Financial Performance Evaluation of Transurban Group for Shareholders

This report presents a financial analysis of the Transurban Group, focusing on the evaluation of financial measures in relation to shareholder outcomes. The analysis employs ratio analysis, specifically examining profitability and solvency ratios for the years 2018 and 2019. Profitability ratios, including operating profit margin and return on equity, are assessed to determine the company's ability to generate profits. The report notes a decrease in operating profit margin and return on equity in 2019, attributing these changes to factors such as a fall in net profit and increased expenses. Solvency ratios, such as the debt ratio and debt-to-equity ratio, are also evaluated to assess the company's financial leverage and stability. The analysis highlights a decline in the debt-to-equity ratio, indicating an improved solvency position. The report concludes that while Transurban Group experienced a decline in profitability, its solvency position improved, aligning with the shareholders' interest in long-term sustainability and success. The report references financial data from Transurban's corporate reports and relevant academic literature.

Running head: MANAGEMENT CONTROL SYSTEM
Management control system
Name of the Student
Name of the University
Author Note

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Answer to requirement c)
In this requirement, it is asked to evaluate the financial measures in achieving the
desirable outcome of the shareholders. The chosen organization for the assessment of the
financial measures is Transurban group that is involved in the development, operation and
management of toll roads in North America and Australia. The roads are designed by them
for delivering long term, lasting and real benefits to the communities. The financial measures
of Transurban group is evaluated by the application of ratio analysis. For the purpose of
evaluation, two ratios have been computed that is profitability and solvency ratios.
The financial performance of the company can be measured by using several ratios
and financial analysis can be conducted in detail using the ratios. Using the ratio analysis, it is
easier to make the qualitative and quantitative assessment of the profit factors done thorough
the components such as growth in operating profit, gross profit and revenue over time. In
addition to this, the financial leverage is one of the important factors determining the
financial performance of the organization. Assessment of the solvency position of the
company can be done by determining the proportion of debt and equity in the capital
structure and whether such mixture represents a balanced leverage or not.
Profitability ratios have been evaluated by computing ratios such as operating profit
margin and return on equity. Operating profit margin computed for Transurban for the period
of 2019 and 2018 is recorded at 0.72% and 8.79% respectively. This ratio implies whether the
operations of the company is generating enough money to support the business. It is desirable
to have higher operating profit margin as it implies that enough money is generated by the
company. It has been found from the computed figures that operating profit margin of
Transurban group has decreased significantly to 0.72% in year 2019 from 8.79% in year
2018. This decrease in profit is attributable to fall in net profit in the current financial year.
However, it is expected by the group that there would be fall in the net profit after tax due to

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the adoption of the accounting standard. In addition to this, there would be decrease in the
financial cash flow. Furthermore, fall in net profit is also because of increase in the total
expenses from $1649 million in year 2018 compared to $ 2170 million in year 2019.
Now, looking at the figures of return on equity, it has been observed that there is
significant difference between the values of two figures. The computed value of return on
equity in the financial year 2019 is recorded at 0.34% compared to its value at 3.30% in year
2018 (Transurban.com 2020). It is preferred to have an increasing return on equity as it
implies the ability of the company to generate profit without requirement of additional
capital. Hence, the higher value of return on equity of Transurban is desirable from the
viewpoint of shareholders. Decrease in the value of return on equity has been attributable to
fall in the total amount of net profit generated. In addition to this, the total value of return
generated on equity of shareholders is also due to the acquisition of additional equity interest.
The implication of the decrease in return generated on equity is that the money of
shareholders are not being utilized effectively to generate profits (Hutaibat 2019).
Furthermore, the evaluation of the financial measures aligning with the outcomes of
shareholders has been done by assessing the solvency position of Transurban group.
Computation of solvency ratios has been done by calculating the figures of debt ratio and
debt to equity ratio.
From the computed figures, it is observed that there has been fall in the debt to equity
ratio from 2.91 in year 2018 to 2.63 in year 2019. This fall in the debt ratio intends to
maintain a balanced mix of equity and debt (Transurban.com 2020). This fall in the total debt
to equity ratio is attributable to the raising of equity more than the total amounts of debt
raised. Business and shareholders finds it desirable to have lower or falling debt to equity
ratio as lower ratio implies a financially stable business. Shareholders use this ratio to

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determine the credit worthiness of the company and make investment and this ratio also helps
in evaluating the business prosperity. A balanced mix of debt equity ratio implies a regular
generation of profits and cash flow by the business (Shapiro and Hanouna 2019).
Debt ratio is used by the shareholders to assess the ability of the business to use assets
to clear its liabilities. It is desirable to have a lower debt ratio as it implies that the liabilities
can be cleared off using the existing assets of the company. From the computed figures, it has
been found that the debt ratio has increased in the current year, although not by significant
amount. The value of debt ratio decreased from 0.74 in year 2018 to 0.73 in year 2019. Fall in
the ratio has been due to raising equity shares that helps in creating a balance between debt
and equity and thereby making Transurban better off (Transurban.com 2020).
Therefore, from the analysis of profitability and solvency ratios of Transurban group,
it has been ascertained that in the current financial year, there has been decline in the
profitability position and an improvement in the solvency position of the company. The
shareholder of the company seeks to investment in the company promising returns and
maintain their solvency position. The outcome of the shareholders can be well aligned with
that the financial measures and with such measures generating long term sustainability and
success of the business (Weygandt et al. 2018). Although, the Transurban group is generating
higher revenue in the current financial year that is 2019, there has been decline in the net
profits by a significant value. However, the financial leverage of the company has improved
that has caused an improvement in the solvency position of the company and making the
company better off for the shareholders.

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References list:
Hutaibat, K., 2019. Incorporating practical sustainability and managerial and financial
reporting in accounting education: An interactive project. Journal of International Education
in Business.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. Wiley.
Transurban.com., 2020. [online] Available at:
https://www.transurban.com/content/dam/investor-centre/04/2019-Corporate-Report.pdf
[Accessed 8 Jan. 2020].
Weygandt, J.J., Kimmel, P.D., Kieso, D.E. and Aly, I.M., 2018. Managerial Accounting:
Tools for Business Decision-making. John Wiley & Sons.

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