Comparison And Analysis Of Barrick Gold Corporation And First Quantum Minerals

The aim of this paper is to compare and analysis two different companies of a Canadian mining company. The company chosen for this paper are Barrick Gold Corporation and First Quantum Minerals. The paper starts with analysing the economic impacts on the industry. Following that, a Swot of both the companies has been studied. Lastly company financial ratios has been compared

The economic issues on the industry are stared below:

• Rising demand for resources for electric vehicles, that necessitates far more vanadium and lithium and copper for batteries than conventional automobiles (Marshall, 2021).
• Reduced availability of cobalt, zinc and nickel which are in high demand for high-tech applications.
• Increasing incomes from urbanisation and industrialization have boosted demand for metal and mineral products.

Other than economic issues, factors that influence Mining industry are described in the below table (Alanzi, 2018):

This framework is a method for analysing four different aspect of a company. These four aspects are: strength, weakness, opportunities and threats (Weng & Liu, 2018). The SWOT of both the company are analysed below.

Financial statement analysis refers to a process of examining the firm’s financial statements for the purpose of decision-making (Texts, 2018). Thus, external shareholders utilize it in order to understand the organization’s health and evaluate the business value and financial performance. However, internal constituents utilize it as a checking or monitoring tool for handling the finances.

Based on the financial calculation, the overall liquidity position of Barrick Gold has improved in 2020 as compared years. Thus, it can be observed that the company is having liquidity or cash to cover all of its short-term obligations or dues and is also not dependent on its inventory (Raki?evi? et al., 2016). It might happen that Barrick is not utilizing its assets properly and is also not handling its working capital efficiently. While, on the other hand, the Quantum’s liquidity ratios demonstrates that they also have sufficient cash to pay all of its current debts as the value of current assets exceeds the value of current liabilities, but it is marginally dependent on its inventory. Furthermore, when it is compared to industry average, Barrick Gold is at par because its liquidity ratios are higher than the First Quantum Minerals.

On the basis of financial ratio calculation, the Barrick’s net profit margin and gross profit margin has increased significantly to 28.69% and 41.11% in 2020, indicating that the company has created more net profits from its net sales and has also used it efficiently (Zainudin & Hashim, 2016). But ROE has decreased to 11.40% in 2020 which means that the value of shareholder’s equity has not increased. Whereas, Quantum’s suffered from net loss in the current year which indicates that the company has not generated any net profits from its available net revenue (Monahan, 2018). However, it is quite obvious that ROE will be in negative in 2020 because net profit margin was also in negative. When it is compared to the industry average, both the companies are not at par because its value is higher than Barrick and First Quantum.

Economic issues

On analysing the operational efficiency positions of Barrick Gold, it has been observed that there is a slight increment in the inventory turnover ratio and asset turnover ratio to 3.95 times & 0.27 times in 2020, indicating that the company is trying to sell its inventory quickly & there is a huge demand or requirement for their product. Moreover, it has also used its total assets effectively and on the other hand it is also observing more delinquent clients or customers. In the case of Quantum Minerals, the inventory and asset turnover ratio also increases to 3.09 times & 0.21 times in 2020 and has improved its efficiency positions as compared to previous years. However, when it is compared to industry ratios, both the companies are not at par because the overall efficiency position is better and higher (Robinson, 2020).

Based on the calculation, Barrick’s solvency position has improved and tries to reduce its financial risk in the current year as compared to previous years. The debt and debt-to-equity ratio decreased to 0.32 times and 0.47 times in 2020, implying that lower amount of finance is made by debt through lenders. Company with lower metric has lower debt and lower financial risk (Griffin & Mahajan, 2019). In addition, the company can also service its interest expenses with its available net profits. Furthermore, in the case of Quantum, the financial risk and leverage has increased slightly in 2020, indicating that the company is having more amount of debt than assets in the current year as compared to previous years. The interest coverage ratio has also decreased slightly to 1.04 times in 2020 which means that the group is burdened by debt expenditure & the less amount of net capital it has utilizes in other ways. When it is compared to industry average, both the companies are at par in terms of debt ratio but in the case of debt-to-equity ratio, industry is at par in comparison to Barrick and Quantum Minerals (Sadi’ah, 2018).

(Refer to the excel sheet)

Conclusion

On the basis of overall discussion, it can be observed that financial ratio analysis has been used to analyse or review the financial performance of both the companies. In terms of liquidity performance, Barrick and Quantum Minerals are having enough liquidity to cover all of its debts but it is quite important for Barrick to manage its working capital efficiently and utilize its total effectively. Furthermore, Quantum suffered from net loss in the current year as it has not utilised it net revenue efficiently and hence the company may improve this by inflating net revenues or by reducing costs. Lastly, both the companies are having stable solvency and efficiency position in the current year as compared to previous years.

References

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