Compare AGL And Genesis Energy Limited Essay

Question:

Discuss about the Compare AGL and Genesis Energy Limited.

Answer:

Introduction:

Investment depends on the company’s performance as every shareholder wants to have the better return on the investment. A company’s better liquidity represents that the company has better stability in paying of the current debts. An investor will always want to invest in a company that can be better stable in paying of the current liabilities so that it can pay off dividends to the investors. Market performance also determines the investor’s choice in investing in a company that can be better choice to provide return on their investment. In this assignment the comparison of two companies are done to provide for the better option to the investors.

Financial analysis of AGL Energy Limited and GENESIS Energy Limited:

Income statement analysis of AGL ENERGY LTD (AGLNF)

Fiscal year ends in June. AUD in millions except per share data.

2014

2015

Revenue

9543

10678

Cost of revenue

7227

7856

Gross profit

2316

2822

Operating expenses

Other operating expenses

1337

2255

Total operating expenses

1337

2255

Operating income

979

567

Interest Expense

243

250

Other income (expense)

24

20

Income before income taxes

760

337

Net income from continuing operations

570

218

Net income

570

218

Income statement analysis of GENESIS ENERGY LTD (1G6)

Fiscal year ends in June. NZD in millions except per share data.

2014

2015

Revenue

2002

2078

Cost of revenue

1339

1464

Gross profit

663

614

Operating expenses

Other operating expenses

526

460

Total operating expenses

526

460

Operating income

137

154

Interest Expense

69

68

Other income (expense)

4

54

Income before income taxes

72

140

Net income from continuing operations

49

105

Net income

49

105

The income statement of AGL ENERGY and GENESIS ENERGY depicts that the revenue generated by the company has increased in the year 2015 in comparison to the previous year and. In the words of (Ritala 2012) the cost of generating the revenue has also increased substantially indicating that the firm has increased its investment in the distribution and marketing of goods to enhance the quantity of goods sold. Here, the gross profit has of AGL has increased in the year 2015 although GENESIS has witnessed a decrease in the same. As observed by (??tef??nescu-Mih??il?? 2015) the net income has decreased this shows that the indirect expenses of the company were more in the year 2015 than the previous year and that of GENESIS has increased showing that the other expenses incurred were less. In the view of (Lew, Sinkovics and Kuivalainen, 2013) to meet the indirect expenses the gross profits of AGL ENERGY were used which in turn decreased the net income of the company.

In the given table it is also evident that operating income of AGL ENERGY has also decreased in the year 2015 indicting that the cost of goods sold was more in 2015 than it was in 2014. According to (Liu and Yermack 2012) the operating expense of the company increased leading to a decrease in the net income generated by the company. On the other hand, as observed by (Kihm, Satchwell and Cappers 2016) the operating income of GENESIS increased due to decrease in the cost of goods sold.

Balance Sheet Analysis of AGL ENERGY LTD (AGLNF)

Fiscal year ends in June. AUD in millions except per share data.

2014

2015

Cash and cash equivalents

456

259

Short-term investments

114

156

Total cash

570

415

Receivables

1743

1894

Inventories

191

396

Prepaid expenses

32

40

Other current assets

716

714

Total current assets

3252

3459

Gross property, plant and equipment

7541

9289

Goodwill

2758

2792

Other long-term assets

218

180

Total non-current assets

10723

12374

Total assets

13975

15833

Short-term debt

45

442

Accounts payable

1106

669

Total current liabilities

2007

2373

Total non-current liabilities

4380

4645

Total liabilities

6387

7018

Retained earnings

2249

2175

Balance Sheet Analysis of GENESIS ENERGY LIMITED

Fiscal year ends in June. AUD in millions except per share data.

2014

2015

Cash and cash equivalents

23

21

Short-term investments

20

34

Total cash

43

55

Receivables

216

188

Inventories

94

80

Other current assets

4

24

Total current assets

357

346

Gross property, plant and equipment

3253

3215

Goodwill

103

103

Other long-term assets

35

25

Total non-current assets

3272

3182

Total assets

3629

3528

Short-term debt

12

118

Accounts payable

158

Other current liabilities

231

34

Total current liabilities

247

310

Total non-current liabilities

1502

1393

Total liabilities

1749

1703

Retained earnings

540

499

In accordance to the balance sheet, the cash generated by AGL and GENESIS has decreased in the year 2015 as the company has increased its short-term investments. According to (Hawas and Tse 2016) the closing stock of the company has increased which indicates that the company is stocking more number of goods to meet the increment in the sales. On the other hand, as viewed by (Kuznetsova, Andreenko and Ilchenko 2013) the retained earnings of both the companies have decreased due to rise in the other expenses of the company. In the words of (Qiang, Jiajun and Hangyu 2014) the current assets of AGL have increased justifying the cause of decrease in the cash invested in the purchase of the same. As observed by (Biao 2013), the long term assets of both the companies have decreased indicating that the old assets were either sold or were written off by the companies.

Growth, Profitability and Financial Ratios for AGL Energy Ltd

Key Ratios -> Profitability

2014

2015

Revenue

100

100

COGS

75.73

73.57

Gross Margin

24.27

26.43

Operating Margin

10.26

5.31

Liquidity/Financial Health

2014

2015

Current Ratio

1.62

1.46

Quick Ratio

1.15

0.97

Financial Leverage

1.84

1.8

Debt/Equity

0.48

0.39

Efficiency

2014

2015

Receivables Turnover

5.32

5.87

Inventory Turnover

44.61

26.77

Fixed Assets Turnover

1.54

1.54

Asset Turnover

0.7

0.72

Growth, Profitability and Financial Ratios for Genesis Energy Ltd

Key Ratios -> Profitability

2014

2015

Revenue

100

100

COGS

66.88

70.47

Gross Margin

33.12

29.53

Operating Margin

6.82

7.42

Liquidity/Financial Health

2014

2015

Current Ratio

1.45

1.12

Quick Ratio

1.05

0.78

Financial Leverage

1.93

1.93

Debt/Equity

0.52

0.46

Efficiency

2014

2015

Receivables Turnover

9.25

10.28

Inventory Turnover

14.27

16.85

Fixed Assets Turnover

0.65

0.68

Asset Turnover

0.55

0.58

In the given table, AGL and GENESIS are displaying a decrease in the quick ratio that has gone below one. In the words of (Songqin and Jingchang 2013) this shows that the liquidity of the company has decreased as the company has invested its cash in the purchase of assets. In the view of (Lane and Rosewall 2015), the current ratio of the company has decreased that indicates that the resources required by the companies to meet its current liabilities have declined. According to (Thompson 2016) the debt equity ratio of a company indicates the amount of debt the company is using to finance the purchase of the assets. In this regard, the debt equity ratios of both the companies have deceased showing that they have a strong equity position.

In terms of investment, an investor always looks after the key ratios to judge the managing skills of the company in generating income. According to the analysis done, the liquidity and debt equity of AGL ENERGY LTD is better than that of GENESIS ENERGY LTD that in turn shows that AGL is more capable in handling its flow of cash as well as short-term debts. The current ratios of AGL ENERGY LTD are also more that means that the company has more capability in managing the short-term liabilities. In addition to that, the net income of AGL is greater than GENESIS clearly indicating that the former is more capable of generating profits. Hence, all things combined, it will be more profitable for an investor to invest in AGL ENERGY LTD than in GENESIS ENERGY LTD.

Conclusion:

In the above task, comparison is made between two companies to provide the insight in the investment option that is present for the investors. The financial analysis represents the present condition of the company and its performance that can make the investors to invest in that particular organization. Thus, the financial performance analysis shows that performance of the company in the market and the opportunity that the companies provide to the investors. Financial ratios are the main concluding factor that decides the investment option for the investors looking to invest in the organization.

Recommendation:

It is advisable for the investors to make investments in AGL ENEREGY LTD.According to above analysis is it seen that the AGL ENERGY LTD is better option for the investors to have a better return on the investment compared to the GENESIS ENERGY LTD. AGL ENERGY LTD is also found to be a better organization as the liquidity ratio of the company is higher and it can pay off the debts more effectively. This can in turn provide for better return options for the investors, as the dividends earned can be higher. Debt equity ratio of the company is also lower that shows the company is stable in it and is able to pay off its debts on itself and provide stability to the organization. It thus presents that the investors can better invest in the AGL ENERGY LTD as the return would be higher and dividend payment would have been higher.

Reference List:

Biao, L.Q.Z., 2013. Ownership Properties, Investor Sentiment and Corporate Inefficient Investment [J]. Finance and Trade Research, 4, pp.020.

Hawas, A. and Tse, C.B., 2016. How Corporate Governance Affects Investment Decisions of Major Shareholders in UK Listed Companies Has the Recent Credit Crunch Changed the Game?. Journal of Accounting, Auditing & Finance, 31(1), pp.100-133.

Kihm, S., Satchwell, A. and Cappers, P., 2016. The Financial Impacts of Declining Investment Opportunities on Electric Utility Shareholders.

KUZNETSOVA, S., ANDREENKO, M. and ILCHENKO, O., 2013. The investment attractiveness of the grain market in Ukraine: major players and trading partners, recent trends and mid-term outlook. Academic review, 1(1), pp.28-32.

Lane, K. and Rosewall, T., 2015. Firms’ Investment Decisions and Interest Rates. Reserve Bank of Australia Bulletin. June quarter, pp.1-7.

Lew, Y.K., Sinkovics, R.R. and Kuivalainen, O., 2013. Upstream internationalization process: roles of social capital in creating exploratory capability and market performance. International Business Review, 22(6), pp.1101-1120.

Liu, C. and Yermack, D., 2012. Where are the shareholders’ mansions? CEOs’ home purchases, stock sales, and subsequent company performance. In Corporate Governance (pp. 3-28). Springer Berlin Heidelberg.

Qiang, L., Jiajun, J. and Hangyu, J., 2014. Inefficient Investment and Debt Structure: Evidence from China Stock Market. Review of Investment Studies, 3, pp.006.

Ritala, P., 2012. Coopetition strategy–when is it successful? Empirical evidence on innovation and market performance. British Journal of Management, 23(3), pp.307-324.

Songqin, Y. and Jingchang, X., 2013. Large Shareholder Control and Governance Effect from Institutional Investors: An Empirical Analysis from the Perspective of Investment Efficiency. Securities Market Herald, 5, pp.008.

??tef??nescu-Mih??il??, R.O., 2015. Social Investment, Economic Growth and Labor Market Performance: Case Study—Romania. Sustainability, 7(3), pp.2961-2979.

Thompson, S., 2016. How confident are you in your investing capability?.Equity, 30(4), pp.8.

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