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  • 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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 12th 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

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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