The Investment Decision of an Analyst of a Company for Ethical Investment - Essay Example

?Finance and Accounting Table of Contents Executive Summary 3 Coca-Cola Amatil Limited 4 Qantas Airways Limited 5 Woolworths Limited 6 Financial Performance and Prospects 7 Corporate Governance Performance 9 Coca-Cola Amatil Limited 9 Qantas Airways Limited 9 Woolworths Limited 10 Environmental protection Credential 11 Coca-Cola Amatil Limited 11 Qantas Airways Limited 13 Woolworths Limited 14 Contextual factors 16 Conclusion 17 Reference List 18 Appendix -1 – Ratio Analysis of Coca- Cola Amatil Limited 20 Appendix -2– Ratio Analysis of Qantas Airways Limited 22 Appendix 3 – Ratio Analysis of Woolworths Limited 24 Executive Summary The report seeks to elaborate the investment decision of an analyst of a company for Ethical investment. The company specializes in investing for long term in companies with stable financial performance, good corporate governance and undertaking appropriate environmental friendly practices. The analyst is interested to make a comparison of all the above elements of the three well known companies dwelling from different industries. The report explains the comparison of the three companies with respect to different aspects and it also explains the decision of the analyst as to which company is the best to invest $500,000. The companies are Coca-Cola Amatil Limited, Qantas Airways Limited and Woolworths Limited; they are from different sectors like beverage, aviation and retailing industry respectively. They are well known in their respective industries and aims to grow further in future. The companies are having strong financial position and have undertaken several corporate social responsibility activities which have made them strong in the world of business. The financial performance of the companies is evaluated by ratio analysis. The result is revealing the financial strength of Qantas Airways Limited. The corporate governance performance and the Corporate Social Responsibility of the company are also better than the others. Introduction An investment decision is not made in hurry; it is good to evaluate all the elements of the company before investing. Not only the financial performance is identified but also other elements alike the corporate governance and CSR activities are evaluated in making an investment decision. The three companies are different in their operation and are from different industries but still a comparison can be made with respect to the above elements which are elaborated in the next few sections. The report seeks to find the best company to invest in out of the three companies selected. It elaborates the facts regarding the financial performance of the companies and also the overall performance of the company. The data for the ratio analysis of the three companies are obtained from the each of the company’s Annual report 2012. The ratio analysis of the three companies shows that Qantas Airways Limited is performing well financially. The corporate governance statements of the companies are compared to get the best corporate structure, ethical practices. The report also elaborates the facts regarding the companies that are efficient in handling political issues, globalization and public issues. Lastly the best of three companies is identified by comparing all the aspects and in which the investment will be made so as to give a good return after a period of time. After the overall analysis it can be said that the investment can be made in Qantas airways limited. Coca-Cola Amatil Limited The “largest bottlers of non-alcoholic ready to drink beverages, Coca-Cola Amatil (CCA) has given unbeatable performance over the years and has become the only trusted brand in Asia Pacific region” (Coca-Cola Amatil Limited, 2013a) . It is basically headquartered in Australia and the Coca-Cola Company has 29% shareholding in Coca-Cola Amatil Limited. They are ranked the best among the world’s five important bolters. It has its operation in New Zealand, Australia, Papua New Guinea, Indonesia, Samoa and Fiji. It has diversified in the production of products that includes spring water, soft drinks, energy and sports drinks, fruit juices, flavoured milk, iced tea and coffee. It also sale packaged ready-to- eat vegetables, fruits and snacks products. It provides with a number of brands Coca-Cola, the leading water brand Mount Franklin and the sport beverage, Powerade Isotonic and the leading non-sugar colas, Coca-Cola Zero and Diet Coke. CCA employs around 14,900 people and have access to about 270 million customers. The company earns about A$ 558.4 million revenue through sales (Business Spectator Pty Ltd, 2013). Qantas Airways Limited Qantas Airways Limited is the largest airlines in Australia and the oldest in the world. The airline company is based in Qantas Centre of Mascot which is in the City of Botany Bay in Sydney and has its main hub at the Sydney airport. It has captured about 65% share of the domestic market of Australia and carries around 18.7% of the passengers in and out of Australia. It gives comfort to all the class of people (Qantas Airways Limited, 2013). Qantas’s main business is transportation of their customers by the use of two airline brands - Qantas and Jetstar. The airline brand operates in domestic, regional and international services. The story of Qantas is very important and remarkable in the development of Australian aviation industry. It began with the biplanes which carried passengers in open cockpits and later it progressed to new Airbus A380s which can carry 450 people worldwide per day. The founders of the company have often overcome dreadful obstacles for establishing the Northern Territory Aerial Services Ltd (QANTAS) and Queensland. The company employs around 33, 265 employees. With support from their loyal customers and committed employees the carrier has overcome every obstacle and has established peace for serving the nation and building their strong pillars of business. It is the leading long distance carrier in the world and has established itself as the strongest carrier brand in Australia. The carrier has continued to give outstanding service to the customers. The company can face future hurdles for maintaining the world class product and the safety operation for the passengers. The revenue of the company is A$ 15.9 billion and the net income is about A$ 6 million (Qantas Airways Limited, 2013). Woolworths Limited Woolworths Limited is a major retailing company in Australia which serves the customers of domestic market as well as the markets in New Zealand. It is the largest company in New Zealand according to the market capitalization and sales. It has served the people of Australia with fresh food and value (Woolworths Limited, 2012c). The company has employed around 110,000 Australians and they have also helped thousands of producers and farmers by contributing them the source of life. They contribute to the economy indirectly an amount of about $600 billion annually. The company has earned about A$59.56 billion revenue and a profit of about A$ 2.26 billion (Woolworths Limited, 2012c). The company has provided their customers with a range of quality products and is looking forward for new ways to generate greater choices for them. The company thus have concentrated in inventing new products for the stores which has guaranteed quality. The need of the customers is identified by the company and thus they have created the Macro Wholefoods Market range for fulfilling their commitments that they will provide with better option (Woolworths Limited, 2012a). Financial Performance and Prospects The three companies are earning noteworthy amount of profit at the end of year 2012. Their performance cannot be compared by the profits as the companies are operating in different industry. Thus to judge their performance and know their financial positions ratio analysis is done. Ratio analysis helps in determining the liquidity, solvency and the profitability of the company and also assists in evaluating the efficiency of the company. By calculating the ratios of the three companies and comparing it, the financial position of the companies can be evaluated. The result will show which company is better in the overall performance of the ratios. The ratios that are calculated in this case are profitability, solvency and the liquidity ratio. The following table draws a comparison between the ratios of the three companies (refer to Appendix 1, 2, 3): Ratios Coca-Cola Amatil Limited Qantas Airways Limited Woolworths Limited Liquidity Ratio Current ratio 1.68 0.77 1.41 Quick ratio 1.22 0.63 0.40 Inventory turnover 0.96 33.41 19.22 Profitability Ratio Gross profit margin 12.7% 125.9% 26.0% Operating profit margin 14.9% 2.0% 6.1% Profit Margin 9.0% 2.2% 3.9% Total asset turnover ratio 9.30 0.59 4.84 Current asset turnover ratio 1.83 2.25 6.51 Solvency ratio Debt ratio 0.69 0.72 0.97 The following can be analyzed from the above table: 1) All the companies are having positive current ratio but Coca-Cola Amatil Limited has the highest current ratio which is indicative of the fact that there is inefficient use of the cash of the company. Qantas Airways Limited is having the lowest current ratio which indicates that there is sufficient use of cash that shows the good performance of the company. 2) The higher quick ratio of Coca-Cola indicates that the company has the ability to meet its current and future obligations. The low quick ratio of the Woolworths is indicative of the fact that the company do not has enough cash to meet the future obligations and thus the financial position is not good as compared to the other two companies. 3) The gross profit of Qantas Airways indicates that it is performing well in comparison to the other two companies. 4) Coca-Cola has kept sufficient profit margin as compared to the other companies. 5) The lower debt ratio of Coca-Cola indicates that the company is not aggressive in taking debt and continuing business operation but it has been conservative in its moves (Coca-Cola Amatil Limited, 2013c). From the above analysis it can be concluded that the best company is Qantas Airways Limited according to the financial performance of the company. Corporate Governance Performance Coca-Cola Amatil Limited Code of Conduct The company maintains the highest standards that are set by them by educating the employees about their code of conduct. The Audit and Risk Committees has the responsibility for ensuring effective polices fro compliances that has been established by the Code of Business Conduct (ASX Limited, 2013). Interests of Stakeholders The company recognizes that their stakeholders should be informed about the essential information of the business. The stakeholders are the employees, contractors and the community the company serves. The company believes to become a good corporate citizen and thus they undertake Corporate Social Responsibility (CSR) initiatives. The CSR activities are published in the company’s Sustainability report that focuses basically on the four pillars of their commitment i.e. environment, workplace, community and marketplace (ASX Limited, 2013). Qantas Airways Limited Qantas has taken a holistic approach for diversifying and has committed itself to an inclusive and diversified workplace. The company employs a diverse workforce who delivers competitive advantages and also benefits to the customers. Diversity has been promoted through leadership, developmental programs and flexible work arrangement and also during the recruitment and selection programs (Qantas Airways Limited, 2013). Qantas Employee Shareholder’s policy includes the whistleblower strategy. The policy encourages the employees to report about the illegal and the unethical conduct in any situation. They are encouraged because they will be fearless in informing the management about the unethical works (Qantas Airways Limited, 2013). Woolworths Limited Code of Conduct For ensuring the highest moral, legal and ethical standards while dealing with the customers, employees, suppliers and local communities, the employees of the company follows the Code of Conduct of the company. The code of conduct elaborates the how the employees will meet the highest standards that are set by the company through everyday behaviours (Woolworths Limited, 2012b). Shareholder Communications Policy The Company seeks to ensure that their shareholders are informed about all the developments that are affecting the state of affairs of the company. The company recognizes that their investors should be informed about the crucial information of the company from period to period. The shareholder communications policy identifies that the information are to be communicated regularly to the shareholders and the stakeholders by using a range of publications and forums (Woolworths Limited, 2012b). Environmental protection Credential Coca-Cola Amatil Limited The business policy and the code of conduct of Coca-Cola Amatil Limited are reviewed at regular basis for ensuring that the standards of the company is not compromised and they also acknowledge their responsibility towards the stakeholders. To ensure the above, the company publishes annual sustainability report which mainly contains: Marketplace, Environment, Workplace and Community. For looking after the entities the company has created a body called the Compliance and Social Responsibility Committee. The task of the committee is to review the reputation and the standards of the company (Coca-Cola Amatil Limited, 2013a). The following areas are focused carefully by the company: 1. Efficient diversified policy 2. The issue of political donations 3. The company support and the sponsorship programs. 4. The company concentrates on the social issues like obesity, health, environmental sustainable initiatives etc. 5. The company has also been concentrating on reducing the carbon footprint. The following are few initiatives that are taken by the company for the development of the environment and the surroundings: 1) Eradication of child labour in the sugarcane fields (Coca-Cola Amatil Limited, 2013a). 2) The company ensures safety and quality by providing the customers with safe, tasteful and quality beverages. 3) The company has established a series of schools in Philippines named “Little red house school” in collaboration with the Coca Cola Company for bringing smile to the children who have not got the chance to ste4p into the bright world of education and secure their future. . 4) The company protects the water resources by recycling the water and treating it with stringent waste water treatment process. They have also undertaken community water projects for the safe drinking water. The partners of the company in this project are the WWF, CARE, UNDP and USAID (Coca-Cola Amatil Limited, 2013a). The main aims of the project are the following: a) Protecting water shed and utilizing water for productive use. b) Improvement of the water and sanitation. c) Providing better access to water resources in Ghana. 5) They have taken initiatives to reduce CO2. They have taken initiatives for eradicating the use of CFC in the vending machines, dispensers and the coolers (Coca-Cola Amatil Limited, 2013a). 6) Coca cola Arctic home: The polar beer is fast shrinking in Arctic because of th3e change in climate. The company along with WWF has launched a campaign called the Arctic Homes for creating place for the polar beer where the local communities can conserve them (Coca-Cola Amatil Limited, 2013b). 7) The company has taken initiatives to improve the livelihood of the mango mostly the women by purchasing the entire crop field and eliminating the middleman presence so that the farmers get right price for their crops. 8) The company has made innovative plans for reducing the waste by educating the consumers about the harmful effect of the landfill wastes (Coca-Cola Amatil Limited, 2013a). 9) Through the recycling process around 50% of the bottles are recycled manually. Qantas Airways Limited The company’s sustainability measuring and reporting structure is a twofold structure which represents the priorities and the measures identified or implemented upon. The priorities are improving the economic, social and environmental performance. The following initiatives are taken by Qantas Airways Limited: 1) The company has targeted to improve the average fuel efficiency by 1.5% per annum by 2020 (Qantas Airways Limited, 2013). 2) The company has announced commercial sustainable aviation flights. 3) Have concentrated in optimization of fuel. 4) They have focused on fleet renewal. 5) They have ensured continued diversion of general waste in Sydney to an Advance Waste Treatment facility 6) They have been commissioning the stages for being the Australia’s largest commercial Tri-generation plant (Qantas Airways Limited, 2013). 7) They have planned for continued resource reduction initiatives. 8) The minimum requirements for identifying, assessing and managing environmental aspects and impacts a) The framework for setting and reviewing objectives and targets b) The requirements to maintain legislative compliance c) The roles and responsibilities for environmental management (Qantas Airways Limited, 2013) Woolworths Limited Woolworths is committed towards supporting quality and growth in the products improvement along with achieving sustainable results by networking with the communities and charities mainly in the 4 broad areas namely: 1) Health and well being 2) Sustainability and environment 3) Education and environment 4) Rural and regional The tagline for the CSR is “be good neighbours and invest in local communities” (Woolworths Limited, 2012b) The major initiatives that are taken by the company are as follows: 1) They have rigorously working with the NGO organizations in certain areas such as the anaphylaxis Australia and the Diabetes Queensland on food allergens and nutrition. 2) They are helping the farmers to improve the agricultural production by educating them about the different threats to the crops (Woolworths Limited, 2012f). 3) They have established primary education schools and primary industries for science and education for upgrading the rural areas (Woolworths Limited, 2012d). 4) Woolworths has targeted for zero food waste by the year 2015. The plan is to donate all surpass food to local food relief organizations. In 2012 the company has donated food amounting to 10 million meals approximately and has also undertaken diversion program for composing waste to energy. 5) The company has gone beyond any regulatory process and followed a strict compliance with regards to the general aspects of liquor making and selling to the society. 6) The company ensures ethical conditions in their labour supply and has improved the human rights not only to its employees but also in the supply chain (Woolworths Limited, 2012d). It has made ethical policies in the following key areas which are as follows: a) Policies against bribery and corruption. b) Have formed labour rights for the members in the supply chain. 7) The company has continuously improved its animal welfare standards and has monitored the improvement through Woolworths Quality Assurance Program. 8) The company sources all its food materials responsibly and serves its locals with fresh produce. 9) They have planned to reduce the emission of CO2 by 2015. 10) They have the target to develop a more complete baseline of water usage. They have planned to reduce the usage of water at least 200 million litres by 2010 (Woolworths Limited, 2012e). 11) They have developed and implemented an ethical sourcing policy. From the above initiatives that are undertaken by the companies, Qantas Airways Limited is the best in implementing it. Qantas has successfully implemented the Corporate governance due to their in depth service segmentation and penetration policy in Environmental, social, people and community service. Owing to their individual segmented planning of CSR activities they have created an everlasting impact on the community, water waste, absenteeism, national export, diversity, and revenue to domestic traveller expenditure and also upon economic output (Woolworths Limited, 2012e). Contextual factors The investors of the Coca-Cola Amatil Limited have faced six-month lows in May, 2013, after the group has downgraded the full year earnings (Coca-Cola Amatil Limited, 2013c). The Managing Director of the company has addressed that the fruit processing division has been affected since there has been a lot of import from the private packaged fruit retailers (Reuters, 2013). The number of passengers of Qantas Airways Limited has reduced to half when they raised their charges (The Australian, 2013). People are reluctant to board the airlines because of its high rates and the company has no other option to cut down prices which they raised because of the increased maintenance and surveillance cost (Parliament of Australia, 2013). Woolworths is subject to innumerable state and Commonwealth regulations. The company strictly complies with the applicable works and laws and ensures that the processes and systems are supporting the compliance in delivering goods and services to the customers daily. But there is inconsistency between the two regulations which brings in challenge for the company. The following areas face this inconsistency: 1) Chemicals. 2) Product safety regulations 3) Load limitations regulation 4) Workers compensation regulation 5) Staff training and liquor licensing. After evaluating the contextual factors, Woolworths is the best company. The company can deal with internal factors and can rectify their works as do as per the regulations. They are not as such externally harmed by the economy and the political issues so that makes it the best of all. Conclusion It can be concluded that Qantas Airways Limited has been the right company for investment of $5000, 000 as the financial performance of the company is stable and noteworthy in comparison to the other. The following are the areas where the company has performed well and thus can be chosen as the best one: diversity, environment, social issues, education to underprivileged, waste management and climate care. Reference List ASX Limited, 2013. Delayed Share Price. [online] Available at: < http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=WOW > [Accessed 28 September 2013]. Business Spectator Pty Ltd, 2013. Coca-Cola Amatil Hits 6-Month Low On Earnings Downgrade. [online] Available at: < http://www.businessspectator.com.au/news/2013/5/7/retail/coca-cola-amatil-hits-6-month-low-earnings-downgrade > [Accessed 28 September 2013]. Coca-Cola Amatil Limited, 2013a. Corporate Social Responsibility. [online] Available at: < http://cca2011crr.reportonline.com.au/ > [Accessed 28 September 2013]. Coca-Cola Amatil Limited, 2013b. Annual Report 2012. [online] Available at: < http://ccamatil.com/InvestorRelations/AnnualReports/2012/CO27_CCA%20Annual%20Report%20-%20A4_220313_FIN_LR_single.pdf > [Accessed 28 September 2013]. Coca-Cola Amatil Limited, 2013c. Financial Results 2012. [online] Available at: < http://ccamatil.com/InvestorRelations/Results/2012/2012%20Full%20Year%20Result%20-%2019%20February%202013/FY12%20%20ASX%20Release%20-%20with%20accounts.pdf > [Accessed 28 September 2013]. Parliament of Australia, 2013. Australian Airline Industry. [online] Available at: < http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp0203/03RP10 > [Accessed 28 September 2013]. Qantas Airways Limited, 2013. Annual Report 2012. [online] Available at: < http://www.qantas.com.au/infodetail/about/investors/2012AnnualReport.pdf > [Accessed 28 September 2013]. Reuters, 2013. New Issue- Coca-Cola Amatil Prices A$35 million to 2020 Bond. [online] Available at: < http://www.reuters.com/article/2013/07/30/idUSL4N0G02W320130730 > [Accessed 28 September 2013]. The Australian, 2013. Coles and Woolworths to Face Watchdog. [online] Available at: < http://www.theaustralian.com.au/national-affairs/coles-woolies-to-face-watchdog/story-fn59niix-1226596739378# > [Accessed 28 September 2013]. Woolworths Limited, 2012a. Financial Performance. [online] Available at: < http://www.woolworthslimited.com.au/page/Invest_In_Us/Financial_Performance/ > [Accessed 28 September 2013]. Woolworths Limited, 2012b. Responsible Service. [online] Available at: < http://www.woolworthslimited.com.au/page/A_Trusted_Company/Responsible_Service/ > [Accessed 28 September 2013]. Woolworths Limited, 2012c. About Us. [online] Available at: < http://www.woolworthslimited.com.au/ > [Accessed 28 September 2013]. Woolworths Limited, 2012d. Home. [online] Available at: < http://www.woolworths.com.au/wps/wcm/connect/webSite/Woolworths/ > [Accessed 28 September 2013]. Woolworths Limited, 2012e. Sustainability Strategy. [online] Available at: < http://www.woolworthslimited.com.au/icms_docs/130514_Doing_the_Right_Thing.pdf > [Accessed 28 September 2013]. Woolworths Limited, 2012f. Woolworth Limited. [online] Available at: < http://www.dpc.nsw.gov.au/__data/assets/pdf_file/0010/86329/Woolworths.pdf > [Accessed 28 September 2013]. Appendix -1 – Ratio Analysis of Coca- Cola Amatil Limited Coca-Cola Amatil Limited Ratio Analysis Short term liquidity ( in A$ million) Current ratio 2012 Current assets 2,931 / Current liabilities 1,749 = Current ratio 1.68 Quick ratio (Acid Test) (Cash 1,178 + Accounts receivable) 960 / Current liabilities 1,749 = Quick ratio 1.22 Inventory turnover Cost of goods sold 692 / Average inventory 720 = Inventory turnover 0.96 Profitability Ratios Gross margin Gross profit 649 / Sales 5,097 = Gross margin % 12.7% Operating margin Operating profit 761 / Sales 5,097 = Operating margin 14.9% Profit margin Net income 460 / Sales 5,097 = Profit margin 9.0% Total asset turnover Sales 59,278 / Average total assets 6,376 = Total asset turnover 9.30 Current asset turnover Sales 5,097 / Average current assets 2788 = Current asset turnover 1.83 Debt ratio Total liabilities 4,643 / Total assets 6,722 = Debt ratio 0.69 Working Note Average inventory Opening inventory 752 Closing inventory 690 Average Inventory 720.95 Average total asset Opening asset 6,029 Closing asset 6,722 Average total asset 6,376 Average current asset Opening asset 2,644 Closing asset 2,931 Average total asset 2,788 Appendix -2– Ratio Analysis of Qantas Airways Limited Appendix 3 – Ratio Analysis of Woolworths Limited Working Note Average inventory Opening inventory 752 Closing inventory 3,438.00 Average Inventory 2095.2 Average total asset Opening asset 10,575 Closing asset 11,802 Average total asset 11,189 Average current asset Opening asset 7,802 Closing asset 8,830 Average total asset 8,316 Read More