Mbax9138 Financial Analysis: Study Of Assessment Answers

This assignment requires a consideration of accounting theory concepts with critical analysis with application to General Purpose Financial Reporting by corporations. Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting.

1. Provide a critical analysis of the annual report of the corporation.  Consideration of the adherence to AASB, true and fair, conceptual framework, corporations law etc should be considered.
   
   
2. Provide a comparison with other corporations listed on the ASX and how well you think your corporation has performed.
   
   
3.  In summary, please consider if you were given $10,000 whether based on your company and it's annual report information provided whether you would be likely to invest in your company.  Construct your summary to support your conclusion.

Answer:

Introduction

With the ramified economic changes, every organization has been using financial analysis tools to identify the weakness and issues in the financial performance. There are several financial analysis tools such as DU pont analysis, Economic value added analysis,   ratio analysis which could be used to analysis financial and busienss performance of company. In this report, OZ Mineral Company has been taken for the assignment. In the starting, conceptual framework of accounting and compliance with the general purpose of financial reporting has been evaluated. After that ratio analysis of company has been taken into consideration to evaluate the financial performance and how well company has been used its capital in its business. However, if investors want to increase their investment value then they will have to invest their capital in long run.

Description of company 

Oz Minerals Company is modern mining company based in Adelaide Australia which is indulged in offering mining stones and other minerals to clients in Australia. The currently company is traded at the current share price OZL (ASX) A$ 9.56 +0.30 (+3.29%) which is 3% higher when it is compared to the data of last year data. The present CEO of company is Andrew Cole (OZ Minerals.2017). OZ Mineral Corporation is listed on Australian security exchange (ASX). It has a growth strategy which is focused on the creating the values for the stakeholders and stakeholders includes creditors, employees, directors, suppliers, owners, government, and community.

Critical analysis of Annual report of OZ Minerals and consideration to adherences to AASB and fair conceptual frameworks

According to the Australian accounting standard (AASB), technical issues that could be identified by the international organization through International accounting standards board (IASB) or the IFRS Interpretation committee (IFRIC) are related to the fact that International public sector accounting standard board (IPSASB) are monitor or controlled by the AASB and it is based on their significance of public sector financial reporting. On the AASB work program, the issues on the IASB work program or the IFRIC work program are also included such as AASB identified the technical issues and If issues are related to the profit entities then they are referred to the IASB or the IFRIC for consideration, research and consider issues Consult with stakeholder on following documents like Exposure Drafts (EDs), Invitations to comments (ITCs), Drafts interpretation, Discussion papers (DPs). OZ Minerals have adopted standards and pronouncements not early adopted AASB 15 Revenue from contracts with customers. In addition to this, lease agreements and contracts have been handled by AASB 16 Leases –Review of their results and operation OZ Minerals maintained a strong and healthy financial performance and position in 2017.While we are comparing to other period, the gold sales are increased, the production of copper was lower in 2017, commodity prices are increased. Company has kept the cash and other equivalents balance of $655.7 million in 2016 and decreased $31.2million in 2017. Company has also made payment to its shareholders amount $49.1 million. In addition to this, the Investment in the carrapateena project of $45.8 million and Income tax payment of $69 million, balance by strong cash inflows from operations, it reflects that company has managed its cash inflow effectively to strengthen the overall outcomes in effective manner.

In addition to this, if comparison of Revenue – compared to comparative period of 2017 then it could be inferred that the overall profitability and cash inflow in the business is 12 % higher and it is accompanied with the sales of Contained Copper 3%lower,  Gold sales was 11% was higher.  However, due to the sluggish market condition, Open pit mining unit costs of $6.63 per tonne for the half year were higher compared to $6.15 per tonne in the comparative period. As on declining strip ratio, the amount of deferral mining costs and other financial data shown to the financial statement was lower by $18.1 million.

The annual report is reflected that the opinion of the directors of OZ Mineral Corporation -According to the corporation act 2001, the financial statement gives transparent and fair view of consolidated financial accounts. In addition to this, company has complied with the Australian accounting standard AASB134 interim financial reporting and the corporation’s regulation 2001. Company has a good position to believe that they are able to pay its debts and creditors in effective manner.  A mineral mining company focuses on Lean business, multiple assets, Customer focus, and Copper core OZ Mineral has set up strong corporate governance values and behavior and protection of stakeholder interest to strengthen the overall outcomes and reporting frameworks.  The corporate governance guidelines and recommendation was set out by the ASX Corporate governance principles and recommendation (ASX Guidelines). Company has also established harmonization in its general purpose financial statement in respect with accounting standard which has assisted it to present the  true and fair financial position, performance and cash flow of an organization  to keep the business more transparent to its stakeholders. It is analyzed that when corporation and other organization perform the accounting standards, their general purpose financial statement should be more comparable. Financial statements also provide information which is helpful in accountable to those who provide resources to the organization. They provide information for the financial reporting by public sector organization not for the profit entities in private sector.

Analysis the financial performance of OZ Minerals and its comparison with the competitors company named BHP Billiton Company

This ratio analysis is financial analysis tool used to evaluate financial performance of company. After evaluating the financial data of company, it has been analyzed that the liquidity of company is really high. OZ Minerals has kept 5.06 points current ratio in 2017 which is 1 point higher when it is compared to data since last five year data. However, the BHP Billiton Company has kept 1.25 current ratio with a view to lower down its capital blockage in its business functioning (Weygandt, Kimmel, and Kieso, 2015). When it is compared to the data of BHP Billiton Company, OZ Mineral has maintained high liquidity in its business which might also negatively impact the cost of capital of organization. It has been observed that company needs to lower down its liquidity capital with a view to strengthen its return on capital employed position. The profitability ratio reveals the profitability of company (Flannery, 2016).  The net profit ratio of OZ Mineral Company has increased to 23% in 2017 which is 10 % higher when it is compared to the data of last three year data. On the other hand, the net profit of BHP Billiton Company is 20% which is 2% higher when it is compared to the data of last three year data. Both companies are performing well but when it is compared to the data of BHP Billiton, OZ Minerals have increased its profitability throughout the time (White, Sondh, and Fried, 2015). The gross profit ratio of company has not increased with the increase in the net profit due to the increased operating expenses. The return on capital employed of company has increased to 11% IN 2017 which is 7% higher when it is compared to the data of last three year data. It reflects that company has created value on its investment and consistently increasing the overall return on capital employed in effective manner (Grant, 2016).  It is evaluated that when it is compared to the data of BHP Billiton, OZ Company has strong financial performance and consistently increasing its profitability.  The efficiency ratio of company divulges the details related to inventory management turnover, creditors turnover and receivable turnover to effectively use the capital in business (Williams, and Best, 2014.). The creditors’ turnover ratio of OZ Company reveals company has lower down its capital blockage by keeping its creditors turnover to 33.23 points in 2017. The receivable turnover ratio has also decreased to 19.63 points which reflects that company has decreased the payment receipt cycle throughout the time.  The inventory turnover ratio reflects the capital engaged in the inventory of the organization (Ehiedu, 2014). OZ Company has increased its inventory turnover which reflects that company has increased the amount of capital blockage in its inventory stocks and it might negatively impact the overall cost of capital of organization (Mwangi, and Murigu, 2015). However, BHP Billiton Company has faced negative business functioning which has resulted to increased cost of capital in its business. This type of business program has shown how well company has managed its business in long run.  OZ mineral has managed its business effectively and created value on investment throughout the time. The capital structure of OZ Minerals is reflecting low amount of financial leverage. Company have maintained 15% debt portion in its capital structure (Zhang, and Zhang, 2014). It is analyzed that company needs to increase its debt portion if it wants to lower down the cost of capital and increased its overall return on capital employed in long run.  On the other hand, BHP Billiton Company has increased the overall return on capital employed and keeps the high financial leverage. OZ Minerals should increase its debt capital to the extent where it’s earning or profitability could easily cover the interest payment (Baños-Caballero, García-Teruel, and Martínez-Solano, 2014).  The dividend payout ratio of company has increased to 30% of its earing which reveals that company has been offering good amount of return to its investors out of its available earning. It is considered that OZ Minerals needs to work on its capital structure to create value on the investment (Wong, and Li, 2015) 

After assessing the financial statement of Oz Minerals, it could be inferred that OZ Minerals Company has maintained good amount of return on capital employed. It is considered that if company wants to attract more investors then it will have to increase the overall dividend payment and return available to investors (Tseng, and Chiang, 2016). On the other hand, the business outlook and present market factors also reflects that company will surely increase its overall profitability and market share in short span of time. It is indicator for company’s growth and will also result to increased business value in long run. Now in the end, I could infer that OZ Minerals has performed well enough in market and maintained strong financial performance throughout the time. However, other rivals such as BHP Billiton and Rio Tinto are struggling with their high cash outflow and compliance issues in their business which have increased their overall cost of capital (Zhang, and Zhang, 2014).

Conclusion 

Oz Minerals Comp any has maintained strong financial performance throughout the time. It is analyzed that since last five years, company has increased its profitability by 22%. The liquidity ratio of company has also reflected that company has increased its capital investment and created value for its stakeholders. On the other hand, other rivals such as BHP Billiton, Rio Tinto and other rivals are confronting with the sluggish market condition and failed to override the return on investment provided by the Oz minerals. The dividend payout ratio and financial leverage of Oz Minerals Company is very attractive and revealing strengthens business sustainability in long run. It has shown that if investors will invest their capital in this company then they will surely have value creation on their investment. Nonetheless, this analysis and prediction is based on the historical trend of company. There are possible chances that company might face sluggish market condition and associated factors which might negatively impact the business functioning of organization (Christensen, Nikolaev, & WITTENBERG?MOERMAN, (2016). Therefore, after assessing all the details, it could be inferred that if I were given $ 10,000 to invest then I will surely invest my capital in OZ minerals. The positive business outlook and increased business outcomes will surely increase the value of my capital investment in this company. However, I will keep my investment invested in this company for long term so that I could get better outcomes.

References

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Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), pp.332-338.

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Flannery, M.J., 2016. Stabilizing large financial institutions with contingent capital certificates. Quarterly Journal of Finance, 6(02), p.165-238

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).

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Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.

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