ADX Energy Ltd’s Balance Sheet And Financial Performance Analysis

Current Assets

Question:

Write a report on “ADX Energy Ltd”.
 

ADX Energy Ltd is a listed company and has its listing on the Australian stock exchange that has its presence in the oil, as well as gas Exploration Company. The operation in scattered in two main areas. The company has operated and performed effectively through its strategy and cementing its place in the area of exploration. The company strives to manage the market through exploration, as well as appraising the happening of the asset cycle that leads to strong influence and maintenance of the core skills that enables to grabbing of strong opportunities.

a. Current Assets

Current assets can be termed as the major component of the balance sheet that helps to provide a clear cut understanding of the liquidity of the company. These can be stated as assets that can be readily transformed into cash in a matter of a year (Brigham & Daves, 2012). From the balance sheet it can be projected that the company retained the assets that are very useful. In 2015, the cost cutting method was introduced by the company that helped in preserving the position of cash. The adequacy of the current asset is an important consideration because it helps to meet the current liabilities. However, in the case of ADX, the current asset decreased in 2015 as contrast to 2014 (ADX Energy, 2015). The probable reason for this is due to decline in the level of cash, as well as, trade receivables. From the table it can be seen that the level of current assets declined. It was 77% in the year 2014 that reduced to 22% in the year 2015.

Current Assets	2015	2014
Cash and cash equivalents	622021	707167
Trade and other receivables	197012	2144191
Other financial assets at fair value	0	0
Total current assets	819033	2851358
% increase/decrease	22.31459809	77.68540191

b. Noncurrent assets

As per the balance sheet, it is observed that the non-current assets increased. The non-current assets are the ones that cannot be converted into cash within a span of one year and hence provides solidity to the company (Williams, 2012).  From the table, it is clear that there is a percentage increment in the non-current assets indicating a better position of the company. It was 26% percent in 2014 that jumped to 74% in 2015 (ADX Energy, 2015).

Non Current Assets	2015	2014
Receivables	0	15932
Property, plant and equipment	46783	78665
Other financial assets at fair value	267647	0
Investment in associate	0	17355
Total Non Current Assets	314430	111952
% increase/decrease	73.74373	26.25627

c. Current Liabilities

Current liabilities are those liabilities that are payable in a short span of time probably in a year. Hence, it is essentially needed that the company should have a line of balance between current assets, as well as current liabilities. When it comes to ADX it can be seen that the current liabilities declines in 2015 in contrast to 2014 that indicates the company has been able to meet the obligations with ease and flexibility (ADX Energy, 2015). There is a decline in the trade and other payable part indicating that the company discharged the obligations. This implies a strong by the company (Deegan, 2011). As indicated in the table, the drop in the percentage is a good sign for the company.

Current Liabilities	2015	2014
Trade and other payables	185009	664727
Provisions	760	8395
Total current liabilities	185769	673122
% increase or decrease	21.62894	78.37106

d. Non-current liabilities

Non-current liabilities are unavailable in the case of ADX Energy Ltd.  The non existence of non-current liabilities indicates that the liabilities of more than a year are not present. Hence, the company is not under a pressure. Moreover, it strikes the fact that the debt obligations or payment obligations are not present (Davies & Crawford, 2012).

Non-Current Assets

e. Stockholder equity

Shareholder equity also called as stockholder equity is a vital part of the balance sheet because the accounting equation mainly depends on it. The projection of the stockholder equity is provided in the form of paid-in-capital, retained earnings and other comprehensive income (Williams, 2012). The table clearly shows that the shareholder equity has declined. From the computation done in the table it can be observed that the stock holder equity has fallen by 58.62% that can be attributed due to the variations in the current assets, as well as receivables that is generated through the sale of the farm. Accumulated losses have even dented the stockholder equity.

Stockholder equity	2015	2014
Issued capital	64161036	64161036
Reserves	5960243	5606829
Accumulated losses	-691,73,585	-674,77,677
Stockholder equity	947694	2290188

Comment

The evaluation of the balance sheet strikes that the company has performed well in some aspects while in major it has deficiencies that needs to be covered (ADX Energy, 2015). The current liabilities has decreased while the current assets has declined that is not ideal. The sharp fall in the stockholder equity is not a good indicator. 

a. Total operating revenues

The income that derives from the functioning of day to day business is termed as operating revenue. The operating revenue is a strong indicator of the health, as well as stability of the business. Such income is observed from the regular conduct of business (Graham & Smart, 2012). From the calculation of the operating revenue in total, it is observed that there is a fall in the operating revenue that is not a good signal for the company. ADX Energy Ltd. is a holding company and the major income is derived from interest, as well as farm-outs because it posses huge financial assets (ADX Energy, 2015).

Computation of operating revenue

Particulars	Year Ended 31.12.2015 ($)	Year Ended 31.12.2014
Interest Revenue	2,535	14,440
Gain on sale of permits or Farm- outs	Nil	1,694,063
Total	2,535	1,708,503

b. Cost of goods sold

It is associated with the carrying value or the goods being sold by the company during the regular course of the business. Cost of goods sold is more concerned when it comes to the business that is product based or when the production is into operation. However, ADX Energy Ltd is involved in the business of sale of permits that is achieved through exploration. Hence, it appears more in the exploration serve then the production so the concept of COGS cannot be linked in this case.

c. Total expenses before taxes

The total expenses that derive before income tax can be linked with the  expenses that happens before the taxes are levied. The calculation indicates that there is a fall in the percentage of entire expenses done before income tax and this can be linked to the fact that there is a strong grasp over the expenses (Williams, 2012).  It is to be noted that the administration, as well as corporation expenses are kept under a strong control and hence a difference is witnessed as compared to the previous year. The decline in the exploration expenses is a strong indicator that the company has managed the expenses properly.  In the year 2014, the expense before income tax was projected at 59.45% while in 2015 it was reduced to 40.54% that sheds light on the strong performance. It is indicated in the table below:

Particulars	Year Ended 31.12.2015 ($)	Year Ended 31.12.2014 ($)
Exploration expensed	1,248,727	1,569,610
Loss on sale of financial assets	(249,872)	–
Depreciation	50,256	75,527
Net foreign exchange losses	48,685	68,923
Operating lease rental expense	77,114	108,883
Share based payments	–	100,111
Other administration and corporate expenses	522,569	566,339
Total	1,697,479	2,489,393

Current Liabilities

d. Any non-operating or extraordinary gains and losses

The profit or losses that happens due to changes in items and that is not associated with  the company’s operation is stated as extraordinary gains or losses. It is seen that the exchange differences enhanced in the year 2015 (ADX Energy, 2015). Those are:

Particulars	Year Ended 31.12.2015 ($)	Year Ended 31.12.2014 ($)
Exchange differences on translation of foreign operations	353,414	237,152

e. Earnings per common share

The EPS can be evaluated as net profit that can be associated with the parent company members and adjustment is provided to strike off  any equity cost of service. Moreover, it is divided by the weighted number of the ordinary shares and even provided adjustment for the bonus element (Brealey et. al, 2011). On the other hand, diluted EPS is calculated as net profit attributed to the members of the parent and even adjusted for the cost of service, impact of tax and dividend (Libby et. al, 2011). From the table, it can be concluded that the EPS of the company has enhanced and therefore a strong signal for the investors. This will helps in attracting investments.

Particulars	Year Ended 31.12.2015 Cents per share	Year Ended 31.12.2014 ($) Cents per share
Basic earnings/(loss) per share	(0.26)	(0.14)

The percentage changes that can be seen in the financial operations are as follows:

	Year ended 31.12.2015	Year ended 31.12.2014	Percentage change in respect of year ended on 31.12.2014
Total (operating) revenues	2,535	1,708,503	-99.85 %
Total expenses (before income taxes)	1,697,479	2,489,393	-31.81%
Non-operating (or extraordinary) gains and losses	353,414	237,152	49.02%
Earnings per common share	(0.26)	(0.14)	-85.71%

Comment

The company is involved in the exploration of oil, gas, gold and metal that happens inside and outside Australia. Such a business model appears to attract revenue only through sale of permits, farms that undertakes a long time span and enough research that requires immense investment (Parrino et. al, 2012). In 2014, the company sold farm-out and permits that enabled the company to have huge flow of revenue and hence, in the current year when there was no sale a steep fall can be witnessed.

The operating expenses is mainly linked to exploration and is a crucial expense for the company that decreased by $320883 and share based payment were done that declined to a considerable extent. However, oil exploration is a regular process expenses have not reduced. The increment or decline is normal for a group company because it pertains to an adjustment (ADX Energy, 2015). Going by the normal tendency it is normal that when the revenue of a company falls, there appears to be an impact on the shareholders wealth because the net profit is affected. Where the decline in revenue is 99.85%, the EPS declined by 85.71% that is better in nature. 

Conclusion

As per the discussion and analysis it can be commented that ADX Energy Ltd is operating under a mixed chain of reaction. Though the fundamental is strong yet there are areas of deficiencies that need to be covered up. The operations and the financial statements are clearly indicating that the company is facing problem and hence, the stock holder equity has declined sharply. However, going by the entire scenario and the position of balance sheet it can be said that the company should not be selected for any investment purpose because the operations as well as certain indicators are against the company (Choi & Meek, 2011). Though the EPS is high in 2015 as compared to 2014 but that cannot justify the selection. Stock holder equity, operating revenue, and current assets have declined and hence, must be kept on the radar for observation. When it comes to the current scenario, investment should not be done in ADX Energy. It is high time for the company to build its current assets and renew the position of financing activities that will change the entire scenario for the company. Though growth is not doubted as energy sector is keeping a strong pace but currently it is not a good time to invest in this company.  

References

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