Financial management is an effective way to manage and evaluate the money of a business. Financial management of a company makes it easy for the company to evaluate the performance of the company, new projects of the company, position of the company etc. It accomplishes the objective of the company and assists the company to make various better decisions. Financial management is an application of financial evaluation. In financial evaluation, the investment opportunity of an organization is evaluated and it is investigated that whether the company would be able to perform well in the market. Further, this study assists every person who is linked with the company to evaluate that how the company is performing in Australian market?
AEON metals limited company is operating its activities into Australian market. This company has engaged in tenement and prospect exploration of various minerals. This company has explored and developed various projects into Australian market. The main project of the company is “Walford Creek Base Metal Project” which has explored one of the biggest mineral projects of the company (FT, 2018). This company is presenting itself very well in the market. The financial performance and the activities of the company are quite attractive. Further, the market position of the company is also great.
More to it, the financial performance and the position of the company has been evaluated and for it, the annual report of the company has been evaluated and the main people of the company have been analyzed. To evaluate that how many people are directly and indirectly involving in the BOM of the company and managing the operations and making decision about the activities of the company (Brammer, Brooks and Pavelin, 2006). This structure is maintained by every company to measure, evaluate and make changes in the operations, activities, investment proposal and position of the company. Following is the details of the company:
Accoridng to the study on the top investors of the company, it has been evaluated that the HSBC is the main stakeholder of the company which has around 21.4% share in the total stocks of the company. In addition, it has been evaluated that 2nd largest stockholder of the company is BLISS INVESTMENTS which has 6.76% in the total stocks of the company. at the same time, 4.6% stocks of the company is held by SLW minerals corporation pty limited. It explains that there is only 1 company which has more than 20% stocks of the company and on the other hand, there is only 2 companies which has more than 5% stocks of the company.
At the same time, annual report of the company has been evaluated to recognize the chief people of the company. It explains that the main people of the company are Mr. Thomas Joseph Mann, Mr. John Leslie Goody, Mr. Edgar George Newman, Mr. Hamish Collins, Mr. Paul Harris, Mr. Ivan Wong and Mr. Stephen Lonergan. They all are managing the business and the financial activities of the company. Further, it has been evaluated that none of them are having more than 5% stake in the ownership of the company.
Further, for evaluating the financial position and performance of the company, ratio analysis study has been done. For performance ratio analysis, annual report of the company has been investigated and the financial figures of the company have been measured. ROE, ROA and debt ratios have mainly are calculated to evaluate the financial performance of the company (Brigham and Houston, 2012). Following are the calculations:
Return on assets of the company has been evaluated to recognize the performance of the company. Return on assets takes the concern of total assets and the net profit after tax. The calculations are as follows:
|
A. |
Return on assets= |
NPAT/ total Assets |
|
(8242)/57076 |
||
|
-14.440% |
The return on assets of the company is -14.40% which explains that the company is suffering from loss.
Return on equity of the company has been evaluated to recognize the performance of the company. Return on equity takes the concern of total equity and the net profit after tax. The calculations are as follows:
|
B. |
Return on Equity= |
Net profit after tax/ ordinary equity |
|
(8242)/48379 |
||
|
-17.04% |
The return on equity of the company is -17.04% which explains that the company is suffering from loss.
Debt ratios:
Debt ratios of the company have been evaluated to recognize the performance of the company and the capital structure of the company. Debt ratios take the concern of total equity and the total liabilities. The calculations are as follows:
|
C. |
Debt Ratios = |
Total Liabilities/ total assets |
|
51740/196838 |
||
|
26.29% |
The debt ratios of the company are 26.29% which explains that the company is managing the good assets and liability combination. Further, the below calculations have been done:
|
EBIT / TA * NPAT / EBIT * TA/ OE = NPAT / OE |
|
|
(1953/57076)*(-8242/1953)*(57076/48379)= |
(-8242/48379) |
|
-17.04% |
-17.04% |
(Morningstar, 2018)
TA/OE:
The phenomenon of TA/TE explains that the total of assets and equity directly makes an impact over the return on assets and return on equity. Further the study explains that the total assets and total equity plays main part in evaluating the return on assets and return on equity. Following is the equation of TA and TE which explains about the relationship f TA/TE with ROA and ROE.
|
TA/TE = (NPAT/ Total assets)/(NPAT/TE) |
|
TA/TE =Total assets/TE |
ROA and ROE:
ROA and ROE explains about the performance of the company and it explains that how the ROA and ROE are significantly related. Further, it has been found that the ROE is always greater than ROA due to the double accounting entry rule system which depicts that the total assets is the total of total liabilities and shareholder equity of an entity. It explains that the Return on assets of the company is bit lower.
Further, the study has been done over teh stock price of the company to evaluate the performance of the company. It explains that how much movement the stock price of the company has. More to it, the study has been done over AORD prices to compare both the prices. Through the study, it has been found that there is huge difference among the prices. Following is the graph of the AORD and AML:
The above study and the grpah over both the stock’s price explains about the position of the company in the market. The differences and the trend of changes on both the stock explains that the correlation of the company is 0.87 which explains about a high correlations and explains that with the changes in the AORD prices, stock price of AML also got affected. Further, the significant risk of the company is quite lower (Fletcher and Growing, 2009).
More to it, the internal and external factors of the company has been studied which have impacted over the position and the prices of the stock. Following factors are few of them:
The changes into the board of directors and the managing director have negatively affected the stock price of the company.
At the same time, it has been studied that the position of the company is not that much good in comparison with the competitors and thus the stock price has been lower.
Further, the financial analysis study had also affected the prices of the company (Thomas, Lyons, Chen and Pugh, 2008).
Law suits have also played a role in the stock price of the company.
At the end, industry factors are also important to evaluate the stock price.
Beta:
The stock price of AML explains that the systematic risk of the company is 0.02%.
CAPM:
CAPM calculations are as follows:
|
Calculation of cost of equity (CAPM) |
|
|
RF |
4.00% |
|
RM |
6.00% |
|
Beta |
0.000297 |
|
Required rate of return |
4.00% |
(Shao, Kwok and Guedhami, 2013)
Explanation:
The above study explains that if the investor would invest into the company than they would expect return of 4%. Further, it explains that the total cost of the company would be 4% if the company would raise the funds through equity than the company is required to pay 4% cost to the stockholders of the company.
Weighted average cost of capital calculations are as follows:
|
Calculation of WACC |
||||
|
Price |
Cost |
Weight |
WACC |
|
|
Debt |
0 |
4.20% |
0 |
0 |
|
Equity |
48,379 |
4.00% |
1 |
0.04001 |
|
48,379 |
Kd |
4.00% |
||
|
Calculation of cost of debt |
||||
|
Outstanding debt |
0 |
|||
|
interest rate |
6% |
|||
|
Tax rate |
0.3 |
|||
|
Kd |
4.20% |
|||
|
Calculation of cost of equity (CAPM) |
||||
|
RF |
4.00% |
|||
|
RM |
6.00% |
|||
|
Beta |
0.03% |
|||
|
Required rate of return |
4.00% |
(Mornigstar, 2018)
Evaluation:
Weighted average cost of capital of the comapny explains about the cost of debt and cost of equity. Cost of equity of the company is 4% and the cost of debt of the company is 4.2%. It explains that if the company raises the funds through equity than the cost of the company would be 4% and if it rises through debt than the cost of debt of the company is 4.2%. It explains that the total cost of the company is 4%.
Optimal cash flow of the company has been evaluated through calculating the debt ratios. The calculation of debt ratios of last 2 years are as follows:
|
2017 |
2016 |
||
|
A. |
Debt Ratios = |
Total Liabilities/ total assets |
Total Liabilities/ total assets |
|
32764/57076 |
24640/57167 |
||
|
57.40% |
43.10% |
It explains that the capital structure of the company has been enhanced from 43.1% to 57.4%. The total assets of the company have been enhanced and due to which the debt ratios of the company has also been enhanced (Ocal et al, 2007).
More to it, the gearing ratios have been calculated and it has been found that the capital employed of the company has been lowered from last year and due to which the gearing ratios of the company has been enhanced.
|
2017 |
2016 |
||
|
B. |
Gearing ratios = |
Total Liabilities/ Capital employed |
Total Liabilities/ Capital employed |
|
32764/(57076-32757) |
24640/(57167-1074) |
||
|
134.73% |
43.93% |
The annual report of the company has been evaluated further and it has been found that company has not announced any dividend this year due to the fact that company has not generated any profit this year (Shapiro, 2008). This explains that the company is following relevant dividend policies but due to no profit and reserves, the dividend of the company is lower (Bartram, Brown and Fehle, 2009).
Recommendation and Conclusion:
The above study recommends the investors to not to invest into the company due to the fact that high losses are occurring into the company from last few years and the position of the company is also not stable. Further, the risk and return of the company is also lower. More to it, the financial performance of the company is also not good. Thus, the investors must not go for this company and must choose another company to invest.
References:
Annual report. 2017. AEON Metals limited. viewed Jan 22, 2018, https://aeonmetals.com.au/assets/uploads/2016/09/2016-Sep-30-Annual-Report-to-Shareholders.pdf
Bartram, S. M., Brown, G. W., and Fehle, F. R. 2009. International evidence on financial derivatives usage. Financial management, 38(1), 185-206.
Brammer, S., Brooks, C., and Pavelin, S. 2006. Corporate social performance and stock returns: UK evidence from disaggregate measures. Financial management, 35(3), 97-116.
Brigham, E. F., and Houston, J. F. 2012. Fundamentals of financial management. Cengage Learning.
Fletcher, J and Growing, D 1979, Effective writing for accountants, The Institute of Chartered Accountants in England and Wales, London.
Thomas, C, Lyons, K, Chen, P and Pugh, J 2008, Financial Resource Management, Study Guide, Department of Maritime and Logistics Management, Australian Maritime College, Launceston, p.3.11.
2017. AEON Metals limited. viewed Jan 22, 2018, https://markets.ft.com/data/equities/tearsheet/summary?s=AML:ASX
Morningstar. 2017. AEON Metals limited. viewed Jan 22, 2018, https://financials.morningstar.com/cash-flow/cf.html?t=AMLandregion=ausandculture=en-US
Öcal, M. E., Oral, E. L., Erdis, E., and Vural, G. 2007. Industry financial ratios—application of factor analysis in Turkish construction industry. Building and Environment, 42(1), 385-392.
Shapiro, A. C. 2008. Multinational financial management. John Wiley and Sons.
Yahoo Finance. 2017. AEON Metals limited. viewed Jan 22, 2018, https://finance.yahoo.com/quote/AML.AX/history?period1=1451586600andperiod2=1514658600andinterval=1dandfilter=historyandfrequency=1d
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