QBE Insurance Group LTD's Financial Performance - Report Example

QBE Insurance Group LTD Financial Statements Analysis University: Name: Table of contents Executive summary 1. Introduction 2. Income statements analysis 2.1 Revenue 2.2 Expenses 2.3 Impairment of goodwill 3 Balance sheet statements analysis 3.1 Intangible assets 3.2 Cash and cash equivalents 3.3 Retained assets 4 Cash flow statements analysis 4.1 Premium received 4.2 Reinsurance received 4.3 Investments purchased 5 Ratio analysis 5.1 Liquidity ratios 5.1.1 Current ratios 5.1.2 Quick ratios 5.2 Profitability ratios 5.2.1 Return on assets 5.2.2 Return on equity 5.3 Leverage ratios 5.3.1 Debt to equity 5.3.2 Asset turnover 5.4 Valuation ratios 5.4.1 Dividend yield 5.4.2 Earnings per share 6 Factors excluded in the financial statements 6.1 Market share 6.2 Amortization of goodwill 7 Conclusion 8 Appendices Executive summary This report is aimed at giving an overview of QBE Insurance Group LT D financial performance. The report will analyze financial statements i.e. the balance sheet, the income statement as well as the cash flow statement for a period of six years (2010 -2016). The report will specifically address significant changes observed throughout the period and be evaluated against strategic goals of QBE Insurance Group LTD. In addition, the report will analyze financial ratios for the six years and observe the trend. The report will also address significant issues not included in the financial statements and a conclusion will be made. Any other relevant facts and findings will also be addressed in the report. The report is intended to give the users a clear picture of whether the company performing well and to help investors in making investment decisions. 1. Introduction QBE Insurance Group Limited was founded in the year 1886 in Australia. It is the largest insurer in the world and trades on Australian Stock Exchange (ASX 200 Index). The company prides itself with the presence of its services in 38 countries. The company mainly provides general insurance and reinsurance services to Europe, Australia, Asia Pacific region and America. QBE LTD has about 17,000 employees. Currently, the QBE LTD board is chaired by Mr. Marty Becker and Mr. John Neal serves as the president and the Chief Executive Officer. Other than providing insurance services the company sponsors sports teams as a way of giving back to the community. 2. Income statements analysis QBE LTD income statement analysis shows that the year 2010 was the most profitable compared to the preceding years with a record profit after tax of $1.273 billion. However, over the years, the company has been recording a gradual increase of net profit with an exception of the year 2013 when the company recorded a loss of about $273 million. 2.1 Revenue (Figure 1) For the six years, QBE Company has recorded a significance increase in revenue from one year to another. This is because the company has been increasing the customer base consistently. More so, the company has been generating revenue from new investments made over the years. Figure 1 2.2 Expenses (Figure 2) Expenses have been fluctuating over the six years specifically due to different investments that come with different costs. Figure 2 2.3 Impairment of Goodwill Impairment of goodwill in the year 2012 made QBE Company make a loss in the year 2013. However, the preceding years were profitable to the company. This was brought about by QBE’s North American subsidiaries from previous years write-off of intangibles and goodwill and unpaid claims. However, the company surpassed this trying moment and made a profit of about $913 million in the year 2014 and later improved to about $949 million in the year 2015 3. Balance sheet statements analysis A review of the balance sheets indicates shareholder’s wealth accumulation have increased tremendously from about $10.2 billion in the year 2010 to about $14.5 billion in the year 2015. This has been attributed to the company’s focus on profit generation and optimal utilization of assets. The statements also reveal a consistent growth in asset base from the year 2010 to 2016. This is attributed to the fact that the company has been venturing into new viable investments such as partnerships and alliances. 3.1 Intangible assets The company’s intangible asset such as goodwill was affected by the QBE’s US operations and has been depreciating with huge losses. The US operations haunted the Company’s reputation in a big way. It was a blow to the company. 3.2 Cash and cash equivalents The company has maintained its liquidity level over the six years implying its capability in meeting short-term needs. However, the level of cash and cash equivalents has been fluctuating from one year to another. 3.3 Retained earnings (Figure 3) QBE Company has maintained a high level of retained earnings especially year 2015 with about $4.5 billion. This is in an effort to curb debt financing of its activities. From the year 2013 to the year 2015, the company has recorded a tremendous increase in the retained earnings. However, the company recorded a decrease in retained earnings between the year 2010 and 2013. Figure 3 4. Cash flow statements analysis The company’s client base has increased over the six years as revealed by the premium received in the cash flow statements. This has been brought about by providing cost effective insurance covers to customers and settlement of claims on time. In addition, QBE Company has enhanced marketing strategies as well as the opening of new branches hence an increase in the client base. 4.1 Premium received (Figure 4) The statement shows that the premium received by QBE Company has been increasing from the year 2010 ($12.8 billion) to 2015 ($20.7 billion). This shows that the company has increased the number of customers taking insurance covers. This is a great improvement given the impairment of goodwill at some point. Figure 4 4.2 Reinsurance received QBE’s reinsurance business have improved from the year 2010 with the year 2013 recording the highest reinsurance received of about $3.1 billion. 4.3 Investments purchased QBE Company has made several investments as reflected in the cash flow statements. The investments fluctuated over the years due to differing capital costs of investments. 5. Ratio analysis 5.1 Liquidity ratios 5.1.1 Current ratio (Figure 5) QBE Company has achieved the assets to liabilities ratio benchmark of 2:1 for years 2014 and 2015. For the rest of the years, the company was below the benchmark with an average current ratio of 1.3. However, this is an indication that the company has been able to meet short-term obligations when they fall due. Figure 5 5.1.2 Quick ratio (Figure 6) The quick ratio for the year 2011 was far below the benchmark. In this year, QBE Company had difficulties in meeting short-term obligations when they fell due. However, the rest of years show a healthy liquidity level. Figure 6 5.2 Profitability ratios 5.2.1 Return on the asset The company has recorded an almost constant return on the asset over the years with an exception of the year 2013 which recorded a negative return of 0.5% due to an impairment of goodwill. 5.2.2 Return on equity The year 2010 recorded the highest return on equity of 12.5%. This is reflected in the earnings per share of a record $117.68. However, for the rest of the years, QBE Company has maintained an almost level on the return on equity averaging 6.8% with an exception of 2013. 5.3 Leverage ratios 5.3.1 Debt to equity The company has maintained a constant level of debt to equity for the six years. It is the strategy of the company to finance new projects with equity rather than debt. This reflected on the interest payment reduction. In addition, the value of the outstanding share over the years has been increasing implying capital finance is through floating of shares. 5.3.2 Assets turnover The asset turnover ratio for QBE Company for the six years shows a low return. This is attributed to the fact that the industry that the company operates does not rely heavily assets on revenue generation specifically the non-current assets. 5.4 Valuation ratios 5.4.1 Dividend yield (Figure 8) The ratios shows 2010 must have the year to the shareholders with a dividend yield of 7.1%. The dividend yield has been fluctuating over the years due to the use of earnings rather than debt as discussed earlier in financing projects. However, QBE has been paying dividends for the six years. Figure 8 5.4.2 Earnings per share; With the exception of the year 2013 when QBE recorded a loss, earning per share has been increasing over the years. The year 2010 recorded the highest earning per share of $117.68. Figure 7 6. Factors excluded in the financial statements 6.1 Market share The financial statements exclude the market share of QBE Company. The market share helps investors to compare the performance of a company with another. The market share helps the user of financial statement conduct a horizontal analysis. 6.2 Amortization of goodwill The financial statements of the Company do not reveal the strategy of amortizing goodwill and other intangible assets. Therefore, the exclusion does not help the user of financial statement understand whether the reported profit reflects a truthful representation in the financial statements. 7. Conclusion QBE Insurance Group LTD financial statements show that the company is currently performing well financially after the impairment of goodwill. The company is line with its strategic plans to diversify investments and increase shareholder wealth. 8. Appendices Financial ratio analysis: 2015-12 2014-12 2013-12 2012-12 2011-12 2010-12 1. Liquidity ratios; a. Current ratio = Current assets/ Current liabilities 2.00 2.53 1.31 1.34 1.27 1.30 b. Quick ratio = Cash + short term investments + receivables/ current liabilities 1.98 2.20 1.19 1.22 0.63 1.16 2. Profitability ratios; a. Return on assets = Net earnings/ Total assets 1.64% 1.66% -0.52% 1.54% 1.54% 3.07% b. Return on equity = Net earnings/ Total net worth 6.56% 6.76% -2.35% 6.83% 6.89% 12.45% 3. Leverage ratios; a. Debt to equity = Total Liabilities/ Total net worth 2.99 3.06 3.54 3.45 3.48 3.06 b. Asset turn over = Revenue/ Total assets 0.41 0.42 0.43 0.44 0.45 0.47 4. Valuation ratios; a. Dividend yield = Market price per share/ Dividends per share 3.97% 3.30% 2.78% 4.59% 6.72% 7.05% b. Earnings per share = Net income/ Number of outstanding shares $ 73.69 $ 68.03 $ - $ 59.32 $ 60.36 $ 117.68 Year Revenue Year Expenses 2011 $20,874,359,978 2011 22580301283 2012 $21,404,083,199 2012 20462440273 2013 $22,676,575,766 2013 23146707626 2014 $23,287,003,165 2014 22178305270 2015 $23,631,261,973 2015 22227586905 Figure 1 Figure2 Year Retained earnings Year Premium received 2010 3675095936 2010 12837744760 2011 3045490350 2011 16732965734 2012 2968027734 2012 18187596302 2013 2940321859 2013 19963120250 2014 3711289929 2014 20180443794 2015 4534629071 2015 20728168628 Figure 3 Figure 4 Year Current Ratio Year Quick ratio 2010 ss1.3 2010 1.16 2011 1.27 2011 0.63 2012 1.34 2012 1.22 2013 1.31 2013 1.19 2014 2.53 2014 2.2 2015 2 2015 1.98 Figure 5 Figure 6 Read More