Financial Analysis Of A-Cap Resources Limited: ROA, ROE, Debt Ratio, Stock Price Analysis, And WACC
Introduction to A-Cap Resources Limited
The report contains an overall financial analysis of the performance of A-Cap resources limited in past four years. The analysis include the calculation of ratios like ROA, ROE and debt ratio. Further, stock price analysis and calculation of WACC is also done along with the evaluation of debt ratio and dividend policy. The report also contains some announcements made by the company which affected its stock prices.
An ASX and Botswana listed company that deals in exploration of minerals in Australia. It mainly explores coal deposits and uranium. The main focus of the company is to advance its significant uranium project operating in Botswana. The ticker of the company is ASX: ACB and BSE: A-Cap (“A-Cap Resources Ltd.”, 2018).
- Main shareholders
- More than 20% shareholdings: Jiangsu Chixiang Precision Gear Co. Ltd (41.04%)
- More than 5% shareholdings: Ansheng Investment Co Ltd (19.78%)
- Firm governance
- The Chairman: Mr Angang Shen
- Members of Board: Mr Jijing Niu, Mr Chenghu Zhu and Mr Michael Muhan Liu
- The CEO: Mr Paul Thomson
None of these people are involve in substantial shareholdings of the company.
- Return on Assets and Return on equity
|
A-Cap Resources Limited Financial Statements for year 2013-16 |
||||
|
Particulars |
2014 |
2015 |
2016 |
2017 |
|
AUD$ |
AUD$ |
AUD$ |
AUD$ |
|
|
EBIT |
-2,145,610 |
-2,969,116 |
-1,307,836 |
-2,762,418 |
|
Net profit |
-3,005,965 |
3,508,626 |
-344,606 |
-4,144,083 |
|
Total Assets |
42,633,116 |
50,180,731 |
54,595,069 |
55,060,277 |
|
Total Liabilities |
1,193,038 |
974,181 |
772,756 |
492,656 |
|
Shareholders’ Equity |
41,440,078 |
49,206,550 |
53,822,313 |
54,567,621 |
(“Annual report 2015”, 2015)
|
1. Rate of Return on Assets |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
-3,005,965 |
3,508,626 |
-344,606 |
-4,144,083 |
|
B. Total assets |
42,633,116 |
50,180,731 |
54,595,069 |
55,060,277 |
|
(A/B) |
-7.05% |
7% |
-1% |
-8% |
(“Annual report 2017”, 2017)
|
2. Rate of Return on Equity |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders |
-3,005,965 |
3,508,626 |
-344,606 |
-4,144,083 |
|
B. Shareholder’s Equity |
41,440,078 |
49,206,550 |
53,822,313 |
54,567,621 |
|
(A/B) |
-7.25% |
7.13% |
-0.64% |
-7.59% |
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1,193,038 |
974,181 |
772,756 |
492,656 |
|
B. Total assets |
42,633,116 |
50,180,731 |
54,595,069 |
55,060,277 |
|
(A/B) |
3% |
2% |
1% |
1% |
Proving the equation
|
2014 |
2015 |
2016 |
2017 |
|
|
AUD$ |
AUD$ |
AUD$ |
AUD$ |
|
|
EBIT |
-2,145,610 |
-2,969,116 |
-1,307,836 |
-2,762,418 |
|
NPAT |
-3,005,965 |
3,508,626 |
-344,606 |
-4,144,083 |
|
OE |
41,440,078 |
49,206,550 |
53,822,313 |
54,567,621 |
|
TA |
42,633,116 |
50,180,731 |
54,595,069 |
55,060,277 |
|
EBIT/TA (1) |
– 0.05 |
– 0.06 |
– 0.02 |
– 0.05 |
|
NPAT/EBIT (2) |
1.40 |
– 1.18 |
0.26 |
1.50 |
|
TA/OE (3) |
1.03 |
1.02 |
1.01 |
1.01 |
|
NPAT/OE (4) |
– 0.07 |
0.07 |
– 0.01 |
– 0.08 |
|
1*2*3= 4 |
– 0.07 |
0.07 |
– 0.01 |
– 0.08 |
TA/OE stands for Total Assets/ Owners’ equity, the variable used as a formula of equity multiplier. The multiplier is used in DuPont analysis in which ROE is divided into its components. The multiplier measure the degree of financial leverage of a company. TA/OE do impact the relationship between ROA and ROE. With an increase in Total assets, the multiplier increases resulting in decrease in ROA. On the other side ROA increases which boosts up ROE but the multiplier remains same. Thus, it can be concluded that rise in equity multiplier will increase ROE but reduces ROA (Leach & Melicher, 2011).
- In 2015, company has earned profits which makes its ROE positive to 7.13%, greater than ROA of 7%. This is because shareholders’ equity is comparatively less than the total assets acquired by the company. In remaining years, A-cap was making losses, resulting in negative ratios. Despite of being negative, ROE was greater than ROA.
- Share price graphs
- The share price of A-Cap was continuously increasing from starting of 2016 and by the end of the year it reaches $0.08, which was the highest among all. The price remain stable for the January 2017 and after that a sudden fall was there and in May it was $0.05. After that, there was a slight increase but at the end of the year 2017 it again falls to $0.05. Less movements were there in ordinaries index and seems to be stable. The fluctuations in company’s share price is independent of market movements.
- On September 20, 2017 the company announced that it will be placing its securities in Trading halt session state for making the announcement in the market about company’ mining license for Letlhakane project (Acap.com.au. 2017)
- A-Cap announce about its CEO on 28 August 2017. It declared Paul Thomson to be the Chief Executive Officer of the company, effective from September 1, 2017 (Acap.com.au. 2017).
- On October 2017, the company announced about getting extension for its coal prospecting licenses (Acap.com.au. 2017).
- Beta =5.43
- E(R) =
|
Calculation of Required rate of return |
|
|
Risk free rate (A) |
4% |
|
Beta (B) |
5.43 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
36.58% |
Conservative investment means having low return and low risk. Company has negative ROE from the past two years and its standard deviation is also 0.22 which is very low. It cannot be considered as conservative because it provides negative return to its shareholders and was making losses from past years.
- As company does not carry any sort of non-current liabilities, so it’s cost of debt will be zero.
Cost of Equity (calculated above) = 36.58%
Cost of Debt = 0%
WACC= cost of equity + cost of debt
= 36.58% + 05%
= 36.58%
- Higher WACC can impact the evaluation decision of management because increase in WACC will result in rise in the risk associated with investment proposal. As and when beta rise, WACC rise making the risk higher. Therefore, rise in WACC may affect the decision of management regarding a project (Pratt & Grabowski, 2010).
- The debt ratio of the company seems to stable in past two years along with its reduction. In 2014, it was 3% and in 2017, it was 1% same as 2016. This means that company is good at managing its debt and despite of making losses, it is capable enough to pay off its liabilities (Tracy, 2012).
- As A-Cap does not have any long term borrowings, so no adjustments can be made regarding gearing ratio.
A-Cap follows no dividend policy as its main activities are exploration of minerals, so it has not yet declared any dividends to its shareholders. Moreover, it was earning losses and does not sufficient earnings to declare dividends (Gitman, Juchau & Flanagan, 2015)
From the overall analysis it will be recommend not to include this company is investment portfolio. Reasons being its negative returns, no dividends declaration and net losses. Its financial performance is not so much promising, so it will be better to avoid making investment in it.
References
Annual report 2015. (2015). Acap.com.au. Retrieved 1 February 2018, from https://acap.com.au/wp-content/uploads/2015/10/Annual-Report-2015.pdf
^AXJO Historical prices | S&P/ASX 200 Stock – Yahoo Finance. (2018). Au.finance.yahoo.com. Retrieved 1 February 2018, from https://au.finance.yahoo.com/quote/%5EAXJO/history?period1=1454265000&period2=1517423400&interval=1mo&filter=history&frequency=1mo
A-Cap Resources Ltd.. (2018). Acap.com.au. Retrieved 1 February 2018, from https://acap.com.au/
ACB.AX: Summary for ACAP RES FPO – Yahoo Finance. (2018). Finance.yahoo.com. Retrieved 1 February 2018, from https://finance.yahoo.com/quote/ACB.AX?p=ACB.AX
Annual report 2017. (2017). Acap.com.au. Retrieved 1 February 2018, from https://acap.com.au/wp-content/uploads/2017/10/2017-Annual-Report.pdf
CEO SERVICE AGREEMENT AND BOARD CHANGES. (2017). Acap.com.au. Retrieved 1 February 2018, from https://acap.com.au/wp-content/uploads/2017/08/43lt1xzdv1ghfg.pdf
EXTENSION OF COAL PROSPECTING LICENSES. (2017). Acap.com.au. Retrieved 1 February 2018, from https://acap.com.au/wp-content/uploads/2017/10/Extension-of-Coal-Prospecting-Licences.pdf
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.
Leach, J. C., & Melicher, R. W. (2011). Entrepreneurial finance. Cengage Learning.
Pratt, S. P., & Grabowski, R. J. (2010). Cost of capital in litigation: applications and examples (Vol. 647). 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.
Trading Halt. (2017). Acap.com.au. Retrieved 1 February 2018, from https://acap.com.au/wp-content/uploads/2017/09/10-Trading-Halt-20-Sep-17.pdf