Ratio Analysis AGL and Genesis Energy Ltd

Question: Discuss about the Ratio Analysis for AGL and Genesis Energy Ltd. Answer: Introduction AGL is one of the leading integrated energy companies in Australia. It is one of the companies which do not simply concentrate on profit making. It has been seen over the years that the company has addressed its responsibility towards the society and the environment. AGL has been in the business since 175 years which makes it one of the most experienced and diversified integrated energy companies in Australia. AGL has got its business spread over eastern part of Australia. (AGL, 2015) Genesis Energy Limited is one of the leading companies in New Zealand. The company has vast customer experience. The interest of the company mainly lies in the Kupe Oil and gas fields. They also generate trade electricity, natural gas through their Energy management company. Now the company is one of the leading electricity and gas retailers providing there two retails product which are Genesis Energy and Energy online to more than 650000 customers. (Genesis Energy Limited, 2015) An initial analysis of trends in the items contained in the profit and loss statements, balance sheets and statements of cash flows and relevant ratios AGL Ltd. On analysing the trends in the items contained in Profit and Loss statement of AGL Ltd. many conclusions can be drawn. Starting with the revenue, it can be seen that the revenue has risen for the current year 2.23% which is good. As the revenue even the expenses has risen by 6.5%. By looking at the depreciation and amortisation cost it can be seen that the cost has risen which is because of companys investment in the fixed assets. However even the finance cost of the company has gone up by $7 million as compared to the last year whereas the finance income has fallen by $4 million. As a result, the companys profit before tax has fallen by $423 million i.e. nearly 56% and the profit after tax has fallen by $352 million i.e. appx. 62% which is not so pleasant result for the company. Even though the revenue rose by 2.23% by the expenses off set the benefit and brought the net profit down. (Accounting for management, n.d.) Further moving to Balance Sheet, Looking at the liquid position of the company it can be concluded that the company is at a fair position. The balance shown as cash and cash equivalent has fallen down by around 43%. At the same time current liabilities have risen because of sharp rise in the borrowings made the company which explains the rise in the finance cost of the company. Fixed assets analysis shows that company has made investment in Oil and gas assets and Property plant and equipment. The company is showing positive cash flow from operating activities, investing activities shows negative cash flow. The cash outflow has risen by almost 182 % because of huge investments made by the company in fixed assets in the current year. Overall the company cash flow statement is not as good as last year since it has fallen by almost 44%. Genesis Energy Ltd. Starting with Profit and Loss statement it can be seen that the companys operating revenue has risen by around 5%. Though the companys operating expense ratio has fallen by 1%. There is fall in the companys depreciation, depletion charges. However there is some favourable change in the fair value in the investment which is why the companys net profit has increased by 113%. Rise in net profit boosts the companys earnings per share which is why the companys earnings per share rose by 113%. In Balance sheet of the company current assets classification includes cash and cash equivalent which has decreased along with debtors and inventory which is why total current assets have fallen down. Fall in fixed assets explains that the company must have sold its property, plant equipment and its oil and gas assets. Consequently total assets of the company have fallen down by $101 million. Analysis of current liabilities shows that the company has made short term borrowing and paid off a part of their long term borrowing which is significant change since last year. Overall even the total liabilities have fallen by $46 million. In cash flow statement, cash flow from operating and investing activities shows positive change. Though finance activities have risen by 24% which have impacted the cash flow statement as a whole. Overall the cash and cash equivalents have lowered by 10% as compared to last year. (Accounting for management, n.d.) Ratio Analysis and Comparisons AGL Ltd. The managements performance can be measured using variety of profitability ratio. If the companys financial position is compared with its past year performance, it can be said that current year company has not fared really well. Net Profit ratio measures the overall performance of the company which has fallen in 2015 as it stands 2% as compared to 5% in 2014. (AGL, 2014) The competency of the company in deploying its assets is evident by Return on assets ratio. Presently the company ratio is 1% which has fallen by 3% as compared to last years ratio which was 4%. The current ratio helps in judging the companys liquidity. Current has changed adversely, being 7% down. Quick ratio is more conservative approach to current ratio. The quick ratio has fallen by 6%. There is a favourable change in debt to equity ratio since the ratio stands at 33% in 2015 which was 46% in 2014. Equity ratio, if higher, is always favourable. The equity ratio has risen since 2014 by 2%. Though EPS has fallen dr astically but company compensated by increasing the dividend by 1 cent per share. (AGL, 2015) Genesis Energy Ltd. Both the profitable ratios shows positive change return on assets rose to 3% as compare to 1% in 2014 whereas Net profit margin rose by approximately 3%. Though the Liquidity of the company has lowered since both current ratio and quick ratio has fallen by 23% and 19% respectively. Capital Structure has almost remained unchanged. While market structure has improved since EPS as well as dividend per share has improved as compared to past year.( Genesis Energy, 2015) Comparison of Ratios of the two Companies Profitability ratio of Genesis Energy definitely stands at better position as compared to AGL since current year the companys profit had risen due to favourable change in the fair value of its financial assets. AGL Ltd is more financially strong, since its liquid ratios are much better than its competitors. The capital structure of AGL ltd is better than its competitor since its debt to equity ratio is lower than Genesis which makes it less risky company. Also strong equity ratio is always preferred by the investors which gives AGL another brownie point. Though AGLs EPS is lower than that of Genesis yet the dividend per share offered is more than that of Genesis. EPS is merely depends on the net profit of the company it can be improved by improving the operations of the company. (My Accounting Course, n.d) Conclusion AGL limited is a well-diversified company as compared to Genesis Ltd. The company also stands financially strong when compared to its competitor. The capital structure of the AGL also indicates that it is less risky than its competitor. Though the company is experiencing lower phase as its net profit have fallen but in future it can be increased keeping in mind the future prospects of the company. Also the company has been generous in declaring the dividend in past years. Recommendation Thus it is preferable to invest in AGL Limited keeping in mind the future strategic plan and past performance and highlights of the company. 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