Financial Management In Public Universities -Myassignmenthelp.Com

Question: Discuss About The Financial Management In Public Universities? Answer: Introducation Key petroleum limited is an Australian oil and gas company that is publicly listed that has a strategic focus on pursuing unconventional and conventional programs of wildcat exploration in canning basins and North Perth operating in Western Australia. It is located in prospective onshore acreage in remote areas of Western Australia. Company was incorporated in year 2006 and it is based in Nedlands, Australia and engages themselves in exploring, acquisition and oil and gas properties development (Keypetroleum.com.au 2018). Some of the principal activities of the group involve exploration and acquisition of permits with the intention of identifying economic gas and oil reserves. The objective of company is to drill follow up wells within contagious on a discovery at Dunnart 2 and the two structures that are matured and under review to drill status are Wattle Groves and Conder south leads. Organization has a well-built strategy for unlocking petroleum potential over acreage with a dedic ated technical team, having operatorship over the entirety of its permit portfolio and holding high equity positions. Portfolio of Canning basin consists of a number of exploration opportunities and numerous exciting developments (Keypetroleum.com.au 2018). Ownership and governance structure of company: It is provided by constitution of company that total number of directors should not be less than three and more than nine and the qualification of shareholder is not required. The company has notified the names of substantial shareholders in accordance with section 671B of corporation act 2001 and they are listed below: The maximum number of shareholdings that are held by shareholders is 17.73% held by ASF oil and gas holdings Pty limited, followed by Star surpass limited having 14.03%. Start Grand Global limited having 13.63, Elite ray investments limited having 8.02 and Forever new limited having 7.42% of shareholdings (Keypetroleum.com.au 2018). It can be seen that all the substantial shareholders are different companies and therefore, key Petroleum limited can be can be classified as non-family company. Shareholders having more than 5% shareholdings include all the above named shareholders and none other shareholders hold more than the given shareholding percentage. Non-executive chairman of Key petroleum limited is Rex Turkington and Kane Marshall is the managing director of company and being a full time employee. Min Yang and Geoff baker is the non-executive director of company. Robert Lerace is the chief financial officer of company (Keypetroleum.com.au 2018). Mr Baker and Mr Yang are both the directors of ASF group limited and they are the ultimate holdings of ASF oil and gas holdings Pty limited and hold shares in Key petroleum limited. Calculation of performance ratios: $ $ $ $ Trend Particulars` 2014 2015 2016 2017 2014 2015 2016 2017 Net Profit after Tax (NPAT) A -1332959 -2117735 -2186709 -1144731 -100.0% -158.9% -164.0% -85.9% Total Assets (TA) B 5820204 7825800 6111374 6126971 100.0% 134.5% 105.0% -105.3% Ordinary Equity (OE) C 35301510 36844550 37540470 38535283 100.0% 104.4% 106.3% -109.2% Total Liabilities D 784149 3270224 2983407 3079423 100.0% 417.0% 380.5% -392.7% Return on Assets (ROA) E= A/B -22.90% -27.06% -35.78% -18.68% -100.0% -118.16% -156.23% -81.58% Return on Equity (ROE) F=A/C -3.78% -5.75% -5.82% -2.97% -100.0% -152.22% -154.27% -78.67% Debt Ratio G=D/B 0.135 0.418 0.488 0.503 100.0% 310.16% 362.34% 373.05% The variable TA/OE captures total assets of company and ordinary equity attributable to shareholders. ROA is return on assets, ROE is return on equity, and they are the profitability ratios used for determination of profitability position of company. Both of these terms incorporate the variable total assets and ordinary equity. Profitability of company is measured by these two components such as total assets and ordinary equity. The above two profitability ratios are related to the asset turnover and profit margin. The relationship of higher return on assets is explained by profit margin. Return on assets is dependent upon total assets and an increase in total assets will lead to decrease in this ratio if the profits are remaining constant (Bekaert and Hodrick 2017). If there is increase in profit as well as increase in value of total assets, then the magnitude of increase in each variable determine whether the ratio will increase or decrease. Ordinary equity on other hand is a compo nent of return on equity and an increase in equity along with increase in profits will increase the ratio value. From the above figures computed, it can be seen that figures for both ROA and ROE are negative. ROE is in favorable position compared to ROA. Value of ROE for year 2916 and 2017 stood at 5.82% and 2.97% respectively. On other hand, computed figures for ROA stood at 35.78% and 18.68% respectively. Value of ROE is favorable than ROE is because the amount of total ordinary equity is more than total assets (Block et al. 2015). Graph with the description of results: The above chart depicts the monthly movement in share price of Key petroleum limited along with the ordinary index. Blue line indicates share price movement of company and orange line indicates movement in ordinary index. In the current scenario, share price of company moved below the ordinaries index (Finance.yahoo.com 2018). It can be seen from the chart that movement in price of shares has been much volatile since the beginning of year 2017. Price remained stable for few month in the mid of year 2016. The ordinaries index remained volatile throughout the years of analysis compared to share price that experienced much volatility in the beginning and end of year of analysis. Share price line in the beginning of year 2017 went much above the index line, then went down, and again shoots up significantly. After mid of year 2017, price went down and again rose. Significant factors influencing the share price of Oz Minerals: The volatility of share price of Key petroleum limited is influenced by both internal and external factors. Company relates internal factors to undertaking of several projects during the financial year 2017. Some of the factors that led to wide fluctuations and higher volatility in share price is because of its acquisition activities and entering to several projects that is likely to add significant value to the portfolio of company. Acquisition of 100% of ownership into three exploration permits of Eromamga and cooper basins along with Drill search energy Pty limited. One of the most considerable transactions that has affected share price is with Beach energy control and its entry into onshore of UK (Raudla et al. 2015). Sudden volatility experienced by the share price of Key petroleum limited in the mid of year 2016 is attributable to execution of sale and purchase agreement for acquiring AWE Perths 100% interest in production licenses. Acquisition was witnessed with having a productive material exploration and oil pool being consistent with portfolio approach of organization. It provided organization with flexibilities for commercializing the possible discoveries in future. All this strategic efforts on part of management of group has led to such volatility in the price of shares. On 13th October 2017, announcement was made by Key petroleum for entering into the agreement of building terms for the acquisition of interest in production license (Finance.yahoo.com 2018). On 28th July, 2018, the acquisition of organization was completed by the company that shoots up its price. This higher volatility in the prices of shares of company is attributable to the international crude oil price volatility and experiencing an upward bias due to cutting down of production by petroleum exporting countries in spite of increasing demand for oil. Oil price is moving in a wide range due to sudden and abrupt swings in supply (Koh et al. 2014). Calculation of Beta values and expected rate of returns: The calculated value of Beta of company of Key Petroleum limited stood at -1.01232. Assuming market risk premium at 6% and risk free rate at 4%, the required rate of return for company is recorded at 1.98%. Particulars Amount Beta of the company A -1.01232 Risk Free Rate B 4% Market Risk Premium C 6% Required Rate of Return D=B+[Ax(C-B)] 1.98% Conservative investment is an investment strategy that is used by company to preserve the value of their portfolio by investing in lower risk securities. However, it can be seen that share price of organization is extremely volatile and they are fluctuating on a wider range and this shows that investment strategy of company is not conservative. Investors investing into shares of this company would be facing considerable amount of risks due to its extreme volatility. Weighted average cost of capital: Particulars Amount Weight age Cost Return Rate Tax Rate WACC Total Long Term Debt 0.00% 30.00% 0.00% Total Equity 3047548 100.00% 1.98% 1.98% TOTAL 3047548 100% 1.98% Key Petroleum limited does not have any amount that is attributable to the long-term debt and therefore, there are no finance costs (Michalak 2016). Therefore, in such scenario, required rate of return is equivalent to weighted average cost of capital. Hence, value of weighted average cost of capital stood at 1.98%. WACC from the management perspective is defined as the blended cost of capital that the company is required to pay for using capital of both debt and equity holders. It is regarded as minimum cost of capital and management for making investment decisions in the evaluation of projects uses it. Higher value of WACC is associated with higher risks with the operation of firm (Dudid et al. 2014). Management using WACC does the expected cost of financing all the sources. Therefore, they intend to lower down the rate of WACC for seeking investment that does not carry considerable amount of risks. Debt ratios for the past two years: The debt ratios calculated for two financial year 2016 and 2017 is .488 and .503 respectively. It can be seen that debt ratio has fallen in year 2017. This fall in debt ratio is attributable to increase in value of ordinary equity at a higher rate than total liabilities of company. The management of company has not amended the gearing ratios and there has been not share buyback and repayment of borrowings. Dividend policy: The income derived from dividend of financial assets at fair value through profit and loss and the recognition of same is done in the comprehensive income as per of revenue. No dividend or voting right is carried on performance rights. In the current financial year, company has not paid any amount of dividends. For recommending investors to incorporate Key Petroleum limited in the investment portfolio, it is said that inclusion of this stocks would be profitable. The computed ratios depicting profitability position of company is not favorable as indicated by the figures. Return on assets and return on equity are negative in figures. Solvency position of company is not favorable as indicated by increase in debt ratio in the current year. After the detailed evaluation and analysis of profitability and solvency position of Key petroleum limited, it has been ascertained that company is highly volatile. Evaluation of the share price for the period of two years, it can be said that movement in the share price has been extremely volatile resulting from some of the strategic options undertaken by company. Investors would be recommended to not make any investment in this company. However, the risk lover investors who seek making investment in risky stocks can opt for making investment in the shares of this company. Therefore, investors who does not intend to make investment in risky stocks should not be recommended to make investment in shares of Key Petroleum limited Reference Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge University Press. 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