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1. Identify your company ( in terms of the ownership-governance structure)
2. Identify any significant factors which may have influenced the share price of your company

Financial Performance Evaluation

This report reflects the key understanding on the financial analysis of Wellard Ltd. It is evaluated that financial analysis tools have been used in this report to evaluate the financial performance of Wellard Ltd. This report has focused on how investors could analyse the financial performance of Wellard Ltd in order to make investment in Wellard Company. This report is focused on the financial performance of Wellard Ltd. It will help investors to assess whether they should invest in Wellard Ltd.

Wellard Ltd is an Australian company running its business on international level. This company has operated its business for the production and distribution of livestock and grain.  This company has increased its overall turnover with a view to increase its return. 

The present CEO of company is Mauro Balzarini who gives all the instructions and guidance to employees (Wellard Ltd, 2015).

There are following key persons who hold the shares in company. These are the persons who hold maximum shares in company. These persons are also included in the shareholders index of company.

The ratio analysis is the most important tool to analysis the financial performance of Wellard Ltd. It establishes the relation between two financial factors of business (Wellard Ltd, 2015). 

Calculation of ROA and ROE

Wellard Ltd

Particulars (Amount in Million

2014

2015

2016

2017

AUD$

AUD$

AUD$

EBIT

0

0

22

65

Interest

0

0

15

11

Net profit

0

0

-23

-75

Total Assets

0

485

479

361.00

Total Liabilities

0

361

290

230

Shareholders' Equity

0

              361

479

361.00

Computation of Return on assets

1.        Rate of Return on Assets

2014

2015

2016

2017

A.      Net income

0

0

-23

-75

B.      Total assets

0

485

479

361

          (A/B)

0.00%

0%

-5%

-21%

After evaluating the annual report of Wellard Ltd, it is considered that company has negative return on its assets. However, in 2015, company had zero return on its assets which kept shareholders value stable. After that in 2015, 2016 and 2017 company had to face high loss in its business which decreases the overall return on equity of company. It is the negative indicators for the business of organization.

Computation of Return on equity

2.       Rate of Return on Equity

2014

2015

2016

2017

A. Net income available to equity shareholders.

0

0

-23

-75

B. Shareholder’s Equity

0

         17,981

479

361.00

(A/B)

0.00%

0.00%

-4.80%

-20.78%

It is evaluated that rate of return of Wellard Ltd is negative. It is observed that in 2014 and 2015 company had zero return on its assets which kept shareholders value stable. After that in 2015, 2016 and 2017 company increased its overall profit. However, loss in the business of Wellard Ltd has decreased the value of the capital investment of equity shareholders (Brigham and Ehrhardt, 2013).

Computation of Debt to equity

3.    Debt Ratio

2014

2015

2016

2017

A.  Total Liabilities

0

361

290

230

B.      Total assets

0

485

479

361.00

(A/B)

0

74%

61%

64%

It is observed that debt to equity of company was 0 in 2014. After that it increased its debt ratio to 74% in 2014. After that, company has decreased the debt portion in its business. Eventually, it will increase the overall cost of capital of company (Zhu, 2014). 

ROA and ROE Calculation

This equation is done with a view to satisfy both sides of formula. 

Providing equation

2014

2015

2016

2017

Net profit After tax/OE

0

0

-0.048

-0.2078

EBIT/TA*NPAT/EBIT*TA/OE

0

0

-0.048

-0.2078

 (Please see the excel sheet for the proper calculation)

This equation hence proofed and all the data is true and fair. .

Comparison of share price movement of Wellard Limited (WLD.AX) with the all ordinary index

It is evaluated that Wellard Limited (WLD.AX) has high share price fluctuation. It is observed that all ordinary index movement since last two years is very high. However, Wellard Limited (WLD.AX) has decreased its share price value since last two years. It is analysed that in 2017 the share price of Wellard Limited (WLD.AX) has increased. The share price of all ordinary indexes has shown good performance (Wellard Limited (WLD.AX), 2017).

In 2015, 2016 and 2017 Wellard Limited (WLD.AX) has increased its business efficiency. However, the business has destructed the value of the business.

Wellard Limited (WLD.AX) has loss in its business which will decrease the value of its business and reduced the share price movement (Mayer Holdings Company, 2017).

Stock information and Beta valuation

Regression Statistics

Multiple R

0.010941083

R Square

0.000119707

Adjusted R Square

-0.04749364

Standard Error

0.024612173

Observations

23

ANOVA

df

SS

MS

F

Significance F

Regression

1

1.52297E-06

1.5E-06

0.00251

0.960483618

Residual

21

0.012720941

0.00061

Total

22

0.012722464

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.009692709

0.005264463

1.841158

0.079771

-0.001255342

0.020640761

-0.001255342

0.020640761

X Variable 1

0.001390421

0.027730031

0.050141

0.960484

-0.056277336

0.059058178

-0.056277336

0.059058178

The beta value of company is .00139. It reflects that the share value of company will fluctuate by .00139 if the share value of the all ordinary index changes by 1. 

E(R) =

E(R) = Expected rate of return

 = Risk free rate of return

β = Beta

= Market Risk Premium (Zhu, 2014).

Calculation of Required rate of return

Risk free rate (A)

4%

Beta (B)

0.001390421

Market Risk premium (C)

6%

Required rate of return [A+(B*C)]

4.01%

 (Please see the excel)

The required rate of return of company is -45 It is negative as the beta of company is highly negative (Wellard Ltd, 2017).

It is observed that return on capital employed of company is negative. Company has faced high loss in its business. It has analysed that company needs to diversify its business in order to create value in its business functioning. By evaluating the annual turnover and sales of company, it could be inferred that company has decreased the value of its investment.

Cost of equity (calculated through CAPM) = -45.16%

Cost of Debt = 0%

WACC = Cost of debt (interest rate after tax) + cost of equity

WACC

Capital Amount

Cost of capital

% of portion

WACC

Equity

361.00

4.01%

0.6108291

2.4%

Debt

230

3.35%

0.3891709

1.3%

Total capital

591

WACC

3.8%

The debt costing is based on the interest payment and deduction of tax rate form the same (Wellard Ltd, 2016).

Wellard Ltd is having very low weighted average cost of capital. It is observed that weighted average cost of capital is the overall cost of capital computed on the basis of proportionate value of the investment in the business. In Wellard Ltd, WACC is 3.8%. The lower WACC helps company to accept the projects in easy manner. It also helps in increasing the overall return on capital employed. However, if company has higher WACC then it will have to restrict its investment and only has to opt for the projects which give higher return on investment. Wellard Ltd could accept each and every project which gives return more than 3.8%. 

Debt to Equity

It is evaluated that company has financial leverage and faced high amount of losses in its business. It may decrease the overall value of the company.

Computation of Debt to equity

3.    Debt Ratio

2014

2015

2016

2017

A.  Total Liabilities

0

361

290

230

B.      Total assets

0

485

479

361.00

(A/B)

0

74%

61%

64%

It is observed that debt to equity of company was 0 in 2014. After that it increased its debt ratio to 74% in 2014. After that, company has decreased the debt portion in its business. Eventually, it will increase the overall cost of capital of company. It has shown that company has to find the maintain its debt to equity ratio 70:30 i.e. debt portion of company should be 70% and equity portion of company should be 30%.

The gearing ratio reflects ability of the company to cover its interest payment. It is observed that in 2014 and 2015, company had kept zero interest payment. After that, company had increased its gearing ratio to 68%. It reflects that company had increased its profit. It is evaluated that company needs to increase its profit otherwise it will have to face high financial leverage in its business (Wellard Ltd, 2014)

Gearing Ratio

2014

2015

2016

2017

Gearing Ratio

0

0

68%

17%

Wellard Ltd has been paying zero dividend payment to its equity shareholders. It is observed that company has been facing loss in its business. Company has been following profit based dividend policy. It reflects that company will pay dividend to its shareholders only when it has profit in its business.  It is evaluated that dividend policy is accompanied with the guidelines or rules which will be followed by companies to distribute dividend to shareholders. This dividend policy is the most important factors for the success of organization. Wellard Ltd has not distributed dividend to its shareholders which reflects that it has no profit in its business or plugged back all of its profit in its business.

After evaluating all the details and case study of the Wellard Ltd, it is observed that since last five years, the performance of Wellard Ltd is not good. In addition to this, in 2017, company has increased its investment in its business operation but its profit has not been increasing throughout the time. It is advised to investors that they should not take this Wellard Ltd Company in its portfolio. It is observed that including this company in the investment portfolio will surely destruct the value of the investment capital of clients. It is advised that investors should not include this company in their investment portfolio. However, investors might think to include this company for long run to increase the overall return. Wellard Ltd is increasing its overall return by increasing the investment in its operating assets. It may result to increase in its operating profit in the future (Brigham, and Ehrhardt, 2013). Therefore, in the end, it could be recommended that shareholders should not invest their capital in Wellard Ltd otherwise they would have loss in their capital investment.

Conclusion 

There are several financial tools which have been used in this report such as ratio analysis, share price movement analysis and bottom up analysis. Wellard Ltd has reflected poor performance. It has zero profitability. Company has damaged its overall return on capital employed. Investors should not take this company in its portfolio otherwise they would have to face high amount of loss in their business. In addition to this, investors could invest their money in long run. Now in the end, it could be inferred that this company has effective business but suffering from losses throughout the time which showcases that investors should not invest their capital in Wellard ltd. 

References 

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson

Wellard Ltd, 2015, annual report, Retrieved on 29th November, 2017 from https://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual%20Report.pdf

Wellard Ltd, 2016, annual report, Retrieved on 29th November, 2017 from https://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual%20Report.pdf

Wellard Ltd, 2017, annual report, Retrieved on 29th November, 2017 from https://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual%20Report.pdf

Wellard Ltd, annual report, Retrieved on 29th November, 2017 from https://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual%20Report.pdf

Yahoo finance, 2018 retrieved on 19h January from https://in.finance.yahoo.com/

Zhu, J., 2014. Quantitative models for performance evaluation and benchmarking: data envelopment analysis with spreadsheets (Vol. 213). Springer

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