Company History and Overview
Australian agriculture project limited is regarded as the Victorian based business that administers the large state of the art operations of growing oil in the regions of Boort. The Australian agriculture project limited was established during the year 2004 with the establishment of the numerous brands of olive oil and then with the acquisition of the Victorian olive oil project limited in the year 2007 (Voopl.com.au 2018). The company has developed into the low cost producer of the higher quality of virgin olive oil.
The business of orchid was founded by Australian agriculture project limited with the objective of developing and managing the higher quality olive projects at the time when there as the significant amount of expansion in the plantation olive in Australia. The Australian agriculture project limited has created several brands with the help of marketing of its numerous brands including the wide range of distribution of the olive oil supply (Voopl.com.au 2018). The Australian agriculture project limited is listed on the Australian stock exchange to offer the financial capital with the objective of acting on the openings that is presented to the company in the environment of the rising industry of olive oil. The organization has the leading teams in terms of technical support and has created the capacity of establishing the new olive grove projects in order to manage other groves and expanding their markets for olive products.
Taking into the consideration the ownership structure of the Australian agriculture project limited it can be stated that the company has the best corporate governance policies with the structure of the non-executive directors and executive directors (Voopl.com.au 2018). The operation structure of the company comprises of the managing director and two non-executive directors that are assigned with the responsibilities. The company secretary is responsible for the predominantly administering the documentations and capital raising of the company (Voopl.com.au 2018). The ownership structure of the organization comprises of the relevant interest for each of the director.
The variable in the name of the TA refers to the Total Assets while on the other hand the variable such as the OE represents the Ordinary Equity. It is noteworthy to denote that both the variable is interrelated to each other in respect of the return on assets and return on equity. An important assertion can be bought forward in this regard is that an increase in the amount of the total assets represents the value of the net income which would remain identical (Frank and Shen 2016). This refers to the situation where there would be a fall in the return on assets because the they used for sufficiently to generate the income. Simultaneously the increase in the value of assets and with revenue remaining unchanged it might result in lower amount of reportable debt equity ratio. The lower amount of the debt equity ratio would result in greater degree of return on equity (Baker and Wurgler 2015). Therefore, the value of the return on equity and the return on asset is determined with the help of the total amount of the asset and equity.
Ownership Structure and Governance
Taking into the consideration the tabular representation that is provided above an assertion can be bought forward by stating that return on equity that is reported by the company is higher than the return on assets throughout the four year of analysis. The above stated model signifies that the proficiency of the organization is in respect of making an effective use of the resources in generating the assets (Brooks 2015). The return on assets is considered to be lower than the return on equity since the value of equity is higher than the value of assets. A healthy organization generally reports higher amount of assets than the equity since the total amount of reportable assets is considered to be significantly higher than the equity when the liabilities of the organization have declined significantly.
Taking into the considerations the above stated graphical chart it is evidently noticed that the share price movement of the Australian agriculture project limited have somewhat been moderately volatile (Barberis et al. 2015). On the other hand, taking into the consideration the all order index it is seen that a trend of less volatility has been noticed in the movement of the stock price. The circumstantial evidences that has been noticed from the graph of stock price movement represents that the movement in the stock price of Australian agriculture project limited has on certain occasion have increased sharply however there are also certain evidences where the organizations have reported a significantly a sharp decline in the price of their stock (Brotherson et al. 2015). As on certain occasions there have been evidences where the stock price of the Australian agriculture project limited have fell below the all order index.
The significant factor that influence the share price of the of the Australian agriculture project limited is that the Australian agricultural stocks have significantly enjoyed an upward rise in the support of the investors (Core, Hail and Verdi 2015). Australian agriculture project limited is worth keeping an eye and for the investors there prevails an opportunity of yielding better harvest from the investment. Factors such as increase in the sale of the olive products have resulted in significant growth. With cost of processing has been declining significantly this increases the facility of living stone. Additionally, there has been a high rise in demand for the export trade from the Asian countries and as result of this the Australian agricultural projects ltd stocks have witnessed a sharp rise in their share prices (Johnstone 2016).
Financial Performance Analysis
Taking into the considerations the rationale for making the conservative investment is that the required rate of return for the Australian agriculture project limited stood 9.34%. Additionally, the Australian agriculture project limited have additionally reported that the market risk premium of 6%. On the other hand, the risk free rate of making an investment in the Australian bond stands 4%. As evident from the analysis an assertion can be bought in respect of the Australian agriculture project limited by stating that the with the existence of the significantly higher amount of differences reported in the required rate of return an investor can undertake the decision of making an investment in the company (Li 2015). The beta that has been reported by Australian agriculture project limited represents that it is moderately volatile and making an investor can consider making an investment in this company.
Whenever there is a higher amount of the weighted average cost of capital there is a higher amount of risk is associated with the operations of the organization (Hoskin, Fizzell and Cherry 2014). Investors usually requires the additional amount of return in order to determine the additional amount of risk associated with the firm. The WACC of the organization can be considered as the tool of making an estimation regarding the expected costs for the total financing of resources (Billett, Hribar and Liu 2015). This includes the payments that is made relating to the debt commitments or the cost that is related with the debt financing and the required rate of return which is demanded through the financing of the cost of equity.
Taking into the considerations the debt ratio of the organization it is noteworthy to denote that the Australian agriculture project limited has taken huge amount of debt and the company has not undertaken any supplementary initiative of reducing their debt (Cheng, Ioannou and Serafeim 2014). The table that is presented represents that the debt ratio of the company reported during the year 2015 the debt ratio of the firm stood 95.50% while in the subsequent year of 2016 it has been found that the debt ratio for the company marginally declined to 89.98. In the following year of 2017 the debt ratio further fell to 84.24% and most importantly over the years the debt has declined on a marginal basis (Marshall 2016). The capital structure of the Australian agriculture project limited represents that the company generally comprises of the net debt that are in the form of borrowing and the same is offset by the cash and cash equivalent along with the equity of the group (Warren and Jones 2018). The equity of the Australian agriculture project limited consist of the issue share capital, reserve and retained earnings.
Investment and Dividend Policy
During the year 2017 it is noticed that Australian agriculture project limited has issued the share capital of 152,358,384 in the form of fully paid ordinary shares. Taking into the account the gearing ratio of the organization it is worth mentioning that the has large amount of capital in the form of equity and share capital (Williams 2014). In respect of the above stated current issue of share the board does not have any plans of issuing further share in the market.
Taking into the considerations the dividend policy of the Australian agriculture project limited an assertion can be bought forward by stating that the company has not declared dividend and neither has the organization paid dividend during the year or to the date of this report (Henderson et al. 2015). Taking into the account the of the dividend policy as the current market has been constantly changing, the management issue the new shares, sell off its assets or lower down their debt or considering the payment of the dividends to the shareholders.
Letter of recommendation:
Dear ABC,
Queensland
Australia
Respected Sir,
I would like to draw your kind attention towards the recommendations by stating that the Australian agriculture project limited has attracted the attention of the top funds that are top performing. This presents that there has been a substantial increase in the shareholder notice which represents a better return. However in the recent years the Australian agriculture project limited has not reported any payment of dividend to its shareholders. Taking into the consideration the beta of the firm it stood 0.89 the company has better prospect in future of yielding higher return and the shareholders of the company might be able to yield return. The Australian agriculture project limited in the recent years have reported a higher fall in the downturn of the firm. Though the share price of the company been relatively less fluctuating but the higher amount of debt has led to the inability of the organization in providing returns to the shareholders. An important assertion in this regard is that Australian agriculture project limited has been constantly adjustsing the capital strcture in order to gain a significant advantage relating to the favorable cost of capital or higher return on the assets. Since the market has been constantly changing, the management might issue new number of shares and sell the assets in order to reduce their debt obligations and consider the payment of dividends to the shareholders. Most importantly the company in the recent years have expressed their interest of paying dividends to their shareholders. There hasn’t been much fluctuation in the share price of the firm and hence as an investment prospect the investors can consider making an investment in Australian agriculture project limited.
I hope that the recommendations that have been stated above has sufficiently provided you with the appropriate information concerning the investment prospect and as an advice investing in the company may yield return in the coming years.
Thanking you,
ABC
Investment Company
Reference List:
Baker, M. and Wurgler, J., 2015. Do strict capital requirements raise the cost of capital? Bank regulation, capital structure, and the low-risk anomaly. The American Economic Review, 105(5), pp.315-320.
Barberis, N., Greenwood, R., Jin, L. and Shleifer, A., 2015. X-CAPM: An extrapolative capital asset pricing model. Journal of Financial Economics, 115(1), pp.1-24.
Billett, M.T., Hribar, P. and Liu, Y., 2015. Shareholder-manager alignment and the cost of debt.
Brooks, R., 2015. Financial management: core concepts. Pearson.
Brotherson, W.T., Eades, K.M., Harris, R.S. and Higgins, R.C., 2015. ‘Best Practices’ in Estimating the Cost of Capital: An Update.
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), pp.1-23.
Core, J.E., Hail, L. and Verdi, R.S., 2015. Mandatory disclosure quality, inside ownership, and cost of capital. European Accounting Review, 24(1), pp.1-29.
Frank, M.Z. and Shen, T., 2016. Investment and the weighted average cost of capital. Journal of Financial Economics, 119(2), pp.300-315.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective. Wiley Global Education.
Johnstone, D., 2016. The effect of information on uncertainty and the cost of capital. Contemporary Accounting Research, 33(2), pp.752-774.
Li, X., 2015. Accounting conservatism and the cost of capital: An international analysis. Journal of Business Finance & Accounting, 42(5-6), pp.555-582.
Marshall, D., 2016. Accounting: What the numbers mean. McGraw-Hill Higher Education.
Voopl.com.au. (2018). Victoria Olive Oil Project. [online] Available at: https://www.voopl.com.au/aap-shareholders [Accessed 24 Jan. 2018].
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.
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