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Key Topics
Requirement
1- Write a report on Finance for business - Masters in 3000 words with reference to APA.
Solution
1. Description of the company
In this report for the purpose of analysis, a company from the insurance sector has been selected. The selected insurance company is Insurance Australia Group and the company has its headquarters in Sydney, Australia.
The IAG was formed as the result of privatization of the NRMA insurance business in July 2000. The company is registered in the Australian stock exchange and has the symbol IAG. The company is a conglomerate of the various institutions that works together for coordinating similar activities it is the shelter of various insurance providers instead of providing client and customer-facing brand (Faff et al., 2016). The company is working together with different well-known insurance brands.
2. Ownership and governance structure of company
For the purpose of understanding the corporate structure of the entity it is required to look at the various stakeholders of the company. This can be achieved by looking at the list of the shareholders of the company. In addition to that the background of the Directors of the company and the officers of the company can also be checked for the purpose of ascertaining their positon within the company and the viability of the appointment.
A) The following report displays the shareholders of the company who are holding substantial interest.
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i) The shareholding equal to or more than 20% of issued shares of the company: HSBC custody nominees (Australia) limited a corporate entity engaged in financial sector is holding a substantial part in the issued shares of the company. The company is approximately holding 24.98 % of the equity shares of IAG limited (Adams et al., 2016).
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ii) The other significant shareholders of the company are J P Morgan Nominees Australia limited. This is also a corporate entity who had acquired the 12.81% of the shares of IAG by acquiring 303326503 numbers of equity shares.
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iii) CITICORP nominees Pty limited is also one of the significant shareholders of the company who holds more than 5% if the total equity issued. The company had acquired 170938621 which is equal to 7.22% on the equity of the IAG limited.
Form the above analysis it is ascertained that the company is majorly financed by the private companies who are engaged in investment sector and the financial institutions.
Some of the KMP are as follows:
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I) Peter Hammer- is taking the responsibilities of managing director and chief executive officer.
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ii) Julie batch- chief customer officer
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iii) Chris Bartech- group general counsel and company secretary.
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iv) Ben Bessell- Chief executive, Australian Business Division.
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v) Clayton Whipp- Chief risk officer.
Liquidity Ratio
The liquidity ratio is considered as one of the key ratios at it represents the short term solvency of the firm. The liquidity or acid test ratio of the company clearly depicts that the company has the ability of pay off it liabilities for the short term purpose as well as long term debts. The current or liquidity ratio is the comparison of the current assets and current liabilities of the company (Gippel, 2015). The observation shown states that the current liabilities of the company is decreased during the year was 1.89%. The decrease in current assets amounted to 1.27% as a result of that the ratio has increased by 0.63%. The current ratio has increased form 1.11 in 2016 to 1.12 in 2017. Though improvement is located in the current ratio of the company this does not hold any major changes.
Financial Leverage ratios:
Financial leverage is calculated by the comparison of the EBIT and the PBT of the company. This ratio helps in assertion of long term solvency of the company. The equity ratio of the company will determine the leverage employed by the company. By dividing the total equity share by its total assets the equity ratio is found.In the case of IAG, it was found that the total equity of the company has increased by 0.10% from the year 2016 to 2017 where at the same time in 2016 it was stood at 30030 and which declined to 29597 in 2017.
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Place Your OrderAssets Turnover Ratio
Asset turnover ratio is used to ascertain the efficiency and the utilization of the business assets of the entity. The asset turnover ratio is the comparison of the assets of the company in respect of total receipts or the sales of the company which is generated by employing the assets. Therefore it also helps to ascertain the efficiency of utilization of assets by the entity. This ratio is calculated by dividing the total sales by the average number of assets of the company. From the analysis of the above presented figure it is observed that the asset turnover ratio has increased by a large margin.In the year 2016, the asset turnover ratio for the company was 0.25 which increased to 0.29 in the year 2017 by increasing 14.09% during the period. The company’s sales has increased significantly in the year 2017 from 2016 by 12.45% therefor the asset turnover has increased (Waxman, 2017). The reasons for the increase in asset turnover is related because of the increase in the net sales even though the change in the total asset decreased. Form the above discussion it is ascertained that the company is using the data quite effectively to generate revenue from this.
Profitability Ratio
The net profit margin of the company detrmines the profitability of the company. The net profit ratio is computed on the basis of comparision of the net profit margin and the revenue which is genarated by the company. The profit that can be earned by the company by selling the products in the markent is determined by the net profit ratio. The ratio can be derived by deviding the net profit of the company by the total sales of the company. Later the resulted will be presented in percentage by multipliying it with 100. It is observed that the net profit margin of the company is increased by 27.32 % as in the previous year 2016 it stood at 9% on the total sales. Whareas the company had earnd 12 % as the net profit. The increment is appraiseable . the increses is booked as both the net profit and the sales has been increased with a great extent.Net sales made by the company increased by 12.45% as well as the net profit which is increased hugely by 43.16% during the period of the year 2016-17.
Market value ratios
The market value of the company is derived by the help of price earning ratio, prefrably known as p/e ratio. The ratio depicts the price of the equity and the earning per share by the company. For determining the value of the company precie earning ratio palys a significant rele. In the given case of IAG limited theearnings ratio for the company was found 0.21 in the year 2016 and 0.16 in the year 2017. This represents that the ratio has decreased by 23.50% during the current year. The value of the company will decline as the results of price earnings ratio is decreasing (Masters, 2015). Though it must be taken in to consideration that the company had increased its earing per share by 54.09%. As a result of that the growth in the market price of the equity shares of the company has increased by 17.84%. Now the price of share stood at 6.21 whereas it was 5.27 in the previous year. The p/e ratio decreased as the increase in the market price is less than the decrees in EPS.
Share price movement and analysis
From the given chart the movement of the share prices of the company over the period has to be ascertained.It is observed that the price of the shares have increased significantly on 31st of June 2016. Then within the month the share prices of the company had fell significantly as well. It observed that the next rise in price is being recorded by the share in the month of November 2016. The share prices of the company again fell down subsequently to the significant rise on the share prices the company. The fall in the share prices as recorded in the month of December in the year 2016... In the next year a high rise in the share price has be observed in the month of September 2017. The fall in the prices of the shares of the company continued until 31st of December 2017.After this a certain high rise is recorded in the month of January. Soon in the next month, the share prices of the company fell back significantly (Bendell& Doyle, 2017). Till the march end the alternate movement of the share prices of the entity continued. AlterNet moment refers to the extreme alteration of price of the share as compared to previous year. It is concluded the share price of the company is highly volatile in entire period. The factors that are presented in the market are liable for such dynamic change in the price.
The debt ratio
The debt equity ratio is the comparison of the debt and the equity of the company. In the last few years, it is observed that the debt ratio of the company is decreasing. Which reflects that the company wants acquire optimal capital structure. More equity in the capital structure of the company will be attributable for a better solvency position. As the debt maintenance cost is lower, it will help the company to provide a larger profit to the shareholders (Sinclair et al., 2014).
By reducing the debt portion and raising new equity, the company is improving their debt equity ratio.
Dividend policy:
The amount paid by the company from earnings to the shareholders of the company is known as dividend. There is no restrictions on payment of dividend but the following implications needs to be ascertain.
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a) The dividend paid must co-respond withthe corporation act 2001 and Iago’s constitution, which needs to be followed.
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b) A company can distribute the profits, earned by the company. Further, the company needs prior approval from APRA for the dividend distribution purpose and the APRA level two Insurance Group supervision requirements. As well as the company should monitor there solvency obligations (Austin, 2016).
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c) The company is not permissible to pay any amount of dividend. Further, no returns on capital notes or reset exchangeable securities in their respect and distribution of dividend.
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Recommendation
The company has the potential to give decent rents on the investment that is made into it. From the above analysis is concluded the company is very cautious about it debt policy and want investments in form of equity. Which stated the solvency of the company is very high but the company is not responding to the idea that the debt instruments are less costly than the equity. If the return on equity is high and rate of debt is low then the company will enjoy higher profits as well as higher values in the market. The company has the potential that it will provide higher returns in the future to the shareholders. The share prices of the company has fallen down as because of the decrease in the net profits of the company. Therefore, the price earnings ratio also decreased. It is profitable to invest in this company as the company will give the return that is going to be earned in the future will be immense. The company will gain more value in the market if the company become liberal in the debt policy.
Reference
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Adams, C., Zacharia, S., Masters, L., Coffey, C., & Catalan, P. (2016). Mental health problems in people living with HIV: changes in the last two decades: the London experience 1990–2014. AIDS care, 28(sup1), 56-59.
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Austin, M. (2016). Business development for the biotechnology and pharmaceutical industry. Routledge.
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Bendell, J., & Doyle, I. (2017). Healing capitalism: five years in the life of business, finance and corporate responsibility. Routledge.
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Cassis, Y., De Luca, G., & Florio, M. (Eds.). (2016). Infrastructure finance in Europe: insights into the history of water, transport, and telecommunications. Oxford University Press.
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Faff, R. W., Fernandez, C., Masters, N., &Pathan, S. (2016). Financial Constraints and Dividend Policy.
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Gippel, J. (2015). The Masters of Finance: Ideas from the field. Australian Journal of Management, 40(3), 557-561.
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Landstrom, H., Parhankangas, A., Fayolle, A., & Riot, P. (Eds.). (2016). Challenging entrepreneurship research. Routledge.
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Masters, A. (2015). Corruption in sport: From the playing field to the field of policy. Policy and Society, 34(2), 111-123.
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Sinclair, T. J. (2014). The new masters of capital: American bond rating agencies and the politics of creditworthiness. Cornell University Press.
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Waxman, K. T. (Ed.). (2017). Financial and business management for the doctor of nursing practice. Springer Publishing Company.
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