Finance Accounting Report: Living Cell Technologies Company Analysis

This finance accounting report provides a comprehensive analysis of Living Cell Technologies (LCT). It begins with an overview of the company's core activities, markets, and factors influencing its operations. The report identifies substantial shareholders and key personnel involved in firm governance. It includes calculations and analysis of key financial ratios such as Return on Assets (ROA), Return on Equity (ROE), and debt ratio, exploring the relationships between these variables and their impact on the company's performance. The report also examines the company's share price movements against the All Ordinaries Index, analyzes significant announcements affecting share price, and calculates the company's beta and rate of return. Furthermore, it delves into the Weighted Average Cost of Capital (WACC), capital structure, and dividend policy, offering recommendations on whether the company should be included in a portfolio. The analysis is supported by relevant financial data and references.

Running head: FINANCE ACCOUNTING
Finance Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
1. Preparing brief outline of the company, outlining core activities, markets and factors in
company’s activities:..................................................................................................................2
2i. Naming the main substantial shareholders:..........................................................................2
2ii. Naming the main people involved in firm governance:.......................................................2
3i. Calculating return on assets, return on equity and debt ratio of the company:.....................3
3ii. Explaining the phenomenon captured by variable TA/OE, while depicting its impact on
return on assets and return on owner’s equity:...........................................................................3
3iii. Explaining why ROE is greater or less than ROA:............................................................4
4i. Preparing graph/chart for movements in the monthly share price cover last two years
against All Ordinary Index:........................................................................................................4
4ii. Depicting how closely related are share price of the company and All Ordinary Index:....5
5. Providing significant announcements, which influenced share price of the organisation:....5
6i. Depicting the calculated beta of the company:.....................................................................6
6ii. Calculating rate of return of company’s share:....................................................................6
6iii. Explaining whether the company chosen is a conservative investment:............................6
7i. Calculating WACC of the company:....................................................................................6
7ii. Explaining the implications that a higher WACC has on management’s evaluation on
perspective investment project:..................................................................................................7
8i. Depicting whether optimal capital structure is used by the company:.................................7
8ii. Depicting what they have done to adjust their gearing ratio:..............................................8
9. Discussing the dividend policy adopted by the management:...............................................8
10. Providing recommendations why the company could be included in his/her portfolio:......8
Reference and Bibliography:......................................................................................................9

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1. Preparing brief outline of the company, outlining core activities, markets and factors
in company’s activities:
The main operation of Living Cell Technologies Ltd is to use biotechnology to
improve wellbeing of people with serious diseases. The company aims in providing service to
mankind by developing, discovering and commercializing regenerative treatments within
humans. The company markets in Australia, which helps in generating required level of
profits from operations. From the historical evaluation, Living Cell Technologies Ltd has
been developing DIABECELL, as an effective treatment for unstable type 1 diabetes. The
company has been developing treatment for neurological disorder since their establishment
date of 1999 (Lctglobal.com 2018).
2i. Naming the main substantial shareholders:
Main substantial shareholders Number of Share held % of issued share
HSBC Custody Nominees (Australia) Ltd 60,962,384 11%
Milford Asset Management 36,078,640 6%
2ii. Naming the main people involved in firm governance:
Position Name of the Persons
The Chairman Roy Austin
CEO Ken Taylor
Director Robert Elliott
Boards members Laurie Hunter
Boards members Bernard Tuch
Boards members Robert Willcocks

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3i. Calculating return on assets, return on equity and debt ratio of the company:
Particulars 2017 2016 2015 2014
Net Profit After Tax (4,085,466) (3,123,208) (7,412,349) (4,943,490)
Total Assets 8,694,360 6,312,459 5,464,515 9,664,604
Ordinary Equity 74,339,770 68,406,383 64,751,709 60,685,600
Total Liabilities 1,176,020 635,798 337,652 1,233,027
Return on Assets -46.99% -49.48% -135.65% -51.15%
Return on Equity -5.50% -4.57% -11.45% -8.15%
Debt Ratio 13.53% 10.07% 6.18% 12.76%
Particulars 2017
EBIT (4,125,977)
TA 8,694,360
NPAT (4,085,466)
EBIT (4,125,977)
TA 8,694,360
OE 74,339,770
NPAT/OE (EBIT/TA) * (NPAT/EBIT) * (TA/OE)
NPAT/OE -5.50%
3ii. Explaining the phenomenon captured by variable TA/OE, while depicting its impact
on return on assets and return on owner’s equity:
Particulars 2017 2016 2015 2014
TA/OE 11.70% 9.23% 8.44% 15.93%

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The calculation of TA/OE indicates the increment in asset, which is obtained by the
company. this increment in asset in comparison with equity has allowed the organisation to
obtain 11.70% in 2017 from 8.44% in 2015. This is directly increasing return on asset value,
while decreasing return on equity.
3iii. Explaining why ROE is greater or less than ROA:
The ROA is less than ROE, as the overall asset value is less than ordinary equity
obtained by Living Cell Technologies Ltd. The asset value in comparison with equity is
relatively low, which is indicating low value of ROA in comparison with ROE (Filipovic,
Kremslehner and Muermann 2015).
4i. Preparing graph/chart for movements in the monthly share price cover last two
years against All Ordinary Index:
11/1/2015
12/1/2015
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
(1.00)
(0.80)
(0.60)
(0.40)
(0.20)
-
0.20
0.40
0.60
Share Price Movement
Return LCT.AX Return All Ordinary Index

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4ii. Depicting how closely related are share price of the company and All Ordinary
Index:
The evaluation of above graph helps in identifying the volatility of Living Cell
Technologies Ltd, which is calculated at the levels of -0.0851. This relevant correlation value
indicates that share price is negatively correlated, where increment in value of All Ordinary
Share would result in the decline of Living Cell Technologies Ltd share value.
5. Providing significant announcements, which influenced share price of the
organisation:
Date Announcements Factors
15-Nov-2017 Chairman Addressing 2017 annual report Financial
performance
16-Sep-2017 Sir Richard Faull on RNZ National discussing about Brain
Research and finding a cure for Parkinson's disease.
Research and
Development
16-May-2017 Continuous halt in progression of Parkinson's disease. Research and
Development
13-Jun-2017 Pig brain cells implanted into brains of people with
Parkinson’s
Research and
Development
1-Mar-2016 Parkinson’s Clinical trial Research and
Development

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6i. Depicting the calculated beta of the company:
The beta identified from Reuters is mainly calculated at the levels of 0.17, which
could help in depicting risk level of Living Cell Technologies Limited (Au.reuters.com
2018).
6ii. Calculating rate of return of company’s share:
Particulars Values
Beta 0.17
Risk free rate 4%
Market risk premium 6%
CAPM 4.34%
6iii. Explaining whether the company chosen is a conservative investment:
From the evaluation of overall beta and CAPM returns the investment scope of the
organisation is determined. In addition, the overall beta indicates that the company comes
under conservative investment section, where bet is less than 0.50.
7i. Calculating WACC of the company:
Particulars Values
Total Equity 74,339,770.00
Total Debt 0.00
Total Capital 74,339,770.00
Cost of debt 0.00
Cost of equity 4.34%

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Tax 30.00%
WACC 4.34%
7ii. Explaining the implications that a higher WACC has on management’s evaluation
on perspective investment project:
WACC valuation is mainly conducted to understand the cost of capital, which is
required by the company to support its activities. In addition, high WACC mainly forces the
management to select projects, which has higher return than their current WACC. This could
eventually help in improving the return that is needed by the company to raise their
profitability. Therefore, the management needs to be select projects in future, which could
provide higher return than WACC or else it would not generate adequate return and increase
their loss. Loughran and McDonald (2016) mentioned that with the use of WACC investors
are able to understand minimum requirement that is needed by organisation to support their
profitability.
8i. Depicting whether optimal capital structure is used by the company:
Particulars 2017 2016
Total Assets 8,694,360 6,312,459
Total Liabilities 1,176,020 635,798
Debt Ratio 13.53% 10.07%
From the evaluation of above table debt ratio of the organisation could be identified,
which is increasing at an alarming rate. This directly indicates that the company is acquiring

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debt to conduct its operations, which is portraying the chances of the company being
insolvent in future.
8ii. Depicting what they have done to adjust their gearing ratio:
The company has mainly utilised share issue option to adjust its gearing ratio and
improve their financial position. The directors have also acknowledged share issue, which
was conducted to increase their cash reserves and raise their net assets.
9. Discussing the dividend policy adopted by the management:
From the evaluation of annual report, the company is not paying any kind of dividend,
which portrays non-payment dividend policy adopted by the company. The management has
not paid any kind of dividend to its shareholders after its incorporation.
10. Providing recommendations why the company could be included in his/her
portfolio:
After evaluating annual report and share price performance of the company, it could
be understood that adding the stock in the portfolio could directly result in loss. The company
is losing share value and is incurring loss for more than 2 fiscal years. No progress can be
seen from its annual report, which is highlighting a red flag for the investors. Therefore,
discarding the stock could allow investor in improving its return and safeguard their
investments.

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Reference and Bibliography:
Au.finance.yahoo.com. (2018). LCT.AX: Summary for LIV CELL FPO - Yahoo Finance.
[online] Available at: https://au.finance.yahoo.com/quote/LCT.AX?p=LCT.AX [Accessed 22
Jan. 2018].
Au.reuters.com. (2018). ${Instrument_CompanyName} Latest Company News. [online] IN.
Available at: https://Au.reuters.com/finance/stocks/company-news/LCT.AX?date=01212018
[Accessed 22 Jan. 2018].
Filipović, D., Kremslehner, R. and Muermann, A., 2015. Optimal investment and premium
policies under risk shifting and solvency regulation. Journal of Risk and Insurance, 82(2),
pp.261-288.
Floyd, E. and List, J.A., 2016. Using field experiments in accounting and finance. Journal of
Accounting Research, 54(2), pp.437-475.
Fourie, M.L., Opperman, L., Scott, D. and Kumar, K., 2015. Municipal finance and
accounting. Van Schaik Publishers.
Gippel, J., Smith, T. and Zhu, Y., 2015. Endogeneity in Accounting and Finance Research:
Natural Experiments as a State‐of‐the‐Art Solution. Abacus, 51(2), pp.143-168.
Gippel, J., Smith, T. and Zhu, Y., 2015. Endogeneity in Accounting and Finance Research:
Natural Experiments as a State‐of‐the‐Art Solution. Abacus, 51(2), pp.143-168.
Lctglobal.com. (2018). Living Cell Technologies | History. [online] Available at:
http://www.lctglobal.com/about-lct/history [Accessed 22 Jan. 2018].
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.