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School Of Business

Unit Code : BA 930


Unit Name: Accounting Concepts
and
Practices

Assignment
Jaymin U. Patel

AMI ID: 402020 UB


ID:2662012
Parthesh J. Patel
AMI ID: 402030 UB
ID:2662002
Australian Gas and Energy
Limited

Registered Office Address

72 Christie Street,

ST LEONARDS,

NSW, AUSTRALIA, 2065

Share Registry

LINK MARKET SERVICES LIMITED

LEVEL 12, 680 GEORGE STREET, SYDNEY,

NSW, AUSTRALIA, 2000


http://www.agl.com.au/

TABLE OF CONTENT
COMPANY OVERVIEW...................................................................................................5
CLASSIFICATION OF AGL AS PER AUSTRALIAN STOCK EXCHANGE................6
Net Profit Margin Ratio..................................................................................................7
Total Assets Turn Over Ratio.........................................................................................8
Current Ratio ..................................................................................................................9
CLASSIFICATION OF COMPANY FUND....................................................................13
External Finance............................................................................................................13
Medium term notes are unsecured and repayable in short term period which
are due in 2007 and 2009 so company will need additional fund in 2007
while senior notes are unsecured and payable in 2015 and 2018 so
company has no problem for that. We can see that company has generated
extra fund in this year from bank loan to pay senior notes. ........................14
ANALYSIS OF CASH FLOW..........................................................................................14
AGL’S APPROACH TO CORPORATE GOVERNANCE..............................................15
CONCLUSION..................................................................................................................17
REFERENCES..................................................................................................................18
COMPANY OVERVIEW

AGL has been a major participant in the Australian energy industry


since 1837. Today AGL is a major retailer of gas and electricity to
about three million customers. AGL have an extensive portfolio of
wholly and partly-owned investments in energy infrastructure,
infrastructure management and other energy companies.

 AGL’s business involves

• buying and selling gas and electricity from gas producers


and electricity generators
• transporting gas and electricity to customers via gas
pipelines and power lines
• owning and investing in power generation plants, electricity
and natural gas distribution networks
• providing customers with a wide range of energy products
and services

Designing, constructing, operating, maintaining and managing energy


infrastructure through Agility, our wholly-owned business.
CLASSIFICATION OF AGL AS PER
AUSTRALIAN STOCK EXCHANGE

Australian stock exchange classified every business sector in a


different industry classification. ASX classified all industry sectors as
per GICS (Global Industry Classification Standard).

GICS is a joint Standard and Poor’s/Morgan Stanley Capital


International product aimed at standardizing industry definitions. To
bring Australia in line with the rest of the world Standard and Poor’s
have reclassified all ASX listed entities according to GICS. From 1
July 2002 the ASX industry classification became redundant.

The Australian market has traditionally been associated with 24


industry sectors unique to this country. GICS consists of 10 Sectors
aggregated from 24 Industry Groups, 67 Industries, and 147 Sub-
Industries currently covering over 27,000 companies globally.

AGL is classified under utilities sector and industry group. In utilities


sector, GICS includes industries like electric, gas, multi, water,
independent power producers and energy and traders. AGL is also
electricity and gas producing and selling company so Australian
Stock Exchange (ASX) classified him under utilities sector.
FINANCIAL RATIO OF AGL

 For every dollar of revenue, how many cents did the


company make in after-tax profit?

Net Profit Margin Ratio

If you want to know the proportion of revenue that finds its way into
profits, you look at the profit margin. The profit margin tells you how
much profit a company makes for every $1 it generates in revenue.
Profit margins vary by industry, but all else being equal, the higher a
company’s profit margin compared to its competitors, the better.
Several financial books, sites, and resources tell an investor to take
the after-tax net profit divided by sales.

Formula = Net Profit after Tax ×


100
Total Revenue

2006 = 457.00 × 100


4239.00

= 10.78 %

2005 = 848.30 × 100


4915.40

= 17.26 %
2004 = 349.50 × 100
4201.00

= 8.32 %

As per profit margin ratio, Company earned 10 cents profit from every
$1 revenue in 2006 and similarly it was 17 cents and 8 cents profit
earned out of total revenue respectively in 2005 and 2004. Profit of
2006 has been decreased by 7 cents with compare to the profit of
2005.

 For every dollar of revenue, how many dollars of


assets are invested in the company?

Total Assets Turn Over Ratio

The total assets turn over ratio shows how hard the firm’s assets are
being put to use. The asset turnover ratio simply compares the
turnover with the assets that the business has used to generate that
turnover. In its simplest terms, we are just saying that for every $1 of
assets, the turnover is $x.

Formula = Total Revenue


Total Assets
2006 = 4239.00
10487.80

= 0.40 Times

2005 = 4915.40
5828.20
= 0.84 Times

2004 = 4201.00
6574.10

= 0.64 Times

We see the result of 0.40 times for 2006 that means AGL was able to
generate sales of $ 0.40 for every $1 of assets it owned and used for
the year 2006. For the year 2005 and 2004, it was about to 0.84
times and 0.64 times respectively.
Here Turnover decreased by $ 676 million but total assets increased
by double. That is, the AGL has made major investments in its assets
that have yet to generate their previous level of sales: 0.40 times in
2006 versus 0.84 times in 2005.

 How many dollars of current assets does the


company have for every dollar of current liabilities?

Current Ratio

Current ratio is equal to current assets divided by current liabilities. If


the current assets of a company are more than twice the current
liabilities, then that company is generally considered to have good
short-term financial strength. For most industrial companies, 1.5 is an
acceptable current ratio. As the number approaches or falls below 1
(which means the company has a negative working capital).

Formula = Current Assets


Current Liabilities

2006 = 1294.40
2836.60

= 0.46 Times

2005 = 1310.10
824.90

= 1.59 Times

2004 = 1015.50
1201.60

= 0.85 Times

In this company the current assets are lower than current liability
which is determine by the ratio i.e. 0.46 times in 2006. Then that
company is not to meet its short-term financial strength. As compare
in 2005, the current ratio was 1.59 times which shows good short
term financial strength and comes down to 0.46 times in 2006.
 How was the profit of the company shared? What
portion went to investors as dividend, and how
much was retained in the company to fund growth?

A. Payout Ratio

Payout ratio shows the proportion of earnings that is paid out as


dividend. From this ratio we find the proportion of dividend shared
to investors.

Formula = Dividend
Earnings

2006 = 287.60
4239.00

= 0.0678

2005 = 448.60
4915.40

= 0.0913

2004 = 289.80
4201.00

= 0.0690

Here in 2006 investors get the 6 cents dividends out of total earnings
which is lower than 9 cents in 2005.
B. Plowback Ratio

A fundamental analysis ratio that measures the amount of


earnings retained after dividends have been paid out. This is the
opposite of the payout ratio, which measures the amount of
dividends that are paid out as a percentage of earnings

Formula = 1 – Payout Ratio

2006 = 1 - 0.067

= 0.933 or 93.30 %

2005 = 1 – 0.0913

= 0.9087 or 90.87%

2004 = 1 – 0.069

= 0.931 or 93.10%

Here after paid dividend company’s earnings are 93.30% in 2006


which is little bit higher than last two years i.e. 90.87 % and 93.10 %
in 2005 and 2004 respectively.
 Discuss how company is funded. How much does it
rely on external finance and how much is provided
by investors.

CLASSIFICATION OF COMPANY FUND

External Finance

AGL Company has borrowed money mainly from three sources like
Medium term notes, senior notes, and bank loans. The following table
indicates the external finance of AGL in 2006 and 2005.

Particular 2006 2005


(in millions) (in millions)
Borrowings
Medium term notes 599.1 600.0
Senior notes 704.0 796.2
Bank Loan 100.3 -
Finance lease liabilities 8.7 1.6
Customer deposits 9.0 9.0
1,421.1 1,406.8
Medium term notes are unsecured and repayable in short term period
which are due in 2007 and 2009 so company will need
additional fund in 2007 while senior notes are unsecured and
payable in 2015 and 2018 so company has no problem for that.
We can see that company has generated extra fund in this year
from bank loan to pay senior notes.

 Equity from investors

Particular 2006 2005


(in millions) (in millions)
Equity
Issued Capital 1997.3 2010.1
Reserves (36.1) (8.6)
Retained earnings 2803.1 2650.5
4764.3 4652.0

AGL Company’s equity fund is mentioned above which shows that


company has buy back its shares in 2006 to increase its prestige and
earned good profit during year 2006.

ANALYSIS OF CASH FLOW


The cash flow statement shows three type cash flow activities like
operating, investing and financing.

The net operating cash flow is $ 436.00 million in 2006 which


decreased by 22% from $ 557.40 million in 2005. Net cash receipts in
the course of operation increased from $ 4842.8 million in 2005 to $
5012 million in 2006. The net operating cash decreased because of
the payments to suppliers and employees i.e. company has
increased the salary of the employees.

The investing cash flow is in minus this year because of the payment
for oil & gas assets i.e. 557.1 million and purchase of new businesses
i.e. 1455.2 million which comes to $ (2288.6) million.
In financing cash flow Company borrowed foreign currency so cash
increased from $ (771.1) million in 2005 to $ 1577.6 million in 2006.
As company receipts increased and company paid its borrowings the
cash at the end of the year decreased to $ 102.1 million in 2006 from
$ 377 million in 2005.

AGL’S APPROACH TO CORPORATE GOVERNANCE

Corporate Governance means

The system of checks and balances designed to ensure that


corporate managers are just as vigilant on behalf of long-term
shareholder value as they would be if it was their own money at risk.
It is also the process whereby shareholders-the actual owners of any
publicly traded firm-assert their ownership rights, through an elected
board of directors and the CEO and other officers and managers they
appoint and oversee.

The AGL Board (the Board) considers best practice corporate


governance standards support sustainable performance by AGL
over time. The Board is committed to best practice standards of
governance underpinning how AGL conducts its business.

For determining the best practice governance for AGL, the AGL
Board has taken into account the Australian Stock Exchange (ASX)
'Corporate Governance Council, Principles of Good Corporate
Governance and Best Practice Recommendations' of March 2003,
the Corporations Act 2001 (including CLERP 9 amendments) and
other related best practice guidelines.

ASX Corporate Governance Council Best


Practice Recommendations of AGL
• Lay solid foundations for management and oversight
• Structure the Board to add value
• Promote ethical and responsible decision making
• Safeguard integrity in financial reporting
• Make timely and balanced disclosure
• Respect the rights of Shareholders
• Recognize and manage risk
• Encourage enhanced performance
• Remunerate fairly and responsibly
• Recognize the legitimate interests of stakeholders
 What issues apart from profit does the company
highlight in the annual report?
• AGL Company makes profit of $ 591.5 million before tax in 2006
which shows increase from $ 298.7 million in 2005. To show this
profit company point out on its income statement of 2006. Profit
was increased is shown in income statement that states by
increase in revenue of the company. And out of total profit the
company, declared 287.60 and rest of profit are retained in the
company for growth and financial requirement of company i.e.
shows in cash flow statement of the company.

CONCLUSION

In my opinion, AGL made a good profit making in year 2006 as


compared to 2005.
In 2006, AGL had good revenue collection that makes the profit
higher than previous year and expenses are almost stable in 2006.it
means the management has good command over the expenses.

From the ratio of net profit margin, we can see that AGL has profit
over revenue is lesser than in 2006 as compared to 2005. And also
company has not good liquidity position to meet its financial obligation
as company’s current liabilities are higher than its current assets.
Here, company also not utilised its asset in profitable way that shows
by asset turnover ratio. And even a good profit, company did not
declare much dividend as compared to last year.

Here the company much invested in oil and gas assets and
acquisition of business, it was huge money block but later company
gains benefits in future. And company got more finance from foreign
currency borrowing to make such investments.

REFERENCES
1. www.agl.com.au

2. www.asx.com.au

3. http://beginnersinvest.about.com/cs/investinglessons/l/

blassetturnover.htm
4. http://www.investorwords.com/1258/current_ratio.html
5. http://www.answers.com

6. http://www.bized.ac.uk/compfact/ratios/profit4.htm