Comparison of Performance of Two Listed Companies

Question: Discuss about the Comparison of Performance of Two Listed Companies. Answer: Introduction AGL Energy Limited AGL is a 175 years old Australian company. It is the first listed company of Australia. It provides the reliable, safe and affordable energy options. It generates and distributes gas, electricity, solar panels, manufactures related products and provides services. It operates in four business segments; Retail, Merchant Energy, Upstream gas and Energy Investments. It is a big company having staff of 2968employees. It has plants to produce energy through renewal resources like hydro, wind, solar, landfill gas and biomass. Genesis Energy Limited It is a listed public company of New Zealand. It produces electricity and distributes electricity, Natural gas and LPG. It is the third largest electricity generation company of New Zealand. It operates since 1999. It has plants to generate hydroelectric, thermal and wind energy. Their names are Huntly Power Station, Tongariro Power Scheme, Waikaremoana Power Scheme, Tekapo Power Scheme, Hau Nui Wind Farm. It is a growing company having 650,000 customer connections across New Zealand. It has 31% stake in the Kupe Joint Venture, which owns Kupe oil and gas field. Ratio Analysis and Interpretation We can analyse the financial performance and position of the companies by calculating various ratios. Calculations and Inputs are shown in appendix. Net Profit Margin This ratio measures net profit as a percentage of sales. AGL: Net profit margin of AGL is 5.46 in 2014 and 2.04 in 2015 i.e. almost half of the previous year. This is a negative sign. Reason is that operating expenses and depreciation has been increased from last year. Genesis: Net profit margin of Genesis for the year 2015 is 5.04 i.e. almost double of the last year. The reason is increment in net profit because of Change in fair value of financial instruments and slight decrement in operating expenses. Return on assets It measures the net income produced by total assets during a period. It is calculated by dividing net income to the average total assets. It calculates a return on investment made by the company in Assets. High ratio is better. AGL: Return on assets of AGL is 4.15 in the year 2014 and 1.45 in 2015. Reason is decrement in net profits. Moreover company has purchased some assets during the year. Genesis: Return on assets of Genesis is 1.39 in the year 2014 and 2.93 in 2015 i.e. almost double of the last year. The reason is increment in net profit because of Change in fair value of financial instruments and slight decrement in operating expenses. This is a good sign. Current Ratio - It measures firms ability to pay its short-term liabilities from current assets. It should always be more than 1. High ratio indicates that the firm has more than enough assets to pay its short term liabilities. AGL: Current Ratio of AGL is 1.63 in the year 2014 and 1.46 in 2015. Reason is increment in current liabilities on account of borrowings and provisions. Genesis: Current Ratio of Genesis is 1.45 in the year 2014 and slightly decreased to 1.12 in 2015. The reason is decrement in Receivables and prepayments and high increment in borrowings. It can be taken as a negative sign. But on the other hand it can be said the company is using its resources more efficiently as compared to previous years. Quick Ratio It measures the ability of a company to pay its current liabilities with quick assets. Quick assets mean those current assets that can be converted into cash within 90 days or in the short-term. Quick ratio is also called the acid test ratio. High Ratio is better. AGL: Quick Ratio of AGL is 1.54 in the year 2014 and 1.29 in 2015. Reason is increment in current liabilities on account of borrowings and provisions, decrement of quick assets on account of cash and cash equivalents. Genesis: Quick Ratio of Genesis is 1.05 in the year 2014 and decreased to 0.78 in 2015. The reason is decrement in Receivables and prepayments and high increment in borrowings. It can be taken as a negative sign. But on the other hand it can be said the company is using its resources more efficiently as compared to previous years. Debt Equity Ratio - It compares company's total debt to total equity. It shows the percentage of financing that comes from outsiders. A higher ratio indicates that more outside sources are using for funding requirements. That is not a good sign. AGL: Debt Equity Ratio of AGL is 0.48 in the year 2014 and 0.39 in 2015. Reason for this improvement is decrement in the amount of debt. Genesis: Debt Equity Ratio of Genesis is 0.52 in the year 2014 and slightly decreased to 0.46 in 2015. The reason is decrement in the amount of outside debt. Equity Ratio It is the ratio of equity over Total Assets. This ratio implies the part of assets financed by equity i.e. insiders fund. High ratio is better. AGL: Equity Ratio of AGL is 0.54 in the year 2014 and 0.56 in 2015. Reason for this positive change is increment in equity amount and decrement in debt amount. Genesis: Equity Ratio of Genesis is 0.52 in the year 2014 and remains unchanged in 2015. Ratio is average as about 50% assets only are financed by equity. EPS EPS stands for earning per share. This is the ratio which calculates the earnings attributable to each equity share. AGL: EPS of AGL is 1.02 in the year 2014 and reduced to 0.33 in 2015 because of reduction in net profit. Genesis: EPS of Genesis is 0.05 in the year 2014 and increased to 0.10 in 2015 i.e. double. Reason for such change is increment in net profit. DPS - DPS stands for dividend per share. This is the ratio which calculates the part of earnings distributed on each equity share. AGL: DPS of AGL is 0.74 in the year 2014 and increased to 0.90 in 2015. Genesis: DPS of Genesis is 6.6 in the year 2014 and increased to 8 in 2015. Reason for such change is increment in net profit. Comparison of both the companies If we compare year 2015 figures of above two companies, the Net Profit Margin, Return on Assets, Current Ratio, Quick Ratio, Equity ratio, EPS, DPS of Genesis Energy Limited are much better then AGL Energy Limited. As per above ratios Genesis is a rising company. Conclusion On the basis of above analysis we would recommend to invest in Genesis Energy Limited. Genesis Energy Limited shows an increasing trend of profit. It has High returns on investments. Genesis is better than AGL. References com,(n.d.), Introduction of AGL, ,[online], Available athttps://www.agl.com.au/about-agl/who-we-are [Accessedon 26 August 2016] co.nz,(n.d.), Introduction of Genesis, ,[online], Available athttps://www.genesisenergy.co.nz/about-us [Accessedon 27 August 2016] org,(n.d.), financial ratios, [online], Available at https://en.wikipedia.org/wiki/Financial_ratio [Accessed on 27 August 2016]