Great FINA600 Financial Management Sample
1. Introduction
Financial ratios are considered as the important parameters for the businesses to maintain their regular record in processing continuous business operations.
The suitability of the business in terms of investment has also been identified by focusing on the ratios (Barth, Beaver, & Landsman, 2010).http://Great FINA600 Financial Management Sample
The managerial body has also undertaken suitable strategies for inclining the products or service dimension into the orientation of customer which has been simplified through recognizing the aspects for profit generation.
The analysis of market and profitability ratio, liquidity ratio, investment ratio and gearing ratio has provided an overview of the financial performance and stability in the context of business.
The change in the figures of ratio has aligned with strategic management which enable the managerial body to focus on the potential field of improvement.
The financial report of the companies are analyzed for identifying the required information related to the business statistics.
1.1 Background and Business
Newcrest Mining Limited is known as a popular mining company whose operations are based on Australian context (Newcrest, 2018).http://Great FINA600 Financial Management Sample
The head quarter of the firm is located at Melbourne, Australia. The mission of the firm is to assure safe delivery of the returns to the stakeholders from developing, finding and operating the copper and gold mines.
The firm has recognized the vigorous and critical sustainability framework for executing the vision.
In 2017, the firm has collaborated with International Metals and Mining Council which has assured the approaches of sustainability in the metal and mining industry along with catalyst serving approach (Newcrest, 2018).http://Great FINA600 Financial Management Sample
The interpretation of financial ratio would indicate the capability of the firm to compensate their liabilities.
Moreover, the return on shareholder equity has also been reflected through prioritizing the financial ratio for businesses (Bhatt, 2016).http://Great FINA600 Financial Management Sample
The businesses has also undertaken strategy of diversity and intrusion for gaining concern of most of the customers.
The report has described all of the ratios of financial analysis critically for identifying the rectification field which is addressed for continuous business process execution.
2 Company Analysis
2.1 Economic outlook, Financial statements, Current Financial performance
Newcrest Mining Limited has operated in the mining industry of Australia for a couple of months which has focused on delivering effective customer service.
From the financial report of the business, it has been identified that the revenue generation of the business has improved from 3562 US$ million in 2018 to 3742 US$ million in 2019 which indicates the financial growth of business (Newcrest, 2019).http://Great FINA600 Financial Management Sample
Moreover, the costs associated with sales has reduced from 2749 US$ million in 2018 to 2648 US$ million in 2019. All of the financial calculations has addressed through focusing on gross profit and generation of profit after income tax and interest payment.
The profit generation after income tax application has changed from 209 US$ million in 2018 to 558 US$ million in 2019. Total current assets of the mining company has raised from 1672 US$ million to 2382 US$ million which has raised the total asset of firm also (Annual reports, 2018).http://Great FINA600 Financial Management Sample
On the other hand, total liabilities of businesses has increased in slow rate which has raised but not in the rate of assets. The equity attributable for the owners has also increased from 7395 US$ million to 7567 US$ million which indicates the suitability of the business process that is required to be followed.
Leverage ratio is also calculated as the net debt after reporting period which is divided by rolling EBITDA of 12 months. The ratio has reduced from 0.7 times in 2018 to 0.2 times in 2019.
3 Ratio Analysis
3.1 Profitability and Market ratios
| 2018` | 2018 | |
| Return on assets | 4.53 % | 5.48 % |
| Return on equity | 5.84 % | 7.41 % |
| Net profit margin | 12.13 % | 14.99 % |
| Gross profit margin | 22.82 % | 29.23 % |
| Expense ratio/Cost to Income ratio | 4.2 % | 6.5 % |
| Cash return on sales | 8.8 % | 11.2 % |
| Earnings per share | $ 26.3 per share | $ 73 per share |
| Price earnings ratio | 21.8 | 31.95 |
| Earnings yield | 4.5 % | 3.1 % |
| Dividends per share | $ 4.84 | $ 7.5 |
Profitability ratios are indicated as the financial metrics which are applied for assessing the ability of business to maximize the earnings with respect to operational cost, revenue generation and shareholders’ equity under a specific period of time (Cristian & Aracuna, 2017).http://Great FINA600 Financial Management Sample
On the other hand, market ratio deals with the company performance and industry standard which also provide an in-sight related to the financial performance of business.
The profitability and market ratio of Newcrest Mining Limited has interpreted to demonstrate their financial performance and stability in the business field.
The profitability and market ratio has been aligned with assets return, equity return, net profit margin, gross profit margin, expense ratio, return of cash on sales, earnings per share, price earnings ratio, earnings yield and dividends per share (DeAngelo, Gurion, Keurig, & Palacios, 2019).http://Great FINA600 Financial Management Sample
Return on assets is considered as the financial metric which is indulged with ratio of profit generation and average assets for the firm. It has also indicated that the financial capability for business has improved in a satisfactory rate.
The return on assets has been improved from 4.53% in 2018 to 5.48% in 2019 which demonstrate the continuous rising rate of profit generation.
On the other hand, the return on equity has also been demonstrated as the value added to the stakeholder for being proficient with the contemporary business process.
The return on equity for the business has also increased from 5.84% in 2018 to 7.41% in 2019 (Annual reports, 2018).http://Great FINA600 Financial Management Sample
ROE is also considered as the profitability measure with relation to equity which indicates the capability of business for generating earning growth through focusing on user investment.
The rise in percentage of equity return has clearly demonstrated the growth of financial measure for the business process. Net profit margin is considered as the revenue percentage after deduction of all the expenses related to the business process (Dyck, Lines, Roth, & Wagner, 2019).http://Great FINA600 Financial Management Sample
Extraction of profit margin from the sales figure is considered as the primary indication for net profit margin.
From the annual report of Newcrest Mining Limited, it has been evaluated that the net profit margin has increased from 12.13% to 14.99% which clearly reflected the rise in profit margin with assuring continuous business process execution.
The alignment between expenses and income are demonstrated through the figure of net profit margin.
On the other hand, gross profit margin is considered as the metrics which is used for evaluating the business model and financial health for revealing the financial volume that has left from sales volume after deduction of price of the sold goods (Finkle, Smith, & Calabrese, 2018).http://Great FINA600 Financial Management Sample
The percentage of sales has been demonstrated which indicate the sales performance of the company for the last financial year.
The gross profit margin of Newcrest Mining Limited has increased from 22.82% in 2018 to 29.23% in 2019 which reflects the business growth in competitive market.
Reduction in operational cost for the businesses would improve the figures of gross margin which is beneficial from the company perspective.
Expense ratio, also known as cost to income ratio is defined as the framework which has measured the assets of the business for utilizing it in the field of administrative and other sectors (Mamounia Limniots, Watson, Massaro, & Souter, 2016).http://Great FINA600 Financial Management Sample
It has been determined by dividing the operating expense of business by average valuation of assets. Operating expenses has reduced the assets of the firm which has minimized the investor return. From the above table, it has been identified that the expenses ratio has increased from 4.2% in 2018 to 6.5% in 2019.
As the total assets of business has improved significantly, the financial stability of the firm has also improved which is represented through expenses ratio (Newcrest, 2019).http://Great FINA600 Financial Management Sample
The capability of the firm for compensating their regular demands and requirements has also been demonstrated through analyzing the ratio. The costs associated with custodial services, legal expenses, taxes and auditing fees are addressed for executing the regular business process.
Return on sales is defined as the ratio which is applied for assessing the operational efficiency of business. The measure has also provided insight related to profit generation from sales of per dollar (Cristea & Arocena, 2017).http://Great FINA600 Financial Management Sample
The rise in return on sales has indicated the efficiency of business for progressing all the operational costs without facing any concern. Based on the financial report of Newcrest Mining Limited, it has interpreted that the return on sales has increased to 11.2% in 2019 from 8.8% in 2018.
The growth in return on sales has justified the quality deliverables by company to gain attention of most of the customers.
Earnings per share is considered as the financial metrics which has demonstrated the return of the shareholders and suitability of the business from the aspects of investors.
It has been calculated through dividing the company profit with its outstanding share along with common stock (McKinney, 2015).http://Great FINA600 Financial Management Sample
The valuation of net income divided by available share provides the figures of EPS. The earnings per share for Newcrest Mining Limited has increased in a rapid figure as it has arose from $26.3 per share to $73 per share.
The rise in the figure is significant from the perspective of investors. Higher margin of EPS has indicated excess valuation due to rising payment to the investors which has added value to the shareholders.
Price earnings ratio is characterized as the ratio for the contemporary share price to the earning of the business for identifying the financial volume that is addressed for earnings of the business (Bressler, Drabbet, Seam, & Zimmermann, 2016).http://Great FINA600 Financial Management Sample
The price earnings ratio for the mining company has also been improved from 21.8 in 2018 to 31.95 in 2019 which has focused on the return for the company after sales in a financial year.
Earnings yield is defined as the figure of earnings per share for recent 1 year time period that is divided by contemporary market price per share (DeFranzo & Schmid gall, 2017).http://Great FINA600 Financial Management Sample
The percentage of earnings per share is indicated as earnings yield which described the financial performance of business. Based on the annual report of business, the earnings yield has decreased from 4.5% in 2018 to 3.1% in 2019.
The market share price for the business has decreased which has decreased the valuation of the ratios.
Moreover, the dividends per share is defined as the summation of declared dividends which has issued by firm for every outstanding share of the business.
The dividends per share is calculated through dividing the total dividends paid in the business for issuing outstanding ordinary share.
The dividends per share has enhanced from $4.84 to $7.5 which indicates the financial growth of the business.
Therefore, it has been interpreted that most of the financial ratio has increased for the businesses which assures the growth or financial stability for the business.
3.2 Efficiency ratios
Efficiency ratio is defined as the financial metrics which are mainly applied for keeping balance between assets and liabilities of the business.
The calculation of receivable turnover, liabilities repayment, inventory application and equity quantity has demonstrate has executed through efficiency ratio (Potter, Pennock, Tarnowski, & Wright, 2019).http://Great FINA600 Financial Management Sample
The ratios has also been applied for analyzing and tracking the performance of investment and commercial banks. The efficiency ratios are described through cash return on assets, asset turnover, and fixed asset turnover.
| 2019 | 2018 | |
| Asset turnover | 0.305 | 0.651 |
| Cash return on assets | 0.125 | 0.124 |
| Fixed Asset turnover | 0.395 | 0.363 |
Asset turnover ratio has measured the valuation of sales or revenue of the business with compared to the valuation of total assets. The financial ratio has utilized for demonstrating the company efficiency to generate required volume of revenue (Cristian & Arocena, 2017).http://Great FINA600 Financial Management Sample
So, the profit generation and asset turnover ratio are considered as directly proportional which makes it suitable in the business context.
The asset turnover ratio for the mining company has minimized to 0.305 in 2019 from 0.651 in 2018 which has decreased the reduction in sales generation.
It is also considered as the indication for the investors for identifying the suitability of investing in the context.
On the other hand, cash return on assets has measured the cash volume that is spun off due to owing of group assets (Barth, Beaver, & Landsman, 2010).http://Great FINA600 Financial Management Sample
The particular measure has applied for comparing the business performance under the same market. The cash return on assets has not changed much as it has raised from 0.124 in 2018 to 0.125 in 2019.
Continuous cash flow for the business has also assured through focusing on particular aspects of assets return. On the other hand, ratio of fixed asset turnover has provided operational performance of business.
Comparison of fixed assets and net sales has provided an overview of the firm’s ability to generate net sales volume in the context of business.
Based on the financial report of mining company, it has been demonstrated that the fixed asset turnover ratio has raised from 0.363 in 2018 to 0.395 in 2019 (Newcrest, 2019).http://Great FINA600 Financial Management Sample
Higher ratio of fixed assets indicates effective application of assets for assurance of continuous business process.
3.3 Liquidity ratios
Liquidity ratios are defined as the crucial financial metrics which is used for determining the ability of debtors for paying the obligations of business without hampering the consistent flow of external capital.
The liquidity ratio of the business has measured the ability of business to pay their safety margin and debt obligations.
The presentation of liquidity ratio has been demonstrated through current ratio and quick ratio.
| 2018 | 2019 | |
| Current ratio | 2.56 | 2.93 |
| Quick ratio | 0.983 | 1.705 |
Current ratio of the businesses has restrained the ability of business for paying their short-term or current liabilities with comparing to current assets such as accounts receivable, inventory and cash (DiFranco & Schmid gall, 2017).http://Great FINA600 Financial Management Sample
The improvement in liquidity position of the business has reflected through current ratio. Based on the financial record of Newcrest Mining Limited, it has interpreted that the current ratio for the firm has increased from 2.56 in 2018 to 2.93 in 2019.
The improvement in financial capability of business has reflected through the rise in current ratio which also justified the reduction in current liabilities and assets (Annual reports, 2018).http://Great FINA600 Financial Management Sample
On the other hand, quick ratio has measured the ability of business for fulfilling their liabilities with applying liquefied assets and inventories to keep balance with current assets. It is also known as acid-test ratio.
The quick ratio of the business has also improved from 0.983 in 2018 to 1.705 in 2019 which reflects the continuous improvement of business.
The improvement in business capability has clearly reflected the financial growth and improved strategy theatre assured by the business processes.
3.4 Gearing ratios
Gearing ratio has measured the proportion of company’s borrowing funds to its equity and the ratio has described the financial or monetary risks for subjecting the businesses when the volume of debt has raised due to the monetary complexities (Dyck, Lines, Roth, & Wagner, 2019).http://Great FINA600 Financial Management Sample
The gearing ratio of business has been reflected through focusing on equity ratio, debt to equity ratio, coverage of cash debt, debt ratio, and interest cover ratio. Mainly, the perspective of financial debt has been demonstrated through focusing on the particular ratios.
| 2019` | 2018 | |
| Debt to equity ratio | 55.12 % | 53.85 % |
| Debt ratio | 6.85 % | 5.67 % |
| Equity ratio | 64.46 % | 65 % |
| Cash debt coverage | 2.76 | 8.005 |
| Interest cover ratio | 24.31 | 5.95 |
Debt to equity ratio has presented through calculation of company’s total liability with its equity in shareholders which is mainly applied for the financial leverage for the business. The measure of degree for the financing operations has executed through focusing on the ratio.
The debt to equity ratio has increased from 53.85% in 2018 to 55.12% in 2019 (Newcrest, 2019).http://Great FINA600 Financial Management Sample
On the contrary, debt ratio is indicated as the monetary metrics which has measured the extent for company leverage. The ratio between total debts and total assets has also indicated as the ratio which increases from 5.67% in 2018 to 6.85% in 2019.http://Great FINA600 Financial Management Sample
The shareholder equity ratio has processed through focusing on company assets which are mainly sourced by equity shares.
From the financial report of Newcrest Mining Limited, the equity ratio has not shifted much which indicates the consistency in performing financial calculations of business.
Moreover, the interest cover ratio has also been improved in a rapid figure which demonstrated the financial capability of business.
4 Recommendations and overall assessment
Based on the whole study, it has been identified that the managerial body of Newcrest Mining Limited should control the operational cost for deploying a stable financial figure for business.
The managerial body has also undertaken suitable strategies for inclining the products or service dimension into the orientation of customer which has been simplified through recognizing the aspects for profit generation.
The interpretation of financial ratio would indicate the capability of the firm to compensate their liabilities. The profit generation after income tax application has changed from 209 US$ million in 2018 to 558 US$ million in 2019.
The rise in percentage of equity return has clearly demonstrated the growth of financial measure for the business process.
Net profit margin is considered as the revenue percentage after deduction of all the expenses related to the business process. As the total assets of business has improved significantly, the financial stability of the firm has also improved which is represented through expenses ratio.
The earnings per share for Newcrest Mining Limited has increased in a rapid figure as it has arose from $26.3 per share to $73 per share.
The market share price for the business has decreased which has decreased the valuation of the ratios.
It is also considered as the indication for the investors for identifying the suitability of investing in the context.
The improvement in financial capability of business has reflected through the rise in current ratio which also justified the reduction in current liabilities and assets.
References
Annualreports. (2018). Newcrest Mining Limited. Retrieved Nov 19, 2019, from http://www.annualreports.com/Company/Newcrest-Mining-Limited
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Bhatt, P. (2016). Methods systems and computer program products for generating financial statement complying with accounting standard. U.S. Patent 9,430,801, 1(1), 14.
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DeFranco, A., & Schmidgall, R. (2017). Cash Budgets, Controls, and Management in Clubs. The Journal of Hospitality Financial Management, 2(25), 112-122.
Donangelo, A., Gourio, F., Kehrig, M., & Palacios, M. (2019). The cross-section of labor leverage and equity returns. Journal of Financial Economics, 2(132), 497-518.
Dyck, A., Lins, K., Roth, L., & Wagner, H. (2019). Do institutional investors drive corporate social responsibility? International evidence. Journal of Financial Economics, 3(131), 693-714.
Finkler, S., Smith, D., & Calabrese, T. (2018). Financial management for public, health, and not-for-profit organizations (1 ed.). London: CQ Press.
Mamouni Limnios, E., Watson, J., Mazzarol, T., & Soutar, G. (2016). Financial instruments and equity structures for raising capital in co-operatives. Journal of Accounting & Organizational Change, 1(12), 50-74.
McKinney, J. (2015). Effective financial management in public and nonprofit agencies (1 ed.). London: ABC-CLIO.
Newcrest. (2018). Asset overview. Retrieved Nov 19, 2019, from https://www.newcrest.com.au/our-assets/asset-overview
Newcrest. (2018). Our company. Retrieved Nov 19, 2019, from https://www.newcrest.com.au/about-newcrest/our-company
Newcrest. (2019). Reports. Retrieved Nov 19, 2019, from https://www.newcrest.com.au/investor-centre/reports
Potter, B., Pinnuck, M., Tanewski, G., & Wright, S. (2019). Keeping it private: financial reporting by large proprietary companies in Australia. Accounting & Finance, 1(59), 87-113.
