henry R. Kravis 74 KKR & Co LP 113,434 44,650
4 Hock E. Tan 66 Broadcom Inc 103,211 98,323
5 Rob Roy 49 Switch Inc 94,638 89,444
6 Alex A.
Molinaroli
Johnson Controls
International PLC
78,282 9,042
7 Michael Rapino 52 Live Nation
Entertainment Inc
70,616 58,632
8 Yasuhiro Sato 65 Mizuho Financial
Group Inc
70,000 0
9 Mario J. Gabelli 75 GAMCO Investors
Inc
69,414 0
10 Leslie Moonves 68 CBS Corp 69,333 43,696

Financial analysis of AMP Company 5
11 Christopher
Terrill
50 ANGI Homeservices
Inc
68,798 3,800
12 Andrew N.
Liveris
63 DowDuPont Inc 65,689 12,174
13 Jeffery Fairburn 51 Persimmon PLC 63,697 0
14 W. Nicholas
Howley
65 TransDigm Group Inc 61,023 0
15 Douglas R.
Lebda
48 LendingTree Inc 59,591 0
16 Simon Anthony
Peckham
55 Melrose Industries
PLC
57,849 0
17 Douglas S.
Ingram
55 Sarepta Therapeutics
Inc
56,866 11,608
18 Thomas E.
Dooley
Viacom Inc 53,648 0
19 Ronald Clarke 62 Fleetcor Technologies
Inc
52,644 15,127
20 Stephen Kaufer 55 TripAdvisor Inc 47,933 28,578
21 Gregory B.
Maffei
56 Qurate Retail Inc
QVC Group
47,810 2,293

22 Stephen B Burke 59 Comcast Corp 46,537 5,338
23 Brian
Duperreault
70 American
International Group
Inc
43,087 11,157
24 Kathleen
Eisbrenner
NextDecade Corp 43,086 42,145
25 Dirk Van de Put 57 Mondelez
International Inc
42,443 30,002
(Yahoo Finance, 2017).
There are several shareholders who have bought the shares in AMP Limited. However, there
are main five shareholders
 HSBC Custody.
 JP Morgan
 Citi Corp
 National Nominee

Financial analysis of AMP Company 7
(AMP Limited. 2017).
3. Performance ratio analysis of AMP Limited
The ratio analysis is used to establish the relation between the two financial factors. (AMP
Limited, 2015).
Short term solvency ratio
1. Current ratio
The current ratio of company divulges how well company pay off its short term long term
debts out of the available current assets (AMP Limited, 2017).
Liquidity ratio Years
2017 2016
Current ratio .0025 .0031
Quick ratio .0025 .0031

Interpretation
The AMP Company has maintained stable financial current ratio. However, in 2017,
company has kept 0.025 current ratio which reflects that company has lower down its
investment in its current assets which will eventually increase its burden to maintain
effective.
Quick ratio
The quick ratio of company is equal to its current ratio. It is evaluated that company
has not maintained inventory in its business.

Financial analysis of AMP Company 9
Proving the equation
Providing equation 2014 2015 2016 2017
Net profit After tax/OE 0.55154
0.47597938
5 0.42241 0.34557
EBIT/TA*NPAT/EBIT*TA/OE 0.55154
0.47597938
5 0.42241 0.34557
.
Long term Solvency ratios
Debt to equity
The debt to equity of company has increase throughout which shows that company
has increased its financial leverage throughout the time. It is evaluated that the debt to equity
of company has been 95% in 2017 which reflects that company needs to lower down its cost
of capital if it wants to maintain its business in long run (AMP Limited. 2015).
Computation of debt to equity of Company
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 1,26,470 1,30,813 1,32,519 140802
B. Total assets 1,34,855 1,39,708 1,40,060 1,48,085.0
0
(A/B) 94% 94% 95% 95%
Interpretation
The debt of equity of company has been around 95% which shows that company need
to lower down its debt portion to make its business less risky in long run. In addition to this,

company has kept high financial leverage which eventually impacts the cost of capital and
will increase the overall return on capital employed.
Gearing ratio discussion
The gearing ratio shows company’s ability to cover its interest payment out of the
available earnings before interest and tax (AMP. 2017).
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 5% 6% 4% 4%
The gearing ratio of AMP Limited is too low which reflects that company has to
increase its profitability if it wants to add value in its investment.
Asset utilization
1. Inventory turnover ratio
The inventory turnover ratio of company is zero which reflects that company has not been
having inventory turnover ratio (AMP Limited. 2017).
Efficiency ratio Years
2017 2016
Inventory turnover ratio 0 0
Asset turnover ratio 0.120 2.10
Receivable turnover ratio 0 0
Days' sales in inventory 0 0
Days' sales in receivables 0 0
(AMP, 2017)

Financial analysis of AMP Company 11
2. Assets turnover ratio
The assets turnover ratio of AMP is too low which divulges that if company does not increase
its profitability then it will eventually increase the overall outcomes (AMP Limited. 2016).
3. Debtor turnover ratio
The debtor turnover ratio of AMP Company has been increased which reflects that company
has maintained its busienss more effectively. .
Profitability ratios
The profitability ratio divulges AMP Company’s ability to earn profit from its overall
turnover (AMP Limited. 2017).
Return on assets
1. Rate of Return on Assets
2014 2015 2016 2017
A. Net income 884 972 -344 848
B. Total assets 1,34,855 1,39,708 1,40,060 1,48,085
(A/B) 0.66% 1% 0% 1%
Interpretation
The return on assets of AMP Company has been zero since last four year. However, in 2017
the return on assets increased to 1 % which reflects the positive indicator for the future
growth of the business.
Return
2. Rate of Return on Equity
2014 2015 2016 2017
A. Net income available to
equity shareholders.
884 972 -344 848
B. Shareholder’s Equity 8,186
17,981
7,462 7,202.00
(A/B) 10.80% 5.41% -4.61% 11.77%

Interpretation of the data
The return on equity of company has been very low and shown the negative results. It
is observed that company has increased its overall turnover since last two years. It has also
positively impacted the share price of company and return on capital employed at large (AMP
Limited. 2017).

Financial analysis of AMP Company 13
Market value ratios
1. Earnings per share
The earning per share of AMP company has shown the negative outcome which have
occurred due to the negative profitability and negative business outcome in market (AMP
Limited. 2017).
Market Value ratios Years
2017 2016
Earnings per share - 2.80 - 7.40
P/E ratio - -
Dividend pay-out ratio - -
The market ratio of company has been negative which reflects that if investors invest capital
in AMP then they will have to face high loss in their investment capital (AMP Limited.
2017).
Price to earnings ratio
The price earnings ratio has increased by 10% since last one year. It has reflected that AMP
Company is surviving its business by implementing effective business strategies.
Dividend payment ratio
The dividend payment ratio of company has been negative which reflects that company has
not been paying any dividend to its shareholders. It may negatively impact the share price
movement of company in long run.

4. Share price graph of the AMP Limited
4.1 Graph reflecting the share price movement of AMP Company and All ordinary
share price index
4/1/2016
6/1/2016
8/1/2016
10/1/2016
12/1/2016
2/1/2017
4/1/2017
6/1/2017
8/1/2017
10/1/2017
12/1/2017
2/1/2018
4/1/2018
0
1
2
3
4
5
6
AMP Limited (AMP.AX)
AMP Limited (AMP.AX)
(Yahoo Finance, 2017)

Financial analysis of AMP Company 15
4.2 The comparison between the Share price movement of AMP Limited and share
price movement of all ordinary stock exchange
6/1/2016
8/1/2016
10/1/2016
12/1/2016
2/1/2017
4/1/2017
6/1/2017
8/1/2017
10/1/2017
12/1/2017
2/1/2018
4/1/2018
0
1
2
3
4
5
6
-0.25
-0.20
-0.15
-0.10
-0.05
-
0.05
0.10
0.15
Average Return
AMP Limited (AMP.AX) null 4.425838 Average Return
(Yahoo finance, 2017)
Introduction
The share price movement of AMP Limited has been increasing since last two years.
However, the share price movement is too slow as compared to the market growth of AMP
Limited
Analysis
After analysing the share price and beta of Company, it could be inferred that
company has faced high fluctuation in its share price which reflects the negative results
throughout the time. Company needs to increase its profitability if it wants to increase its
overall share price in market (Morningstar, 2017).
Conclusion
Now in the end, it could be inferred that AMC Company first needs to lower down its
debt portion if it want to sustain its busienss in long run. The share price movement is highly
affected by the long term sustainability.

5. Announcements
These are the announcement which has been affecting the business functioning and share
price movement of the AMP Company throughout the time.
The AMP Company has increased its equity funding in its busienss which will positively
impact the share price movement of Company.
The Strategic alliance of AMP will reflect that company will easily win over the market by
lower down its overall cost of production (AMP Limited. 2017).
The investment of the company has been increased in the research and development
department which reflects that company will assist in creating value in its business (AMP
Limited. 2017).
6. Research via internet
Stock information and Beta calculation
The beta value has been computed by using the regression analysis and Data analysis in excel
sheet (AMP Limited. (2015).
6.1 Beta calculation
The beat calculation below
SUMMARY OUTPUT
Regression
Statistics
Multiple R
0.1690
7
R Square
0.0285
8
Adjusted R
Square
-
0.0156
Standard Error
0.0237
8
Observations 24
ANOVA

Financial analysis of AMP Company 17
df SS MS F Significance F
Regression 1 0.00037 0.00037 0.64736 0.42967
Residual
2
2 0.01244 0.00057
Total
2
3 0.01281
Coefficient
s
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.00972 0.00489 1.9878 0.05942 -0.0004 0.01987 -0.0004 0.01987
X Variable 1 0.06239 0.07754 0.80459 0.42967 -0.0984 0.2232 -0.0984 0.2232
The beta value of the AMP Company reflects that .062 points which reflects that if market
value changed by 1 % then there will be changes in the share price value of AMP Company
with the .62% in same direction.
6.2 Computation of required rate of return by using CAPM method
E(R) = Rf +(β∗R p)
E(R) = expected Amount of rate of return
Rf = Risk free % rate of return
β = Computed Beta
Rp= Market premium risk factor (AMP Limited, 2017).
Calculation of Required rate of return
Risk free rate (A) 4%
Beta (B) 0.062389179
Market Risk premium (C) 6%
Required rate of return [A+(B*C)] 4.37%
(Please see the excel)

Notes- RF= It is the risk free rate of return which is computed by using the government
securities and bonds.
6.3 Determining the investment method (Conservative investment)
The main investment method which AMP Company has been following is conservative
investment method. It is observed that company has increased its investment in the research
and development department. It is observed that conservative investment strategy is fruitful
when company is facing high amount of loss or high financial leverage.
It is observed that the AMP Company has lower cost of capital which shows that if
company increases its investment in other projects then it should better off to invest its capital
in other projects which offers higher return on capital employed (AMP Limited. 2017).
The AMP Limited should use aggressive investment strategy to create value on its
investment. It has followed the conservative investment strategy to expand its business
slowly due to the sluggish market condition (Mohanram, Saiy, and Vyas, 2018).
7. Computation of the weighted average cost of capital
7.1 Computed Cost of Capital through Capital Assets Pricing model
Cost of capital= KE= 4.37%
The computation of the cost of capital is done by using the CAPM model
Cost of debt- 1.93%
The cost of debt is computed by using the interest payment and debt funding (Brigham, and
Ehrhardt, 2013).
WACC = cost of debt* portion of the debt capital+ cost of Equity * portion of the Cost of
equity
WACC Capital
Amount
Cost of
capital
% of
portion
WACC
Equity 7,202 4.37% 5% 0.21%
Debt 1,40,802 0.42% 95% 0.40%
Total
capital
1,48,004 WACC 0.61%

Financial analysis of AMP Company 19
The weighted average cost of capital reflects that company has created good value in its
investment.
7.2 Implications that a higher WACC on investment decision
The weighted average cost of capital is computed by using the proportionate basis
formula which is used to compute the overall cost of capital of AMP Business (AMP
Limited. 2017).
It is observed that if AMP Company will have higher WACC in its business then it
will increase the financial leverage of company. In addition to this, it will also affect the
choice of the investment method which Company could take to increase the overall outcomes
of its business. Higher WACC has two negative impact which might negatively provide the
result such as lower return on capital employed and increased financial leverage (Goldmann,
2017).
8. Debt ratio consideration of AMP Limited
8.1 Stable Debt to equity ratio of company
Debt to equity
The debt to equity of company has divulged the high financial leverage. It is
considered that the debt to equity of company has been 95% in 2017 which reflects that
company needs to lower down its cost of capital if it wants to maintain its business in long
run.
Computation of debt to equity of Company
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 1,26,470 1,30,813 1,32,519 140802
B. Total assets 1,34,855 1,39,708 1,40,060 1,48,085.0
0
(A/B) 94% 94% 95% 95%
Interpretation
The debt of equity of company has been around 95% which shows that company need
to lower down its debt portion to make its business less risky in long run. In addition to this,

company has kept high financial leverage which eventually impacts the cost of capital and
will increase the overall return on capital employed (Sharma and Mehra, 2017).

Financial analysis of AMP Company 21
Gearing ratio discussion
The gearing ratio shows company’s ability to cover the interest payment from its
EBIT (AMP. 2017).
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 5% 6% 4% 4%
The gearing ratio of AMP Limited is too low which reflects that company has
to increase its profitability if it wants to add value in its investment (De Franco, Kothari, and
Verdi, 2011).
Dividend policies of company
After analysing the annual report of company, it could be inferred that company has
not been issuing any amount of dividend to its shareholders since last five years (Lisowsky,
Minnis, and Sutherland, 2017). The dividend policy of AMP Company is profit based
dividend policy. It shows that Company will pay dividend to its shareholders when they will
have profit in their busienss. It is analyzed that increased profitability of company will result
to increased amount of dividend payment to shareholders. However, due to the sluggish
market condition, company has failed to give dividend to its shareholders which will also
negatively impact the share price of company in long run (Wang, 2014).
Letter of recommendation
To,
Directors of AMP Limited
After analysing the capital structure and profitability, efficiency of company, it could be
advised to directors and board of members that company need to lower down its financial
leverage. However, the gearing ratio of company is way too low which reflects that company
has low interest payment (Chen, et al. 2018). In 2016 AMP Company had negative business
outlook and had to incur loss in its business throughout the time. It is analyzed that
irrespective of the negative business performance, company has increased its profit in 2017
which reveals that company is pushing itself for the future growth. The main advice for the
board of directors and members are related to the financial leverage and profit earning

capacity of company. IF directors want AMP Company to survive in long run then they will
have to lower down the financial leverage by redeeming debt portion and have to push
themselves for the increased revenue output in organization. The aggressive investment
strategy of the company will also assist in create value on the investment and AMP Company
could expand its business slowly due to the sluggish market condition (Foster, 2014).
Conclusion
It is analyzed that by using ratio analysis, top down analysis, bottom up analysis and
du Pont analysis, management and investors could evaluate the financial performance of
company. However, in context with the investors, if they want to create value on their
investment then they should keep their money invested in AMP Company for long run.
Otherwise they will have to face high loss if the capital is invested in short run. In addition to
this, the inventory turnover ratio of company is zero which reflects that company has not
been having inventory turnover ratio and it does not have to block capital in its busienss.
High capital structure and lower weighted average cost of capital reflects the positive
indicators which reflects that company will be having high return on capital if it invest its
capital in the particular projects. Now in the end, it could be inferred that AMP Company has
been trying to survive in market by infusing the effective financial strategic work program. It
is analysed that company need to expand its business by increasing the overall production
level and following the effective financial strategic program.

Financial analysis of AMP Company 23
1. References
AMP Limited (2015). Annual report. Available at
https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/
Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf.,m.,
Accessed on 22nd May 2018
AMP Limited. (2016). Annual report. Available at
https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/
Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf.,
Accessed on 22nd May 2018
AMP Limited. (2017). Annual report. Available at
https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/
Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., .,
Accessed on 22nd May 2018
AMP Limited. (2018). Annual report. Available at
https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/
Investor_and_annual_reports/2017%20annual%20report%2020%20March%202018.pdf., ., ,
Accessed on 222nd May 2018
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement
comparability and the efficiency of acquisition decisions. Contemporary Accounting
Research, 35(1), pp.164-202.
De Franco, G., Kothari, S.P. and Verdi, R.S., 2011. The benefits of financial statement
comparability. Journal of Accounting Research, 49(4), pp.895-931.
Foster, G., 2004. Financial Statement Analysis, 2/e. Pearson Education India. 35(1), pp.144-
192.
Goldmann, K., 2017. Financial liquidity and profitability management in practice of polish
business. In Financial Environment and Business Development (pp. 103-112). Springer,
Cham.

Mohanram, P., Saiy, S. and Vyas, D., 2018. Fundamental analysis of banks: the use of
financial statement information to screen winners from losers. Review of Accounting
Studies, 23(1), pp.200-233.
Morningstar, 2018 retrieved, Available at http://www.morningstar.com/funds.html/ Accessed
on 22nd May, 2018
Sharma, A. and Mehra, A., 2017. Financial analysis based sectoral portfolio optimization
under second order stochastic dominance. Annals of Operations Research, 256(1), pp.171-
197.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Yahoo finance, 2018 Available at https://in.finance.yahoo.com/., Accessed on 22nd May,
2018

Financial analysis of AMP Company 25
2. Appendix
AMP Limited (AMP.AX)
Particulars (Amount in
Million 2014 2015 2016 2017
AUD$ AUD$ AUD$
EBIT 14,990 11,679 13,880 15,789
Interest 685 732 551 585
Net profit 884 972 -344 848
Total Assets 1,34,855 1,39,708 1,40,060 1,48,085
Total Liabilities 1,26,470 1,30,813 1,32,519 1,40,802
Shareholders' Equity 8,186 8,519 7,462 7,202
1. Rate of Return on Assets
2014 2015 2016 2017
A. Net income 884 972 -344 848
B. Total assets 1,34,855 1,39,708 1,40,060 1,48,085
(A/B) 0.66% 1% 0% 1%
x
2014 2015 2016 2017
A. Net income available to equity
shareholders. 884 972 -344 848
B. Shareholder’s Equity 8,186 17,981 7,462 7,202.00
(A/B) 10.80% 5.41% -4.61% 11.77%
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 1,26,470 1,30,813 1,32,519 140802
B. Total assets 1,34,855 1,39,708 1,40,060 1,48,085.0
0
(A/B) 94% 94% 95% 95%
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 5% 6% 4% 4%

Date
Adj
Close AMP Limited (AMP.AX)
Adj Close (All ordinary
share index)
Average
Return
30-04-
2016 null null
31-05-
2016
4.4258
38 4947.899902
30-06-
2016
4.9833
57 - 5151.799805 0.04
31-07-
2016
4.5116
11
-
0.09 5316 0.03
31-08-
2016
4.6965
61 0.04 5447.799805 0.02
30-09-
2016
4.0650
16
-
0.13 5310.399902
-
0.03
31-10-
2016
4.1806
51 0.03 5644 0.06
30-11-
2016
4.4830
81 0.07 5529.399902
-
0.02
31-12-
2016
4.4475
01
-
0.01 5525.200195
-
0.00
31-01-
2017
4.3407
61
-
0.02 5402.399902
-
0.02
28-02-
2017
4.7905
58 0.10 5502.399902 0.02
31-03-
2017
4.9570
25 0.03 5719.100098 0.04
30-04-
2017
4.6703
31
-
0.06 5675
-
0.01
31-05-
2017
4.7998
06 0.03 5761 0.02
30-06-
2017
4.9847
69 0.04 5903.799805 0.02
31-07-
2017
4.7165
72
-
0.05 5947.600098 0.01
31-08-
2017
4.6493
02
-
0.01 5761.299805
-
0.03
30-09-
2017
4.7840
64 0.03 5764 0.00
31-10-
2017
4.9188
27 0.03 5773.899902 0.00
30-11-
2017
4.9958
34 0.02 5776.299805 0.00
31-12-
2017
5.0535
89 0.01 5744.899902
-
0.01
31-01-
2018
5.0920
93 0.01 5976.399902 0.04
28-02-
2018 4.99
-
0.02 6057.200195 0.01
31-03- 4.04 - 6167.299805