Contact Energy and Genesis Energy Financial Analysis

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Question 1a
The closing market price as at 30 June 2021 was $8.25 for Contact and
$3.46 for Genesis. Calculate the market value (i.e. market capitalisation
value) of both companies as at 30 June 2021. You will need to use the
financial statements provided for both companies to identify the total shares
outstanding as at 30 June 2021, include the page reference as part of your
answer.
Note: Present your answer in a table similar to below (you may copy and
paste the table, or use the menu bar to create your own table)
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1b
Identify the book value of total equity for each company, include the page
reference to the financial statements.
Note: Present your answer in a table similar to below (you may copy and
paste the table, or use the menu bar to create your own table)
Company
Market
Price
Number
of Shares
Page
Reference
Market Value
Contact $8.25 776,122,070 88 $6,403,007,078
Genesis $3.46 1042.7 million 67 $3,607.742 million
Company Book Value of Total Equity Page Reference
Contact $2927 million 84
Genesis $2051.7 million 49

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1c
Compare the book value of total equity against the market value of
equity, discuss which value is higher and provide two reasons as to why
they differ.
Note you could quote one reason from the course material; however we
expect you to do your own research to find another reason, reference should
be provided to support your answer. Reference can be provided with your
answer below, and does not count towards the word limit.
Market value (MV) of total equity is usually higher than the book value (BV). This is because
the MV captures the profitability of a company in that whenever there is increased profits the
MV of total equity usually increases.
Similarly, MV of total equity is higher than the BV because of the company’s future prospects
in that investors will be willing to pay for higher market price per share (MPS) as long as the
company has good future prospects for growth. An example is when the company plans to
undertake an expansion or even an acquisition.
(Word limit - 150 words)
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Question 1di
Using the Statement of financial position (a.k.a. Balance Sheet) of both
companies as at 30 June 2021:
i) Identify and describe the most obvious disclosure (i.e. layout)
difference.
In Genesis, there is disclosure of the total equity and liabilities which is equal to total
asset but in Contact there is no such disclosure. Instead Contact has disclosed the value

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of net asset which is the difference between the value of total assets and total liability or
the value of shareholder’s equity.
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1dii
Using the Statement of financial position (a.k.a. Balance Sheet) of both
companies as at 30 June 2021:
ii) Fill in the table below in Millions.
Note: you may copy and paste the table, or use the menu bar to
create your own table
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Question 61diii
Using the Statement of financial position (a.k.a. Balance Sheet) of both
companies as at 30 June 2021:
Contact Energy Genesis Energy
Total Assets $5028 $5241.9
Total Liabilities $2101 $3190.2
Total Equity $2927 $2051.7

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ii) Based on the completed table in part ii), discuss which company
you are more likely to invest and explain why.
I will invest in Contact Energy. This is because it has a higher
total equity than that of Genesis. A higher total equity implies
that the company is effectively funded using less risky financial
sources. Additionally, Contact has less total liabilities as
compared to that of Genesis. This means that the contact uses
less debt in financing its operations as compared to Genesis.
Further, contact has less exposure to financial risk. Also, despite
Genesis having a higher amount in total assets, Contact total
asset is still high in terms of total assets and therefore Contact
has a strong financial position.
(Word limit - 100 words)
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Question 1div
Using the Statement of financial position (a.k.a. Balance Sheet) of both
companies as at 30 June 2021:
iii) Do your own research, provide one reason why you think
Genesis has a higher level of borrowing than Contact Energy?
Support your answer with appropriate reference. Reference can
be provided with your answer below, and does not count
towards the word limit.
Genesis has a higher amount in both short-term and long term
borrowings than Contact Energy. That is from the balance sheet,
Genesis has a balance of $379.7 million in short-term borrowing
as compared to $163 million in Contact Energy. Similarly,
Genesis has $1048.1 million in long-term borrowing as

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compared to $693 million in Contact (Genesis, 2021 P. 49;
Contact Energy, 2021 P.84)
(Word limit - 80 words)
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2a
According to Contact Energy’s 2021 Income statement, it had a Profit After
Tax of $187 million however, from the Cash Flow statement, it shows it a
Cash Flow from operations of $432 million. Explain reasons for their
differences and include specific references of the difference from Contact’s
financial statement.
This is because of reconciliation to the operating cash flow where expenses
such as depreciation and amortization, bad debt expense, share-based
compensation, amortization of contract asset among other expenses were
deducted as operating expenses in order to arrive at the profit after tax.
However, in the cash flow from operation such expenses are added to the
profit after tax (Contact Energy, 2021 P.100).
Also, the changes in assets and liabilities as well as investing and financing
activities have been added and deducted to the profit after tax in order to get
the cash flow from operation. For example, $92 million change in Trade and
other payable is added to the profit after tax (Contact Energy, 2021 P.100).
(Word limit - 150 words)
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2b
According to Genesis’ 2021 Financial statement, when does Genesis
recognise revenue?

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Hint: there are four revenue streams, comment on all four.
Genesis has four revenue streams that is; Electricity (retail), Gas and LPG
where the revenue is recognized when the bottle is delivered to customer.
Electricity is another revenue stream where the revenue is recognized when
the trading period is concluded and the electricity generation is known.
Another revenue stream is Emission unit revenue where revenue is
recognized when the emission unit is confirmed and is being transferred into
the acquirer’s emission account. Oil is another revenue stream which is
recognized on the bill of lading date (Genesis, 2021 P.56).
(Word limit - 100 words)
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Question 2c
All State Owned Enterprises and listed companies have a legal requirement to
be audited. Auditing is an independent assessment of the company’s financial
statement to see whether they reflect a true and fair view of what occurred
during the year. Apart from the mandatory independent audit report which is
familiar with most companies, Contact Energy and Genesis Energy have an
extra independent report that was conducted and conveyed to their
stakeholders.
What is this “extra” report? Who undertook the report for Contact and for
Genesis? What is the purpose of the report?).
The extra report is the report regarding to assurance for Greenhouse Gas
Emission Reporting, Green Borrowing program reporting, office waste and
use of sold products among other sustainable environment disclosures.
Ernest and Young undertook the report for Genesis while KPMG undertook for
Contact. The purpose of the report is to check whether the company are
operating in an environmentally sustainable manner.

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(Word limit - 120 words)