University Finance: BUACC 5901 Group Assignment - Transurban Analysis

This report provides a comprehensive financial analysis of Transurban, a company primarily involved in building toll roads, based on its 2018 annual report. The analysis includes the examination of key financial ratios, such as profitability, liquidity, and solvency ratios, comparing the company's performance between 2017 and 2018. The report discusses the reasons behind any improvements or declines in financial position and profitability, drawing on information from the annual report, including financial statements and management narratives. Furthermore, the report evaluates Transurban's alignment with the UN Sustainable Development Goals (SDGs), exploring its initiatives related to good health and wellbeing, gender equality, affordable and clean energy, decent work and economic growth, industry innovation and infrastructure, sustainable cities and communities, responsible production and consumption, climate action, and partnerships for the goals. Finally, the report includes the preparation of the income statement and classified statement of financial position for Swan Jet Ski Hire for 30 June 2019, including the adjusted trial balance, requirement (a) and requirement (b), and the necessary working notes.

Running head: ACCOUNTING AND FINANCE
Accounting and Finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................6
Answer to Question 3:.....................................................................................................................9
Requirement (a):........................................................................................................................10
Requirement (b):........................................................................................................................11
References:....................................................................................................................................13

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Answer to Question 1:
In order to conduct the financial analysis of Transurban based on the latest financial
report of the organisation, the following financial ratios are taken into consideration:
Profitability ratios:
From the above table, it could be seen that the net margin of the organisation has
increased almost double from 7.65% in 2017 to 14.19% in 2018. With the help of net margin, it
becomes possible to analyse the profit generated by an organisation after settlement of all its
relevant business expenses (Atanasov & Black, 2016). Even though operating expenses have
increased over the year, Transurban has managed to increase its revenue considerably over the
year that has assisted in offsetting the rise in operating expenses. As evident from “Note B4
Segment Information of Revenue in Page 65 of the Annual Report”, the organisation has
generated additional revenue from its businesses in Melbourne, Sydney, Brisbane, North
America and others (Transurban Group, 2019).
On the other hand, return on capital employed denotes the profit generated by an
organisation from each dollar of employed capital (Collier, 2015). This ratio is observed to fall
for Transurban from 4.24% in 2017 to 4.04% in 2018. It could be better evaluated by comparing

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with the cost of capital of the organisation. In 2017, the cost of capital of the organisation has
been 4.55% in 2017 and in 2018, it has been 6.53%. The ratio is lower than the cost of capital in
both the years implying that the management is losing money (Drake, Roulstone & Thornock,
2016). As per “Note B11 Contributed Equity in Page 75 of the Annual Report”, Transurban has
injected more equity in its capital structure owing to which increase in net income could be
observed in 2018; however, the return has not been adequate to generate the desired profit level.
Liquidity and efficiency ratios:
In accordance with the above table, it could be seen that the current ratio of Transurban
has increased from 0.60 in 2017 to 0.82 in 2018. In this regard, it is necessary to mention that
current ratio aids in finding out the capacity of an organisation with which it could be able to
clear its short-term obligations and dues (Fields, 2016). In case of Transurban, although the trend
is increasing over the year, it is well below the ideal benchmark of 2. This is mainly due to the
fact that the creditors have not allowed additional credit period for which it has to make quick
repayments to the suppliers. Thus, Transurban is not maintaining sound liquidity position, since
it is struggling in clearing its existing obligations with the available short-term asset base.
Receivables turnover (in days) gauges the time needed by an organisation in
accumulating its average accounts receivable (Floyd & List, 2016). From the above table, it

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could be observed that the receivables turnover (in days) has declined from 17 days in 2017 to 32
days in 2018. This clearly implies the fact that the organisation has been lenient in collecting due
amounts from the customers, which has resulted in increased amount of idle working capital. As
per “Note B8 Working Capital in Page 72 of the Annual Report”, increase in working capital
could be observed to be increased from $928 million in 2017 to $1,284 million in 2018;
however, a proportion of the same has been idle owing to increase in receivables. Therefore, in
terms of both liquidity and efficiency, Transurban is not maintaining sound financial position in
the operating markets.
Solvency ratios:
Debt to equity ratio denotes the portions of debt and equity an organisation is using for
funding its assets and it implies the degree to which the shareholders’ equity could meet
obligations to the creditors when there is decline in business (Gippel, Smith & Zhu, 2015).
Although this ratio has declined for Transurban from 3.02 in 2017 to 2.91 in 2018, it is well
above the accepted benchmark of 1. This is because the organisation has financed majority of its
assets and the long-term bank of loan of the organisation has increased over the year as well. As
a result, Transurban is prone to high solvency risk.
Interest cover ratio helps in gauging the ability of an organisation in making interest
payments on debt within specified schedule (Gitman, Juchau & Flanagan, 2015). A ratio above 1

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is deemed to be an ideal benchmark. In this case, a slight improvement in this ratio could be
observed for Transurban from 1.20 in 2017 to 1.35 in 2018, which is mainly due to increase in
revenue resulting in increased operating income. However, it is to be noted that the increase in
bank loan of the organisation might result in increased interest expense and hence, it might lose
its capability to settle its interest expense with operating income in future. Hence, from the
solvency perspective, the position of Transburn is subject to higher investment risk.
By considering all the above-discussed aspects, it could be stated that Transurban is
suffering from financial issues owing to issues in liquidity, efficiency and solvency. Even though
there is increase in profit margin in 2018 owing to deployment of equity capital into the business;
however, the generated returns are not adequate demanding immediate actions.
Other information required for assessment of Transurban:
Besides the financial aspects, there are certain non-financial aspects that need to be
considered for analysing the current business conditions of Transurban, which are stated briefly
as follows:
 The climatic issues like finding out whether the organisation is investing in equipment
that preserve the environment
 The level of staff motivation inherent within the organisation (Lev & Gu, 2016)
 The backend sales that would come to the organisation due to investment in few non-
profitable projects, as this would serve the function of a bait to bring in additional
customers
 The satisfaction level of the customers before undertaking investment decision (Tracy, J.
2016)

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 Relevant governmental regulations and actions of the competitors have to be taken into
consideration, as these might have significant impact on the overall business profitability
of an organisation
Answer to Question 2:
There are nine UN sustainable development goals and the performance of Transurban in
relation to these goals is described as follows:
Good health and wellbeing:
For the suppliers and staffs, Transurban has developed a wellbeing program in place for
addressing the mental health of the suppliers and staffs constituting of a network of “Mental
Health First Aid Officers”. By 2020, it has planned to minimise global deaths and injuries by
50% owing to road traffic accidents (Transurban.com, 2019). In order to implement this
measure, the organisation has undertaken different initiatives like the development of road safety
strategic framework along with road design and optimisation for minimising safety risks.
Gender equality:
Transurban has undertaken initiatives for avoiding discrimination against women, in
which the initiatives include recruitment methods for boosting female applicants, parental leave
accessibility, flexible working practices and others. Moreover, the organisation is observed to be
providing equal opportunities and participation to all women by providing Engineering
Scholarship in UNSW, collaboration with Western Sydney University and other scholarships and
thus, it has appropriately followed the UN sustainable goals when it comes to gender equality
(Loughran & McDonald, 2016).

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Affordable and clean energy:
In terms of this goal, Transurban has planned to raise the proportion of renewable energy
in global energy mix by 2030 along with increasing the global improvement rate twice in energy
efficiency. For this, the organisation has placed different renewable energy installations in its
facilities and assets. Moreover, it has undertaken different energy efficiency initiatives by
concentrating on tunnel ventilation and lighting such as Clem 7 ventilation trial. It has achieved
above the set targets and thus, it is progressing well in affordable and clean energy (Eccles et al.,
2014).
Decent work and economic growth:
In terms of economic growth, Transurban has aimed a minimum of 7% growth in gross
domestic product per year in the developing nations. For this, it has initiated seven development
projects resulting in increased employment opportunities. Moreover, it is minimising the material
quantity for new road assets by using lower impact materials.
Industry, innovation and infrastructure:
In relation to this goal, Transurban has focused on developing sustainable infrastructure,
enhancing infrastructure sustainability and enhancing innovation and technology. The
organisation has enforced an initiative of a toll demand notice aggregation, which would result in
savings of $36.5 million for the customers per annum in fees. There are three innovation grant
projects, which have been underway or finished in 2018:
 Road communications LED
 Graphene road sensors
 Completion of wire-rope barrier inserts

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Sustainable cities and communities:
In relation this goal, Transurban has emphasised on accessible, affordable and safe
transport, inclusive urbanisation and adverse environmental effect. For this, Transurban is
involved in identifying and responding to financial vulnerability in the community by active
engagement in community-based organisations, which are active in the area. Moreover, it has
undertaken monitoring of air quality and road tunnel reporting as initiatives for minimisation of
waste (Smith, 2017).
Responsible production and consumption:
For fulfilling this goal, Transurban has undertaken a number of initiatives. These
initiatives primarily include use of natural resources, generation of waste, sustainability reporting
and sustainable procurement. Therefore, the organisation has entered into collaboration with
Boral and Beyond Zero Emissions in Australia for identification of solutions to minimise
embodied emissions in concrete. In addition, it has reused maximum of the excavated material
such as Hornsby Quarry located in NSW. Finally, it has revised its procurement policy, sourcing
toolkit and others for close alignment with ISO 20400:2017.
Climate action:
For climate action, Transurban has focused on certain areas like resilience in climate
change, strategy associated with climate change and capacity of climate change. Transurban has
already implemented climate change policy back in 2012, in which there is analysis of climate
risks made and accordingly, appropriate measures are formulated for dealing with such risks.
Moreover, in the recent times, it has updated this strategy for aligning with the recommendations

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of Task Force in relation to climate disclosures and accordingly, financial disclosures would be
reported in 2020.
Partnerships for the goals:
For this goal, Transurban has laid stress on certain key areas that constitute of
partnerships with different stakeholders. Therefore, the organisation has entered into partnerships
with Infrastructure Australian Sustainability Council, UN Global Compact Australia, road safety,
providing support to the indigenous partnerships along with automated and connected vehicles.
Based on the above discussion, it could be stated that Transurban has made effective
compliance with the sustainable development goals recommended by the UN in the form of
increased non-financial disclosures to its different groups of stakeholders.
Answer to Question 3:
In order to prepare the income statement and classified statement of financial position of
Swan Jet Ski Hire for 30 June 2019, it is necessary to prepare adjusted trial balance, which is
shown as follows:

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Requirement (a):

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Requirement (b):
Working Notes:

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References:
Atanasov, V. A., & Black, B. S. (2016). Shock-based causal inference in corporate finance and
accounting research. Critical Finance Review, 5, 207-304.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Drake, M. S., Roulstone, D. T., & Thornock, J. R. (2016). The usefulness of historical
accounting reports. Journal of Accounting and Economics, 61(2-3), 448-464.
Eccles, R. G., Krzus, M. P., Rogers, J., & Serafeim, G. (2014). The need for sector‐specific
materiality and sustainability reporting standards. Journal of Applied Corporate
Finance, 24(2), 65-71.
Fields, E. (2016). The essentials of finance and accounting for nonfinancial managers. Amacom.
Floyd, E., & List, J. A. (2016). Using field experiments in accounting and finance. Journal of
Accounting Research, 54(2), 437-475.
Gippel, J., Smith, T., & Zhu, Y. (2015). Endogeneity in accounting and finance research: natural
experiments as a state‐of‐the‐art solution. Abacus, 51(2), 143-168.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson
Higher Education AU.
Lev, B., & Gu, F. (2016). The end of accounting and the path forward for investors and
managers. John Wiley & Sons.