Accounting For Business: A Case Study Of AGL Energy Ltd

Statement of Financial Position

Discuss about the Accounting for Business for Place in the Market.

AGL energy Ltd that started its operation in 1837 is currently one of the pioneers in the field of Energy Company. The company has a strong line of action and taken an action to limit the greenhouse gas emission and provides secure, as well as affordable energy to the customers. It has a huge experience of 175 years. It serve the customers through the entire eastern Australia and meet the requirement of customers in terms of energy needs, that includes gas, solar power, electricity  and various other services (AGL Energy Ltd, 2015). When it comes to portfolio, it has a diverse power generation portfolio that contains base and intermediate generation plants spreading to generation of thermal, as well as sources of energy that is renewable like wind, hydro, solar, biomass, etc. With the due passage of time, it has cemented its place in the market and created a strong goodwill by serving more than 3.6 million customers.

Total Current Assets

Total Current Assets
Current assets Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2015	2014
Cash and cash equivalents	259	456
Trade and other receivables	1894	1902
Inventories	396	191
Other financial  assets	156	114
Other assets	262	318
Assets classified as held for sale	492	430
Total	3459	3411
Percentage difference	50.34	49.65

Current assets are those assets, converted into cash within a period of one year. It includes, cash, bank, sundry debtors etc (Christensen, 2011). From the above analysis, it can be observe that the current assets of AGL Energy Ltd in 2014 reported at 49.65% while it was 50.34% in the year 2015. This portrays that the current assets increased by 0.69% because of enhancement in the financial assets of the company that includes inventory holdings (AGL Energy Ltd, 2015).  Such increase indicates that AGL has enough resources to repay off its debt obligations in the future and it has positive cash flows to develop (Northington, 2011).

Total non-current assets

Total non-current assets
Non-current assets	2015	2014
Property, plant	6958	5694
Intangible assets	682	631
Investments	91	32
Trade and other receivables	44	46
Inventories	32	28
Other financial assets	596	484
Deferred tax	682	631
Assets evaluation	130	372
Other assets	31	18
Total	12374	10723
Percentage	54.63	45.36

Non-current assets cannot be converted into unrestricted cash within a period of one year of the date of balance sheet and from the above analysis, it can be observed that the non-current assets of AGL stood at 45.36% while in 2015 it increased by 9.27% and reported at 54.63%. It clearly signifies that the company had invested resources in intangible assets, inventories, fixed assets and other investments.  Hence, it can be ascertain that AGL had made such investments taking into account the long-term prospects (Parrino et. al, 2012).  In other words, AGL had opted for such investments that it estimates to keep for more than a year.

Total current liabilities

Current liabilities	2015	2014
Trade and other payables	1377	1417
Financial  liabilities	269	477
Borrowings	443	45
Provisions	191	101
current tax liabilities	86	49
Directly associated liabilities	0	77
Total	2373	2166
	52.28	47.71

Current Liabilities are the debt obligations of a company that must be paid within twelve months from the balance sheet date (Brigham & Ehrhardt, 2011). From the above analysis, it can be seen that AGL Energy has increased its provisions and borrowings at a very high rate. On one hand, the provisions have increased from 101 in 2014 to 191 in 2015 while borrowings have largely increased from 45 in 2014 to 443 in 2015 (AGL Energy Ltd, 2015). As a result, it has more enough debt obligations to be paid off. Moreover, the current liabilities of AGL reported at 47.71% in 2014 and it increased to 52.28% in the year 2015.

Total Current Assets

Total non-current liabilities

Non- Current liabilities	2015	2014
Borrowings	3439	3669
Provisions	456	106
Other Financial  liabilities	387	280
Other liabilities	363	275
Deferred tax liabilities	0	50
Total	4645	4380
Percentage	51.47	48.53

Non-current liabilities are the long-term financial obligations that are not due within the current accounting year. It is observe from the above analysis that AGL Energy ltd had not paid the borrowed funds (Graham & Smart, 2012).  Therefore, in the current year that resulted in the increase of non-current liabilities. If the deferred tax liabilities could not be paid, then such increment in non-current liabilities would be more. Moreover, the non-current liabilities stood at 48.53% in the year 2014 while it increased to 51.47% in the year 2015.

Stockholder Equity

Total stockholder equity	2015	2014
Contributed equity	6696	5437
Reserves	(65)	(99)
Retained earnings	2175	2249
Non-controlling interest	9	1
Total	8815	7588
Percentage	53.74	46.25

From the above analysis, it is observe that the stockholder’s equity of AGL Energy reported at 46.25% in the year 2014 but it increased to 53.74% in 2015. This indicates that there is an increase in the capital or earnings of the company. It can be seen that the non-controlling interests of the company enhanced from 1 in 2014 to 9 in 2015 that led to the increase in stockholder equity (AGL Energy Ltd, 2015). This signifies good news especially for the shareholders as now they can entrust their faith upon the company and its activities (Williams, 2012).

Total stockholder equity	2015	2014
Contributed equity	6696	5437
Reserves	(65)	(99)
Retained earnings	2175	2249
Non-controlling interest	9	1
Total	8815	7588
Percentage	53.74	46.25

Stockholder’s equity is that portion of the balance sheet that portrays the receipt of capital from the investors in exchange for the paid-up capital (stock), retained earnings and donated capital. It is popular as shareholder’s equity (Horngren, 2013). The reason behind the increase in the contributed equity portion of the company in the year 2015 is that the company issued $83 million ordinary shares in 2014 but in the year 2015, the issue of ordinary shares increased to $1275 million. Such further issue of ordinary shares have facilitated in the increase of contributed equity of the company. Furthermore, the decrease in the retained earnings of the company also facilitated in the decrease of stockholder’s equity, otherwise it would have increased more (AGL Energy Ltd, 2015). The increase in non-controlling interests of the company from $1 million in the year 2014 to $9 million in the year 2015 has also facilitated in enhancing the contributed equity of the company from $5437m in 2014 to $6696m in 2015. Moreover, the stockholder’s equity of the company stood at 46.25% in 2014 while it increased to 53.74% in 2015.

Total Operating revenue

Total operating revenues	2015	2014
Revenue	10678	10445

Operating revenues generated from the day-to-day activities of a company that means revenue posted from the sale of goods and services of the company. From the above figures, it is observe that AGL Energy Ltd had incurred a loss as its operating revenues have declined from 10445 in 2014 to 10678 in the year 2015 (AGL Energy Ltd, 2015). Such loss further indicates that the core operations of AGL are not so profitable and an immediate change is required to either decrease costs or increase revenues. If AGL consistently incurs operating losses, then it will have to encounter bankruptcy in future.

Total non-current assets

Cost of goods sold (in $m)

COGS	2015	2014
cost of goods sold	61	73

Cost of goods sold (COGS) are the direct expenses attributable to the company’s production of goods sold. These costs fall into the basic sub-categories of direct material, labour, and overheads. From the above figures, it is observed that the COGS of AGL Energy Ltd reported at $73m in the year 2014 but it decreased to $61m in the year 2015 that indicates lower gross profit margin obtained by the company in comparison with the previous year (Needles & Powers, 2013).

total expenses before income tax	2015	2014
Finance income	20	24
Finance cost	-250	-243
Depreciation	-379	-326
TOTAL	-609	-545

From the above figures, it can be observe that the total expenses before income tax of AGL Energy Ltd was significantly high in the year 2014 and reported at negative of 545 but in the year 2015, it further increased to negative of 609. The reason behind such increase is that the financial income of the company reduced from 24 in 2014 to 20 in the year 2015 and even the finance costs being negative in numbers increased from 243 in the year 2014 to 250 in the year 2015. Increment in such expenses will create various difficulties for the company and it will not be able to carry out its business activities in a smooth and efficient manner (Deegan, 2011).

Any non-operating gain or losses – NO

Earnings per common share

Earnings per share	2015	2014
EPS	33.3	98.2

Earnings per share defined as the portion of company’s profits allocated to every outstanding share of the common stock, thereby serving as a clear indicator of the profitability of the company (Brigham & Daves, 20012). From the above figures, it is observed that the Earnings per share of AGL Energy declined from 98.2 cents in the year 2014 to 33.3 cents in the year 2015. This indicates that the company has not been able to align with the expectations of the investors and it did not provide heightened concentration on proper capital allocation, efficiency, and productivity (Spiceland et. al, 2011). Such a decline in earnings per share can signal to the investors that the company is in major trouble, thereby leading to decline in the company’s stock prices also. It is observe that even after an increase in the weighted average number of ordinary shares of AGL Energy, the company failed to deliver an appropriate EPS. The company based on such weighted ordinary shares that were 580,276,015 in the year 2014 calculates the above-mentioned EPS figures and it enhanced to 653,725,754 in the year 2015.

Total current liabilities

Net Cash inflow/outflow from operating activities

Cash flow from operating activities	2015	2014
Receipts from customers	11587	11791
Payments to suppliers and employees	-10236	-10733
Dividends received	32	26
Finance income received	24	23
Finance costs paid	-216	-217
Income taxes paid	-147	-191
Cash generated from operating activities	1044	699
percentage	59.89673	40.10327

From the above figures, it is observe that the net cash provided by operating activities of AGL Energy increased from $699m in the year 2014 to $1044m in the year 2015. Although cash utilized in operating activities in both years, yet there is an increase in the receipt of dividends, receipt of finance income and decrease in the payment of finance costs in 2015. The percentage increase in net cash provided by operating activities depict that the company has maintained an efficient and strong business (Davies & Crawford, 2012). In the year 2014, the percentage stood at 40.10% but it increased to 59.90% in the year 2015.

Net Cash inflow/outflow from investing activities

Cash flows from investing activities	2015	2014
Payments for property, plant and equipment	-744	-624
Payments for exploration and evaluation assets	-34	-28
Payments for oil and gas assets	-28	-46
Payments for investments in associates and joint ventures	-80	0
Payments for intangible assets	0	-25
Payments for businesses and subsidiaries, net of cash acquired
acquisitions in current period	-1348	-79
acquisitions in prior periods	-32	-33
Government grants received	32	190
Proceeds from sale of property, plant and equipment	6	2
Loans advanced to related parties	-3	-126
Proceeds from repayment of related party loans	56	0
Net cash used in operating activities	-2175	-769

From the above figures, it is observe that the net cash used in investing activities was in negative figures for both the years. In the year 2014, the net cash used in investing activities was negative of $769m but in the year 2015, it further increased to $2175m. The reasons behind such increase in use of net cash in investing activities are because of increased payment towards Plant, Property and Equipment, evaluation and exploration assets, investments in joint ventures and associates, less receipt of government grants, and acquired subsidiaries and businesses. This increase in net cash for investing activities portray that the company will face future problems while managing funds and it may fail to obtain a better stand in the market. In terms of percentage, the net cash used in investing activities reported at 26.12% but it enhanced to 73.88% in the year 2015.

Net Cash inflow/outflow from financing activities

Cash flows from financing activities	2015	2014
Proceeds from issue of shares, net of transaction costs	1210	1
Proceeds from issue of shares to non-controlling interests	8	1
Purchase of shares on-market for equity based remuneration	-7	-6
Proceeds from borrowings	2647	2075
Repayment of borrowings	-2580	-1547
Payments for settlement of derivative financial instruments	-10	0
Dividends paid	-344	-269
Net cash [provided by financing activities	924	255

From the above figures, it is observe that the net cash provided by financing activities of AGL increased from $255m in the year 2014 to $924m in 2015. The reasons behind such massive increase in cash provided by financing activities are the proceeds from share issue, proceeds from share issue to non-controlling interests, and proceeds from borrowings. The percentage of net cash provided by financing activities reported at 21.63% in 2014 but it increased to 78.37% in the year 2015 that is a very strong indicator for the company in terms of performance and managing of resources for future scenarios (Merchant, 2012).

Net increase or decrease in cash during the year

	2015	2014
Net (decrease)/increase in cash and cash equivalents	466	281

In both the years, cash utilized but in 2015, huge amount of cash expended for the investing activities of the company in comparison to 2014. The cash and cash equivalent at the end of 2014 reported at $466m that decreased to $259m in the year 2015. This clearly indicates that the company will pay cash issues in the upcoming future if it consistently maintains such results (Brealey et. al, 2011). Variations of strategies made so that costs decreased and revenues increased. In terms of percentage, the cash, and cash equivalent in 2014 stood at 64.27% while in 2015, it decreased to 35.72%.

Conclusion

The above findings are deriving through the figures provided in the annual report. Hence, the authenticity of the findings is sure. The findings give a complete picture that AGL Energy Limited has strong fundamentals that is observe from the balance sheet and the income statement. Therefore, from the report, it can be ascertain that the company is heading strong and the percentage calculation stress that 2015 has been fruitful. Further, the findings also indicate that financial number from the statements is enough to provide recommendation. Moreover, this method is accurate and devoid of any flaws. Even a common person can easily understand the percentage variation.

As per the findings and conclusion, AGL Energy is a safe bet and hence, can be selected for investment. It has explored new mechanisms and energy being one of the best areas for further landmark; it is bound to get additional benefit. However, just the worry figure is the earnings per share that has dropped. Apart from it all other factor indicate that the company has posted a strong figure and hence, ideal for investment purpose.

References

AGL Energy Ltd 2016, AGL Energy Ltd Annual Report 2015, viewed 15 September 2016, https://www.agl.com.au/residential

Brealey, R., Myers, S. and Allen, F 2011, Principles of corporate finance, New York: McGraw-Hill/Irwin.

Brigham, E. & Daves, P 2012,  Intermediate Financial Management , USA: Cengage

Brigham, E.F. & Ehrhardt, M.C 2011, Financial Management: Theory and Practice, USA: Cengage Learning.

Christensen, J 2011,  ‘Good analytical research’, European Accounting Review, vol. 20, no. 1, pp. 41-51

Davies, T. & Crawford, I 2012, Financial accounting, Harlow, England: Pearson.

Deegan, C. M 2011, In Financial accounting theory, North Ryde, N.S.W: McGraw-Hill.

Graham, J. & Smart, S 2012, Introduction to corporate finance, Australia: South-Western Cengage Learning.

Horngren, C 2013, Financial accounting,  Frenchs Forest, N.S.W: Pearson Australia Group.

Merchant, K. A 2012, ‘Making Management Accounting Research More Useful’, Pacific Accounting  Review, vol. 24, no.3, pp. 1-34.

Needles, B.E. &  Powers, M 2013, Principles of Financial Accounting, Financial Accounting Series: Cengage Learning.

Northington, S 2011, Finance, New York, NY: Ferguson’s.

Parrino, R., Kidwell, D. & Bates, T 2012, Fundamentals of corporate finance, Hoboken, NJ: Wiley

Spiceland, J., Thomas, W. & Herrmann, D 2011,  Financial accounting, New York: McGraw-Hill/Irwin,University Press

Williams, J 2012,  Financial accounting, New York: McGraw-Hill/Irwin.