Financial Ratio Analysis For Small Business

Company’s Business

Discuss about the Financial Ratio Analysis for Small Business.

A-Cap Resources Ltd. a company which is both lists in Australian Stock Securities or ASX and in Botswana, Southern Africa. The main business area is minerals and base metals. A-Cap Resources Ltd is the probable and to be owner of the largest Uranium stock in the world. Its Lethakane Uranium Project at Southern Africa, Botswana is one of the world’s largest Uranium deposits which are still are untouched and unmanned mostly. The company is having very strong base with regular fund flow from shareholders. The uranium project is having great prospect.

The uranium project is the premium project of the company. The other projects needs to be highlighted are that of Mea Coal project and Foley Coal Project. Lethakane, Foley, Mea are all located in Botswana in Southern Africa. A mining licence application is to be issued for the Lethakane Uranium deposit and is under consideration. It is the most underdeveloped mine in the world with huge deposits of uranium which is very much in demand for the nuclear reactors throughout the world and for mostly by rich countries where nuclear reactors are very active for energy generation. The infrastructure base like railway line, nearest to highway, national power grid access, and water supply is extremely good for the Lethakane uranium mine and the best thing is that mine is of low risk with open pit and can produce 3 million pounds of uranium per annum and mostly for 18 years in excess of over mine life (King, 2016).

The Japan is starting its nuclear activities with Sendai No.1 reactor along with more 66 new nuclear reactors where uranium of this quality will be in high demand; hence the future of this business is safe.

Coal projects Mea and Foley are both based in Botswana in Southern Africa and Mea coal project is having the highest quality of coal which amounts to 335 million tonnes containing very high quality export category coal up to 95 million tonnes having energy value of 6313 calorific value per kilogram of coal. And Foley coal project is having a deposit of about 148 million tonnes which are also of very high quality.

There are newer areas under consideration by the company in Botswana like Werda, Kokong, Jwaneng, Salajwe, Sojwe and Hukunski. There are surveying and exploration able studies are being performed to start these newer operations at the earliest (Philau, 2016).

Statement of Financial Position

There are key areas that would help in assessing financial position of a company. The company, a-cap Resources Ltd is an energy company listed ASX. The performance of the company is last two years has not been excellent. The sales growth has been registered for the company and it is expected that the company would go further. The assessment of financial position is based on two different areas.

The trends line of the company would be assessed in a better way. The trend line could be drawn to assess the past performance of the company. There is another way of measuring financial position of the company, which is Proportion analysis. The Proportion analysis comprises of array of ratios to assess the financial condition of the company. The debt position, profit position, capital assessment and other factors are relatively compared and analyzed with each another (Nigudkar, 2016).

The position of the creators is another important factor. The confidence of the creditors is important part of the business. If creditors feel safe to provide goods in credit that can help the company enormously is to do better with the line of credit. The investor’s confidence is another big factor for the assessment of the financial position of the company (Accountingtools, 2016).

The ability of the management is another big factor in the assessment of financial position of the company.

a-cap Resources ltd
Balance Sheet Analysis and Comparison
	2015	2014	Increase (+) / Decrease (-)	% Increase / Decrease
	$	$
Total current assets	2,605,826	6,218,414	(3,612,588)	-58.10%
Total non-current assets	47,574,905	36,414,702	11,160,203	30.65%
Total current liabilities	974,181	1,193,038	(218,857)	-18.34%
Total non-current liabilities	–	–
Total stockholder’s equity	49,206,550	41,440,078	7,766,472	18.74%

As on 2014 were $ 6,218,414 while for 2015 it was $ 2,605,826. Cash and the like have been too much in outflow than inflow in 2015 than in 2014 hence there is a reduction of total current assets. Financial assets have also dropped due to certain reasons like the loss in market securities in 2014 carried forward in 2015. But with the improvement of cash inflow and outflow the current assets position can be improved and such decrease can be avoided with proper financial planning.

As on 2014 were $ 42,633,116 while for 2015 it was $ 50,180,731.  The increase of this category was mostly due to the capitalisation of the cost incurred on the evaluation and exploration of different mines and new sites for the coming up business and thus due to this the total non-current assets like Plant & equipment is also reflected in this category although it is not affecting much (Edmister, 1972).

As we can see from the analysis is that the current asset potion has declined. That reason for the fall is mainly related to decline in cash and cash equivalents and trade receivable. The respective table as analyzed indicates the fact that company has managed it accounts receivable potion wisely.

Stockholders’ Equity

The current liability position of the company has also declined significantly and which is mainly represented by decline in the trade payables. The decline in cash and cash equivalents is therefore mostly used by the management to pay off creditors. This is a welcome improvement for the company (King, 2016).

The stock holders has infused significant fund in the company. This indicates the confidence of the members and of the shareholders in the company. as on 2014 were $ 1,193,038 while for 2015 it was $ 974,181. The 2014 figure was much more and almost 10% reduction in 2015 is very positive that the Trade payables are reduced and the extra burden of interest cost and blockage of working capital can be avoided. Too high trade payables mean that there is no control of the management on this area. The management must be very careful in this area in future and reduce this to a very minimal figure just for making business viable and surviving (Managementstudyguide, 2015).

The analysis of financial position is indicating the fact that the company has managed to bring interest of the shareholders in to the company. The capital in 2015 increased by 18.74% compared to 2014. This practically indicates better management and shareholders’ relation and the confidence of the shareholders in the company.

As on 2014 were $ 41,440,078 while for 2015 it was $ 49,206,550.—The increase in the total share holders’ equity for the year 2015 over 2014 is due to main fact that company have earned a hefty amount in the form of other comprehensive income which was negative in 2014 but is very high in 2015 thus resulting in the substantial increase in the shareholders total equity position.

The profit and loss potion of the company has not been outstanding, in fact the co0mpany has incurred in two financial years. The operating revenue of the company has however increased but the operation cost of the company has been significantly high.

The expenses in 2015 have increased by 35.5%. The increase in the expenses is reflecting in the bottom line of the company. The expenses of the company have increased significantly whereas the income grew by 14.40% (www.aasb.gov.au, 2015).

a-cap Resources ltd
Statement of Profit & Loss Analysis and Comparison
	2015	2014	Increase (+) / Decrease (-)	% Increase / Decrease
	$	$
Total (operating) revenues	56,868	49,710	7,158	14.40%
Cost of Goods Sold			–
Total expenses (before income taxes)	3,512,352	2,592,050	920,302	35.50%
Any non-operating (or extraordinary) gains and losses	486,368	396,740	89,628	22.59%
Earnings per common share	0.78	0.79	(0)

The company is not generating enough revenue and the margins to sustain the business. The company will have to look into the fact that business will only improve once the margins are good enough to meet the expenses and keep the residue for future. The extraordinary gains from the business and operations have increased significantly that has supported the expenses in 2015 in some way.

As on 2014 were $ (3,005,965) while for 2015 it was $ 3,508,626.The foreign operation for 2014 was highly loss making but the foreign operation have improved substantially and due to this the profit from foreign operations started to generate huge revenues which are of great importance as the main business of the company if foreign controlled and in Southern Africa. Thus it can be seen that the profit from foreign operations jumped to a nine times higher figure than 2014 is a phenomenal that the foreign operations are going to show a new path and plan.

As on 2014 were $ (2,145,610) while for 2015 it was $ (2,969,116). A few expenses are of very high and of new type which are made with the purpose to make the business viable and competitive. The expenses done for capitalised evaluation and exploration and a substantial increase for payments for employees compared to 2014 in 2015 are the two major areas where the expenses increased manifold. For employees the expenses grew by 50% while for capitalised evaluation and exploration it is 100% addition (Nigudkar, 2016).

As on 2014 were $(0.79) while for 2015 it was $ (0.78). The share earnings are obviously very negative as the general holding by the company is highly affected by the loss generated due to foreign controlled operations in 2014. But despite the foreign controlled operations in 2015 making huge profits the loss of 2014 have grossly eaten up the profit which is evident from the reduction of EPS but that significant change is not evident for generating a valuable EPS but it is expected that from the uranium mines and the coal mines the company will turn around and will generate such revenue that the negative EPS will become positive and will place the shareholders equity in a very strong hold.

The statement of cash flow is purely indicating the fact that company is in investing mode. It is focusing in drawing money from the shareholders for the project. In 2015 and 2014 the company has drawn significant capital out of the system. This signifies that the company is still behind being operational.

a-cap Resources ltd
Statement of Cash Flow Analysis and Comparison
	2015	2014	Increase (+) / Decrease (-)	% Increase / Decrease
	$	$
net cash inflow (outflow) from operating activities	(1,463,796)	(1,433,230)	30,566	-2.13%
net cash inflow (outflow) from financing activities	3,945,045	5,532,711	(1,587,666)	-28.70%
net cash inflow (outflow) from investing activities	(5,344,126)	(2,247,555)	3,096,571	-137.78%
net increase (decrease) in cash during the year	(2,862,877)	1,851,926	(4,714,803)	-254.59%

This completely indicates the fact that the company is in investment mode and drawing money from the shareholders for project expansion.

As on 2014 were $ (1,433,230) while for 2015 it was $ (1,463,796). The operation cost outflow is very high negative figures although not in comparison of both 2014 and 2015. This means that the payments to suppliers and all the employees inclusive of Goods and Service Taxes. The interest received is the only element that have increased from 2014 to 2015 but the R&D Tax Credit have also dropped substantially which helped the total cash outflow’s negative figure to increase further. Company needs to have more control on the payments made to suppliers and employees. A review is needed (www.hsbc.com, 2015).

As on 2014 were $ 5,532,711 while for 2015 it was $ 3,945,045. The issuance of new shares were much less in comparison to 2014 hence the total inflow is almost 25% lesser than the 2015 figure. But the cost of issuance of shares has also being controlled substantially. As on 2014 were $ (2,247,555) while for 2015 it was $ (5,344,126).

The cash outflow due to exploration and evaluation is very high but unavoidable as without this the business will not stand and become competitive as the exploration is a very important element for any mining business to understand the viability and future sustenance policy to be implemented subsequently. This is due to increase in the entire expense done in the mines of Botswana. The increase from 2014 in 2015 means exploration activities have increased manifold. But still the management must implement a policy to control more cost involved in such exploration in future to save the valuable fund as if the exploration results are negative then the entire cost will become wastage and will become a futile exercise (Walton & Aerts, 2006).

As on 2014 were $ 5,070,514 while for 2015 it was $ 2,207,637. The increase in cash is from the cash received from various operations in 2015 for $ 5,070,514 while the same figure was $ 3,218,588 in 2014 that means this is a positive indication on the financial activities. The opening negative figure of net increase in cash was reduced due to this inflow. The total cash increase is not shown in 2015 due to the negative figure of 2014 carried forward. But it seems that if the caution is taken by the management the cash inflow and outflow can be managed in right direction and planning. Cash is very important element of any business hence management must take care of this area very seriously (Managementstudyguide, 2015).

Conclusion:

The assessment is indicating the fact that the company has managed growth in business but actual revenue from the business is yet to come for the company. There are factors which are important to drive volume growth of the company and it is expected that in longer run company would benefit from the investment.

It would be advisable for the company to ensure that revenue comes to the company along with profit. The operating revenue for the company is little lower and therefore it is important that company emphasize on the revenue generation and capacity building to boost growth. the growth to the business should come along with the investment. Here, it can be seen that the company has managed growth in revenue but it is not enough to meet the expenses.

References:

Accountingtools, 2016. Financial Statement Analysis. [Online] www.accountingtools.com Available at: https://www.accountingtools.com/financial-statement-analysis [Accessed 13 September 2016].

Edmister, R.O., 1972. An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction. [Online] Available at: https://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6318448&fileId=S0022109000017567 [Accessed 13 September 2016].

King, A., 2016. How to Perform a Company Financial Analysis in 12 Steps. [Online] www.industriuscfo.com Available at: https://www.industriuscfo.com/company-financial-analysis/ [Accessed 13 September 2016].

Managementstudyguide, 2015. Financial Management – Meaning, Objectives and Functions. [Online] Available at: https://www.managementstudyguide.com/financial-management.htm [Accessed 29 February 2016].

Nigudkar, A., 2016. How to Analyze Financial Health of a Company in 6 Easy Steps. [Online] www.financewalk.com Available at: https://www.financewalk.com/financial-health-company-analysis/ [Accessed 13 September 2016].

Philau, 2016. Financial Analysis. [Online] faculty.philau.edu Available at: https://faculty.philau.edu/lermackh/financial_analysis.htm [Accessed 13 September 2016].

Walton, P. & Aerts, W., 2006. Global Financial Accounting and Reporting: Principles and Analysis; https://books.google.co.in/books?id=geUx5sowGdEC&pg=PA103&lpg=PA103&dq=revenue+recognition+for+ship+building+companies&source=bl&ots=pUKG77cZff&sig=wy_S5j9qKBeb5HQx1Yb93QLpwOU&hl=en&sa=X&. In Walton, P. & Aerts, W. Global Financial Accounting and Reporting: Principles and Analysis. New York: Cengage Learning EMEA. pp.102-04.

www.aasb.gov.au, 2015. Conceptual Framework for Financial. [Online] www.aasb.gov.au Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 30 Augustus 2016].

www.hsbc.com, 2015. Financial and regulatory reports. [Online] Available at: https://www.hsbc.com/investor-relations/financial-and-regulatory-reports [Accessed 13 September 2016].