Analysis Of Origin Energy Limited

Questions: 1.Select a company listed in the Australian Stock Exchange (ASX) and prepare a report covering aspects of the Management and directors of the company,Major shareholders,Compensation of directors and top executives,Key performance indicators and Evaluate the performance of the company? 2.Robert Alba just won the state lottery. He has been given the option of receiving either $62.9 million today or $5 million a year for the next 35 years, with the first payment paid today. Discuss the process that Robert should use to determine which payment option he prefers. Ignore all taxes and assume that Jesse will live for at least 40 more years? Answers: Introduction The assignment has taken origin energy limited for analysis. The company is formed by demerger of Boral limited which a conglomerate company is dealing into variety of products and services. The Origin energy limited is founded in 2000; it is headquartered in Sydney Australia. The chief executive officer of the company is Frank Calabria. The main business of the company is to deal in natural gas production and exploration, Australia Pacific, Queensland, Australia, energy retailing, and electricity generation. The company possesses 28th rank from 2000 company in Australia. Major part of the revenue is earned from supplying electricity supply in Australia industry. The given report describes about the management and directors of Origin energy limited, major shareholders. Here only those shareholders are considered who possess at least 5% of the shareholding in the company. The report provides a brief about the remuneration paid to its directors such as executive and non executive direc tors. Furthermore the report describes about the key performance indicators of the company. Here the report has focused on accounting and market in key performance indicators. At last the report provides conclusion in which it has concluded all the report in a summarized manner (Origin, 2016). 1. Management and directors of origin energy limited The board members of origin energy limited consist of executive and non executive directors. The executive directors of the company include: Grant King, Karen Moses, David Baldwin, Frank Calabria, G Mallet, D Bames and P Zealand. While the non executive director team consists of: S Perkins, S Sargent, R Norris, J Akehurst, M Brenner, G Claims, B Morgan, H Nugent and B Beeran. The non executive directors are responsible for audit, health, safety and environment (Origin, 2017). The executive directors are the members of the company and they held some responsibility in the firm. While in case of non executive directors are the member of the company but they do not held any responsibility in the company. However the legal responsibilities, liabilities and duties are same for both executive as well as non executive directors. Executive director held his/her position in executive board of the company, while non executive directors held his/her position in non executive board. Non executive directors aid the chairman and executive board in designing the effective strategies for the organization (Origin, 2010). Major shareholders Major shareholders are those shareholders who held at least 50% share holding in the company. These shareholders are also called as the owner of the company; these shareholders are majorly the key persons of the company such as chairman, chief executive officer, managing director, or promoter of the company. The reason behind such a high shareholding is to control the voting interest in the company. These shareholders impact the regular operations of the company by providing strategic and operational directions to the company management. The big shareholding is usually in case of large company or multinational company. In this analysis, the report has considered 5% shareholding of the origin energy limited. These shareholders are: HSBC Custody Nominees (Australia) Limited, JP Morgan Nominees Australia Limited, National Nominees Limited and Citicorp Nominees Pty Limited (IBIS world, 2016). The origin energy limited company has ordinary shares which ranges from 1-1000, 1000-5000, 5000-10000, 10000- 100000 and above 100000. The shareholding of such ranges are 74840, 75923, 12093, 6108, and 176 respectively. The bigger the range of shareholding in the company, it represents higher percentage. However following is a presentation over large shareholders which holds share in Origin energy limited of above than 5%. Shareholding pattern Name of shareholder Percentage HSBC Custody Nominees (Australia) Limited 17.92% JP Morgan Nominees Australia Limited 13.82% National Nominees Limited 9.66% Citicorp Nominees Pty Limited 4.76% Compensation of directors and top executives Compensation to the members of board and directors consists of a combination of fixed and variable pay. However the remuneration to be paid depends upon operating cash flows after tax, and earnings per share. The company pays two types of remuneration that is STI and LTI here STI is called as variable remuneration. This is because such remuneration is allowed after achieving of some set targets, while LTI is a fixed amount of pay. Following are the presentation of STI and LTI as paid by the company (Origin, 2016). The remuneration models of the company for its executive as well as non executive directors are as below: Remuneration table Executive director Name Basic pay Incentives Total G king 2478168 1393436 3871604 D Baldwin 1118480 1728243 2846723 F Calabria 1046655 1482536 2529191 G Mallet 84327 64352 148679 K Moses 1169595 1030558 2200153 D Bames 89094 221960 311054 P Zealand 605581 882892 1488473 Non Executive Director J Akehurst 239679 19500 259179 M Brenner 247680 19500 267180 G Claims 657680 52726 710406 B Morgan 275679 30303 305982 H Nugent 273680 19500 293180 S Perkins 188900 16280 205180 S Sargent 218679 19500 238179 B Beeren 61042 163591 224633 R Norris 56670 4688 61358 Key performance indicators The key performance indicators of the company are those factors which lead to competitive advantage for the company. It helps in achieving the business objectives of the company. In an organization there are two types of key performance indicators those are low performance indicators and high performance indicators. High performance indicators help in achieving the overall performance of the company, while low performance indicators are those which make their impact on company sales and revenue (Adedeji, 2014). The key performance indicators of the origin energy limited are natural gas, electricity and LPG. The company is considered as leading retailer of energy in Australia. It provides services to 4.2 million gas, electricity and energy accounts. The company is engaged in making its product and services as per technology such as compatible for roof top. Hence the company is engaged in making its products and services compatible for changing technology so to increase the brand image in the minds of consumer. The company by providing such facilities increases the loyalty and trust of consumer (Parmenter, 2015). In case of accounting, the key indicators of the company are in revenue, earnings before interest depreciation and tax and operating cash flow. The company has revenue in 2016 as 11.42 billion$ which is increased its revenue by 1% in comparison to previous year. In case of earnings before depreciation, interest and tax the company has $ 1.33 billion which has increased by 6% in comparison from previous year. While in case of operating cash flow the company has $1.39 billion which has increased in 2016 by 36%. Evaluation of the performance of the company For evaluation of financial performance the ratio that to be analyzed are: liquidity ratios, operating ratios, leverage ratio and investment ratio. In liquidity ratio, the report has made analysis of current ratio, quick asset ratio. In case of operating ratios, the report has considered operating return on investment, operating profit margin, total asset turnover. In leverage ratio, the report has calculated debt ratio, times-interest earned. While for shareholder return investment ratios are calculated, the report has calculated return on common equity, DuPont analysis of return on common equity (ROE). Current ratio: it describes the relationship between current assets and current liabilities of the company. It states that whether the current asset are sufficient to set off current liabilities of the company (Friedlob and Welton, 2008). Quick asset ratio: it is calculated by dividing quick asset from current liabilities. Quick asset are calculated by subtracting inventory from current assets. It defines the relationship between short term current asset and short term obligations of the company. Operation return on investment: this ratio is widely used due to its simplicity and versatility. Operating return on investment is calculated to find out the return on various investment made by the company. Operating profit margin: the ratio interprets the relationship between operating profits of the company and its net sales. Here operating profit is calculated by paying off the regular expenses of the organization (Nuhu, 2014). Total asset turnover: it describes the relationship between total assets and sales. It states the percentage of sales which can be earned by using total assets. Debt ratio: it is also called as solvency ratio; it is used to find out the relationship between total liabilities and total assets of the company. It interprets that whether the company has sufficient assets to fulfill all its liabilities (Tracy, 2012). Times-earned ratio: this ratio is also called as interest coverage ratio. It is used to find out the percentage of net profit that is used to pay off the interest expenses. It finds out the firms ability to pay off its interest liabilities and debt payment capability. Return on common equity: this ratio is used to find out the firms ability to generate profits from the capital invested by the shareholders. It can also be understood how much profit or earnings are made from the capital invested by the company shareholders (Business, 2016). DuPont analysis on common equity (ROE): it is an advanced version of return on equity. It is calculated by using net profit ratio, total asset turnover ratio, and debt ratio. This ratio is used to find out that whether the firm is earning sufficient net profits, whether it is using its net assets for generation of sales, and the financial leverages of the company (Dalabeeh, 2013). Origin energy limited Particulars Amount million$ Industry average 2016 2015 2014 current assets 3571 8321 3596 current liabilities 2889 5175 3709 inventory 248 239 287 quick assets 3323 8082 3309 operating income -177 -145 1200 total assets 28898 33367 31139 total liabilities 14368 19208 16010 interest expense 560 389 453 total equity 14530 14159 15129 net profit -576 -590 638 sales 11923 11893 14518 Ratio current ratio 1.24 1.61 0.97 quick asset ratio 1.15 1.56 0.89 operating return on investment -0.01 0.00 0.04 operating profit margin -0.01 -0.01 0.08 total asset turnover 0.41 0.36 0.47 0.44 debt ratio 0.50 0.58 0.51 2 times earned interest -0.32 -0.37 2.65 3.83 return on common equity -0.04 -0.04 0.04 Net profit ratio -0.05 -0.05 0.04 11.03 return on equity -0.01 -0.01 0.01 9.83 2. In the given case study Robert Alba has won a lottery in which he has given an option to either receive the 62.9 million$ today or to receive 5 million$ for 35 years. In the calculation done above, the formula for net present value is: (Arshad, 2012) Here: PV = present value C1= annual cash flow R = rate of return of present value N= number of years By analyzing the present value it is recommended that Robert should apply for the first option that is he should receive 62.9 million$ today rather than to receive 5 million$ for the next 35 years. The reason behind this is the difference in present value. In the given question, in absence of information it has been assumed that the present value factor is 10%. Hence by calculating net present value of equal cash flow of amount 5 million$ for 35 years, the present value comes out to be 48.22 million$, which is much lower than the total sum up money to be received today. Here the difference comes out as 14.68 million$ which is a great sum of money. Therefore it is recommended to Robert Alba to take the entire sum today only of 62.9 million$. Conclusion By analyzing over the report it has been analyzed that HSBC Custody Nominees (Australia) Limited has major shareholding in origin energy limited. The key performance indicators of the company are revenue, cost advantage, and technology. The company is highly committed towards winning the trust and loyalty of its customers. By analyzing the financial performances of the company it is concluded that current asset of the company has declined in 2016 due to fall in current assets in 2016 as compare to 2015. Due to negative operating profits in 2015 and 2016, the operating return, return on common equity, net profits has come out to be negative. By analyzing ratio with industry average it can be concluded that the company has good total asset turnover ratio, but in case of debt ratio, the company has very reduced debt ratio, which is due to high total assets. While in case of times earned interest, net profits and return on Equity Company is far back from industry standards. Hence by anal yzing all this, it is said that company must focus on its earning besides focusing on technological aspects, as earnings plays a considerable role in maintaining liquidity. While in case of Robert Alba, the entire sum as to be received today is recommended. References Adedeji, E, A,. (2014) A tool for measuring organization performance using ratio analysis, Research journal of finance and accounting, 5 (19), pp (16-22) Arshad, A,. (2012) Net present value is better than Internal rate of return, Interdisciplinary journal of contemporary research in business, Vol 4(8) Business. ( 2016) Analyze your finances: Financial Ratios. Retrieved from https://www.business.gov.au/info/run/finance-and-accounting/finance/analyse-your-finances-financial-ratios Dalabeeh, A, R,. (2013) The role of financial analysis ratio in evaluating performance (Case study: National chlorine industry), Interdisciplinary journal of contemporary research in business, 5(2), pp (13-28) Friedlob,G,T and Welton,R,E,. (2008) Keys to reading an Annual Report, Barrons Educational Series IBIS world,. (2016) Origin Energy Limited- Premium Company report Australia. Retrieved on 14th March, 2017 from https://www.ibisworld.com.au/australian-company-research-reports/electricity-gas-water-waste-services/origin-energy-limited-company.html Nuhu, M,. (2014) Role of ratio analysis in business decisions: A case study NBC Maiduguri plant, Journal of educational and social research, 4(5), pp (105-118) Origin,. (2010) Non-executive director remuneration. Retrieved on 14th March, 2017 from https://reports.originenergy.com.au/2010/shareholder_review/remuneration_report/non-executive_director/ Origin,. (2013) Investor information. Retrieved on 14th March, 2017 from https://reports.originenergy.com.au/2013/shareholder/investor-information/share-and-shareholder-information/ Origin,. (2016) Remuneration report. Retrieved on 14th March, 2017 from https://www.originenergy.com.au/content/dam/origin/about/investors-media/senate-submission-carbon-risk-disclosure-160331/remuneration_report_2016.pdf Origin,. (2016) Shareholders review. Retrieved on 14th March, 2017 from https://www.originenergy.com.au/about/investors-media/reports-and-results/shareholder-review.html Origin,. (2017) Board members. Retrieved on 14th March, 2017 from https://www.originenergy.com.au/about/investors-media/governance/board-members.html Origin,.(2014) Annual report 2014. Retrieved on 14th March, 2017 from https://www.originenergy.com.au/content/dam/origin/about/investors-media/annual-report-2014.pdf Origin,.(2016) Annual report 2016. Retrieved on 14th March, 2017 from https://www.originenergy.com.au/content/dam/origin/about/investors-media/full-year-results-appendix-4e-financial-statements-2016.pdf Parmenter, D,. (2015) Key Performance indicators: developing, implementing and using winning KPIs, John Wiley Sons, New Jersey Tracy, A. (2012). Ratio Analysis Fundamentals, Ratio analysis. Net