HI5002 Evaluation of Terms of Australian Stock Exchange and Operating Style of ASX Assessment Answer
Answer
Introduction
Companies having the huge business are require to listed their name with stock exchange so, they can use the digital platform to issue their share and security and invite the fund from the public for the business purpose. This report is based on the evaluation of terms and condition of Australian Stock Exchange and operating style of ASX. Process of listing the company name on ASX has been discussed here and also the required compliance to be followed been part of this report. It has also been evaluate the various kind of financial institution such as commercial bank, insurance bank and fund investment bank with the analysis of their working criteria. This report also contain the register advisory assessment process that mansion how they are listed with authority and there qualification criteria (Australian Prudential Regulation Authority (APRA) 2020). It has shown Information about capital budgeting, capital structure, and working capital management provide in this report. Along with that, detailed information is provided in respect of the listing of companies on ASX such as the pros and cons of listing, the process of listing, the requirement of listing of companies (Australian Prudential Regulation Authority (APRA) 2020).
2. Part 1 Assessment of Australian financial market
A. Classification of financial institution in the market
It has shown the details on four key financial institutes of Australian Stock exchange that attract most of the investors and a proper comparison of these financial institutes is given in this report based on classification, key business activities, the main source of income, market sector of operations and example of these financial institutions are also provided (Australian Prudential Regulation Authority (APRA) 2020).
Commercial bank
- This bank cover those activity of business which provide the general service to the public through opening the saving bank account for their saving of money, providing loan facility, locker facility ,fixed deposit facility, ATM, Credit card, over draft facility.
- They have the operating market of general public, retail sectors and earn the money through charging fees and interest by opening the saving bank account for their saving of money, providing loan facility, locker facility ,fixed deposit facility, ATM, Credit card, over draft facility (Australian Prudential Regulation Authority (APRA) 2020).
- In 1974 National Australian bank has been incorporated to provide the services in public sector, this bank is thee example of Commercial bank (Australian Prudential Regulation Authority (APRA) 2020).
Insurance bank
- This are the bank which provide their service in form of assurance such as fire insurance, life insurance, and various other insurance services. This services are provided to business entities and general public and assure them from the uncertain adverse activity which can cause loss to customer (Australian Prudential Regulation Authority (APRA) 2020).
- Their operating market is huge and provide their service at every financial and general sector. They earn by taking premium on their services. QBE insurance group has been founded on 1973 and is the example of insurance company who provide the insurance service at large scale (Australian Prudential Regulation Authority (APRA) 2020).
Investment bank
- This kind of bank work as the mediator between the inventors of fund and seller of any security and share. They work on commission basis from the both party. They provide the services to business organization and investor from the gnarl public
- Australian finance group has been incorporated in 2015 to provide the services of investment activity and advices (Australian Prudential Regulation Authority (APRA) 2020).
Investment Fund
- Investment fund provide the service through the investment in appropriates assets to increase the value of the company and they provide their services in general public and for corporates sectors.
- Their main working is to provide the services in liquidation, winding up and IPO, FPO of companies. They earn from the sale of assets and Anti global investment assets is the investment fund (Australian Prudential Regulation Authority (APRA) 2020).
B. Meaning of capital budget, Capital Structure and working capital in financial management
It has shown the information about financial advisors, register of financial advisors, the functions and working of financial advisors, and financial products in which financial advisors provide advice. Under this report, a proper analysis is done on cash flow on the product with the help of Net assets value (Australia security market investment commission, 2020).
Capital Budget
It is the process which is used by the business organization and investor to determine the viability of the financial project. It is used to invest the fund in the financial project based on the positive outcome of the result. There are various technique which can be consider her to evaluate the financial project. For instance net present value method can be used for capital budgeting (Australian Prudential Regulation Authority (APRA) 2020).
Capital Structure
Capital structure is the structure of the capital fund which are employed in company. It help to understand the internal and external capital of the company. Debt capital is the external capital and equity capital is the internal capital of company. If the organization is having high debt capital as compare to equity capital then it will be risky capital structure as the high financial cost will be debit in income statement (Australia security market investment commission, 2020).
Working Capital.
Working capital can be determine by subtracting the current liability from the current assets. It is the capital which is used as the operating capital for smooth working of business activity. Liquidity management of the company can be observe from the working capital management within the organization (Australia security market investment commission, 2020).
3. Part 2 Fact analysis of Australian financial market
For a listing of the company, ASX charges initial listing fees and annual listing fees from an entity that is based on the market cap of the entity. The current initial listing fees payable are as follows:
Financial Advisors refers to-
- Individuals who have an Australian financial service (AFS) license.
- The authorized representative, an employee of an individual who holds an AFS license.
- An employee or director of a related body corporate of an Australian financial service licensee.
- Authorized to provide advice to customers.
A. Fact Analysis for ASX
Opportunity and challenges of listing in ASX
| Opportunity | Challenge |
| After listing on the stock exchange company can bring the huge amount of capital through IPO and FPO, financiering the project as per company need (Australia security market investment commission, 2020). | After listing on ASX company has to change the internal working structure as per the requirement of the company. |
| Share and security can be traded on ASX with government rues and regulation (Australia security market investment commission, 2020). | Listing of the company attract the media for the news involvement related to public this will result as less confidentiality. |
| It also attract thee investors and venture capitalist to invest in the company (Australian Prudential Regulation Authority (APRA) 2020). | Listing agreement with ASX require the process charges which increase the company cost. |
| Expansion of the business can be done easily as the investment funding can be done through the stock exchange platform. | It consume lot of time of the management of the company to compliance with ASX rule and regulation. |
| Corporate governance imposes on the company which help the company to follow the internal governance of the company (Australia security market investment commission, 2020). | Share price of the company influence by market volatility which cannot be control by management (Australia security market investment commission, 2020). |
Eligibility to list on ASX
Following are the condition to be satisfy by the company to get listed with ASX
| General Compliance | Company has to disclose:-
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| Specific Compliance |
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| Assets Criteria |
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| Minimum Shareholders criteria |
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Listing fees on company for ASX listed
All the company which want to listed themselves on ASX for the trading of their share through the digital medium have to pay the initial and annual fees as under (Australian Prudential Regulation Authority (APRA) 2020).
| Market Cap. | Initial Fees to be paid |
| AUD 10 to 50 Million | $ 65000 + 0.10 % over excess amount of 10 million |
| AUD 50 to 100 Million | $ 105000 + 0.06 % over excess amount of 50 million |
| AUD 100 to 500 Million | $ 135000 + 0.04 % over excess amount of 100 million |
| Market Capital | Annual fees to be paid (Australian Prudential Regulation Authority (APRA) 2020). |
| $ 10 Million | AUD 26903 |
| $ 50 Million | AUD 35347 |
| $ 100 Million | AUD 45901 |
| $ 500 Million | AUD 62964 |
Listing Phase to be followed when applying for ASX listing
| Phase 1 | Advisor Appointment | Technical expert, underwriter, public relation consultant and accountant these are the advisors to be appoint first for the company (Australian Securities and Investment Commission (2020). |
| Phase 2 | Work Preparation | Company to follow the ASX requiment such as preparation of prospectus and company information disclosure (Australian Securities and Investment Commission (2020). |
| Phase 3 | Institutional Marketing | Institutional marketing can be done by making arrangement with investment banker but company can make any public advertisement for IPO (Australian Securities and Investment Commission (2020). |
| Phase 4 | Prospectus submission with ASIC | The company has to submit the prospectus with ACIS and wait for the approval. |
| Phase 5 | Listing application process | Application is submit by the company with ASX for the initializing of listing with them. |
| Phase 6 | Offer Period | After making above process company is free to make marketing strategies for IPO invitation from public and provide the offer period. |
| Phase 7 | Share allotment | Then after company has to allot the share to the public and share trading of the company will also be begin from here in the stock market (Australian Securities and Investment Commission (2020). |
(Australian Prudential Regulation Authority (APRA) 2020).
Australian Financial advisory registration
Financial advisory Register maintain
Financial advisor register which is maintain with ACIS on its official website. This register contain the information of financial advisor to help the consumer to provide the financial advisor information to them (Australian Securities and Investment Commission., 2020).
- Providing various facilities in the form of loans and advances against interest, discounting facilities of bill receivables.
- Provide facilities or lockers to the public as per their needs against some fees.
- Provide insurance facilities to business organizations against some uncertain situations to save the business from losses. Management of wealth of clients. Management of risk of clients.
- Provide facilities in the merger and acquisition of companies (Australian Prudential Regulation Authority (APRA) 2020).
Financial advisor Updating
In the financial advisor register all the information is maintained about the financial advisor such as qualification, experience, authorized representative, license holders and experience to provide the service in general public (Australian Prudential Regulation Authority (APRA) (2020).
Register containing information
Name of the advisor, their qualification training and financial product relevant to financial market. Hence this register contain the information of register financial advisor (Australian Prudential Regulation Authority (APRA) 2020).
Financial Product
Insurance product for public and business organization, Consumer credits, Banking products and the combination with any of the above mansion product (Johnson, Pfeiffer, & Schneider, 2017).
Professional Standard
Qualified financial advisor require to pass the FASEA exam and also require to conduct 40 hours of training, code of ethics also require to follow as established by ASIC
4. Part 3 Risk and sensitivity evaluation with financial appraisal technique
A. Financial Appraisal
In this part of the assignment, we will understand to evaluate any project's profitability in net present value terms and sensitivity in regards to various variables. For understanding this part in a better way we need to understand the following terms. For evaluation of the financial investment it is essential to create understand of annual inflow and outflow of the company from the financial project in which company want to invest for profitability. Following are the financial term require to understand (Malenko, 2019).
Cash Inflow
Cash inflow consider to be the earning from the project in form of cash after subtracting the all the expenses require to earn such annual cash inflow of the project.
Cash outflow
Cash outflow is the initial cash flow of the company to begin the investment and operate with new financial project of the company (Hayward, et al. 2017).
Present value analysis
PV factor help to consider the actual value of cash inflow and outflow of the company so that appropriate understanding of time value of money can be consider while evaluating the project.
Profit after tax
This is the profit which remain after subtracting the tax amount to be paid with relevant authority on the income generate during the current financial year.
Discount rate factor
It is the rate at which cash inflow and outflow of the company can be discounted at the interest rate of the company for determination of time value of money. The management of working capital means in case of an emergency company able to meet its regular expenses and urgent payment. Working capital is the difference between current assets and current liability. The combination of these securities is referred to as the capital structure which has an impact on the operation of business and market sustainability of the company (Goldfrank, & Schugurensky, 2019). Capital budgeting done on different prospective like net present value, payback period, discounted payback period.
NPV Analysis
NPV method is used to determine the net benefit from the financial project by deducting the cash inflow from the cash outflow of the project, and if the NPV is positive then it will be recommended to accept the financial project. Following are the annual cash flow from the selling of units with different scenario as provide in case sturdy (Johnson, Pfeiffer, & Schneider, 2017).
| Calculation of Cash flow with present value | |||||
| Particular | Present case | Selling units reduced by 10% | Selling price reduced by 10% | Variable cost higher by 10% | Fixed cost increase 10% |
| Revenue | $7,700,000.00 | $6,930,000.00 | $6,930,000.00 | $7,700,000.00 | $7,700,000.00 |
| variable cost | $3,850,000.00 | $3,465,000.00 | $3,465,000.00 | $4,235,000.00 | $3,850,000.00 |
| Net contribution | $3,850,000.00 | $3,465,000.00 | $3,465,000.00 | $3,465,000.00 | $3,850,000.00 |
| Total fixed cost | $350,000.00 | $350,000.00 | $350,000.00 | $350,000.00 | $385,000.00 |
| Depreciation | $450,000.00 | $450,000.00 | $450,000.00 | $450,000.00 | $450,000.00 |
| PBT | $3,050,000.00 | $2,665,000.00 | $2,665,000.00 | $2,665,000.00 | $3,015,000.00 |
| taxation 30% | $915,000.00 | $799,500.00 | $799,500.00 | $799,500.00 | $904,500.00 |
| PAT | $2,135,000.00 | $1,865,500.00 | $1,865,500.00 | $1,865,500.00 | $2,110,500.00 |
| Depreciation | $450,000.00 | $450,000.00 | $450,000.00 | $450,000.00 | $450,000.00 |
| Cash inflow | $2,585,000.00 | $2,315,500.00 | $2,315,500.00 | $2,315,500.00 | $2,560,500.00 |
| Cumulative factors | 3.17 | 3.17 | 3.17 | 3.17 | 3.17 |
| Present value of total cash inflow | $8,194,450.00 | $7,340,135.00 | $7,340,135.00 | $7,340,135.00 | $8,116,785.00 |
Source (Detail calculation has been given in spread sheet)
Cash flow calculation has shown that financial project provide high cash inflow of the company in existing case while other scenario of the project provide the lower cash inflow from the business activity of implementing policy of 10% reduction in variable cost , selling price and selling units (Malenko, 2019).
| NPV analysis of the financial project and sensitivity measurement | |||||
| Particular | Present case | Selling units reduced by 10% | Selling price reduced by 10% | Variable cost higher by 10% | Fixed cost increase 10% |
| Cash flow | $ 8,194,450.00 | $ 7,340,135.00 | $ 7,340,135.00 | $ 7,340,135.00 | $ 8,116,785.00 |
| Residual value | $ 546,400.00 | $ 546,400.00 | $ 546,400.00 | $ 546,400.00 | $ 546,400.00 |
| Total Cash flow | $ 8,740,850.00 | $ 7,886,535.00 | $ 7,886,535.00 | $ 7,886,535.00 | $ 8,663,185.00 |
| Outflow of company | $ 450,000.00 | $ 450,000.00 | $ 450,000.00 | $ 450,000.00 | $ 450,000.00 |
| NPV result | $ 8,290,850.00 | $ 7,436,535.00 | $ 7,436,535.00 | $ 7,436,535.00 | $ 8,213,185.00 |
Source (Detail calculation has been given in spread sheet)
Analysis
The above data show that $ 8290850 has been calculated from the existing scenario of the company and this is the company option which provide the highest NPV hence first scenario is favourable for the company. Although all the other scenario of the financial project has been showing the positive NPV which can also be recommended as they are having the positive NPV (Almazan, Chen, & Titman, 2017).
Working Notes 1
| Particular | Amount |
| Total cost of plant | $2,000,000.00 |
| Working capital cost | $600,000.00 |
| Total Outflow of project | $2,600,000.00 |
Source (Detail calculation has been given in spread sheet)
Working Notes 2
| PV value of the amount to be received at the end of life of project | |
| Particular | Amount |
| Salvage value | $200,000.00 |
| Working capital to be withdraw | $600,000.00 |
| Total | $800,000.00 |
| PV factors | $0.68 |
| Total Present Value | $546,400.00 |
Source (Detail calculation has been given in spread sheet)
5. Conclusion
From the above report it can be conclude that company has to follow the various require if they want to listed their share and security on ASX. Although it will help company to increase their business but Sill Company have to spend lots of money and also have to dilute their time to comply with various obligation as imposed by ASX. It is also been observed that various kind of financial institution help the organization with their services and also provide the assurance service.
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