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Brief Introduction to Companies

Discuss about the Financial Analysis of AGL and Genesis Energy Limited.

Financial analysis using the ratios as the main tool help in understanding the trends in the items contained in the income statements, balance sheet and cash flow statement. There are many performance indicators like increase/decrease in net income in current year as compared to previous year. Such indicators will help to review the financial performance of AGL Energy Limited and Genesis Energy Limited.

AGL Energy Limited

AGL Energy Limited is the Australian leading company and it is publically listed on the Australian Exchange. AGL Energy Limited deals in the energy industry and aims to provide the energy products and services to the people in Australia. AGL Energy Limited is the leading producer of the electricity in Australia and also distributes the electricity to the households (Annual Report 2015: AGL Energy Limited). The main sources used by the company for production of electricity are natural gas, thermal power, wind power, hydroelectricity and coal. Company is also actively involved in reducing the green house gas emission through providing clean source of energy to the people. AGL Energy Limited has an experience of more than 17 decades in generation and distribution of electricity. The main functional area of the company is the Eastern Australia.

Genesis Energy Limited

Genesis Energy Limited is the New Zealand based company and also publically listed on the Australian Stock Exchange. Genesis Energy Limited is one of the competitors of AGL Energy Limited and deals in same industry as AGL Energy Limited. Company provides its services in all the major states of the New Zealand. It has noted that Genesis Energy Limited is biggest electricity and natural retailing company with share of 26 % and 42% respectively. This company has more than 636,676 customers in New Zealand that makes it the biggest retail electricity company in New Zealand (Annual Report 2015: Genesis Energy Limited). Genesis Energy Limited aims to provide clean, smart and conventional sources of energy that helps to reduce the carbon emissions in the environment.

Trends in the items of income statement, balance sheet and cash flow statement

AGL Energy Limited is known for their financial performance and there is continuous growth in the gross profit in last five years (2011 to 2015). There was decrease in net profit in year 2015 as compare to year 2014. EPS decreased to 33.3 cents in year 2015 in comparison to 98.2 cents in year 2014. Current assets represent working capital and decrease in current assets leads to poor performance. There was almost 50 % decrease in cash and cash equivalents in year 2015 as compare to year 2014. Trade receivables remain same in both the years that mean company has not framed better strategies to recover the receivables more frequently (Walton, 2000).  There was an increase in the non current assets and it was marked by increase in plant and machinery and oil and gas assets. There was increase in current liabilities in year 2015 when compared to year 2014 and such increase has not been compensated by the current assets. This shows the poor performance of the company in year 2015. AGL Energy Limited has earned cash and cash equivalents of 1,044 million dollars from operating activities in year 2015 and this cash has been used to finance the new plant and machinery (Annual Report 2015: AGL Energy Limited). There has increase in net provided by the operating activities in year 2015. It has been noted that net cash used in investing activity has been increased to 2,175 million dollars in year 2015 as compare to 769 million dollars in year 2014. Company has taken borrowing of 2,647 million dollars in year 2015 and it is 572 million dollars more than borrowing taken in year 2014. It shows that company is using more debt capital to finance the business.

Financial Statement Analysis

Genesis Energy Limited has performed well in year 2015 and it is reflected through its financial statements. Net profit of the year has been increased to 104.8 million dollars in year 2015 from 49.2 million dollars in year 2014. Earning per share increased to 10.49 cents in year 2015 from 4.92 cents in year 2014 that indicates increasing trend in the earnings of the company (Sagner, 2010). There was slight decrease in value of current assets but there is increase in value of current liabilities. It shows that company has fewer assets to pay its current liabilities. Genesis Energy Limited has generated 318.5 million dollars from the operating activities and such amount has been used to pay the debt (Annual Report 2015: Genesis Energy Limited). There was increasing trend in the cash generated from the operating activities. Investment made by the Genesis Energy Limited in year 2015 has been decreased to 48.6 million dollars as compare to 82.9 million dollars in year 2014. There was increase in cash outflows in financing activities due to repayments of borrowing and increase in dividend amount (Houston and Brigham, 2009).

Financial Ratios

Financials ratios of both the companies have been calculated using the absolute figures from the annual reports and results obtained has been shown below in the form of table.

Profitability Analysis

Ratio Calculations

Particulars

Formula

2014

2015

Return on assets

Net Profit / Average Total Assets

   

AGL Energy Limited

 

4.03%

1.38%

Genesis Energy Limited

 

1.36%

2.97%

Net Profit Margin

Net Profit / Net Revenue

   

AGL Energy Limited

 

5.46%

2.04%

Genesis Energy Limited

 

2.45%

5.00%

There is decrease in return on asset ratio of AGL Energy Limited in year 2015 by 2.65 % as compare to year 2014. On the other hand, there was increase in return of assets ratio in year 2015 by 2.97 % (Bull, 2007).

Net profit margin ratio has decreased to 2.04 % in year 2015 in case of AGL Energy Limited showing a decrease of 3.42 % as compare to year 2014. While net profit ratio of Genesis Energy Limited has increased in year 2015.

Ratio Calculations

Current Ratio

Current Assets /Current Liabilities

2014

2015

AGL Energy Limited

 

1.57

1.46

Genesis Energy Limited

 

1.45

1.12

Quick Ratio

Quick Assets / Current Liabilities

   

AGL Energy Limited

 

1.49

1.29

Genesis Energy Limited

 

1.07

0.86

There was slight decrease in the current ratio in case of AGL Energy Limited in year 2015 and also there was decrease in current ratio of Genesis Energy Limited in the same year (Mumba, 2013). Quick Asset ratio decreased to 1.29 times in year 2015 as compare to 1.49 in 2014 in case of AGL Energy Limited. Quick ratio of Genesis Energy Limited also got reduced to 0.86 times in year 2015 as compare to 1.07 in 2014 (Fridson and Alvarez, 2011).

Ratio Calculations

Debt to Equity Ratio

Total Debt / Shareholder’s Equity

2014

2015

AGL Energy Limited

 

0.86

0.80

Genesis Energy Limited

 

0.93

0.93

Equity Ratio

Total Equity / Total Assets

   

AGL Energy Limited

 

0.54

0.56

Genesis Energy Limited

 

0.52

0.52

Debt to equity ratio of AGL Energy Limited decrease to 0.80 in year 2015 as compare to 0.86 in 2014 that indicates decrease in debt in year 2015 (Götze, Northcott and Schuster, 2007). While there was no change in debt equity ratio of Genesis Energy Limited. Equity ratio of AGL Energy Limited has increased to 0.56 in 2015 as compare to 0.54 in year 2014. Whereas, there was no change in equity ratio of Genesis Energy Limited.

Ratio Calculations

Earning per Share

Profit attributable for shareholders / Number of common Stock (Shares)

2014

2015

AGL Energy Limited

 

$                    0.979

$                          0.375

Genesis Energy Limited

 

$                    0.049

$                          0.105

Dividend per Share

Total Dividend Distributed / Number of Common Stock (Shares)

   

AGL Energy Limited

 

$                    0.603

$                          0.665

Genesis Energy Limited

 

$                    0.146

$                          0.121

Financial Ratios

Earning per share of AGL Energy Limited has decreased to 0.375 dollars in year 2015 as compare to 0.979 in 2014 (Trading Economics, 2016). This decrease is due to increase expenses in year 2015. On this other hand EPS of Genesis Energy Limited has increased to 0.105 dollars as compare to 0.049 in 2014. This indicates poor performance of AGL Energy Limited as compare to performance of Genesis Energy Limited. AGL Energy Limited has paid good dividend in year 2015 due to higher profits in year 2014 (Brigham and Ehrhardt, 2011).

Conclusion

The financial analysis helps the investors to review the financial performance of the companies before making any investment decisions. In this report, financial analysis of AGL Energy Limited and Genesis Energy Limited has been conducted and all results are properly discussed. Despite of numerous benefits of ratio analysis there are certain limitations. Financial are not the true representatives of financial performance of the company as it shows the company’s performance for particular time period. Ratio analysis at various points in the year can be more worthy and meaningful.

It is highly suggested to the investors on the basis of trend analysis and ratio analysis to not invest in AGL Energy Limited due to lower profit and decreasing trend in year 2015. Also, there is no expectation for good performance in next year. On the other hand Genesis Energy has performed well and results indicate the company will earn higher benefits in future year. In year 2015, Genesis Energy has provided very good dividends to the shareholders as compare to AGL Energy Limited.

References

Annual Report  (2015). Genesis Energy Limited.  Retrieved August 31, 2016 from https://www.genesisenergy.co.nz/en_GB/reports-and-presentations

Annual Report (2015). AGL Energy Limited. Retrieved August 31, 2016 from https://www.agl.com.au/about-agl/media-centre/article-list/2015/august/agl-annual-report-2015

Brigham, E. F. and Ehrhardt, M. C. (2011). Financial Management: Theory and Practice. Mason: Cengage Learning.

Bull, R. (2007). Financial Ratios: How to use financial ratios to maximize value and success for your businesses. Elsevier.

Drake, P. P. and Fabozzi, F. J. (2012). Analysis of Financial Statements. John Wiley & Sons.

Fridson, M. S. and Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Götze, U., Northcott, D. and Schuster, P. (2007). Investment Appraisal: Methods and Models. Springer.

Houston, J.F. and Brigham, E.F. (2009). Fundamentals of Financial Management. Cengage Learning.

Mumba, C. (2013). Understanding Accounting and Finance: Theory and Practice. USA: Trafford Publishing.

Sagner, J. (2010). Essentials of Working Capital Management. USA:  John Wiley & Sons.

Trading Economics. (2016). AGL Energy EPS Earnings Per Share. Retrieved August 31, 2016 from https://www.tradingeconomics.com/agl:au:eps .

Walton, P. (2000). Financial Statement Analysis: An International Perspective. Cengage Learning EMEA.

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