Comprehensive Financial Analysis Report: Suncorp Group Limited

This report provides a comprehensive financial analysis of Suncorp Group Limited. It begins with an introduction to the company, its business segments, and comparative advantages. The report then delves into the calculation and analysis of various financial performance ratios, including profitability and efficiency ratios, using data from 2015 to 2018. It further examines cash management strategies, highlighting the role of marketable securities. Sensitivity analysis is performed to assess the impact of variable changes. The report also addresses systematic and unsystematic risks, dividend payout ratios, and dividend policies. Finally, it offers investment recommendations based on the financial analysis. The analysis covers key aspects like net profit ratio, return on assets, account receivable ratio, and asset turnover ratio, along with their trends. The report uses data and calculations to evaluate Suncorp's financial health, offering insights into its performance and potential for future investment.

Running head: Finance for business
Finance for business

Finance for business
Abstract
The report is about the decisions which are made in the business with the help of the financial
analysis. In this, it has been identified that in order to make the business successful there will be
need to identify all the necessary requirements and with that, the proper decisions will be made.
The performance evaluation is made and in that use of the ratios has been made. There is the
proper calculation which is done to analyze the performance made by the company. The
identification of the marketable securities is made which helps in cash management of the
business. The sensitivity of the variables is identified and for that analysis is performed in which
the most reactive variable has been determined. Risk is involved in the business and its types and
impact on the company are taken into account. The payouts which are made by Suncorp for
dividends are calculated and with that consideration for dividend policy are also made. The
recommendations for further investment in Suncorp are also made.
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Finance for business
Table of Contents
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Financial analysis of Suncorp Group Limited.................................................................................4
Description of company...............................................................................................................4
Calculation and analysis of performance ratios...........................................................................5
Cash management analysis..........................................................................................................8
Sensitivity analysis......................................................................................................................9
Systematic and un-systematic risk.............................................................................................10
Dividend payout ratio and dividend policy...............................................................................10
Recommendations..........................................................................................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................13
Appendix 1.....................................................................................................................................16
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Finance for business
Introduction
In the business, there is the need to analyze various aspects and for that proper analysis shall be
carried out. In this report, all the factors will be evaluated on the basis of the Suncorp group. In
the first part, the introduction of the company will be provided in which the details about the
activities which are undertaken by Suncorp will be identified. The history of the company will be
discussed so that complete information is available. A business operates in several markets and it
is necessary that they all shall be determined so that all of them can be considered in carrying out
of the analysis and the same will be provided here also. The comparative advantages of the
company will also be ascertained. The ratios for the past three years will be calculated in order to
analyze the performance of the entity. In that, the trend which is involved will be determined and
that will be presented with the help of graph. In the assets of the company, there are several such
securities which are marketable and all of them will be taken into account by which the further
actions can be made. By the help of them, it will be possible to manage the cash in an effective
manner. The data which is provided in the assignment will be used to perform the sensitivity
analysis. By the help of that, the variable which is most sensitive will be ascertained. The risk
involved in the business will be evaluated and the manner in which they will be affecting the
performance will also be considered. The dividend payout will be calculated and with that policy
followed by the company will be undertaken. All of these will be used to provide the required
recommendations for making the overall improvements.
Financial analysis of Suncorp Group Limited
Description of the company
In finance there are various tools and techniques which can be used to make the decisions and
the knowledge about them will be gained. That will be used for further evaluation and with that
information about the company shall also be collected. Suncorp is the company which is
involved in providing its customers with financial services. By the help of this, it is possible for
all to undertake the decisions in an effective manner by which they will be able to attain the
required results and growth. It is an Australian company which is providing its services from a
long time (Suncorp Group, 2019). It is listed on ASX and provides employment to many people.
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The main segments involved in the company consist of banking, insurance, wealth and others.
There are various products which are provided by the company such as motor, home, marine,
commercial property, travel, professional indemnity, cash benefits, and loan protections. In this
financial and administration related services are also provided by which appropriate planning is
made possible. The services of the company are provided in Australia and New Zealand. The
services are provided in such a manner that consumers are satisfied to the highest level.
There are various aspects because of which the company has a comparative advantage over other
service providers. The staff of the company is highly talented and they work for the betterment
of the community which attracts more number of consumers. It also works for the benefit of
people and charities are made to be used for the betterment of all (Bloomberg, 2019). The
company is established for a long time and that gains it an additional advantage over others. The
trust has been built and so is preferred by most people. The relationships which are maintained
with customers are commendable and deliver best retirement policies which protect the future of
all.
Calculation and analysis of performance ratios
The company performs in various sectors and for that, it is required that performance shall be
evaluated in an effective manner. It is necessary that an appropriate tool shall be used for the
same and ratios will be taken into account in this respect (WallStreetMojo, 2019). Ratio analysis
is performed in which it is possible for the company to compare two variables and identify the
changes which are taking place. The profitability of the company is evaluated and in that
increase or decrease which took place in the past will be identified (Ali and Haque, 2014). They
are calculated for more years so that the changes are incorporated and by that trend of the
business in terms of profits and efficiency will be in knowledge. The calculation of the certain
ratios is presented below for attainment of better understanding.
Information collected:
Particulars 2015 2016 2017 2018
Net profit 1140 1045 1085 1072
Sales 16722 15487 17395 15452
Total assets 95651 95748 97109 99333
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Average total assets 95699.5 96428.5 98221
Accounts receivable 595 552 567 474
Average account
receivable
573.5 559.5 520.5
Profitability ratios
These are the ratios by which the profits which are earned by the company are compared with
revenues. The earnings which are made are ascertained and analyzation of profitability of the
business is made (Kaur, 2016). In these various ratios are involved and the ones which are taken
in the current case involve net profit and return on assets ratio. By them, the profit which is made
on sales and the assets will be identified.
Particulars Formula 2016 2017 2018
Net profit ratio Net profit/Sales*100 6.75% 6.24
%
6.94%
Return on assets Net profit/Average total assets*100 1.09% 1.13
%
1.09%
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2016 2017 2018
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Net profit ratio
Linear (Net profit ratio)
Return on assets
Linear (Return on assets )
It can be noted that the profits of the company have declined in 2017 from 6.75 to 6.24% and
then increased to 6.94% in 2018. The trend for the same is represented on the graph above.
Earnings which are made with the help of assets are the same in 2016 and 2018 whereas increase
has been noted in 2017 (Suncorp Group, 2019). The further increase can be made in this by
utilizing assets in a better manner.
Efficiency ratios
It is required that the efficiency of the company shall be tested by which its operations and
working can be evaluated. This will be made possible with the help of efficiency ratios that are
available under ratio analysis. The account receivable ratio is calculated to identify the ability of
the company to collect from its debtors (THEOGENE, MULEGI, and HOSEE, 2017). The
number of times sales will be with respect to the debtors will be determined under this. The
efficiency with which assets of the company are utilized will also be taken into account under the
asset turnover ratio. It will be determining the company’s capabilities in using the assets to make
the best revenues out of it.
Particulars Formula 2016 2017 2018
Accounts receivable ratio Net sales/Average accounts receivable 27.00 31.09 29.69
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Asset turnover ratio Net sales/Average Total assets 0.16 0.18 0.16
The calculations have been made and it can be seen that account receivable is rising and then
declining. Although there is a reduction then also it can be said that the company is managing its
receivables in an effective manner (Suncorp Group, 2019). Asset turnover needs improvement as
in that the complete value of assets is not being utilized in a proper way.
2016 2017 2018
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Accounts receivable ratio
Linear (Accounts receivable
ratio)
Asset turnover ratio
Linear (Asset turnover
ratio )
Cash management analysis
Cash is the most important aspect of any business as all the activities will be performed by the
availability of the same. Also, the earning will be possible by this only as without the use of cash
other operations will not be carried in an effective manner. For this, it is necessary that proper
management in relation to cash shall be involved (Abioro, 2013). There are several ways in
which cash management is possible and many instruments are available for the same. The
company makes the investment for the same in different manners such as bonds, funds, treasury
bills, and deposits. It is therefore required that they shall be managed effectively. There are
several such securities involved in the assets of the company which can be converted to cash in
less than a year time. All of them are considered as the marketable securities and needs to be
taken into consideration while analyzing the financial position of any organization (Olouch,
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2016). There will be need to consider only those securities which are current as they will be
making the cash management possible.
In Suncorp also there are marketable securities in the form of trading investment which is made
by the company. In this certificate of deposit, negotiable instruments and bank bills are involved.
In addition to this, there are certain interest-bearing securities also which are incorporated. All of
them will be making the cash management possible for the company as they are the ones which
can be converted into cash in an easy manner. They can be used when required and till that time
the company will be earning the interest income on them which is not possible by keeping the
cash balance (Kinyanjui, Kiragu and Riro, 2017). It is important that liquid assets are to be
maintained in adequate level and that will be possible with the help of current marketable
securities which ensures security for the company.
Sensitivity analysis
In the business, there are various variables which are involved and in that many are highly
dependent on others (Borgonovo and Plischke, 2016). For them, it is required that the sensitivity
test shall be carried out so that the impact of change in one variable on the outcome can be
evaluated. There are many changes which keep on taking place and for that the company needs
to ascertain the change which will be made on the profitability of the business (CFI, 2019).
Under sensitivity, the change as per the base will be calculated and then the change in the output
with respect to change in input will be considered.
In the given case impact on the NPV of the business is undertaken and with that certain variables
are selected. The change in the variables will be made and with that, the resulting impact on net
present value will be analyzed (EduPristine, 2018). There is the need to calculate the NPV at all
the available ratios so that it can be used in making further analysis. Appendix 1 involves all the
relevant steps which are undertaken and in that the change which is being made due to change in
sales unit, selling price, fixed and variable cost has been shown in an appropriate manner.
The sensitivity analysis is carried and its results are provided below:
Particulars Origina
l
Option 1 Option 2 Option 3 Option 4
NPV 3497442 2964905 2166099 2698636 3430875
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% Change in NPV (A) -15.226 -38.066 -22.84 -1.9033
Input which is changing Sales units selling
price
variable cost fixed cost
% change in Input (B) 10 10 10 10
Sensitivity (A/B) -1.5226 -3.8066 -2.284 -0.1903
From this, it can be ascertained that the selling price is the most sensitive variable and affects the
net present value the most. After that variable cost is there and then sales units. The change in
fixed cost is not affecting NPV much and is least sensitive.
Systematic and un-systematic risk
Risk is the main factor which is involved in any business and is required to be taken into account
as the performance of a company is affected by it. The level of uncertainty which is involved in
an entity is considered as a risk. It can be involved in any form but commonly it is divided into
two categories which are systematic and unsystematic risks (WallStreetMojo, 2019). The risk
which is incorporated in the market and is possible to be controlled lies under systematic risk. On
the contrary, the certain risk arises and are not planned which will be an unsystematic risk. It is
not possible for the company to avoid them as they are not known in advance. They shall be
considered so that appropriate actions in relation to them can be taken. The performance of the
business is affected by such events so elimination of them is highly required.
Several risks are involved in the Suncorp group also which involves the change in consumer
preferences. This is most common as in changing the world the needs of customers also change
and so it is required that they shall be identified in advance and then modifications in the system
of the company shall be made accordingly (Faulkenberry, 2019). The prioritization is another
risk which is to be taken care off in which more focus on values and goals is provided and so
decisions shall be taken with due care.
The unsystematic risk involved is in relation to the economic instability and low yield
environment (BBA Matnra, 2019). The change in the economic condition and investments affect
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the performance of the company and for that market conditions shall be examined on a regular
basis.
Dividend payout ratio and dividend policy
The earnings which are made in the company are to be treated in a proper manner so that
maximum advantage can be taken from them (CFI, 2019). There are two ways in which the
amount will be utilized which are retaining the amount or distributing it to the shareholders.
There is the fixed percent at which the distribution of the amount is made and that is identified as
the payout ratio. Every company has certain specific dividend policies which are required to be
complied with (Little, 2018). Suncorp is also paying the dividend to the shareholder and it has
the policy to pay the dividends at high rates (Suncorp Group, 2019).
Calculation of Dividend payout ratio
Particulars 2016 2017 2018
Dividend 1025 911 942
Earnings 1038 1075 1059
Dividend payout
ratio
98.75% 84.74% 88.95%
It can be noted that there is a payment of more than 80% in all the years. The rate was high in
2016 after which certain decline is faced but then also it is over and above 80 percent (Suncorp
Group, 2019). The company is following a constant policy in all the years and there are a timely
declaration and payment of dividends.
Recommendations
The analysis has covered all the important factors which are necessary to take the decision. It can
be recommended that the investment shall be made in the company. This is due to the effective
ratios which are maintained by the company. It has been noted that there is a high rate of the net
profit which is maintained in the organization and by that the returns of the investors will also be
increasing. There are upward trends in most of the cases and due to that, it can be assumed that
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the same will be continuing in the coming period. The payment of the dividend is made on time
and also there is a high payout ratio which ensures regular earning for all shareholders. There
will be a very negligible risk which can be taken to earn high returns. The policies which are
followed by the company are favorable for all and there will be no negative influence of them.
All of these ensure that investment made in Suncorp will be yielding a good amount of returns.
Conclusion
From the report that is presented above, it can be concluded that there is a need to carry the
financial analysis in all the organizations. In this, there are many such tools which can be used
and an understanding of them is gained in the report with the help of proper explanation and
examples. There is the presentation of the information about the company and also the
advantages which are made in comparison to others have been determined. The ratios have been
calculated by the help of which the efficiency and profitability of the company are being
analyzed. It has been determined that there are profits which ate made by Suncorp. The cash
management has also been considered and in that there is the incorporation of the marketable
securities. The manner in which they will be helping in the management of cash has been
identified. The importance of them and the impact of the same on the performance of the
company has been evaluated. The sensitivity analysis had been undertaken in which the impact
of change in the variable on the net present value has been calculated. By the use of the
calculation, there is the ascertainment of the most sensitive element which will be affecting the
output most. The risks which are involved in the business have been taken into account and in
that systematic and unsystematic both have been considered. The dividend policy of the
company is identified with the calculation of the payout ratio. It paying the high dividends to its
investors and on the basis of all of these findings, there is the recommendation which is made.
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