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Innovative Microbiology Automation Products

Discuss about the Journal Of Accounting And Economics.

LBT Innovations Ltd enhances the outcome of patients by creating more effective healthcare. LBT Innovations Ltd is based on Adelaide, provides high class leading microbiology automation products (Lbtinnovations.com 2018). Over the last decade the company has turned out to be the major path breaking designer in the areas of advanced automated solutions relating to the preparation and analysis of microbiology culture specimens, with significant amount of benefits to the busy clinical laboratories.

The very first technology of LBT Innovations Ltd was the culture plate streaking that was named as Micro Streak, was invented by the company’s Scientific Director named John Glasson during the year 2009 (Lbtinnovations.com 2018). During the year 2009 the Micro Streak was exclusively licenced to one of the leading French diagnostics organization named Merieux SA that marketed the innovations of Micro Streak till 2015. Presently the company is involved in the process of re-engineering the Micro Steak for new age of automation with large number of major diagnostics organizations have expressed their interest in partnering with the LBT Innovations Ltd.

The company markets its products across Australia and also partners with Zurich based Hettich AG Switzerland for commercially manufacturing the first plate rendering tool. The LBT Innovations Ltd constantly explores the intelligent imaging software further than the conventional microbiology. LBT Innovations Ltd in partnership with world class computer scientist at Adelaide University have created a conceptual model for devices that are hand held and records the development of the long-term enduring injuries to help nurses and clinicians that are engaged in their treatment (Lbtinnovations.com 2018). The company is nicely positioned to introduce the wide reaching solutions amid the worlds rising pathology requirements since the company is expanding from laboratory processes to the computer oriented vision and analysis.

The names of the substantial shareholders of the LBT Innovations Ltd in the listed register of the company as on 18th September 2017 stood  

Name

Total number of shares held

Total percentage of share held of issued capital (%)

Bio Merieux SA

9,772,727

6.89%

Mr Brendan Moran

7,724,407

5.44%

Total

17,497,134

12.33%


As evident from the above stated shareholdings it can be stated that there is no shareholdings of higher than 20% in LBT Innovations Ltd however shareholders register of the company on 18th September reflected two substantial shareholders that have greater than 5% of the total substantial shareholdings (Lbtinnovations.com 2018). This includes Bio Merieux SA with total number of ordinary shares of 7,772,727 that approximately constituted 6.89% of the shares that is held from the issued capital. While Mr Brendan Moran held 7,724,407 shares that approximately sums up 12.33% of the total issued share capital. Based on the information of the substantial shareholdings it can be stated that the company is a non-family company there is no such substantial shareholdings of greater than 20%.

The LBT Innovations Ltd board and senior management consists of the leaders that posses high level of expertise in the areas of pharmaceutical, healthcare, technologies, legal and financial sector. The board expertise in the areas of strategic management, corporation law and fundraising is entirely complemented by the familiarity of the hospital and clinical laboratory operations (Lbtinnovations.com 2018).

Name

Interest in Shares

Interest In Options

Catherine Mary Costello

1,290,272 ordinary shares

161,290

Robert Andrew Finder

807,692 ordinary shares

161,290

Brenton Barnes

Nil

1,500,000 ESOP

Lusia Halina Guthrie

148,149

Nil

Stephan Paul Mathwin

519,230 ordinary shares

64,516

Caroline Popper

200,000


As evident from the above stated table none of the shareholders have any substantial shareholding of greater than 20% of the share capital (Lbtinnovations.com 2018). Additionally the holdings of the above stated board members are below 5% of the share capital that are involved in the corporate governance of LBT Innovations Ltd.

Liquidity Ratios:

     

Particulars`

2017

2016

Current Assets

A

10220.0

6538.0

Current Liabilities

B

4194.0

1965.0

Inventory

C

0.0

0.0

Prepayments & Other Assets

D

0.0

0.0

Cash & Cash equivalents

E

3498.0

4682.0

Current Ratio

F=A/B

2.44

3.33

Quick Ratio

G=(A-C-D)/B

2.44

3.33

Cash Ratio

H=E/B

0.83

2.38

Financial Leverage Ratio:

     

Particulars`

2017

2016

Total Assets

A

30470.0

29445.0

Total Equity

B

21393.0

19190.0

Total Liabilities

C

9077.0

10255.0

Debt-to-Equity Ratio

D=C/B

0.42

0.53

Debt Ratio

E=C/A

0.30

0.35

Equity Ratio

F=B/A

0.70

0.65

Efficiency Ratio:

     

Particulars`

2017

2016

$m

$m

Total Assets

A

30470.0

29445.0

Fixed Assets

B

20250.0

22907.0

Revenue

C

5923.0

7726.0

Trade & Other Receivables

D

2365.0

525.0

Total Asset Turnover Ratio

E=C/A

0.19

0.26

Fixed Asset Turnover Ratio

F=C/B

0.29

0.34

Receivables Turnover Ratio

G=C/D

0.40

0.07

Profitability Ratios:

     

Particulars`

2017

2016

Profit for the year

A

-5133.0

3577.0

Revenue

B

5923.0

7726.0

Total Assets

C

30470.0

29445.0

Total Equity

D

21393.0

19190.0

Net Profit Margin

E= A/B

-86.66%

46.30%

Return on Equity (ROE)

F=A/D

-23.99%

18.64%

Return on Assets

G=A/C

-16.85%

12.15%

Market Value Ratio:

     

Particulars`

2017

2016

Earning per Share

A

-0.040

0.031

Dividend per Share

B

0.00

0.00

Market Value per Share

C

0.32

0.2

Dividend Pay-out Ratio

D=B/A

0.00%

0.00%

Dividend Yield Rate

E=B/C

0.00%

0.00%

Price-to-Earning Ratio

F=C/A

-7.96

6.75

 

Figure 1: Figure representing share price movement

(Source: As Created by Author)

As evident from the above stated stock price movement a comparative analysis of the LBT Innovations Ltd stock price has been carried out to measure the performance against the all order index (Tricker and Tricker 2015). Gauging into the stock price movement for LBT Innovations Ltd it can be stated the movement in share prices has been moderate throughout the 2016 except on certain occasions where the stock price have declined negatively.

Instances from the stock price movement suggest that during the month of April in 2016 the stock price declined negatively to stand at -16.67% while in June the stock price scaled heights to stand positively at 44.83% (McCahery, Sautner and Starks 2016). Though in the later months the stock price of LBT Innovations Ltd stood as low as 2.70% whereas in the month of September the stock price attained peak to stand positively at 171.05% (Au.finance.yahoo.com 2018). In the later year of 2017, LBT Innovations Ltd hardly reported any significant movement in the stock price as the share prices of the LBT Innovations Ltd remain consistent with the all ordinaries index.

The company reported less fluctuations in the share prices except in the penultimate month of November 2017 where the LBT Innovations Ltd share prices dipped to stand -27.45% (Aguilera, Judge and Terjesen 2018). As understood from the graphical representation of LBT Innovations Ltd an assertion can be bought forward by stating that the company has reported lower instances of fluctuations in the share prices against the all ordinaries index with share prices of LBT Innovations Ltd relatively stable (Editorial 2018). Opposing to the higher stock price movements in 2016 the stock price for LBT Innovations Ltd has represented a nature of stability in yielding returns to its shareholders.

Shareholder Insights

The shares of the medical device LBT Innovations Ltd over the last two years have been a great mover. The “industry wide factor” include the company’s joint venture with the Switzerland based Hettich AG. This eventually resulted the share prices of LBT Innovations Ltd to scale heights by as high as 89% to 36 cents, prior to declining back to 31 cents (Armstrong et al. 2015). The company has also formed joint venture with the Clever Culture System AG that aims to introduce the APES into the market in the form of automated separate plate that would be followed by the integrated incubator.

This includes “macroeconomic” factors such as government grants of $4 million funding from South Australian Government has contributed to the up-ward rising trend in share prices of LBT Innovations Ltd (Scott 2015).

Another factor that were responsible for the upward rising share prices is the “changes in the company focus” as LBT Innovations Ltd announced its Automated Plant Assessment System has been finally granted approval by the US food and drug administration for being authorized as the class II medical device (Schaltegger and Burritt 2017).

As per the media release of APES it is regarded as the ground-breaking artificial intelligence based technology that contributed to the automated imagination, interpretation of analysis and significant growth in the microbiology cultural plates after the completion of the incubation process (Macve 2015). While it can be considered as the bigger step forward for the LBT Innovations Ltd. The higher share prices would not make the investors in making an investment in the shares of LBT Innovations Ltd given the share prices are currently scaling heights.

LBT Innovations Ltd has successful operational model with relatively higher net profit margins and asset turnover that have contributed to the rise in the share price of the company (Warren and Jones 2018). In comparison with the LBT Innovations Ltd “Competitors” the company has though reported yearly revenues and earnings at the slower rates, which implies that there are still the need for strategic focus. LBT Innovations Ltd return on current assets over the period of two years have suggest that the company has relatively higher operating returns (Au.finance.yahoo.com 2018).

The share prices though traded at the lower price book multiple of 0.81, during the first half of the year but the historical growth in the share prices have been positive for LBT Innovations Ltd (Williams 2014). Therefore the above stated factors have contributed to the share prices movements of the LBT Innovations Ltd.

Financial Ratios Analysis

The computed beta for LBT Innovations Ltd stood negatively at -1.11.

Particulars

Amount

Beta of the company

A

-1.11

Risk Free Rate

B

4%

Market Risk Premium

C

6%

Required Rate of Return

D=B+[AxC]

-2.66%


The risk free rate of the company stood 4% and the market risk premium standing at 6% the required rate of return for the LBT Innovations Ltd stood negatively at -2.66%.

The rationale behind the conservative investment in the shares of LBT Innovations Ltd is based on the required rate of return that is arrived at -2.66%. The required rate of return for the company stood negatively with the beta of the company at a relatively lower side to stand negatively at -1.11 (Hoyle, Schaefer and Doupnik 2015). The risk free rate for the company relatively stood 4% where as the market risk premium stood at 6%. An argument can be bought by stating that required rate for company forms the decisive factor in making an investment.

As evident from the computations there is a significantly differences in the required rate of return reported by the LBT Innovations Ltd. This may stand as the opposing factor for the investors that are looking forward to earn higher rate of return in the short run (Deegan 2013). The investors may choose to make a moderate investment in the shares of the LBT Innovations Ltd since the required rate of return for the company stands negatively. It is worth mentioning that the LBT Innovations Ltd has relatively lower amount of beta at -1.11 and the level of risk involved in making an investment in the shares of LBT Innovations Ltd is relatively low (Barker and Penman 2016).

Of late the shares prices of LBT Innovations Ltd has hardly represented any significant movement against the all ordinary index (Barberis et al. 2015). However, from the perspective of investors short term return from the shares of LBT Innovations Ltd may not be a viable options but in the long run the shares of LBT Innovations Ltd would yield returns for the investors.

Particulars

Amount

Weightage

Cost

Return Rate

Tax Rate

WACC

Total Long Term Debt

0

0.00%

0

0.00%

30.00%

0.00%

Total Equity

21393

100.00%

-2.66%

-2.66%

TOTAL

21393

100%

-2.66%

A higher weighted average cost of capital can be considered as the signal for higher risks that are associated with the operations of the company’s operations. Investors generally requires supplementary return to presume extra risks. An organizations weighted average cost of capital can be used as the tool of estimating the anticipated costs for the entire financing resources (Kuehn, Simutin and Wang, 2017). This comprises of the payment that is made on the obligations of debt or the cost of financing the debt and the required rate of return that is demanded by the management ownership or the cost of equity financing.

The weighted average cost of capital is regarded as the major considerations in the valuation of an organization loan application and for operational assessment (Jegadeesh et al. 2017). Companies usually look into the ways of lowering the weighted average of cost capital through economic sources of financing. The valued investors may express their concern if the company’s weighted average cost of capital is higher than the original return. This indicates the company may be losing value and there may be effective return available for the investors in the market.

The debt ratio for the company during the year 2016 stood 0.35. Whereas in the year 2017 the debt ratio marginally falls to 0.30. The director’s declaration states that the management of the LBT Innovations Ltd implements control on the capital so that they can make sure that the company can funds its functional operations and continue in the form of going concern (Zabarankin et al. 2014). The debt structure of the company includes ordinary share capital and the financial liabilities that is supported by the financial assets. LBT Innovations Ltd has no external capital requirements.

The management of LBT Innovations Ltd effectively manages the capital by determining the financial risks and adjusts its capital through management of debt and issue of shares. Based on the opinions of the directors from the director’s statement it is evidently clear that there is reasonable sense of grounds that the company would be able to pay its debts as and when they become due and payable (Fama and French 2017). There have been no changes in the debt and capital structure by the management to control the capital of LBT Innovations Ltd. 

No form of dividends was paid by the company, nor has LBT Innovations Ltd made any recommendations to pay the dividend for the financial year ended 30 June 2017.

To XYZ

Adelaide, South Australia

Respected Sir,

I would like to draw your kind attention in response to the analysis that has been performed above for LBT Innovations Ltd is to provide valuable recommendations relating to considering the company as a prospect for investment to derive future yields. The share prices of the LBT Innovations Ltd trades at lower price to book multiple of 0.81 while its market peer median stands 1.36. The EBITDA along with the earnings of LBT Innovations Ltd both stands negatively that suggest that the price to earnings are not meaningful in assessing the operating advantage of the growth anticipations.

Competitive Landscape

The company has though higher net profit and asset returns with successful model of operations. In comparison to LBT Innovations Ltd peers the yearly revenue and the earnings at a lower rate however with recent government funding the focus of the company has strengthened in the areas of Micro Streak. The company has lessor amount of debt and growth prospect of the investors can be considered to be rising.

Though the company has not paid dividend in recent years but there with expanding base of technological advancement made in the areas of Micro Streak may enable the company in the upcoming financial year to declare dividend any time soon. The stock price of LBT Innovations Ltd have reflected a moderate movement against the all ordinaries index. Therefore, the company can be considered in the watch list from the investor’s point of view.

Hope that the above stated recommendations would help in making wise investment decisions.

Thank You

Angel Investors

Reference List:

Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance deviance. Academy of Management Review, 43(1), pp.87-109.

Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.

Au.finance.yahoo.com. (2018). ^AORD Historical prices | ALL ORDINARIES Stock - Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/%5EAORD/history?p=^AORD [Accessed 9 May 2018].

Au.finance.yahoo.com. (2018). LBT.AX Historical prices | LABTECH FPO Stock - Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/LBT.AX/history?period1=1448908200&period2=1519756200&interval=1mo&filter=history&frequency=1mo [Accessed 9 May 2018].

Barberis, N., Greenwood, R., Jin, L. and Shleifer, A., 2015. X-CAPM: An extrapolative capital asset pricing model. Journal of financial economics, 115(1), pp.1-24.

Barker, R. and Penman, S., 2016. Moving the conceptual framework forward: Accounting for uncertainty. Unpublished paper, Oxford University and Columbia University.

Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N. and Wong, L., 2015. Financial Accounting: Reporting, Analysis and Decision Making. John Wiley and Sons Australia.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Editorial, R. (2018). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/overview/LBT.AX [Accessed 9 May 2018].

Fama, E.F. and French, K.R., 2017. International tests of a five-factor asset pricing model. Journal of financial Economics, 123(3), pp.441-463.

Hoitash, R., Hoitash, U. and Yezegel, A., 2017. The Effect of Accounting Reporting Complexity on Financial Analysts.

Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.

Jegadeesh, N., Noh, J., Pukthuanthong, K., Roll, R. and Wang, J.L., 2017. Empirical tests of asset pricing models with individual assets: Resolving the errors-in-variables bias in risk premium estimation.

KUEHN, L.A., Simutin, M. and Wang, J.J., 2017. A labor capital asset pricing model. The Journal of Finance, 72(5), pp.2131-2178.

Lbtinnovations.com. (2018). Company Overview | LBT Innovations. [online] Available at: https://www.lbtinnovations.com/about-us/company-overview/ [Accessed 9 May 2018].

Lbtinnovations.com. (2018). LBT Board | LBT Innovations. [online] Available at: https://www.lbtinnovations.com/about-us/board/ [Accessed 9 May 2018].

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.

Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.

Zabarankin, M., Pavlikov, K. and Uryasev, S., 2014. Capital asset pricing model (CAPM) with drawdown measure. European Journal of Operational Research, 234(2), pp.508-517.

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