Compare AGL and Genesis Energy Limited

Question: Discuss about the Compare AGL and Genesis Energy Limited. Answer: Introduction: Investment depends on the companys performance as every shareholder wants to have the better return on the investment. A companys better liquidity represents that the company has better stability in paying of the current debts. An investor will always want to invest in a company that can be better stable in paying of the current liabilities so that it can pay off dividends to the investors. Market performance also determines the investors choice in investing in a company that can be better choice to provide return on their investment. In this assignment the comparison of two companies are done to provide for the better option to the investors. Financial analysis of AGL Energy Limited and GENESIS Energy Limited: Income statement analysis of AGL ENERGY LTD (AGLNF) Fiscal year ends in June. AUD in millions except per share data. 2014 2015 Revenue 9543 10678 Cost of revenue 7227 7856 Gross profit 2316 2822 Operating expenses Other operating expenses 1337 2255 Total operating expenses 1337 2255 Operating income 979 567 Interest Expense 243 250 Other income (expense) 24 20 Income before income taxes 760 337 Net income from continuing operations 570 218 Net income 570 218 Income statement analysis of GENESIS ENERGY LTD (1G6) Fiscal year ends in June. NZD in millions except per share data. 2014 2015 Revenue 2002 2078 Cost of revenue 1339 1464 Gross profit 663 614 Operating expenses Other operating expenses 526 460 Total operating expenses 526 460 Operating income 137 154 Interest Expense 69 68 Other income (expense) 4 54 Income before income taxes 72 140 Net income from continuing operations 49 105 Net income 49 105 The income statement of AGL ENERGY and GENESIS ENERGY depicts that the revenue generated by the company has increased in the year 2015 in comparison to the previous year and. In the words of (Ritala 2012) the cost of generating the revenue has also increased substantially indicating that the firm has increased its investment in the distribution and marketing of goods to enhance the quantity of goods sold. Here, the gross profit has of AGL has increased in the year 2015 although GENESIS has witnessed a decrease in the same. As observed by (tefnescu-Mihil 2015) the net income has decreased this shows that the indirect expenses of the company were more in the year 2015 than the previous year and that of GENESIS has increased showing that the other expenses incurred were less. In the view of (Lew, Sinkovics and Kuivalainen, 2013) to meet the indirect expenses the gross profits of AGL ENERGY were used which in turn decreased the net income of the company. In the given table it is also evident that operating income of AGL ENERGY has also decreased in the year 2015 indicting that the cost of goods sold was more in 2015 than it was in 2014. According to (Liu and Yermack 2012) the operating expense of the company increased leading to a decrease in the net income generated by the company. On the other hand, as observed by (Kihm, Satchwell and Cappers 2016) the operating income of GENESIS increased due to decrease in the cost of goods sold. Balance Sheet Analysis of AGL ENERGY LTD (AGLNF) Fiscal year ends in June. AUD in millions except per share data. 2014 2015 Cash and cash equivalents 456 259 Short-term investments 114 156 Total cash 570 415 Receivables 1743 1894 Inventories 191 396 Prepaid expenses 32 40 Other current assets 716 714 Total current assets 3252 3459 Gross property, plant and equipment 7541 9289 Goodwill 2758 2792 Other long-term assets 218 180 Total non-current assets 10723 12374 Total assets 13975 15833 Short-term debt 45 442 Accounts payable 1106 669 Total current liabilities 2007 2373 Total non-current liabilities 4380 4645 Total liabilities 6387 7018 Retained earnings 2249 2175 Balance Sheet Analysis of GENESIS ENERGY LIMITED Fiscal year ends in June. AUD in millions except per share data. 2014 2015 Cash and cash equivalents 23 21 Short-term investments 20 34 Total cash 43 55 Receivables 216 188 Inventories 94 80 Other current assets 4 24 Total current assets 357 346 Gross property, plant and equipment 3253 3215 Goodwill 103 103 Other long-term assets 35 25 Total non-current assets 3272 3182 Total assets 3629 3528 Short-term debt 12 118 Accounts payable 158 Other current liabilities 231 34 Total current liabilities 247 310 Total non-current liabilities 1502 1393 Total liabilities 1749 1703 Retained earnings 540 499 In accordance to the balance sheet, the cash generated by AGL and GENESIS has decreased in the year 2015 as the company has increased its short-term investments. According to (Hawas and Tse 2016) the closing stock of the company has increased which indicates that the company is stocking more number of goods to meet the increment in the sales. On the other hand, as viewed by (Kuznetsova, Andreenko and Ilchenko 2013) the retained earnings of both the companies have decreased due to rise in the other expenses of the company. In the words of (Qiang, Jiajun and Hangyu 2014) the current assets of AGL have increased justifying the cause of decrease in the cash invested in the purchase of the same. As observed by (Biao 2013), the long term assets of both the companies have decreased indicating that the old assets were either sold or were written off by the companies. Growth, Profitability and Financial Ratios for AGL Energy Ltd Key Ratios - Profitability 2014 2015 Revenue 100 100 COGS 75.73 73.57 Gross Margin 24.27 26.43 Operating Margin 10.26 5.31 Liquidity/Financial Health 2014 2015 Current Ratio 1.62 1.46 Quick Ratio 1.15 0.97 Financial Leverage 1.84 1.8 Debt/Equity 0.48 0.39 Efficiency 2014 2015 Receivables Turnover 5.32 5.87 Inventory Turnover 44.61 26.77 Fixed Assets Turnover 1.54 1.54 Asset Turnover 0.7 0.72 Growth, Profitability and Financial Ratios for Genesis Energy Ltd Key Ratios - Profitability 2014 2015 Revenue 100 100 COGS 66.88 70.47 Gross Margin 33.12 29.53 Operating Margin 6.82 7.42 Liquidity/Financial Health 2014 2015 Current Ratio 1.45 1.12 Quick Ratio 1.05 0.78 Financial Leverage 1.93 1.93 Debt/Equity 0.52 0.46 Efficiency 2014 2015 Receivables Turnover 9.25 10.28 Inventory Turnover 14.27 16.85 Fixed Assets Turnover 0.65 0.68 Asset Turnover 0.55 0.58 In the given table, AGL and GENESIS are displaying a decrease in the quick ratio that has gone below one. In the words of (Songqin and Jingchang 2013) this shows that the liquidity of the company has decreased as the company has invested its cash in the purchase of assets. In the view of (Lane and Rosewall 2015), the current ratio of the company has decreased that indicates that the resources required by the companies to meet its current liabilities have declined. According to (Thompson 2016) the debt equity ratio of a company indicates the amount of debt the company is using to finance the purchase of the assets. In this regard, the debt equity ratios of both the companies have deceased showing that they have a strong equity position. In terms of investment, an investor always looks after the key ratios to judge the managing skills of the company in generating income. According to the analysis done, the liquidity and debt equity of AGL ENERGY LTD is better than that of GENESIS ENERGY LTD that in turn shows that AGL is more capable in handling its flow of cash as well as short-term debts. The current ratios of AGL ENERGY LTD are also more that means that the company has more capability in managing the short-term liabilities. In addition to that, the net income of AGL is greater than GENESIS clearly indicating that the former is more capable of generating profits. Hence, all things combined, it will be more profitable for an investor to invest in AGL ENERGY LTD than in GENESIS ENERGY LTD. Conclusion: In the above task, comparison is made between two companies to provide the insight in the investment option that is present for the investors. The financial analysis represents the present condition of the company and its performance that can make the investors to invest in that particular organization. Thus, the financial performance analysis shows that performance of the company in the market and the opportunity that the companies provide to the investors. Financial ratios are the main concluding factor that decides the investment option for the investors looking to invest in the organization. Recommendation: It is advisable for the investors to make investments in AGL ENEREGY LTD.According to above analysis is it seen that the AGL ENERGY LTD is better option for the investors to have a better return on the investment compared to the GENESIS ENERGY LTD. AGL ENERGY LTD is also found to be a better organization as the liquidity ratio of the company is higher and it can pay off the debts more effectively. This can in turn provide for better return options for the investors, as the dividends earned can be higher. Debt equity ratio of the company is also lower that shows the company is stable in it and is able to pay off its debts on itself and provide stability to the organization. It thus presents that the investors can better invest in the AGL ENERGY LTD as the return would be higher and dividend payment would have been higher. 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