This study is about financial analysis of Equus Mining Ltd. This report helps in analyzing the financial position of the company from which one can make out whether the company is a good option for investment by investors or not.
Equus Mining Limited Company is an Australian company that is mainly listed on the security exchange board of Australia. The company focuses on the development of natural resource projects in Chile that are strategically located near the infrastructure. Equus has recently acquired the rights of 100 percent of the Domos Gold and silver project that is located adjacent to the operations of Cerro Bayou silver and gold mine. Reconnaissance work has revealed high-level gold-silver mineralization in the sheet veins and hydrothermal breccias (Equus Mining, 2018).
The report will offer a brief analysis of the Equus Mining Limited Company’s financial performance during the years 2015 to 2017. For this particular purpose, we have analyzed the financial statements of the company and varied financial ratios have been calculated. Financial report of the organization has been utilized as the source for the purpose of extracting the reliable data. Following ratios have even calculated in the analysis portion (Johnson & Melicher, 1982; Petty, 1993; Rao, 1995; Kapil, 2012; Pinches & Vashist, 1996).
|
Year |
2015 |
2016 |
2017 |
|
CA |
655.899 |
205.481 |
1,158.31 |
|
Cl |
229.377 |
435.504 |
367.029 |
|
Ratio |
2.85948 |
0.47 |
3.16 |
Figure 1: Current Ratio
The chart above shows that the company is possessing safer margin in the year 2015 and 2017. The chart also shows that the efficiency of operations of the company decreased to 0.47 in 2016, which shows that even though the liquidity was in the safe zone but still the efficiency level was decreasing. Effective measures are required to be taken (Khan & Jain, 2007). The ratio has increased in comparison to previous which does indicate a great increase but a slight decrease in the current assets reveals that company is moving towards adverse effects. There is a requirement for the company to strengthen its position.
|
Year |
2015 |
2016 |
2017 |
|
QA |
655.899 |
205.481 |
1,158.31 |
|
Cl |
229.377 |
435.504 |
367.029 |
|
Ratio |
2.85948 |
0.47 |
3.16 |
Figure 2: Quick ratio
The quick ideal ratio ranges to 1:1. This ideal ratio shows that the company relies mainly on inventory or other such assets for the payment of short-term liabilities. Higher the value of the quick ratio gets, the more it shows that there is no difficulty in borrowing the short-term notes. The chart above reveals that the company is showing satisfactory performance in terms of numbers in respect of quick ratio
|
Year |
2015 |
2016 |
2017 |
|
QA |
655.899 |
205.481 |
1,158.31 |
|
Cl |
229.377 |
435.504 |
367.029 |
|
Ratio |
2.85948 |
0.47 |
3.16 |
Figure 3: WC ratio
This particular ratio is also considered as a current ratio as it reveals the liquidity of the company for the purpose of payment of the liabilities with the current assets. The working capital ratio of the company was 0.47 in the year 2016 and it was 3.16 in 2017. The ratio of working capital has been more than 1 in the past years and so it can be said that the debt of the company is at decreasing rate. The increment in the debt level will make the business process risky to potential credits (Marsh, 1995).
Gross profit percentage
|
Year |
2015 |
2016 |
2017 |
|
GP |
13.335 |
3.517 |
– |
|
Revenue |
13.335 |
3.517 |
– |
|
ratio |
1 |
1 |
– |
Figure 4: GP Ratio
This particular ratio reveals the percentage of money which is earned by the organization with the sales. The higher the ratio gets the more the profit figure of the company will be able to take home at the day end. The gross profit rate for 2015 was 1 and for 2016 was also 1 (Keown, 2002). There has been no increase in the ratio which means that the cost of goods has been stable and that is why the gross profit margin for the two years is showing stability (Chandra, 1989)
|
Year |
2015 |
2016 |
2017 |
|
total liabilities |
229.377 |
435.504 |
367.029 |
|
shareholder’s equity |
1,490.64 |
1,332.18 |
3,176.39 |
|
ratio |
0.153878 |
0.326911 |
0.115549 |
Figure 5: debt to equity ratio
The ratio of debt to equity shows the long-term solvency level of the organization. The increment in the ratio of the debt to equity shows that the assets that are offered by the shareholders are very less in the number than the ones that are being offered by the creditors of the company and because of this reason there is a condition of leverage in the company. Though in case of Equus mining limited the figure is decreasing which reveals that the company is not going through leverage condition. The trend of ratio in the graph above shows that the ratio has been decreasing in the past years. The shareholders are offering more asset value than creditors
|
Year |
2015 |
2016 |
2017 |
|
Debt |
5,120 |
13,378 |
36,255 |
|
Total Assets |
3,543.42 |
1,767.68 |
1,925.05 |
|
ratio |
1.444933 |
7.568095 |
18.83327 |
Figure 6: Debt to total assets
This particular ratio shows the association in between debt and assets of the company. There is an increment in the level of the ratio which means that the leverage position of the company is strong
|
Year |
2015 |
2016 |
2017 |
|
Cash Flow from operations |
4,932 |
-516.687 |
-827.525 |
|
Total Liability |
367.029 |
435.504 |
229.377 |
|
Ratio |
13.43763 |
-1.186412 |
-3.607707 |
Figure 7: Cash Flow from operations to total liability ratio
This particular ratio helps in analyzing the liquidity measurement of the organization. The chart above reveals that the company has not been able to generate enough cash. The ratio of the company in 2016 and 2017 shows negative figures. Not only this people in the company do not seem to have an adequate ratio for the payment of the short-term liabilities
|
Year |
2015 |
2016 |
2017 |
|
Sales |
13335 |
3517 |
– |
|
Account receivable |
5,120 |
13,378 |
– |
|
Ratio |
2.604492 |
0.262894 |
– |
Figure 8: Debtors Turnover ratio
The debt turnover ratio reveals that the company is not successful in using the assets of the company in an effective manner. The ratio above reveals that the company requires reassessing the policies associated with the credit so that the company can successfully collect the account receive bales in a timely period
|
Year |
2015 |
2016 |
2017 |
|
Sales |
13335 |
3517 |
– |
|
Account receivable |
5,120 |
13,378 |
– |
|
Ratio |
140.1425 |
1388.391 |
– |
Figure 9: Average Days Sale outstanding
This ratio above reveals the collection period after the actual sales have already happened. The increase in the average day collection period ratio shows that the organization is taking more time in the collection of the receivables.
|
Year |
2015 |
2016 |
2017 |
|
Sales |
13335 |
3517 |
– |
|
Net profit |
-562,600 |
-594,528 |
– |
|
Ratio |
-4218.97 |
-16904.41 |
– |
Figure 11: Net Profit Margin Ratio
The net profit margin ratio reveals that the profits of the company have been decreasing at a fast pace. The reason behind could be the higher cost of production. It also reveals that by enhancing sales the company will be able to increase the ratio of net profit margin
|
Year |
2015 |
2016 |
2017 |
|
Sales |
13335 |
3517 |
– |
|
Total Assets |
3,543.42 |
1,767.68 |
– |
|
Ratio |
3.763318 |
1.989609 |
– |
Figure 12: Total Asset Turnover Ratio
The ratio of total assets turnover reveals the rate of conversion of the assets. The lower ratio in 2016 and 2017 reveals that the conversion rate of the company is too slow. The speed of converting the assets into sales in the year 2016 was 1.98 times which is slightly lower than the previous year. This reveals that the time taken by the company to long in case its assets has decreased. However, the changes are minute but still its shows the negative sign for the company as the sales are decreasing at a slow pace.
|
Year |
2015 |
2016 |
2017 |
|
Net Income |
-562,600 |
-594,528 |
-899,548 |
|
Total Assets |
1,925,051 |
1,767,684 |
3,543,416 |
|
Ratio |
-0.29225 |
-0.336332 |
-0.2538646 |
Figure 13: Return on Asset (ROA)
The ratio of return on assets decreased from -0.29 to -0.33 in the year 2015 and 2016. However, the ratio increased to -0.25. The analysis reveals that the profitability of the total asset is decreasing and it is not at all a positive sign for the organization as it shows that in the year 2017 the ratio is negative. However, on the other side, it also shows positive sign of an increase in a ratio from the previous year. The negative fires show that the company is not being able to convert the amount that has been invested in the income in an effective manner. Return on assets decreased in 2016 which means that the profitability of the company on total assets has decreased.
|
Year |
2015 |
2016 |
2017 |
|
Net Income |
-562,600 |
-594,528 |
-899,548 |
|
shareholder’s equity |
1,695,674 |
1,332,180 |
3,176,387 |
|
Ratio |
-0.33179 |
-0.446282 |
-0.283198 |
Figure 14: Return on Equity Ratio
The chart shows that the ratio has increased from -0.44 to -0.28 in the years 2016 and 2017. However, such type of underdevelopment is not going to help n the development of the trust of shareholders. This downfall reveals that the profit of shareholder is decreasing that could be harmful to the company as it will not be able to maintain the trust of the shareholders.
We have measured the profitability of the company in terms of shareholder’s equity. It reveals that in the year 2017, return on the shareholder’s equity was 0-0.28, which is higher than the previous year. This reveals that the company has earned a compatible profit in the current year in comparison to previous year.
|
2015 |
2016 |
2017 |
|
|
Operating cash flow |
4,932 |
-516.687 |
-827.525 |
|
Total Debt |
5,120 |
13,378 |
36,255 |
|
Operating cash flow / total debt |
0.963281 |
-0.0386221 |
-0.0228251 |
Figure 14: Operating Cash Flow/ Total Debt Ratio
The chart shows that the ratio has decreased from 0.96 to -0.02 in the years 2015 and 2017. The figure of the ratio shows that the company is not able to generate more cash in 2016
The current ratio of the company reveals that the company is standing at 3.16: 1 in the year 2017, which is comparatively more than the previous years. The ratio reveals that the company is having in the year 2017, 3.16 assets for repaying 1 Dollar liability. The increase in the ratio shows that increase in current assets is leading to positive effects. Looking at the working capital ratio of the company it can be analyzed that the company is required to strengthen the position in the market. Not only this, even the quick asset ratio supports the observation analyzed in the current ratio as the ratio stands at 3.16: 1 in the year 2017 which is higher than the previous year. The cash flow from operation ratio shows that the company has been able to generate ample amount of cash against its liabilities in the year 2017. Thus it can be concluded that the current situation of the organization is favorable, however, a decrease in sales is going to lead to adverse effects on the organization
The Debtor’s turnover ratio reveals how quickly the receivables of the organization can be converted in terms of cash and sales. The turnover ratio was 2.6 times in 2015 but t decreased in 2016. There is a decrease in 2016 thus it can be said that the speed of the organization to convert the receivables into cash has decreased. It reveals the relation which exists in between credit sales and debtors.
The net profit margin for 2015 is observed to be -4218 and the percentage went better in 2016 to -16904. Though the figure was better than 2015 but still it was a negative figure. From the analysis of the net profit margin it can be concluded that the operational efficiency of the company got enhanced in 2016. The noticeable point is that even though the company’s profit margin increased from previous year but still the increase was not that substantial. Therefore it can be said that for now the company is showing good sign of profitability and if it will continue on same path then in the coming year the financial position of the company will be more stable. Furthermore the profitability of the company can be better assessed with the use of asset turnover ratio. The asset turnover ratio in the year 2015 was 3.76 and in the year 2016 is 1.94. From the asset turnover ratio it can be observed that the company generated $1.94 sales against the use of $1 asset. The asset turnover ratio is slightly lower from the previous year which shows the sign of less profitability. This implies that there is less signs of progress and even the utilization of assets to generate sales is also not satisfactory. Further the profitability of the firm can be measured by calculating the return on asset ratio. The return on asset ratio for the Equus mining limited was -0.29 per cent and -0.25 per cent in the respective year 2015 and 2017. The profitability of total funds or investment of the company is -0.25 per cent in the current financial year.
The debt to equity ratio stands at 0.15 and 0.11 in the year 2015 and 2017 respectively. This shows that against $0.11 outside liability the company has $1 owner’s capital. Therefore it can be said that the company has approx 0.11 times more capital in the capital to repay its borrowings. The debt to total asset ratio indicates the assets the company has to repay its debt. In this case it was analyzed that company has $1 asset against its $18.8 debt in the current financial year. In the year 2017 the debt to total asset ratio stands at 18.8:1. This implies that the company has sufficient asset to repay its debt.
The cash flow from operations to total liability shows that the firms’ ability to meet the total liability with its cash flow from operations. In this case it was observed that in the year 2015 the ratio was 13.4 and in 2017 it was -3.6. This implies that the company’s cash flow from operation has decreased in the current year which weakens the position of the company in meeting its total liability (Lasher, 2005; Lasher, 2013; Shim & Siegel, 2000; Lasher, 1997).
Conclusion
The financial position of the Equus mining limited is quite satisfactory, even though there are ratios that shows that the company is needed to undertake some of the actions against its policies and operational processing as only then it will e bale to earn some profit. There is requirement of enhancing the rate of conversion of the assets of the company. The report shows that the company is not showing very good signs of performance. Net profit of the company has decreased in 2017 and its financial position also degraded in 2017. However, the company has capability of doing good performance in coming year. The improvement level of the company is not that substantial currently and there is room for improvement in the financial position. Even though it is visible that the company is having lower rate of conversion still the stocks of the company are better position. The organization at present is surrounded many high level expectations and this calls for additional amount of risk. The study illustrates that the company has bene successful in decreasing the debts through funds. Organization is not having ample liquidity for meeting out its liquidity and even the profit margin of the company has been decreasing in the following years. There is requirement for improvement in leverage Condition Company as the company has bene decreasing the funds of the company through the debts.
The profit margin is decreasing and even the conversion rate is decreasing which might have happened because of inefficient operations of the company. The company is quite good from the view point of investors as it has capability of improving its operations (Martin, 1991; Pandey, 2015; Brigham & Houston, 2015; Sharma, 2016; Scott, 1988).
The report contains the financial ratios of the Equus Mining Limited Company which is one of known company which has transformed itself from being a low scale company to a known brand in the country. From the ratios it can be observed that the company is revealing signs of better performance from previous years but the increase is not that good which means that the company is in need of working more effectively in operational workings. It is noticeable that the improvement is not substantial but there is room for more improvement in the financial position of the company. The assets of the company have increased from its previous year. The dividend distributed has also decreased from previous years which makes the company less attractive than the last year. The report has only ratios for three consecutive years. It is not possible to ascertain the exact financial position of the company as the data was available for only 3 years. If the data was available for more than 5 years, then more reliable and accurate analysis could have been done (Chandra, 2008; Jain, 2005; Periasamy, 2009; Gallaghar & Andrew, 2006).
References
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