Investor’s financial management business analysis
2. Introduction
Auckland Transport is a transport projects and services organization controlled by Auckland Council. The Local Government of Auckland has established this organization under section 38 of the Auckland Council Act 2009.
2.1 Auckland Transport’s financial management goals and objectives
The financial management goals and objectives of Auckland Transport are to collect fund for Auckland Council and NZ Transport Agency as it is primary sources of funding. In this, the objective of the company is generating 34% of revenue from different sources like public transport fares, rental, subsidies, vested assets, user charges and fees.
2.2 Auckland Transport’s products, suppliers, market size and ethos
The company offers a transport service through train, bus, and ferry as well as develops railway lines and roads (Auckland Transport, 2020). The leading suppliers of Auckland Transport are some construction organizations that provide services related to Technical Support, Traffic and Transport Engineering Professional and Traffic Monitoring. This is a regional size organization which serves their services in the Auckland region. The ethos of Auckland Transport is developing a transport network in Auckland city to moves people and goods efficiently. Don't use plagiarised sources.Get your custom essay just from $11/page
2.3 Auckland Transport’s approach to corporate governance and social responsibility
Auckland Transport adopted a comprehensive approach to corporate governance to provide a public transport network. The social responsibilities of Auckland Transport focus on the reduction in the energy and minimize greenhouse gas emissions by enabling Aucklanders to drive electric (Auckland Transport, 2020).
4. Financial forecasting & Financial leverage
4.1 Financial forecasting
- Pro-forma Income statement
| Amount in ‘000 NZ$ | ||
| Pro-forma Income statement | 30-Jun-19 | 30- Jun-2020 (Budgeted) |
| Revenue | ||
| Auckland Council operating funding | 288,353 | 293,024 |
| Auckland Council capital funding | 400,358 | 406,844 |
| NZ Transport Agency operating funding | 280,923 | 285,474 |
| NZ Transport Agency capital funding | 264,214 | 268,494 |
| Other revenue | 634,751 | 645,034 |
| Finance revenue | 435 | 442 |
| Total Revenue | 1,869,034 | 1,899,312 |
| EXPENDITURE | ||
| Personnel costs | 125,965 | 128,006 |
| Depreciation and amortization | 342,129 | 347,671 |
| Finance costs | 32,383 | 32,908 |
| Other expenses | 731,077 | 742,920 |
| Total expenditure | 1,231,554 | 1,251,505 |
| SURPLUS BEFORE TAX | 637,480 | 647,807 |
| Income tax benefit/(expense) | 1,468 | 1,492 |
| Surplus after tax | 638,948 | 649,299 |
- Pro-forma Balance sheet
| Pro-forma Balance sheet | Amount in ‘000 NZ$ | |
| Financial Position | 30-Jun-19 | 30- Jun-2020 (Budgeted) |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | 9,505 | 9,659 |
| Receivables | 362,700 | 368,576 |
| Inventory | 10,969 | 11,147 |
| Other assets | 7,004 | 7,117 |
| Non-current assets held for sale | 479 | 487 |
| Total current assets | 390,657 | 396,986 |
| Non-current assets | ||
| Receivables | ||
| Property, plant and equipment | 19,939,189 | 20,262,204 |
| Intangible assets and goodwill | 176,502 | 179,361 |
| Total non-current assets | 20,115,691 | 20,441,565 |
| Total assets | 20,506,348 | 20,838,551 |
| Liabilities | ||
| Current Liabilities | ||
| Payables and accruals | 254,446 | 258,568 |
| Employee entitlements | 18,276 | 18,572 |
| Derivative financial instruments | 6,919 | 7,031 |
| Provisions | 216 | 219 |
| Borrowings | 6,412 | 6,516 |
| Total current liabilities | 286,269 | 290,907 |
| Non-current liabilities | ||
| Payables and accruals | 13,236 | 13,450 |
| Deferred tax | 8,602 | 8,741 |
| Employee entitlements | 423 | 430 |
| Derivative financial instruments | 991 | 1,007 |
| Borrowings | 490,363 | 498,307 |
| Total non-current liabilities | 513,615 | 521,936 |
| Total liabilities | 799,884 | 812,842 |
| Total equity and liabilities | 19,706,464 | 20,025,709 |
| Equity | ||
| Contributed capital | 12,990,781 | 13,201,232 |
| Accumulated funds | 3,001,336 | 3,049,958 |
| Other Reserves | 3,714,347 | 3,774,519 |
| Total equity | 19,706,464 | 20,025,709 |
- Pro-forma Cash Budget
| Pro-forma Cash Budget | Amount in ‘000 NZ$ | |
| Budgeted | ||
| For the year ended 30 June | 2019 | 2020 |
| Cash inflows from operating activities | 1,519,937 | 1,544,560 |
| Cash outflows from operating activities | -853,936 | -867,770 |
| Net cash flows from operating activities | 666,001 | 676,790 |
| Cash inflows from investing activities | 4,952 | 5,032 |
| Cash outflows from investing activities | -659,892 | -670,582 |
| Net cash flows from investing activities | -654,940 | -665,550 |
| Cash inflows from financing activities | 0 | 0 |
| Cash outflows from financing activities | -6,123 | -6,222 |
| Net cash flows from financing activities | -6,123 | -6,222 |
| Net increase in cash and cash equivalents | 4,938 | 5,018 |
| Cash and cash equivalents at the beginning of the year | 4,567 | 4,641 |
| Effect of exchange rate fluctuations on cash held | 0 | |
| Cash and cash equivalents at the end of the year | 9,505 | 9,659 |
4.2 Information used to prepare the reports
For make the above reports or pro forma, the financial information of Auckland Transport is used that is collected from annual report 2019 of the organization. In concern to this, the present of sales method is used that provided a financial budget for the financial year 2020. Auckland Transport generated revenue of $1,839,200 thousand in 2018 and $1,869,034 thousand in 2019 (Auckland Transport Annual report , 2019). Based on the percentage of sales method, it is identified that the sales have been increased with 1.62% in the financial year 2019.
4.3 Benefits and purpose of developing pro forma statements and cash budget
The main purpose of developing pro forma statements is to make an effective business plan and budget based on past results to compare and contrast alternative business plans. It is a basic planning tool that is beneficial for organizational management to identify financial assumptions and operating characteristics for business. It is also supportive of developing revenue and expense projections that can be beneficial to assemble the results in profit and loss projections. At the same time, pro forma statements and cash budget development are also supportive of reviewing the proposed decisions and assessing the impacts on organizational profitability and liquidity in concern to all departments like marketing, production, and research & development (Auckland Transport, 2020).
4.4 Leverage of Auckland Transport using Break-Even Analysis
| 2019 | 2018 | Changes | |
| EBIT | 637,480 | 692,621 | 8.65% |
| Sales | 1,869,034 | 1,839,200 | -1.60% |
| Degree of Operating Leverage | -5.41893311161021 |
7. Recommendation/conclusion
7.1 Potential investor
On the basis of the above analysis, it is identified that investment in ‘Auckland Transport’ is worthwhile for the investors as it is because the company has a strong financial position. In addition, ‘Auckland Transport’ is a public organization that provides higher security to invested money of investors as well as the investors can get a higher return on investment. In this concern, the pro forma for different financial reports are showing a growing position of the profitability of the organization that will provide a good profit to the investors in future. As per organizational forecasting, the Auckland council bonds price will be much higher in future. For example, the AKC070, AKC080, AKC090, AKC100, AKC110, and AKC120 have good growth in each year like 1.83%, 1.32%, 1.58%, 2.08%, 1.80%, and 1.93% receptively.
7.2 Comprehensive argument to support the recommendation
As described in the annual report, the company is achieving the budget easily where it has 21.4% growth on the Rapid Transit Network. In support of this, the report also described that total $1,869 million revenue is generated for the year against a budget of $1,791 million that is competitively much high. In addition, it is also identified that the company has a good total net worth with 19,706,464 thousand NZD. The cash position of the company is also strong as it had 9,505 thousand NZD closing balance of cash.
Bibliography
Auckland Transport Annual report . (2019). Retrieved from https://at.govt.nz: https://at.govt.nz/media/1980960/at-annual-report-2019.pdf
Auckland Transport. (2020). Retrieved from https://at.govt.nz: https://at.govt.nz/about-us/