Comprehensive Ratio Analysis Report for AGL Financial Performance

This report provides a comprehensive ratio analysis of AGL's financial performance, covering liquidity, profitability, and solvency. The analysis reveals improvements in liquidity, with increased current and quick ratios, and a sound solvency position with reduced debt-to-equity and debt ratios. The profitability analysis highlights outstanding performance, with increased operating margins and return on equity. The report also discusses the limitations of ratio analysis, such as changes in accounting policies and external environment fluctuations, and emphasizes the importance of corporate reporting for compliance, investor attraction, and decision-making. The findings are based on AGL's annual report and other relevant sources.

Running head: RATIO ANALYSIS 1
RATIO ANALYSIS

RATIO ANALYSIS 2
Table of Contents
Question 1...................................................................................................................................................3
Liquidity..................................................................................................................................................3
Profitability..............................................................................................................................................3
Solvency..................................................................................................................................................3
Question 2...................................................................................................................................................4
Question 3...................................................................................................................................................4
References...................................................................................................................................................6

RATIO ANALYSIS 3
Question 1
Liquidity
Under the scenario of the liquidity the current ratio has been increased from 1.33 to 1.65
and the quick ratio has also increased from 0.49 to 0.67 this is due to the cash has been realized
from the trade receivables and the cash conversion cycle improved slightly. Overall the total
current assets increased from 3625 to 3806, this indicates that the liquidity position is one the
verge of the improvement (AGL, 2018).
Profitability
Profitability is the scenario which is the center favorite of all the users of the financial
statements and after analyzing the profitability of the company, it can be understood that the
AGL has performed outstandingly in all the areas as compared to the year 2017. The operating
margin reached to 19.2% whereas the return on equity is 18.9% rather than 7.1% in case of the
year 2017. The major reasons behind this performance are the increased sale by and at the same
time deduction in expenses from 11131 to 9846. The overall profit increased from 539 to 1587
almost by 100%. Hence the profitability of the company is sound and beautiful (AGL, 2018).
Solvency
This ratio will depict the ability of the company to finance the assets through the equity
or borrowings and in overall sense how much finance has been acquired and in what form. The
solvency ratios includes the debt to equity ratio of the AGL Limited which has been reduced
from 42% to 34%, the debt ratio again saw a fell from 0.22 to 0.19 and lastly the times interest
coverage ratio that depicts the overall capacity of the company to pay back the costs of finance.

RATIO ANALYSIS 4
The solvency position of the AGL is sound and the proportion of the debt is less thereby
indicating the less financial burden on the company (Robinson, Henry, Pirie & Broihahn, 2015).
Question 2
The three limitations that shall be kept in mind are as follows.
 The changes in the accounting policies is one of the limitation which can create chaos as
the transactions based on the different accounting policies are not comparable.
 The conditions of the business are also dependent on the fluctuations of the external
environment as it can make the changes in the share price and the profitability can be
affected.
 At times the interpretation of the ratios also have the variance, for example the cash ratio
ideally shall be 2:1, however, the company might have sold the stock immediately to
bolster the cash position (The Accounting Tools, 2018).
Question 3
The corporate reporting is necessarily important for all the corporates as it would provide
the compliance with the policies and the reporting framework. AGL’s board is completely
responsible and the reports are prepared in conformity with GAAP. It attracts the investors and
the other stakeholders. With the help of the corporate reporting the financial statements are
prepared in accordance with the relevant guidelines. It acts a control measurement that and helps
in decision making process. The trends also suggest that the corporate reporting acts as one of
the key driver in moving the performance of the overall company (Monistrics, 2017).

RATIO ANALYSIS 5
References
AGL, (2018). Annual Report. Retrieved from
https://www.2018annualreport.agl.com.au/xmlpages/resources/TXP/agl_energy/finrep/
pdf/AGL_Energy_Annual_Report_2018.pdf
Monistrics, (2017). The Advantages and Disadvantages of Corporate Financial Reporting.
Retrieved from http://www.monistrics.ga/2018/01/the-advantages-and-disadvantages-of-
corporate-financial-reporting.html
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
The Accounting Tools, (2018). Limitations of ratios analysis. Retrieved from
https://www.accountingtools.com/articles/what-are-the-limitations-of-ratio-analysis.html