Financial Analysis: Loan Prospects for iSelect and IDP Education

This report presents a financial analysis of two companies, iSelect Limited (Company A) and IDP Education (Company B), focusing on their loan prospects. The analysis begins with a description of each company, highlighting their business operations and key similarities and differences. It then delves into relevant economic, industry, and company-specific factors that could impact their financial performance. The core of the report includes a lending decision memo, evaluating financial ratios such as the times interest earned ratio and cash debt coverage to assess each company's ability to manage debt. Additionally, an investment decision memo is provided, comparing the earnings per share and growth potential of both companies to recommend the more suitable investment in preference shares. The report concludes with a list of references used for the analysis.

Running head: ANALYSIS OF LOAN PROSPECTS
Analysis of Loan Prospects
Name of the Student
Name of the University
Author Note

1ANALYSIS OF LOAN PROPSPECTS
Table of Contents
Description of Company A and Company B...............................................................................2
Lending Decision.........................................................................................................................3
Investment Decision.....................................................................................................................4
References....................................................................................................................................5

2ANALYSIS OF LOAN PROPSPECTS
Description of Company A and Company B
Company A , iSelect Limited is involved in the insurance business and is responsible for
providing services related to insurance advice and personal finance to the people across
Australia. The financial products are selected from a wide range of products made available by a
wide range of providers. Company B, IDP Education (International Development Program), is
involved in the field of offering student placements in Australia, New Zealand, Canada and other
countries. The similarities between both the entities is that they deal in a wide range of products
made available to them from different providers (Investors.idp.com 2019). They have to deal
with different types of customers who are looking for a common purpose or similar products.
There are a few relevant economic and the company specific factors that are likely to impact the
businesses of these entities. For Company A, the economic factors include demand/supply for
the goods and inflation rates prevalent in the country. The industry factors likely to impact the
business are the regulations implemented in the insurance sector and the default risk by the
customers (Investors.idp.com 2019). The company specific factors that will impact its business
include the individual goals it sets and the customer experience regarding its services. These
factors determine how consumers view the business, whether they would utilise its services and
also determines the revenue for a financial year. For Company B, the specific factors that will
impact its business include the incentives given to the employees and the performance of other
companies in the group (Annualreports.com 2019).

3ANALYSIS OF LOAN PROPSPECTS
Lending Decision
Memo
To: Brisbane Bank Head Office Loan Manager,
From: Andrew Kellie
Subject: Lending Decision
This is to suggest to you that Company A’s times interest earned ratio is 30.74. Hence, it is able
to generate sufficient returns to meet its interest expense in a particular year. However, the debt
of the company’s debt has been steadily declining which means that it is making repayments at
an increasing rate. However, the net cash from operating activities has been fluctuating very
much. Hence, there is an uncertainty about receiving the loan payments from the company. Also,
the cash balance that the company has is not sufficient to cover its debt as the ratio has been as
low as 0.17 in recent times (Annualreports.com 2019).
For company B, the times earned interest has been more than two in recent years. The company
has been able to generate sufficient returns to meet its debt payments. The cash debt coverage is
also much better than company A at 0.59. The percentage of net cash from net operating sales
has been increasing. Hence, it is better to lend the loan to company B. However, it should be kept
in mind that the financial statements of both the companies are based on past data and cannot be
used as a true measure of the situations existing in the current market.

4ANALYSIS OF LOAN PROPSPECTS
Investment Decision
Memo
From: Christine Smith, Investment Manager
To: Capital Investments Limited
Subject: Investment Decision
This is to suggest you the company in which the investment in preference shares should
be made. The earnings per share of Company A is at 0.05. Hence, the company is able to provide
a return of 5% on every share owned by it. The Price-earnings ratio of the company is also quite
high at $23.10. In Company B’s case, it is not available as the company’s shares are not being
traded in the stock markets. The earnings per share of this company has been higher than
company A and is at 0.159. It can be suggested that Company B has a much higher growth
potential than Company A and could be invested in if the investor is looking for growth.
However, as the investment is in preference shares, company A is a better option.

5ANALYSIS OF LOAN PROPSPECTS
References
Annualreports.com. 2019. [online] Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_ISU_2018.pdf [Accessed
26 Sep. 2019].
Annualreports.com. 2019. iSelect Ltd - AnnualReports.com. [online] Available at:
http://www.annualreports.com/Company/iselect-ltd [Accessed 26 Sep. 2019].
Investors.idp.com. 2019. [online] Available at:
https://investors.idp.com/FormBuilder/_Resource/_module/v1AiEHYL20-_Rje11PzkYA/
financial-reports/FY18_Full_Year_Results.pdf [Accessed 26 Sep. 2019].
Investors.idp.com. 2019. IDP Education Ltd - Investor Relations Site. [online] Available at:
https://investors.idp.com/Investor-Centre/?page=Annual-Reports [Accessed 26 Sep. 2019].

6ANALYSIS OF LOAN PROPSPECTS