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LETTER OF TRANSMITAL

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  • LETTER OF TRANSMITAL

     
    Ausenco Limited
    www.ausenco.com.aus
    Safety in All We Do
    Dr
    Lecturer, Latrobe University
    Dear Dr
    I am submitting herewith the report of Ausenco Limited for last 5 years. The report mainly focuses on the analysis of Ausenco Limited. The analysis is based on its financial data and its annual report as well as some information on the related website.
    The purpose of the report is to analyze Ausenco’s financial ratio and its future forecast. In addition, in order to get a better understanding knowledge about its financial position , this report will compare Ausenco with its competitor UGL limited.
    I sincerely hope this report will merit your approval.
     
     
     
     
     
                               TABLE OF CONENTS
    LETTER OF TRANSMITAL.. 1
    1 INTRODUCTION.. 3
    1.1PURPOSE.. 3
    1.2 SCOPE.. 3
    1.3 METHODOLOGY.. 4
    1.3ASSUMPTIONS. 4
    1.4LIMITATION.. 4
    2.COMPANY OVERVIEW... 5
    3. ECONOMIC FRAMEWORK.. 5
    SWOT ANALYSIS. 5
    4.FINANCIAL ANALYSIS. 9
    4.2PROFITABILITY ANALYSIS- 12
    4.3LONG TERM DEBT AND SOLVENCY.. 14
    4.4LIQUIDITY RATIOS ANALYSIS. 15
    5. CASH FLOW ANALYSIS. 16
    6. DU PONT ANALYSIS. 18
    7. PROSPECTIVE ANALYSIS. 20
    8. CONCLUSION AND RECOMMENDATIONS. 22
    RERERRENCES. 23
    APPENDICES. 25

    EXECUTIVE SUMMARY 
    The main purpose of this report is to make a comprehensive analysis on Ausenco. Ausenco is a global, diversified engineering and project management company.  Since established in 1991, the company has evolved significantly. It has acquired several company including Vector Engineering, Pipeine System Incorporatd (PSI) and Sandwell. In the recent years, it began to expand its market to Asia, Africa and Asia (Ausenco,2013). However, Ausenco are facing many challenges from competitors and economic environment. To gain a better understanding of Ausenco, this report will give a quick view of Ausenco’s framework. Then the report will mainly focus on the analysis of its important financial ratios and cash flow. Then it also includes an interesting part about Ausenco’s prospective forecast. Finally, based on the previous analysis, some recommendations on its future financial planning will be illustrated.

    1 INTRODUCTION

    1.1PURPOSE

    The main purpose of this report is to make a comprehensive analyze Ausenco including its economic framework and its detailed financial position. Finally some instructive recommendations would be given to promote its future development.

    1.2 SCOPE

    The report will first give a brief introduction of this company, its framework included.
    Then detailed analysis on ratios and its cash flow statement will be the focus of the report. In addition, the report will cover an important part about its prospective forecast and future strategies of development.

    1.3 METHODOLOGY

    1. Using SWOT analysis to make a review about the internal and external position about Ausenco.
    2. Calculate the recent five years’ all sorts of ratios, including activity, liquidity, solvency, profitability and DuPont analysis of Ausenco.
    3. In order to compare Ausenco with its competitors, choose UGL Limited and calculate one year of financial ratios of UGL.

    1.3ASSUMPTIONS

    1. All the raw data presented in the report come from Ausenco Limited’s Annual report from 2008 to 2012.  
    2. All the formula can be retrieved from textbooks and lecture documents
    3 The related data will be listed in appendix.

    1.4LIMITATION

    1. All the information mainly comes from Ausenco’s Website and its annual report from 2008 to 2012.
    2. Some figures have unavoidable errors for the reasons of calculation and lacking of information
    3. The recommendations and prospective forecast are ground on the analysis of the related ratio.

    2.COMPANY OVERVIEW

    Ausenco Limited (AAX) is a multinational diversified engineering and project company whose headquarter is located in Australia. Founded in Brisbane in1991, the company is engaged in the provision of engineering designing, process controls and other related service. The main purpose of the company is to deliver their clients fit-for purpose solutions to complex problems on some of the world’s most challenging exciting project (Ausenco, 2013).
    Ausenco is also committed to innovation and its core values .Furthermore, one of its objectives is to make a positive difference in the word (Ausenco, 2013).
    When established in1991, Ausenco only owned a small team of engineers. However, by far it has drawn on talents of about 3300 employees in 30 offices worldwide (Ausenco, 2013).
    Despite of its fast growth, it is always trying hard to cooperate with its clients and partner to achieve sustainable outcome.

    3. ECONOMIC FRAMEWORK

    This part will focus on an in-depth and unbiased review of Ausenco through making detailed SWOT analysis. It focuses on Ausenco’s strengths and weaknesses and opportunities and threats. It is helpful to get a better understanding of the company’s current status and strategies.
     

    SWOT ANALYSIS

    SWOT analysis is a kind of effective method to evaluate a company by comprehensively analyzing its strengths, weaknesses, opportunities and threats. It has been applied widely to business management and can provide the basis for a company’s strategies. By via of using this method, we can gain a good knowledge of Ausenco.
    .
    STRENGTHS
    1. Fast rate of growth.  In the past few years, despite of the turndown economic Ausenco has achieved fast growth rate and their strategies has led to excellent results, which raised Ausenco’s brand awareness among clients and must be a advantaged factor for its future development.
    2. Acquisition of several big companies. By far, Ausenco has acquired several big companies including Vector Engineering, Pipeline System Incorporated (PSI) and Sandwill. This has enhanced its ability to manage changes in market conditions and become a great platform for Ausenco to provide their related service to the whole world. Furthermore, this will helpful to grow and enhance its marketing position in this industry.
    3. Advanced technology and numerous talents. At present, Ausenco has a good master of very advanced technology, which is undoubtedly extremely beneficial to its development. In addition, they has drawn talent from every corner of the word through all sorts of incentive strategies As is known to all, talents and innovation are two crucial factors to attain success in the industry. These talents can give new impetus to the creativity of Ausenco.
    4. The Expanding overseas market. Ausenco is engaged in broaden its service and geographic reach .Until now, it has built long-term, inspiring client relationships with Asia, Africa and America.
    WEAKNESS
    1. Ausenco’s market is not steady. The prices of metals are frequently fluctuated to the world economic situations and sensitive to the demand of the supply, which forced Aucenso to be in a passive mode. Due to unsteadiness of the current situation, which makes Aucenso’s markets are not steady.
    2 The competition in the industry is extremely intensive, particularly in the international market. Since the home market is almost saturated, growing business opportunities has appeared in other countries. At present the competition in the engineering service industry mainly focus on overseas market. What’s more, the exiting competitors have also showed their strong positions of strength.
    3. Its size is still very small. Now, Ausenco is competing with Leighton, LEND, UGL and MONADELPHOUS. In 2012, its total asset is 457 million dollars .However, compared with its competitors, its size is very small and can be regarded as a disadvantage. It is known to all that a company with large scale can withstand more market risks and risks and challenges are much higher to a small company. And furthermore, small company cannot produce scale effect.
    4. The market share is not big. Though Ausenco develops rapidly in the recent year and it is constantly exploring new market, its market share is still not very big when compared with its competitors.
    THREATS:
    Despite of Ausenco’s fast development, it also face up with many threats from all sides
    1 The competition in this industry is intensive. All the competitors are seeking new market opportunities and new strategies for existing market. In addition, Ausenco’s external environment is affected by the strategies of its competitors. What is more, they are competing in technology innovation. If Ausenco cannot catch up with the trend, it even cannot maintain its current position in the industry.
    2 Over capacity in the industry. In order to stand out from other lager rivals, massive capital is required. In addition, its employees are high-tech talents, so a lot of funds must be used to pay for their salaries.
    4The business on metal infrastructure especially mine engineer trend to decline. In the past decades, people have begun to raise their awareness that protecting environment is urgent for our world. The public’s increasing concerns for the environment issue has great influence for the mining industry, which can reduce clients’ demand for Ausenco’s service on mine infrastructure in the long term.
    5. More stringent environmental regulations have been put into effect. The government is setting strict regulations about environment protection thorough sustainable development, continual improvement and setting environmental target (McKay, 2000, pp49-59)
    6. The general growth rate of this industry growth is not high. Although engineering industry retains the largest contributor to world’s economy, its growth rate begin to slow down, which restrict the development of Ausenco
    OPPORTUNITIES
    1.Due to the rapid increase of the price of high commodity, Many developing countries has increase their investment in metal industry, which is likely to enhance the demand of engineering service in the short term. It’s imperative to make s developing strategy to gain a advantage over its rivals. It’s important to carry out technological innovation.
    2. The increasing global focus on sustainability will deliver additional growth opportunities. All the countries began to raise awareness of the importance of developing alternative energy which can promote the expansion of its business on alternative energy and related service.
    This can be hopefully to become a growth pole for Ausenco.
    3.Its market in south Africa and collaborating with its other business will continue to serve as  a opportunity
     

    4.FINANCIAL ANALYSIS

    4.1RATIOS ANALYSIS
    This section provides a review of Ausenco’s financial performance. In order to find its potential risk, identify its position though comparison and make wise decision, it’s necessary to study Ausenco’s financial statements by analyze its related ratios of the past 5years.
    4.1.1ACTIVITY ANALYSIS
    Activity ratios are important ratios that measure a company’s efficiency and ability to convert various accounts into cash or sales and measure the effectiveness of a company’s use of resources. The activity ratios can reflect the strength of company compared with other companies。
    SHORT TERM ACTIVITY RATIO
        

    Figure 1 Short Term Activity Ratios from 2008 to 2012    
    Short term activity ratios are usually used to evaluate efficiency of a firm’s utilization of its current asset. If the ratios are too low, it’s likely to exist some problems in the product lines or product marketing.
    The curve graphs above describe the trend of Ausenco’s activity ratios over the period from 2008 to 2012. According to the graphs, Ausenco’s trends of the receivable turnover ratio and the payable turnover ratios have kept similar trend in the past five year. , but it is clear to find that the former was always a little higher than the latter and receivable collection period was 48.7days and the payables turnover days was almost 48 days, which illustrated that receivable collection needed shorter time than payment to suppliers. Both of the ratios were not steady during this period. The two ratios decreased from 7.3 and 6.9 in 2008 to 5.1 and 5.0 in 2009.And after that, they began to show the upward trend Compared to receivable turnover ratio and payable turnover ratios, the working capital ratios were far more volatile. The graph shows a clear change of the working capital from2008 to 2009 .The ratios dropped down from 18.0 in 2008 to 6.5 to 2009.  Which reflects that the ability of working to generate sales becomes weaker than 2008.Though it showed un upward from 2008, the ratio was much lower than 2008 and in2012the ratio was only 7.8.In 2012, the receivable ratio of UGL was 8.3.Its payable ratio is 8.7, the working capital turnover was 12.97. .When compared with UGL, Ausenco’s turnover days of receivables, payables and working capital was much longer than UGL, which mean Ausenco performed worse than its rival UGL.
    LONG TERM ACTIVITY RATIOS
    Long term activity ratios can indicate the ability of fixed-asset and total-asset to generate sales. Higher long term activity ratios are the aim of all of the firms. Fixed asset turnover and Total asset turnover would be discussed.
     

                Figure 2 Long Term Activity Ratios from 2008 to 2012
    Because of the impact of the global financial, Ausenco’s fixed –asset turnover and total-asset turnover declined significantly from 25.9 and 1.9 in 2008 to 19.2and 1.0 in 2012 This was a signal that the efficiency of the asset was much weaker than before. After 2009, both of the ratios showed a slightly rising trend, which reflected that the business of Ausenco began to recover from the market depression and recover of its development. However, the ratios are still lower than 2008. In 2012, Ausenco’s fixed asset ratio was 23.4 and the total ratio was 1.4, which was lower than UGL limited..Every AUD1 of assets held could bring about less revenue than UGL, so Ausenco could not make full use of its asset. If Ausenco can utilize its assets more efficiently, the revenue can be increased.

     4.2PROFITABILITY ANALYSIS-


                   Figure 3 Profitability Ratios from 2008 to 2012
    Every firm is most concerned about its profitability. And Profitability is the best measure of company’s performance. Profitability ratios are the most frequently used tool to determine a company’s profitability position and its return to investors. The ratios are usually related to sales, assets and capital. Gross profit margin, net profit margin and return on capital will be analyzed in the following discussion.
    It’s apparent form the chart that the gross profit margin reaches its bottom in 2008 and the ratio is only 69.9%, because of the high cost of its Ausenco. In2009, the ratio increased by 12.3%. Generally speaking, the ratio is unsteady during the 5 years. In 2010 it declines to 71.8% and increased to 87.5 in 2011 and it dropped again in 2012. That’s mainly because the unsteadiness of the world economy.
    ROCE is used to prove a company’s ability to gain profit from assets and liabilities. ROCE in 2008 was the highest point and the value was 26% , but after that it experienced a decline of two years in a row from 2009 to 2010, which showed that the ability of the company to generate profit based on its capital was a little weaker than 2008.
    As to the net profit margin, it is -2.1% in 2010, indicating that Ausenco experienced s a hard year in 2010 and the company was suffering great loss because the cost was much bigger than revenue, leading to the negative of net profit. From 2010, its net profit margin started to gain increase again. Ausenco began to make a profit instead of suffering a loss. The ratio reached 6.5% in 2012 which was a signal for good performance. In2012,The return on capital employed of UGL Limited was 4% ,which was much lower than Ausenco. Its gross profit margin in 2012 was72.9,which was similar with that of Ausenco when the ratio reached its lowest point in 2010. Ausenco’s net profit margin in 2012 is 3.5% higher than UGL.
    To sum up, Ausenco owns high profitability ratios. What’s more its ability of profitability is much higher than its competitor UGL.
     

    4.3LONG TERM DEBT AND SOLVENCY       

     

                 Figure 4 Long Term Activity Ratios from 2008 to 2012
    Solvency ratios are important metrics that can measure a firm’s ability to pay off its debts in the long run. High solvency ratios mean A company’ financial position is safe. From the chart above, we can see the trends of debt-asset ratio and debt-equity ratio.
     It can be see clearly from the chart above that both of the debt-to-asset ratio and debt-to –equity reached their highest point in 2008: the former was 0.18 and the latter was 0.47.Due to the influence of financial crisis, Ausenco had increased its long-term bank loans. And the debt of risk was higher than before. However, From2009, both of the ratios began to go down which means that its solvency was stronger. The debt –asset ratio was 0.08 and debt-equity was 0.13 in 2012 while UGL limited ’debt-asset ratio and debt-equity ratio was 0.57 and 0.52. UGL’s ability to pay off its long-term debt was weaker. In a anther word, UGL faced a higher financial risk. From the difference between Ausenco and UGL, we can come to a conclusion that the financial risk of Ausenco was lower and its financial position was better compared with UGL.

    4.4LIQUIDITY RATIOS ANALYSIS


                   Figure 5 Liquidity Ratios from 2008 to 2012
    Liquidity ratios can reflect the ability of a firm to pay back its short-term debts with the attests that are most quickly and easily converted to cash. Generally speaking, higher ratios mean it’s easier for the firm to covert its liabilities.
    As can be found from the chart above, we can see that from 2008 to 2009, the cash ration sharply increased from 0.24 to 0.98, current ratios increasing from 1.13 to 2.34, and the quick ratio of 2009 was twice as much as that in 2008. The big change means the ability of Ausenco to pay its debts became much stronger than before. This could be explained by that after Ausenco started to strength its financial management to hedge risk exposure after the global financial happened. From 2009 to 2010, the overall trends of cash ratios, current ratio and quick ratio were going down. The cash ratios dropped from 0.98 to 0.60, the current ratios decreasing from 1.58 to 1.73 and the quick ratio form 1.22 to 1.06 at the same time. These figures means that Ausenco’s to cover short –term debts became weaker. After 2010, the three liquidity ratio began to increase again .The cash ratio, current ratio and quick ratio increased to 0.4,1.54and 1.06 to 1.15, 1.42and 0.92 in 2012 .
    From the changes and analysis, it is not difficult to see that except the year 2008, all of the three liquidity ratios of Ausuco from 2009 to 2012 were higher than its peer company. In total, Ausenco’s financial management is comparatively safer and its risk is lower.

    5. CASH FLOW ANALYSIS

    Iterm 2008 2009 2010 2011 2012
    Cash flow from operating activity -16560 -2278 23098 11,361 41224
    Cash flow from investing activity -130792 -12329 -21174 -59,85 -23811
    Cash flow from financial activity 10080 51975 -15426 -998 -33173
     Increase iAPPENDIX 2          
    Year 2008 2009 2010 2011 2012
    Revenue($m) 607.0 432.5 513.4 547.9 633.5
    EBIDA 102.0 43.3 10.6 46.9 68.0
    Diluted EPS(cents) 60.2 18.6 -8.8 21.5 33.3
    Dividends per share(cents) 31.7 9.5 0 12.9 20.1
    APPENDIX 3
    Item 2008 2009 2010 2011 2012
    Cash flow from operating activity -16560 -2278 23098 11,361 41224
    Cash flow from investing activity -130792 -12329 -21174 -59,85 -23811
    Cash flow from financial activity 10080 51975 -15426 -998 -33173
     Increase in cash flow -46552 37368 -13506 4378 -15760
     
    APPENDIX 4
     
    Liquidity Ratio 2008 2009 2010 2011 2012 UGL 2012
    Cash ratio 0.24 0.98 0.60 0.55 0.40 0.15
    Current ratio 1.13 2.34 1.58 1.73 1.54 1.42
    Quick ratio 0.84 1.65 1.05 1.22 1.06 0.92
     
    Short term activity ratio 2008 2009 2010 2011 2012 UGL2012
    Receivable turnover ratio 7.3 5.1 8.6 7.5 7.4 8.3
    Payable turnover ratio 6.9 5.0 7.5 6.5 7.5 8.7
    Working capital ratio 18.0 6.5 6.0 7.2 7.8 12.97
     
    Liquidity Ratio 2008 2009 2010 2011 2012 UGL2012
    Cash ratio 0.24 0.98 0.60 0.55 0.40 0.15
    Current ratio 1.13 2.34 1.58 1.73 1.54 1.42
    Quick ratio 0.84 1.65 1.05 1.22 1.06 0.92
     
    Profitability ratio 2008 2009 2010 2011 2012 UGL2012
    Return On Capital employed 26% 6% 5% 8 13% 4%
    Gross Profit Margin 69.9% 81.2% 71.8% 87.5% 82.3% 72.9%
    Net Profit Margin 9.3% 4.7% -2.1% 4.8% 6.5% 3.0%
     
     
    Long- term solvency  \ratio 2008 2009 2010 2011 2012 UGL2012
    Debt-asset ratio 0.18 0.15 0.12 0.13 0.08 0.57
    Debt –Equity Ratio 0.47 0.24 0.21 0.24 0.13 0.52
     
    APPENDIX5
    Item 2008 2009 2010 2011 2012 UGL2012
    Leverage 2.70 1.0 1.68 1.77 1.74 2.20
    ROE 48.6% 4.7% -4.2% 11.0% 15.8% 11.80%
    ROA ,I7.5% 4.5% -2.6% 5.9% 9.1% 5.25%