HI5002 Finance for Business: Investment Analysis of Abacus and Aveo

This report analyzes the financial performance of Abacus Property Group and Aveo Group, two companies in the Australian real estate industry, from the perspective of international institutional investors. The analysis includes a profitability assessment, solvency and liquidity evaluation, and capital structure composition. The findings indicate that Abacus Property Company outperforms Aveo Group in terms of profitability, solvency, and liquidity. The capital structure of Abacus has shifted towards increased equity exposure and reduced debt dependence. Based on these factors, the report recommends investing in Abacus Property Limited shares to maximize investor returns.

Running head: FINANCE FOR BUSINESS
HI5002: Finance for Business
Trimester 3 2018
Group Assignment

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Executive Summary
The report that has been constructed has concentrated on the point of view of the
international institutional investors who are looking to undertake an investment in the market
of Australia. It is due to this fact that two companies have been chosen for this report that are
functional in the real estate industry in Australia. The companies that have been selected are
Abacus Property Company and Aveo Group Company. The outcome that has been attained
with respect to profitability addresses the fact that Abacus Property Company is in a much
better position that Aveo Group Company in terms of profitability. When assessing on the
basis of solvency and liquidity, Abacus Property Company is far better than Aveo Group
Company. The capital structure composition of Abacus Property Company has altered within
the three years that has been taken into consideration as their exposure towards equity has
increased and debt dependence has reduced. The analysis of all the factors leads to the fact
that undertaking investments in the shares of Abacus Property Limited is fruitful in order to
maximise the return on investment for the investors.

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Table of Contents
1.0 Introduction..........................................................................................................................3
2.0 About chosen organisations.................................................................................................3
A] Brief foundation of Abacus Property Group and Aveo Group Ordinary......................3
B] Position in the market....................................................................................................4
C] Investment portfolio diagram........................................................................................4
D] Consistent growth and performance.............................................................................6
E] Property Venture overview...........................................................................................6
1.2 Quantitative Analysis.......................................................................................................7
A] Debt to Equity Ratio.....................................................................................................7
B] Equity Ratio..................................................................................................................7
C] Interest Coverage Ratio.................................................................................................7
D] Debt ratio......................................................................................................................8
3. Share Price Movement Analysis............................................................................................8
4. Calculation and Analysis of Weighted Average Cost of Capital (WACC)...........................9
5. Capital Structure Policy.........................................................................................................9
6. Recommendation Letter.......................................................................................................10
Conclusion................................................................................................................................11
Reference List and Bibliography.............................................................................................12
Appendix..................................................................................................................................14

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1.0 Introduction
The reality before speculation basic leadership, every financial specialist has played
out a rundown of appraisal by utilizing diverse examination apparatuses. The point of such
evaluations was to show whether the venture choice in the organization picked will be
productive or not (Beatty and Liao 2014). This investigation was performed with considering
Abacus Property Group (ABP), an Australian Stock Exchange recorded association as the
case association and Aveo Group Ordinary additionally an Australian Stock Exchange
recorded association as the contender association (AOG). While executing this investigation,
the scientist has played out an inside and out execution assessment both as far as subjective
viewpoints and quantitative perspectives and cost of capital examination just as Capital
structure investigation (Faello 2015). The principal segment of the investigation has exhibited
the execution assessment segment, when the later part has managed budgetary assessment.
2.0 About chosen organisations
Assessment of execution of an association over a particular time allotment essentially
requires distinguishing proof of components that exhibits the current viewpoint of the
business task in an all the more clear way. Despite the fact that budgetary execution
investigation by utilizing proportion examination apparatus gives clear sign whether to put
resources into the or not, the subjective investigation including the stock value developments
will give certainty towards the financial specialists (Hoyle, Schaefer and Doupnik 2015). This
segment of the examination therefore performs both subjective and quantitative investigation
of Abacus Property Group and Aveo Group Ordinary.
A] Brief foundation of Abacus Property Group and Aveo Group Ordinary
It is noticed that the association, Abacus Property Group is an all-around
differentiated property amass that at present considered as the standout amongst the best
private value type land venture openings (Abacus Property Group 2019). The gathering
worked both in the Australia and New Zealand advertise and was recorded since 2002. In the
contemporary commercial centre, the gathering is one of the S&P/ASX 200 recorded
association. The gathering for the most part underlined on esteem expansion viewpoints and
in this way long haul absolute return and augmenting investor’s riches is its essential point.
Property speculation, property adventures, subsidize the executives, and so on are the real
exercises performed by the association.

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Then again, for more than 25 years, Aveo has been committed to giving more
seasoned Australians the best retirement living and care alternatives accessible. Their creative
way to deal with consideration conveyance and network configuration mean they are ready to
genuinely say that they are rethinking retirement for every single Australian way of life.
Since their beginnings in 1995 they have developed to where they are today with more than
90 retirement and Aged Care people group crosswise over Australia and more than 13,000
inhabitants (Aveo 2019). The organisation have been tuning in to what their inhabitants need
and have improved our agreements, put resources into better consideration and wellbeing
administrations, made a world class sustenance offering, coordinated their exceptional
Freedom Aged Care offering and fabricated new ace arranged networks. Most as of late, they
have presented our home consideration benefit making more noteworthy help administrations
accessible to our occupants and those in the neighbourhood network. Be that as it may, to us,
the adventure has quite recently started as they proceed to tune in and move forward.
B] Position in the market
It has turned out to be certain that like the previous year’s activities the gathering
proceeded with its speculation activities considering the blended monetary signs both in the
residential just as worldwide commercial centre (Nobes 2014). The association constantly
worried about their liquidity perspectives, which makes it pioneer in this land venture
industry. On the other hand Aveo stays focused on giving the most noteworthy nature of
administration to its occupants. With 91 towns claimed or oversaw, Aveo keeps up its driving
position as a standout amongst the most experienced administrators and biggest proprietors of
retirement towns in Australia.
C] Investment portfolio diagram
While evaluating the speculation portfolio planned by the gathering, the positive
perspectives recognized here is that the gathering principally centres on inhabitant
maintenance to diminish the opportunities extent, which at last keeps up the income level
(Baker and Wurgler 2015). On the off chance that the rent lapse profile (by pay) of ABP is
considered here, it very well may be said that the gathering will ready to keep up an
equalization level over the period FY 2015 to FY 2019. Be that as it may, consequent to FY
2018, the rent expiry level (by pay) will essentially increment.

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Figure 1: Lease expiry profile (by income)
(Source: Fernández, and Gulan 2015)
Aveo has achieved all its strategic goals over the period FY14-FY18 and has a
demonstrated track record of innovation and understanding and addressing consumer
expectations.
Figure 2: Investor Portfolio diagram of Aveo
(Source: Baños-Caballero, García-Teruel and Martínez-Solano 2014)
D] Consistent development and execution

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As per the last quarter execution report, the solid exchanging execution just as augmentations
of new portfolio expands both the rental salary just as occupancy rate. It is noticed that when
the normal occupancy rate of its investment property in Australia was 83.1%, this was 87.9%
in New Zealand. By and large, the normal occupancy rate confirm by the gathering amid the
most recent FY was 84.3%. Not just has that, the ongoing year's execution report likewise
uncovered that the income per accessible SQM was additionally expanded.
E] Property Venture outline
Being one of the best land speculation openings, the association like Abacus should be
centered around pipeline ventures. The private advancement extends under the gathering
name emphatically impact the long haul return perspectives and in this way financial
specialists are searching for such pipeline ventures. Like different associations that worked in
this industry, there is requiring thought of tasks that are either idea arranging stage or
endorsement stage or being developed stage. The underneath referenced figure portrays the
pipeline ventures embraced by Abacus gathering:
Figure 3: Pipeline Projects
(Source: Brigham et al. 2016)
The above figure indicates that in the coming two years period, the group will work
on numerous numbers of projects, which will ultimately augments the portfolio volume and

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consequently the chances of long term return will enhance. So, from that point of view, it can
be said that the investor can invest their money in the company.
1.2 Quantitative Analysis
This section of the study performed quantitative analysis of the performance of
Abacus. Here, the last five years performances [FY 2015 to FY 2018] have been taken into
consideration. The ratio analysis tool mainly utilized to assess these last five year’s
performances. The details of the calculation have shown in the appendix section.
A] Debt to Equity Ratio
The analysis of the debt to equity ratio of Abacus properties reveals that the value for
the three years has been 0.57, 0.34 and 0.46. On the other hand, the debt to equity ratio for
Aveo Group Company has been found to be 1.47, 2.01 and 1.92. In this manner it can be
explained that the level of risk associated to Aveo Group Company has been higher by
comparing with Abacus Property Company.
B] Equity Ratio
Equity ratio refers to the amount of money that is taken from equities (Lee and Parker
2014). It is seen that by assessing the ratio of Abacus Property Limited the values that are
attained are 0.64,.074 and 0.69. On the other hand the equity ratio for Aveo Group has been
found to be 0.41, 0.33 and 0.34. It is clearly evident that Abacus undertakes most of their
finance with the help of equity financing and therefore their extent is relatively lower.
C] Interest Coverage Ratio
The interest coverage ratio of Abacus Properties is showing that capabilities of the
company to pay off the interest gained by the organization (Weygandt, Kimmel and Kieso
2015). The interest gained by the companies and their proper allocation provides better
returns for the organization through their stakeholders at a specified period of time. Here,
company Abacus properties is also generating higher amount of returns from this ratio during
the financial year 2015 to 2018 respectively. There is 5.70 9.44 and 9.82 respectively
between the financial years 2015 to 2018. The overall analysis is showing that company is
continuously enhancing their investment activities by efficiently using their interest during
the mentioned financial periods. On the other hand by assessing the interest coverage ratio of
Aveo Group Company it can be said interest coverage has been 152.58 and 96.44 thereby
explaining that this company has higher burden to pay interest and therefore the company has
higher probabilities of being a defaulter. It can therefore be said that Abacus Property

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Company has much better interest coverage ratio with respect to the Aveo and they have
better ability to pay interests to their stakeholders and thereby maintaining satisfied investors.
D] Debt ratio
The debt ratio is showing that capabilities of the company to collect monetary abilities
from the financial institution and market creditors to support the operational activities of the
organization (Islam 2014). The debt ratio is always essential to understand the financial
capabilities of the company to support their business obligations in the future period of time.
The debt ratio of the company Abacus is 0.49%, 0.39 and 0.34% respectively during financial
year 2015 to 2018. The overall analysis is showing that company is raising lots of debt funds
from market for their business capital but also equally capable enough to enhance the
business stability of the organization with their equity share generated funds of the company.
It is fluctuating for the company during mentioned financial year 2015 to 2018. By assessing
the debt ratio of Aveo Group Company it is seen that the values are 0.59, 0.67 and 0.66. It is
therefore seen that extent of debt taken by this company is even higher than that of Abacus
and it is seen that their debt taking capability is risky as their ability of pay off is lower than
that of Abacus.
3. Share Price Movement Analysis
The figure that has been depicted above is helpful in addressing the movements in the
share price on a monthly basis of Abacus and Aveo Company. By looking at the figures it can
be stated that stock price movement for Abacus Property has been lower with respect to the
ordinary index. The graph has been low and at a point has surpassed the ordinary index after
which the graph has again fallen.
On the other hand, by looking at the stock price of movement of Aveo Group
Company, it is seen that the stock prices have been higher than that of ordinary period in the
initial period after which the stock prices has fallen by a significant margin. This indicates
that the performance of the company has deteriorated.
The assessment of the companies signifies the fact that stock price movement of
Abacus has been much better in accordance to stock price movement of Aveo Group
Company.

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4. Calculation and Analysis of Weighted Average Cost of Capital (WACC)
The weighted average cost of capital analysis has been undertaken for both the
companies. This is known to be the rate that any organization looks to pay on an aggregate to
all their stakeholders in order to finance their assets. It is even known to be the cost of capital
of a company.
The computation of WACC for Abacus reveals that the value has been 11.33%,
12.42% and 11.82%. On the other hand the WACC for Aveo Group has been 9%, 8.26% and
8.36%. By assessing the overall financial report, it can be determined that Abacus has been
keeping their profits idle and thereby has increased their WACC. Both the companies have
similar WACC but the overall analysis states that Abacus has better financial performance in
relation to Aveo.
It is seen that during the scenario when the WACC of an organization is high, it is
found that the company has increased level of risk related to their operations of business. ()
explained that investors always look to attain higher amount of returns during the time they
undertake risky investments. It is seen that WACC has an essential role to perform in
ascertaining the estimated cost associated to finance all the resources associated to the
business. The key factors comprise of the payments associated to the obligations of debt or
the money that is related to debt financing and with the rate of returns. This found to be
essential for the management ownership and the cost related to equity funding.
5. Capital Structure Policy
The policy of capital structure of Abacus Property Group can be discovered by
looking into the long term section of liquidity and this indicates that the company has been
able to create sufficient amount of profit that assists in taking care of the expenses related to
interest. By analysing the financial ratios with the help of ratio analysis, it can be said that the
company has increased their debt composition by taking increased amount of debt from the
market. Hence, the debt ratio of the company has been found to be high and therefore the
weighted average cost of capital has been high as well. The company is seen to have an
effective capital position and the payment of interests will be lower as well.
Aveo Company Group the other company that has been selected is seen to have traits
that are positive as well as negative. The capital structure of this company has not been as

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effective as Abacus Properties as the company is not making enough profits and furthermore
has not been able to increase their capital structure in an effective manner.
6. Recommendation Letter
To,
The Investors,
Dated: 29/01/2019
Subject: Recommendation Letter
By assessing the financial performance of the companies that have been taken into
consideration and evaluating the performance of stock price, capital structure and weighted
average cost of capital various attributes have been highlighted. It can be said that Abacus
Property Group is more viable for all the investors. The real estate industry of Australia has
been attaining effective amount of profits for the past few years and thereby investment in
these companies would generate high amount of returns from such investments. Abacus
Property Group has been chosen as this company has shown better financial performance in
comparison to Aveo Group Company. Abacus Property Group has more positive features
with respect to Aveo Group Company as their profitability and liquidity position has been
better. This has been possible due to financial development of Abacus Property Group during
the financial period that has been taken into consideration. In this manner, it has been useful
in undertaking effective investment decisions of selecting the ideal investment plan and
thereby attaining better long term returns. The stock price movement of Abacus Property
Group has not been effective in comparison to all the ordinary indexes. Similar scenario has
been observed for Aveo Group Company as their stock index has been low in accordance to
ordinary share indexes.
The capital structure that has been observed for both the companies is seen to
comprise of debt and hence it can be conferred that the financial risk for the two companies
are respectively high. In this manner, it can be stated Abacus Property Group is an effective
substitute from the point of view of the investors as in this case it would enhance the precise
returns for the portfolio associated to investment of the investors that have been taken into
consideration.

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Conclusion
The financial analysis of both the companies state that Abacus Property Group is
much more effective in accordance to Aveo Group Company. By looking into the solvency
and long term liquidity position, Abacus Property Group is ideally positioned as well. The
capital structure of Abacus Property Group has altered as well within the three year period,
which has been considered and the debt exposure has been lower with respect to Aveo Group
Company. The valuation indicates that cost of debt has been higher and this has enhanced the
cost of capital for the company. Aveo Group Company signifies that they have positive as
well as negative elements within their capital structure. Being real estate companies, the risk
associated with them are high and hence the investment process needs to be undertaken in a
precise manner. The fall in the debt to equity ratio has been considered to be a positive
element and the increase in the interest coverage ratio is thought to be a better scenario for
the company as well. Hence, it is suggested to the investor that they undertake investment in
the shares that are issued by Abacus Property Group so that the investors would be able to
maximise their total return on investment.

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Reference List and Bibliography
Abacus Property Group. (2019). Abacus Property Group. [online] Available at:
http://www.abacusproperty.com.au/ [Accessed 29 Jan. 2019].
Aveo. (2019). Aveo Retirement Villages - Independent Living & Aged Care. [online]
Available at: https://www.aveo.com.au/ [Accessed 29 Jan. 2019].
Baker, M. and Wurgler, J., 2015. Do strict capital requirements raise the cost of capital? Bank
regulation, capital structure, and the low-risk anomaly. American Economic Review, 105(5),
pp.315-20.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), pp.332-338.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Dokas, I., Giokas, D. and Tsamis, A., 2014. Liquidity efficiency in the Greek listed firms: a
financial ratio based on data envelopment analysis. International Journal of Corporate
Finance and Accounting (IJCFA), 1(1), pp.40-59.
Faello, J., 2015. UNDERSTANDING THE LIMITATIONS OF FINANCIAL
RATIOS. Academy of Accounting & Financial Studies Journal, 19(3).
Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), pp.529-557.
Fernández, A. and Gulan, A., 2015. Interest rates, leverage, and business cycles in emerging
economies: The role of financial frictions. American Economic Journal:
Macroeconomics, 7(3), pp.153-88.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.

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Islam, M.A., 2014. An analysis of the financial performance of national bank limited using
financial ratio. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting
and Transport, 2(5), pp.121-129.
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public
Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
Lee, T.A. and Parker, R.H., 2014. Company financial statements: an essay in business history
1830–1950. In Evolution of Corporate Financial Reporting (RLE Accounting)(pp. 27-51).
Routledge.
McLaney, E.J. and Atrill, P., 2014. Accounting and finance: an introduction. Pearson.
Narayanaswamy, R., 2017. Financial Accounting: A Managerial Perspective. PHI Learning
Pvt. Ltd.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), pp.153-179.
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement
analysis and valuation. Nelson Education.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting.
John Wiley & Sons.
Yegon, C., Cheruiyot, J. and Sang, J., 2014. Effects of dividend policy on firm’s financial
performance: Econometric analysis of listed manufacturing firms in Kenya. Research Journal
of Finance and Accounting, 5(12), pp.136-144.

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Appendix
Capital Structure (Leverage) Ratios:-
Partic
ulars
Det
ails
Abacus Property Group Aveo Group Ordinary
2016 2017 2018 2016 2017 2018
Total
liabiliti
es A
$
891,013,
000
$
622,049,
000
$
878,915,
000
$
2,434,10
0,000
$
3,976,40
0,000
$
4,417,50
0,000
Total
equity B
$
1,559,27
7,000
$
1,814,62
1,000
$
1,916,70
2,000
$
1,660,40
0,000
$
1,978,70
0,000
$
2,298,10
0,000
Total
assets C
$
2,450,29
0,000
$
2,436,67
0,000
$
2,795,61
7,000
$
4,094,50
0,000
$
5,955,10
0,000
$
6,715,60
0,000
Operat
ing
profit D
$
228,464,
000
$
338,054,
000
$
307,029,
000
$
156,700,
000
$
308,900,
000
$
414,700,
000
Financ
e costs E
$
40,066,0
00
$
35,826,0
00
$
31,258,0
00
$
-
$
1,900,00
0
$
4,300,00
0
Earnin
gs per
share
$
0.3351
$
0.4991
$
0.4218
$
0.2210
$
0.4420
$
0.6330
Debt-
to-
equity
ratio A/B 0.57 0.34 0.46 1.47 2.01 1.92
Debt
ratio A/C 0.36 0.26 0.31 0.59 0.67 0.66
Equity
ratio B/C 0.64 0.74 0.69 0.41 0.33 0.34
Intere
st
cover
ratio D/E 5.70 9.44 9.82 - 162.58 96.44
Abacus Property Group Aveo Group Ordinary
2016 2017 2018 2016 2017 2018
Debt-to-equity
ratio 0.57 0.34 0.46 1.47 2.01 1.92
Debt ratio 0.36 0.26 0.31 0.59 0.67 0.66
Equity ratio 0.64 0.74 0.69 0.41 0.33 0.34
Interest cover ratio 5.70 9.44 9.82 - 162.58 96.44

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2016 2017 2018 2016 2017 2018
Abacus Property Group Aveo Group Ordinary
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
Capital Structure (Leverage) Ratios
Debt-to-equity ratio
Debt ratio
Equity ratio
Interest cover ratio
Companies
42400
42460
42521
42582
42643
42704
42766
42825
42886
42947
43008
43069
43131
43190
43251
43312
43373
43434
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
0
1000
2000
3000
4000
5000
6000
7000
Abacus Property Group and All Ordinaries
Index
Close All Ordinaries Index

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42400
42460
42521
42582
42643
42704
42766
42825
42886
42947
43008
43069
43131
43190
43251
43312
43373
43434
0
0.5
1
1.5
2
2.5
3
3.5
4
0
1000
2000
3000
4000
5000
6000
7000
Aveo Group Ordinary and All Ordinaries
Index
Close All Ordinaries Index
Particulars 2016 2017 2018
Debt 891,013,000$ 622,049,000$ 878,915,000$
Equity 1,559,277,000$ 1,814,621,000$ 1,916,702,000$
Total Capital 2,450,290,000$ 2,436,670,000$ 2,795,617,000$
Debt Weight 36.36% 25.53% 31.44%
Equity Weight 63.64% 74.47% 68.56%
kD 7% 7% 7%
kE 15% 15% 15%
Tax 30% 30% 30%
WACC 11.33% 12.42% 11.82%
Abacus Property Group:-
Particulars 2016 2017 2018
Debt 2,434,100,000$ 3,976,400,000$ 4,417,500,000$
Equity 1,660,400,000$ 1,978,700,000$ 2,298,100,000$
Total Capital 4,094,500,000$ 5,955,100,000$ 6,715,600,000$
Debt Weight 59.45% 66.77% 65.78%
Equity Weight 40.55% 33.23% 34.22%
kD 7% 7% 7%
kE 15% 15% 15%
Tax 30% 30% 30%
WACC 9.00% 8.26% 8.36%
Aveo Group Ordinary:-