The aim of this paper is to compare and analysis two different companies of a Canadian mining company. The company chosen for this paper are Barrick Gold Corporation and First Quantum Minerals. The paper starts with analysing the economic impacts on the industry. Following that, a Swot of both the companies has been studied. Lastly company financial ratios has been compared
The economic issues on the industry are stared below:
Other than economic issues, factors that influence Mining industry are described in the below table (Alanzi, 2018):
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Political factors |
Ø Corruption Ø Bribery and related remuneration Ø War chances Ø Geopolitical events Ø Resource nationalism |
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Economic factors |
Ø Capital access Ø ability to maximise cash flow Ø Wages Ø Production gain or loss Ø Taxes Ø Royalties Ø Demand and supply of metals and minerals Ø Commodity prices |
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Social factors |
Ø Social activism Ø Legacy issues Ø Land claims by indigenous peoples and treaty rights |
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Technological factors |
Ø Big data Ø Artificial intelligence Ø 3-D Printing Ø Innovation Ø Cyber security Ø Operational data in real time Ø Automated equipment |
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Legal factors |
Ø Transactions of high-value commodities on the black market Ø Regulations |
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Environmental factors |
Ø Environmental activism |
This framework is a method for analysing four different aspect of a company. These four aspects are: strength, weakness, opportunities and threats (Weng & Liu, 2018). The SWOT of both the company are analysed below.
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Strengths Ø The company has highly skilled workforce and invests funds in training of employees. Ø Barrick has a high intensity of customer satisfaction Ø Barrick has performed exceptionally well in the market. Ø Barrick has a reliable and strong distribution network Ø The company has a diverse brand portfolio |
Weakness Ø It includes hazardous spill of mercury, cyanide and different other heavy materials Ø The corporation was expelled from the Norway’s Government Pension Fund, among the globe ‘s greatest sovereign wealth funds, over allegations related to the Porgera Gold Mine. |
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Opportunities Ø Exploration in the vicinity of the company’s top-tier Nevada mines, including as Goldstrike and Cortez that could fulfil the firm’s risk-adjusted performance standards. Ø The business has the potential to be environmentally and socially conscious. Ø To break into the resale economy and enhance revenue, the company established a comprehensive distribution strategy for its products. |
Threats Ø It has to deal with the issue of significantly fluctuating gold prices on the global market. Ø Government legislation in the nations where the corporation operates may be jeopardised as a result of unethical business practises and environmental damage claims. Ø Customers are becoming more interested in non-precious metals and stones, which can be dangerous. |
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Strengths Ø Quantum Minerals offers a variety of product combinations to its customers. Ø In the metal mining industry, Quantum Minerals’ products have great brand recognition. Ø Quantum Minerals has a historical record of successful consumer-driven innovation, despite the fact that most Basic Materials competitors endeavour to develop. Ø Quantum Minerals has made investments in a variety of companies outside of the Basic Materials category over the years. |
Weakness Ø As revenues increase, Quantum Minerals’ market share is falling. Ø Quantum Minerals has a danger of high rates turnover at the lowest levels. Ø Niche markets and local monopolies, which may be exploited by First Quantum Minerals, are rapidly dwindling (Benzaghta et al., 2021). |
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Opportunities Ø Partnerships with local players may also create opportunity for First Quantum Minerals to boost its market share in international nations. Ø First Quantum Minerals brands have offered excellent customer service in the lower market, and the company has strong brand recognition in the premium sector. Ø Rapid technology advancements are increasing industrial productivity and enabling suppliers to offer a wider choice of products and services. |
Threats Ø The US-China trade relationship could stymie First Quantum Minerals’ expansion goals. Ø The increasing commoditization of products is the most critical concern for First Quantum Minerals and other competitors in the Basic Materials sector. |
Financial statement analysis refers to a process of examining the firm’s financial statements for the purpose of decision-making (Texts, 2018). Thus, external shareholders utilize it in order to understand the organization’s health and evaluate the business value and financial performance. However, internal constituents utilize it as a checking or monitoring tool for handling the finances.
Based on the financial calculation, the overall liquidity position of Barrick Gold has improved in 2020 as compared years. Thus, it can be observed that the company is having liquidity or cash to cover all of its short-term obligations or dues and is also not dependent on its inventory (Raki?evi? et al., 2016). It might happen that Barrick is not utilizing its assets properly and is also not handling its working capital efficiently. While, on the other hand, the Quantum’s liquidity ratios demonstrates that they also have sufficient cash to pay all of its current debts as the value of current assets exceeds the value of current liabilities, but it is marginally dependent on its inventory. Furthermore, when it is compared to industry average, Barrick Gold is at par because its liquidity ratios are higher than the First Quantum Minerals.
On the basis of financial ratio calculation, the Barrick’s net profit margin and gross profit margin has increased significantly to 28.69% and 41.11% in 2020, indicating that the company has created more net profits from its net sales and has also used it efficiently (Zainudin & Hashim, 2016). But ROE has decreased to 11.40% in 2020 which means that the value of shareholder’s equity has not increased. Whereas, Quantum’s suffered from net loss in the current year which indicates that the company has not generated any net profits from its available net revenue (Monahan, 2018). However, it is quite obvious that ROE will be in negative in 2020 because net profit margin was also in negative. When it is compared to the industry average, both the companies are not at par because its value is higher than Barrick and First Quantum.
On analysing the operational efficiency positions of Barrick Gold, it has been observed that there is a slight increment in the inventory turnover ratio and asset turnover ratio to 3.95 times & 0.27 times in 2020, indicating that the company is trying to sell its inventory quickly & there is a huge demand or requirement for their product. Moreover, it has also used its total assets effectively and on the other hand it is also observing more delinquent clients or customers. In the case of Quantum Minerals, the inventory and asset turnover ratio also increases to 3.09 times & 0.21 times in 2020 and has improved its efficiency positions as compared to previous years. However, when it is compared to industry ratios, both the companies are not at par because the overall efficiency position is better and higher (Robinson, 2020).
Based on the calculation, Barrick’s solvency position has improved and tries to reduce its financial risk in the current year as compared to previous years. The debt and debt-to-equity ratio decreased to 0.32 times and 0.47 times in 2020, implying that lower amount of finance is made by debt through lenders. Company with lower metric has lower debt and lower financial risk (Griffin & Mahajan, 2019). In addition, the company can also service its interest expenses with its available net profits. Furthermore, in the case of Quantum, the financial risk and leverage has increased slightly in 2020, indicating that the company is having more amount of debt than assets in the current year as compared to previous years. The interest coverage ratio has also decreased slightly to 1.04 times in 2020 which means that the group is burdened by debt expenditure & the less amount of net capital it has utilizes in other ways. When it is compared to industry average, both the companies are at par in terms of debt ratio but in the case of debt-to-equity ratio, industry is at par in comparison to Barrick and Quantum Minerals (Sadi’ah, 2018).
(Refer to the excel sheet)
Conclusion
On the basis of overall discussion, it can be observed that financial ratio analysis has been used to analyse or review the financial performance of both the companies. In terms of liquidity performance, Barrick and Quantum Minerals are having enough liquidity to cover all of its debts but it is quite important for Barrick to manage its working capital efficiently and utilize its total effectively. Furthermore, Quantum suffered from net loss in the current year as it has not utilised it net revenue efficiently and hence the company may improve this by inflating net revenues or by reducing costs. Lastly, both the companies are having stable solvency and efficiency position in the current year as compared to previous years.
References
Alanzi, S., 2018. PESTLE Analysis. Project Management.
Benzaghta, M. A., Elwalda, A., Mousa, M. M., Erkan, I., & Rahman, M. (2021). SWOT analysis applications: An integrative literature review. Journal of Global Business Insights, 6(1), 55-73.
Griffin, P. A., & Mahajan, S. (2019). Financial Statement Analysis. Finding Alphas: A Quantitative Approach to Building Trading Strategies, 141-148.
GURL, E. (2017). SWOT analysis: A theoretical review.
Marshall, B. (2021). Facts & Figures 2020 [Ebook]. Canada: The State of Canada’s Mining Industry. Retrieved from https://mining.ca/wp-content/uploads/dlm_uploads/2021/04/FF-2020-EN-Web.pdf
Monahan, S. J. (2018). Financial statement analysis and earnings forecasting. Foundations and Trends® in Accounting, 12(2), 105-215.
Raki?evi?, A., Miloševi?, P., Petrovi?, B., & Radojevi?, D. G. (2016). DuPont financial ratio analysis using logical aggregation. In Soft computing applications (pp. 727-739). Springer, Cham.
Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.
Sadi’ah, K. (2018). The effect of corporate financial ratio upon the company value. The Accounting Journal of Binaniaga, 3(02), 75-88.
TEXTS, I. A. (2018). Financial statement analysis. Instructor.
Weng, J., & Liu, T. (2018, June). Enterprise Strategy Analysis Based on SWOT Analysis. In 2018 International Conference on Sports, Arts, Education and Management Engineering. Atlantis Press.
Zainudin, E. F., & Hashim, H. A. (2016). Detecting fraudulent financial reporting using financial ratio. Journal of Financial Reporting and Accounting.
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