Faculty of the Professions

Cover Sheet for Team Assignments

Accounting Concepts and Methods Research Project

Due Friday 1 th September at 6pm

Please list all team members’ names that contributed to the assignment.

Name: Jiit Keyur Shah Student ID:

a1867072

Name: Shubhangi Agarwal Student ID: a1871860

Name: Kunal Gupta Student ID:

a1843396

Name: Paramveer Singh Matharoo Student ID:

a1872591

Team name: ACM Group Project Team 14

Research Project ____

KEEP A COPY
Please be sure to make a copy of your work before you submit it. On rare occasions an assignment gets lost in the
system. In such a case you must be able to provide another copy.

DECLARATION
I declare the following to be my own work as understood by the University’s Policy on Plagiarism (see Statement and
Definition of Plagiarism and related forms of cheating, www.adelaide.edu.au/policies/230).

I give permission for my assignment to be scanned for electronic checking of plagiarism.

By submitting this assignment electronically all team members are agreeing to the above.

10
Table of Contents

Serial No. Title Page No.

1 Introduction 3

2 Timeline 3

3 Overview and Background Information 6

4 Financial Statements 8

5 Linkage between Financial Statements 20

6 Other Information in Annual Reports 22

7 Content of Financial Statements 24

8 Ratio Analysis 26

9 Investment Decisions and Limitations 34

10 Critical Assessment 36

11 Bibliography 37

2
Introduction
This report has been prepared to comparatively analyse the Financial Performance and
Financial Position of REA Group Limited and Beach Energy Limited to make an investment
of $50,000 in one of the two companies. To do a comparative analysis of REA Group
Limited and Beach Energy Limited, we have explored the Annual Reports, Financial
Statements, and Ratio Analysis to draw our conclusion for investment.

Timeline

3
Section Start End Milestone Team
Date Date Members

Team Formulation,
Company Allocation, Assignment discussion,
Work Division Syncing schedules,
formulating a plan, Team
Building Activities,
Discussion of contingency
plans Group Effort on
14/8/2022 17/8/2022 Zoom Call

Formulation of Gantt Chart Timeline-

Timeline and possible timeline Kunal Gupta,
Gantt Chart-
Shubhangi
19/8/2022 19/8/2022 Agarwal

In- Person Team

Meeting Team Building Activities,
Communication
Guidelines Set, Allocation
of desired workload Meeting In
21/8/2022 21/8/2022 Person

REA - Kunal,
Overview and Research into company Shubhangi,
Background profile, Drafting of BPT -
Information gathered data Paramveer and
22/8/2022 24/8/2022 Jiit

Financial Statements Analysing and highlighting

important items in Group effort
Financial statements over zoom call
25/8/2022 26/8/2022

Linkages between Understanding links

statements , Other between Financial
information in the statements, Detailed study Group effort
annual report of the annual report over zoom call
27/8/2022 31/8/2022

Content of the Framing the key

Financial Statements information in the Group effort
Financial statements over zoom call
1/9/2022 2/9/2022

4
Ratio Analysis Calculating and
understanding and Jiit Keyur Shah,
analysing key ratios Paramveer
3/9/2022 3/9/2022 Singh Matharoo

Investment decision Analysing gathered

and Limitations information mentioned
above to make an Group effort
investment decision. over zoom call
4/9/2022 9/9/2022

Formatting Formal presentation of the

information gathered and Group effort
analysed over zoom call
11/9/2022 13/9/2022

Reflection/Critical Analysis based on given Group

Assessment , Proofread rubric, Checking final draft discussion over
final draft zoom call
14/9/2022 15/9/2022

5
Overview and Background Information

REA Group is a real estate public listed company on ASX (Australian Stock Exchange)
founded in the year 1995, News Corp Australia owns majority chunk of stake in REA Group.
Current Share price of REA is around $124.05 as on 10/09/2022 with last one year return of
around -20.12%. Its current capitalization is around $16,389,140,769 and ranks at 23 of 2,415
on Australian Stock Exchange based on its size.

REA Group comprises of a lot of subsidies as its strategy has always been to aggressively
expand the group internationally through acquisition. The expansion started from the
realestate.com.au, Which is Australia’s largest property website with an around 4.4 million
unique potential clients each month. Its acquisition list comprises of casa.it, an Italian website
which was acquired from 59% in 2007 to 100% in 2011, Athome a group of real-estate
websites from 4 different places (Germany, France, Belgium, and Luxembourg). In around
2016 the group acquired flatmates.com.au, very prominent website in Australia for real-estate
Group acquired an UK based company called UK Property shop Ltd in the year 2008 and six
years later in 2014 they bought 20% US company called “move” which is responsible for US
real estate listing website Realtor.com which allowed to REA Group to enter and expand in
the US market.

On 11 September 2007 the Group published its about their first acquisition in Asia with a
purchase of Hongkong’s biggest English-language property magazine called “Squarefoot”.
REA Group in Asia then Acquired iProperty group, Brickz.my. One of the biggest mergers
for the group happened recently in 2021 with PropertyGuru, after competing over the market
dominance for years. The southeast Asian assets are in Malaysia and Thailand and transferred
to PropertyGuru in exchange for an 18% ownership in the company and a seat on board of
the company.

Company’s offices are in several major locations in Australia such Adelaide, Brisbane,
Melbourne, Perth, and Sydney. Company has only one office in India located in Delhi NCR
region.

The company’s market capitalization has changed significantly over the past 2 years. It fell to
around $6.26 Billion on 31st March 2020 and highest it has been on
6th November 2021 of around $17.26B, currently it’s around $16,389,140,769. Its revenue
saw a sudden decline of almost -8.34% in 2020 due to pandemic and grew in 2022 with a
positive change of 24.65%.

REA Group has a workforce of almost 2800 people with almost 12.6million monthly average
audience on realestate.com.au and 121.9million over all platforms including the application.
Company’s employee gender parity across Australian business is about 50:50. In terms of
work environment company was ranked 4th as Australia’s best workplace in 2021by great
place to work. REA Group is also a certified carbon neutral by Australian government’s
climate Activate program.

6
Beach Energy, also known as Beach Petroleum Limited is an oil and gas exploration
company founded by Dr. Reg Sprigg in 1961 and was listed on 30th June 1972. The
company’s headquarters is in Adelaide, with offices in Melbourne, Perth, and New
Plymouth with a total of almost 550 employees. It has 5 basins for oil and gas
production across the ANZ region. It is also a key market player in the Australian East
Coast Gas Market, operating around 12% of domestic gas volumes in 2020.

The company’s major operations include exploring, producing, and supplying oil and
gas to onshore gas markets within the Australia – New Zealand region. The major 5
basins, all of them being operated by Beach 50% or more are namely, Cooper Basin
(South Australia), Beharra Springs and Waitsia (Perth), Katnook (South Australia),
Victoria Ottawa Basin and Bass Basin (near Melbourne) and finally Kupe (near New
Plymouth).

The company achieves around 55% of its total production by gas with almost 80% of
it from the east coast itself. Other production sources include LPG, Condensate and
Oil. Of these markets, Beach operated around 15% of the New Zealand Gas market
with the Kupe Gas facility and 21% of the East coast market. The Otway Basin,
Western Flank Oil and Cooper Basin combined contributed 69% of Beach Financial
Year 2021 production, owing to the East Coast market alone.

As of writing this document, the company has a market capitalization of 3.80 billion
AUD and ranks 115 of 2415 companies in the ASX and ranks 12 of 169 companies in
the Energy sector. One of the major highlights would be the acquisition of Senex
Energy’s, Cooper Basin assets for 83 million in March 2021 which is a step forward
to penetrate the East Coast Market. Other than that, this was Beach’s safest year on
record with 3 million hours worked without a Lost time injury. Also, Beach plans to
go NET ZERO scope 1 and scope 2 emissions by 2050, targeting a 25% reduction by
2025.

7
Financial Statements of Companies

A. Income Statements

Expenses

Incomes

Profit / Loss

REA Group Limited

Statement of Profit or Loss

For the year ended 30 June 2021

8
Profit(loss) = Total Revenue – Total expenses

Total Revenue = Revenue from Property and Online Advertising + Revenue from financial
services + Gain on Acquisition/ Disposal of Subsidiaries + Share of Losses of associates

=$903,837,000 + $101,529,000 + $3,128,000 + $12,618,000

Total Revenue = $1,021,112,000

Total Expenses = Expense from franchisee commissions + Employee Benefit Expense +

Consultation Expense + Marketing Expense + Technology Expense + Administrative
Expense + Impairment of Assets + Depreciation Expense + Financial Expense + Income Tax
Expense

= $77,555,000 + $234,230,000 + $9,988,000 + $58,277,000 + $44,462,000 +$40,959,000 +

$82,612,000 + $4,669,000 + $155,377,000

Total Expenses = $708,129,000

Profit = $1,021,112,000- $708,129,000
Profit = $312,983,000

9
 Beach Energy Limited

Statement of Profit or Loss

For the year ended 30 June 2021

Profit(Loss) = Total Revenue - Total Expense

Total Revenue = Revenue + Other Income + Interest Income

Total Revenue = $1,562,000,000 + 51,100,000 + 900,000
Total Revenue = $1,614,000,000

Total Expenses = Cost of Sales + Other Expenses + Finance Expenses + Income Tax
Expenses
Total Expenses = $967,100,000 + $203,700,000 + $6,400,000 + $120,300,000
Total Expenses = $1,297,500,000

Profit = Total Revenue - Total Expenses

Profit = $1,614,000,000 - $1,297,500,000
Profit = $316,500,000

10
B. Cash Flow Statements

Net Cash Flow from Operating Activities

Net Cash Flow from Investing Activities

Net Cash Flow from Financing Activities

Net increase / decrease in cash and cash equivalents

Cash and Cash Equivalents at the end of the year

REA Group Limited

Statement of Cash Flow

For the year ended 30 June 2021

11
Net Increase/Decrease in Cash Flows= Net Cash Flows from Operating Activities + Net
Cash Flows from Investing Activities + Net Cash Flows from Financing Activities

Net Increase/Decrease in Cash Flows= $321,454,000 - $381,524,000 + $11,767,000

Net Increase/Decrease in Cash Flows= ($48,306,000)

Cash and cash Equivalents at the beginning of the period= $222,845,000

Cash and cash Equivalents at the end of the period = Cash and cash equivalents at the
beginning + Net Increase/Decrease in Cash Flows + Effects of exchange rates + Cash and
Cash Equivalents held for sale at the end of the year = $222,845,000 - $48,306,000 -
$782,000 - $4,888,000

Cash and cash Equivalents at the end of the period = $168,869,000.

12
 Beach Energy Limited

Statement of Cash Flow

For the year ended 30 June 2021

Net Change in Cash Flows = Net cash from Operating Activities - Net Cash used in
Operating Activities + Net cash from Financing Activities
Net Change in Cash flows = $759,800,000 - $757,800,000 +$ 21,000,000
Net Change in Cash flows = $23,000,000

Cash and Cash Equivalents on 1 July 2020 = $109,900,000

Cash and Cash Equivalents on 30 June 2021 = Cash and Cash Equivalents on 1 July 2020
+ Net Change in Cash Flows - Effects of Exchange Rates on the balance of cash held in
foreign currencies

Cash and Cash Equivalents on 30 June 2021 = $109,900,000 + $23,000,000 - $6,200,000

13
C. Statement of Changes in Equity

Total Equity in the Beginning of the year

Total Equity in the End of the year

Retained Earnings at the Beginning of the year

Retained Earnings at the End of the year

Profit/ Loss for the year

REA Group Limited

Statement of Changes in Equity

For the year ended 30 June 2021

14
Ending balance of Retained Earnings = Opening Balance of retained earnings + Profits for
the year - Dividends

Opening Balance of retained earnings = $704,262,000

Profits for the year = $322,677,000

Dividends = $150,392,000

Closing balance of retained earnings = $704,262,000 + $322,677,000 - $150,392,000

Closing balance of retained earnings =$876,547,000

15
 Beach Energy Limited

Statement of Statement of Changes in Equity

For the year ended 30 June 2021

Ending Balance for Retained Earning = Opening Balance for Retained Earning + Profit for
the year

Opening Balance for Retained Earnings = $44,700,000

Profits for the year = $316,500,000

Ending Balance for Retained Earnings = $44,700,000 + $316,500,000

= $361,200,000

16
D. Statement of Financial Position

Net Cash Flow from Operating Activities

Net Cash Flow from Investing Activities

Net Cash Flow from Financing Activities

Net increase / decrease in cash and cash equivalents

REA Group Limited

Statement of Financial Position

As on 30 June, 2021

17
Assets = Liabilities + Equity

Current assets + Non-current assets = Current liabilities + Non-current liabilities +

Equity

$687,012,000 + $1,685,274000 = $351,568,000 + $881,497,000 + $1,139,221,000

Cash and cash equivalents at the beginning of the year was $222,845,000 and at the end
of the year was $168,869,000.

18
 Beach Energy Limited

Statement of Financial Position

For the year ended 30 June 2021

Currents Assets + Non-Current Assets = Current Liabilities + Non-Current Liabilities +

Equity
$670,900,000 + $4,008,300,000 = $399,000,000 + $1,192,400,000 + $3,087,800,000

Cash and cash Equivalents were $109,900,000 on 1 July 2020 and $126,700,000 on 30
June 2021

19
Linkages between Financial Statements

I. Linkage between the Statement of II. Linkage between the Statement of

Profit or Loss and Statement of Changes in Equity and the
Changes in equity Statement of Financial Position
REA Statement of Changes in equity
REA Statement of Profit or Loss

REA Statement of Changes in equity

REA Statement of Financial Position

20
III. Linkage between the Statement of Cash
Flow and the Statement of Financial Position:
I. Profit (Loss) = Total Revenue –
Total expenses
Profit for the year ended 30 June 2021 is
$312,983,000 as per the Income Statement and is
transferred to Statement of Changes in Equity to
calculate the Retained Earnings or Accumulated
Losses of the company.
II. 1. Share Capital: The opening
balance of the Share Capital as on 30th
June 2020 was $864,493,000 and there
has been an additional issue of shares
for $59,851,000. The closing balance
of $1,139,221000 has been transferred
from the statement of changes in equity
to the statement of financial position.
2. Retained earnings: The opening
balance of the Retained earnings as
on 30th June 2020 was
$704,262,000, the profit for the
year was $322,677,000 and the
dividends paid during the year was
$150,392,000. The closing balance
of Retained Earnings for the year
ended 30th June 2021 was
$876,547,000. [closing balance of
retained earnings = opening
balance + profits -dividends paid.
3. Total Equity: The total equity
appears on the Statement of
Changes in Capital and the
Statement of Financial Position. It
is equal to Share Capital +
Retained Earnings. The Closing
Balance of the Total Equity as on
30th June 2021 is $1,139,221,000.
III. Cash and Cash Equivalents: Cash
and Cash Equivalents at the beginning
of the year as on 30th June 2020 is
$222,845000. The Net decrease in cash
flow from operating activities,
Investing Activities and Financing
Activities of the current year is
$48,306,000. The closing balance of
cash and cash equivalents as on 30th
June 2021 is equal to the opening
balance less the net decreases. Hence
the closing 168,869,000. The Total
balance of Cash and Cash Equivalents
is transferred to the Statement of
Financial Position under the head of
Current Assets.
21
Other information in the Annual Report

The first section of the report discusses the Key Highlights of the performance of the
company over the financial year. The section includes an overview of the company’s
revenue, market share, product-related information, and financial results (Profit after Tax,
EBITDA, Earnings per share, etc.).

The Annual Report also includes the Chairman’s Report or Chair Review which consists
of insights into the inner workings of the management. This includes the changes in Capital
and Debt of the company, acknowledgment of misstatements in the previous financial year by
the company, changes in the Board of Directors, and the company’s vision.

The Chief Executive Officer’s Review includes the challenges faced by the company,
strategies implemented to overcome challenges (such as the impact of COVID 19 pandemic),
future goals, changes in management, achievements, and legal disputes.

The Director's Report includes the names of the Directors, their duties, background,
qualifications, and other directorships. The report also includes the committees the Directors
are involved in. The Management Commentary narrates the Financial Statements prepared by
the company following the International Financial Reporting Standards (IFRS) or Generally
Accepted Accounting Principles (GAAP). Moreover, it consists of the remuneration report
that details the considerations received by the Key Management Personnel (Chairman, Non-
Executive Directors, CEO, and CFO).

The Auditor’s Report is prepared by an external, independent auditor, assuring true and fair
representation of the financial statements of the company, in accordance with IFRS. The
Auditor’s report ensures that the company’s financial statements are free of material
misstatements, aiding stakeholders who rely on the results of the report. The Auditor’s
Declaration is a statement made by the auditor that the information presented in the annual
report is best to their knowledge.

The Corporate Governance Statement provides the structure that ensures the stakeholders
that the company is committed to good corporate governance and complies with all
applicable laws and regulations, and follows best practices published by the ASX Corporate
Governance Council.

Notes to Financial Statements, consist of assumptions, clarifications, and explanations

made by accountants while preparing Financial Statements. For example, the Inventory
Valuation method, which represents the final inventory value in the Balance Sheet, chosen by
the company, is added in the Notes to Financial Statements. The note numbers are mentioned
in the ‘Notes’ column in the Financial Statement.

The Directors Declaration affirms that the financial statements are in accordance with the
Accounting Standards, Corporations Act 2001, and other compulsory reporting essentials, it
also ensures that the company will be able to pay off all its liabilities whenever they become
due.

22
The Shareholder Information section of the annual report discloses the major equity
security holders with their holding percentages along with the total number of equity
shareholders and total capital raised through shares.

The Corporate Directory includes the names of directors, registered offices, advisors,
bankers, executive teams, etc.

23
Contents of Financial Statements

I. Income Statement

Beach Energy’s revenue model is product-based, while REA Group has an investment and
subscription-based revenue model. Hence, the main source of income for Beach Energy
Limited is the Sales of goods amounting to revenue of $1,519,400,000 and the primary
source of income for REA limited is Property and Online Advertising Revenue, which
totals $903,837,000.

Being a Refining company, Beach Energy’s main expenses are attributed to the field and
depreciation of petroleum assets. For the year 2021, these expenses (cost of sales) amounted
to $967,100,000. On the other hand, REA, being a Real Estate and Marketing Company as a
Service company in a highly competitive market, incurs high Depreciation, Marketing and
Employee Benefit Expenses worth $375,119,000.

II. Statement of Financial Position

Beach Energy, being an established company operating since 1961, Beach also entered into
an asset purchase agreement in January 2021 with Mitsui subsidiaries AWE Petroleum Pty
Ltd and AWE (Bass Gas) Pty Ltd to acquire all its interests in the Bass Basin. (Note 26) and
thus, has tangible petroleum assets worth $3,173,800,000, as the highest value assets,
compared to relatively newer companies like REA Group Limited. On the other hand, REA
Limited has made several tactical acquisitions globally, with its biggest acquisition being that
of iProperty amounting to $534 million, so the company can further pursue its growth
objectives and make tactical acquisitions over the course of its existence. (REA Mergers and
Acquisitions Summary – mergr)

Beach Energy Limited, being a worldwide exporter of petroleum products, has

$3,808,600,000 invested in Property, Plant, and Equipment and hence, to finance these
noncurrent assets company has long-term borrowings of $1,343,300,000. REA Limited has
the highest liability of term debt amounting to $486,781,000 as it makes several
acquisitions to expand.

Shareholder’s Equity Ratio expresses the total assets purchased from equity rather than debt.
It can be written as-

Shareholder’s Equity Ratio= Total Equity/ Total Assets

Beach Energy Equity Ratio=$2,806,800,000/$4496,600,000= 62.42%

REA Equity Ratio= $1,139,221,000/$2,372,286,000= 48.02%

Beach Energy Limited has 62.42% of its assets financed by Total Equity amounting to
$4496,600,000 and the remaining 37.58% of its assets are financed by debt. The total equity
includes Share Capital of $1,857,800,000, Reserves $872,700,000 and retained earnings
$76,300,000. On the other hand, REA Limited has financed 48.02% of its assets from Total
Equity amounting to $1,139,221,000, and the remaining 51.98% of its assets are financed by
debt. The total equity includes Share Capital of $152,140,000, Reserves $40,358,000 and
Retained Earnings $34876,547,000.

24
III. Statement of Cash Flows

The main source of cash inflow and cash outflow for Beach Energy Limited is from its
Operating Activities through Receipts from customers inclusive of GST amounting to
$1,624,300,000 and Payments to Suppliers and Employees inclusive of GST is
$692,600,000, respectively. Beach Energy Limited being a well-established company earns
most of its revenue from sales and the cost of sales accommodates most of its expenditure.
The major source of cash inflow and cash outflow for REA Limited is from Operating
Activities through proceedings from Receipts from customers amounting to $997,422,000
and Payments to Suppliers and Employees inclusive of GST is $471,967,000. REA
Limited despite being a company using Software as a Service platform for Real Estate and
Marketing Services has most of its revenue and expenditure from Operating Activities to
maintain its financial soundness.

25
Ratio Analysis

1. Profitability Ratios: These ratios indicate the relationship between the company’s Profits
and Sales, Operations, Assets, or Equity.

I. Return on Assets: This ratio measures the net profit generated by each dollar invested in
Average Total Assets.

Return on Assets = Profit after Tax/Average Total Assets

Average total assets = (Total asset at the beginning of the year + Total asset at the end of the
year)/2

A) REA Group

Profit after tax = $312,983,000

Total Assets at the beginning of the year = $1,590,523,000

Total Assets at the end of the year = $2,372,286,000

Average total assets = ($1,590,523,000 + $2,372,286,000)/2

Average total assets = 1,981,404,000

Return on Assets = Profit after Tax/Average Total Assets

Return on Assets = $312,983,000/1,981,404,000

Return on Assets of REA Limited = 0.158:1 or 15.8%

B) Beach Energy

Profit after Tax= $316,500,000

Total Assets at the beginning of the year= $4,212,300,000

Total Assets at the end of the year = $4,679,200,000

Average total assets = ($4,212,300,000 + $4,679,200,000)/2

Average total assets = $4,445,750,000

Return on Assets = Profit after Tax/Average Total Assets

Return on Assets = $316,500,000/4,445,750,000

Return on Assets of Beach Energy = 0.0712:1 or 7.12%

26
II. Profit Margin: This ratio measures the relationship between Net Profit and Net Sales.

Profit Margin= Profit after Tax/ Net Sales (Revenue)

A) REA Group

Profit after tax = $312,983,000

Net Sales (Revenue) = $1,029,340,000

Profit Margin= Profit after Tax/ Net Sales

Profit Margin = $312,983,000/$1,029,340,000

Profit Margin of REA Group is 30.40% or .3040

B) Beach Energy

Profit after tax= $316,500,000

Net Sales (Revenue)= $1,562,000,000

Profit Margin= Profit after Tax/ Net Sales

Profit Margin = $316,500,000 /$1,562,000,000

Profit Margin = 0.2026:1 or 20.26%

27
2. Liquidity Ratio: These ratios are used to indicate a company’s ability to pay its short-
term liabilities

I. Working Capital: This ratio measures the operating liquidity of a company.

Working Capital = Current Assets – Current Liabilities

A) REA Group

Current assets = $687,012,000

Current Liabilities = $351,568,000

Working Capital = Current Assets – Current Liabilities

Working Capital = $687,012,000 - $351,568,000

Working Capital of REA Group is $335,444,000

B) Beach Energy

Current assets = $670,900,000

Current Liabilities = $399,000,000

Working Capital = Current Assets – Current Liabilities

Working Capital = $670,900,000 - $399,000,000

The Working Capital of Beach Energy is $271,900,000

28
II. Current Ratio: This ratio evaluates the relationship between Current Assets and Current
Liabilities, which indicated the ability of a company to meet its short-term debts. The ideal
Current Ratio is 2:1.

Current Ratio= Current Assets / Current Liabilities

A) REA Group

Current Assets = $687,012,000

Current Liabilities = $351,568,000

Current Ratio= Current Assets / Current Liabilities

Current Ratio = $687,012,000/$351,568,000

Current Ratio of REA Group is 1.954:1 or $1.954

B) Beach Energy

Current Assets= $670,900,000

Current Liabilities= $399,000,000

Current Ratio= Current Assets / Current Liabilities

Current Ratio = $670,900,000/$399,000,000

The current Ratio of Beach Energy is 1.68:1 or $1.68

29
III. Current Cash Debt Coverage Ratio: This ratio indicates a company’s ability to
generate adequate cash from operating activities to pay off its short-term liabilities

Current Cash Debt Coverage Ratio = Net cash provided by Operating Activities
/Average current liabilities.

Average Current Liabilities = (Total Current Liabilities at the beginning of the year + Total
Current Liabilities at the end of the year)/2

A) REA Group

Net cash provided by Operating Activities = $321,451,000

Total Current Liabilities at the beginning of the year = $317,776,000

Total Current Liabilities at the end of the year = $351,568,000

Average Current Liabilities = (Total Current Liabilities at the beginning of the year +
Total Current Liabilities at the end of the year)/2

Average Current Liabilities = ($317,776,00 + $351,568,000)/2

Average Current Liabilities = $334,672,000

Current Cash Debt Coverage Ratio = Net cash provided by Operating Activities /Average
current liabilities

Current Cash Debt Coverage Ratio = $321,451,000 / $334,672,000

Current Cash Debt Coverage Ratio of REA Group = 0.960

B) Beach Energy

Net cash provided by Operating Activities = $759,800,000

Total Current Liabilities at the beginning of the year = $456,200,000

Total Current Liabilities at the end of the year = $399,000,000

Average Current Liabilities = (Total Current Liabilities at the beginning of the year + Total
Current Liabilities at the end of the year)/2

Average Current Liabilities = ($456,200,000 + $399,000,000)/2

Average Current Liabilities = $427,600,000

Current Cash Debt Coverage Ratio = Net cash provided by Operating

Activities/Average current liabilities

30
Current Cash Debt Coverage Ratio = $759,800,000 / $427,600,000

Current Cash Debt Coverage Ratio of Beach Energy = 1.78

3) Solvency Ratios: These ratios are a measure of the ability of a company to meet its long-
term liabilities. Solvency Ratios are especially useful for potential and existing creditors as
they indicate the financial health of the company.

I. Debt to Total Asset Ratio: This ratio shows the relationship between total liabilities and
total assets of a company. It indicates the portion of assets financed by debt rather than by
shareholder’s funds.

Debt to Total Assets Ratio = Total Liabilities / Total Assets

A) REA Group

Total Liabilities = $1,233,065,000

Total Assets = $2,372,286,000

Debt to Total Assets Ratio = Total liabilities / Total Assets

Debt to Total Asset Ratio = $1,233,065,000 / $2,372,286,000

Debt to Total Asset Ratio of REA Group is 0.512

B) Beach Energy

Total Liabilities = $1,591,400,000

Total Assets = $4,679,200,000

Debt to Total Assets Ratio = Total liabilities / Total Assets

Debt to Total Asset Ratio = $1,591,400,000 / $4,679,200,000

Debt to Total Asset Ratio of Beach Energy is 0.3401

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II. Cash Debt Coverage = Measures the company’s ability to pay off its liabilities with cash
from its operating activities.

Cash Debt Coverage = Net cash provided by Operating Activities / Average Total
Liabilities

Average Total Liabilities = (Total Liabilities at the beginning of the year + Total Liabilities at
the end of the year)/2

A) REA Group

Net cash provided by Operating Activities = $321,451,000

Total Liabilities at the beginning of the year = $726,030,000

Total Liabilities at the end of the year = $1,233,065,000

Average Total Liabilities = (Total Liabilities at the beginning of the year + Total Liabilities at
the end of the year)/2

Average Total Liabilities = ($726,030,000 + $1,233,065,000) /2

Average Total Liabilities = $979,547,500

Cash Debt Coverage = Net cash provided by Operating Activities / Average Total Liabilities

Cash Debt Coverage = $321,451,000 / $979,547,500

Cash Debt Coverage for REA Group is 0.329

B) Beach Energy

Net cash provided by Operating Activities = $759,800,000

Total Liabilities at the beginning of the year = $1,394,500,000

Total Liabilities at the end of the year = $1,591,400,000

Average Total Liabilities = (Total Liabilities at the beginning of the year + Total Liabilities at
the end of the year)/2

Average Total Liabilities = ( $1,394,500,000 + $1,591,400,000 ) /2

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Average Total Liabilities = $1,492,950,000

Cash Debt Coverage = Net cash provided by Operating Activities / Average Total Liabilities

Cash Debt Coverage = $759,800,000 / $1,492,950,000

Cash Debt Coverage for Beach Energy is 0.508

Investment Decision and Limitations

The amount that needs to be invested is $50,000. As a rational investor, would have a low -
risk appetite and effective risk to return ratio. To make such investment decision we need to
consider the financial ratios of both REA Group limited and Beach Energy such as Liquidity,
Solvency and Profitability ratio which will help us analyse their position and provide good
understanding of their fundamental background.

Liquidity Analysis:

Current ratios help investors understand how the company shall clear off its short-term debts
and other payables. A current ratio of a company of more than 2 is considered not ideal for
making an investment decision. The current ratio of the REA group is around 1.95 and for
Beach Energy, it is around 1.68. Both companies are utilizing their current assets well but
Beach energy in this case has a better utilization and working of their current assets than the
REA Group.

The current cash debt coverage ratio helps investors identify whether the company can cover
its debt with the present operating cash flow. The current cash debt coverage ratio of a
company is less than 1 implying that the company has low liquidity. The current cash debt
coverage ratio of the REA Group is 0.96 and for Beach Energy, it is 1.78. Hence, we can see
that Beach Energy is more liquid enough to clear its debts.

In the case of liquidity ratios, Beach energy is more favoured than the REA Group from an
investor’s point of view.

Solvency Analysis:

The Debt to Total Assets ratio shows how much debt did the company use to finance its
assets. The higher the ratio, the higher risk of investing in that particular company for the
investor. The ideal Debt to Total Assets ratio should not be more than 0.4 for a company. The
Debt to Total Assets ratio for REA Group is 0.512 and for Beach Energy, it is 0.3401.

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Clearly, Beach Energy has used much less debt than the REA group to finance its assets, and
hence is less risky for investors to make an investment in Beach Energy.

In the case of cash debt coverage, investors analyse if the company can pay off its long-term
debts with cash from the operations of the business. Anything more than 0.2 is considered to
be a good cash debt coverage ratio. The REA Group has a cash debt coverage ratio of 0.329
and Beach Energy has a cash debt coverage ratio of 0.508. Both the companies have a desired
rate of cash debt coverage ratio, but Beach energy has a better and more favourable rate than
the REA Group.

From the data above we can see that Beach Energy is a more favourable investment for an
investor in terms of the solvency aspect.

Profitability Analysis:

Every investor wants to maximize his profit. A higher return on assets is more beneficial to
the investor. In this case, the return on assets of the REA Group is 15.8% and for Beach
Energy, it is 7.12%. We can clearly see that the ROA of REA Group is much more
favourable than the ROA of Beach Energy. Hence investing money in the REA Group seems
to be more appealing than Beach Energy.

Moreover, an investor looks for an asset that generates a higher profit margin. Keeping that in
mind the profit margin of REA Group is around 30.4% and for Beach Energy, it is 20.26%.
From the data mentioned, we can see that the REA Group has a higher profit margin and
hence is the more favourable of the two companies for an investor to make an investment.

From the above profitability ratios, we can see that REA Group outperforms Beach energy
when it comes to the profitability aspect. But we shall analyse other ratios as well.

Overall financial performance review-

The overall net profit for Beach energy has decreased from $499,100,000 in 2020 to
$316,500,000 in 2021 majorly due to the downgrade in production that year, this is witnessed
by the company’s share price which plummeted 24.1 per cent to $1.28. On the other hand, net
profit for REA Group has significantly increased from $112,585,000 in 2020 to $312,983,000
in 2021 depicting a steady growth in last 2 years. Company’s assets have increased as well as
its liabilities with a 24.22% drop in its cash and cash equivalents. In comparison among both
REA Group has surpassed its previous financial position.

Overall financial position review-

Beach energy shows a healthy financial report with meting its short term as long-term debt
obligations in required period. Major changes that can be noticed in the financial report of the
company is in its long-term debt which increased from $92,000,000 in 2020 to $200,100,000
in 2021 almost 117.5% increases, also its short-term debt obligation increased significantly
from $26,800,000 to $77,000,000 which is approximately 187.31% increase, showing an
expansion strategy by the company. On the other hand, REA Group saw some major changes

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in its assets which increased from $1,591,000,000 in 2020 to $2,372,000,000 in 2021. Short
term debt for the company went significantly down from $76,470,000 in 2020 to $8,820,000
which depicts its strong position in the market and adequate operation profit for the year. The
concerning part for the company is its liabilities which jumped from being $726,000,000 to
$1,233,100,000, Although the trend in its profit graph is positive and profit margin for REA
Group is almost 12% more than beach energy.

Limitations-

a) Inflation Effects- In regard to the Covid Pandemic in the past few years, with
Inflation ramping up, to new highs in both first and third world countries, any ratio
analysis fails to take into account the effects it may have had to undervalue or
overvalue costs/ revenue/profit. This is in turn might provide an amazing ratio but lost
all credibility regarding how these factors might affect the company in the future

b) Company Strategy - It can be dangerous to conduct a ratio analysis comparison

between two firms that are pursuing different strategies. For example, BPT might be
showing low costs in regard to their East coast markets in order to achieve deep
market penetration. Ratios are not a reflection of the current practice itself but just
show a plumped-up profit ratio right now.

c) Historical Problem - It is solely based on the performance of a business on a specific

date without considering anything of historical significance as to how the company is
run. A business might be venturing into a new line completely but that would not be
taken into account in ratios.

d) Window Dressing - Financial reports in themselves are themselves susceptible to

being manipulated easily and going by just a measure of these reports only, is a
simple story of how an unreliable narrator achieves his desired results. Ratios are a
means to an end, not the solution itself.

Final Decision

Investing in a company should be a complex and informed decision for any investor, be it in a
volatile company they know the inner workings of, or its a company with a far more secure
Return on Investment, which would probably encourage a majority of the market to invest in.
Given the companies, Beach Energy and REA, we have companies from completely different
sides of industry, with REA having a much better Return on Investment, while Beach is
starting to enjoy the fruits of a good 2018 investment with the Lattice acquisition and slowly
penetrating the market. While return on investment should be the primary goal for any
investor, seeing the progressive reforms ( Net Zero by 2050) and future capability of Beach
Petroleum, our team would suggest Beach Petroleum worthy of that investment.

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 Bibliography

1. Investopedia for ratio analysis

https://www.investopedia.com/terms/r/ratioanalysis.aspBeachenergy/ourhistory

2. Beach Energy general data

https://www.beachenergy.com.au/about-beach/

3. RAA general data

https://www.raa.com.au/about-raa/our-story

4. Marketindex.com
https://www.marketindex.com.au/asx/bpt

5. Ft.com
https://markets.ft.com/data/equities/tearsheet/summary?s=BPT:ASX

6. Asx market for bpt

https://www2.asx.com.au/markets/company/bpt

7. Globaldata.com
https://www.globaldata.com/company-profile/beach-energy-ltd/locations/

8. REA pricing
https://www.marketindex.com.au/asx/rea

9. Share Pricing
https://www.rea-group.com/investor-centre/share-price-information/

10. https://www.rea-group.com

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 Outstanding (High Above satisfactory Satisfactory (Pass) Unsatisfactory
Distinction) (Credit/Distinction) (Fail)

1 Time line A well thought out A thoughtful plan A simple plan but no Little evidence that
and presented plan and some evidence or this work was
Clear objectives with evidence that record of what they did planned or that
milestones and who is students met and students worked to
responsible for what tried to work to the a plan
Evidence that plan
students met and
kept a record of what
they did
2. Overview Provides accurate and Provides accurate Provides information Provides very
and complete information with but shows basic/brief
background information. some elaboration on evidence of cut and information;
Shows evidence of details such paste and may Answers in dot
further research as what the main not have written it in points; and/or
(i.e. looked in more business is, e.g. own words. Does not provide
than the not just retail or Written in own words overview of both
annual report) manufacturing but but only just companies.
Well written and details on what they gives an overview –
explained. sell or lack of
Logical and concise. manufacture, where thought/evidence –
they operate could do
etc. better.
A good summary
3. Financial Provides accurate Provides statements Provides statements as Provides extra
Statements information to as required. required. information, not
Income all financial Information Information just
Statement statements, well highlighted. highlighted but the required section
Balance sheet labeled and easy to Structure shown. unclear. (i.e. screen
Changes in read. Structure shown but shot of whole
equity Structure follow unclear. screen).
Cash Flow statements. The above may be Unable to read
Each statement on a given but not reports.
new page. following the Required
All in the correct statements so it is information is not
order. difficult to check highlighted in
against the different colors.
statement. Structure not
clearly shown for
all
statements.
Did not follow
instructions (this
includes
presentation of the
order
of statements)

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4. Show Easy to follow the Shows correct links. Only some linkages are Does not provide
linkages links, well set correct. all statements.
between out and professionally Does not show
statements presented. linkages or is
incorrect.
Did not ensure that
it was on a
single page.
Provided more than
one diagram.
Drew a new
diagram instead of
using the company
reports
Did not follow
instructions.

5. Other Gives a good account Identifies most key Identities some key Does not identify
information of the whole parts and parts of report; key parts of
in report report and what is in explains the or lists key parts only, report.
each section purpose. e.g.
without giving actual Chairman’s report,
details of the Managing’s
individual company. report, Auditor’s
e.g. An auditors report, etc
reports gives
assurance of the
validity of the
reports but not what
the auditor
said about the
company.

6. Content of Identifies all Identifies all Gets some components Does not identity
financial components correctly. components incorrect; all the correct
statements Gives a good correctly. and/or attempted components; and/or
explanation for all. Gives a good explanation but Does not try to
Succinctly presented explanation for lacking of substance. explain why a
and some Company info given particular
information for both separately component may be
companies indicating lack of prominent.
teamwork/did
not follow instructions.
7. Ratio All correct. All correct. Some incorrect; Does not complete;
analysis Formula and figures. Formula and figures. Correct but does not and/or
Well set out. Explanation or give the incorrect
Good explanation or measure but not formula figures, only calculations.
what it means what it means for the answer;
and what it means for the two and/or
companies.

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 the 2 Insufficient
companies. explanation.

8. Makes a clear Makes an Makes an investment Does not make an

Comparison decision investment decision decision but investment
and Justifies decision Justification could didn’t or only partly decision, or
investment using ratio be better stated why; Does not justify
decision analysis Some limitations. and/or limitations decision
Provides missing. Incorrect or
comprehensive irrelevant
limitations. comments.
9. Reflection/ Marker and student Some cells differ Many cells differ Did not complete
critical completely
assessment agree Students no need to Students no need to fill Students no need to
fill in this row in this row fill in this row
Students no need to
fill in this row
Overall Presentation and Presentation and Presentation and Poor presentation
presentation formatting at formatting at formatting and formatting;
of level above and high level. mostly concise. Not providing
information beyond Following all Sometimes providing sufficient
expectations. instructions. superfluous information;
Following all Concise. information. Providing
instructions. Well structured. Mostly well structured. superfluous
Concise. information;
Well structured (e.g. Structure does not
uses all flow.
correct headings) Evidence students
did not check doc
before submitting
e.g. heading and
page breaks in
weird places

Language, Exceptional and Clearly defined Defined paragraphs. Paragraphs not

grammar elegant use of paragraphs. Sequence is mostly defined;
English. Clear sequence. clear. Little or no
Clearly defined No grammatical and Some grammatical and sequence in text;
paragraphs. language language and/or
Clear sequence. errors. errors. Many grammatical
No grammatical and Complete Some references. and language
language references. errors
errors. Informal written
Complete references style.
using Harvard No references.
style.

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