Wealth Management Report: Adcorp Australia Ltd Performance Analysis

This wealth management report provides a comprehensive analysis of Adcorp Australia Ltd (AAU), examining its financial performance, profitability, liquidity, and market position. The report reveals a net loss for the company, driven by increased production costs and a slight decrease in revenue. Liquidity ratios show a slight decrease, and the company's earnings per share have been negative. The cash flow analysis indicates a decrease in net operating cash flow and net cash flow from investing activities, while the financing activities show improvement. The report interprets these findings within the context of the advertising industry in Australia, which is characterized by competition and cyclical consumer markets. Based on this analysis, the report recommends against short-term investments but suggests that long-term investors might consider the company, given its strategic changes and potential for future growth. The report references various financial ratios and market data to support its conclusions.

Wealth Management Report

Table of Contents
Executive Summary...................................................................................................................1
Analysis......................................................................................................................................1
Profitability.............................................................................................................................1
Liquidity and Financial Stability............................................................................................1
Market Analysis......................................................................................................................2
Cash Flow...............................................................................................................................3
Interpretation..............................................................................................................................4
Conclusion..................................................................................................................................4

Adcorp Australia Ltd (ASX: AAU)
Executive Summary
This is an investment report for the potential investors to determine whether the company
under review is worth investing for short term or long term opportunities. Various financial
and non-financial parameters have been analysed which provide the basis for
recommendations.
The company chosen for analysis is Adcorp Australia Limited (AAU) which offers creative
advertising and marketing solutions across various media. The company provides its services
across Australia and New Zealand and has been in operations since 40 years (Jones and
Brown, 2009). The company is listed in Australian Stock Exchange and follow all the
corporate governance policies related with governing bodies.
Analysis
Profitability
The most recent annual reports of the company represent a net loss of $ 2,084,743 which is
around 41.3 % increase in loss as compared to the previous year. Such an increasing loss has
been due to the higher production costs of the company. The production cost of the company
increase by 254% in the year 2018 when compared with the last year. The company also
experienced a decrease in revenue by 3.87% which further pushed the profits on the lower
side.

The graph shows the net income of the company in the last five consecutive years.
Liquidity and Financial Stability
The liquidity ratios of the company is slightly decreasing from the last year. The current ratio
has been 0.70 and 0.88 for 2018 and 2017 respectively (Klement, Greenrod and O’Neil,
2013). The decrease of around 0.18 points has been due to the decrease in cash flow from the
operating activities which has brought down the current assets of the company.
2018 2017 2016 2015 2014
Current
Ratio 0.7 0.88 1.08 0.85 0.88
Quick
Ratio 0.7 0.88 1.03 0.85 0.88
Market Analysis
Adcorp Australia Limited has experienced a decreasing trend in earnings per share of the
company. The continuous losses experienced by the company leads to negative earnings for
the shareholders of the company (MANISHA B, 2012). The decreasing performance of the
company in terms of increasing production costs is one of the reason the company is losing
its competitiveness in the market.
2018 2017 2016 2015 2014
EPS (Basic) -0.01 -0.01 0 0 -0.04
EPS (Basic)
Growth -40.28% -71.43% -321.05% 105.07% -
Basic Shares
Outstanding 2,08,886.70 2,08,886.70 1,48,389.40 69,628.90 69,628.90
EPS (Diluted) -0.01 -0.01 0 0 -0.04
EPS
(Diluted)
Growth
-41.30% -72.46% -316.98% 105.10% -

Diluted Shares
Outstanding 2,08,886.70 2,08,886.70 1,48,389.40 69,628.90 69,628.90
The share price of the company has quickly adjusted to the decreasing financial performance
of the company and is showing a decreasing trend.
Cash Flow

The net operating cash flow for the company has decreased by 325% to (-476.3) thousand
AUD. This has been due to the lower net income for the current which created a downward
pressure on the cash from operations.
The net cash flow from the investing activities has decreased by 47.82% to (-2177.5)
thousand AUD. The capital expenditure of the company in fixed and other assets has
increased in the year 2018 and the company is seen investing in improving the infrastructure
capabilities of the company (Ting, 2017).
And the net cash flow from the financing activities has improved by 106466% to 1065.7
thousand AUD. The company has experienced funds from various source of finance which
has led to positive cash flow.
Thus the final effect on the free cash flow has been a decrease by 144% from the previous
year period. This decrease in the cash balance for the year 2018 has affected the short term
liquidity position of the company in a negative way.
Interpretation
The industry in which the company is operating is one of the growing industry in Australia.
This industry the way in which the companies attract its customers. The basis of developing
competitive advantage is through providing customised solutions which helps in building the
brand and image of the client companies. Adcorp is pioneer is delivering quality solutions to
its customers through a business strategy which helps to gain access to its market.
The company is subjected to the cyclical nature of the consumer market. Thus during the
times of recession or slow down, the company experiences less business and growth.
However during the global economic growth, the company faces improvement in its earnings.
This market is also characterised by the high level of competition from the other companies.
The competitor companies provide similar solutions at competitive rates.
These non-financial factors affect the external and internal working environment of the
company which have direct effect on the profitability and financial performance. According
to Australian Market Research Report, the advertising agencies in Australia is expected to
grow at 3.3% annually in the coming years.

Conclusion
Finally based on the above analysis of the financial and non-financial measures of the
performance of the company, this investment is not recommended for short term investors.
The company is going through strategic changes where huge investments are being made in
improving the quality of solutions and infrastructure capabilities. For this reason the company
has seen a significant increase in its cost of production in the current year which would be
eventually lowered as the company would experience economies of scale through higher
production. But the positive results of these strategic changes would only be experienced
after a period of 3 to 5 years.
Thus the investors looking for long term returns and an exposure to the marketing and
advertising industry in Australia can consider this option. However the returns and
performance should be closely monitored to track the improvement in returns which would
attract investors.

References
Jones, T. and Brown, J. (2009). Integrating Asset-Liability Risk Management with Portfolio
Optimization for Individual Investors. The Journal of Wealth Management, 12(3), pp.51-
60.
Klement, J., Greenrod, J. and O’Neil, J. (2013). Optimal Domestic Equity Allocations for
Australian Investors and the Role of Franking Credits. The Journal of Wealth
Management, p.130712044810008.
MANISHA B, R. (2012). Financial Performance Analysis. Global Journal For Research
Analysis, 3(5), pp.9-10.
Ting, H. (2017). Factors Affecting Wealth Management Services: From Investors’ and
Advisors’ Perspectives. The Journal of Wealth Management, 20(1), pp.17-29.