You have recently joined Business Smart, a finance and business consultation firm. Your manager Mr. James Brown will be taking family leave. He has asked you to prepare a consultation report for an important client, Company A, before he returns on 4 October 2019.
Company A is a mining and resource company. It recently announced the appointment of a new Chief Executive Officer (CEO). Before the arrival of the new CEO, Company A decides to conduct a comprehensive review of the company’s financial performance and risk in the past three years. In particular, this review is to better understand how its financial performance is benchmarked against other rivals with similar profiles in the Materials sector. Company A considers this review very important and timely in assisting the incoming CEO to set out new plans for its future performance development.
In addition, the Mining sector has been increasingly scrutinised recently because of its high environmental pollution and energy consumption. Investors and shareholders constantly query Company A’s environmental risks and potential financial implications associated with these risks. As a response, several board members proposed to increase and improve the company’s reporting on environmental challenges as well as strategies for reducing energy consumption at recent board meetings. However, a few board members disagreed because they were concerned about the cost and risk associated with lifting such reporting. Given the economic downturn and the end of the mining boom, they argued that the company should focus on the main business areas and regaining profit. The issue is pending for the new CEO to resolve.
1. Select Company A and a benchmarking company for analysis. You need to choose two companies from a list of Selected ASX Listed Materials Companies, which is provided as a separate file under Assignment on the course website.
(1) The name of the company selected as Company A should begin with the same letter of the alphabet as your surname (or your fellow student’s surname should you do the assignment in pairs or in a group of three), e.g. if your surname is Alpha, you can use Adelaide Brighton Ltd or Alumina Ltd.
(2) The name of the company selected as the benchmarking company should begin with the same letter of the alphabet as your first name (or your fellow student’s first name should you do the assignment in pairs), e.g. if your first name is Beta, you can use Barra Resources Ltd or BHP Billiton Ltd.
Note: If you cannot find an appropriate company to analyse, you may randomly select a company from the list. However, you will need to clearly justify the reason for such selection in your assignment.
2. Go to the company information database DatAnalysis Premium via the UniSA Library website. Under Company Reports, search for the companies you selected according to their ASX Codes or part of the companies’ names. Go to Financial Data to review these companies’ financial statements for the financial years from 2017 to 2019 (if 2019 data are not available, use data from 2016 to 2018).
3. Based on available data, calculate the appropriate financial ratios of Company A and the benchmarking company selected. Then analyse and compare the financial results of these two companies. Your comparative analysis and presentation should cover the following points:
1) Which company is more profitable and generates healthier returns?
2) How well are the two companies managing their resources? Do you think Company A is efficient in managing its assets compared with the benchmarking company?
3) Can Company A meet its short-term debts? How is its liquidity compared with the benchmarking company?
4) Do you think Company A will stay in operation in the long term? How is its long-term financial stability compared with the benchmarking company?
4. Investigate whether the benchmarking company produces information about environmental issues such as environmental pollution and energy consumption in its annual report or standalone sustainability report. Do you think Company A should follow what the benchmarking company is doing? Do you support the view to increase environmental reporting on energy and carbon reduction strategies in Company A, or do you think the company should focus on financial growth and gaining profit? Explain.