HI 5002 Finance for Business: Austal Limited Financial Analysis

This report provides a comprehensive financial analysis of Austal Limited, an Australian shipbuilder, to understand its financial health and investment potential. It covers the company's description, ownership structure, key financial ratios (Return on Assets, Return on Equity, and Debt Ratio) calculated over four years, and an analysis of monthly share price movements against the All Ordinaries Index. Significant announcements affecting the share price are identified. The report also calculates the weighted average cost of capital, evaluates the company's debt ratio and dividend policy, and concludes with a recommendation to potential investors, based on the analysis, explaining why Austal Limited could be a valuable addition to their investment portfolio.

HI 5002 Finance for Business
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Contents
Introduction:....................................................................................................................................3
1. Prepare a brief description of the company.............................................................................4
2. Specify ownership-governance structure of the company.......................................................5
3. Calculate the following key ratios for your selected company for the past 4 years................7
4. Prepare a graph / chart for movements in the monthly share price over the last two years for
the company that you are investigating. Plot them against movements in the All Ordinaries
Index.............................................................................................................................................9
5. Significant announcements which may have influenced the share price of your company...13
6. Financial data of company:....................................................................................................15
7. Weighted average cost of capital...........................................................................................16
8. Debt ratio of company............................................................................................................17
9. Dividend policy......................................................................................................................18
10. Based on your analysis above, write a letter of recommendation to your client, providing
an explanation as why you would like to include this company in his/her investment portfolio.
....................................................................................................................................................19
Conclusion:....................................................................................................................................20
References:....................................................................................................................................21
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Introduction:
The report is prepared to gain an understanding of the various issues concerning with the finance
environment in a business. The finance for business is a crucial component and it directly affects
the capital structure of the company. The company named Austal Limited will be analysed here
for making a research and obtaining the results after that analysis. It is an Australian shipbuilder
company which designing, building and supporting the commercial and defence vessels in more
than 44 countries in the world. The report will include the description about the corporate
governance in the company while evaluating the independence concerned with that corporate
governance. The substantial shareholders of the company will be identified and the nature of
their relationship and influence will be evaluated in this report. For understanding the financial
position of the company the key ratio will be calculated on the share price and the factors
influencing the share price will be identified. The graphical presentation will help in
understanding the nature of fluctuations in the share price of the company. The financial data of
the company will be evaluated with the calculation of weighted average cost of capital and a
recommendation will be made to the investors for making investment in the company. The
dividend policy will be evaluated and the letter of recommendation will be made accordingly.
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1. Prepare a brief description of the company.
Austal Limited is a company operating in Australia and has been considered as a shipbuilder,
maritime technology partner of choice, global defence prime contractor which is engaged in
business activities like designing and constructing the defence and commercial vessel for many
p\operators all over the world. The company and the organisation has been developing the iconic
vessel platforms which are significant for redefining the naval capability for USA Navy as well
as extensive range of patrol vessels for Australian Border Force and Royal Australian Navy
(Austal, 2017).
The company is also involved in designing, installing, integrating and maintaining the
sophisticated maritime communications and radar systems that will control the system in marine
link. The company has been competitive over the last few years by becoming a world leader in
designing, constructing and supporting the highly customized and increased level of performance
based aluminium vessels which is obtained from ongoing success of the company in the global
ferry and offshore market. This has been an achievement gained by the company over the last 28
years.
The international facility for Austal Limited includes:
 Defence shipyards in Henderson (Perth)
 A dedicated commercial shipyard in Balamban, Philippine, Western Australia and
Mobile, Alabama USA
 Delivers through-life competence management (vessel support) services from its facilities
in Australia, the United States, Philippines and the Middle East (Austal, 2017).

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2. Specify ownership-governance structure of the company.
Substantial shareholders of company:
With higher than 20% of shareholdings - The substantial shareholders of the company
represents the individual or group holding significant part of shareholding o the company. By
analysing the shareholder information form the annual report of the company Austal Limited for
the year ending 2017 it can established that only one shareholder holds more than 20% of the
shareholding of company which is HSBC Custody Nominees (Australia) Limited holding
holding 107,629,283 shares and 30.80% shareholding in the company (Ongore, et. al., 2015).
On the basis of the above fact it can be said that the company is a family company because one
individual Group is holding certain significant part of the ownership of company for their 2017.
This will impact the independence of the corporate structure of company (Austal, 2017).
With higher than 5% of shareholdings – The substantial shareholders with more than 5%
of the shareholding in the company are as follows:
Name Number of shares % of holding
J P Morgan Nominees
Australia Limited
59,208,602 16.94%
Citicorp Nominees Pty Ltd 40,860,758 11.69%
Austro Pty Ltd 32,807,692 9.39%
National Nominees Limited 23,427,053 6.70%
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Main people of corporate governance:
The Chairman - John Rothwell AO
Board Members – The BOD includes
Name Designation
John Rothwell AO Chairman
David Singleton CEO
Jim McDowell Independent director
Giles Everist Independent director
CEO - David Singleton
No, by referring to the structure of the corporate governance none of the shareholders has the
same surname as of the Board members or KMP of the company (Warren & Jones, 2018).
As per the information extracted it can be established that the company is a non-family company
as there is no influence of one family in the corporate governance of the company and the same
ensures that the company is an independent company with independent Board structure.
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3. Calculate the following key ratios for your selected company for the past 4 years.
The various financial ratios are calculated as under:
 Return on assets = NPAT/ Total assets – The return on assets helps in interpreting the
profits earned by the company during a particular year and in relation with the total assets
employed by the company in that year. It will be calculated by dividing the net profits after
taxes by the total assets of the company.
 Return on equity = NPAT/ Common equity – The same is obtained by dividing the net
profits after taxes with the common equity employed by the company in a financial year.
This will give an estimation of the return obtained by the shareholders of the company by
employing their funds in the company (Ongore, et. al., 2015).
 Debt ratio = Total liabilities/ Total assets – The debt ratio represents the solvency ratio of
the company which exhibits the ability of the company to pay all of its debts during ten
financial year concerned. The same is obtained by dividing the total liabilities with the total
assets of the company.
Particular($) 2017($000) 2016($000) 2015($000) 2014($000)
Net profit after
tax
15,350 -84,182 53,156 31,859
Total assets 960,001 1,013,126 1,070,879 911,297
Total liabilities 503,087 555,574 558,480 478,065
Ordinary Equity 456,914 457,552 512,399 433,232
Ratios:
Return on assets 0.02 -0.083 0.05 0.03
Return on equity 0.03 -0.18 0.10 0.07
Debt ratio 0.52 0.55 0.52 0.52
Analysis of the equation:
EBIT/TA * NPAT/ EBIT * TA/ OE should be equal to NPAT/ OE
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39865000/960001000 * 15350000/39865000 * 960001000/456914000 = 15350000/456914000
= Gives that the following equation satisfies for the company.
The total assets can be directly related with the ordinary equity employed by the company as the
profits gets affected with the cost of capital associate with each item of the balance sheet (Austal,
2017).
By referring to the interpretations made in the financial ratios of the company it can be
established that the return on equity is greater than the return on asserts obtained by the company
and the same is due to excessive assets employed in the company in comparison to the assets
employed in the company (Warren & Jones, 2018).
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4. Prepare a graph / chart for movements in the monthly share price over the last two years
for the company that you are investigating. Plot them against movements in the All
Ordinaries Index.
The information about the movements in the monthly share price of the stick is presented below:
Month ASX($)
29-12-2017 1.85
30-11-2017 1.82
31-10-2017 1.7
29-09-2017 1.76
31-08-2017 1.55
31-07-2017 1.71
30-06-2017 1.8
31-05-2017 1.83
28-04-2017 1.8
31-03-2017 1.72
28-02-2017 1.73
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31-01-2017 1.9
30-12-2016 1.6
30-11-2016 1.74
31-10-2016 1.89
30-09-2016 1.54
31-08-2016 1.47
29-07-2016 1.48
30-06-2016 1.16
31-05-2016 1.21
29-04-2016 1.36
31-03-2016 1.56
29-02-2016 1.57
29-01-2016 1.38
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(Source: Austal Limited, 2017)
Introduction:
The report will be prepared in order to analyse the movements in the share price of the company
Austal Limited in comparison to the all ordinary index and obtaining the correlation with these
aspects.
Content:
As per the historical information abstracted for the company annual report and other sources of
information it can established that the share price of the company has been fluctuating over the
last two years. However there has been seen an upward trend in the share price of the company.
In comparison to all ordinary indexes the correlation is directly attributable as the movement in
the index directly influences the share price of the company. Also the volatility of the price can
be seen with the frequent changes in the share price (Buehlmaier & Whited, 2016).
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Conclusion:
The above report concludes that the direct correlation exist between the share price of the
company and the all ordinary index movements. The share price of the company is volatile in
comparison to market and industry factors.
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