Financial Analysis For Investment And Policy Of Emmerson Resources

Brief description of the company

Discuss about the Financial analysis for investment and policy.

The report aims to outline the core activities of and the market in which the company is seen to be operating. Some of the important concepts of the financial aspects of the discussion is seen with calculation of the key ratios, evaluating the information from ASX website, evaluation of WACC and calculating the rate of return. In addition to this, the learnings from the report has evaluated Rate of return for the companies’ shares, Amendments on gearing ratio and Working towards the maintenance of a preferred optimal capital structure.

Emmerson resources is considered as Australia’s one of the most eminent Tennant Creek mineral field holder. This field is characterised with the use of extremely high quality of gold & gold-copper deposits. The company has produced in excess of 5.5 million ounces of gold and 488000 tonnes of copper. The main operations of the company are owned by Warrego Gold Plant which is located 35 kilometres north-west of Tennant Creek having an annual capacity of 300000 tonnes. 

The two main shareholders of the company are identified with “Evolution Mining Limited” and “J P Morgan Nominees Australia”. “Evolution Mining Limited” constitutes of 49,144,000 shares having a total percentage of 12.92% and J P Morgan Nominees Australia” constitutes of 45,236,446 shares having a total percentage of 11.89 %.

Andrew McIlwain is identified as the Non-Executive Chairman. Dr Allan Trench is considered to be important member of board of director. In addition to this, Robert Bills is the Managing Director and Chief Executive Officer.

(EBIT/ TA) x (NPAT/EBIT) x (TA/OE) = (NPAT)/(OE)

(EBIT/ TA) x (NPAT/EBIT) x (TA/OE) = EBIT x NPAT/EBIT x 1/OE

EBIT x (NPAT/EBIT) x (1/OE) = (NPAT)/(OE)

As per the depiction of Dupont analysis ROE helps in the depiction of investors to gauge their investments and income generated from the same. On the other hand, ROA is conducive in measurement of how the investors are able to measure the assets and the resources to generate more income. A higher proportion of assets in compare to the shareholder’s equity shows the extent to which the company used the debt leverage for the capital structure. 

As per the reducing trend of ROA, it needs to be understood that the company is carrying a significant portion of the debt. It needs to be further discerned that based on the evaluation of both ROE and ROA the company as the ROA is very low the ROE is also not al all favourable.

Ownership-governance structure

As per the significant nature of the assertions of the share price index, it needs to be understood that the ERM has depicted a low market volatility in terms of the closing price of the shares when compares to closing price all ordinary index.

As per the recent assertations Emmerson commenced the exploration on new gold-copper projects in NSW which is identified with the strategic alliance as per Kenex Limited. In addition to this, the application of “big multiple independent datasets” considered the increased probability of the discovery through enhanced predictive capability. The five-exploration project is attributed with the known deposits which are within the scope of Macquarie Arc. However, these are considered with the several types of the historical impediments, including overlying cover (plus farm lands) and a lack of exploration focus. The only potential of the company is considered to be Kadungle and Aurelia Metals covering 43km² which is close to Emmerson’s Fifield project. 

The Beta value is calculation in done with by covariance of Percentage daily change of ERM and ^AORD divided by the variance of Percentage daily change of ^AORD. The beta value is depicted to be 4.462.

Despite of having a high rate of return (12.924%) in compare to the risk-free rate of 4% and excepted market rate of 6%, the investment decision needs to considered with several other factors. This is mainly depicted with consecutive looses accounted in the last four years and decreasing trend of return on equity. The high Beta of 4.462 shows the company is more prone to fluctuate with the share price index.

A high “weighted average cost of capital” is a significant factor for high risk related to the operations of the firm. The investors need additional return for the consideration of higher risk. The WACC evaluation can be used to estimate t5he expected costs required to finance its resources. This particular shows that the company has more debt obligations, cost of debt and lower cost of equity. 

Based on the calculation of the solvency ratio for the past four years it has been seen that the company is having a debt equity ratio of 0.025 in 2014, 0.031 in 2015, 0.028 in 2016 and 0.032 in 2017. Due to such fluctuating trend of the debt equity ratio, the company is not maintaining to lower its net debt. Henceforth, it is not proceeding towards a preferred optimal capital structure.

Calculation of Key Ratios

As per the amendment of the annual report there is not significance of gearing ratio. The company is able to reduce the total borrowing from $ 643,880 to $ 615,622. The company has further issued 0.26% of the Holdings less than a marketable parcel of shares.

The interpretations made in the annual report has been able to depict that the company used to follow constant dividend per share, however no dividends were paid or declared by the Company since the end of the previous financial year.

Dear XYZ,

NSW

Australia

Dear Sir/Madam,

We are delighted to provide you with our recommendation for investment as per the evaluation of financial statement of the last four year.  Despite unfavourable performance in areas pertaining to ROE, ROA and Debt equity ratios. There is significant scope of improvement as per the rate of return from the stock price. In addition to this, the initiatives taken by the company has ensured that it is able to reduce the overall obligations for the borrowings. Emmerson commenced the exploration on new gold-copper projects in NSW which is identified with the strategic alliance as per Kenex Limited. In addition to this, the application of “big multiple independent datasets” considered the increased probability of the discovery through enhanced predictive capability. The five-exploration project is attributed with the known deposits which are within the scope of Macquarie Arc. This shows that the company is having significant scope for the improving in other areas in future.  The two main shareholders of the company are identified with “Evolution Mining Limited” and “J P Morgan Nominees Australia” are further discerned to having significant scope of improvement for developing the future prospect of the company.

Conclusion

The findings of the report have shown that the in terms of both “Return on Equity (ROE)” and “Return on assets (ROA)” the company has been able to depict a reducing trend. The depiction of the debt equity ratio has also been evident with a negative trend. Moreover, the two main shareholders “Evolution Mining Limited” constitutes of 49,144,000 shares having a total percentage of 12.92% and J P Morgan Nominees Australia” constitutes of 45,236,446 shares having a total percentage of 11.89 %. Despite of the unfavourable performance for ROE, ROA and Debt equity ratios. There is significant scope of improvement as per the rate of return from the high rate of return of 13%. In addition to this, the initiatives taken by the company has ensured that it is able to reduce the overall obligations for the borrowings. Emmerson commenced the exploration on new gold-copper projects in NSW which is identified with the strategic alliance as per Kenex Limited. In addition to this, the application of “big multiple independent datasets” considered the increased probability of the discovery through enhanced predictive capability.

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