Acc515 Project Report For Masters Assessment Answers

Discuss your findings in the three cash flow analyses developed and make a recommendation to Mr Quinlivan as to whether to proceed with the ‘Buddy’ proposal. Discuss any other issues or items that you think will (or should) impact on his decision including the impact of spare production capacity at the proposed new factory

Answer:

Introduction:

Financial analysis on a business is one of the crucial and essential elements as this process helps the business to identify the overall position of the company. It also helps the business and its stakeholders to make various decisions. The main process of items of financial analysis process is ratio analysis, calculation of WACC, capital structure identification etc. Capital structure is a process which explains that how a business finances its growth and the operations through using various different funds sources. The main capital structure items are debt, equity, preference shares etc (Higgins, 2012). A business’s proportion of long and short term debt is recognized at the time of evaluating the capital structure.

On the other hand, WACC is the total weighted cost of a business which is required to pay by the business to the debt holders and shareholders of the company. Ratio analysis explains about the overall financial position and performance of the company (Gapenski & Reiter, 2008). In the report, AMP limited’s capital structure, cost of capital and ratio analysis has been studied to measure the overall performance of the company and reach over a conclusion.

Company overview:

AMP is a financial and banking service company in New Zealand and Australian market. It offers the investment products, superannuation, insurance, banking products and financial advice containing saving accounts and home loans (Home, 2018). AMP has been formed in 1849. The company also offers various services to its clients related to the financial and wealth management services.

Capital structure:

Capital structure of the company has been identified and it has been measured that the company has mainly raised the funds through borrowings and equity. The debt and equity ratio of the company is 13%:87%. It explains that the equity position of the company is quite higher and it is suggested to the company to reduce the equity level and improve the debt level to manage the leverage position of the company and it would also help the company to reduce the taxation level.

The capital structure of the business has been compared with the competitor, ANZ bank and it has been found that the company is required to manage optimal capital structure to improve the market position and manage the cost. The last 3 year capital structure of the business explains that the company has improved the debt capital from last 2 years. 

WACC:

WACC position of the business has been evaluated further and it has been found that the cost of debt and cost of equity of the business are 3.85% and 11.42% respectively. The cost of equity explains that the business is offering only 3.85% to its shareholders who are quite lower and it is suggested to the business to improve the level. It explains that the overall WACC of the business is 10.41% which is quite higher and it is suggested to the company to control on it through improving the debt proportion in capital structure (Fridson & Alvarez, 2011).

Ratio analysis:

The ratio analysis study explains that the overall profitability position of the company is quite better. However, the business is required to reduce the liquidity level. It would help the business to maintain the extra cost. The capital structure position of the business is not optimal. In addition, the earnings of the company are quite higher which attracts the customers to invest more in the company.

Material risk:

Annual report (2017) of the business explains that the material risk has been categorized by the business in 7 categories to ensure that each risk is identified separately and a better policy could be prepared for the business to save it from any risk. The stated 7 risk of the business are strategic risk, credit risk, market risk, insurance risk, liquidity risk, operational risk and concentration risk. All of this risk plays a crucial role in the business.

Few changes into any of them could affect the internal as well as external position of the business. It has been identified that each of this risk could impact the stock price of the business as well (Annual report, 2018). If the strategic risk is concerned, the affect of strategy could affect the market and internal position of the business due to which the investors would lose their interest in the stock price of the company which would lead to the lower stock price of the company.

During the Financial Services Royal Commission, the company has apologized to the customers and other stakeholders of the company and has agreed that due to their faults, the stakeholders of the business have to face few losses. The business has told that they have made few changes into the governance, controls and policies to improve the performance and build a strong connection in the market. The business has also paid the compensation to the related parties and stakeholders who have helped the business to strengthen the relationship in industry and within the stakeholders (News, 2018).

The business has clearly accepted the mistakes and sincerely apologized for that along with the compensation to the affected parties that ultimately helped the business to manage the strong position in the industry and build a strong network in the market. The overall changes done by the management and the top level executives of the company are commendable and it has helped the business to grow rapidly and manage the stock prices in the market (Rabin, 2013).

Through evaluating the financial and non financial performance of AMP, it has been recognized that the company was facing strategic risk, operational risk and the marketing risk due to which the financial performance of the business has also been affected a bit at the end of the year 2017. The business has made few changes to reduce the level of these risks. Such as, the company has improved the debt level from last years to reduce the strategic and marketing risk of the business (annual report, 2018). The overall wealth of the business has also been improved by the business through making various changes into its policies and the operations.

Conclusion:

To conclude, currently business is facing little risk which includes strategic risk, operational risk and market risk of the business. The company has planned few changes and implemented some of them to reduce the threat of these risks and improve the overall performance of the business.

References:

Annual Report. (2018). AMP Limited. [online]. Retrieved from: https://member.afraccess.com/media?id=CMN://2A1072055&filename=20180320/AMP_01963508.pdf 

Chandra, P. (2011). Financial management. Tata McGraw-Hill Education.

Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's guide (Vol. 597). John Wiley & Sons.

Gapenski, L. C., & Reiter, K. L. (2008). Healthcare finance: an introduction to accounting and financial management. Chicago, IL: Health Administration Press.

Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.

Home. (2018). AMP Limited. [online]. Retrieved from: https://www.amp.com.au/

News. (2018). AMP Limited. [online]. Retrieved from: https://www.amp.com.au/news/2018/may/AMP-and-the-Royal-Commission

Rabin, M. (2013). Risk aversion and expected-utility theory: A calibration theorem. In Handbook of the Fundamentals of Financial Decision Making: Part I (pp. 241-252).