Financial Analysis Of Empire Resources Ltd
Company Overview
This report is based on the financial analysis of Empire Resources Ltd. There are several financial tools such as bottom up analysis; ratio analysis and trend analysis have been taken into consideration.
Present description of the company
Empire Resources Ltd is an international company, The headquarter of company is in Australia. This company delivered the maiden revenues with its first gold pour, and is expected to generate revenues. The share price movement of company has been given as below.
The CEO of Empire Resources Ltd is Steven Rodgers who has been managing the business in determined approach.
Owner of company
- Institutional holders- 0%
- Mutual funds-0%
- Insiders-0% (Empire Resources Ltd, 2017)
- The entire share in Empire Resources Ltd has been hold by the private persons of company who are also promoter.
The financial ratio analysis has been used to determine the relation between two business factors of organization (Empire Resources Ltd, 2015).
Calculation of ROA and ROE
|
Empire Resources Ltd |
||||
|
Particulars (Amount in Million |
2014 |
2015 |
2016 |
2017 |
|
|
AUD$ |
AUD$ |
AUD$ |
|
|
EBIT |
-1 |
-1 |
-2 |
-2 |
|
Interest |
0 |
0 |
0 |
0 |
|
Net profit |
-1 |
-1 |
-2 |
-2 |
|
Total Assets |
0 |
0 |
0 |
5.00 |
|
Total Liabilities |
0 |
0 |
1 |
5 |
|
Shareholders’ Equity |
0 |
– |
0 |
5.00 |
|
1. Rate of Return on Assets |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
-1 |
-1 |
-2 |
-2 |
|
B. Total assets |
0 |
0 |
0 |
5 |
|
(A/B) |
0.00% |
0% |
0% |
-40% |
Interpretation
It is evaluated that rate of return of company is zero in all the three years as company had no income and no assets invested in its business. In addition to this, in 2017, it reflected 40% loss in its return on assets which may destruct the value of its assets (Brigham and Ehrhardt, 2013)
Return on equity computation
|
2. Rate of Return on Equity |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders. |
-1 |
-1 |
-2 |
-2 |
|
B. Shareholder’s Equity |
0 |
0 |
0 |
5.00 |
|
(A/B) |
0.00% |
0.00% |
0.00% |
-40.00% |
Interpretation
It is considered that return on equity of company is zero in all the years. However, in 2017, shareholders will have to face decrease in their share value invested by 40% which is not good indicators. Empire Resources Ltd has destructed the value of its investment (Brigham and Ehrhardt, 2013).
|
3. Debt Ratio |
||||
|
|
2014 |
2015 |
2016 |
2017 |
|
A. Total Liabilities |
0 |
0 |
1 |
5 |
|
B. Total assets |
0 |
0 |
0 |
5.00 |
|
(A/B) |
0 |
0 |
0 |
100% |
Interpretation
It is observed that Empire Resources Ltd has zero debt to equity since last four years. However, in 2017, Empire Resources Ltd had equal debts and total assets in its business. It reflects that company has very high financial leverage. Debt to equity ratio of company is 100%.
Proving the equation
This equation is given as below
|
Providing equation |
2014 |
2015 |
2016 |
2017 |
|
Net profit After tax/OE |
0 |
0 |
0 |
-0.4 |
|
EBIT/TA*NPAT/EBIT*TA/OE |
0 |
0 |
0 |
-0.4 |
(Please see the excel sheet for the proper calculation)
It is evaluated that the share price movement of all ordinary indexes is very high. It is observed that as compared to all ordinary indexes, the share price movement of Empire Resources Ltd is stable. However, investors will have more return if they invest their capital in all ordinary indexes (Yahoo finance, 2017). Empire Resources Ltd has shown no upward and downward slope in its share price (Empire Resources Ltd, 2017).
- In 2017, company kept its business stable since last four years. However, in the starting company had high loss in its business which might impact the share price of company.
- Company has no business functioning in its value chain activities (Empire Resources Ltd,2017).
|
Regression Statistics |
|||||
|
Multiple R |
0.199097397 |
||||
|
R Square |
0.039639774 |
||||
|
Adjusted R Square |
-0.006091666 |
||||
|
Standard Error |
0.024120874 |
||||
|
Observations |
23 |
||||
|
ANOVA |
|||||
|
df |
SS |
MS |
F |
Significance F |
|
|
Regression |
1 |
0.000504316 |
0.000504316 |
0.866795 |
0.362424562 |
|
Residual |
21 |
0.012218148 |
0.000581817 |
||
|
Total |
22 |
0.012722464 |
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
|
Intercept |
0.008842786 |
0.005100819 |
1.733601342 |
0.097648 |
-0.001764947 |
0.019451 |
-0.001764947 |
0.019450519 |
|
X Variable 1 |
0.024289841 |
0.026089546 |
0.931018149 |
0.362425 |
-0.02996634 |
0.078546 |
-0.02996634 |
0.078546022 |
The beta value of company is .024 which is very low. It reflects that the share price of Company will be fluctuated by .024 % with the 1 change in all ordinary indexes.
Financial Analysis
E(R) =
E(R) = Expected rate of return
= Risk free rate of return
β = Beta
= Market Risk Premium (Zhu, 2014).
|
Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
0.024289841 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.15% |
(Please see the excel)
The required rate of return of company is -45 (Empire Resources Ltd, 2017).
It is considered that return on capital of company employed of company is negative. However, company is planning to expand its business. It is evaluated that company right now is following aggressive investment policy. It is considered that due to sluggish market conditions, Empire Resources Ltd has faced high loss in its business.
Cost of equity (calculated through CAPM) = -4.15%
Cost of Debt = 0%
WACC = Cost of debt (interest rate after tax) + cost of equity
|
Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
0.024289841 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.15% |
The cost of debt of company is zero as it is paying no interest (Empire Resources Ltd, 2016).
The weighted average cost of capital of company is 4.15%.
After evaluating the annual report of company, it is considered that higher WACC of company restrict company to accept the particular project investment. It is observed that company is having 4.15% WACCC. It will increase the overall return on capital employed of company. Therefore, company could easily accept each and every project to make investment. It will be easy for the company to accept the project.
Company has no debt to equity in 2014, 2015 and 2016. However, in 2015 it had 100% financial leverage.
|
3. Debt Ratio |
||||
|
|
2014 |
2015 |
2016 |
2017 |
|
A. Total Liabilities |
0 |
0 |
1 |
5 |
|
B. Total assets |
0 |
0 |
0 |
5.00 |
|
(A/B) |
0 |
0 |
0 |
100% |
Interpretation
It is observed that Empire Resources Ltd has zero debt to equity since last four years. However, in 2017, Empire Resources Ltd had equal debts and total assets in its business. It reflects that company has very high financial leverage. Debt to equity ratio of company is 100%.
It is evaluated that Empire Resources Ltd has zero interest payment. It is observed that Empire Resources Ltd has no interest obligation to pay so company has zero gearing ratios (Empire resources Ltd, 2014)
|
Gearing Ratio |
||||
|
|
2014 |
2015 |
2016 |
2017 |
|
Gearing Ratio |
0 |
0 |
0 |
0 |
Company has adopted strong dividend policy. It has followed profit based dividend policy. It is observed that company has been distributing zero amount of dividend from its business. The dividend policy of company is completely profit based so dividend is offered to clients due to loss in its business
After evaluating all the key information about the company, it is inferred that Empire Resources Ltd has been facing several problems due to sluggish market conditions. It is evaluated that in 2017, Company increased its sales but due to its negative return on capital employed, it had loss in its business. Investors should not take this company for their investment purposes otherwise they will destruct the value of their invested capital.
It is observed that Empire Resources Ltd has negative output from its business. However, management is planning to make its business effective. Investors should not invest their capital in Empire Resources Ltd otherwise they will face high loss in their capital investment.
References
https://www.resourcesempire.com.au/
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Empire Resources Ltd, 2015, annual report, Retrieved on 29th November, 2017 from https://www.resourcesempire.com.au/annual_report.htm
Empire Resources Ltd, 2016, annual report, Retrieved on 29th November, 2017 from https://www.resourcesempire.com.au/annual_report.htm
Empire Resources Ltd, 2017, annual report, Retrieved on 29th November, 2017 from
Empire Resources Ltd, annual report, retrieved on 29th November, 2017 from https://www.resourcesempire.com.au/annual_report.htm
https://www.resourcesempire.com.au/annual_report.htm
Yahoo finance, 2018, Empire Resources Ltd, retrieved on 19h January from https://www.resourcesempire.com.au/annual_report.htm https://in.finance.yahoo.com/