Analysis Of Conventional Banks In Pakistan †Myassignmenthelp.Com

Question: Discuss About The Analysis Of Conventional Banks In Pakistan? Answer: Introduction In this report, financial performance and capital structure of APN Outdoor Company. It is an Australian company which has been providing media and advertisement services to clients. This company has increased its overall profit since last three years and shown high value creation on its investment. This report has shown the capital structure and ratio analysis of company in determined approach. Comparing Firms Capital Structure Capital structure of company is accompanied with debt and equity capital portion of company. economics, each and every company should maintain capital structure of 30 % debt and 70% equity. The WACC of APN Outdoor Company has been computed as below (Gitman, Juchau, Flanagan, 2015). Cost of Equity CAPM Model Risk free rate of return 2.40% Beta 1.3 Market Rate of Return 7% Cost of Equity 8.38% Cost of debt Interest after tax 2956100 Debt 103000000 Cost of debt 2.87% Weights Debts (Loan) 103000000 Equity 222334000 Total 325334000 Weighted Average Cost of Capital (WACC) Debt Equity Cost of Capital (WACC) After computing all the details of company, it is inferred that the cost of capital of APN Outdoor Company is 6.64%. The debt of the APN Outdoor Company is 32% and 68% equity funding. This level of capital structure of APN Outdoor Company has shown that company has been enjoying advantage of debt portion in its business. QMS Media Company is one of the biggest rivals of company. It has maintained debt to equity ratio to 22:78. It reflects 22% debt funding and rest 78% equity funding in its capital. Nonetheless, QMS Media Company has cost of capital 7.78% which is quite high as compared to APN Outdoor Company. QMS has high cost of capital and reduced its financial leverage (Finance. Yahoo, 2017). Analysis of Financial Ratios of APN Outdoor Company Throughout the time, with the increasing ramification of economic changes, APN Outdoor Company has increased its overall earning and profit since last three years. The current ratio of company has gone down by .65 points since last three years. Quick ratio has also decreased by .55 points in the same time period. Net profit of company has increased to 20% in 2016 from the net loss of 6% in 2015. The return on capital employed has increased to 26% in 2016. Interest co coverage of company is equal to zero and shown 32% debt and 68% equity portion. Efficiency ratio has also changed with a view to reduce the overall cost of capital. Inventory turnover ratio is zero since last three years due to its zero level of inventory management. Creditors turnover ratio of company has also managed to 40% with view to reduce the amount blockage and cost of capital associated with the same (Brigham Gerhardt, 2013). Significant Changes in the Capital Structure in Past Three Years The share capital of APN Outdoor Company is $58.15, $63.74, and $59.64 million in all 2014, 2015 and 2016. Moreover, Debt portion of APN Outdoor company has increased by 5% since last three years (Finance. 2017). Particulars 2014 2015 2016 Fiscal year ends in June AUD$ '000 AUD$ '000 AUD$ '000 AUD in Million except per share data Long term loans 125 97 133 Wealth Maximization in Past Three Years The stock price of APN Outdoor Company has shown increment of profit by 200% as compared to last three years. This increment showcases that company has increased the value of capital invested by shareholders in determined approach. This increased level of profit and earning of company will provide high amount earning per share of company. It will provide them high level of earning to shareholders who have invested in organization (Hunjra Bashir, 2014) Importance of Minimization of the Cost of Capital Reducing cost of capital may result to increased business efficiency for APN Outdoor Company. It will also result to following advantage such as creation of core competency, increased brand image and shuffling of capital of company. This minimization of cost of capital will also reduce the overall cost of production and increased the contributed profit in determined approach (Karna, Richter Riesenkampff, 2016). Recommendations for Lowering the Cost of Capital This company has maintained 32% debt portion which could be further increased with a view to take tax deduction advantage and low cost of capital associate with the same (Finance. Yahoo. 2017). Nonetheless, simultaneously APN Outdoor company will increase its financial risk if it increases its debt portion. In addition to this, company could also go for finance option which could be available for company at lower cost of capital. Conclusion In this report, it is observed that APN Outdoor company has high debt portion and increased financial risk in its business functioning. However, this has resulted to tax advantage and lowering down the overall cost of capital. Now in the end, it could be inferred that company should maintain effective capital structure that could reduce the cost of capital and financial risk at large. References Brigham, E. F., Ehrhardt, M. C. (2013). Financial accounting: Theory practice. Cengage Learning. Finance. Yahoo. (2017). APN Outdoor Group Limited (APO.AX). Retrieved September 16, 2017 from, https://finance.yahoo.com/quote/APO.AX/financials?p=APO.AX Finance. Yahoo. (2017). QMS Media Limited (QMS.AX). Retrieved September 16, 2017 from, https://finance.yahoo.com/quote/QMS.AX/balance-sheet?p=QMS.AX Hunjra, A. I., Bashir, A. (2014). Comparative Financial Performance Analysis of Conventional and Islamic Banks in Pakistan.Bulletin of Business and Economics (BBE),3(4), 196-206. Karna, A., Richter, A., Riesenkampff, E. (2016). Revisiting the role of the environment in the capabilitiesfinancial performance relationship: A meta?analysis. Strategic Management Journal,37(6), 1154-1173.