Essays on Leighton Holdings: An Australian Multinational Success Case Study

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Strategy Analysis The business model of Leighton Holdings (LEI) has a focus on diversification. It undertakes contract mining, construction, infrastructural maintenance services, and property and resource markets in Australia, Asia, South Africa, and the Middle East (LEI, 2012). The senior management has concentrated on risk assessment, management and project delivery on construction projects, and large scale infrastructure. To minimize all problems that might arise to the company, the company changed its strategic approach contracts and major tenders. LEI now focuses more on the accuracy of tenders, the management of risks, satisfactory time allowance, identification of risks, delivering projects according to the exact requirements of the client, adequate pricing risk, and creating investor confidence.

By lowering the company’ s risk profile, the company has won most of the investor’ s confidence and trust. LEI reported net profit after tax of $450.1 million on its financial results for the year ending on 31 December 2012 (LEI, 2012). The ordinary activities generated $18.95 billion in revenues. This was a 3% rise as compared to the year ended 2011. The diluted earnings per share were 133.3 cents.

The previous year was 101.0 cents. The net operating cash flows were 1.21 billion and the full year dividends were 80 cents as compared to 60 cents for the year 2011(LEI, 2012). Global Peer Comparison                                                             % EPS GROWTH   % P/E   % DIVIDEND YIELD Company Market capitalization 2011 A 2012 F 2011A 2012F 2011A 2011F Cardno CDD $915M -0.055 0.1074 11.8847 12.5395 0.0567 0.0575 Clough(CLO) $1138 0.4623 - 8.9220 - 0.0000 - Leighton (LEI) $6660M 0.3175 0.2388 14.8385 11.9777 0.0405 0.0490 Monadelphous (MND) $1744M 0.1979 -0.1495 11.2460 13.2230 0.0714 0.0657 UGL (UGL) $1352 -0.4535 0.2485 14.6929 11.7528 0.0480 0.0564   Profitability Ratios These ratios explain how the organizational performance of a firm is. Return on Investment This ratio measures the efficiency of an investment. An investment with a positive higher ROI should be accepted (Dake, 1972). Return on Investment = net profit after interest and tax / Total assets (Bull, 2008). 2012 2011 450.1/11206.2 = 0.04   285/9900.4 = 0.03   This ratio is positive.

This is an indicator that the investment is a worthy venture and efficient enough to yield a profit to the company. Therefore the organization will be able to get back the capital invested through the profits generated as a result of the investment efficiency. There is also an improvement in the ratio from 0.03 in the year 2011 to 0.04 in the year 2012 (Katarina, Ivana, and Nikolina, 2012). Return on Equity This ratio is used to measure the amount of the net income that is returned as a percentage of the shareholder's equity.

It shows how profitable a company is. It is calculated by the formula; ROE = net income after tax/shareholders equity (Bull, 2008). 2012 2011 450.1/2916.9 = 0.15   285/2766.9 = 0.10   This ratio reveals that the Leighton holdings are making profits with the amount of money that the shareholders have invested.   The company has improved this ratio from 0.10 in the year 2011 to 0.15 in the year 2012. Asset Utilization Ratios Fixed Assets Turnover This ratio measures the productivity and the utilization of the plant and equipment.

It is calculated by the formula; sales / fixed Assets (Bull, 2008). 2012 2011 18951.7/473.4=40   18372.2/420.4= 44   A higher ratio means that the company is using its fixed assets and the property plant and equipment optimally for the benefit of the firm. This ratio means that the company is utilizing its fixed assets properly and efficiently to make the organization profitable.   From the calculation, there seems to be a decrease in the asset utilization ratio from 44 in the year 2011 to 40 in the year 2012. This is attributed to increased property plant and equipment without a proportionate increase in the number of sales in 2012.

However, with more production using the acquired fixed assets, the ratio is expected to go up.  

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