Abstract
Fortescue Metals Group Ltd (FMG) is an iron ore company situated mainly in Australia. It was founded in the year 2003. The company comes under the industry of Metals and Mining. Its headquarters is placed in Perth, Western Australia. Fortescue Metals Group Ltd (FMG) deals in Iron ore, Steel, Gold, Copper and Lithium. It is one of the largest iron ore producers. Mainly fourth largest producer of iron ore in wide world. Elizabeth Gaines works as a (CEO) in the Fortescue Metals Group Ltd and Andrew Forrest being a (Chairman) combines to become the major shareholder in the company. The Fortescue Metals Group Ltd has many subsidiaries work under it. The mine company holds 87000 km2 area. The location where it is situated is Christmas Creek Mine, Pilbara region, West Australia. The company is listed company on the ASX Australia stock exchange with all well known companies. Fortescue Metals Group Ltd (FMG) has grown fastest heavy haul railways, advanced infrastructure and Fortescue company has its own iron ore carriers as well. Fortescue Metals Group Ltd is building a new succes story in the field of mining. Safety, values and empowerment of people are the basic goals, this Australian company holds.
I. Introduction :
The company selected is the fourth largest iron ore producer Fortescue Metals Group Ltd (FMG). The main purpose of my assignment is to research thoroughly through the Fortescue Metals Group Ltd. This purpose is carried so that we can learn about the success policies, financial performance and income statements of the above mentioned company. In this assignment, we will examine the main issues, underlying theories, performance measures used and the firm’s financial performance. We will get to know the capital structure, price earning ratios, non current assets and income statement.
The analyse of Fortescue Metals Group Ltd trends in the last three years. The company’s performance analysis and success report. The company’s philosophies and methodologies about future.
The companies financial ratios show many ups and downs from the last two to three years. The annual reports has been taken from the Fortescue Metals Group Ltd (FMG) official website https://www.fmgl.com.au/. The annual reports will show the progressive approach company took and the successful strategies taken. The assignment has been structured strictly as per the norms and guidelines suggested and the assigned tasks.
This assignment consists the real figures as per the Fortescue Metals Group Ltd website. The referred materials are latest and updated in the year 2019. The assignment consists of many useful information about the success, ups and downs, weaknesses and strengths. Here we will find out the details about the position and liquidity of Fortescue Metals Group Ltd. The share prices are checked on www.asx.com.au.
Financial analysis of fortescue metals group ltd. :
II. Financial Analysis of Selected Company
2.1 The Fortescue Metals Group Ltd company deals in mine industry mainly iron ore –
The Fortescue Metals Group Ltd company deals in Steel, Gold, Copper and Lithium but mainly iron ore. It offers the iron ore to world wide. The importance of the mining in maintaining the comparative advantages of the company can be listed below –
- Trained workers
- Flexible arrangements of work
- Staff incentives plan
- 16 – weeks paid parental leave etc
- Huge Mining sites
- Full check on the safety measures for any miss happenings occur at the time of work.
- Highly automated plants and machinery
All the other personal as well as professional benefits the Fortescue Metals Group Ltd provide to their staff and workers (Babalola & Abiola, 2013).
2.2 Calculation and analysis of performance of Fortescue Metals Group Ltd by liquidity ratios –
According to the data collected from THE WALL STREET JOURNAL, the financial data obtained from current financial statements of Fortescue Metals Group Ltd for the past 3 years we will calculate the liquidity ratios know about the capital structure (Fortescue metals group ltd., 2019).
Assets
| S.No, | Particulars | 2016—17 | 2017-18 | 2018-19 | ||||
| 1 | Current | |||||||
| Current Assets | $ 222,331.00 | 2.172304295 | $ 470,047.00 | 2.930668562 | 626006 | 3.047904221 | ||
| Current Liabilities | $ 102,348.00 | $ 160,389.00 | 205389 | |||||
| 2 | Quick | |||||||
| Cash + Accts. Rec. | $ 193,894.00 | 1.894458123 | $ 405,946.00 | 2.531008984 | 517553 | 2.519867179 | ||
| Current Liabilities | $ 102,348.00 | $ 160,389.00 | 205389 | |||||
| 3 | Debt-to-Worth | |||||||
| Total Liabilities | $ 102,448.00 | 0.424246942 | $ 166,869.00 | 0.300281262 | 205616 | 0.260982365 | ||
| Net Worth | $ 241,482.00 | $ 555,709.00 | 787854 | |||||
| INCOME STATEMENT RATIOS: Profitability (Earning Power) | ||||||||
| 4 | Gross Margin | |||||||
| Gross Profit | $ 151,006.00 | 0.274932772 | $ 464,349.00 | 0.503439027 | 713752 | 0.53251722 | ||
| Sales | $ 549,247.00 | $ 922,354.00 | 1340336 | |||||
| 5 | Net Margin | |||||||
| Net Profit Before Tax | $ 52,299.00 | 0.095219455 | $ 415,711.00 | 0.450706562 | 283232 | 0.211314178 | ||
| Sales | $ 549,247.00 | $ 922,354.00 | 1340336 | |||||
| ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios | ||||||||
| 6 | Sales-to-Assets | |||||||
| Sales | $ 549,247.00 | 1.596973221 | $ 922,354.00 | 1.276476726 | 1340336 | 1.349145923 | ||
| Total Assets | $ 343,930.00 | $ 722,578.00 | 993470 | |||||
| 7 | Return on Assets | |||||||
| Net Profit Before Tax | $ 52,299.00 | 0.15206292 | $ 415,711.00 | 0.575316436 | 283232 | 0.285093662 | ||
| Total Assets | $ 343,930.00 | $ 722,578.00 | 993470 | |||||
| 8 | Return on Investment | |||||||
| Net Profit Before Tax | $ 52,299.00 | 0.15206292 | $ 415,711.00 | 0.575316436 | 283232 | 0.285093662 | ||
| Net Worth | $ 343,930.00 | $ 722,578.00 | 993470 | |||||
| ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios | ||||||||
| 9 | Inventory Turnover | |||||||
| Cost of Goods Sold | $ (285,729.00) | -10.04778985 | $ (458,005.00) | -7.145052339 | -590584 | -5.4455294 | ||
| Inventory | $ 28,437.00 | $ 64,101.00 | 108453 | |||||
| 10 | Inventory Turn-Days | |||||||
| 360 | 360 | 0.012659563 | 360 | 0.005616137 | 360 | 0.00331941 | ||
| Inventory Turnover | $ 28,437.00 | $ 64,101.00 | 108453 | |||||
| 11 | Accounts Receivable Turnover | |||||||
| Sales | $ 549,247.00 | 7.536940473 | $ 922,354.00 | 14.08367562 | 1340336 | 25.41017669 | ||
| Accounts Receivable | $ 72,874.00 | $ 65,491.00 | 52748 |
Commnets
- the current ratio has increased . This means the Fortescue Metals Group Ltd company is able to meet the short term liabilities successfully over the time. There is an increasing trend in the ratios.
- According to the above calculation, it is clear that with the increase in quick ratio Fortescue company can easily pay back its current liabilities. In 2018 the quick ratio was less than 1, this means company was not able to pay back the current liability.
- There is a certain growth in the cash ratio from the year 2017 to year 2019. But these ratios are less than 1. A ratio above 1 means that, the company can easily pay off its current liabilities with the cash and cash equivalent. Here the company have cash ratio less than 1 in all the years.
- According to the above scenario, the Debt Equity Ratio is changing but very minutely. The low Debt Equity Ratio indicates less of borrowed funds and more of owner funds in the company. So here it is a good sign. There is a decreasing trend in the Debt Equity Ratio in passing years (Blum & Dacorogna, 2014).
- As we can see there is a slight decline in the Debt to Total Asset Ratio in all the three years. This can be interpreted as the percentage of assets is funded through borrowing funds as compared with the percentage of principal resources that are funded by investors.
- As we can see from the above proprietary ratios in percentage. here. When proprietary ratios is high that means the company is financially strong. Here it seems the company is dependent on debts in 2017 and 2019. The trend is not regular (Fortescue metals group ltd., 2019).
- Above are the position of liquidity, solvency and trends analysis according to the important accounting ratios of Fortescue Metals Group Ltd.
2.3 Non-current Asset Analysis –
Non Current Assets are Fixed Assets such as Property, Plant, Equipment, Land & Building, Long-term Investment in Bonds and Stocks, Goodwill, Patents, Trademark etc.
| Carrying Amount beg. of the year | 2016-17 | 2017-18 | 2018-19 |
| Plant and equipment | 11456 | 11156 | 10995 |
| Land and buildings | 849 | 796 | 744 |
| Exploration and evaluation | 772 | 813 | 857 |
| Assets under development | 227 | 291 | 301 |
| Development | 3563 | 3437 | 3292 |
| Depreciation | |||
| Plant and equipment | 4521 | 5478 | 6464 |
| Land and buildings | 257 | 316 | 412 |
| Exploration and evaluation | 0 | 0 | 0 |
| Assets under development | 0 | 0 | 0 |
| Development | 1052 | 1259 | 1448 |
| Carrying Amount end of the year | |||
| Plant and equipment | 11156 | 10995 | 10690 |
| Land and buildings | 796 | 744 | 650 |
| Exploration and evaluation | 813 | 857 | 539 |
| Assets under development | 291 | 301 | 889 |
| Development | 3437 | 3292 | 3303 |
Here, in the year 2019 the amount of non-current assets has increased as compared to the last two years that is 2018 and 2017. This increase means the Fortescue Metals Group Ltd company can turn their assets in to cash within 1 year as per the date mentioned in companies balance sheet (Fortescue metals group ltd., 2019).
2.4 The scenario analysis as per the information given –
| Averag Price | $25 | ||||
| Units to be sold | 450000 | ||||
| Life | 4 years | ||||
| Equipmnet Cost | $2,500,000 | ||||
| Residual Value | $500,000 | ||||
| Working Cpaital | $800,000 | ||||
| Variable Cost | $15 | ||||
| NPV | Current Case | ||||
| Years | 0 | 1 | 2 | 3 | 4 |
| Equipmet Cost | 2500000 | ||||
| Sales | 11250000 | 11250000 | 11250000 | 11250000 | |
| Working Capital | $800,000 | 800000 | 800000 | 800000 | |
| Variable Cost | 6750000 | 6750000 | 6750000 | 6750000 | |
| Residaul Value | $500,000 | ||||
| Cash Fixed Cost | 450000 | 450000 | 450000 | $450,000 | |
| Profit Before Tax | $3,250,000 | $3,250,000 | $3,250,000 | $3,250,000 | |
| Tax | 975000 | 975000 | 975000 | 975000 | |
| Profit after Tax | $2,275,000 | $2,275,000 | $2,275,000 | $2,275,000 | |
| Discounted Values | 1 | 0.89285714 | 0.79719 | 0.71178 | 0.63552 |
| Discounted Cash Flow | 2500000 | $2,031,250 | $1,813,616 | $1,619,300 | $1,445,804 |
| Outflow | 2500000 | ||||
| Inflow | 6909969.76 | ||||
| Net Present Value | 4409969.76 | ||||
| Averag Price | $20 | ||||||||||||||||
| Units to be sold | 360000 | ||||||||||||||||
| Life | 4 years | ||||||||||||||||
| Equipmnet Cost | $2,500,000 | ||||||||||||||||
| Residual Value | $500,000 | ||||||||||||||||
| Working Cpaital | $800,000 | ||||||||||||||||
| Variable Cost | $18 | ||||||||||||||||
| NPV | Worst Case | ||||||||||||||||
| Years | 0 | 1 | 2 | 3 | 4 | ||||||||||||
| Equipmet Cost | 2500000 | ||||||||||||||||
| Sales | 7200000 | 7200000 | 7200000 | 7200000 | |||||||||||||
| Working Capital | $800,000 | 800000 | 800000 | 800000 | |||||||||||||
| Variable Cost | 6480000 | 6480000 | 6480000 | 6480000 | |||||||||||||
| Residaul Value | $500,000 | ||||||||||||||||
| Cash Fixed Cost | 550000 | 550000 | 550000 | $550,000 | |||||||||||||
| Profit Before Tax | ($630,000) | ($630,000) | ($630,000) | ($630,000) | |||||||||||||
| Tax | -189000 | -189000 | -189000 | -189000 | |||||||||||||
| Profit after Tax | ($441,000) | ($441,000) | ($441,000) | ($441,000) | |||||||||||||
| Discounted Values | 1 | 0.892857143 | 0.79719 | 0.71178 | 0.63552 | ||||||||||||
| Discounted Cash Flow | 2500000 | ($393,750) | ($351,563) | ($313,895) | ($280,263) | ||||||||||||
| Outflow | 2500000 | ||||||||||||||||
| Inflow | -1339471.06 | ||||||||||||||||
| Net Present Value | -3839471.06 | ||||||||||||||||
| NPV | Best Case | ||||||||||||||||
| Years | 0 | 1 | 2 | 3 | 4 | ||||||||||||
| Equipmet Cost | 2500000 | ||||||||||||||||
| Sales | 16200000 | 16200000 | 16200000 | 16200000 | |||||||||||||
| Working Capital | $800,000 | 800000 | 800000 | 800000 | |||||||||||||
| Variable Cost | 6480000 | 6480000 | 6480000 | 6480000 | |||||||||||||
| Residaul Value | $500,000 | ||||||||||||||||
| Cash Fixed Cost | 350000 | 350000 | 350000 | $350,000 | |||||||||||||
| Profit Before Tax | $8,570,000 | $8,570,000 | $8,570,000 | $8,570,000 | |||||||||||||
| Tax | 2571000 | 2571000 | 2571000 | 2571000 | |||||||||||||
| Profit after Tax | $5,999,000 | $5,999,000 | $5,999,000 | $5,999,000 | |||||||||||||
| Discounted Values | 1 | 0.892857143 | 0.79719 | 0.71178 | 0.63552 | ||||||||||||
| Discounted Cash Flow | 2500000 | $5,356,250 | $4,782,366 | $4,269,970 | $3,812,473 | ||||||||||||
| Outflow | 2500000 | ||||||||||||||||
| Inflow | 18221058.73 | ||||||||||||||||
| Net Present Value | 15721058.73 | ||||||||||||||||
Interpretation on the sensitivity
Selling price : 9055951 = .19
450000*35*3.037
Variable Price = 9055951 = .44
450000*15*3.037
Fixed Cost = 9055951 = 6.63
450000*3.037
2.5 The latest share or bond issuance by the fortescue metals group ltd
The Fortescue Metals Group has issued coupon bonds recently. FMG Resources AUG 2006 is the issuer. The company has issued bonds in the form of Registered documentary bonds. It was an open subscription. It is an international bonds (Dorina, et. al., 2012).
The Company has been listing in Australia stock exchange as Fortescue FMG.
2.6 Calculation of the pe ratios and share price movement of the fortescue metals group ltd –
Price earning ratio has been declined to 46% last year in 2018. Up to the year 2019, the price earning ratio has gone up to 40%. The Operating income of the company is A$2.477 Billion in the year 2018 and the Net income results in A$1.134 billion in the year 2018 (Fortescue metals group ltd., 2019).
| Price Earning Ratios = Market price / Earning per share | |||
| 2019 | 2018 | 2017 | |
| Net income | 4456 | 1,134 | 2,775 |
| Earning pae share | 1.44 | 0.36 | 0.89 |
The present PE ratio of Fortescue Metals Group ltd is 22.5%. If the pe ratio is high, the company is a growth firm and vice versa (Babalola & Abiola, 2013).
The last recorded price of share of FMG was marked at 8.950. The share price movement is watched out as 0.185 2.11% .
Recommendation Letter –
As company took a comprehensive examination and analysed the firm’s financial performance from the updated financial statements of the Fortescue Metals Group Ltd. Being an investment analyst, I would recommend the investor to invest in Fortescue Metals Group Ltd. This company is performing well in the year 2019 and can write many success stories in the upcoming years. The share price fluctuations are not high or low. The investors can gain good returns from Fortescue Metals Group Ltd in near future.
Conclusion
The assignment is done with the fortescue metals group ltd .The company profit statement has been studied to find out the ratios of the company. This is finding that the company had making profits or not. The research will be useful to the shareholders to find whether to invest in the company or not. Thaw Company had made a successful issue of shares whose report had been summarised above. The ratios are done to better understanding of the report. All the current ration and the liquidity ratio are check to find the company had made profits in current year or not. The written down method of depreciation had been followed by the company. The life of the assets and the scarp value is as per the market value and as per the recommendation of law. The calculation of NPV is done to find pout whiter the project should be adopted or not. The company had made all the conclusion of worst and nest case and the sensitivity is done to find out which variable are more sensitive than others.
References
Babalola, Y. A., & Abiola, F. R. (2013). Financial ratio analysis of firms: A tool for decision making. International journal of management sciences, 1(4), 132-137.
Blum, P., & Dacorogna, M. (2014). DFA‐Dynamic Financial Analysis. Wiley StatsRef: Statistics Reference Online.
Christensen, T., Cottrell, D., & Baker, R. (2013). Advanced financial accounting. McGraw-Hill.
Dorina, P., Victoria, B., & Diana, B. (2012). Aspects of company performance analysis based on relevant financial information and nonfinancial information. The Annals of the University of Oradea, 956.
Fortescue metals group ltd. (2019). About us. [Online] Fortescue metals group ltd. Available at https://www.fmgl.com.au/docs/default-source/annual-reporting-suite/fy19-annual-report.pdf. [Accessed on 10.09.2019]
Fortescue metals group ltd. (2019). About us. [Online] Fortescue metals group ltd. Available at https://www.fmgl.com.au/docs/default-source/default-document-library/fy2017-annual-report.pdf [Accessed on 10.09.2019]
Fortescue metals group ltd. (2019). About us. [Online] Fortescue metals group ltd. Available at https://www.fmgl.com.au/investors/asx-announcements# [Accessed on 10.09.2019]