Financial Performance Evaluation of ASX Listed Companies: IPO Analysis

This report analyzes the financial performance of three ASX-listed companies: Virtus Health, Meridien Energy, and Dick Smith, focusing on their initial public offerings (IPOs). It examines the impact of IPOs on share prices, evaluates the merits of issuing IPOs, and assesses the effects of over-pricing and under-pricing. The report provides a detailed discussion on the companies' stock movements, market returns, and business strategies. It also delves into the cyclical nature of IPOs, the motivations behind their use, and the factors influencing share price fluctuations. Furthermore, it explores dividend yields as a motivation for investors and concludes with an overview of the key findings related to IPOs and their financial implications. The report provides insights into the long-term financial viability and the significance of strategic decision-making in the context of initial public offerings.

Running head: MANAGING FINANCE
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Name of the student:
Name of the university:
Author Note:

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Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................3
Answer to (a)...............................................................................................................................3
Answer to (b)...............................................................................................................................4
Answer to (c)...............................................................................................................................4
Answer to (d)...............................................................................................................................6
Answer to (e)...............................................................................................................................6
Answer to (f)................................................................................................................................8
Conclusion.......................................................................................................................................9
References:....................................................................................................................................10

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Introduction:
The assignment intends to analyze the performance of three chosen organizations
including Virtus Health, Meridien Energy and Virtus Health and they are enlisted in ASX. The
evaluation of the above-mentioned three organizations has been made along with impact on
share price depending on initial public offering. This assignment deals with stock movements of
the organizations in ASX, which are analyzed in details in the study. Finally, the paper has shed
light on assessing the impact of over-pricing and under-pricing of the policy related to initial
public offering of all three organizations.

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Discussion:
Answer to (a)
As identified above, the companies chosen include Virtus Health, Meridien Energy and
Dick Smith. The key merits of issuing initial public offering by the company are to obtain capital
quickly along with formation of increased customer base (Wang & Sarkis, 2017). This assists the
company in diversifying its existing business operations through sound use of the overall raised
capital from the market.
It could be observed from the above table that Dick Smith has incurred a loss of about
2% in the first day of training. As per the evaluation of the above table, for Meridian Energy and
Virtus Health, they have generated profit margin of 6% and 10% respectively on the initial
trading day. After evaluating the chart, it is also observed that both Meridian Energy and Virtus
Health would be able to reap the benefits from initial public offering, since the market return is
observed to be positive on the first trading day. Hence it can be said that the business strategy in
terms of trading which is adopted by Meridian Energy and Virtus Health is far more effective
rather than the business strategy of Dick Smith. In the long run as per the share price analysis of
the three companies, Meridien Energy is literally going to flourish in case of the business
expansion.

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Answer to (b)
The in-depth analysis is performed which further signifies that initial public offering is
not a cheap source of long-term finance for raising capital. The securities have to be offered by
the organizations to the general public by initial public offering. There are certain norms in the
Australian Stock Exchange so the information memorandum could be prepared accordingly.
Moreover, the business organizations have to incur a portion of fees for issuing initial public
offering in the market. Therefore, for initial public offering, the organizations generally have to
bear considerable amount of cost. However, initial public offering provides a number of benefits
in terms of share issuance. Hence it is needed to understand the basic requirement before issuing
through the process of the initial public offering for the purpose of raising capital for the
business.
The role of policies and procedures of an organization is deemed to be vital when it
comes to gather capital by the process of initial public offering. The organization faces issues in
terms of equity capital through the method of share issuance to the public (Shette and Kuntluru,
2018). This will provide a great impact on the cost of equity of the firm, which a firm obtains as
return from the deployed capital. However the old firms can also raise IPO if they are initiating
new business areas and places.
Answer to (c)
Dick Smith is one of the popular retailers in Australia. In accordance with the closing
price and issue price on ASX, it is further predicted that the initial public offering of the
organization is too much owing to the non-satisfactory financial performance (Rodriguez-
Fernandez 2016). Based on the financial analysis, the organization is expected to experience

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business growth in future, due to which the offer price of the organization is currently highly
priced.
Virtus Health is observed to be dealing with manufacturing healthcare equipment. In
accordance with the current financial performance, the organization has strived for under-pricing
in initial public offering with the strategy of accomplishing the market investors for purchasing
the shares. The shares are issued at discount for aiding the investors in gaining benefits from
such type of investments (Rivera, Munoz and Moneva 2017). There are various reasons for the
adopting the strategy of under pricing of shares in the market so that the company is able to
attract the potential investors. This will easily help the company to raise funds in such a scenario.
Here the major decisions is taken by the upper level management of the organization in order to
enhance the overall performance of the business.
The Meridien Energy deals with all sorts of utilizes which is rather considered as the
main part of the industrial business. In accordance with the existing financial performance of the
organization, under pricing was made in initial public offering in order to enter into a
relationship for the significant market investors. As a result, the organization could accumulate
more funds from the market (Renz, 2016). Raising capital from the market will further help the
company to succeed based on meaningful investment decision. Since the organization has sound
reputation of financing in the market and is the reason behind the under pricing strategy of
company. This would routinely improve the financing position of the business along with
enhancing the profitability position of the business at the same time.

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Answer to (d)
The cyclical nature of initial public offering could be observed in an economy, which is
also the function of the market. The stocks representing displacement through movements by
relying on the existing business condition are known as Cyclical Stocks (McDonald &Masselli,
2018). These mainly include the stock related to initial public offering having affluent trading in
the market. As a result, the investors are involved in purchasing and selling market shares.
There have a number of changes over the years in the IPO. This implies the fruitfulness
of under-pricing of the organization. It has been observed that majority of the organizations are
involved in the adoption of under-pricing strategies in terms of initial public offering (Flammer,
2015). It has been found that majority of organizations having stable current financial position
aim to diversify their business operations with the help of under-pricing strategy.
The entire goals and the existing business positions determine the decision to be
undertaken. In case of increase in the risk-averse stocks of the IPO, the under-pricing is likely to
increase as well (Alon & Elango, 2018). The organizations are confronted with a number of
valuation risks along with under-pricing of the market shares. There has been implementation of
minor changes with the passage of time, if the risk-return relationship is found to be fixed.
Answer to (e)
The main reason for organizations to use IPOs is to convert them into public firms.
Although the organizations are deemed to have a significant number of objectives, the intention
would be maximize the value of the shareholders (A-Malkawi & Pillai, 2018). By considering
the economic as well as financial situation in Australia, the potential investors would be
motivated to increase their overall market investment (A-Malkawi & Pillai, 2018). By

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minimizing the cost of the IPO, the potential investors would be drawn towards the market
resulting in increase in stock price.
The above computed table is showing the fluctuation of the share price of the mentioned
companies for the last five financial years. There are various reasons behind such major
fluctuations in the share price of the three companies for the last five years. The effect of the
strategies undertaken by the company has further been reflected in the share price of the
company (Qiu, Shaukat&Tharyan, 2016). From the table it can be interpreted that after the
financial year 2015, the share price of the company tends to remain static in recent years. It
indicates that the financial performance of the company has been drastically affected year after
year, which further resulted in such major decrease in share value and finally the company has
not been able to perform as per its general standards or objectives. The business strategies
undertaken by the company during IPO having some of the great loopholes and hence it resulted
in such low performance in the financial status of the company (Bonne et al., 2016). The reason
behind such decrease in the share price of Virtus health is due to the ineffective investment
strategies in the recent years and accordingly the management of the company needs to adopt
some of the strategies to rectify suck kind of business drawbacks (Finkleret al., 2018).
Undertaking some of the significant changes in the business tsrtaegies will help the company to
increase its share value in the future which will automatically put a positive impact on the

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company’s financial performance (Booth, 2018). From the analytical perspective it is noted that
the share value of Meridien Energy is constantly increasing after implementing the IPO strategy.
This acts as an indicator of the current financial performance of the company which is good and
as per detailed analysis; it is observed that the financial performance of Meridien Energy is
gradually improving (O’Neill, Sohal&Teng, 2016). The gradual increase in the share price of the
company will attract the potential investors of the company and enhancing the business
performance accordingly.
Answer to (f)
Conducting the above discussion it can be identified that the dividend yield works as a
motivation for the investors which will definitely provide some extra income out of the shares of
the company. The potential investors of the Meridien Energy will be able to earn a lot through
investing, as the dividend yield of the company will be high as the current financial performance
of the company is satisfactory(McKinney, 2015). The company’s overall financial performance
will also increase and later the company will flourish more and hence the investors will get more
income (Barr et al., 2018).The previous performance of the initial offering of the company and
the company’s high growth in the share price in later stage will fetch more investors and hence it
will help the company to raise the fund in the market for the betterment of the company.

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Conclusion
From the above discussion, it can be concluded that that initial public offering is not a
cheap source of long-term finance for raising capital. The securities have to be offered by the
organizations to the general public by initial public offering. There are certain norms attached to
ASE so that the information memorandum could be prepared accordingly. Moreover, the
business organizations have to incur a portion of fees for issuing initial public offering in the
market. Therefore, for initial public offering, the organizations generally have to bear
considerable amount of cost. However, initial public offering provides a number of benefits in
terms of share issuance.

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