Financial Analysis of Tabcorp Holdings: Business Finance

This report provides a detailed financial analysis of Tabcorp Holdings, an Australian gaming company. It examines the company's financial structure, profitability, and performance using financial ratios, including profitability ratios, and analyzes share price movements. The report calculates the cost of equity using the Capital Asset Pricing Model (CAPM) and identifies the capital structure, including debt-to-equity ratios and weighted average cost of capital (WACC). The analysis highlights the company's strengths, such as its business structure and profit rate, and offers a consulting report summarizing the findings and providing insights into the company's financial health and market position within the gambling industry. The report concludes with recommendations for continued performance improvement and is based on the most recent financial statements available.

BUSINESS FINANCE
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Table of Contents
Abstract............................................................................................................................................2
I. INTRODUCTION........................................................................................................................2
II. FINANCIAL ANALYSIS OF SELECTED COMPANY..........................................................3
2.1. Description of the company......................................................................................................3
2.2. Calculation and analysis of financial ratios..............................................................................4
2. 3.Graphs and comparison of share price movements..................................................................6
2.4. Calculation cost of equity.........................................................................................................7
2.5. Identify the capital structure.....................................................................................................8
2.6. Consulting Report.....................................................................................................................9
III. CONCLUSION........................................................................................................................10
IV. Recommendation.....................................................................................................................11
References......................................................................................................................................12
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Abstract
The assignment is on the understanding of business finance on an company that is chosen for the
study. The assignment will look into the financial structure of the company based on which
evaluation is made on the accounting and economics. The main issues of the company are
examined focussing on the underlying theories which may help the company implement the
performance measures for its performance improvement. The company financial ratios are
evaluated and analysed performing calculations. The movements of price share in the company
are focused on and the cost of equity has been calculated. The identification of the structure of
capital gave a better understanding of the finances of the company. The assignment can be called
a comprehensive examination on the financial performance of the chosen company using the
updated statements regarding finances.
I. INTRODUCTION
The credit and the money invested in an company or a firm can be referred to the business
finance. With the help of business finance utilisation of the funds can be done by a company for
effective and efficient operation of the business. Business finance is important for any type of
firm irrespective of their size and structure. However, the business finance of a company can
vary from time to time. In this assignment, the researcher has evaluated the business finance for a
company named Tabcorp Holdings (Tabcorp.co, 2019). The financial information of a company
can be organized and tracked in the company with the help of financial accounting. The company
uses it as an advantage to managing the capital involved in the organisation and makes the
operations of the company more profitable. For the establishment of the firm or the organisation
it is one of the most important elements of business. The finances in the business can be short as
well as long term. In this assignment the researcher will evaluate the correct information of the
finances of Tabcorp Holdings. The researcher will aim to analyse the performance of Tabcorp
Holdings. The research can be a guide or an advice to the other wealthy investors in the market.
The financial statements of the company chosen in the organisation will provide with more
knowledge on the other companies related to the gambling industry.
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II. FINANCIAL ANALYSIS OF SELECTED COMPANY
2.1. Description of the company
The company chosen for the assignment is Tabcorp Holdings. It is an Australian based company
and is considered one of the world’s largest gaming companies. The company was created in the
year 1994. The company also deals with wagering, lottery and keno operator. The arm of media
has a huge support on the company. Headquarter of the company is in Melbourne (Asx.com.au,
2019). The company also operates in the internet, retail, and wagering channels of phone, mobile
devices and on other products related to racing. Their aim was to support the racing industry and
make it one of the best in the world. The company was first listed by the government of the
Victoria State in the year 1994 on the security exchange of Australia for its first major offerings
to the public. The company has a total number of 172,735 shareholders (Marketindex.com,
2019). The turnover of the company is significantly rising in the last few years. The market of
the company is $9.15 billion. In the year 2019, excluding the income tax paid, the net profit
earned by the organisation is a total sum of $182.5 million. Recently the company has announced
a interim dividend of a share of 11.0 percent. For the par-mutual customers, Tabcorp Holdings
has collaborated with another company and has officially launched the new Trio type of betting
(Bloomberg.com, 2019).
2.2. Calculation and analysis of financial ratios
The key indicators of the performance of the company are understood by the financial ratios. The
profitability rate, risks and the liquidity of the company can be analysed by the help of the
financial ratios (Gitman et al. 2015, p.44). The leaders of the company can evaluate the stability
of the finances in the company with the help of it.
2018 2017
Profit 241.4 101.6
Total Assets 12,940.80 3,740.90
1.865417903 2.715923976
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Profit 241.4 101.6
Average Equity 7,238.60 1,483.40
3.334899014 6.849130376
Net profit 28000000.7 20000000.8
Revenue 3,828.70 2,234.10
1,254.70 921.4
1,076.50 3140.1
Gross profit / 354.5 224
Sales or revenue 39.4 601693
899.7461929 0.037228288
Profit for shareholders / Number of ordinary
shares
EPS taken from annual report 12.3 12.5
Table 1: Profitability ratio
(Source: Created by Researcher)
After looking at the performance of Tabcorp Holdings in the last two years it has been seen that
the company revenue and the profit has increased in the year 2018 when compared with 2017.
The financial decisions taken by the company in the year 2018 can be definitely considered one
of the reasons behind their increase in the business profit rate (Bloomberg.com, 2019). While
analysing the result it has been noticed that the company has engaged themselves in a wide of
experts and participants. Their update in the business transactions has definitely helped in the
business improvements and synergies (Ali et al. 2016, p.3329). The company has well advanced
themselves in securing the regulatory which has resulted in the increase of revenue in the
company in the year 2018. There has been a total grow of 0.9% in the racing which is another
reason for their growth in the rate of revenue.
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2. 3.Graphs and comparison of share price movements
The movement in the share price are a constant phenomenon of everyday. The movement is
because of the change in the demand and in the supply. When the demand of the share increases
the supply decreases the rate of the share increases. When the investors of the company give
worth to the organisation, the price of the stocks fluctuates. In case of Tabcorp Holdings, the
same thing happens. When there is an increase in the demand of the stocks of the company the
price of the stocks also increases (Young and Pagliari, 2017, p.3329).
Figure 1:
(Source: Earl et al. 2016, p.30)
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Figure 2:
(Source: Kanapickienė and Grundienė, 2015, p.322 )
Both the graphs reveal that there shares are quite in demand for the last few years they have been
performing in the market. The high demand of their shares has always kept their price of the
shares quite high. The graphs reveal their high provision of entertainment and gambling services
in the industry (Gabric, 2018, p.80). The dividend of the company has been always very high to
keep their business running in the market. The market return is therefore of the company is very
profitable and therefore it can be expected will be increasing in the future years.
2.4. Calculation cost of equity
The cost of equity is what the company requires to understand and decide if the required capital
return of the company is met by the investment. To understand the rate of return required, the
companies and the firms use it as a threshold for the capital budgeting (Rey and Santelli, 2017,
p.54). In case of Tabcorp Holdings, the cost of equity represents the market demand and
compensations for the assets and the risks of the organisation. The basic traditional formula for
the calculation of the cost of equity is the capitalization of the dividend model and the pricing
model of the capital assets. For the cost of equity of Tabcorp Holdings the Capital Asset Pricing
model (CAPM) is used (Buchman et al. 2016, p. 94). For the calculation, the maturity rate for the
10 year Treasury Constant is used for the risk free rate. The current risk free rate in the company
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is 1.86000000%. For the return of the excessive asset, the sensitivity is the data. The current data
for the Tabcorp Holdings is found to be 0.81. The market premium is when the rate of risk free
return is subtracted from the market return expected. The market premium required in this case is
6%.
Therefore the cost of equity is 1.86000000% added to 0.81 and is then multiplied by 6%. The
result that is got is 6.72%.
To calculate the dividend growth of 4% in the company the formula that will used here is
r = D/p0 + g
= 0.52/4.50 + 0.04
= 0.52/4.50 + 0.04
= 0.1555
Therefore the cost of equity is 0.1555 when the dividend growth of the company is 4%.
2.5. Identify the capital structure
The capital structure is the overall understanding of the growth of the finances of the firm by
using funds of different sources. It can be considered as the short term and the long term debt of
the chosen company and its preferred or common equity (Brogaard et al. 2018, p.254). To
analyse the capital structure of the company, the proportion of the long term and the short term
debt is considered. The capital structure of Tabcorp Holdings reveals the position of the
company in the market and helps to evaluate the risks that are involved in the business of the
company (McGuire et al. 2015, p.1582). However, for Tabcorp Holdings, the risks in the
business can be a primary source for the growth of the firm. Researches show that the total debt
of the company to its total equity is 48.42; total debt to the total capital of the company is 32.62.
The total debt to the company’s total asset is 27.08. When the long term debt is compared to
Equity, it is found to be 46.58 and to its total capital is 31.39 (Marketwatch.com, 2019).
Particulars Total amount Weight Cost Weight *
cost
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Debt 5,702.20 0.440637364 0.05 0.022031868
Equity 5,067.02 0.391553845 0.1555 0.060886623
Preference
shares
2171.58 0.167808791 0.1 0.016780879
Total 12,940.80 1 0.09969937
9.969937021
Table 2: WACC calculation
(Source: Created by Researcher)
The high use of weighted average cost of capital has been very beneficial for the company as
they have responsibility to give back an eminent return to the providers of fund. As a financial
tool the WACC is very beneficial both for the company and the investor. Since, in the case of
Tabcorp Holdings the investors of the company have invested huge amount on the shares it was
very essential that the WACC of the company is relatively high (Angelovska, 2016, p.10). The
invest decisions and the risk of the company depends on the important moves made by the
company based on the WACC. For the important calculations of the company like the economic
value added and the present value metrics, the WACC has a very important role to play.
2.6. Consulting Report
A consulting report can be called as a document that contains the advice of the experts of the
business. They provide understanding on a certain subject. They provide the report based on the
competitive analysis based on the company and the industry in which it performs (Brogaard et al.
2016, p.302). It helps to evaluate the strength and weaknesses of the company. The consulting
report also provides a recommendation for the company that it studies.
In the chosen organisation, the strengths that have found in the company is its business structure
and its profit rate. In a very short span of time the company has evolved to be one of the best in
the gambling industry. The company has always shown high level of dedication for its
customers. Therefore the satisfaction of the customers is one of the important strength that the
company possess (El-Geneidy et al. 2016, p.303). Their performance in the new market is
superb. Their expansion in the business has helped to develop new business streams in the
industry. They have reliable customers and their dealer community is very strong. Based on the
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capital expenditure, the company has always earned good returns. The activities of automation
have brought consistency in the services and product quality of Tabcorp Holdings.
However, the company also have a number of weaknesses in the company. They suffer from
limited success when they are outside their core business (Antoniou et al. 2015, p.306). There
are a lot of elements to be desired for the marketing of their products. The attrition rate in the
workforce of the company is quite high which a serious weakness of the company is. The
company has been trying very hard to tackle all the challenges that are coming in the way of their
business. Their new partnership with another important company has raised the expectation of
everyone.
III. CONCLUSION
Tabcorp Holdings has performed immensely well in the market for the last few years. The
business finance and their company profit rate tell us the success story. By the analysis of their
business structure it can be said undoubtedly that in the coming years also they will have a
immense business in the market. Further researches have shown that the agreement of Tabcorp
Holdings with the Australian Trainers Association (ATA) has proved to be an exclusive
partnership in the nation. Business arrangement of both the companies has shown a drastic
improvement after their friendship has brought colours. Both the company is focusing on the
profit therefore showcasing their great thoroughbred in the racing industry.
Investigation has revealed that the DRP of the company allows their shareholders to reinvest
their dividends. The year 2018 was a year that defined the financial definitions of the company.
The year has shown improvement in every sector of the company. The company has served their
shareholders reasonable very well. The total return that the company the company has earned
over the last last three years is more than 20%. The growth in the revenue of the company is
strong and indicates a brighter future of the company. Therefore it can be concluded by saying
that the proper execution of the business strategy will control and strengthen the business
structure of the company in the coming years. The analysis of the finance business has helped the
researcher to evaluate the risks that are involved in the company. The requirement for the
flexibility of the finances has been identified to understand the risk aversion of the ownership.
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The future payments and the lenders are partially controlled in terms of dividends and are leaded
by the sources of equity financing.
IV. Recommendation
Although the company has performed quite well from the time it has established. But there are
still some of the places where the company can improve themselves. Adopting proper business
plan to improve the financial position in the business is an important part for the companies
(Serfling, M., 2016, p.2239). Some of the most important recommendations for the company to
rise in the business are the recovery of the debts of the company that are outstanding. Reducing
or rearranging the expenses of the company to increase their profitability. Evaluating and
keeping a track of the larger expenses of the company is a good way to keep everything in the
company in check (Schepens, 2016, p.586). Selling of the assets that Are unwanted are unwanted
is always a good idea for the company. This helps to reduce the cost of storage in the company.
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of equity capital. Management Science, 62(2), pp.347-367.
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Bloomberg.com (2019), Home page, Available at:
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frequency trading and extreme price movements. Journal of Financial Economics, 128(2),
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Brogaard, J., Hendershott, T. and Riordan, R., 2016. Price discovery without trading: Evidence
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cost. Transportation Research Part A: Policy and Practice, 91, pp.302-316.
Gabric, D., 2018. Determination of Accounting Manipulations in the Financial Statements Using
Accrual Based Investment Ratios. Economic Review: Journal of Economics and Business, 16(1),
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