Kogan Insurance: Comprehensive Covers & Profitable Ratios

Kogan Insurance provides a modest and affordable home, contents, car, pet and life, and funeral insurance.

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Kogan Health offers considerable health insurance covers for people.

Kogan Travel offers great travel deals to prominent destinations.

Profitability RatiosThese ratios disclose the company's ability to make a substantial profit as well as return on investment. These ratios usually depict a company's position in terms of finance and also show how a company is good at managing its assets.

Return on assetsReturn on assets (ROA) = Net profit after taxesTotal assetsTable SEQ Table \* ARABIC 1: Data obtained from financial statements (Annual reports, 2017 & 2018)

2016 2017 2018

Net profit after tax ($m) 0.8 3.7 14.1

Total assets ($m) 32.4 80.3 106.0

For the year 2016: ROA = 0.8/32.4 = 0.024 = 2.4%

For the year 2017: ROA = 3.7/80.3 = 0.046 = 4.6%

For the year 2018: ROA = 14.1/106.0 = 0.133 = 13.3%

From the results the company has improved on its performance. This can be connected to the fact that the company properly utilised its assets and is proving to continue in the incoming years. In 2017, the return on assets was 4.6%, and in the following year, it rose to 13.3%. The increase in return on assets is mostly attributed to the full utilisation of assets in the company, which consequently initiated an increase in the profits margin. Nulla (2013) states that an increase in return on assets is majorly contributed by effective utilisation of a company's assets to meet the company's vision and mission.Return on equityReturn on equity (ROE) = Net profit after taxesCommon equityTable SEQ Table \* ARABIC 2: Data obtained from financial statements (Annual reports, 2017 & 2018)

2016 2017 2018

Net profit after tax ($m) 0.8 3.7 14.1

Total equity ($m) 7.1 42.7 47.9

For the year 2016: ROE = 0.8/7.1 = 0.113 = 11.3%

For the year 2017: ROE = 3.7/42.7 = 0.087 = 8.7%

For the year 2018: ROE = 14.1/47.9 = 0.294 = 29.4%

From the results, the company performed well in the last three years as it has maintained a substantial return on equity. The lowest value of return on equity recorded is 2017 with 8.7%. However, this high return in equity is attributed to the ability of the company to maintain high profits over the last three years. The highest value recorded in the year 2018, at 29.4%. According to Heikal et al. (2014), an increase in return on equity for a given company is attributed to the efficient utilisation of the company's gains in plow back of the earnings.

Operating Efficiency RatiosThese ratios measure how well a company utilises its assets in a bid to generate income. The management often employs efficiency ratios in helping them improve the company. Nonetheless, investors and creditors also have a look at these ratios as they indicate the operations of profitability of the company. These ratios go together with the profitability ratios, and whenever a company is efficient in managing its resources, it emerges profitable.

Inventory turnover ratioInventory turnover ratio = Cost of goods soldAverage inventoryFor the year 2017: Inventory turnover ratio = 237.8/39.7 = 5.99

For the year 2018: Inventory turnover ratio = 331.7/50.2 = 6.61

Results computed have shown that the turnover ratio is increasing. The increase was about 10.35%, which is a considerable amount. The increase in the inventory level of the company can be attributed to the ability of the company to sell the entire inventory as quickly as possible. An increase in the inventory turnover shows that the company can turn its assets more into cash in a short period (Gaur et. al. 2015, pp. 25).

Asset turnoverAsset turnover ratio = Net salesAverage Total AssetsTable SEQ Table \* ARABIC 3: Data obtained from financial statements (Annual reports, 2017 & 2018)

2016 2017 2018

Net Sales ($m) 1.6 6.5 19.9

Average total assets ($m) 23.6 56.4 93.2

For the year 2016: Asset turnover ratio = 1.6/23.6 = 0.068 = 6.8%

For the year 2017: Asset turnover ratio = 6.5/56.4 = 0.115 = 11.5%

For the year 2018: Asset turnover ratio = 19.9/93.2 = 0.214 = 21.4%

From the results, Kogan.com Limited has depicted a good trend since there has been an increase in the asset turnover ratio over the last three financial years. This shows that the company has been able to utilise its assets well in the generation of sales revenues throughout the years (Muritala 2018, pp.2).

The Graph of Share Price Movement in Kogan.Com Ltd

Figure SEQ Figure \* ARABIC 1. Kogan's share price movement in the last two years, 2019

Kogan.com Ltd share price has pitched to about 60% higher this month, May. This is in response to a positive update on the Australian online retailer's March quarter performance. This news was satisfying for the long-term shareholders because it implied that Kogan's share price exceeded the $5 mark for the first time since October last 2017. It is known that by the time the market closed, Kogan's shares had recorded a value of $5.68.In the regular announcements made by the company's management, on April 2018, significant growth across the board was reported. The revenue was said to have risen by 9.5% compared to the previous year's March quarter. Nonetheless, profit had escalated by 28.4%.

Sincerely, it is a tough decision to confidently state whether an investment in Kogan is a good idea. As far as retail shares go, Kogan is topping the table. Over the recent years, its share price has outshined its significant competitors such as JB Hi-Fi Limited, Super Retail Group Limited, and Premier Investments Limited. However, Kogan's share price happens to remain volatile, which renders forecasting a problematic task. Towards the end of 2017, Amazon showed its interest to launch operations in Australia. This caused high tension in people as they feared that Amazon would overthrow online retailers including Kogan.com. People and the media thought Kogan would be eliminated from business, but to the surprise of many, Kogan grew stronger, consequently leading to a shoot in its share price like never before.

In August, Kogan made a press release revealing how it had doubled its earnings for the third year in a row. This surprised everyone, and within a month, Kogan's shares rose steeply with 50% higher. Similarly, the same incidence repeated itself in January when Kogan announced that it had made record sales during the Christmas time. To some extent, the market's hesitancy to support Kogan is relatively understandable. The history behind the rapid emergence of Kogan still instills some doubt in the investors. Some are unsure of the company's capability; whether they possess the skill, experience, and knowledge to market or sell any of its commodities.

The market seems to be doubtful about Kogan, and they have a feeling it will fail sooner or later. However, it is beyond doubt that Kogan is determined to prove them wrong as it has managed to beat expectations consistently. From the trend of the share prices, Kogan has set a norm based on its volatility, and it can consistently perform beyond a reasonable doubt. According to Wall Street analysts, they have projected a rise in the share prices of Kogan Limited, and this is as shown below:

Figure SEQ Figure \* ARABIC 2. Wall Street projection of share earnings, 2019

Cost of Equity and Capital StructureCost of equity refers to "the rate of return a shareholder requires for investing equity into a business" (Miller et. al. 2018, pp. 3). The dividend capitalisation model assumes that dividends will grow at a constant rate. In this case, the dividend growth rate is 4%.

Cost of equity = Dividends per share next yearCurrent share price+Dividend growth rateBased on the data available at the ASX website, dividends/share is $0.06, the current share price is $5.85, and the dividend growth rate is 4 %( =0.04).

Cost of equity = ($0.06/$5.85) + 4% = 5.03%

ConclusionFrom the above analysis, the companies have demonstrated their performance in the key areas that concern the investment of any other company. Therefore, investors from other countries who want to invest in the...