management

Executive Summary

Introduction

• You are an equity portfolio manager investing within the ASX and using Eikon online (web version).

• The active portfolio is created based on the selected securities by your group. Your initial fund to be invested is $100,000,000 AUD.

• You must conduct an active style of portfolio management using fundamental analysis and technical analysis to outperform the benchmark S&P/ASX 20.

• You need to identify yourself as a value or growth investor, combination of both. You will also need to justify your choice

• You will be using the top-down approach

• You must select 9 out of the ASX20 securities (list is on CANVAS) to create your equity portfolio.

 

Project Goal & Strategies

To outperform the benchmark S&P/ASX 20 through conducting an active style of portfolio management using fundamental analysis and technical analysis.

To begin, we will identify the type of investor we are;

·          The idea of growth investing is to focus on a stock that is growing with potential for continued growth

·         Value investing seeks stocks that the market has underpriced and have the potential for an increase when the market corrects the price

·         Investing in growth stocks incurs the possibility of losses because their prices are sensitive to changes in current or expected earnings

·         Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor.

·         Hence, the ideal solution is to utilize both value and growth investing in long term so that investors can benefit from the economic cycles where the scenario may either favor value or growth stocks

·         This can be done by combining both value and growth stocks in a portfolio to achieve higher returns with less risk – fully diversified portfolio

Next, we will use the top-down approach to construct our portfolio.

Top-Down Approach

1.       Economic Analysis – determine the overall direction of the economy and identifies the industries and sectors of the economy offering the best investment opportunities

2.   Industry Analysis - assesses specific prospects and potential opportunities within the identified industries and sectors

3.       Company Analysis – analyze and select individual stocks within the most promising industries

Economic Analysis

GDP

 

Inflation

 

Interest Rates

 

Monetary Policies

 

Currency Movements

Industry Analysis

 

Company Analysis

Stock Evaluations

Company 1: Telstra Corporation 

Telstra Corporation is a value company since comparing its P/E with the peers, it’s below the average which means consumers are not willing to pay more for each one unit of Telstra goods. 

Ratio analysis 

 

Years	Current ratio	Quick ratio	Total asset turnover ratio	Gross profit margin ratio	ROE
2015	0.86	0.80	0.64	73.2%	28.9%
2016	1.02	0.96	0.62	72.0%	25.1%
2017	0.89	0.83	0.61	70.5%	25.9%
2018	0.83	0.77	0.61	67.7%	25.0%
2019	0.76	0.72	0.59	63.8%	14.8%
Median	0.86	0.79	0.52	56.7%	10.7%

 

There is an increase in Current ratio in Telstra Corporation over 2015 to 2016, but a constantly decrease after 2016 until 2019, it means the Telstra company has the best condition which current assets were able to efficiently cover the current the current liabilities, but after 2016, The Telstra corporation’s current assets has experienced a constant decline hitting to the 2019. According to the news in 2017, Telstra Corporation Ltd, posted an unexpected 11.8 percent fall in first-half profit, dragged down by falling revenues for its mainstay fixed-line and mobile telephone business (First republic news 2017). Since in 2017, Telstra corporation’s revenue has decreased, it would effect on the effectiveness of using current assets to cover its current liabilities, as revenues are part of current assets , it is inefficient to cover the current liabilities without sufficient revenues in the current account, in 2019, Telstra’s profit sunk to the lowest since 1997, this means Telstra continued lost their effectiveness of using the current assets, what is more, by comparing to the peers in terms of the industry average, the current ratio of Telstra is lower the average but just a 0.10 gap which states that Telstra has almost performed moderate in the using of current assets to cover their current liabilities. 

 

This graph has a similar trend with the Current ratio trend graph over the 2015-2016 which means Quick ratio has a strong connection with the current ratio, it means the effectiveness of adjusting current assets by removing less liquid assets, at this point, Quick ratio of Telstra followed the same trend with current ratio of Telstra, which basically means the impacts happened on current ratio have influenced the quick ratio as well, by comparing it with the industry mean, Telstra has relative more less liquid assets than the market average. 

 

From the graph, it can be seen that the total asset turnover ratio trend of Telstra Corporation tended to be stable but a bit drop during the period from 2015 to 2019, Comparing the condition with the peers, its ratio in 2019 is higher than the average which means during the years, Telstra Corporation company has experienced moderate effectiveness of using its total asset base, with effectively using one unit of asset to generate more efficient sales. According to the financial results presentation from Telstra, it has reduced the fixed costs by $700 million, improved the customer experience and simplified their operations and products, this has impacted on the Telstra’s sales, Telstra has experienced using less costs of one assent to generate more unites of sales over the period. By comparing it with the industry average, it is beyond the average which indicates that Telstra has an advantage of effectiveness of using their total asset base to generate more sales, the assets have been relatively effective used over the period   

From the table, it is suggested that the gross profit margin ratio trend of Telstra Corporation has constantly decreased over the period 2015-2019, in this situation, it is illustrates that the amount of profit on sales have went down slightly, in 2019, according to the News, Telstra’s profits have sunk to their lowest level since it was privatized in 1997, around $600 million of the decline in earnings was due to the impact of the NBA roll out, but excluding this factor the decline was about 4 percent (Duke 2019), by comparing it with the industry mean, it is greater than the data which indicates Telstra’s marginal profit has excessed the market average, apart from the drop in gross profit margin ratio over the period, but a look at the overall with comparing to the market, Telstra has experienced a good condition of profits generation. 

 

From the graph, it is clearly can be seen that the return on equity trend of Telstra Corporation has been fluctuant over the period 2015- 2019, there was a bit drop from 2015 to 2016, after it. During 2016-2018, it has been stable with a slightly fluctuation, However, there was a significant decline between 2018 to 2019 from 25% to 14.8%, according to the News, Telstra’s share price closed down almost 2 per cent on Monday after the Australian Competition and Consumer Commission revealed it would continue controls on the telco massive copper network for further 5 years, Telstra’s loss of its network monopoly has been accounted by the price of NBN plans and a sudden surge in competition in the market (Fernyhough 2018), by comparing it with the industry average, Telstra’s ROE is still higher than the average, even though the decline of share’s price for Telstra over the last 3 years, but in the overall, it was still operated better than the average, their shareholders were still getting more profits than the most of the other peers in the market. 

Technical analysis

 

As we can see from the table, the green line stands for 200 days moving average, and 50 days stands for 50 days moving average. It is can be seen that at 11 October 2018 and at 07 February 2019, the 50 days line crossed the 200 days line from bottom to top, which means this two points are buying points, Telstra company performed better in the most recent period, it is also can be seen that their volumes of shares were standing out comparing to the recent volumes of dates. At 11 October 2018, Telstra announced that the company would set target for management and delivering lasting value to their shareholders (Mullen 2018). At 07 February 2019, Telstra planed $160 m spend on Victoria mobile network projects, this would acerbate the economy (Varghese 2019). What is more, there was a selling point where the 50 days moving average line crossed the 200 days moving average line from top to bottom at about 09 January 2019, which indicates that the Telstra company performed worse than the most recent period, in order to make ideal profits for the shareholder, they should sell their shares at around that day, from this table, it is also can be found that at that selling point, it has the lowest volumes when compared it with the most recent dates within January, according to the news, The federal government ban on Chinese company Huawei means the merger between Vodafone and TPG is needed to create to scale to build a third 5G network with wide coverage to compete with Optus and Telstra, this would risking leaving Australia with two main mobile networks in Telstra and Optus, with Vodafone a distant third( Fernyhough 2019).

Company 2: Woodside Petroleum

Is a growth company because the P/E is greater than the average P/E:16.33   DIV VIELD: 8.14%

 

	Current ratio	Quick ratio	Total asset turnover ratio	Gross profit margin ratio	ROE
2014	2.08	1.96	0.31	61.2%	15.5%
2015	0.83	0.70	0.21	38.9%	0.2%
2016	0.93	0.78	0.17	45.2%	6.0%
2017	0.97	0.79	0.16	50.6%	7.1%
2018	2.31	2.16	0.20	50.3%	8.4%
Mean	1.25	1.03	0.42	44.3%	13.2%

 

From this graph, it is stated that comparing with the industry average’s current ratio, Woodside petroleum company performed relatively well in the most recent period, however, looking back to the period between 2014 and 2015, there was a significant drop with 1.25 gap coming up, at this point, which means during 2015, Woodside petroleum has experienced relatively bad condition which current assets were not efficient to meet their account payables, because in there was a significant falling prices in oil resulted in the reduction of current assets. After a stable increasing trend of current ratio between 2015 and 2017, However, there was a significant rising point which was in 2018, current ratio of Woodside petroleum companied increased to 2.31 from 0.97 in 2017, which indicates during year 2018, Woodside petroleum company got enough current assets to cover their current liabilities, Because of the ramp up of the Wheatstone liquefied natural gas project and higher oil prices, Woodside petroleum’s revenue in the second quarter rose 20 per cent in 2018, which means that the current assets have increased so that the effectiveness of using current assets to cover its current liabilities have increased ( Reuters 2018). 

 

From the table, it is can be seen that Woodside petroleum company’s quick ratio is higher than the average in the market peers industry, which means Woodside petroleum company has an advantage of adjusting current assets by removing their less liquid assets, they could use their liquid current assets to cover the current liabilities quickly, this is because of the Wheatstone liquefied natural gas project and higher oil prices, Woodside petroleum’s revenue in the second quarter rose 20 per cent in 2018 (Reuters 2018). 

 

It is can be seen from this table, the total asset turnover ratio trend has experienced a constant decreasing trend over the period from 2014 to 2017, which means the effectiveness of Woodside petroleum using of their total asset base to generate sales has showed a gradual decreasing trend, this is because after the rapidly decreased prices in oil in 2014, Woodside petroleum’s revenues have decreased. However. There was an increase of 0.40 in total asset ratio, at this point, indicating that the Woodside petroleum company got more efficient of using assets to generate sales, according to the News, Woodside has been focused on delivering targeted cost saving and value enhancements, unite production costs dropped sex per cent from 2016 to $US 4.90 per boe (Mehra 2017). By comparing the ratio to the market average, it can be seen that the Woodside petroleum was twice lower than the profit, this means the effectiveness of using total asset base to generate sales of Woodside Petroleum Company is not relatively efficient. 

 

From this table, it is can be seen that there was a significant drop between year 2014 to 2015, this means the rate of profit on sales have gone down, this is because the falling global oil prices helped drive local share market sharply lower, Woodside lost 3.6 per cent ahead of its full-year results in 2015 ( Frazer 2015).  however, after year 2015, there was a trend showing up a stable increasing trend over the period from 2015 to 2018 with a slight 0.3% drop at the end of 2018, by comparing it to the industry average, it was higher than the mean, which indicates the rate of profit on sales of Woodside petroleum was preforming better than the peers in average, Woodside remained a well-run business, with a strong balance sheet and a suite a quality producing assets, majority of the assets were off the coast of North Western Australia, Woodside’s growth strategy assumed strong ongoing global demand for natural gas, those actions have drove Woodside company to growth after losing its  profits due to global oil effect in 2014 (Wilson&A.S). 

 

From this table, it is can be seen the trend of ROE was relatively fluctuant,  there was significant 15.3% of drop in ROE, this means the company has experienced a giant change in the amount of money that would be returned to the woodside petroleum’s shareholders, because of the falling in oil prices in 2014 has had decreased the revenues of Woodside petroleum,however, after year 2015, there was a gradual increasing trend over the period from 2016 to 2018, even though it was still lower than industry average, but a increasing trend showing up means the company’s amount of money that would return to the shareholders was stably increasing, according to the News. Woodside Petroleum has reported a 25 per cent jump in third-quarter revenue, underpinned by rising output at the Wheatstone liquefied natural gas project and higher oil and the prices of LNG, revenue rose to $1.16 billion in 2018 which made Woodside petroleum’s profit increased so that the return on equity has increased as well (Reuters 2018). 

Technical analysis 

There was a buying points at 15 February 2019 where the 50 days moving average line crossed the 200 days moving average line with a heavy volume supported, at this day the woodside petroleum company was performing better than the most recent period so that shareholders should buy more stocks in order to make maximum profits, according to the news, Woodside Petroleum chief executive has declared 2019 “the year of the deal” since the oil and gas producer sought to nail down the sale of stakes and announced a bumper dividend payout to shareholders(M.S 2019).

There were two Selling points which one was at 30 November 2018 and another at 09 August 2019, at those two days, the woodside petroleum company was performing worse than the most recent period with a small amount of volume supported. At those two points, shareholders should sell their holding shares to the public in order to reduce the rise of losses, according to the news, the trade war between China and America made Chinese currency tumble beyond the 7-per-dollar level in a decade which made the imports for Oil in China decreased which has had a big influence on Woodside Petroleum (Kelly 2019). 

 

Company 3: Woolworths group ltd

Is a growth company, P/E is greater than the average  

P/E:33.5 DIV VIELD: 3.88%

 

	Current ratio	Quick ratio	Total asset turnover ratio	Gross profit margin ratio	ROE
2015	0.84	0.30	2.39	27.5%	21.9%
2016	0.83	0.32	2.20	28.2%	19.4%
2017	0.80	0.33	2.36	28.9%	15.8%
2018	0.78	0.31	2.45	29.3%	16.0%
2019	0.73	0.23	2.56	29.1%	14.4%
Mean	0.82	0.43	2.16	28.5%	11.6%

 

From this table, it is can be seen that the ROE ratio has been gradually decreasing over the period from 2015 to 2019, this is because Woolworth continued to face the pressure from weak consumer spending and price competition, Woolworth is currently underlying net profit, which excludes one-off items, went down to A$1.49 billion in 2019 from A$1.61 billion before(Reuters 2019), because the net profit has went down, the return to shareholders also decreased, however, by comparing it to the industry average, it is still higher than the average which means that even though the amount of money that would be returned to the shareholders of Woolworth company has been decreasing, but in overall it was still performing relatively well than the market average.

 

From this table, there was a stable decreasing current ratio trend over the period from 2015 to 2019, comparing it to the industry peer average, it is concluded that the Woolworth group company was not able to efficient cover their current liabilities by adjusting their current assets, under the trend, according to the news, Woolworths is splashing $10 million on training ahead of the biggest restructure to its layout and staffing in nearly a decade (Hall 2019), under this structure, Woolworth’s current assets has decreased so that the effectiveness of using current assets to cover its current liabilities has decreased as well. 

 

From this table, it is can be seen that there was a stable increasing quick ratio trend over the period between 2015 to 2017, after that, there was a decreasing trend between 2018 to 2019, at 2019, it has reached the lowest ratio over the most recent five years, comparing it to the market peers average , it is can be concluded that Woolworth has had a weakness of using their adjusting current assets by removing their less liquid assets. 

 

From this table, it is can be seen that the total asset turnover trend was fluctuant, between 2015 to 2016, there was a decline of 0.19 in the total asset turnover ratio, however, over the periods between 2016 to 2019, there was a gradual increasing trend in the total assent turnover ratio of Woolworth group company, by comparing it to the industry mean, the total asset turnover ratio was greater than the average, which indicates that the Woolworth group company has efficiently generated its total asset base to manage more sales, the profits of Woolworth has increased over the most recent period. 

 

From this table, it is can be seen that the gross profit margin ratio has gradually increased with a bit decline over the period from 2015 to 2019, it is stated that the rate of profit on sales of Woolworth group company has gradually increased, the decline between 2018 and 2019 was because of Woolworth has suffered as the economy of Australia hit a soft patch in the year 2018 pressured by a property market slump, weak consumer spending and slackening global demand (Dludla 2019). By make a comparison with the industry peer performance average, it was greater than the average which means the Woolworth group company has experienced a well condition which the margin profit returned to the one unite of sale was higher than the average, this is also stated the operating profitability of Woolworth Group Company is relatively well and stable. 

Technical analysis: 

 

There was a Buying point at 30 November 2018 with a heavy volume of 9929962 supported, according to the recent news, during that period, Woolworths and The world Wide Fund for Nature Australia have partnered to further improve stable sourcing in the sector, it would make it easier for consumers to make a decision on seafood (Lucio 2018).

There was a Selling point at 22 October 2018 with a lower volume of 1280338 behind, according to the news, Coles posted best quarterly sales growth since January 2016 as promotional toy offerings proved to be a big hit, Coles has caught Woolworths flat footed (Westbrook 2018).

References; 

Frazer, S 2015, ‘Falling global oil prices help drive local share market sharply lower’, ABC, viewed from<   https://www.abc.net.au/news/2015-08-20/falling-global-oil-prices-help-drive-local-share-market-lower/6712808> at 16 of September 2019

Wilson J &Soh. Amp, B 2015, ‘Value Investor: Woodside’s woes’, The Australia, viewed from<https://www.theaustralian.com.au/business/business-spectator/news-story/value-investor-woodsides-woes/0612cfb57be9ac396addc4f2eb170344> at 16 of September 2019 

Reuters, 2018, ‘Oil price rise, Wheatstone pump up Woodside revenue’, The West Australia, viewed from<https://thewest.com.au/business/energy/oil-price-rise-wheatstone-pump-up-woodside-revenue-ng-b88994536z> at 16 of September 2019. 

Reuters, 2018, ‘Woodside Petroleum revenue boosted by Whetstone, oil prices’, The Sydney morning herald, viewed from< https://www.smh.com.au/business/companies/woodside-petroleum-lifts-second-quarter-revenue-20180719-p4zsej.html> at 16 September of 2019

Mhra, P 2017, ‘Woodside lifts payout as profit glows’, The West Australia, viewed from< https://thewest.com.au/business/markets/woodside-hy-profit-jumps-49-to-us507m-ng-s-1760505>   at 16 of September 2019.

Macdonald-Smith, A 2019, ‘Woodside Petroleum turns dealmakers as it pushes forward on LNG’, Financial Review, viewed from<https://www.afr.com/companies/energy/woodside-petroleum-turns-dealmaker-as-it-pushes-forward-on-lng-20190214-h1b9pn> at 17 of September 2019. 

Kelly, S 2019, ‘Oil fall 3% as trade war concerns hit demand outlook’, Reuters, viewed from<https://www.hellenicshippingnews.com/oil-falls-3-as-trade-war-concerns-hit-demand-outlook/> at 17 of September 2019.

First Republic News 2017, Reuters, accessed from <https://www.reuters.com/article/telstra-results-idUSL4N1FO1SN> at 09 of September 

Duke, J 2019, ‘Telstra profit down 40 percent, warns a big impact from NBN in 2020’, The Sydney Morning Herald, viewed from 

https://www.smh.com.au/business/companies/telstra-profit-down-40-per-cent-warns-of-big-impact-from-nbn-in-2020-20190815-p52h8k.html at 09 of September 2019. 

Fernyhough, J 2018, ‘Telstra shares fall after ACCC extends copper network regulation’, Financial Review, viewed from<  https://www.afr.com/companies/telecommunications/telstra-shares-fall-after-accc-extends-copper-network-regulation-20181126-h18djb> at 09 of September 2019. 

Mullen, J.P 2018, ‘Letter to Shareholders’, viewed from< https://apac1.apps.cp.thomsonreuters.com/web/pdfReuters/pdfnews/pdfnews.asp?i=43059c3bf0e37541&u=urn%3Anewsml%3Areuters.com%3A20181010%3AnNZW2gmG4k&enowpopup>at 17 of September 2019

Varghese, S 2019, ‘Telstra plans $160 m spend on Vic mobile network projects’, iTwire, viewed from<https://www.itwire.com/business-technology/85967-telstra-plans-$160m-spend-on-vic-mobile-network-projects.html> at 17 of September 2019

Fernyhough, J 2019, ‘Huawei ban will leave TPG struggling, warns Vodafone’, Financial Review, viewed from<https://www.afr.com/companies/telecommunications/huawei-ban-will-leave-tpg-struggling-warns-vodafone-20190108-h19uru> at 17 of September 2019

Lucio, R 2018, ‘Woolworths takes action on sustainable seafood’, FMCG, viewed from <https://insidefmcg.com.au/2018/11/27/woolworths-takes-action-on-sustainable-seafood/> at 17 of September 2019 

Westbrook, T 2018, ‘Promotional toys boost sales for Australia’s Coles ahead of listing’, Reuters, viewed from< https://www.reuters.com/article/wesfarmers-results/update-2-promotional-toys-boost-sales-for-australias-coles-ahead-of-listing-idUSL3N1WU0J6> at 17 of September 2019. 

Reuters, 2019, ‘Woolworth’s posts 7.5% lower annual profit’, Investing.com, viewed from https://au.investing.com/news/stock-market-news/woolworths-posts-75-lower-annual-profit-1946588  at 16 of September 2019

Hall, J 2019, ‘Woolworths investing $10 million on training and store restructures’, NEWS, viewed from< https://www.news.com.au/finance/business/retail/woolworths-investing-10-million-on-training-and-store-restructures/news-story/b140f1b4b1c7bfd4c1d6c9becd8a7f5c> at 16 of September 

Dludla, N 2019, ‘Woolworths sees annual profit hit, writes down Australian business’, Reuters, viewed from<https://www.reuters.com/article/woolworths-hld-results/update-2-woolworths-sees-annual-profit-hit-writes-down-australian-business-idUSL8N24X25E> at 16 of September 2019

 Company 4: South32 Ltd

Company 5: Scentre Group

Company 6: RIO

Company 7: CSL Limited:

Description: CSL LIMITED (CSL) is a growth organization situated in the Health Care sector, Australia and is a renowned international specialty biotechnology business enterprise. It inspects, exhibits, manufactures, and sales outputs to treat as well as avert severe rational medical statuses.

Ratio analysis:

Years	Current ratio	Quick ratio	Total asset turnover ratio	Gross profit margin ratio	ROE
2015	3.57	1.69	0.89	53.7%	46.7%
2016	2.78	1.21	0.88	50.1%	46.8%
2017	2.84	1.25	0.83	51.9%	46.7%
2018	2.61	1.20	0.80	55.4%	47.7%
2019	2.53	1.14	0.74	56.0%	41.1%
Mean	2.87	1.30	0.83	53.42%	45.80%

Current Ratio is 2.53 [CSL Ltd (CSL) Financial Ratios. (n.d.).]

2.53 - current ratio is a healthy indicator of the company’s solvency. It means that the current assets of that company more than double than its short-term obligations. So CSL has good liquidity.

Total asset turnover Ratio: 0.74 [CSL Ltd (CSL) Financial Ratios. (n.d.).]

The ratio is very low. We can conclude that the sales value of the company is poor in comparison to the asset’s value. It indicates that every $1 value of assets produces $0.74 value of revenue.

The quick ratio is satisfactory. CSL is able to pay off its current liabilities by way of its liquid assets. Gross Profit has crossed the average target of 50%, so we can say that the company is able to sustain a stable direct cost margin over its sales. The ROE margin is very strong and it is higher than the average.

Technical Analysis:

In the chart, the green line stands for 200 days moving average, and 50 days stands for 50 days moving average. It is can be seen that in the last 6 months, the 50 days moving average line crossed the 200 days moving average line from slight bottom to top, which indicates that there is a buying point. The P/E ratio is 38.08 and it signifies a yield of 2.6%. The company is technically solvent and the operating performance is above industry margin. So buying this stock can be beneficial for long-term period.

Company 8: Insurance Australia Group Ltd. (IAG):

Description: Insurance Australia Group Limited (IAG) is a Sydney based global insurance organization. IAG is a growth firm that trades a variety of financial insurance services across Australian territory.

Ratio analysis:

Common Sized Statement Analysis:

Common-sized Income Statement:
Quarterly result: (in million AUD)
Period Ending:	2019	2018	2018	2017
	30/06	31/12	30/06	31/12
Total Revenue	8780	8502	8252	7799
Total Premiums Earned	8537	8382	8132	7658
Net Investment Income	243	120	120	141
Realized Gains (Losses)	-	-	-	-
Other Revenue, Total	-	-	-	-
Total Operating Expenses	7889	8061	7631	7010
Losses, Benefits and Adjustments, Total	8028	7988	7577	7036
Amortization of Policy Acquisition Costs	-	-	-	-
Selling/General/Admin. Expenses, Total	101	92	118	166
Depreciation / Amortization	-	-	-	-
Interest Expense (Income) - Net Operating	46	48	43	39
Unusual Expense (Income)	-	-	-	-
Other Operating Expenses, Total	-286	-67	-107	-231
Operating Expenses as a % of revenue	89.85%	94.81%	92.47%	89.88%

Operating expenses is too high and not reasonable in the last quarter. The gross profit is very low in the last 3 years.

Source: https://www.investing.com/equities/insurance-australia-group-ltd-ratios

Internal Liquidity Ratio:

Current Ratio 0.83 (IAG.AX Key Statistics)

0.83 - current ratio is not a good indicator of the company’s solvency. It means that the current liabilities exceed its current assets. So the company may have problems to meet its short-term liabilities.

Operating Performance:

Total asset turnover Ratio: 0.59 (IAG.AX Key Statistics)

It indicates that every $1 value of assets produces $0.59 value of revenue. So the company isn’t utilizing its asset optimally to achieve its sales target potential.

Risk Ratios:

Debt-Equity ratio:

2019 - 32.48% (Insurance Australia Group (IAG) Financial Ratios. (n.d.).)

2018 – 29%

2017 – 25%

2016 – 30%

2015 – 26%

It indicates that the company has very low debt obligations than its equity interest. It also suggests that the business may not be capable to catch the positive edge of the grown profits that business leverage may produce.

Growth Analysis:

Growth potential = RR * ROE

Where,

RR = Earnings retention rate

ROE = Return on equity

The average quarterly growth = 12.10% (IAG.AX Key Statistics)

The growth rate of the company is above industry-average and satisfactory.

Technical Analysis:

It is can be seen in the chart that in the 50 days moving average line is lies below the 200 days moving average line from up to the bottom left, which indicates that there is no buying point. The stock is currently performing not well in the market. The dividend rate also declined and there is a continuous hike in the operating expenses. The company doesn’t have higher leverage financing options and the assets are not utilizing properly. It’ll be not profitable to buy this stock for these terms.

Company 9: Macquarie Group Ltd. (MQG):

Description: MACQUARIE GROUP LIMITED (MQG) is a growth business enterprise in the Australian Financial industry registered in the ASX indices. It is a multinational and autonomous financing bank and commercial service provider company.

Ratio analysis:

Common-sized statement:

Common-sized Income Statement:
Quarterly result: (in million AUD)
Period Ending:	2019	2018	2018	2017
	31/03	30/09	31/03	30/09
Net Interest Income	762	998	975	1011
Interest Income, Bank	2668	2687	2481	2462
Total Interest Expense	1906	1689	1506	1451
Loan Loss Provision	204	44	-9	72
Net Interest Income After Loan Loss Provision	558	954	984	939
Non-Interest Income, Bank	7418	5538	5333	4976
Non-Interest Expense, Bank	-5814	-4787	-4557	-4211
Net Income Before Taxes	2162	1705	1760	1704
Provision for Income Taxes	505	374	435	448
Net Income After Taxes	1657	1331	1325	1256
Minority Interest	15	-21	-16	-8
Equity In Affiliates	-	-	-	-
U.S GAAP Adjustment	-	-	-	-
Net Income Before Extraordinary Items	1672	1310	1309	1248
Total Extraordinary Items	-	-	-	-
Net Income	1672	1310	1309	1248
Net Income as % of PBT	77.34%	76.83%	74.38%	73.24%

The net income is about 77% of the company’s interest income. It indicates good performance instead of having 5814 million non-interest expenses.

Source: https://www.investing.com/equities/macquarie-group-ratios

Internal Liquidity Ratio:

Current Ratio Calculation:

Current asset: 92.1 B

Current liabilities: 91.21 B

Current Ratio = 1.01

Source: https://www.macroaxis.com/invest/ratio/MQG.AX--Current-Ratio

Here the current assets are almost equivalent to the current liabilities. The business is just qualified to meet all of its short-term commitments.

Operating Performance:

Total asset turnover Ratio: 0.08 (MQG.AX Key Statistics)

Source: https://www.marketwatch.com/investing/stock/mqg/profile?countrycode=au

It indicates that every $1 value of assets produces $0.08 value of revenue. The ratio is very low and it suggests that the company does not have much efficiency and productivity in its business operation.

Risk Ratios:

Debt-Equity ratio: 4.15

The ratio is abnormally high which indicates that the business has excess debt comparing with its equity capital structure. There are four times as many obligations than there is equity in the company. The assets are funded mainly by the creditors than the investors.

Growth Analysis:

Growth potential = RR * ROE

Where,

RR = Earnings retention rate

ROE = Return on equity

The average quarterly growth = 24.70% (MQG.AX Key Statistics)

The growth rate of the business is better than industry-average and totally adequate.

Justification: The operating performance of the company is downgraded despite the last quarter sales growth. The EPS is fluctuating and debt-risk is high. However, the stock is now undervalued and it is possible to grow 5-10% after one year period. So the above interpreted ratios are an indicator to hold the stock and wait for the growth period.

Technical Analysis:

There was a selling point where the 50 days moving average line crossed the 200 days moving average line from top to bottom. The company is recently going in a worse period but it is going upward in the near future. The green line shows that there is an opportunity to grow the exponential moving average in next 6 months. So it may be a good pick for long-term.

References:

Insurance Australia Group (IAG) Financial Ratios. (n.d.). Retrieved from https://www.investing.com/equities/insurance-australia-group-ltd-ratios

Macquarie Group (MQG) Financial Ratios. (n.d.). Retrieved from https://www.investing.com/equities/macquarie-group-ratios

CSL Ltd (CSL) Financial Ratios. (n.d.). Retrieved from https://www.investing.com/equities/csl-limited-ratios

IAG.AX Key Statistics | INSUR.AUST FPO Stock. (2019, September 16). Retrieved from https://finance.yahoo.com/quote/IAG.AX/key-statistics?p=IAG.AX

MQG.AX Key Statistics | MACQ GROUP FPO Stock. (2019, September 16). Retrieved from https://finance.yahoo.com/quote/MQG.AX/key-statistics?p=MQG.AX

 

 

Conclusion/Weightings

Stock	Weighting
Total	100%