Finance for Business
Introduction of company
Kibaran Resources Limited is a graphic designing company that is based on Australia. It is exploration company that focus on the unlocking the graphic potential of the mineral –rich landscape. The company is headquartered in Australia and its subsidiaries are Castillian Resources (Tanzania) Limited.
The main operation activities of the company are in Australia, UK, Germany, Africa. The main operation activity of the company is related to design the graphic project. It has the right to Merelani-Arusha Graphite Project that situated at the north east to Tanzania (Kibaran Resources Limited,2018).
Identification of the ownership- governance structure
- i) Kibaran Resources Limited is registered in the Australian security Exchange under the corporation Act 2001. The capital of the company is divided into the small amount that can be known as the share of the company.
- In this, it is found that there is no one person and firm that has the more than 20% share of Kibaran Resources Limited. But, at the same time, it is found that there are two firms that have more than 5% shares of Kibaran Resources Limited (Kibaran Resources Limited, 2018). The name of these shareholders are below:
| Rank | Name | Nuber of shares | % of share |
| 1 | J P Morgan Nominees Australia Limited | 24,053,009 | 9.85 |
| 2 | Citicorp Nominees Pty Limited | 19,792,981 | 8.11 |
The above list shows that J P Morgan Nominees Australia Limited has 9.85% share of the Kibaran. Along with this, it is also identified that Citicorp Nominees Pty Limited has 8.11% share of Kibaran.
- ii) The corporate directory of the company depicts that there is no one at the position of the CEO of Kibaran. But, at the same time, it is recognised that Robert Pett is at the position of the chairman of the company. The list of the board of member includes that some name that are Andrew Spinks, Grand Pierce, John Conidi and Christoph Frey. In this, Andrew Spinks has 0.92% shares of the company. Furthermore, it is found that no one from company management team has significant share in the company’s capital (Kibaran Resources Limited, 2018).
Calculation of the performance ratio
- i) Calculation of the ratio of the company
| Ratio | Formula | 2017 | 2016 | 2015 | 2014 |
| Return on Assets | NPAT / Total Assets | -0.20 | -0.34 | -0.46 | -0.20 |
| NPAT | -4.1 | -4.27 | -5.7 | -1.46 | |
| Total Assets | 20.5 | 12.53 | 12.46 | 7.18 | |
| Return on Equity | NPAT / ordinary Equity | -0.21 | -0.36 | -0.46 | -0.22 |
| NPAT | -4.1 | -4.27 | -5.7 | -1.46 | |
| Ordinary Equity | 19.28 | 11.72 | 12.26 | 6.76 | |
| Debt Ratio | Total Liabilities / Total Assets | 0.06 | 0.07 | 0.02 | 0.06 |
| Total Liabilities | 1.22 | 0.82 | 0.2 | 0.42 | |
| Total Assets | 20.5 | 12.53 | 12.46 | 7.18 |
| 2017 | 2016 | 2015 | 2014 | |
| EBIT/TA | -0.20 | -0.36 | -0.45 | -0.20 |
| EBIT | -4.13 | -4.45 | -5.66 | -1.45 |
| TA | 20.5 | 12.53 | 12.46 | 7.18 |
| NPAT/ EBIT | 0.99 | 0.96 | 1.01 | 1.01 |
| NPAT | -4.1 | -4.27 | -5.7 | -1.46 |
| EBIT | -4.13 | -4.45 | -5.66 | -1.45 |
| TA/OE | 1.06 | 1.07 | 1.02 | 1.06 |
| TA | 20.5 | 12.53 | 12.46 | 7.18 |
| OE | 19.28 | 11.72 | 12.26 | 6.76 |
| NPAT/OE | -0.21 | -0.36 | -0.46 | -0.22 |
| NPAT | -4.1 | -4.27 | -5.7 | -1.46 |
| OE | 19.28 | 11.72 | 12.26 | 6.76 |
| EBIT/TA | NPAT/ EBIT | TA/OE | EBIT/TA*NPAT/ EBIT* TA/OE | NPAT/OE | |
| 2017 | -0.20 | 0.99 | 1.06 | -0.21 | -0.21 |
| 2016 | -0.36 | 0.96 | 1.07 | -0.36 | -0.36 |
| 2015 | -0.45 | 1.01 | 1.02 | -0.46 | -0.46 |
| 2014 | -0.20 | 1.01 | 1.06 | -0.22 | -0.22 |
- ii) Phenomenon is being “captured” by the variable TA/OE
From the above cal calculation, it is found that TA/OE is a significant indicator of the finance performance of the company. In this, it is found that what when total assets increases then that return on assets also increase. On the other hand, when ordinary equity increases than cost of the equity increases (Petty et al., 2015).
| 2017 | 2016 | 2015 | 2014 | |
| 1.06 | 1.07 | 1.02 | 1.06 | |
| Total Assets | 20.5 | 12.53 | 12.46 | 7.18 |
| Ordinary Equity | 19.28 | 11.72 | 12.26 | 6.76 |
iii) Explanation why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT)
In the managerial finance, the ROA is significant ratio that determines how effectively a company used fund of the shareholder. On the other hand ROA shows the ability of the firm to use the organisational resources. Both are the significant meaning the analysis of the financial position of the company. ROE has the main objective to test the ability of the management whether it is increasing the value of the shareholder money or not (Renz,, 2016).
ROA is shows that ability of the management in the context of using the organisational assets that is much important. Asset includes the cash and bank balance, account receivable, property, equipment, inventory, land and plant. The increase in the ROA leads to increase in the ROE that is why, ROA is more important and significant.
Two graphs from www.asx.com.au with the description of results
- i) Movement of the company share and ordinary share holder
| Date | Price | S&P 500 | Change in % (KNL) | Change in % (S&P 500) |
| Jan-18 | 0.155 | 2,842.00 | 6.9% | 6.2% |
| Dec-17 | 0.145 | 2,676.00 | -9.4% | 1.1% |
| Nov-17 | 0.16 | 2,648.00 | 10.3% | 2.9% |
| Oct-17 | 0.145 | 2,572.75 | -23.7% | 2.3% |
| Sep-17 | 0.19 | 2,516.00 | 22.6% | 1.9% |
| Aug-17 | 0.155 | 2,470.00 | 10.7% | 0.1% |
| Jul-17 | 0.14 | 2,468.00 | -22.2% | 1.9% |
| Jun-17 | 0.18 | 2,421.00 | 12.5% | 0.4% |
| May-17 | 0.16 | 2,411.00 | 0.0% | 1.3% |
| Apr-17 | 0.16 | 2,380.50 | -13.5% | 0.9% |
| Mar-17 | 0.185 | 2,359.25 | 19.4% | -0.1% |
| Feb-17 | 0.155 | 2,362.75 | -13.9% | 3.9% |
| Jan-17 | 0.18 | 2,274.50 | -2.7% | 1.7% |
| Dec-16 | 0.185 | 2,236.25 | 12.1% | 1.7% |
| Nov-16 | 0.165 | 2,198.75 | 0.0% | 3.7% |
| Oct-16 | 0.165 | 2,120.00 | -25.0% | -1.9% |
| Sep-16 | 0.22 | 2,160.50 | 0.0% | -0.4% |
| Aug-16 | 0.22 | 2,169.50 | -8.3% | 0.1% |
| Jul-16 | 0.24 | 2,168.25 | -7.7% | 3.7% |
| Jun-16 | 0.26 | 2,090.25 | 15.6% | -0.2% |
| May-16 | 0.225 | 2,095.00 | 18.4% | 1.7% |
| Apr-16 | 0.19 | 2,059.00 | 18.8% | 0.4% |
| Mar-16 | 0.16 | 2,051.50 | #DIV/0! | #DIV/0! |
[Finkler et al., 2016]
- ii) The above plot shows that there is not positive correlation between that KNL and ordinary share index. It is because the both are following in the different direction. In this, it is also found that S&P 500 is flowing and increasing with good and constant. On the other hand, KNL has not sustained performance.
Research via the internet or financial/business publications
On 22 January 2018, Kibaran Resources Ltd has announced that it has negotiated a commercial agreement with German-based ProGraphite GmbH. Under this agreement, the company will access to technical and commercial knowledge of ProGraphite to process graphite materials (Proactive Investors, 2017). This announcement caused a positive impact on the perceptions of the investors due to possibilities of future opportunities. It also caused a surge in its share prices in January 2018.
Calculation of beta values and expected Rates of Return using the CAPM
- i) Beta value = 0.000
[McKinney, 2015]
- ii) Required rate of return
Capital assent pricing model
requite = rf + Bquity (rm – rf ) / market risk premium
where
rf = risk free rate
Bequity = beta of the security
Market risk premium
Calculation of the Capital assent pricing model for CMA UN Equity
Risk free rate = 4%
Beta of the security = 0.00
Market risk premium = 6%
= 0.04 + 0.00 (0.06)
= 4%
iii) Conservative” investment
On the basis of the finance statement of the company, it is found that it has adopted the conservative investment method. The company has raised a lot of money from the market but still not providing benefit to investors. Due to this, it can be said that company has adopted conservative investment (Martin, 2016).
Weighted Average Cost of Capital (WACC)
- i) WACC is calculated to find out average cost of the capital. It is calculated through the below formula:
WACC = x Re + x Rd x (1 – Tc) (Bundy et al., 2015)
Where
Re = cost of equity = 0 %
Rd = cost of debt = 0%
E = market value of the firm’s equity = 19,284000
D = market value of the firm’s debt = 1,218000
V = E + D
E/V = percentage of financing that is equity = 91.1%
D/V = percentage of financing that is debt = 5.9%
Tc = Tax rate = 27.5%
WACC = 94.1% (0%) + 5.9% (0%) (1-27.5%)
= 0.941(0)+0.059(0)(1-27.5%)
= 0%
Note:
Cost of equity = 0% (It is because, company does not provide dividend to its share holders)
Cost of debt = 0% (It is because company has not any long term debt)
- ii) Typically, a high WACC indicates to high risk of the operation. Due to this, investors tend to needs the some more return to assume additional risk. The mainly WACC shows overall cost of the capital for a company. In the case of KNL, it is found that WACC is 0% because company is not paying interest and dividend.
Debt Ratios for company over the past two years
- Capital structure
| Ratio | Formula | 2017 | 2016 |
| Debt Ratio | Total liabilities / Total Equity | 6.33% | 7.00% |
| Total liabilities | 1.22 | 0.82 | |
| Total Equity | 19.28 | 11.72 |
The above table shows that capital structure of the company. In this, it is found that debt ratio for year 2016 and 2017 are 7.00% and 6.33%. In this, it is evaluated that capital structure of the company is based on the equity. In year 2017, company also decreased debt from capital due to this, debt ratio reached 6.33%. Hence, it can be said that capital structure of the company is not stable (Kibaran Resources Limited, 2018).
- ii) The company is not repaid borrowing in the financial year 2017. But, at the same time, it issued some share in the market in order to raise money that worth is $12134000. It is also major reason in change of equity.
In the business environment, a dividend policy is the parameter that can be sued by the board of the director in order to pay the dividend to shareholders. A well determined dividend policy of the company includes the % of the dividend rate, time and size of dividend insurance that can be have the great impact on the cash flow statement of the company.
In the context of Kibaran Resources Limited, it is found that company does not provide any dividend so it can be stated that the company reserves all earning without distributing any dividend to shareholders. It believes in reinvesting all of its earnings back into the company to increase the value of shares. The company is still growing as it does not pay dividends to invest at maximum level for getting further growth. Company is also oriented to start new projects and acquire new assets to expand its business.
From the analysis the financial performance of the company, it is found that the decision of investment in KNL is not profitable because company is not providing dividend. The main purpose of the investment is to generate the profit but investor cannot get return by the investment in KNL. Hence, it can be recommended to client that it should not invest in KLN.
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher education. USA: John Wiley & Sons.
Bundy, D.A., Dhomun, B., Daney, X., Schultz, L.B. and Tembon, A., 2015. Investing in onchocerciasis control: financial management of the African Programme for Onchocerciasis Control (APOC). PLoS neglected tropical diseases, 9(5), p.e0003508.
Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. USA: CQ Press.
Kibaran Resources Limited (2017) Annual Report, Available at http://knl.live.irmau.com/irm/PDF/2006_0/2017AnnualReport (Assessed: 2018-01-26)
Martin, L.L., 2016. Financial management for human service administrators. Waveland Press.
McKinney, J.B., 2015. Effective financial management in public and nonprofit agencies. UK: ABC-CLIO.
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.
Proactive Investors (2017) Kibaran Resources enters agreement with ProGraphite. Available at http://www.proactiveinvestors.com.au/companies/news/189056/kibaran-resources-enters-agreement-with-prographite-189056.html (Assessed: 2018-01-26)
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. USA: John Wiley & Sons.
