Suncorp Group Limited Financial Performance Analysis - HC2091 Project

This project provides a comprehensive financial performance analysis of Suncorp Group Limited. It examines key aspects, including the company's background, net working capital position, cost of equity calculation using the constant dividend growth model, and an in-depth analysis of liquidity and capital structure ratios. The analysis utilizes data from Suncorp's annual reports to assess the company's financial health and performance over a period of time. The project explores liquidity ratios such as the current ratio and cash ratio, and it also delves into capital structure ratios to evaluate the company's long-term solvency. The findings highlight Suncorp's positive net working capital, its dividend-paying capacity, and its ability to maintain a safe financial position. The project concludes with recommendations based on the financial analysis, providing valuable insights into Suncorp Group's overall financial performance and its position within the industry.

Running head: ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL
PERFORMANCE
Analysis of Suncorp Group Limited Financial Performance
Name of the Student
Name of the University
Author Note

1ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Financial Performance Analysis of Suncorp Group Limited.................................................2
a. Description of the Company...........................................................................................3
b. Analysis of the Company’s Net Working Capital Position............................................4
c. Cost of Equity of the firm...............................................................................................5
d. Analysis of Company’s Liquidity and Capital structure.................................................7
Liquidity Ratios..................................................................................................................7
Capital structure Ratios....................................................................................................10
Conclusion and recommendation.............................................................................................10
Appendix..................................................................................................................................11
References................................................................................................................................17

2ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Introduction
In the competitive era of business, the organization requires a proper analysis of their
financial condition so that they can analyze and assess their current situation. Financial
analysis is an aspect of the entire business finance function that gives information to the users
and managers to make an effective and critical decision (Revelli and Viviani 2015). The
report aims to examine the main issues and includes the underlying theories essential for
measuring the position of business and its financial performance. The discussion underlines
different ratios, such as liquidity ratios and capital structure ratios to measure the company's
financial performance from the data provided in their annual reports. The company chosen
here is “Suncorp Group Limited” for the analysis of its financial performance. Suncorp
Group Limited is well-recognized provider of financial services that allows above nine
million people to well protect as well as improve their wellbeing (Smith, Henderson and
Ginger 2015). The analysis of Suncorp Group Limited financial performance within this
report is on the basis of analysis of its net working capital position, liquidity, its capital
structure, and cost of equity of the firm using constant dividend growth model. From the
overall analysis, it has found that Suncorp Group Limited is a well-regarded dividend payer
with a good history of reaching its benchmark in performance. The company has grown in its
earning exceeding its annual average over the past five years. The investors will have better
insight for this company because its growth also exceeded the expansion of Insurance
industry, which generated a better earnings growth.
Discussion
Financial Performance Analysis of Suncorp Group Limited
The company does not reveal overall data associated to the financial actions or
procedures, but, they reflect several beneficial information that highlights two essential

3ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
factors which are the company's profitability and financial soundness. Financial Performance
Analysis comprises analysis and interpretation of data provided within the financial report in
such a way that it commences an overall analysis of the profitability as well as the financial
soundness of the company.
a. Description of the Company
Suncorp Group Limited is an insurance, banking and, finance organization, which is
situated in Brisbane, Queensland in Australia. The group is founded in the year 1996 whose
headquarter is in Brisbane, Australia. The company employs and works with approximately
14,000 people under it. The group is considered as one of the mid-size banks of Australia.
The group has formed its largest insurance group after the merger of Suncorp, Metway Bank
and the Queensland Industry Development on 1 December 1996. Suncorp Group is a public
listed company on ASX within the code SUN (Suncorp Group 2020). The group comes under
the industry of Banking, General Insurance, Life Insurance, Superannuation and Wealth
management. The Suncorp Group Limited is a locally owned public listed organization that
operates within two areas Australia and New Zealand.
The product of Suncorp Group Limited in Australia under the Insurance consists of
Car, CTP, Life and Income, Health and Travel, Home and Contents, and Motorcycle. The
group's determination is to construct a better present for its stakeholders. They help through
providing products and services to lead the life the people want at present and have a secure
plan for life the people want and require themselves for the future. The strategy of the
company is to strengthen its core business through staying focused towards their customers,
brands, and products. The strategy of the company is to form a sustainable competitive
advantage through its four strategic capabilities:

4ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
 Product Innovation: The Company is likely to improve existing products as well as
create new innovative solutions along with enhancing the capability of their product.
This is included in their pricing and risk management.
 Digital: The consistency in the upgrading of technology inspired people to choose
digital channels. The group tends to help customer to self-serve where requires and
take the initiative to digitize. The group automates procedures to drive their
efficiency and makes thing easier for their people.
 Engaged and Enabled People: The group is willing to create a wide-ranging,
diverse, highly committed and proficient workforce that like to work as a single team
so that to deliver value to their customers.
 Excellent Customer Experience: They endeavour to deliver excellent customer
experiences through structuring itself as a well-recognized brand by building trusted
relationships and improving the channels to meet the experiences of the customers.
b. Analysis of the Company’s Net Working Capital Position
Net Working Capital is a liquidity calculation that measures the capability of the
business to payoffs its current debts with current assets. The measurement is essential to the
management, vendors, and creditors because it reflects the short-term liquidity of the business
as well as the ability of the company for its efficient management for using their assets. If the
company cannot meet their current obligations (to be paid within a year) with current assets,
then they have to use their non-current assets to pay off the current liabilities (Agha 2014).
This can result in decreased operations, sales and other serious business and financial
problems.
Net Working Capital=Current Assets−Current Liabilities

5ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
(Refer to Appendix 1)
The Current assets and Current Liabilities of Suncorp Group Limited in the year 2018
were $669 million and $ 82 million. In the year 2019, the group has increased its percentage
of Current assets with 75%, and Current Liabilities declared an increase of approximately 8
times than the year 2018. As a result, the Net working capital of the Suncorp in the year 2018
and 2019 were $512 million and $587 million. The company has a positive figure in both the
years of its Net working capital that is a positive sign of the company's position. Keeping
aside the cash and equivalent to cash, the company has enough financial assets in the year
2018 and 2019 of $552 million and $1075 million. The net working capital position of
Suncorp Group Limited is in a positive and better position which means that the group have
enough current assets to pay off their current debts. The huge amount reflects that the
business has a good amount of capital to expand with the existing one and without taking any
additional debt or investors. The Suncorp Group is able to fund its own expansion through its
current growing operations.
c. Cost of Equity of the firm
The cost of equity refers to the return of a company that an investor expects from its
investment to receive by the business. The cost of equity measures the amount that the
business has to produce for the investors or the shareholders who have invested in the
company. This allows them to raise additional capital whenever it is required by the company
to keep consistency in the flow of its operation (Berger, Chen and Li 2018). In other words,

6ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Cost of equity is the rate of return that investors require from the stock prior to going for any
other viable opportunities. The cost of equity of a firm can be calculated in two ways:
i. Dividend Discount Model (based on dividend per share)
ii. Capital Asset Pricing Model (CAPM) (based on risk and return in the market)
Constant Dividend Growth Model
Gordon's dividend growth model put forward that present market prices are a
reflection of the present value of the company’s future dividends discounted with a suitable
cost of equity. The model is established within the three variables that are Dividends, Current
Market Price and Cost of equity (Nhleko and Musingwini 2016). Along with that, there are
three different situations for future dividends. These are:
i. Future dividends with a Constant Growth Rate,
ii. Future dividends not following any trend or uncertain, and
iii. Dividend having Phased Growth Situation in future.
Using the Dividend Discount Model with Constant Dividend Growth, the formula for
calculating Cost of Equity is as:
Ke=D1 ÷ P 0+ g
Cost of Equity of Suncorp Group Limited
(Data taken from the annual report of the year 2019, Refer appendix 2)
Whereas, Ke = Cost of Equity
D1 = Dividend for the next year. D1 can also be represented as D0 * (1 + g), where
D0 is the current dividend.
Dividend per ordinary share = 78 (cents) = $0.78

7ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
D0 * (1 + g) = 0.78 * (1 + 3%) = 0.78 * (1 + 0.03)
D1 = $0.80
P0 = Present Market Value of Share = $13.47
g = Growth Rate of Dividend = 3% (given)
Ke=D1 ÷ P 0+ g
Ke=0.80÷ 13.47+3 %
¿9%
d. Analysis of Company’s Liquidity and Capital structure
Liquidity Ratios
Liquidity ratios measures the ability of the organization so that to meet its short-term
obligations. The higher the liquidity are, the higher the margin of safety that the business
posses to meet its current obligations (Ehiedu 2014). The liquidity ratio above than 1 is a sign
of better financial health of an entity and it is likely to face minimum financial problems.
Data of Suncorp Group Limited of Last Four Years
(Refer to Appendix 3 to 8)

8ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Current Ratio and Cash Ratio
The current ratio reveals the capability of the business to payoff short-term debts. It
measures whether the company has sufficient resources or not to pay its short-term dues. The
Current ratio also suggests about the efficiency of the company’s operating cycle or its
capability to transform its product into cash (Khadafi, Heikal and Ummah 2014). This ratio is
also called as Working Capital Ratio.
Suncorp Group Limited Current Ratios of Past Four Years
Cash Ratio or Cash asset ratio is a liquidity ratio related to the cash and cash
equivalent of a company to its total liabilities. This ratio can also be seen as the refinement of
the quick ratio, which indicates the availability of funds to the extent that it can pay off its
current liabilities. Cash ratio is used by the potential creditors to measure the company's
liquidity and easiness to cover its obligations.
Suncorp Group Limited Cash Ratios of Past Four Years
The below graph displays the liquidity position of Suncorp Group Limited through
Current ratios and Cash ratios of the last four years (2016-19) that is calculated above.

9ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Current Ratio Cash Ratio
1.7 1.6
8.1
14.2
4.7
12.68
6.6
17.98
Liquidity Ratios
2019 2018 2017 2016
(Source: Suncorpgroup.com.au 2020)
The ideal Current ratio is considered as the ratio of 2:1. As this is a comfortable
financial position of the company. As the current ratio is just based on short-term assets and
liabilities of the organization, the ratio of 1 reflects a safe position for the company and below
1 is means the company has more liabilities than assets. The Suncorp group has a significant
change in the year 2019 with its Current ratio. The group has maintained a safe position for
its debt in terms with assets. Earlier, the company was having a huge amount of assets as
compared to its liabilities which also reflects its less efficient management of its assets and
working capital. Nevertheless, Suncorp has maintained its safe position of Current ratio of
above 1.5 which is an acceptable ratio for the investors and creditors.
The Suncorp in the year 2019, has maintained a cash ratio of 1.6 that reflects the
organization has sufficient cash to meet its short-term liabilities. Prior to the year 2019, the
company has maintained a huge cash ratio that is a positive sign for the creditors as the
company is able to pay off its obligations within the due time. On the other hand, holding a
large amount of cash reflects poor utilization of assets of the company.

10ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Capital structure Ratios
The analysis of long-term solvency of an organization requires two types of ratios that
are structural and leverage ratios.
Capital Structure Ratios is recognized as leverage ratios also that measure the
company's long-term stability and its structure. Capital structure ratios of a company measure
the extent to which the company is relying upon debts so that to fund its operations
(Indrawan, Suyanto and Mulyadi 2017). This includes two major ratios that are Debt to
Equity ratios and Debt to Asset ratios.
Debt to Equity Ratios and Debt to Asset Ratio
Debt to Equity ratio reflects the company’s capital structure and its financial liquidity
by comparing total debt of the company with total equity (Kamar 2017). A higher debt to
equity ratio shows that company has used more creditor loans like bank loans compare to the
investors or shareholder financing.
Debt ¿ equity ratio=Total Liabilities÷ Total equity
Debt to Asset ratio measures the value of total asset financed by the creditors instead
of the investors. It reflects the extent to which the resources of the company hold by
shareholders in the form of equity and by creditors in form of debt.
Debt ¿ Asset Ratio=Total Labilities ÷ Total Assets

11ANALYSIS OF SUNCORP GROUP LIMITED FINANCIAL PERFORMANCE
Suncorp Group Limited Capital Structure Ratios of Past Four Years
The below graph displays the Capital Structural position of Suncorp Group Limited
through Debt to Equity ratios and Debt to Asset ratios of the last four years (2016-19) that is
calculated above.
2019
2018
2017
2016
0 1 2 3 4 5 6 7
0.17
0.14
0.16
6.05
0.15
0.12
0.14
0.85
Debt to Asset
Ratio
Debt to
Equity Ratio
(Source: Suncorpgroup.com.au 2020)