Comparison Of New Mount Mining Company And Goldcorp Inc Corporation: Financial Analysis Report

New Mount Mining Corporation

Discuss about the Mount Mining Company and Goldcorp Inc Corporation.

The report helps in analysis of the evaluating and comparing the performance and operations of New Mount Mining Company and Goldcorp Inc Corporation. The main objective of the report is to perform peer group analysis in which it has been noticed that the respective organizations are competitor of one another with the usage of financial analysis technique. The main aim and purpose of the report is to analyse the different kind of ratios of the company and on such basis, the entire analysis is required to be done.

Furthermore, the performance and operations analysis can be conducted based on extraction of the financial ratios of the company effectually. the major five aspects have to be kept in mind that includes profitability ratios, market value ratios, long term solvency, short term solvency and asset utilisation ratios. The proper evaluation and comparison to the different two companies from the same sector is done as this will assist in analysis of the company that is most promising in nature in the entire future. Lastly, proper recommendation is required to be provided after the entire comparison of the two reports of the companies.

Lastly, the comparison has to be done for both the companies in such a manner that this will help in analysing the financial strengths and weaknesses of both the companies. The financial growth ratios will help in analysing and identifying the issues faced by them and solve them with recommending strategies as this can help in managing the same effectively in the competitive market effectively.

New Mount Mining Corporation is one of the Greenwood Village, Colorado that is based in The United States of America that helps in tracing the roots to diversified holding company named Willian Boyce Thompson (Newmont.com, 2018). It was established in the year 1916 and it was incorporated in the year 1921. The respective company has different active gold mines in Nevada, Indonesia and Australia. New Mount has been ranked as number two behind Barrack and they produces more than 5.2 billion ounces of gold annually. The company produces more than 121 pounds of copper manually and started publicly trading in the year 1925. There are major competitors of the firm, however the top competitor is the Goldcorp Corporation.

It helps in measuring the entire ability of the organization in meeting the short term financial obligations. This ratio seeks in determining the entire ability of the organization to avoid the financial distress in the short span of time. The liquidity ratio includes the cash ratio, current ratio and quick ratio. It has been noticed the current ratio of the company New Mount Corporation has increased from 267% to 363% and this means that the company has the ability to pay off the obligations and the assets are greater than the liabilities.

Five aspects of ratios in New Mount Corporation

Furthermore, the quick ratio is the measure that helps in analysing how well the organization can meet the different short term financial liabilities. It is known as the acid test ratio. Furthermore, it has been identified that the quick ratio of New Mount Corporation has increased from 188% to 266% in the year 2017 and this indicates that the higher is the quick ratio, higher is the liquidity position of the company. However, it has been noticed that when the quick ratio is lower than 1, it does not necessarily mean that the company is facing bankruptcy and this includes that the organization is highly dependent on inventory to pay the different short-term liabilities (Wang, Ma and Yang 2014).

Similarly, the cash ratio is defined as the ratio of liquid assets of the company to the current liabilities. It is defined as the extreme liquidity ratio as only the cash and cash equivalents are compared with the current liabilities. It has been noticed that the cash ratio of New Mount Company has increased from 161% to 238% and this means that since it is above 1, the company has the capability to pat all the current liabilities in immediate span of time.

The financial leverage ratio is the measure of how much the different assets the company holds relative to the equity. The high financial leverage ratio means that the company is using the debt along with other liabilities to finance the assets. The long-term solvency of New Mount Corporation has been such that it is efficient and appropriate in nature to meet the debts and other obligations. It was noticed that the company New Mount Corporation has enough cash flow in order to meet the short-term along with long-term liabilities. The net income of the company has helped in analysing and identifying that the company has huge profit that has been generated by them in the year 2017 as this helped and assisted the company in meeting the different debts in an effectual manner.

The turnover ratios are the financial kind of ratios wherein the annual income statement amount has been divided by average balance of the asset or the group of assets throughout the year. The receivable turnover ratio has changed in different quarters such as in the first quarter it was 26.09, however it increased to 26.58 in the last quarter. This implies that the company has high rate of turnover and it implies that the company has strong sales and therefore, there is no such excess inventory as well (Henisz, Dorobantu and Nartey 2014).

Goldcorp Inc Corporation

From the analysis of the receivables turnover ratio, it can be analysed that the company New Mount Corporation is effective in nature and this has been seen that low turnover has implied that the company did not focus much on the receivable turnover ratio and this caused huge loss to the company in the year 2015. The return on investment of the company was has been increased to more than 2.47% in the year 2017 (Chiaramonte and Casu 2017).

The gross margin is the total sales revenue that is deducted form cost of goods sold and furthermore it is divided by the total sales revenue. The higher percentage of the gross margin, this helps in increasing the entire ability of the company in servicing the other costs along with debt obligations. It has been seen that the gross margin percentage of New Mount Corporation has increased from 44% to 45% and this implies that the company has been more developed in nature in meeting the different obligations and debts effectively (Piketty 2015).

The operating margin is defined as the measure for profitability and this helps in indicating the different costs that are included by calculating operating earnings divided by revenue as to gain the operating margin effectually. It has been noticed that in the year 2016, the value of the operating margin was 0%, however there was a huge increase of 17% in the year 2017. This implies that the company has the high potential in meeting the different variable costs and make profit appropriately (Newmont.com, 2018).

The profit margin is the amount through which the entire revenue from the sales exceeds the costs in the business. In case of New Mount Company, it was analysed that the profit margin has decreased as in the year 2016, the percentage was 9%, however it has been analysed the revenues of the company has been fallen down to 1% that can create negative influence on the business (Iwatsubo, Watkins and Xu 2017). The profit margin has been decreased which has affected the brand image of the company that has to be analysed effectively (Van den End 2016).

Lastly, Pre-Tax ROE is defined as the amount of the entire net income returned as the percentage of the equity of the shareholders. It helps in revealing the amount of profit that can be earned by the company in comparison to the total amount of equity of the shareholders found in the balance sheet of the company (Acharya and Mora 2015). Furthermore, in case of the respective company named New Mount Corporation, it was seen that the rate has been increased from 2% to 10% that helped in analysing that the company has huge capacity to handle the percentage of the equity of shareholders (Banerjee and Mio 2017).

Five aspects of ratios in Goldcorp Inc Corporation

The market value ratios help in evaluating the current share price of the stocks of the company that is held publicly. These are the different ratios that are held and employed by potential and current investors as to determine the shares of the company and whether they are under-priced or over-priced. It has been noticed that the market value ratio of New Mount Corporation in the year 2017 is under-priced amounting to (0.18) and the market value ratio was under-priced in the year 2016 as well (Pierdzioch, Risse and Rohloff 2014).

The earnings per share of the respective company can be calculated by subtracting preferred dividends from net income. Furthermore, the divide the earnings divided by the number of the outstanding shares that is listed in the balance sheet (Bai, Krishnamurthy and Weymuller 2018). The over-priced or under-priced market value ratio helps in indicating that New Mount Corporation’s profitability of the company. From the under-priced market value ratio, it can be assumed that New Mount Corporation has (0.18) that indicates the company is losing money and this is not applicable as the company is reported for loss (Machin 2017).

Goldcorp Inc Corporation is one of the gold production companies that is headquartered in Canada (Goldcorp.com 2018). The company falls under the category of gold mining industry that was founded in the year 1994 that is twenty years ago. The company has employed more than 15800 employees in the company. Furthermore, the company was ranked among the top 100 employers in Canada. The respective company’s operating assets includes different mines in Canada, Mexico, South America and Central. The total assets of the company have been increased to $2.15 billion till the year 2017.

The short-term solvency or the liquidity ratio is a measure that is used to measure the firm’s ability to meet the organization’s short-term financial obligations. The ratios are useful in determining the firm’s ability to avoid financial distress in the short-run. Few of the most important ratios that are useful in ascertaining the short term ratios of the all the company are current ratio and quick or acid test ratio (Rasoolpur 2014).

Current ratio is ascertained by dividing all the Current assets by Current liabilities. Current assets are such assets of the firms that are expected to be converted into cash in the coming years. On the other hand, current liabilities represent all such liabilities that are to be paid in cash in the coming financial years (Petria, Capraru and Ihnatov 2015). The adequate value of the ratio mostly depends on the nature of the organization’s industry and also the composition of the current assets. Therefore, the minimum current ratio is expected to be greater than 1. Current Ratio= Total Current assets/Total current liabilities

The current ratio of Goldcorp Inc. (GG) for the year 2017 is 91% or 0.91. It is less than 1 and is therefore is not adequate to achieve maximum growth or profit.

Quick Ratio represents that inventories can rather be in illiquid in nature. If such inventories are to be sold off to meet the obligations of the firm than the organization may have difficulty in to find a buyer and the inventory items. This should be sold at a discount rate as compared to the fair market value of the firm.

Quick ratio= (Total current assets- Inventory)/ Total current liabilities

The Quick ratio of the company is 56% or 0.56 and is very low. In addition to this the cash ratio of the company is 19%. The Quick ratio is the company’s ability to pay the debt of the company and cash as well as the marketable securities are some of the quick sources of cash. As the quick ratio is less than 1, the company is actually going into bankruptcy and mostly relying on inventory.

The higher is the company liquidity ratio, the better sis the organization’s liquidity ratio.  The other issues that are included to record the current assets are marketable securities. Quick ratio is also known as the acid test ratios as in the earlier times this ratio was used by the early miners to evaluate the ratio related to gold. The acid test ratio actually showcases how quickly an organization can convert their cash to pay off its current liabilities.

Long-term solvency ratio is the key element for measuring the ability of an organization to meet the debt of the companies and various other obligations. This help in indicating whether an organization cash flows is effective enough to meet both the long-term and short-term liabilities if the company (Margaretha and Supartika, 2016). The lower the solvency ratio of the company the maximum is the probability for the organization that it will default on its debt obligations.  The financial ratios are also known as the debt ratio or debt to equity ratio of the company.

Using last fiscal year end Interest dividend, it can be divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2017, Goldcorp Inc’s interest expense (positive number) was $99 Mil. Its total Book Value of Debt (D) is $2741 Mil.
Cost of Debt = 99 / 2741 = 3.6118%.

The asset turnover ratio of Goldcorp Inc. is 0.16%.  The asset turnover ratio should measure the value of the sales of the company, which is close to the assets value. The asset turnover ratio is use as an indicator to calculate the efficiency with which the company is deploying to particular assets to generate the revenue of the firm (Li, 2015).

Asset Turnover= Sales/ Average Total Assets.

The higher is the amount of asset turnover ratio; the better is the company’s performances. As higher ratio of the company generally showcases that the organization is creating more income per assets.

Profitability ratios are classified as the financial metrics that is used for assessing the business’s ability to create earnings as compared to the expenses and other relevant costs that is incurred during a specific time period. If the ratios are at higher value in relation to the competitors ratio or same ratio from the previous period than it showcases that the company is performing well.

The profit margin of Goldcorp Inc. is 19%. The net profit margin actually indicates the organization’s ability to create Maximum earnings after taxes.  The net profit margin of the company shows that how much of the company’s profitability is left after distributing the net income and expenses (Jami and Bahar 2016). The company and the organization’s ability to measure the profitability after considering all the expenses include taxes, depreciation and interest.

The operating margin ratio is 8%. Operating margin is actually the percentage of sales that is remaining after covering the additional operating expense. Operating profit if the company is also known as its Earnings before Interest and tax.

 The gross margin of the company is 16%; Gross profit margin= Gross profit / Net sales.  Whereas the Return on Equity (ROE) pre-tax and after-tax ratio of the organizations are 1% and 5% respectively. ROE is such ratio that actually shows the organization’s equity holders the most. The more is the asset of the organization, the more is the sales value and profits of the company that can be generated. It actually measures the return that is to be gained by the investors within the company. The net income arises from the stakeholder’s equity of balance sheet and income statement (Öner Kaya 2015).

The market value ratio for Goldcorp Inc. is helpful in ascertaining the current share price of the publicly held companies and their stock.  This ratio is evaluated by determining the company’s share prices in the market.

Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market – Risk-Free Rate of Return)
Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Goldcorp Inc’s beta is 0.67.
c) (Expected Return of the Market – Risk-Free Rate of Return) is also called market premium.  It requires market premium to be 6%.
Cost of Equity = 2.25000000% + 0.67 * 6% = 6.27%

Book value per share- it is the aggregated amount of the stockholder’s equity and is furthermore divided by various outstanding shares. The measures are actually used as a benchmark to identify if the market values per share are low or high (Agha 2014). This is used as a major decision-making base to purchase or sell or the shares of the organization.

Dividend yield: the dividend yield of Goldcorp is nil as the company failed to gain dividend for the year 2017. It is calculated by dividing the total number of shares divided by the market price of the stock (Cakici, Chatterjee and Tang, 2017). It is calculated to know the return on investment by purchasing the shares at the current market price.

Earnings per Share: it is calculated as the reported earnings and is divided by the total number of shares that is outstanding. Though the measurement does not affect the market price of the company in any manner. It is used by the investors to evaluate the prices that and know the shares value (Öztürk and Karabulut 2017). The EPS of Goldcorp Inc is estimated to be at 0.99.

Using the last fiscal year end Interest dividend, it can be divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2017, Goldcorp Inc’s interest expense (positive number) was $99 Mil. Its total Book Value of Debt (D) is $2741 Mil.
Cost of Debt = 99 / 2741 = 3.6118%.

In accordance to the financial reports and financial ratios of the New Mount Corporation, it can be analysed that the respective company has been in the top ten gold mining corporations in the industry. It is the most competitive rivalry of Goldcorp Corporation as they both are based in Australia. The financial strength of the company helps in analysing that the company ended the year with $3.3 billion cash on hand (Rey 2015).

The profitability ratio has been increased from 2016 to 2017. It has been noticed that the asset turnover has increased from 0.29 to 0.35 in the year 2017 that meant that the company is growing in a faster pace and this is one of the financial strength of the company. Furthermore, it has been noticed that the EBT margin of the company has increased to 14.86% and there has been a major growth in the margin from the year 2016.

 Furthermore, the financial leverage ratio has decreased from 1.96 to 1.94, this implies that the company has a little change in the financial leverage ratio that caused huge change in the rate of tax of the entire company as well. It has been noticed that the operating margin of the company has increased from 15.04 to 17.81 that implies that the company has been able to increase their presence and this has implied growth in the organization. On the other hand, it has been noticed that the New Mount Company’s gross margin has increased from 6711 to 7348 and this implied that the respective organization has been the financial strength and this helps them in becoming popular in the market.

On the other hand, Goldcorp Corporation’s net profit has decreased to a large extent that caused huge loss to the company. The profitability ratios such as quick and cash ratios has decreased to a huge level that has affected the financial growth of the entire company. Furthermore, the Earning Before Tax has increased that caused huge issues for the growth of the company in comparison to the other competitors in the market. Goldcorp Company has been reported as the weak companies in the present scenario in comparison to the other competitors in the market that has affected their potentiality for the growth in the market.

Furthermore, the long-term solvency ratio of Goldcorp Corporation along with asset utilisation has been weak in the present scenario. It was noticed that the profitability of the company has become a big issue and problem for the company that has affected the entire growth of the firm in a negative manner. However, the return on the invested capital of the respective organization has increased from 1.38 to 4.18 and this has been better in terms of performance from the New Mount Company as it was noticed that there was decrease in the return on invested capital in the respective company in the financial year 2017-2018.

Lastly, from the entire comparison of both the companies, it can be analysed that New Mount Company is performing better in comparison to the other competitor named Goldcorp Corporation. In accordance to the profitability as well as the assets utilisation ratio, it was analysed and identified that New Mount Corporation has increased their growth and presence in the market in comparison to the latter company. It can be further concluded that the market value ratio of both the companies were equal and this has affected the growth of both the companies in a positive manner.

Conclusion 

Therefore, it can be concluded that the New Mount Corporation that is the gold mining company is much more effective and effectual in nature in comparison to Goldcorp Inc Corporation. It has been seen and noticed that the New Mount Corporation has tried to increase their presence globally as the financial ratios of the company has been up to the mark and this has helped them in maintaining their presence as well. Both the companies are competitors of one another in the market, however it has been noticed that the growth of Goldcorp company was affected in a negative manner in the financial year 2017-2018 in comparison to the New Mount Corporation.

On the other hand, it was noticed that Goldcorp Corporation had low liquidity, profitability along with market assets ratios that caused huge issues in the financial status of the company. From the entire financial analysis, it was seen and noticed that the Goldcorp company could not attract more investors towards their company in comparison to the New Mount Company. From the entire analysis of the annual reports of both the companies, it was analysed and identified that the main ability of the company was to deliver sound financial data to the shareholders.

However, on the other hand, Goldcorp Corporation’s financial ability was weak in nature and this caused them to face different kind of difficulties. The net income of the company was attributable in nature as this attracted more investors towards their company along with the financial strength was around $3.3 billion in the market. Lastly, it was noticed that the financial strengths of Goldcorp Corporation were weak and the profitability ratios has been weak in the last few years that has been the major weakness of the company.

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