Financial Analysis of Newcrest Mining Ltd and Qantas Airways Ltd - Report Example

FINANCIAL ANALYSIS OF NEWCREST MINING LTD AND QANTAS AIRWAYS LTD By Student’s Name Code + Course Name Professor University City/State Date Executive Summary The objective of this report is to provide information necessary for investment decision making in either Newcrest Mining Limited or Qantas Airways Limited. This will be achieved by performing and interpreting financial ratios in order to establish the financial performance and financial position of both companies. The report used ratio analysis of the financial statements of the two companies for the years 2011 and 20112. The report provides information that is vital to a client who contemplates investing in either of the company. The report offers appropriate justification based on the ratio analysis and comparison of the two companies. Table of Contents Executive Summary 3 Introduction 5 Comparison of the two Companies 6 Recommendation 8 Conclusion 9 References 10 Brigham, E. F & Houston, J. F 2009, Fundamentals of Financial Management, Cengage Learning, New York 10 Introduction The aim of the financial analysis is to determine the profitability, efficiency, and financial stability in the short term and long term of Newcrest Mining Limited and Qantas airways. Newcrest Mining Limited was established in 1966 and its headquarter is in Melbourne, Australia. The company is in gold industry and operates in basic materials industrial sector. It is among the top ten gold mining companies in the world in terms of production, reserves, and market capitalization. Newcrest Mining Limited is an Australian company that is also listed in the Australian stock exchange, ASX and its ASX code is NCM.AX. The company engages in the exploration, development, mining, and sale of pure gold, gold-copper concentrate, and silver in Australia and other countries like Indonesia, Papua New Guinea, Cote d'Ivoire, and Fiji. The company solely owns Cadia Hill open pit mine, and the Cadia East and Ridgeway underground mines. These mines are located about 25 kilometers from the city of Orange (central west New South Wales). The company also has 100 % interest in the Telfer gold-copper mines, which are located in the Western region of Australia in East Pilbara. Furthermore, the company has interests in the Lihir, Hidden Valley, and Wafi-Golpu projects, which are carried out in Papua New Guinea; Bonikro project in Côte d'Ivoire; and Gosowong project located in the North Maluku Province of the Republic of Indonesia. Qantas airways was established in 1920 and its headquarter is in Mascot, Australia. It is stated in the main business of Qantas Airways Limited is the transportation of passengers. It has two airlines: Qantas and Jetstar both of which operates regionally, domestic and at international services. However, the company operates in other specialist markets like Qantas catering and Qantas holidays. The company has a strategy of reducing the intensity of capital. By 30th June 2011 the company operated 278 fleet passengers and five freighter aircrafts. Comparison of the two Companies The two companies are in different sectors of the economy. Therefore, the companies can be best compared by use of ratio analysis as opposed to their volume of trade. Ratio analysis as observed by Pratt (2010) is a method of financial analysis, which helps in evaluating the financial performance of a business. The ratios that will be used in this report help to determine the profitability, efficiency, financial stability and share performance of the two companies. The table below shows the major ratios for both companies for the year ended December 2013. Ratio Newcrest Mining Limited Qantas Airways Limited Profit margin -152.06% -2.18% Return on assets -3.40% -0.10% Current Ratio 2.50 0.69 Debt-to-Equity Ratio 45.14 110.81 Profitability These ratios indicate the ability of the company to generate profits from investments. There are usually two major concerns in any investment: the return from investment and the accompanying risks. If an investment produces high returns but the corresponding risk inherent is exceedingly, high such an investment is not desirable to an investor. Both companies made loss in year 2013. However, Newcrest Mining Ltd made a huge loss compared to Qantas Airways. Efficiency Efficiency ratios indicate how effectively the company is using its assets in order to generate the sales revenue. The return on assets ratio of both companies is negative which shows that the assets of both companies are not utilised efficiently. Financial Stability Financial stability of a company is measured by the gearing ratios, which indicate the extent to which the company has borrowed fixed charge capital in order to finance its assets. The debt to equity ratio of both companies is high. This is an indication that there is a heavy debt burden on both companies. The table below shows the dividend payment of both companies over the last five years. Year Dividend NCM Ltd QAN 2009 0.11 0.06 2010 0.18 2011 0.21 2012 0.26 2013 0.08 According to data obtained from YAHOO! FINANCE (2014), Newcrest Mining Ltd has been paying an increasing dividend over the last five years. Qantas Airways Ltd paid a dividend of $0.06 in year 2009 but since then it has never paid any dividend. The graph below shows the movement of share prices of the two companies over the last five years. The raph shows a general increase in the price of shares of Newcrest Mining Ltd upto year 2012 after which it has continued to decrease. The share price of Qantas Airways Ltd have remained relatively constant but at a very low value. Recommendation It is recommended for a shareholder to invest in Newcrest Mining Ltd because it has been paying an increasing dividend over the last five years. Brigham and Houston (2009) observe that dividend payment is an indication that the company is profitable and has the potential to make profit and declare dividend for the shareholders. Since dividend is paid out of the income earned by the company, it can be deduced that Qantas Airways has not been paying dividend since it has experienced continued loss over the years. Moreover, Newcrest Mining Ltd has invested in other projects. These projects ensure that investors are only exposed to low cost portfolios and mines whose life spans are long enough to ensure continued growth of the company. In addition, the technical skills and mining experience guarantees strong financial returns for the company. Conclusion Financial ratio analysis measures the income-producing ability of the company to meet operating and financial obligations. They are also helpful to investors in assessing the risk of investing in a certain company. Investors are concerned whether assets of the company will generate sufficient income to maximize their wealth. The report has established that a client should invest in Newcrest Mining Limited since the company has been paying dividends over the last five years. Dividend payment will meet the wealth maximization objective of the client. Investors should invest in companies where they are rewarded for the funds they commit in the company. References Brigham, E. F & Houston, J. F 2009, Fundamentals of Financial Management, Cengage Learning, New York Pratt, J 2010, Financial Accounting in an Economic Context, John Wiley and Sons, New York Yahoo! Finance 2014, Qantas Airways Limited (QAN.AX), [Online] Available at: [Accessed 9 June 2014] Yahoo! Finance 2014, Newcrest Mining Limited (NCM.AX), [Online] Available at: [Accessed 9 June 2013] Read More

 

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