HA1022: Financial Management Project Report - Stockland Corp

This project report provides a comprehensive financial analysis of Stockland Corporation Limited, focusing on its performance within the Australian real estate industry. The report begins with an introduction to financial management and an overview of the real estate sector, highlighting its cyclical nature and growth drivers. It then delves into a detailed description of Stockland Corporation, including its mission, ownership structure, and management. A significant portion of the report is dedicated to analyzing the company's financial instruments, including balance sheets and income statements, assessing asset growth, and profitability. The analysis extends to evaluating Stockland's financial structure, calculating and interpreting various financial ratios such as operating profit margin, net profit margin, return on equity, interest coverage, current ratio, and debt-to-equity ratio to gauge the company's financial health and risk profile. The report concludes with key findings, conclusions, and recommendations based on the financial analysis, providing insights into Stockland's investment potential and overall financial management strategies.

Running Head: Principle of financial Management
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Project Report: Principle of financial Management

Principle of financial Management 2
Contents
Introduction.......................................................................................................................3
1.Industry description.......................................................................................................3
2.Company description.....................................................................................................4
3.Financial instrument analysis........................................................................................5
4.Financial structure analysis............................................................................................6
5.Financial market analysis............................................................................................10
6.Findings, conclusion and recommendation.................................................................12
References.......................................................................................................................13
Appendix.........................................................................................................................15

Principle of financial Management 3
Introduction:
Financial management is one of the major parts which include the recording,
evaluating and analyzing the financial aspects of an organization. This process is followed in
an organization to measure the performance of an organization and evaluate whether the
business is a good option for the investors to make the investment or not. In this report,
STOCKLAND Corporation limited has been taken into consideration. It is a real estate
company which is operating its business in Australian market since a long time. The study
represents whether investing in the organization is a good option or not.
1. Industry description:
In order to analyze the performance of STOCKLAND Corporation limited, real estate
industry has been studied initially. Real estate industry of Australia defines a huge growth in
the overall market in last few years. The growth has been seen in the market because of the
huge demand of the real estate in the market along with the various changes in the
government regulations. Real estate industry includes the manufacturing property and
building along with the warehouses. Buildings and plots could be used by the organizations
and individuals for corporate and individual purpose.
The study explained that real industry is a cyclic industry which reacts to the macro
economical factors of a country such as population growth, government policies, and
economical strength of the country. In case of Australia, it has been estimated that overall
growth of the business is improving (Higgins, 2012). Top 7 companies of the industry has
been studied a found that overall profitability of the business has been improved along with
the better market share. The total GDP contribution of the industry has also been grown up.
Earlier, in the year of 2010, the industrial performance was higher but with the time, the
changes have been seen in the industry. However, currently, the performance of the industry
has again grown up due to the population growth and demand of the real estate property in
the market (Krantz, 2016). The growth and performance of industry could be identified on the
basis of below given graph:

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(Market Screener, 2019)
2. Company description:
STOCKLAND Corporation limited is one of the Australian biggest organization which
deals in the diversified property group. The company owns, develops and manages the largest
portfolio in the Australian market related to the workplace, retail town centres, residential
communities, logistic areas and retirement living villages. In 1952, STOCKLAND
Corporation limited has been established and since that time, the company has invested into
various diversified property group to enhance the market share and diversify the market base
of the business. The main mission of the business is to assist the communities through
offering them a good place to live, shop and work.
Ownership structure of the company has been studied further and found that there is
no member from board of directors in the top 20 shareholders of the business. All the main
shareholder of the company is corporate and banks who have invested in the business to have
a control over the business activities. Below is the ownership structure and management
structure of the business:

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(Annual report, 2018)
The study over investors and the financial institution of the company explains that most
of the funds have been raised by the company from the big corporate and banks to run the
business smoothly and improve the overall efficiency of the business. Annual report (2018)
of company explains that funds and solvency position has been managed by the company at
better level to reduce the overall risk and performance of the business.
3. Financial instrument analysis:
Financial statement of an organization is the main pillar of the business which explains
the monetary and financial position of an organization in the market. It helps the internal as
well as external stakeholders of the business to make better decision. In the section, the
balance sheet and income statement of STOCKLAND Corporation limited has been
identified and it has been evaluated to measure the overall performance of the business.
On the basis of the balance sheet, it has been found that various changes have taken
place in the business in terms of current assets, total assets, liabilities and equity of the
business Firstly, the total assets of the business has been evaluated and found that in 2017,

Principle of financial Management 6
total assets of the business was $ 17,495 million which has been enhanced to $ 19,291 million
(Annual report, 2018). It depicts about a good growth in the business and better financial
position of business.
Further, equity and liability of the business has been identified and it has been
recognized that liability and equity level of the business has also been improved. However,
the increment rate of liability is quite lower than equity level. The overall balance sheet
evaluation expresses that financial performance of the business has been improved from
previous year and it has been improved further as the growth rate of the business is quite
good (Kaplan and Atkinson, 2015).
Further, the income statement of the business has been studied and it has been found
that revenue of the business is quite similar in both the years. In 2018, the overall operating
expenses of the company has been improved which has affected the net profitability level of
the business and affected the financial position of the business in the market (investors,
2018). The changes and profitability position of the business could be identified through the
images given in the appendix.
STOCKLAND Corporation limited’s balance sheet has been studied and found that the
company us not involving in any “Off balance sheet” work as all the effective assets and
liabilities are appeared in the balance sheet of the company. Company is following the AASB
rules an according to that, all the relevant and effective information are disclosed by the
company in its annual report. The overall analysis depicts that company has managed all the
activities significantly in the market.
4. Financial structure analysis:
It is always important for the financial manager of an organization to identify the
requirement of funds and then procurement of those founds from the market. In case of
STOCKLAND Corporation limited, it has been recognized that company is in need of AUD
10 million which could be raised by the company through borrowing the funds from the
market or issuing the new stock in the company. In order to reach over a conclusion, different
ratios have been studied. Below is the calculation and interpretation of ratio:
a. Financial ratios for the creditors:
i. Current ratio
ii. creditor turnover ratio

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iii. Debt to equity ratio
b. Financial ratio for the shareholders:
i. Operating profit margin
ii. Net profit margin
iii. Return on equity (Kurth, 2013)
c. Financial ratios calculation:
Ratio Calculations 2018
Profitability Ratios: 2018
Return on Equity 2018
Operating profit / 1,406
Equity
10,37
6
Answer: % 13.55%
Operating profit margin 2018
Operating profit / 1,406
Sales revenue
2,77
5
Answer: 50.7%
Net profit margin % 2018
Net profit / 1,025
Sales Revenue % 2,775
Answer: 36.94%
Interest Coverage Ratio 2018
EBIT / 1,406
Net Finance Costs (used net interest
expense) 89
Answer:
times
p.a
15.8
0

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Liquidity Ratios 2018
Current Ratio 2018
Current Assets / 1,326
Current liabilities
4,33
4
Answer: 0.31
Capital Structure Ratios 2018
Debt equity ratio 2018
Total liabilities / 8,915
Total equity 10,376
Answer: % 0.859
(Morningstar, 2019)
d. Interpretation:
On the basis of the above calculated financial ratios, it has been found that the
financial performance and position of the company is quite different in the market,
each of the ratio differs the different story. The interpretation of each of the ratio is as
follows:
Operating profit ratio:
Operating profit ratio is a financial ratio which is mainly calculated by the shareholder
of the business to measure the total operating profit earned by the business on the basis of the
total revenue generated (Madura, 2014). The operating profit margin of STOCKLAND is
50.7% which is quite higher and explains that higher growth is managed and earned by the
company from the market. The overall profitability maintained by the company is impressive.
Net profit ratio:
Net profit ratio is a financial metrics which measure the total net profit earned by the
business on the basis of the total revenue generated. This is calculated by the shareholders to
identify the growth and return from the company. The net profit margin of STOCKLAND is
36.94% which is quite higher and explains that higher margin is earned by the company from
the market. The overall profitability maintained by the company is impressive.
Return on equity:

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Return on equity (ROE) ratio is a financial ratio which is mainly calculated by the
shareholder of the business to measure the total earnings made by the shareholders on the
basis of the total net profit earned by the company (Madura, 2014). The return on equity ratio
of STOCKLAND is 13.55% which is quite higher. It depicts that if the shareholders are
investing into the stock of the company, they will surely get a return of 13.55% from the
company which is impressive.
Interest coverage ratio:
Interest coverage ratio is a capital structure ratio which is calculated by the creditors
to recognize whether the company is enough capable to maintain the interest expenses and
the entire debt amount or not (Palicka, 2011). In case of STOCKLAND, it has been found
that interest coverage ratio of the company is 15.80 which is quite higher and explains that
company is enough capable to pay the entire debt and interest amount timely to the debt
holders.
Current ratio:
Current ratio is a financial ratio which identified the short term debt payment
obligation of an organization. It is calculated by the creditors to recognize the liquidity risk
involved with the comapny and manage the daily operations of the business smoothly (Moles,
Parrino and Kidwekk, 2011). In case of STOCKLAND, it has been found that current ratio
of the company is 0.31 which is quite lesser and explains that company is not enough capable
to pay the short term debt obligation of the business. The current liabilities of the company
are quite higher than current assets of the business which could lead to the business towards
higher risk.
Debt equity ratio:
Lastly, debt equity ratio is a financial ratio which identified the long term fund
management process of an organization. It is calculated by the creditors to recognize the
solvency risk involved with the comapny and manage the long term projects and plans of the
business smoothly. In case of STOCKLAND, it has been found that debt equity ratio of the
company is 0.86 which is quite higher and explains that the level of liability is almost similar
to the equity position of the business. The liabilities of the company are quite higher as
compared to the equity of the business which could lead to the business towards higher risk
(Marketscreener, 2019).

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On the basis of different financial ratio and interest of creditors and shareholders of
the business, it has been recognized that the liability level of the business is already higher. If
the organization would raise the funds through liability then the overall performance and risk
level of the company would be improved (Kurth, 2013). On the other hand, if the financial
manager opt the share issue option to raise the funds then it will be a good choice as in that
case, the equity level of the business would be improved and it would reduce the solvency
risk of the business. Along with that, the return associated with the stock of the company is
also higher that would attract the investors to invest in the company.
5. Financial market analysis:
Role of financial player:
Further, the study has been conducted over the external and internal stakeholders of
the business to measure the level of interaction with them and its impact over the industry.
On the basis of study, real estate industry is a cyclical industry where all the stakeholders of
an organization are internally connected to each other such as it becomes important for an
investor to identify about the financial intermediaries of the industry in order to measure the
worth of the business and the intervention level of financial intermediaries in the business
(Ward, 2012).
Along with that, the financial intermediaries also communicate with the borrowers
and other stakeholders of the business to identify their position and the feedback of them
regarding the performance and overall management of the company (Reilly and Brown,
2011). All the stakeholders of the business are mutually connected to each other and this is
mutually beneficial for all the parties as the real estate industry is affected majorly by the
economical factors but if all the stakeholders of the business are concerned then it could help
the business to work efficiently in the market along with good margins (Marketscreener,
2019).
Government intervention:
STOCKLAND Corporation limited is a real estate industry. Real estate industry
includes the manufacturing property and building along with the warehouses. Buildings and
plots could be used by the organizations and individuals for corporate and individual purpose.
This industry is a cyclic industry which reacts to the macro economical factors of a country
such as population growth, government policies, and economical strength of the country.
Hence, in this industry it is quite important for the government to intervene and make

Principle of financial Management 11
decisions for the betterment of the industry (Phillips and Stawarski, 2016). Below are few of
the reasons due to which it becomes important for the government to intervene in real estate
industry:
1. the economical slow down
2. lack of faith in under construction properties
3. Higher taxation on under construction home (Morningstar, 2019)
These are few reasons because of which the interest and the will to boy new properties
by investors and individual slow down. Intervene of government could help the industry to
overcome such issues and improve and maintain the performance in the market. These
changes lead to the business towards higher profits and better position in the market (Ward,
2012).
In order to ensure the ethical behaviour in the industry, government and the regulatory
boards have made various policies and the rules. These rules and policies have helped the
industry to build the trust and improve the performance in the market again (Weaver, Weston
and Weaver, 2011). Because of these changes, the profitability and market share of the
industry has again improved.
Further research:
Further, the STOCKLAND Corporation limited has been taken into consideration.
Last few years financial statement and performance of the company has been recognized to
measure whether the company has been involved in any kind of unethical practices and
whether the performance of the company has been affected by any of the act of the company,
management or the board of directors of the company. The study explained that company was
not involved in any of the unethical practices. AASB rules are followed by the company and
all the financial statement of the business is prepared according to that only. All the relevant
and effective information are disclosed by the company in its annual report (Kurth, 2013).
Further, it has also been recognized that the internal policies of the company are quite
strong which never allows any of the individual from the company to involve in any kind of
unethical practices (Weston and Brigham, 2015). Company has a proper department which
looks into the various matters and try to identify all the unethical behaviour in the company

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so that all the activities could be captured and the financial performance of the business could
be improved.
6. Findings, conclusion and recommendation:
On the basis of the above study done over STOCKLAND Corporation limited, it has
been found that the company is one of the largest real estate organizations in the Australian
market. Financial performance and position of the company is quite strong which has been
improved from previous year and depicts a better growth rate. The financial ratios of the
company define about different financial aspects of the business which could be altered a bit
by the financial manager of the business to reach over a conclusion and improve the
performance of the business. The solvency position and the liquidity position of the company
are not quite strong. It could be improved by the management through making few changes.
On the basis of the study, it is recommended to the financial manager of the business
to make few changes in the organization to improve the overall health of the company.
Company should raise the funds from issuing the stock in the market and reducing the debt
level of the business so that the borrower’s position could be improved in the market. The
industry performance of the company is quite strong. In order to maintain the same
performance, STOCKLAND should change the strategies according to its competitors and
raise the growth in the market. The industry development is also helpful in the business as it
would directly affect the organizations working in the industry.
Further, it explains that industry regulators play an important role in an organization.
An organization could rely over the industry t sustain the health. This recommendation is
quite correct as it improves the performance of the business and the compatibility among all
the companies in the industry improve.