Lend Lease Company Analysis Assignment Sample

Subject Name : Accounting and Finance

Accounting for Managerial Decisions

Company Background of Lend Lease Company:

Lend Lease Company is a Multinational Company having its business within and without Australia that is in Asia, America and Europe. It primarily operates in the business of Infrastructure, Real estate and Construction. It’s head-quarter is situated in the capital city of Australia that is Sydney. It has completed numerous projects of various kinds such as public, cultural and social. This company focuses on five key areas that are Health and Safety, Financial, Customers, People and Sustainability. With the help of suppliers, they deliver distinct infrastructure. They mainly focus on safety of their people.

Accounting Disclosures of Lend Lease Company:

There is changes in accounting policies in relation to recognition of revenue to comply with AASB 15. In accordance with accounting standards, there needs to make provision of losses in respect difference of expected cost and expected benefit of such contracts. There is impact of financial performance and financial position of the company in respect of construction and development services is $134 Billion. It is stated that revenue will be recognised on basis of percentage of completion of contract taking refence cost incurred and forecasted cost as determination of percentage of completion.

There are four operating segments namely developments, construction, investment and Non-core. The profitability of the company for Financial Year 2019 is as follows:

	Development	Construction	Investments	Non Core
Profit before tax	787	198	482	-489
Income tax	233	57	114	-152
Profit after tax	554	141	368	-337

The Net Profit and taxes paid for the last five years given below-

Year	2019	2018	2017	2016	2015
Profit Before taxes	620	1066	1007	862.8	768
Tax	153	272	248.3	164.7	0
Profit after tax	467	794	758.7	698.1	768

Accounting and Market Valuation:

Market Capitalization can be defined as the total market value of the company listed in stock exchange and there is set formula to calculate the same. It is calculated by firstly determining the total number outstanding shares of the company and then to determine the market value of one share of such company and lastly the market capitalization value of the company is calculated by multiplying the total number outstanding share by the present market value of one share of such company. It is also called as Market Cap in business terms. Its formula is as follows –

Market Cap of a Company = Total number of outstanding shares of the company * current market rate of one share of the company

In Australia, the Australian stock exchange provides the market cap or market capitalization of each listed company.

According to ASX, Market value of a share to be used to calculate Market cap of a company is basically the last trading day’s closing price of the company’s ordinary securities listed on ASX. And in case if this information is not available because the company did not trade on such last day then ASX says that the valuation price shall be used to determine market cap of the entity. As per ASX, the valuation price off an entity is the company’s last traded price which was adjusted because of high bidding price or due to low ask price.

The market cap of LLC as on is 6.328 Billion whereas the book value of the company is 6.367 B. Such difference may arise due to variation in market condition such as changes in economic condition, government legislation, political condition and other new announcement by companies.

Additional Disclosures:

Key Managerial Personnel:

Key Management Personnel as the name suggest are those people of the company who are directly concerned with the key managerial activities of the company as they work directly or indirectly on the planning, directing, execution and control of the activities of the company. KMP consists of Board of directors of the entity, Vice president, Chief executive officer, chief financial officer and chief operating officer or managing director etc.

The total salary paid to KMP is categorised under different component namely short-term benefits, post-employment benefits security-based payments under given head is as follows:

Amount in $000
	Executive Director	Senior Executives
Cash Salary	2155	7565
STI Cash	0	1449
Non-Monetary Benefits	0	1116
Superannuation	25	187
Other Long-term benefits	33	266
LTI	2375	4650
STI deferred	875	4646
Total	5463	19879

Independent Auditor:

Independent auditor is basically a public accountant who is certified or authorized by the ASIC to perform the functions of auditing that is to examine the financial records of the company to which he is not related in order to be independent. Their major role is to check that whether the company maintain proper financial statements and no fraud or fault has made thereto. And to determine the financial position of the company. So, they prepare their audit report which helps the shareholders and stakeholders of the company the true financial and profitability position of the business.

Auditor’s remuneration is categorized under three services which is as follows -

Amount in $000
fee for audit service	7141
fee for other assurances	495
fee for non-audit services	714
total	8350

largest two investors:

The two largest investors and their shareholding is as follows:

Investors	Shareholding %
HSBC Custody Nominees Australia Limited	29.43%
JP Morgan Nominees Australia Pty Limited	16.95%

Financial Statement Analysis:

The financial statement of last 5 years is presented below:

Income Statement
	2019	2018	2017	2016	2015
Revenue	16386	16422	16659	15088.5	13280.9
Other revenue	152	134
Cost of sales	15348	15038	14841	13388.5	11613.3
Gross Profit	1190	1518	1818	1700	1667.6
Net other income	445	380	714.4	727.8	780.1
Net Finance cost	125	72	96.6	109.4	119.5
Profit Before taxes	620	1066	1007	862.8	768
Tax	153	272	248.3	164.7
Profit after tax	467	794	758.7	698.1	768

Financial Position
	2019	2018	2017	2016	2015
Cash	1290	1177	1249.2	1008.4	750.1
Receivable	2050	2670	2749.2	2785	3631
Inventories	2238	2369	2152	1923	1980
Another current asset	178	98	110.9	141.5	134.5
Current Assets	5756	6314	6261.3	5857.9	6495.6
Non-Current Assets	11442	10650	14592.9	12735	12463.6
Total Assets	17198	16964	20854.2	18592.9	18959.2

Trade Payables	5724	5770	5578.8	4328.8	5036.1
Other current Liabilities	573	818	5178.9	4495.5	4670.2
Current Liabilities	6297	6588	10757.7	8824.3	9706.3
Non-Current Liabilities	4534	3962	3930	4153.9	4084.7
Total Liabilities	10831	10550	14687.7	12978.2	13791
Equity	6367	6414	6166.5	5614.7	5168.2
Total Equity & Liabilities	17198	16964	20854.2	18592.9	18959.2
Cash Flow Statement
	2019	2018	2017	2016	2015
Cash from operating activities	60	73	146	853	-166.6
Cash from Investing activities	167	222	70.1	0.6	-383.4
Cash from financing activities	-128	-398	8.5	-620.4	-465.2
Other cash flow items	14	31	16.2	25.1	49.5
Net cash flow	113	-72	240.8	258.3	-965.7
Opening cash and cash equivalents	1177	1249	1008.4	750.1	1715.8
Closing cash and cash equivalents	1290	1177	1249.2	1008.4	750.1

Trend Analysis of Lend Lease Company:

Income Statement
	2019	2018	2017	2016	2015
Revenue	99%	99%	101%	91%	80%
Other revenue	1%	1%	0%	0%	0%
Cost of sales	93%	91%	89%	89%	87%
Gross Profit	7%	9%	11%	11%	13%
Net other income	3%	2%	4%	5%	6%
Net Finance cost	1%	0%	1%	1%	1%
Profit Before taxes	4%	6%	6%	6%	6%
Tax	1%	2%	1%	1%	0%
Profit after tax	3%	5%	5%	5%	6%

Financial Position

Cash	8%	7%	6%	5%	4%
Receivable	12%	16%	13%	15%	19%
Inventories	13%	14%	10%	10%	10%
Other current asset	1%	1%	1%	1%	1%
Current Assets	33%	37%	30%	32%	34%
Non Current Assets	67%	63%	70%	68%	66%
Total Assets	100%	137%	130%	132%	134%

Trade Payables	33%	34%	27%	23%	27%
Other current Liabilities	3%	5%	25%	24%	25%
Current Liabilities	37%	39%	52%	47%	51%
Non-Current Liabilities	26%	23%	19%	22%	22%
Total Liabilities	63%	62%	70%	70%	73%
Equity	37%	38%	30%	30%	27%
Total Equity & Liabilities	100%	100%	100%	100%	100%

Cash Flow Statement

Cash from operating activities	5%	6%	12%	85%	-22%
Cash from Investing activities	13%	19%	6%	0%	-51%
Cash from financing activities	-10%	-34%	1%	-62%	-62%
Other cash flow items	1%	3%	1%	2%	7%
Net cash flow	9%	-6%	19%	26%	-129%
Opening cash and cash equivalents	91%	106%	81%	74%	229%
Closing cash and cash equivalents	100%	100%	100%	100%	100%

According to the Income statements of past five years of the company, we can conclude that the cost of sales has constantly been increase as the cost of sales in 2015 was 87% of total profit and it has raised to 93% of the total profit in 2019 which implies that the expenditure on the means of production have increase and due to which the company is incurring profits but at a low rate as compared to previous years’ profits. That is why the percentage of profit have come down to 3 in 2019 from 6 in 2015.

Similarly, of we compare the Balance sheet of past five years of the company and we can construct that the financial position of the company is less stable than before but we can see that the loan percentage has decreased from 73 (in 2015) to 63 (in 2019) and equities percentage has increased from 27 (in 2015) to 37 (in 2019). Therefore, the company is relying on its own equity capital rather than loans and borrowing which means it has to pay less interest on loans.

And if we compare the cash flows of last five years then we can say that in 2015 it had 220% cash in hand but now has 91 percentage cash in the opening which means its liabilities have increased. Thus, the company has less cash to pay to meet outs its operating expenses.

Ratio Analysis of Lend Lease Company:

Profitability Ratio	Formula	2019	2018	2017	2016	2015
Gross Profit Margin	Gross profit/Net sales	7%	9%	11%	11%	13%
Net Profit Margin	Net profit/ Net sales	3%	5%	5%	5%	6%
Return on equity shareholders	Net profit/ Equity	7%	12%	12%	12%	15%

Liquidity Ratio
Current Ratio	Current assets/ current liabilities	91%	96%	58%	66%	67%
Quick Ratio	(Current assets- inventory)/ current liabilities	56%	60%	38%	45%	47%
Cash Ratio	cash and cash equivalents/ current liabilities	20%	18%	12%	11%	8%

Efficiency Ratio
Inventory turnover ratio	Cost of sales / Average inventory	6.66	6.65	7.28	6.86
Account receivable turnover	Net credit sales/ Receivable	6.94	6.06	6.02	4.70
Fixed assets turnover	(Total Asset- Total Liabilities)/ Non-current Assets	56%	60%	42%	44%	41%

Capital Structure
Debt Ratio	Non-current liabilities/ Total equity and liabilities	0.63	0.62	0.70	0.70	0.73
Equity Ratio	Equity / Total equity and liabilities	0.37	0.38	0.30	0.30	0.27

Market Performance
Earnings per share	Net profit/ No of shares	0.83	1.37	1.35	1.26
Market price per share	Market value/ No of shares	14.06	18.93	15.24	11.62
Book Value per share	Equity / No of shares	21.65	12.99	11.54	11.52
No of shares		294.11	493.79	534.36	487.29

On the basis of above ratio analysis, it is observed that:

Profitability ratio: It indicates profit of the company as percentage of revenue. Increase in such ratio indicates that the company is performing well to generate profit. In this company, profitability, gross profit, net profit and return on equity shareholders has been consistently gone down. It shows that company needs to incur less expenditure to earn more profit.
Liquidity ratio: Liquidity ratio indicates the company’s ability to pay off its short-term liabilities and obligation. It is categorised under three sub parts namely current ratio, quick ratio and cash ratio. Increase in such ratio indicates that company is in better position and meeting it short term liabilities easily. In the given case, it is observed that such ratio has been consistently increased. However, such ratio is less than 1, it needs to improved to at least more than 1 show it can be understanding that it is easily making payment of its short-term liabilities.
Efficiency ratio: It is such type of ratio which indicates that whether investment in asset is able to generate more revenue. It is categorised under three different ratios for better presentation. Inventory turnover ratio, accounts receivable turnover ratio and fixed asset turnover ratio. Such ratio helps to understand how much time inventory has been replaced, how many time collections from debtors has been occurred and whether fixed assets is generating revenues in efficient manner. Increase in such ratio indicates better financial position. In the given case, these ratios are increased from last years and accordingly it can be said there is better financial management.
Capital Structure: There are two ratios has been analysed debt ratio and equity ratio. Increase in debt ratio indicates the company’s capital structure has been financed through debt rather than equity. In the given case, the company’s debt ratio has been decreased by 10% which shows better financial position.
Market performance has been analysed through earning per share, book value per share and market price per share. In this case, even earning per shares has been reduce, the market value per share and book value per share has been increased. It shows better future of the company.

The covid-19 pandemic brings down all over the world in single room due to heavily lockdown period. It not only affects the industry of infrastructure real estate; it effects the entire industry. During these period Lendlease group has stopped several operations due to which they are facing financial crunch.

However, it cannot be said that the only Lendlease group is affected. It affects the entire industry to whom lend lease group falls. Due to such pandemic, the market price of share has been gone down to 11.16 as on 12^th May 2020 from 14.06 as on 30 June 2019. Recently Lendlease group has announce dividend during pandemic situation. It indicates that the investors who are interested to earn profit through dividend will buy the shares which will help to increase the price of the shares. Accordingly, it can be said that the company is trying to fix impact of covid-19 on its business.

Hence, on the basis of ratio analysis and current price of company, it can be said that there would be worth to invest in such company as it is rapidly growing from last five year all ratio of the company are strong in comparison of last years. The covid-19 not only impact singly industry, all world economy has been impacted by such coronavirus. Accordingly, it can be said that it is abnormal period for the company and assumed that company will continue to grow in future.

References for Lend Lease Company Analysis

https://finance.yahoo.com/news/lendlease-group-asx-llc-good-213212058.html

https://efinancemanagement.com/financial-analysis/market-value-ratios

https://www.lendlease.com/-/media/llcom/investor-relations/asx-announcements/2019/lendlease-group-2019-annual-report.pdf

https://www.accountingtools.com/articles/ratio-analysis.html

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