Analysis of the Investment Opportunities in AMP and QBE
Table of Contents
3.1 Current ratio3
3.2 Debt/equity ratio3
3.3 Return on equity4
3.4 Systematic risk analysis4
4.1 Earnings Per Share5
4.2 Net Profit Margin5
4.3 P/E ratio (PER)6
6.Impact of external environment of insurance industry7
8.Appendix Summary of Ratios of BHP and FMG Changes in Last 10 Years9
This study investigates the opportunities to make an investment decision between AMP limited and QBE Insurance Group Limited. In order to find that, this study has done ratio analysis, risk and return assessment, SWOT analysis and analysis regarding the influence of the external environment.
Both AMP limited and QBE Insurance Group Limited are in the insurance industry whereas QBE provides general insurance service and AMP has two business units which includes AMP Financial Services and AMP Capital Investors. Considering profitability analysis, systematic risk and cost control policy, investing in AMP Limited is found out to be a better choice than investing in QBE Insurance Group Limited, even though EPS and P/E ratio contrary the choice. This study has also done SWOT analysis on the insurance industry and external environment analysis which may affect the investment decision. Therefore, after considering all these analysis, this study concludes that investing in AMP limited decision would be worthwhile than investing in QBE Insurance Group Limited. 1.
The purpose of the report is to make a conclusive investment decision between AMP and QBE companies based on educated analysis which includes ratio analysis, risk and return assessment, SWOT analysis and impact of external environment on the AMP and QBE. Therefore, company’s financial performance, future profitability opportunity associated with risk can be speculated prior to the investment decision.
2. Company profile
As one of the largest companies in Australia, QBE Insurance Group Limited provides general insurance services not only in Australia, but also in all over the world. And for AMP limited, it is an Australian financial corporation which focuses on insurance services to the customers in Australia and New Zealand.
3. Risk Assessment
3.1 Current ratio
For the financial year ended 31st Dec 2010, AMP has a current ratio of 9.99 which is larger than the QBE figure 1.30. Since current ratio is a measure of short-term solvency of companies, the ratio indicates that AMP is more liquid than QBE in 2010 financial year. In a historical view from Table 1 in appendix, the current ratios of AMP were constantly larger than QBE figures in the past 10 year.
3.2 Debt/equity ratio
From the balance sheets provided by Annual Report Online Database (n.d.), the D/E ratios can be calculated as 29.36 for AMP and 3.08 for QBE in 2010 financial year. The enormous difference between D/E ratios of the chosen firms indicates that AMP has bigger debt components in its capital structure than QBE does. The D/E ratios of AMP and QBE for years between 2006 and 2010 shows AMP shareholders are bearing more risks than QBE shareholders because of the heavy portion of debts the company has to generate value for each dollar in equity.
3.3 Return on equity
In 2010 financial year, AMP gives us a ROE of 24.45%, compared with the ROE of QBE which is 12.30%. The ROE figures indicate that each dollar in AMP’s equity could generate more profit than that in QBE’s. From information provided in Fin Analysis Database (n.d.) and illustrated in Table 2 in appendix, we can analyze the historical trends of the two companies. From 2005 the ROE ratio of AMP had a continuously...