HI5002 Finance for Business: AMP Limited Financial Case Study 2018

This document presents a financial analysis of AMP Limited, an Australian financial services company, using various financial tools and techniques. It includes a description of the company, its governance and ownership structure, and a detailed performance ratio analysis covering short-term solvency, long-term solvency, asset utilization, profitability, and market value ratios. The analysis incorporates share price graphs, announcements affecting share price, beta calculation, required rate of return computation using CAPM, investment method determination, and weighted average cost of capital calculation. The report also considers the company's debt ratio and dividend policies, concluding with a letter of recommendation based on the findings. The analysis indicates areas for improvement in AMP Limited's financial management.

RUNNING HEAD: Financial Analysis of AMP Limited
1
Name of the student
Topic- Financial Analysis of AMP Limited
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 Limited 3
Introduction
With the increasing ramified changing economic factors, each and every organization
needs to run business effective by using the financial tools and techniques in determined
approach. There are several financial tools such as ratio analysis, capital budgeting analysis,
top down analysis, bottom up analysis which could be used by the management of Company
to increase the overall outcomes. It is observed that AMP Company has increased its
profitability throughout the time.
.
1. Description of AMP Limited
The AMP Limited is a financial service company working in Australia and New Zealand
providing superannuation benefits and investment products, insurance and financial advice
and Banking product. It includes the entire home loan and saving account service for clients
(AMP limited. (2018).

2. Governance and Ownership structure
It is analysed that the CEO of Company is Craig Meller who takes all the managerial and
operations decisions in effective manner.
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

Financial Analysis of AMP Limited 5
10 Leslie Moonves 68 CBS Corp 69,333 43,696
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).
Share holder details of company

Financial Analysis of AMP Limited 7
3. Performance ratio analysis of AMP Limited
The ratio analysis helps in evaluating the financial performance of AMP Limited by setting
the relation between two factors. (AMP Limited, 2015).
Short term solvency ratio
1. Current ratio
The current ratio of AMP Limited has reduced which shows that company has lower down its
investment in the current assets. However, company has zero investment in its inventory
(AMP Limited, 2017).
Liquidity ratio Years
2017 2016
Current ratio .0025 .0031
Quick ratio .0025 .0031

Interpretation
The AMP Limited has zero investment in its inventory and lowers down its investment in its
current assets (Dahir, Mahat, and Ali, 2018).
This ratio reflects that company needs to increase its investment in its operating assets if it
wants to create value in its investment. It will assist AMP Limited to meet the current
demand of the client in market.
Quick ratio
The quick ratio of company is same as with its current ratio. There is no inventory
and expenses which company needs to make for the better and effective functioning.

Financial Analysis of AMP Limited 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 AMP Limited shows that company has high financial leverage
in its business. It is considered that AMP Limited needs to lower down its debt portion if it
wants to maintain effective sustainable business in long run. Nonetheless, reduction in the
overall debt portion will also increase the cost of capital of the business.
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 debt to equity to 70:30 i.e. 30 % debt portion and
70% equity portion.

Gearing ratio discussion
The gearing ratio of Company is very low which shows that company has been paying
very low interest payment on its debt portion (AMP. 2017).
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 5% 6% 4% 4%
This ratio shows that company will be solvency even if it has less return on its
business.
Asset utilization
1. Inventory turnover ratio
The inventory turnover ratio reflects that company has zero inventory turnovers which show
that company has not blocked capital in its business.
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 Limited 11
2. Assets turnover ratio
The assets turnover ratio of AMP Company is too low which shows that company has been
blocking less funds in its business.
3. Debtor turnover ratio
The debtor’s turnover ratio of company has been kept zero due to its non-effective sales and
loss of its business. Company has been dormant to manage its business.
Profitability ratios
The profitability ratio f AMP Company shows that company had faced loss in 2016 which
converted into the profit in 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 company has been zero in 2016 which increased to 1% in 2017. It is
good start for the AMP Company to revive its busienss in long run.
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 AMP Company has increased to 11% which reflects that
company has added value in its business. It is analyzed that as compared to 2016, AMP
Company has increased its profitability which will positively impact the business of AMP
Company.