Financial Analysis And Corporate Governance Of Elysium Resources Limited

Company Description

 Evaluating over the financial aspects and the figures of an organization is required to make an improved conclusion about the situation of the company. Financial analysis is the field which express about the stability, volatility, profitability etc. It is mainly performed by the professionals to evaluate the financial position of business through evaluating the financial statements of the company, market stock price of the company, changes in the ordinary share price etc (Phillips and Stawarski, 2016).

This report has been prepared to evaluate the financial position and the performance of Elysium resources limited. For evaluating the financial position and investment opportunity in the company, performance ratios have been calculated. Further, stock price has been calculated and changes have been identified. In addition, significant factors of changes in the stock price have been evaluated and lastly, the WACC has been calculated to reach over an improved conclusion.

Elysium Resources Limited is a mineral resource company which is focusing on development and exploration of numerous material and commodities. This company holds the interest in various metal projects as well which offers high return to the company. This company is registered in the security market of Australia by the name of EYM. Currently, this company is recognized as Hardey resources limited. The main project of the company is Burraga copper gold project which is covering around 221 square kilometre of the East Lachlan in Central Western South Wales. Current financial position of the company is quite strong. Mainly this company is situated in West Perth, Australia (Reports, 2018).

The mineral industry of Australia has been evaluated and it has been found that there is huge competition of Elysium Resources Limited in the market. Though, the industry is performing too well and the company is suggested to grab the opportunities to enhance the market share.

Further, the study has been conducted over corporate governance and the board of members of the comapny to identify the stakeholders of the comapny and the main people which are involved in managing the operations and the performance of the company (Nobes, and Parker, 2008).

Substantial stakeholders:

The below table explains that the Mr Phillip John Collson is the main shareholder of the company. Further, it explains that the 3.74% of total shares are holding by Mr Philip John Collson. Below table briefs about other top 20 shareholders of the company which has held 30.60% of total stock of the company. 

Ownership Governance Structure

Main people:

Further, the main people of the company have been evaluated who is in the board of member committee of the company and at the same time, who manages a better position of the company in the market. Michael D Tilley, MAXIM CARLING, MARK OHISSON, NEB ZURKIC, Dean Pantin are the main executive and non executive directors of the company who manages the better position and the performance of the company in market. MAXIM CARLING is the CEO of the company and manages the operations of the company (Annual report, 2015).

Further, the share in the company’s stock has been evaluated and it has been analyzed that no executive and non executive members have the ownership more than 20% and not even 5% in the total shares of the company (Niu, 2006).

Performance ratios:

Performance ratios are analysis method which is calculated to investigate over the performance of an organization. Performance ratios are calculated by the professionals to evaluate the operating performance of the company. Mainly, return on assets, return on equity and debt ratios is included in the performance ratios (Moles, Parrino and Kidwekk, 2011). These ratios have been calculated over Elysium Resources Limited to evaluate the financial position of the company. Following is the study of performance ratios of Elysium resources limited:

Return on assets is a financial ratio which expresses about the total percentage of an organization which has been earn in context with the overall resources of the company. Following is the return on assets of Elysium resources limited:

A.	Return on assets=	NPAT/ total Assets
		368/3793
		9.702%

This above calculation expresses about the total return on total assets of the company, the current ROA of the company is 9.702% which is competitive and express about a good position of the company in the Australian market (Marginson, 2009).

In addition, other performance ratios have also been calculated to evaluate the position of the company. Return on equity is a financial ratio which expresses about the total percentage of an organization which has been earn in context with the total equity of the company. Following is the return on equity of Elysium resources limited:

B.	Return on Equity=	Net profit after tax/ ordinary equity
		368/2502
		14.71%

This above calculation expresses about the total return on total equity of the company, the current ROE of the company is 14.71% which is competitive and express about a good position of the company in the Australian market (Damodaran, 2011).

Debt ratios:

Further, a debt ratio is a financial gearing ratio which expresses about the total liabilities and total assets of an organization which is mainly calculated to evaluate the capital structure of the company. Following is the debt ratio of Elysium resources limited:

C.	Debt Ratios =	Total Liabilities/ total assets
		1291/3793
		34.04%

Performance Ratios

This above calculation expresses about the total liabilities in context of total assets of the company, the current debt ratio of the company is 34.04% which is competitive and express about a good position of the company in the Australian market.

EBIT / TA * NPAT / EBIT * TA/ OE = NPAT / OE
(352/3793)*(368/352)*(3793/2502)=	(368/2502)
0.147082334	0.147082334

(Davies and Crawford, 2011)

TA/OE:

TA/OE stands for total assets and the ordinary equity of the company. These phenomena makes a direct impact on the position of the capital structure of the comapny and at the same time, profitability position of an organization is also affected by it. Total assets amount makes an impact over the return on assets, more the total assets of an organization would be lesser the ROA of the company would be. At the same time, more the total equity of an organization would be lesser the ROE of the company would be. Thus an organization should manage the level of total assets and total equity accoridng to the profitability level of the company.

ROA and ROE:

Accoridng to the above evaluation over ROA and ROE of the company, it has been found that ROE of the company is quite higher than the ROA of the company. These differences have mainly occurred due to higher level of assets in comparisons with the total equity of the company. In most of the cases, ROE is always higher than the ROA of the company as total assets level of an organization is always higher.

Changes in stock price:

In addition, it is required for a professional to anlyze and evaluate teh stock price of the comapny to identify the chages in the total worth of the company in the market. Stock price reflects about the total worth of the comany in the market. Through the analysis over financial position of the company, it has been found that Following changes have occurred in the stock price of the company in last 2 years:

The abive graph expalins about the chnages in stock price of EYM as well as chnages in the all ordinary share price in Australian stock exchnage. Through the analysis over the graph, it has been found that the AORD prices are more volatile than the share prices of the EYM. Th graph exlpalins that earlier, the stock price pf EYM was quite costnat but the stock price of AORD has been chanages rapidly. The stock price level of EYM and AORD is qute different to ecah other and the correlation among both the stock is -0.842. It explains that the stock price of AORD is increaisng but at the same time, the stock price of AORD is getting higher (Bromwich and Bhimani, 2005).

Further analyzing the volatility of the stock, beta has been calcualted. The current beta of the company is 0.29 which expalins that the AORD prices are more volatile than the share prices of the EYM.

Correlation’	-0.84196
Beta	0.290001

Further, various articles and news have been studied to evaluate why the changes have taken place into the stock price of the company. The evaluation over the stock price explains that the stock price of EYM has been lower a lot in comparison of the stock price of 1-1-2016 (Intelligent investors, 2018). Further, it explains that the stock price of the company has been lower due to the acquisition process of the company. The name of the company has been changed on 3-12-2017 due to which the total worth of the company has been affected. The company has invested into few new projects that are why the stock price of the company has also been affected (Yahoo finance, 2018).

 The financial analyst has suggested into their reports that the financial performance and the position of the company would be lowered and thus it has directly impacted over the stock price of the company (Annual report, 2018). More, the dividend of the company has been analyzed and it has been found that the comapny has not offered any dividend to the stockholders of the company in last 2 years (Morningstar, 2018). Further, the macro economical factors of the company has also impacted over the position and the performance of the company in last 2 years and that is why the stock price of the company has been lowered.

Beta:

Further, for evaluating the business performance, beta calculations have been done. The current beta position of the company is 0.29.

CAPM:

In addition, CAPM model of the company has been calculated and the following are the calculations of CAPM:

Calculation of cost of equity (CAPM)
RF	4.00%
RM	6.00%
Beta	0.290
Required rate of return	4.58%

Explanation:

Yes, this company has been chosen by me to invest the amount due to its high profitability position and the reports brief that this company would be a great opportunity to enhance the level of the investment amount. More through this analysis, it has been found that the recent changes in the organization would offer positivity about the company in the market (Brealey, Myers and Marcus, 2007).

WACC calculations:

Further, for analyzing the position and the performance of the company, it has been calculated that the following is the WACC of the company:

Calculation of WACC
	Price	Cost	Weight	WACC
Debt	159	5.60%	0.21961	0.0123
Equity	565	4.58%	0.78039	0.03574
	724	Ke	4.80%
Calculation of cost of debt
Outstanding debt	159
interest rate	8%
Tax rate	0.3
Kd	5.60%
Calculation of cost of equity (CAPM)
RF	4.00%
RM	6.00%
Beta	29.00%
Required rate of return	4.58%

(Tucker, 2011)

The above calculations explain that the total cost of capital of the company is 4.8% where the cost of debt of the company is 5.6% and on the other hand, cost of equity of the company is 4.58%. It explains that the current cost level of the company is quite better.

Evaluation:

Further, it has been studied that the more the WACC of an organization the more the profitability level of the company would be lower as the most of the profits would be paid by the company as interest to the debt holders and as dividend to the stock holders of the company (Glajnaric, 2016). The investment opportunities must be calculated and analyzed by the management of the company on the basis of total cost of the company such as if the internal rate if return of the company is higher than the WACC of the company, than only the management must accept the investment proposal.

Optimal capital structure has been studied further and it has been evaluated that the current capital structure of the company is quite optimal. The current level of debt and equity has been managed by the company and the management in such a manner that the risk level and cost level of the company could be lower and thus the return level of the company could be enhanced (Sherman, 2005). Further, it explains that the ‘debt level must be enhanced by the company a little bit to reduce the ownership part in the company.

Particulars	Price
Debt	159
Equity	565
	724

	2015	2016
Debt Ratios =	Total Liabilities/ total assets	Total Liabilities/ total assets
	1055/3088	1291/3793
	34.16%	34.04%

The above ratios explains that the level of total liabilities has been enhanced by the company a bit in 2016 but at the same time, the asset level of the company has also been enhanced. Further, the study explains that the optimal capital structure must be maintained by the company.

Further, the gearing ratios of the company has been calculated and it has been evaluated that the few changes have been done by the management of the company in its capital employed to reduce the level of gearing ratios in the company. The company has reduced the level of current liabilities and the level of total liabilities shave been enhanced by the company in 2016 (Hillier, Grinblatt and Titman, 2011). It explains that the comapny has enhanced the level of debt to manage the optimal capital structure of the company.

	2015	2016
Gearing ratios =	Total Liabilities/ Capital employed	Total Liabilities/ Capital employed
	1055/ (3088-806)	1291/ (3793-769)
	46.23%	42.69%

Further, the directors have explained in their report that the level of liabilities and the equity has been changed by the company to reduce the level and enhance the profitability level of the company.

Further, the dividend policies of the company have been identified, dividend policies are mainly of two types. One type of dividend is irrelevant dividend policies which explains that the company should not pay the profit amount as dividend to the stockholders and must invest this amount in the new investment proposal so that the worth of the organization could be enhanced and total profit of teh organization could be enhanced and it would also assist the stakeholders to earn huge amount through selling the stock in the market (Tucker, 2011). Further the other type of dividend policies are relevant dividend policy which explains that the dividend amount attracts the investors to invest into the organization (Borio, 2014).

The study over EYM explains that the company has not paid any amount as dividend to its stockholders form last 2 years which explains that the company is following the concept of irrelevant dividend policies and investing the total amount of profit into new investment t proposal to enhance the performance of the company (Morningstar, 2018).

Conclusion:

The above study over the financial performance and the market performance of EYM explains that the financial performance of EYM has been affected a lot and even the name of the company and the stock name of the company have been enhanced in the Australian stock exchange. Further, it has been found that the financial position of the company is quite better but the market position of the company has been lowered a lot. It expresses that the investment into the company would offer no return to the company. Due to the fact that dividend amount has not been offered by the company from last 2 years and at the same time, the worth of the company in the market is also not good.

Thus, it is recommended to the investors to not to invest into this organization as it surely would offer huge loss to the company and the position of the company is not at all good  in the market.

References:

Annual report. 2015. Elysium Resources Limited, viewed Jan 12, 2018, https://www.elysiumresources.com.au/images/pdfs/EYM-2015-annual-report.pdf

Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, pp.182-198.

Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc Graw Hill, New York.

Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima publishing.

Damodaran, A, 2011, Applied corporate finance,3rd edition, John Wiley & sons, USA

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Glajnaric, M., 2016. The importance of dividend paying stocks. Equity, 30(2), p.6.

Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy. McGraw Hill.

Intelligent investors. 2018. Elysium Resources Limited, viewed Jan 12, 2018, https://www.intelligentinvestor.com.au/company/elysium-resources-limited-EYM-11545/announcements

Marginson, D.E., 2009. Beyond the budgetary control system: towards a two-tiered process of management control. Management Accounting Research, 10(3), pp.203-230.

Moles, P. Parrino, R and Kidwekk, D,.2011, Corporate finance, European edition, John Wiley &sons, United Kingdom

Morningstar. 2018. Elysium Resources Limited, viewed Jan 12, 2018, https://financials.morningstar.com/income-statement/is.html?t=EYM&region=aus&culture=en-US&ownerCountry=USA

Niu, F.F., 2006. Corporate governance and the quality of accounting earnings: a Canadian perspective. International Journal of Managerial Finance, 2(4), pp.302-327.

Nobes, C. and Parker, R.H., 2008. Comparative international accounting. Pearson Education.

Phillips, P.P. and Stawarski, C.A. 2016. Data Collection: Planning for and Collecting All Types of Data. John Wiley & Sons.

Reports. 2018. Elysium Resources Limited, viewed Jan 12, 2018, https://www.elysiumresources.com.au/2013-07-12-06-27-23/reports

Shareholders. 2018. Elysium Resources Limited, viewed Jan 12, 2018, https://www.elysiumresources.com.au/2013-07-12-06-27-23/top-20-shareholders

Sherman, S., 2005. Finance and fictionality in the early eighteenth century: Accounting for Defoe. Cambridge University Press.

Tucker, J.W., 2011. Selection bias and econometric remedies in accounting and finance research.

Yahoo finance. 2018. Elysium Resources Limited, viewed Jan 12, 2018, https://in.finance.yahoo.com/quote/EYM.AX/history?period1=1420914600&period2=1515609000&interval=1d&filter=history&frequency=1d