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Financial and Economic Interpretation and Communication

Executive Summary of AGL Energy Limited Analysis

AGL Energy Limited is an energy company that is listed in Australia and generates electricity and gas for commercial and residential use. The company was founded in the year 2006 and has more than 3.6 million accounts of its customers. The report summarizes the financial status of the company. The revenue of the company has reduced but the profits have improved. Overall the company is performing well by making investments and seizing the opportunities that are prevailing in the Australian Market. The report analyzes the performance and suggests that investors should be made as the company provides a good outlook for the future.

Analysis of AGL Energy Limited Analysis

AGL Energy's revenue has declined from the last year. In the year 2019, it was at 13050 AUD million while in 2020 it stands at 11949 AUD million. The following table shows the changes in the present year in comparison to last year

Financials & Ratios

   
 

2019

2020

Revenue AUD Mil

13,050

11,949

Gross Margin %

27.7

26.4

Operating Income AUD Mil

1,436

1,078

Operating Margin %

11

9

Net Income AUD Mil

905

1,015

Interest Coverage

7.63

9.24

Long-Term Debt

17.54

19.81

Current Ratio

1.33

1.31

Quick Ratio

0.71

0.72

Debt/Equity

0.33

0.38

Inventory Turnover

24.91

22.33

Fixed Assets Turnover

1.97

1.81

Also, the operating income of the company declined in the year 2020 and has but the net income has improved from 905 AUD Million to 1015 AUD million. The company has taken more debt in the current year but its interest coverage ratio has improved which is a good sign. The remaining liquidity position for the company has remained the same for both the years.

Interpretation

The rise in the profit of the company from the previous year is 12%. This is because of the positive noncash movement in the financial instruments fair value. Also, the revenue of the company declined because of the outage in Loy Yang and lower sales of gas. Also, the sales were down for the electricity and expenses (AGL Ltd Annual Report, 2020). These were the main reason due to which the revenue of the company declined. The interest coverage ratio of the company has improved. This shows that the company has improved its returns on the debt it has taken. It has invested in debt appropriately. Investments have generated positive returns for the company. The debt/equity ratio of the company has slightly improved which means that company has increased its equity in the market as debt has also been increased by the company. The liquidity position of the company has remained stable and its current ratio is as per the industry standards. This means that the company will be able to cover its debts appropriately. The inventory turnover has reduced for the company which shows that the company can circulate its inventory faster which is an improvement in the performance of the company. The financial performance has also been hit by the pandemic that is prevailing in the time but within this company has been able to prove 3.5 million service to 28% of Australian households (AGL Ltd Annual Report, 2020).

 The company has responded well to the COVID-19 situation. It has transformed various services to online platforms building around 78000 services more for the customers in the last 12 months. With that as per a study by energy magazine, the share of renewable energy in the Australian market is growing and gas stations generate 21% of energy for Australia (Imogen Hartmann, 2020). The company after studying the market has invested in infrastructure. The company is upgrading its station to minimize the greenhouse gas intensity and has also progressed its plans for the Crib point LNG import project in Victoria. This will improve its gas supplying potential. For the year the company has 23.5 PJ of inventory and has a production of 5.8 PJ/pa. Also, the company has acquired 120 MW Kwlana Swift power station for gas turbine (AGL Ltd Annual Report, 2020).

The company's electricity portfolio has reduced from $1989 million to $1796 million because of a fall in the prices of electricity and an increase in the cost of maintaining the plants for the company. Also gas portfolio was reduced in the year 2020 due to lower sales to large business houses and higher costs incurred for storing.

The remuneration policy of the company is divided into 3 parts that are fixed remuneration, short term incentive, and long term incentive. The short term incentives, long term incentives are connected with the goals of the company. Due to the pandemic, only one person received an increase in remuneration. Yet the company has paid off its employees and also incentive per paid. But the overall expenditure of remuneration of the company has reduced from the previous year which was appropriate in the case of the recent scenario. The highest-paid earner was Mr. Redman. His cash incentives have increased but there was a decline in non-monetary benefits and no short term benefits were received by him (AGL Ltd Annual Report, 2020). The company has linked the objectives of long term goals and short term goals with incentives. This is a good call for the future as it will help in maintaining the interest of its employees. Thus, overall the company is showing potential and has made changes according to the needs of the required time.

Conclusion and Recommendation on AGL Energy Limited Analysis

AGL energy limited is a company in Australia and is one of the largest energy suppliers in the market. The company's revenue has declined because of fewer sales in business houses. But the company has improved its interest coverage ratio which is a good sign. Also, the company has maintained its liquidity throughout the year as per the industry standards. The market of energy is growing and so the company is making appropriate investments in the energy sector by purchasing a gas turbine and also investing in its present locations. So, it is recommended that investors should be made in the company and they should behold. The company shows good prospects of growth in the future and as the growth will come, the value of the company will improve. Overall the company is performing well in the market.

References for AGL Energy Limited Analysis

Annual Report. 2020. AGL Energy Limited. Retrieved from: https://www.agl.com.au/-/media/aglmedia/documents/about-agl/asx-and-media-releases/2020/2097212_annualreport.pdf?la=en&hash=82E8FF1E819275718B654F3B19C7862F

Imogen Hartmann. 2020. Australia’s 2020 energy statistics show gas and renewable growth. Retrieved from: https://www.energymagazine.com.au/australias-2020-energy-statistics-show-gas-and-renewables-growth/

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