ACC515 Accounting And Finance

The AMP Limited company is the Australian based company providing the facilities of the superannuation and the investment products, insurance and the financial services including the home loans. The company is currently operating at $972 million and the below report has been subsequently designed in order to present the data regarding the capital structure of the company the ratio analysis and the Expected rate of return the company is going to get (AMP Limited, 2018).

The capital structure of the AMP limited is determined below. The bifurcation is done on the basis of the Equity and the Debt. The Equity component is 79% and the debt component is 21% (Robb & Robinson, 2014).

The weighted average cost of capital is the rate used by the company to make an assessment of the financial assets. The organisations cost of capital is basically the WACC. The major cause can only be reflected in case of the fluctuations are prevailing in the external market and not by management. The above table reflects the cost of capital to the AMP Limited company at 10% (Fernandez, 2017).

The CAPM calculation is basically done on the basis of the cost of equity and cost of debt component. In comparison to return of the market the WACC return is expected to be at in a range of 10% (Campbell, Giglio, Polk & Turley, 2018).

The firm’s capital structure of the APM limited is compared with its competitor Westpac bank of Australia.

The above table describes the opposite situations of both the companies. The debt component of the Westpac Company is higher than the AMP Limited at 75%. On the contrary the Equity component of the company is 7283 which showcases 79% in the year 2017. This means that the equity component of the AMP Limited shall be balanced as too much risk will create hassled situations for the company. On the other hand the debt component of the Westpac Company is higher which ultimately is providing the gauge to the company against the tax provisions (Riyadi, 2017).

Ratio analysis is an important tool that is used by the company to figure out where is the company, where it wants to reach. The ratios are basically the key metrics which help in determining how healthy the company and the variances can also be figured out. The current ratio of the company is 7.61 which are higher than the year 2017-2018 which is too high for the company. The debt to equity ratio of the company was 0.70 in the year 2016-2017 where the debt was lower in comparison to the current year the debt to equity ratio is just the reversal of the company which is reported at 3.69. The net profit of the company has improved in comparison to the previous year where the company was in the losses such as 2.32%. The return on equity has also been improved in relation to the previous year where the return on equity was reported at -4.31%. Overall the company has improved in comparison to the last year and there is still some room for the improvement (AMP Limited, 2018).

Significant changes over the past three years

In the course of recent years the capital structure of the AMP Limited has been changed as far as the equity and the debt is concerned. In the year 2015 the equity part was 56% and obligation was 44% which was an equal proportion as the organization was ready to go for debt alongside getting the advantages of the risk of the and the reduction in the tax component. Anyway the debt segment began to diminish in the year 2016 and at last fell off to 21% out of 2017. Henceforth, the organization shall maintain an alignment between the debt and equity.

The directors could figure out the risks associated with the AMP Limited and the same has also been reported in the Annual report of the AMP limited. The annual report also determines the risk environment of the company and builds the effective risk management in order to cater the sustainability and enhance the brand image of the company. Moreover in the year 2107 the AMP constantly implemented the new strategies to fight against the different type of the risks as disclosed by the director of the company. The seven material risks which are determined by the directors are the insurance, liquidity, concentration, strategic, market, credit and the operational risk (Almeida Hankins & Williams, 2017). This insurance risk of the company has been amended by providing the fixed return on the premium paid by the employees. The concentration risk has been followed up by the top level management. The credit risk has been not disclosed clearly. The risks mirror the effectiveness of the company and the same has been reported by the Directors of the company. The strategic risk on the other hand has been improved by the company by implementing through organising the events to discuss the strategic objectives of the company. Thereafter the insurance and the market risk is managed by the Capital risk and the Compliance Committee and the company is also facilitating the exposure to make sure that all the risks are carefully analysed. This way the portfolio of the company has also been improved. The liquidity risk has been escalated on the basis of the period of 5 years and it increased from 1463 to 3456. Therefore the internal analysis of the factors is scrutinized throughout the years to identify the variances (AMP Limited, 2018).

Henceforth, the altogether few of the risks are under process for the purpose of the solution; rest apart the performance of the coampny is sound is sound. The company has also performed well in case of the ratios as compared to the previous year. Moreover since according to the CAPM model the expected return for the company is 10% and hence it is a proactive investment. Therefore is can be concluded that the company is performing towards the new edge and the investment will provide the future returns if the risks are minimised effectively.

Almeida, H., Hankins, K. W., & Williams, R. (2017). Risk management with supply contracts. The Review of Financial Studies, 30(12), 4179-4215.

AMP Limited, (2018). Annual report. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_AMLTY_2017.pdf

Campbell, J. Y., Giglio, S., Polk, C., & Turley, R. (2018). An intertemporal CAPM with stochastic volatility. Journal of Financial Economics, 128(2), 207-233.

Fernandez, P., (2017) Is It Ethical to Teach That Beta and CAPM Explain Something?. New York: Springer

Riyadi, S. (2017). Financial performance efficiency of Indonesia government banks in improving profitability. International Journal of Financial Innovation in Banking, 1(3-4), 239-252.

Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The Review of Financial Studies, 27(1), 153-179.