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Business Finance

Table of Contents
Introduction......................................................................................................................................3

1. Description of operation and comparative advantages of the two chosen companies.............3

JAT Company Overview..............................................................................................................3

Bapcor (BAP) Overview..............................................................................................................4

2. Calculation and comparison of performance ratios of the two companies..............................5

Liquidity ratios.............................................................................................................................5

Profitability ratios........................................................................................................................6

Capital structure (leverage) ratios................................................................................................7

3. Analysis of monthly share prices movements of the two companies within 3 years..................8

3. Identification of the significant factors on the share price of the companies during the time
frame..............................................................................................................................................10

Significant factors that affects the stock price for JAT Company Limited................................10

Significant factors that affects the stock price for BAP Company Limited...............................11

4. Calculation of Beta values and expected Rates of Return using the CAPM of the two
companies......................................................................................................................................11

Beta Calculation for the two companies....................................................................................11

Required rate of return calculation for the two companies using CAPM..................................12

5. Identification and comparision of dividend policy of the companies....................................12

7. Letter Recommendation.............................................................................................................14

Conclusion.....................................................................................................................................15

References......................................................................................................................................15

Appendix........................................................................................................................................18

1.................................................................................................................................................18

2.................................................................................................................................................19
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Introduction
Finance is concerned with the management of investment or money in the risky or uncertain
market. It has been an important issue for the top management for making significant business
decision. Finance helps the managers to maintain a liquid position for a business and contributes
to maximizing the utility of the invested money (Titman. et al., 2015). The report is concerned
with finance for businesss where an analysis has been made on Jatenergy Limited and Bapcor
Limited. Both companies are occupying a leading role in the retail industry. Performance ratios
have been determined for analyzing scenario of the companies. An analysis on the monthly share
prices for the two companies for three years has also been made. Here, beta of the stocks for both
companies has been calculated for determining the volatility of the stocks. Finally, a letter has
been prepared addressing the investors on analysing the scenario of the two businesses.

1. Description of operation and comparative advantages of the two chosen


companies.
JAT Company Overview
Jatenergy Limited (JAT) is a company which trades in China to generate cashflow with its
diversified product line. The company also works on energy related technologies like TTG
Mineral Processing and Coalplus conversion. The company is basically engaged into trading
activities in Australia and China. FMCG commodities, natural supplements, wine, cosmetics,
skin creams, cereals, biscuits, and organic oils are the products of the company. The company
has made annual revenue of $9.8M in 2017 enriching its market share in the highly competitive
market (Asx.com.au, 2018). The company offers numerous opportunities for the Australian brand
owners to sell their manufactured products in China. JAT displays these products in more than
400 department stores and pharmacies in more than 30 provinces in China. The Company also
manages official flagship stores for the reputed Australian and international brands on TMall, JD,
and other online platforms. JAT has China is one of largest and most important financial services
markets in the world. The company aims at increasing its market in China as the country is
flourishing day by day with economic development. A research from KPMG has shown that this
market experienced over $US100 billions of investment in 2015, compared to just $US348

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million in Australia (Umurzakov, 2017). China has become one of the largest and influential
fintech companies in the world’s most exciting markets. So, the company has penetrated
potentially significant market to improve its profitability and growth. As the company has
experienced workforce, the employees can manage economies of scale with their expertise.

Bapcor (BAP) Overview


Bapcor Limited is one of the leading automotive aftermarket accessories and equipment
providers in Australia. The company was established in 1971 in Preston, Australia aiming at
becoming the best automotive supplier worldwide. The company operates in four sections as
Trade, Bapcor NZ, Specialist and retail and service. The company works in collaboration with
Burson Auto Parts and BNT to supply a wide range of car parts in the world for over 400 models.
It has 170 outlets in different locations worldwide. The retail and service include Autobarn,
Australia's premium retail offering, Autopro, Sprint Auto Parts, Opposite Lock and Car Parts,
and Service businesses Midas, and Automatic Braking System. It has 378 service centers in
different locations worldwide. The company also perform AAD, Bearing Wholesalers, Baxters,
MTQ, JAS Oceania, HCB, Diesel supply, Federal Batteries, and many more as a specialist in the
Australian automotive market (Bapcor.com.au, 2018). The company has a specialist and
knowledgeable team which has culture and capability in providing quality customer services.
The company employs more than 3,800 team members across its 800 outlets worldwide. The
NPAT and EPS of the company can be demonstrated as the following graph:

Figure 1 The NPAT and EPS of Bapcor Limited


Source:(Bapcor.com.au, 2018)
From the graph, it has been obvious that the EPS of the company is increasing day by day with
the increase of NPAT. It has been possible as the company has much scope for attaining
profitability and growth in the market as the company is in a growth stage. The company has

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great reputation in the market which leads the company to capture more customers in the highly
competitive market. Again, the company has already an established client market which enable
the company to reach the clients within the shortest possible time.

2. Calculation and comparison of performance ratios of the two companies


Liquidity, profitability and leverage ratios have been determined for making decisions on
choosing the profitable company to invest in. The ratios have been presented through the
following table where the ratios are represented for 2017, 2016 and 2015 respectively as below,

Liquidity ratios
Ratios Formula Jatenergy Limited Bapcor Limited
Current ratio CR=Current assets/Current 1.00 0.621
liabilities 1.00 0.609
1.033 0.967
Quick ratio QR= (Cash+ Marketable 0.835 -0.932
Securities+ Receivables)/Current
0.784 -0.373
Liabilities
0.7838 -0.3738
0.823 -1.071
Cash ratio CR= (Cash+ Marketable 0.544 0.141
Securities)/ Current Liabilities 0.397 0.145
0.619 0.187
The above mentioned ratios can be represented through the following graph which shows that the
current ratio and cash ratio and quick ratios of JAT Company is better than that of BAP Company
for all 3 years. The graph indicates that JAT Company has more liquid position than BAP
Limited. The graph has been represented as below,

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Figure 2 Comparison of liquidity ratios between the two


companies
Profitability ratios
Ratios Formula Jatenergy Limited Bapcor Limited
Net profit Net income/Sales 0.040 0.063
margin 3.211 0.039
2.050 0.033
Return on Net income/Total assets 67% 34%
assets
271% 19%
442% 24%
Return on Net income/Common equity 257% 14%
Equity 906% 9%
902% 12%
The table for profitability ratios shows that JAT Company has more profit margin and return on
equity than BAP Company Limited for the three years. In case of return of asset, the rate is
higher for JAT in the Year 2017 and 2016. But the ratio of 2015 for BAP is higher than that of
JAT. The ratios have been demonstrated as below,

Figure 3 Comparison of the Profitability ratios for the companies

Capital structure (leverage) ratios


Ratios Formula Jatenergy Limited Bapcor Limited
Debt to asset Total debt/Total assets 0.586 0.324
ratio .760 0.315

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.660 0.280
Debt to Total debt/ Total equity 1.4142 0.479
equity
3.168 0.459
1.94 0.389
The above mentioned table shows that the debt to asset and debt to equity ratios for JAT is higher
than that of BAP. It indicates that the JAT Company is highly exposed to credit risks in
comparison to BAP Limited. The Graph has been shown as below,

Figure 4 Comparison between leverage ratios for the companies

3. Analysis of monthly share prices movements of the two companies within 3


years
A graph has been procured for determining the movements of share prices for JAT and BAP. The
monthly share price movement for JAT has been shown as below,

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Figure 5 Monthly share price movement for JAT
The graph Source: (Asx.com.au, 2018) indicates that the
monthly share price for JAT Company was stable from the period 2015 to the last quarter of
2017. The monthly price for the company’s share started to fluctuate from the last quarter of
2017 to the mid of 2018. This scenario is very much challenging for the investors of the
company(JATENERGY LIMITED, 2018). Again, the Bapcor Ltd share price has increased by
25% over the past year to $6.68 where most gains occurred last year. The company is one of the
leading auto parts companies in Australia. The share price movements of Bapcor Limited for last
years have been represented as below,

Figure 6 The monthly price data for Bapcor Limted


Source: (Asx.com.au, 2018)
The graph indicates that the monthly price of the company has been increasing at a slower rate
over last three years. Though a diverse movement has been prevalent in between 2016 October
and 2017 January. Irrespective of the period, the share price for the company has been increasing

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at a steady pace. A comparative analysis of the share price movement of JAT and BAP from 2015
to 2018 has been made on the following figure. The figure shows us that BAP experienced a
diverse movement at 2015 and the share price became stable at the last quarter of 2017. This
volatile share price does not provide conspicuous indication to the investors. The comparison has
been demonstrated as below,

Figure 7 Comparison of monthly price between the JAT and the BAP for the last three
years
The graph also shows the monthly price of BAP Limited has been on the increase at the same
trend. Such progression in the share price provide clear direction to the investors of the company.
From the analysis, it has been obvious that BAP Limited has more stability in share prices than
JAT over last three years.

3. Identification of the significant factors on the share price of the


companies during the time frame
Significant factors that affects the stock price for JAT Company Limited
Different internal news of the companies are influential for the movement of share prices. In the
time period between 2015 and 2018, the internal management decisions of JAT Company has
influenced the price. At the last quarter of 2017, the managerial body of the company proposed to
expand its operations in China massively (AdviserVoice, 2018). The company had already
expanded its businesses in China. In the new managerial decision, the managers proposed to
establish new 200 outlets at different places in China. The economic condition of China has been
improving day by day with their IT and innovation. The investors of the company found it

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important to expand its operations in China. The information has impacted on the views of the
investors and influenced stock price randomly. Thus, the market experienced an increase in the
share price for the company. Recently, Jatenergy Ltd has announced to obtain acquisition of
Sunnya Pty Ltd which has increased the demand for the company’s stock (JATENERGY
LIMITED, 2018). Such decisions of the managers highly influence on the investors to buy or sell
the stock instantly which consequently impacts on stock price for the company.

Significant factors that affects the stock price for BAP Company Limited
The share price of Bapcor Limited has been increased to 60.4% in 2015, 62.4 in 2016 and -.05%
in 2017. These changes in price have been occurred due to the exposure of internal management
decisions of the company. The government of Australia initiated a plan in 2015 to safeguard road
safety in all the cities. The government urged all the motor vehicles to install ABS (Automated
Braking System) and BAP Company Limited was the pioneer to introduce ABS in the motor
vehicle industry. The reputation of the company rose high at that time which increased the share
price for the company. Again, the company has increased its market share by 6% in the highly
competitive market which increases its capability to make more profit. Thus the demand for the
company’s share rose higher in 2016 which increased the market price for the stock. The stock
price for 2017 declined due to the acquisition of the remaining shares in Hellaby as the investors
do not feel it a safe investment. Such events are very much influential to the movement in share
price for the company.

4. Calculation of Beta values and expected Rates of Return using the


CAPM of the two companies
Beta Calculation for the two companies
Beta is the measurement for determining the volatility of a portfolio (Madura, 2018). The
investors always look for stocks having lower beta in the market for making short term gain. It
can be calculated as below,

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Figure 8 Beta of a stock
Source: (Brigham and Ehrhardt, 2015)
The beta value for JAT Company has been calculated as 2.30 meaning that in case of 1 unit
change in market will have impact on 2.30 units. The higher beta indicates that investing in the
stock for short time has higher volatility in acquiring profit (Shapiro, 2014). Again, the beta for
BAP has been calculated as 0.05 which indicates that the stock is entitled to lower volatility in
price. Lower beta indicates that the stock will be profitable in short term and it may or may not
be profitable in long run.

Required rate of return calculation for the two companies using CAPM
Required rate of return is the minimum rate expected by the investors from a stock. An investor
determine it by considering a risk premium to the interest percentage that may be acquired by
investing in a risk-free investment (InvestSMART, 2018). The formula for calculating required
rate of return using CAPM is given below,

Figure 9 The formula for Required Rate of Return


Source: (Correia et al., 2015)
Required rate of return for the stocks of JAT= 5+ 2.3 [6-5]

=7.3

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On the other hand, required rate of return for the stocks of BAP= 5+ .05[6-5]

= 5.05

5. Identification and comparision of dividend policy of the companies


The declarations of dividend for Jatenergy LTD have been shown as below,

Figure 10 Dividend information for JAT LTD


Source: (Editorial, 2018)
The graph shows that JAT Company
follows No Dividend Policy. Again, the declarations of dividends for Bapcor LTD have been
shown as below,

Figure 11 Dividend information for BAP LTD


Source: (Editorial, 2018)
From the figure, it has been obvious that the company follows Regular Dividend Policy. A
comparision for the two companies’ dividend policy has been described as below,

Jatenergy Limited Bapcor Limited


The investors do not get dividends as the The investors of the company regularly get
amount will be reinvested for making growth. dividends from the company.
The dividend policy creates ambiguousness The dividend policy creates credibility and

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and uncertainty among the investors (Pandey, confidence among the investors.
2015).
The company experiences variations in the The company can stabilize the market value
market price of stocks. of shares.
The company can invest more money on new The company can invest less money on new
project through the dividend policy. projects.
No declaration of dividends lessens demand Regular declaration of the dividends increases
for the stocks of the company. the reputation of the company in the stock
market (PRASANNA CHANDRA., 2011).

7. Letter Recommendation
September 4, 2018

Dear Client(s),

Perth, Australia

Subject: Recommendation on buying stocks of Jatenergy Limited and Bapcor Limited.

Sir,

This is to inform you that financial analysis on the stocks of JAT and BAP has been performed
and a representation has been made. From performance ratios of the two companies for three
years, it has been found that the profitability ratios and liquidity ratios of JAT LTD is better than
that of BAP LTD. The analysis showed that BAP LTD acquired 12% profit margin last year. The
analysis also shows that the leverage ratios of BAP LTD is better than that of JAT LTD.

An analysis on monthly stock price for three years has also been made. The analysis shows that
JAT Company experienced a diverse movement in stock price during the timeframe between
2015 and 2017. At the last quarter of 2017, the situation started to become stabilized. From beta
calculation, it has been found that JAT LTD has larger beta than the beta of BAP LTD. The
calculation indicates that JAT Company has higher volatility in stock price for investing in short
run. On the other hand, BAP Company has small beta size which indicates stabilization in stock
price. Again, the analysis of the two companies has found that BAP LTD announces regular
dividend to its investors. The company announced 19.23% dividend per share last year. Thus the
investors can rely on the stocks of the company.

The investors should choose BAP as the acquisition of the remaining shares in Hellaby has been
performed last year. The acquisition has contributed to the profitability of the company greatly.
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The acquisition will have a widespread impact on the profitability of the company as the
company will be able to reach increasing number of customers through the network. Again, JAT
LTD has 400 locations in China but the company may be entangled with macroeconomic threats.
On the other hand, the BAP Company has 160 locations around Australia which ensures
providing better services to maximum number of Australian customers. In case of its retailing
operations in only Australia, the company is narrowly exposed to geopolitical risks. The
company can increase its number of locations throughout Australia which is not possible in case
of JAT LTD. Due to less complexities in opening new stores, BAP established new 23 locations
across Australia last year. On the other hand, JAT established 9 new stores last year in China.

So, from the analysis above, it has been obvious that the stocks of BAP LTD will be more
lucrative for you. So, we would like to recommend you to but the stocks of Bapcor Limited to
attain profitability.

Thanking you

X Analytics Team

Conclusion
Finance is an important segment of businesses to make effective decisions. The investors need to
perform financial claculations to make profitable decisions on their investments (Wilson, 2015).
The report has determined the financial position of both Jatenergy Limited and Bapcor Limited.
The analysis shows that the stocks of BAP LTD has more value than that of JAT LTD. The stocks
of BAP LTD have less volatility in price in the market. Thus the investors can attain short term
profit from it. Again, the analysis shows that the company provides regular dividends to its
investors which make them more confident. So, the investors should go for buying the shares of
BAP LTD.

References
AdviserVoice. (2018). Centuria Capital Group FY18 results: Greater scale drives 29% AUM,
191% NPAT growth - AdviserVoice. [online] Available at:
https://www.adviservoice.com.au/2018/08/centuria-capital-group-fy18-results-greater-scale-
drives-29-aum-191-npat-growth/ [Accessed 4 Sep. 2018].

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Asx.com.au. (2018). [online] Available at: https://www.asx.com.au/asx/share-price-
research/company/BAP [Accessed 4 Sep. 2018].

Bapcor.com.au. (2018). Bapcor - Investor Center - Share Price. [online] Available at:
http://www.bapcor.com.au/share-price [Accessed 4 Sep. 2018].

Brigham, E. and Ehrhardt, M. (2015). Financial management. 2nd ed.

Correia, C., Flynn, D., Uliana, E., Wormald, M. and Dillon, J. (2015). Financial management.
Lansdowne: Juta.

Editorial, R. (2018). Breaking News, Business News, Financial and Investing News & More |
Reuters.co.uk. [online] U.K. Available at: https://www.reuters.com/ [Accessed 4 Sep. 2018].

InvestSMART. (2018). Jatenergy Limited. [online] Available at:


https://www.investsmart.com.au/shares/asx-jat/jatenergy-limited/dividends [Accessed 4 Sep.
2018].

JATENERGY LIMITED. (2018). Why do Australian brands choose JAT?. [online] Available at:
https://jatenergy.com/jat-trading/why-jat-2/why-jat/ [Accessed 4 Sep. 2018].

Madura, J. (2018). International financial management. Boston, MA: Cengage Learning.

Pandey, I. (2015). Financial management. New Delhi: Vikas Publishing House PVT LTD.

PRASANNA CHANDRA. (2011). Financial Management. Tata McGraw Hill Education Pvt.
Ltd.

Shapiro, A. (2014). Multinational financial management. 4th ed.

Titman., Martin., Keown. and Martin, T. (2015). Financial Management. Sydney: P. Ed Australia.

Umurzakov, S. (2017). Business Process Management in Financial and Non-Financial


Institutions: Payment Process Modelling in Financial Flows Management. INTERNATIONAL
JOURNAL OF MANAGEMENT SCIENCE AND BUSINESS ADMINISTRATION, 3(5),
pp.50-5.

Wilson, C. (2015). Financial management. 2nd ed. Frenchs Forest, N.S.W.: Pearson Australia.

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Appendix
1.

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2.

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