Analysis of the financial performance is very important for the investor. Before making any investment in the company, it is very necessary to know about the financial condition of the company and consider the various factors like its weighted average cost of capital, dividend policy, and ratios like ROA, ROE, and debt ratio. It is a report containing the analysis of the financial performance of Alacer Gold Corp (AQG) listed on ASX. The analysis is done to provide a financial advice to the investor regarding its investment in this company.
Alacer is a Canadian corporation incorporated in Yukon Territory and is primarily listed on Toronto Stock Exchange. It is also listed on Australian Securities Exchange (ASX). Alacer Gold Corp is a leading gold mining company having 80% interest in Copler gold mine in turkey and remaining 20% is owned by Lidya Madencilik Sanayi ve Ticaret A.S. the company deals with the acquisition, production and exploration of gold in Turkey (Alacergold.com, 2017).
Substantial shareholders
Main people involved in governance
The Annual reports available on company’s website is only for the year 2015 and 2016. Due to this, the data has been taken for the past three years only.
Alacer Gold Corp Financial Statements for year 2013-16 |
|||
Particulars |
2014 |
2015 |
2016 |
AUD$ |
AUD$ |
AUD$ |
|
EBIT |
90,846 |
64,566 |
-2,424 |
Net profit |
89,040 |
65,629 |
15,660 |
Total Assets |
759,494 |
815,618 |
865,389 |
Total Liabilities |
63,857 |
51,367 |
67,278 |
Shareholders’ Equity |
695,637 |
764,251 |
798,111 |
1. Rate of Return on Assets |
|||
2014 |
2015 |
2016 |
|
A. Net income |
89,040 |
65,629 |
15,660 |
B. Total assets |
759,494 |
815,618 |
865,389 |
(A/B) |
11.72% |
8% |
2% |
2. Rate of Return on Equity |
|||
2014 |
2015 |
2016 |
|
A. Net income available to equity shareholders |
89,040 |
65,629 |
15,660 |
B. Shareholder’s Equity |
695,637 |
764,251 |
798,111 |
(A/B) |
12.80% |
8.59% |
1.96% |
3. Debt Ratio |
|||
2014 |
2015 |
2016 |
|
A. Total Liabilities |
63,857 |
51,367 |
67,278 |
B. Total assets |
759,494 |
815,618 |
865,389 |
(A/B) |
8% |
6% |
8% |
Proving the equation
For 2014
0.11961 x 0.98012 x 1.0918 = 0.128
0.128 = 0.128
For 2015
0.079162 x 1.016464 x 1.067212 = 0.085874
0.085874 = 0.085874
For 2016
-0.0028 x -6.4604 x 1.0843 = 0.01962
0.01962 = 0.01962
It is considered as a key factor in DuPont analysis. The analysis divides ROE into its components which are known as financial ratios and metrics. These are profit margin, EBIT, Owner’s equity and Total assets. It examines the changes in these components in order to measure the corresponding changes in ROE (Brigham and Houston, 2012)
The equity multiplier compares the shareholders’ equity to the total assets. The multiplier has no relationship or negative relationship with Return on assets ratio. As the total assets increases, equity multiplier also increase, results in the decrease of ROA. On the other hand, if there is an upsurge in sales, ROA will increase but the multiplier remains the same. On a whole, a high equity multiplier will increase ROE and decrease ROA, whereas increase in ROA will also increase the ROE, while the equity multiplier remains stable (Leach and Melicher, 2011).
The graph is prepared on the basis of average return of stock prices of the company comparing with the average return of market indices. Data related to past two years has been taken that is from 13 December 2015 to 11 December 2017. Graph shows the fluctuations in the average returns during the years. It represents that the returns on stock prices of market remains stable while return on stock prices of Alacer Gold Corp (AQG) varies on a daily basis. Starting from 13 December 2015 to 13 June 2016 the returns are increasing frequently and the highest point in this duration is 0.1. After that the return falls to -0.1 in December 2016. Reasons for this fall may be the slow growth of the company, reduction in sales and profits or the investors become pessimistic about making investment in the company. The concern of investor about the overall market is one of the reason for the fall in stock prices and their returns. It can be seen from the graph that highest return of the company was in the month of March 2017 that is 13.93%. This was the peak point where the return on stock prices of Alacer were highest as compare to market indices. This was because the company was performing well in the market and was having an increase in its earnings and rise. Investors become optimistic regarding making the investments and value the stock more highly. After March, the average return of the company falls and continue to remains the same for the next few months. At some point of time it was almost close to the line which represents market indices. This can be seen in the graph (In.finance.yahoo.com, 2017).
Significant announcements made by Alacer Gold are:
Announcement 1: On February, 2017 the company make an announcement about the arrival of both autoclaves at Copler mine. These autoclaves were manufactured in Italy and then transported to the Northern Turkey. Each of them was transported to Copler in three pieces. The CEO of Alacer considered this arrival as a milestone for Copler Sulfide Expansion Project.
Announcement 2: Alacer announces the completion of Turkish Lira Hedging Program results in the reduction of capital outlay for Copler Sulfide Expansion Project. To purchase 500 million TRY at an average conversion rate of 3.8 USD was sold. The hedge can be used either in the oxide operations or the sulfide project. There can be potential deductions in the overall spending for sulfide project with approximately 40% capital expenditure denominated in Turkish Lira (Alacergold.com, 2017).
Announcement 3: An announcement was made on December, 2016 by the company regarding production and cost guidance. The production guidance was to be between 115,000 ounces to 125,000 ounces of gold. In cost guidance, total cost was revised between $675 per ounce and $725 per ounce. All-in Sustaining costs was between $900 and $950 per ounce.
Announcement 4: On 12 May 2016, Alacer Gold Corp announced that an approval has been received for full construction of Copler Sulfide Project from Board of Directors. CEO stated that the amount of work completed on this project provides a base for investment decision and also increases the company’s confidence in delivering long-term growth at high financial returns.
Announcement 5: Alacer made an announcement on September 13, 2016 about the success of the prefeasibility study applied on Gediktepe project. The study proves that the project is technically and economically viable and it is considered to be a valuable part of portfolio of mining assets. This illustrates the capability of company to capture value from exploration and also determines great prospectivity in Turkey (Alacergold.com, 2017).
SUMMARY OUTPUT |
||||||||
Regression Statistics |
||||||||
Multiple R |
0.115753784 |
|||||||
R Square |
0.013398939 |
|||||||
Adjusted R Square |
0.011441397 |
|||||||
Standard Error |
0.030425898 |
|||||||
Observations |
506 |
|||||||
ANOVA |
||||||||
df |
SS |
MS |
F |
Significance F |
||||
Regression |
1 |
0.006336452 |
0.006336452 |
6.84477782 |
0.009156822 |
|||
Residual |
504 |
0.466570575 |
0.000925735 |
|||||
Total |
505 |
0.472907028 |
||||||
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
Intercept |
0.000358512 |
0.001354738 |
0.264635766 |
0.791398251 |
-0.002303117 |
0.003020142 |
-0.002303117 |
0.003020142 |
X Variable 1 |
-0.45631434 |
0.174415244 |
-2.616252629 |
0.009156822 |
-0.79898483 |
-0.113643849 |
-0.79898483 |
-0.113643849 |
Here, the value of calculated beta is 0.45631434.
E(R) =
E(R) = Expected or required rate of return
= Risk free rate of return
β = Beta
= Market Risk Premium
Calculation of Required rate of return |
|
Risk free rate (A) |
4% |
Beta (B) |
-0.4563143 |
Market Risk premium (C) |
6% |
Required rate of return [A+(B*C)] |
1.26% |
Cost of Debt = 0%
Weighted Average Cost of Capital (WACC) = Cost of debt (interest rate after tax) + cost of equity.
WACC = 0% + 1.26%
= 1.26%.
Cost of debt is zero because company has no borrowings and the debt portion mainly comprises of liabilities which are to be paid during the year.
The policy of dividend mainly determines the part of earnings that will be paid out to the stockholders and shareholders as dividend and also the amount of earnings retained in the business for financing the future growth. There are basically four types of dividend policy which are regular, stable, irregular and no dividend policy (ICSI, 2017). Taking the information from the past three financial statements of Alacer, it is identified that company follows an irregular dividend policy as it has paid dividends in year 2014 but no dividend has been paid to the shareholders in year 2015 and 2016. Lidiya Mining who is entitled to receive 20% share of legally declarable dividend from Anagold has not received any payment in 2015 related to Anagold’s earnings of 2014, 2015 and 2016, reason being the future capital expenditure involving the Sulfide Project. However, in 2014 the board of directors declared a dividend of $0.02 per share to its shareholders. Payment of dividend made to Lidya Mining as per its share in year 2014, was $22.2 million. But the financial statements of 2016 does not show any dividend payment by the company. The reasons for this irregular dividend policy is the expenditure to be incurred on the Sulfide Project and also a low profit earned by the company. Alacer has the lowest profit in 2016 in comparison with the 2014 and 2015. These can be the reasons for not paying the dividend during the year (Alacer Gold, 2017).
On the basis of above analysis, it can be concluded that it is better not to include Alacer Gold Corp in an investment portfolio. Reasons being, considering various factors like its dividend policy, net profit, Return on Equity and debt ratio. The company follows an irregular dividend policy and has also earned lowest profits in past year. Considering its ROE, it has been continuously decreasing from year 2014. This implies that the company is giving low returns on equity, although it can be favourable to the investors who want to make conservative investment. The debt ratio of Alacer has also increased in the past years indicating high risk. So overall, the company is not performing well financially and it should not be included in a portfolio.
References
Alacergold.com. (2017). Alacer Gold. [Online] Available at: https://www.alacergold.com/company/profile-strategy [Accessed 23 Dec. 2017].
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.
Frank, M.Z. and Shen, T., 2016. Investment and the weighted average cost of capital. Journal of Financial Economics, 119(2), pp.300-315.
Huffman, B., 2016. Assessing the Risk of Conservative Investments. Journal of Applied Financial Research, 1, p.42.
ICSI. (2017). FINANCIAL TREASURY AND FOREX MANAGEMENT. [Online] Available at: https://www.icsi.edu/WebModules/Publications/FTFM_Final.pdf [Accessed 23 Dec. 2017].
In.finance.yahoo.com. (2017). AQG.AX Income statement | ALACERGOLD CDI 1:1 stock – Yahoo Finance. [Online] Available at: https://in.finance.yahoo.com/quote/AQG.AX/financials?p=AQG.AX [Accessed 23 Dec. 2017].
Leach, J.C. and Melicher, R.W., 2011. Entrepreneurial finance. Cengage Learning.
Parrino, R., Kidwell, D. S. and Bates, T. 2011. Fundamentals of corporate finance. John Wiley & Sons.
Tracy, A. 2012. Ratio analysis fundamentals: how 17 financial ratios can allow you to analyse any business on the planet. RatioAnalysis. Net.
Ahrendsen, B.L. and Katchova, A.L., 2012. Financial ratio analysis using ARMS data. Agricultural Finance Review, 72(2), pp.262-272.
Alacer Gold. (2017). Consolidated Financial Statements. [Online] Available at: https://www.alacergold.com/docs/default-source/Regulatory-Filings/year-end-financial-statement.pdf?sfvrsn=2 [Accessed 23 Dec. 2017].
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Titman, S., Keown, A.J. and Martin, J.D., 2011. Financial management: Principles and application
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