Agnico Eagle Mines Limited - Essay Example

Introduction Whenever a company has a surplus of cash it is always a good idea to invest that money in a financial instrument that generates a return on investment. Our company is currently sitting on $1 million in cash. I have been authorized by the owner and CEO of the company to invest 25% of the cash reserves in common stocks from a company in the mining industry. The company must be a publicly traded firm that has good financial standing. A full financial analysis of the selected company will be performed in order to determine the viability of the investment. The company in the mining industry I selected for further analysis is Agnico Eagle Mines Limited. Company background The company was founded in 1953 under the name Cobalt Consolidated Mining. The firm has a long history of financial success as it has paid cash dividends 30 of the last 31 years. The Canadian company has operations in Canada, Mexico, and Finland. Its main focus is in the mining of gold and other precious metals. Agnico Eagle has a very solid and stable managerial team with most of its executives having over 20 years of experience with the company. The president and CEO of the firm is Sean Boyd. In 2012 Agnico Eagle produced a record 1,043,811 ounces of gold and almost 4.7 million ounces of silver (Agnicoeagle, 2014). The company’s common stocks are traded in the New York Stock Exchange (NYSE) under the symbol AEM. As of February 24, 2014 AEM common stocks were trading at a price of 34.24 (Nasdaq, 2014). The market capitalization of the firm is $5.98 billion. Financial Analysis Agnico Eagle generated revenues in 2012 of $1.92 billion. The revenues of the firm increase by 5.27% in comparison with the previous year. The net income of Agnico Eagle during 2012 was an outstanding $311 million. Having a positive net income total is a great sign since a lot of companies in the mining industry lost money that year and especially due to the fact that in 2011 Agnico had losses of $569 million. Its net income increased by $880 million in comparison with 2011. The cash position of the firm at the end of 2012 was $298 million. The company in 2012 obtained $696 million from operating activities, -$396 million from investing activities, and -$202 million from financing activities (Agnicoeagle, 2014). The total equity of the enterprise in 2012 was $3.41 billion which represents an increase of 6.06% in comparison with the previous fiscal year. Agnico Eagle had a total asset balance of $5.26 billion in 2012. The total assets of the company increase by 4.39%. Ratio Analysis The net margin shows the absolute profitability of a firm. Agnico Eagle had a net margin in 2012 of 16.21%. Its net margin was extremely good considering that the industry average net margin that year was -25.60% (Dun & Bradstreet, 2014). The return on assets (ROA) of the firm was 5.92%. Return on assets measures the ability of a company to generate income from its assets. The ROA of the firm was much better than the industry average of -5.80%. In 2012 Agnico Eagle had a return on equity (ROE) of 9.11%. This ratio shows a corporations profitability by revealing how much profit a company generates with the money shareholders have invested (Investopedia, 2014). The company’s return on equity was 10.71% better than the industry. The current ratio shows the ability of a company to pay off its short term debt. It is calculated dividing current assets divided by current liabilities. Agnico Eagle had a current ratio in 2012 of 3.26. This ratio is very good because it is better than the industry average of 1.50. The quick ratio is another liquidity ratio that measures short term liquidity. The difference between the quick ratio and the current ratio is that inventory is subtracted from the numerator of the formula making the quick ratio a more strict liquidity ratio. The company had a quick ratio in 2012 of 2.02 which is better than the industry average of 0.70. The debt ratio of the firm in 2012 was 0.35. This ratio shows that the company is not too highly leveraged. In the future the company could use additional debt to finance its growth. The debt to equity ratio of the firm was 0.54. This ratio measures the amount of assets being provided by creditors for each dollar of assets being provided by stockholders (Garrison & Noreen, 2003). The earnings per share (EPS) of the firm was $1.81. A good EPS result tends to have a positive effect in the market price per share (Garrison et al., 2003). The dividend per share of the company was $1.02. The dividend payout ratio of the firm was 56.35% which implies that more than half its earnings were distributed to common shareholders. Conclusion / Recommendations Our company is looking to invest money in a mining firm that has demonstrated a good financial performance in recent times. The company I evaluated in this report was Agnico Eagle Mines Limited. I originally selected this company due to its long history of financial success. The financial performance of the firm did not disappoint, instead it really impressed me. In most of the financial ratios that were calculated including net margin, return on equity, return on assets, current ratio, and quick ratio among others the company’s results were higher than the industry average according to Dun & Bradstreet database. The profitability of the company was outstanding reflected by its 16.21% net margin. The absolute profitability of the firm was an incredible 41.81% better than the industry average. Both the company’s short term and long term solvency were outstanding. The potential return on investment of the company is more attractive than other firms in the mining industry because the firm has a long history of paying cash dividends. My recommendations for our company based on the solid efficiency, profitability, and liquidity of Agnico Eagle is to immediately invest $250,000 of AEM common stocks. References Agnicoeagle.com (2014). Annual Report 2012 Agnico Eagle. Retrieved February 24, 2014 from http://ir.agnicoeagle.com/files/doc_financials/2012/AEM-2012-AnnualReport.pdf Agnicoeagle.com (2014). Key Facts. Retrieved February 24, 2014 from http://www.agnicoeagle.com/en/About-Us/Pages/Key-Facts.aspx Dun & Bradstreet (2014). Key Business Ratios – SIC 1041. Retrieved February 24, 2014 from Dun & Bradstreet database. Garrison, R,, Noreen, E. (2003). Accounting Management (10th ed.). Boston: McGraw-Hill Irwin. Investopedia.com (2014). Return On Equity – ROE. Retrieved February 24, 2014 from http://www.investopedia.com/terms/r/returnonequity.asp Nasdaq.com (2014). Agnico Eagle Mines Limited Stock Quote & Summary Data. Retrieved February 24, 2014 from http://www.nasdaq.com/symbol/aem Read More