Financial Analysis Of New Talisman Gold Mines Limited
Company Overview
It is important to evaluate the financial performance of company before investing capital. In this report, New Talisman Gold Mines Limited has been taken into consideration for financial analysis. The main objective of this report is to provide advice to investor whether he should make investment in New Talisman Gold Mines Limited
New Talisman Gold Mines Limited is listed Australian Company. This company holds mining permit and an exploration permit over the Talisman Gold mine project in the Hauraki Gold Field. At the present time, Company has entered into binding agreement with New Crest over the rahu exploration area ((New Talisman Gold Mines Limited, 2015).
Yasuhiro and Mark is the key person who owns highest share in company (Laudon and Traver, 2013).
Key managerial person who owns the highest shares holding ((New Talisman Gold Mines Limited, 2017).
This ratio has been calculated on the basis of detail given in the annual report of company (Garrett, Hoitash and Prawitt, 2014).
Calculation of ROA and ROE
|
New Talisman Gold Mines Limited |
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|
Particulars (Amount in Million |
2014 |
2015 |
2016 |
2017 |
|
AUD$ |
AUD$ |
AUD$ |
||
|
EBIT |
-2 |
-1 |
-3 |
-1 |
|
Net profit |
-2 |
-1 |
-3 |
-1 |
|
Total Assets |
10 |
11 |
9 |
14.00 |
|
Total Liabilities |
1 |
1 |
1 |
0 |
|
Shareholders’ Equity |
9 |
10 |
8 |
14.00 |
Computation of Return on assets
|
1. Rate of Return on Assets |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income |
-2 |
-1 |
-3 |
-1 |
|
B. Total assets |
10 |
11 |
9 |
14 |
|
(A/B) |
-20.00% |
-9% |
-33% |
-7% |
Interpretation
It is evaluated that return on assets of company is negative since last four years. It is not good indicators. Company has faced loss in its business. Nonetheless, company has decreased its net loss from -20% to -7% since last four years (New Talisman Gold Mines Limited, 2016).
Computation of Return on equity
|
2. Rate of Return on Equity |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Net income available to equity shareholders. |
-2 |
-1 |
-3 |
-1 |
|
B. Shareholder’s Equity |
9 |
17,981 |
8 |
14.00 |
|
(A/B) |
-22.22% |
-0.01% |
-37.50% |
-7.14% |
It is evaluated that return on equity of company is negative. It is not good indicator to investors for the investment purpose in company. Company has faced loss in its business. New Talisman Gold Mines Limited has decreased its net loss from -22.2% to -7.14% since last four years (New Talisman Gold Mines Limited, 2014).
Computation of Debt to equity
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1 |
1 |
1 |
0 |
|
B. Total assets |
10 |
11 |
9 |
14.00 |
|
(A/B) |
10% |
9% |
11% |
0% |
It is evaluated that debt to equity of company has went down to zero. Company reduced its all the liabilities to zero with due to the sluggish market conditions. In addition to this, Company has faced loss in its business. New Talisman Gold Mines Limited has decreased its debt to equity from 10% to 0% since last four years.
With the help of this equation, it could be inferred that both sides are same.
|
Providing equation |
2014 |
2015 |
2016 |
2017 |
|
Net profit After tax/OE |
-0.2222 |
-0.1 |
-0.375 |
-0.0714 |
|
EBIT/TA*NPAT/EBIT*TA/OE |
-0.2222 |
-0.1 |
-0.375 |
-0.0714 |
(Please see the excel sheet for the proper calculation)
Compares movements in the companies’ share price index to the All Ordinary Index
It is evaluated that as compared to All Ordinary index of company, share price movement of New Talisman Gold Mines Limited is high. In addition to this, company has faced high fluctuation and downward slope due to its less effective business functioning (Yahoo finance, 2017).
Calculation of Return on Assets (ROA) and Return on Equity (ROE)
Company has increased its overall share price in June, 2017 which is good indicators for the New Talisman Gold Mines Limited (New Talisman Gold Mines Limited, 2017). After that share price went down by drastic rate and there is no sign of increment in share price of company. Investors should not invest their money in this New Talisman Gold Mines Limited.
- In 2017, company reduced all of its short term and long term liabilities to zero with a view to save it from the winding up procedure.
- Company has also re-engeenered its business functioning with a view to increase its overall outcomes in determined approach (New Talisman Gold Mines Limited, 2017).
Stock information and computation of Beta of company
|
Regression Statistics |
|
|
Multiple R |
0.11534 |
|
R Square |
0.0133 |
|
Adjusted R Square |
-0.0337 |
|
Standard Error |
0.45315 |
|
Observations |
23 |
|
ANOVA |
|||||
|
df |
SS |
MS |
F |
Significance F |
|
|
Regression |
1 |
0.05814 |
0.05814 |
0.28315 |
0.600227706 |
|
Residual |
21 |
4.31226 |
0.20535 |
||
|
Total |
22 |
4.3704 |
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
|
Intercept |
0.157452614 |
0.102108212 |
1.542017 |
0.138005 |
-0.054893038 |
0.369798265 |
-0.054893038 |
0.369798265 |
|
X Variable 1 |
-2.137800458 |
4.017512155 |
-0.53212 |
0.600228 |
-10.49267436 |
6.21707344 |
-10.49267436 |
6.21707344 |
The beta value is .15
E(R) =
E(R) = Expected 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) |
0.157452614 |
|
Market Risk premium (C) |
6% |
|
Required rate of return [A+(B*C)] |
4.94% |
(Please see the excel)
The investment decision of Company is highly aggressive. It is observed that company has faced high loss in its business. It is further observed that company has reduced its investment in its own business and invested more funds in outside business organization. Therefore, due to sluggish market condition, company has been investing its money in other business to cope up with its existing business losses (Bekaert and Hodrick, 2017).
Cost of equity (calculated above using CAPM) = 4.94%
Cost of Debt = 0%
WACC = Cost of debt (interest rate after tax) + cost of equity
= 0% + 4.94%
= 4.94%
The cost of debt of company is taken zero. Company does not have any debts in its business nor have any interest payment. Therefore, company have zero debt (Kundakchyan and Zulfakarova, 2014).
It is evaluated that if company has higher WACC then it could put negative impact while selecting any project by the management. It will reduce the return on capital employed and also increase the risk of covering project loss. Higher WACC reflects higher risk so financial leverage. Therefore, it could be inferred that higher WACC could impact management decision in negative manner (Brigham and Ehrhardt, 2013).
It is evaluated that debt ratio of company has went down since last four years. However, determining the optimum debt ratio is not possible as it based on the economic factors, business factors and internal factors of business (New Talisman Gold Mines Limited, 2017).
|
3. Debt Ratio |
||||
|
2014 |
2015 |
2016 |
2017 |
|
|
A. Total Liabilities |
1 |
1 |
1 |
0 |
|
B. Total assets |
10 |
11 |
9 |
14.00 |
|
(A/B) |
10% |
9% |
11% |
0% |
It is considered that debt to equity of company has gone down to zero. Company reduced its all the liabilities to zero with due to the sluggish market conditions. New Talisman Gold Mines Limited has decreased its debt to equity from 10% to 0% since last four years. It is the best management decision to keep its debt ratio to zero to save it from winding up or dissolution procedure (Zhu, 2014).
It is observed that company has no interest payment. Therefore, the gearing ratio of company is zero. It is the best management decision to keep its gearing ratio to zero as company has been facing loss in its business.
Company has adopted profit based dividend policies in its business. The main reason of determining this dividend policy is based on the amount of dividend which company has paid since last four year. Company has paid zero dividends to its shareholders as it has not earned profit throughout the time.
After evaluating the above given data, it is considered that investors should not invest their money in New Talisman Gold Mines Limited. It is observed that company has faced high loss in its business. Therefore, due to sluggish market condition, company has been investing its money in other business to cope up with its existing business losses. Investors should not invest their money in this company otherwise they would have to face high loss in their business.
Conclusion
It is very important for the investors to conduct financial analysis to identify all the internal and external factors of particular company before investing capital. Now in the end, it could be inferred that investors should not invest their capital in New Talisman Gold Mines Limited.
References
Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge University Press.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.
Kundakchyan, R.M. and Zulfakarova, L.F., 2014. Current issues of optimal capital structure based on forecasting financial performance of the company. Life Science Journal, 11(6s), pp.368-371.
Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson
New Talisman Gold Mines Limited, 2014, annual report, Retrieved on 29th November, 2017 from https://www.google.co.in/search?q=new+talisman+gold+mines+limited+annual+report&oq=New+Talisman+Gold+Mines+Limited+annual+report&aqs=chrome.0.0j69i57.5339j0j7&sourceid=chrome&ie=UTF-8
New Talisman Gold Mines Limited, 2015, annual report, Retrieved on 29th November, 2017 from https://www.google.co.in/search?q=new+talisman+gold+mines+limited+annual+report&oq=New+Talisman+Gold+Mines+Limited+annual+report&aqs=chrome.0.0j69i57.5339j0j7&sourceid=chrome&ie=UTF-8
New Talisman Gold Mines Limited, 2016, annual report, Retrieved on 29th November, 2017 from https://www.google.co.in/search?q=new+talisman+gold+mines+limited+annual+report&oq=New+Talisman+Gold+Mines+Limited+annual+report&aqs=chrome.0.0j69i57.5339j0j7&sourceid=chrome&ie=UTF-8
New Talisman Gold Mines Limited, 2017, annual report, Retrieved on 29th November, 2017 from https://www.google.co.in/search?q=new+talisman+gold+mines+limited+annual+report&oq=New+Talisman+Gold+Mines+Limited+annual+report&aqs=chrome.0.0j69i57.5339j0j7&sourceid=chrome&ie=UTF-8
Yahoo finance, 2018 retrieved on 19h January from https://in.finance.yahoo.com/
Zhu, J., 2014. Quantitative models for performance evaluation and benchmarking: data envelopment analysis with spreadsheets (Vol. 213). Springer