Using the annual report of Meridian Energy Limited (MEL) for 2017 & 2016, answer
ID: 2658263 • Letter: U
Question
Using the annual report of Meridian Energy Limited (MEL) for 2017 & 2016, answer the
following questions.
1. Using the consolidated financial statements of Meridian Energy Limited (MEL) for the
years 2017 and 2016, prepare common-size balance sheets and income statements.
(5 marks)
2. Discuss THREE significant matters that have impacted the financial performance of
MEL, in the last financial year. (6 marks)
3. Evaluate MEL’s sales, gross margin, operating profit, net profit margin, asset, debt,
equity structure and explain trends and changes over the years 2016 and 2017.
(6 marks)
4. Discuss the role of MEL’s governance in creating value for Meridian. (5 marks)
5. Using the following financial ratios for 2016 and 2017 periods, and other associated
information available in the public domain, assess the financial health of MEL from the
view of an investor.
a) Liquidity ratios
b) Asset management efficiency ratios
c) Profitability ratios
d) Market ratios (10 marks)
6. Assume you are a banker evaluating a loan request from Meridian Energy Limited
(MEL) for $220 million. Considering MEL’s recent earnings announcements and
earnings forecast updates, what would be your concerns in deciding on approval or
denial of the loan request? Use the company’s capital structure ratios for 2016 and 2017
in your explanation.
(8 marks)
INCOME STATEMENT for the year ended 30 June 2017
Group
NOTE
2017 ($M)
2016 ($M)
Operating revenue
A2
2,319
2,375
Operating expenses
A3
(1,666)
(1,725)
Earnings before interest, tax, depreciation, amortisation, changes in fair value
of hedges and other signifcant items (EBITDAF)
653
650
Depreciation and amortisation
A3
(264)
(236)
Impairment of assets
A3
(10)
4
Loss on sale of assets
A3
(4)
(1)
Net change in fair value of electricity and other hedges
D1
(76)
(15)
Operating proft
299
402
Finance costs
A3
(79)
(80)
Interest income
A2
2
2
Net change in fair value of treasury instruments
D1
55
(68)
Net proft before tax
277
256
Income tax expense
A4
(80)
(71)
Net proft after tax attributed to the shareholders of the parent company
197
185
Earnings per share (EPS) attributed to ordinary equity holders of the parent
Cents
Cents
Basic and diluted earnings per share
C3
7.7
7.2
COMPREHENSIVE INCOME STATEMENT
Group
NOTE
2017 ($M)
2016 ($M)
Net proft after tax
197
185
Other comprehensive income
Items that will not be reclassifed to proft or loss
Asset revaluation
B1
428
889
Deferred tax on the above item
A4
(120)
(248)
308
641
Items that may be reclassifed to proft or loss:
Net gain on cash ?ow hedges
2
-
Exchange di?erences arising from translation of foreign operations
1
(23)
Income tax on the above items
A4
-
-
3
(23)
Other comprehensive income for the year, net of tax
311
618
Total comprehensive income for the year, net of tax attributed to shareholders
of the parent company
508
803
BALANCE SHEET
Group
Note
2017 ($M)
2016 ($M)
Current assets
Cash and cash equivalents
C5
80
118
Trade receivables
C6
260
194
Financial instruments
D1
59
71
Other assets
32
23
Total current assets
431
406
Non-current assets
Property, plant and equipment
B1
7,961
7,771
Intangible assets
B2
58
47
Deferred tax
A4
43
40
Financial instruments
D1
172
274
Total non-current assets
8,234
8,132
Total assets
8,665
8,538
Current liabilities
Payables and accruals
296
205
Employee entitlements
15
15
Current portion of term borrowings
C7
170
214
Finance lease payable
C8
1
1
Financial instruments
D1
67
48
Current tax payable
30
30
Total current liabilities
579
513
Non-current liabilities
Term borrowings
C7
1,022
1,000
Deferred tax
A4
1,710
1,617
Provisions
9
8
Finance lease payables
C8
46
47
Financial instruments
D1
124
203
Term payables
93
100
Total non-current liabilities
3,004
2,975
Total liabilities
3,583
3,488
Net assets
5,082
5,050
Shareholders’ equity
Share capital
C2
1,598
1,597
Reserves
3,484
3,453
Total shareholders’ equity
5,082
5,050
Group
NOTE
2017 ($M)
2016 ($M)
Operating revenue
A2
2,319
2,375
Operating expenses
A3
(1,666)
(1,725)
Earnings before interest, tax, depreciation, amortisation, changes in fair value
of hedges and other signifcant items (EBITDAF)
653
650
Depreciation and amortisation
A3
(264)
(236)
Impairment of assets
A3
(10)
4
Loss on sale of assets
A3
(4)
(1)
Net change in fair value of electricity and other hedges
D1
(76)
(15)
Operating proft
299
402
Finance costs
A3
(79)
(80)
Interest income
A2
2
2
Net change in fair value of treasury instruments
D1
55
(68)
Net proft before tax
277
256
Income tax expense
A4
(80)
(71)
Net proft after tax attributed to the shareholders of the parent company
197
185
Earnings per share (EPS) attributed to ordinary equity holders of the parent
Cents
Cents
Basic and diluted earnings per share
C3
7.7
7.2
Explanation / Answer
1) Common Size Income Statement = it is taken as percentages of revenues
Common size balance sheet is taken as percentage of total assets
2) The three significant matters that have impacted the financial performance of MEL are:
3) The required financial indicators are as below
4) the role of Mel's governance in creating value for Meridian is not very significant, as we see in the financial statements over last year there has not been a considerable value of the company, revenues have decreased, cash in hand has reduced, there is more risk with more trade receivables, further are no signs of any expansion projects to work on top line since the equity and debt levels are also constant over last year, retained earnings also being nearly the same. So it is evident that there are no notable steps from the management to aid or grow the top line of the company and it is being rather conservative in its operations
Common Size Income Statement (As percentage of Revenue) 2017 ($M) 2016 ($M) Operating revenue 100% 100% Operating expenses -72% -73% Earnings before interest, tax, depreciation, amortisation, changes in fair value of hedges and other signifcant items (EBITDAF) 28% 27% Depreciation and amortisation -11% -10% Impairment of assets 0% 0% Loss on sale of assets 0% 0% Net change in fair value of electricity and other hedges -3% -1% Operating proft 13% 17% Finance costs -3% -3% Interest income 0% 0% Net change in fair value of treasury instruments 2% -3% Net proft before tax 12% 11% Income tax expense -3% -3% Net proft after tax attributed to the shareholders of the parent company 8% 8% Earnings per share (EPS) attributed to ordinary equity holders of the parent Basic and diluted earnings per share 0.33% 0.30% COMPREHENSIVE INCOME STATEMENT 2017 ($M) 2016 ($M) Net proft after tax 8.50% 7.79% Other comprehensive income Items that will not be reclassifed to proft or loss Asset revaluation 18.46% 37.43% Deferred tax on the above item -5.17% -10.44% Items that may be reclassifed to proft or loss: Net gain on cash ?ow hedges 0.09% Exchange di?erences arising from translation of foreign operations 0.04% -0.97% Income tax on the above items 0.13% -0.97% Other comprehensive income for the year, net of tax 13.41% 26.02% Total comprehensive income for the year, net of tax attributed to shareholders of the parent company 21.91% 33.81%Related Questions
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