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Anglo American Plc report - Essay Example

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Introduction The financial performance of corporations is very important in order to comply with the expectations of the investors. The four main financial statements that are released in the annual report of a firm are the income statement, balance sheet, statement of retained earnings, and statement of cash flow…
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Download file to see previous pages The five major categories of financial ratios are liquidity, financial leverage, asset efficiency, profitability, and market values (Peavler, 2013). The purpose of this report is to analyze the financial performance of the company Anglo American Plc by performing ratio analysis. Trend Analysis Anglo American A trend analysis of some key financial indicators of Anglo American is illustrated below. 2012 (millions) 2011 (millions) % change Sales 28761 30580 -5.94% Gross profit 2768 13237 -79.09% Expenses 30449 21141 44.03% Interest payable 798 695 14.82% Net profit before tax 138 10599 -98.70% Total assets 79369 72422 9.56% Total liabilities 35582 29253 17.79% Capital and reserves 37657 39092 -3.67% Advantages ratio analysis Ratio analysis is a tremendous analytic tool that can be used to evaluate the financial performance of an enterprise. One of the virtues of this type of analysis is that any person with access to the internet can extract the financial statements of a company to realize the analysis. The basic formulas used as input in ratio analysis mostly utilize data from the financial statements of the company. The use of ratio analysis can help people instantly check weather a company is sound financially (Bott, 2013). Another advantage of ratio analysis is that the ratios can be compared against the performance of other companies or the industry. Financial ratios can also be compared against the financial ratio results of previous years. The ratio analysis performed on Anglo American in this paper includes the use of 21 different ratios. Ratio Analysis Anglo American The net margin of Anglo American in 2012 was -2.1%. Net margin measures the absolute profitability of a company. It is calculated dividing net profit by total sales. A negative net margin result is an unfavorable outcome. This ratio was chosen because it shows the profitability of the firm. In 2012 Anglo American obtained an earnings per share (EPS) metric of -$1.19. The company’s EPS went down by $3.91 since the previous fiscal year. Earnings per share is the portion of a company’s profit allocated to each outstanding share of common stock (Investopedia, 2013). EPS was selected because this metric influences the buying decisions of investors. The return on assets (ROA) of the company in 2012 was -0.8%. ROA is calculated by dividing net income by total assets. The reason I selected this ratio is because it shows how effective a company has been at generating profits from its assets. The efficiency of the company is an important aspect of the operations to measure. Anglo American achieved a return on equity (ROE) in 2012 of -1.4%. This metric measures the extent to which financial leverage is working towards benefiting the company. The formula to calculate return on equity is net income divided by total equity. ROE was used in this analysis because this metric demonstrates the ability of the firm to generate income from its equity. The debt ratio of the company is calculated dividing total debt by total assets. Anglo American had a debt ratio in 2012 of 0.45: 1. This ratio shows how well prepared the company is to pay off its long term debt. Anglo American does not seem to have overextended its debt position. The debt ratio was used in the analysis due to the fact that this ratio evaluates the long term solvency of the firm. Typically companies are in trouble when the debt ratio is too ...Download file to see next pagesRead More
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