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Company overview

Discuss about the Capital Position Of APN Outdoor Group.

Capital structure of a firm plays an important role to identify the financial position, stability and performance of the company. This report depict about the capital position of the company and the impact of the capital structure over the performance of the company in terms of profitability and debt equity ratio. For analyzing the capital structure in a better manner, it is important to analyze the capital structure of the company.

APN outdoor group is an advertising company which helps its clients to promote their products and services through various sources. This company is enhancing its business rapidly through promoting and launching new services which could attract more customers to manage the business.

Capital structure of the company has been analyzed. The debt of the company is \$ 133 million and the equity of the company is \$ 269 million. This depict that the best and equity ratio of the company is around 1:2 which depict that the company is required to enhance the debt level to manage the performance and level of risk of the company and this could also help the company to reduce the level of cost (Morningstar, 2017).

 Capital Structure Price Debt 133 Equity 269 402 0.49442

WACC:

WACC is weighted average cost of capital which depict about the total average cost of the company which happens when company raises the funds through various source to meet the future expectation and invest into new projects (Bello, 2005). Through the calculation over the WACC of the company, it has been analyzed that the debt cost of the company is 0.02631 and cost of equity is 0.0838. The cost of debt has been calculated to identify the total cost of the company and for calculating the equity cost of the company, CAPM model has been calculated.

 Calculation of WACC Price Cost Weight WACC Debt 133 0.02631579 0.330845771 0.008706468 Equity 269 0.0838 0.669154229 0.056075124 402 Kd 0.064781592 Calculation of cost of debt Outstanding debt 133 interest rate 5 Tax rate 0.3 Kd 0.0263 Calculation of CAPM RF 2.40% RM 7.00% Beta 1.3 Required rate of return 8.380%

(Morningstar, 2017)

For comparing the capital structure of the company, Amscreen group limited’s capital structure has been analyzed. The debt of the company is \$ 3460 million and the equity of the company is \$ 34984 million (Goetzmann & Kumar, 2008). This depict that the best and equity ratio of the company is around 1:9 which depict that the company is required to enhance the debt level to manage the performance and level of risk of the company and this could also help the company to reduce the level of cost.

Further, various financial ratios of the company has been analyzed to identify the financial stability, performance and the position of the company, following are some of the key financial ratios of the company:

 Financial Data Description APN outdoor group 2016 2015 Revenue 330.00 300.00 Cost of goods sold 7.00 8.00 Gross profit 323.00 292.00 Operating profit 72.00 62.00 Net profit 48.00 41.00 Inventory 1.00 1.00 Current assets 94.00 85.00 Receivables 69.00 63.00 Current liabilities 50.00 45.00 Payables 2.00 2.00 Equity 269.00 248.00 Total liabilities 451.00 389.00 Total assets 451.00 389.00 Description Formula APN outdoor group 2016 2015 Profitability Net margin Net profit/revenues 14.55% 13.67% Return on equity Net profit/Equity 17.84% 16.53% Liquidity Current ratio Current assets/current liabilities 1.88 1.89 Quick Ratio Current assets-Inventory/current liabilities 1.86 1.87 Efficiency Receivables collection period Receivables/ Total sales*365 76.32 76.65 Payables collection period Payables/ Cost of sales*365 104.29 91.25 Asset turnover ratio Total sales/ Total assets 0.73 0.77 Solvency Debt to Equity Ratio Debt/ Equity 1.68 1.57 Debt to assets Debt/ Total assets 1.00 1.0

Through the capital structure ratio of the company and various key financial ratios of the company, it has been analyzed that company is required to manage the capital structure in such a manner that risk of the company could be reduced and the cost level of the company could also be reduced. Company is required to decrease the level of debt more according to the industry level so that the cost structure of the company could become more reliable. Through last 3 years data, it is suggested to the company to reduce the debt level (Magaloni, Diaz-Cayeros & Estévez, 2007).

Through the financial ratios of the company, it has been evaluated that the position of the company has became more stable from last 2 years. Currently the net profit and the dividend position of the company have been enhanced and through which the investors have attracted more to invest into this company (Guiso & Jappelli, 2008).

Cost of capital is the total capital which is paid by the company to the shareholders and debt holders of the company in consideration of their amount. Company always look for reducing the level of cost and at the same time, the risk related to the funds also is reduced. This depicts that cost of capital of a firm plays an important role to identify the financial position, stability and performance of the company.

Lastly, the capital structure of the company has been analyzed and it has been found that the firm must enhance the level of equity and must reduce the level of debt to manage the performance and stability of the company. The debt equity ratio of the company must be 1:7.

References:

Morningstar. (2017). APN outdoor group limited. Retrieved from https://financials.morningstar.com/cash-flow/cf.html?t=APO&region=aus&culture=en-US as on 28th Sept 2017.

Bello, Z. Y. (2005). Socially responsible investing and portfolio diversification. Journal of Financial Research, 28(1), 41-57.

Goetzmann, W. N., & Kumar, A. (2008). Equity portfolio diversification. Review of Finance, 12(3), 433-463.

Guiso, L., & Jappelli, T. (2008). Financial literacy and portfolio diversification.

Magaloni, B., Diaz-Cayeros, A., & Estévez, F. (2007). Clientelism and portfolio diversification: a model of electoral investment with applications to Mexico. Patrons, clients, and policies: Patterns of democratic accountability and political competition, 182-205.

Morningstar. (2017). Amscreen Group Limited. Retrieved from https://financials.morningstar.com/balance-sheet/bs.html?t=01299&region=hkg&culture=en-US as on 28th Sept 2017.

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