Management Decision Making AGL Energy Limited

Question: Discuss about the Management Decision Making for AGL Energy Limited. Answer: Introduction This study deals with financial statement analysis and ratio analysis of two Australian-listed companies in the energy sector. The two selected Australian companies are AGL Energy Limited and its competitor namely Genesis Energy Limited. AGL Energy Limited is an Australian listed company operating as leading energy companies (Agl.com.au, 2016). This particular company operates and developer of renewable energy generation in and around the country. This energy company generates electricity from major power stations and usage of thermal power such as natural gas, hydroelectricity as well as wind power and coal seam gas sources. This company has large investments especially in gas supply as well as electricity as developer of renewable energy assets. Genesis Energy Limited is listed in NZX and ASX (Genesis Energy, 2016). This particular energy company is the largest electricity as well as natural gas retailer in New Zealand. It has market share of 26% and 42% for the year 2014 and 2015 respectively. It is listed as electricity generation as well as electricity especially for natural gas and LPG retailing company in the most appropriate way. Genesis Energy has extreme customer experience business especially in Kupe oil and gas field. This company has diversified electricity generation portfolio as well as New Zealand largest electricity in customer base in an effective way. Financial Ratio Analysis Profitability Ratio Return on Assets (Calculation shown in the Appendix) The table (as shown in the appendix) indicates the change in return on assets for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. In the year 2014, AGL Energy Limited has return on assets amounting to 0.0137 and -0.027 in the year 2015. In the year 2015, AGL Energy Limited has negative figures that are not favorable for future financial years (Agl.com.au, 2016). In case of Genesis Energy Limited, return on assets is 0.0135 in the year 2014 and 0.0297 in the year 2015. Genesis Energy Limited has higher return on assets that is more favorable for investors as it indicates company in managing its assets in producing greater amounts of net income (Waegenaere, Sansing, and Wielhouwer 2015). This company has positive return on assets because it indicates an upward profit trend in the near future. Net Profit Margin (Calculation shown in the Appendix) The table (as shown in the appendix) indicate the change in Net profit margin for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. In the year 2014, AGL Energy Limited has net profit margin amounting to 0.0204 and -0.036 in the year 2015. In the year 2015, AGL Energy Limited has negative figures that are not favorable for future financial years. In case of Genesis Energy Limited, net profit margin is 0.0244 in the year 2014 and 0.050 in the year 2015. Business organization strive its best in achieving higher ratios. Both the companies lacks high net profit margin but Genesis Energy Limited has better because AGL Energy Limited has negative figures that proves unfavorable condition (Pratt 2013). Liquidity Ratio Current Ratio (Calculation shown in the Appendix) The table (as shown in the appendix) indicate the change in current ratio for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. Comparison is made between these two companies for understanding the liquidity position in the most appropriate way. In the year 2014, AGL Energy Limited has current ratio amounting to 1.45 and 1.40 in the year 2015 (Agl.com.au, 2016). In case of Genesis Energy Limited, current ratio is 1.44 in the year 2014 and 1.11 in the year 2015. As far as current ratio is concerned, it has been noticed that AGL Energy Limited is closer to the ideal current ratio figure (Horngren et al. 2013). Quick Ratio (Calculation shown in the Appendix) The table (as shown in the appendix) indicate the change in quick ratio for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. By comparing both the companies, it has been noticed that AGL Energy Limited has better liquidity position in comparison with Genesis Energy Limited. In the year 2014, AGL Energy Limited has quick ratio amounting to 1.29 and 1.24 in the year 2015 (Agl.com.au, 2016). In case of Genesis Energy Limited, return on assets is 1.064 in the year 2014 and 0.86 in the year 2015. High quick ratios are mostly favorable that indicates more quick assets in comparison with current liabilities (Hoggett et al. 2014). Capital Structure Debt to Equity Ratio (Calculation shown in the Appendix) The table (as shown in the appendix) indicate the change in debt to equity ratio for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. By comparing both the companies, it has been noticed that AGL Energy Limited has better solvency position in comparison with Genesis Energy Limited. In the year 2014, AGL Energy Limited has debt to equity ratio amounting to 0.44 and 0.45 in the year 2015 (Agl.com.au, 2016). In case of Genesis Energy Limited, debt to equity ratio is 0.4819 in the year 2014 and 0.4827 in the year 2015. It is advisable that AGL Energy Limited has low debt to equity ratio that is favorable for future financial years. Lower debt to equity ratio is most favorable and implies financially stable business (Graff 2015). Higher debt to equity ratio considers as risky to creditors as well as investors in comparison with lower ratio. Debt financing involves debt servicing as well as regular interest payments. Companies with large debt amounts fails in making payments in the most appropriate way. Equity Ratio (Calculation shown in the Appendix) The table (as shown in the appendix) indicate the change in equity ratio for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. Comparison is made between these two companies for understanding the solvency position in the most appropriate way (Agl.com.au, 2016). Both the companies has equal amount of equity ratio for both the years 2014 and 2015. Equity ratio mainly highlights financial concepts of solvent as well as sustainable business. Companies should try in availing higher equity ratios because of less financing as well as debt service costs in comparison with equity ratios (Deegan 2013). Ratios are mostly contingent to industry and depend mainly on industry standards as well as benchmarks (Genesis Energy, 2016). Market Performance (Calculation shown in the Appendix) Earnings per share The table (as shown in the appendix) indicate the change in earnings per share for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. Comparison is made between these two companies for understanding the market structure position in the most appropriate way (Genesis Energy, 2016). By comparing both the companies, it has been noticed that AGL Energy Limited has better market structure position in comparison with Genesis Energy Limited. In the year 2014, AGL Energy Limited has earnings per share amounting to 0.33 and 0.23 in the year 2015 (Agl.com.au, 2016). In case of Genesis Energy Limited, return on assets is 0.1 in the year 2014 and 0.12 in the year 2015. Higher earnings per share indicate the stock price of a company (Deegan and Ward 2013). Dividends per share The table (as shown in the appendix) indicates the change in dividends per share for the given year 2014 and 2015 for both the companies named as AGL Energy Limited and Genesis Energy Limited. Comparison is made between these two companies for understanding the market structure position in the most appropriate way (Barth 2015). By comparing both the companies, it has been noticed that AGL Energy Limited has better market structure position in comparison with Genesis Energy Limited. In the year 2014, AGL Energy Limited has earnings per share amounting to 0.59 and 0.68 in the year 2015 (Agl.com.au, 2016). In case of Genesis Energy Limited, return on assets is 0.079 in the year 2014 and 0.8 in the year 2015. Comparison of the quantitative analysis for AGL Energy Limited and Genesis Energy Limited It is important to understand the fact that AGL Energy Limited and Genesis Energy belongs to the same energy sector and listed in Australian Stock Exchange (Baber, Liang and Zhu 2012). Ratio analysis is calculated and interpreted to bring real assumptions of data pertaining to both the business organization. Quantitative data collection method is used by extracting the figures from annual reports of company websites of AGL Energy Limited and Genesis Energy Limited (Genesis Energy, 2016). This means that both the companies compete against each other in day-to-day running of business organization (Atrill and McLaney 2014). Conclusion At the end of the study, it is concluded that AGL Energy Limited and Genesis Energy Limited comes under the same sector and needs improvements in the upcoming financial years. These two companies require in bringing change in their profitability, liquidity and solvency attributes for smooth functioning of business organization. Recommendations It is recommended that investors should invest their money in AGL Energy Limited as it is having better solvency position in comparison with Genesis Energy Limited. Addition to that, AGL Limited has better liquidity as well as market performance position than Genesis Energy Limited. It is also important to consider the fact that Genesis Energy Limited has better profitability position than AGL Energy Limited as it has negative figures in the given years. Reference List Agl.com.au. (2016).AGL Energy Limited. [online] Available at: https://www.agl.com.au [Accessed 26 Aug. 2016]. Atrill, P. and McLaney, E., 2014. Accounting and Finance: An Introduction. Pearson Higher Ed. Baber, W.R., Liang, L. and Zhu, Z., 2012. 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