Ratio Analysis Electric Products and Services

Question: Discuss about the Ratio Analysis for Electric Products and Services. Answer: Introduction to the company AGL Energy Limited: AGL energy limited is an Australian company providing electric products and services to the economy. This company involves in providing energy products for the use in commercial and residential purpose. Electricity is generated from the power stations that are used by wind power, thermal power, and coal gas. This company is operating its business activities since 1837. It has diversified its products into electric power in various locations. It was well placed in the market to succeed in this market in the changing environment given its large customer base, intimate knowledge of customers needs, its brand, highly motivated and committed employees. AGL energy was established to embrace major changes to transforming the industry and to create new business models to meet customer needs. It focuses on safety and customer service. Genesis Energy Limited This company is earlier known as Genesis power limited. It is a public company in natural gas, electricity, and LPG retail sector. Genesis energy started its business on 1 April 1999 in New Zealand. In New Zealand, this company is the largest natural gas and electricity Retail Company with 42% and 26% market share. The company supplies 19 percent electricity in New Zealand from its renewable power stations and thermals (NZX, 2016). This company decided to change its name from Genesis power limited to Genesis energy limited in September 2013. This company was listed under public company in New Zealands NZDX market on 24 December 2008 and on 17 April 2014 listed in NZSX with an ordinary share name of GNE. Ratio analysis Ratio analysis is a process to evaluate the companys financial and operating performance such as profitability, liquidity, capital structure, and market performance (Elbashir et al, 2011). Different ratios of AGL Energy Limited and Genesis Energy Limited are calculated as below: Components of analysis Ratios Formulas AGL Energy Limited 2014 2015 Profitability analysis Return on assets (EBIT/Average Assets)*100 (1004/13750)*100 = 7.3 % (1126/14983.5)*100 = 7.51 % Net profit margin (Net profit/sales revenue)*100 (570/10445)*100 = 5.45 % (630/10678)*100 = 5.89 % Liquidity analysis Current ratio Current assets/Current liabilities 3411/2166 = 1.57 3459/2373 = 1.45 Quick ratio (Current assets-Inventory)/Current liabilities (3411-54)/2166 = 1.54 (3459-62)/2373 = 1.43 Capital structure Debt to equity ratio (Total Liabilities/Total Equity)*100 (6546/7588)*100 = 86 % (7018/8815)*100 = 79.61 % Equity ratio (Total Equity/Total assets)*100 (7588/14134)*100 = 53.68 % (8815/15833)*100 = 55.67 % Market performance Earnings per share 96.90% 96.40% Dividend per share 63 % 64% From the above table, it is determined that the return on assets and net profit margin is increased in financial year 2015. It means that, the profitability of the company is increased in financial year 2015 in comparison of 2014. Furthermore, current ratio and quick ratios of the company in 2015 are decreased that determines that the ability to pay off its current liabilities with current assets and the ability to achieve short term obligations with liquid assets are declined. Therefore, the company should take appropriate action against these ratios to raise the cash with adequate liquidity. Moreover, debt to equity ratio of the company is decreased that implies that the business of the company is financially become more stable. Equity ratio is also increased that shows the potentials of investors is increased in the company. The increased potential of creditors presents that the company have less financial risk (Haiza and Hoque, 2010). In other words, the capital structure of the company is increased that show the company is not at risky stage and more stable in compare of previous year. Earnings per share of the company are decreased by .50% that shows the negativity of the company in prospect of low profitability. It indicates that the company should take more attention to make higher earning on per share earnings to increase the market performance. On the other hand, dividend per share of AGL energy limited increased in financial year 2015. It means the company is sharing its profits among its shareholders as increased dividend which will attract more investors to invest in the company. Ratio calculations for Genesis Energy Limited: Components of analysis Ratios Formulas Genesis Energy Limited 2014 2015 Profitability analysis Return on assets (EBIT/Average Assets)*100 (134/1993)*100 = 6.72 % (201/7157)*100= 2.80% Net profit margin (Net profit/sales revenue)*100 (49.2/2005)*100 = 2.45 % (104/2097.6)*100 = 4.95 % Liquidity analysis Current ratio Current assets/Current liabilities 357/246 = 1.45% 346/309 = 1.11% Quick ratio (Current assets-Inventory)/Current liabilities (357-93)/246= 1.07% (346-80)= 0.86% Capital structure Debt to equity ratio (Total Liabilities/Total Equity)*100 (1748.2/1880)*100= 92.9% (1702.6/1825)*100= 93.2% Equity ratio (Total Equity/Total assets)*100 (1880/3629)*100= 51.80% (1825/3528)*100= 51.72% Market performance Earnings per share 4.92% 10.49% Dividend per share 66% 80% From the above table, Profitability analysis can be done of Return on Assets and net profit margin is analyzed as how company measures ROA and earns its investment on return. By this it can be seen that how company could convert money that is used for purchasing assets into operating income or profits. However, every kind of assets is funded by the equity, or debt, with the investors for acquiring the assets. It shows that high ratio is favorable for the company. It manages effectively companys assets to maximize the net income of the company (Arroyo, 2012). As the Genesis Company ROA 2014 is more than 2015 ROA. A Positive ROA indicates the upper profit trend for the company. Further, Liquidity analysis consists of current ratio and quick ratio. By this, ratio is analysed of the company. 2014 current ratio is more than 2015 current ratio. And quick ratio of 2014 is more than the 2015 quick ratio. 2015 quick ratio and current ratio is on decrease and it determines that the ability of paying off its liabilities with current assets is declined (Culasso et al.,2016) . Therefore, company should take certain actions to raise its cash with adequate liquidity. Moreover, debt to equity of the company is decreased and it implies the business of the company is more stable as it has a maximum profit. Equity ratio of the company is increased and it shows investors increment in the company. Overall, capital structure of the company is not at declining stage (Dey,2016). It has less risk. Again, the market performance of the company includes EPS and DPS these both are at increasing rate as comparison from the previous year. It means the company is sharing its profit in the market at increasing rate (DRURY, 2013). This positivity can attract more investors to invest in the company. Comparison of qualitative analysis between AGL energy limited and Genesis energy limited: Profitability analysis: Profitability analysis is a measure of profitability which shows the performance of a company in a specified time period (Li et al, 2012). From the above tables it is analyzed that the profitability of AGL energy limited is more increased in compare of Genesis energy limited. Because, the return on assets and net profit margin of AGL is 7.51% and 5.89% in compare of Genesiss return on assets and net profit margin. Above tables also determines that the performance of AGL Company is good in compare of Genesis Company. Assets efficiency: Assets efficiency or assets turnover ratio is measured as the ability of the company to generate sales and revenue relatively the value of the companys assets (Wells, 2011). From the above tables it is analyzed that AGL energy limited has more efficiencies to use its assets in generating sales and revenues because this company is more stable and generating more revenues in compare of Genesis energy limited. Liquidity analysis: In finance the term liquidity refers to the ability of a company to meet its short-term financial obligations (Chaim et al, 2012). The liquidity ratios are used to measure the ability of a company to pay its debts in specified time period. The above tables determine that the current ratio of AGL energy is 1.45% and quick ratio is 1.43% in financial year 2015. As well as, in financial year 2014 current ratio is 1.57% and quick ratio is 1.54%. On the other hand, current ratio of Genesis energy is 1.11% and quick ratio is 0.86 in financial year 2015. As well as, in financial year 2014 current ratio is 1.45% and quick ratio is 1.07%. Therefore, it is analyzed that AGL energy limited company has more efficiencies to pay its current liabilities with its current assets. In other words, AGL energy limited is much able to meet its short term obligations through its most current assets in compare of Genesis energy limited. Capital structure: Capital structure of a company relatively is a proportion of preferred stocks, common stock, and debts of business capital. Capital structure is also known as a statement in which a finances its assets (Sugiyama et al, 2012). The analysis of capital structure provides the understanding of risk level in a business. In this context, to define capital structure of a company debt to equity ratio and equity ratio is used. Debt to equity ratio compares total debts to total equity. Higher debt to equity ratio presents that more financiers are used as a creditor than investors finance. On the other hand equity ratio is the amount of assets that is used by the owner in comparison of total assets. A higher equity ratio presents the high stability of the company. Form the above tables, it is analyzed that AGL energy is more stable in comparison of previous year and also in comparison of Genesis energy. Because, the debt equity ratio of Genesis is 93.2% and debt to equity ratio of AGL energy is 79.61%. It implies the possibility of risks in Genesis energy is more than AGL energy. So, the business of AGL energy is more stable than Genesis energy. On the other hand, equity ratio of AGL energy is 55.67% and Genesis is 51.72% respectively. It determines that the willingness of investors in AGL energy is higher than Genesis energy. The higher equity ratio implies that the company is less risky to lend future loans and more sustainable. Recommendations From the above analysis it is recommended to the investors that the AGL energy limited is more appropriate for investment. It is because the company is much capable to generate revenues from its assets in compare Genesis energy limited. Moreover, this company is also giving more dividends to its stockholders with stable business. Debt to equity ratio and equity ratio also presents that AGL energy limited is a good company for investment. Conclusion In accordance with the above discussion, it can be concluded that these companies main motive is providing customer services. 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