Part 1: Firms selection and request for data
The main aim of this report is to understand the concept of financial analysis of the company. In this paper, the financial and non-financial analysis will be done on five firms in order to select one for investment. In order to examine the financial and non-financial data, Wesfarmers, Woolworths, BHP Billiton, Rio Tinto, and Santos have been taken into consideration. All these companies are listed in Australian Stock Exchange. There are many techniques to examine the financial data of the company such as common size analysis, trend analysis, and ratio analysis. In this, paper, the ratio analysis technique will be used to examine the financial performance of the company. This report is classified into two parts such as Part A for financial analysis and Part B is for Non-financial data.
Financial Analysis
In this section, the ratio analysis technique has been used to examine the financial performance of all the companies. The data will be collected from 2010 to 2018, in order to examine the financial data of the company from the last 8 years.
It has been analyzed that the profit margin ratio of Wesfarmers has been constant from 2011 to 2015 with the 4%. After that, the net profit margin of the company has been decreasing from 2011 to 2015 with 2%. It is not beneficial for the company to invest in this company as its profit margin has been decreasing. The percentage of ROA has been decreasing which depicts that the company return on assets has been reduces. The liquidity position of the company is not good as the amount of current assets is less than the amount of current liability such as current assets is 8706 and current liability is 10025 respectively (Wesfarmers, 2018). According to solvency ratio, it has been evaluated that the company uses the equity for financing thee operational activities as the percentage has been decreasing from the previous year’s such as it is 18% which is less as compare to last years.
According to the ratio analysis of Woolworths, it is determined that the company profit margin has been decreasing from 4% to 3% from 2010 to 2018 respectively. In 2016, the company suffers with the heavy loss due to which it faces the more challenges and its net profit margin is (3%). The liquidity position of the company has been improving but its liquidity position is not good as it has high amount of current assets as compare to current liability such as current assets is 7184 and current liability is 9175 (Woolworths, 2013). According to solvency ratio of the company, it has been seen that the company uses the equity in order to raise the capital by issuing shares instead of debt. The debt to equity ratio of the company has been decreasing as the percentage of debt to equity ratio is 32%.
Part 2: Data preparation and cleaning
According to BHP ratio, it has been evaluated that the company net profit margin has been decreasing from the last 8 years. In 2010, the profit margin ratio is 25% which has been increasing continuously but in 2016, the profit margin has been decreasing as it faces the net loss that is why; net profit margin is -20%. In 2018, it has been increasing but still its profit margin is very less. According to liquidity position, the liquidity position of the company has been increasing as it has high amount of current assets as compare to current liabilities. The liquidity ratio is 2.51 in 2018 which depicts the strong ability to pay the short term obligations (BHP, 2018).
According to Rio Tinto Ratio, it is determined that the company net profit margin has been increasing from the last years from 2010 to 2018 respectively. The net profit margin of the company has been increasing from the previous year’s such as 34% in 2018. ROA ratio shows that the company uses the assets properly to generate the net income as its ROA ratio is 45%. According to liquidity ratio, it has been determined that the company liquidity position is good as it has high amount of current assets as compare to current liabilities such as current assets is 20168 and current liability is 10571 (Rio Tinto, 2018). According to solvency ratio, it has been estimated that the company has less amount of debt as compare to equity which depicts that it uses the equity instead of debt for financing the operating activities.
According to the ratio analysis of Santos company, it has been determined that the company net profit margin is in negative as it suffers with the losses instead of profit. But in 2018, the net profit margin of the company has been increases due to earning the profit (Santos, 2017). According to liquidity position, it has been determined that liquidity position of the company is good as the amount of current assets as compare to current liabilities. The solvency ratio shows that the company has high amount of debt as compare to the amount of equity which depicts it uses the equity instead of debt (Santos, 2019).
Non-financial Data
Emission Score
Emission score is a technique which measures the impact on climate change based on the amount of greenhouse gases emitted. The company provides the services to consumers due to which they also affect the environment. It is required to evaluate the score of the company the impact the climate. Scope shows the areas in which the company safe the environment.
|
Emission Score |
Scope 1 |
Scope2 |
Scope 3 |
|
|
Wesfarmers |
7.96 |
58 |
||
|
Woolworths |
6.54 |
2.24 |
4.21 |
|
|
Rio Tinto |
30 |
50 |
600 |
m/tones |
|
BHP |
30 |
40 |
550 |
M |
|
Santos |
5.49 |
0.39 |
19.1 |
It has been seen that emission score is evaluated in three scopes such as scope 1, scope2 and scope 3. It is observed that the company Rio Tinto scope shows that it takes care of the environment (Jamasmie, 2020). BHP emission scope is also similar but it has been found that Rio Tinto is more good as compare to BHP (BHP, 2018).Woolworths and Wesfarmers are more sustainable but its financial position is not good due to which it is suggested that the company does not invest in it (Wesfarmers, 2020) .
Conclusion
At the end of this paper, it is concluded that Rio Tinto has been selected for investment as the amount of net profit. It has been determined that the financial performance of Rio Tinto is good and the investors have the benefit to invest in the company that is why; it is suggested that the investor has to invest in it.
References
BHP. (2018) Annual Report 2018. Available From: https://www.annualreports.com/HostedData/AnnualReportArchive/b/NYSE_BHP_2018.pdf [Accessed 28/5/2020].
BHP. (2018) Climate change. Available From: https://www.bhp.com/environment/climate-change/ [Accessed 28/5/2020].
Jamasmie, C. (2020) Rio Tinto’s top investors face off over emissions cut plan. Available From: https://www.mining.com/rio-tintos-top-investors-face-off-over-emissions-cut-plan/ [Accessed 28/5/2020].
Rio Tinto. (2018) Annual Report 2018. Available From https://www.annualreports.com/HostedData/AnnualReportArchive/r/LSE_RIOA_2018.pdf [Accessed 28/5/2020].
Santos (2019) Climate Change Report. Available From: https://www.santos.com/wp-content/uploads/2020/02/2019-climate-change-report.pdf [Accessed 28/5/2020].
Santos. (2017) Annual Report 2017. Available From: https://www.annualreports.com/HostedData/AnnualReportArchive/S/ASX_STO_2017.pdf [Accessed 28/5/2020].
Wesfarmers. (2018) Annual Report 2018. Available From: https://www.annualreports.com/HostedData/AnnualReportArchive/W/ASX_WES_2018.pdf [Accessed 28/5/2020].
Wesfarmers. (2020) Environment. Available From: https://sustainability.wesfarmers.com.au/our-principles/environment/climate-related-disclosures/ [Accessed 28/5/2020].
Woolworths. (2013) Annual Report 2013. Available From: https://www.woolworthsgroup.com.au/icms_docs/185963_annual-report-2013.pdf [Accessed 28/5/2020].
Woolworths. (2018) 2018 Sustainability Report. Available From: https://www.woolworthsgroup.com.au/icms_docs/195403_2018-woolworths-group-sustainability-report.pdf [Accessed 28/5/2020].
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