AGL - Accordant Group. was previously AWF Madison, Allied...

[Snoopy]

ROE= (Net Profit)/(EOFY Shareholders Funds)

2010: $2.002m /$18.588m= 10.8%
2011: $3.535m /$19.913m = 17.7%
2012: $3.789m /$19.201m = 19.7%
2013: $4.952m /$21.607m = 22.3%
2014: $4.205m /$20.763m = 20.3%
2015(*): $5.416m/$35.931m =15.1%

The big improvement from FY2010 has been sustained. A significant drop in the FY2015 is because of the newly enlarged equity base. But even with this, AWF is earning well above its cost of capital.

Conclusion: Pass test

AWF Limited is showing a strong return on equity profile. One way to do this is to borrow heaps. Unfortunately this method of increasing ROE usually comes back to bite shareholders. So has AWF currently leveraged their balance sheet to help make this important statistic look good?

My preferred method of answering this question is to look at what happens if all profits are redirected to repaying debt. In reality this is unlikely to happen. Shareholders like their dividends, and businesses must invest for the future. Also a debt free company may not be 'capital efficient'. Nevertheless 'MDRP' does provide a gauge of just how quickly a company could eliminate their debt should they (or their bankers decree!) that they do so. A figure over 10 years I regard as suspect. A figure under three years I regard as very good. So how does AWF measure up in 2015?

Bank debt in the FY2015 results announcement is as follows:

Cash & Cash Equivalents: {A}	$3.151m
Non Current Borrowings:	$0
Current Borrowings:	$21.759m
Total Borrowings: {B}	$21.759m
Total Net Borrowings: {B}{A}	$18.608m

Net profit after tax: $5.416m

MDRT = $18.608m/ $5.416m = 3.4 years

This I regard as quite acceptable. AWF are not overleveraged, and considering their cash issue had just been banked on this balance date, probably close to their targeted leverage.

SNOOPY