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Overview of the Company

Discuss about the Financial Statements Of Whitehaven Coal Ltd.

The assignment will be focusing on the analysis of performance of Whitehaven coal ltd and will be computing financial ratios for the purpose of analysis. The ratio which will be computed will be of significance and will be analyzed as per the requirement of the assignment. The companies which are selected for comparing the financial performance of the business are Wollongong Coal Ltd and White Energy Co ltd. Both theses companies are listed in Australian stock exchange and are is engaged in the same industry as Whitehaven Coal Ltd.

Whitehaven Coal ltd is engaged in the business of development and operation of coal mines in Australia. The company has basically two business segments which are open cut operations and underground operations. The business is recognized to be one of the leading company in generation and operation in coals. The company has been able to generate net sales of $ 1.77 billion and the company has achieved a growth of 52.28% in terms of sales growth.

Ratio analysis is used by most of the businesses in analyzing the performance of the business. Ratio analysis involves calculations of various ratios which are considered to be financial indicators of the performance of the business (Delen, Kuzey and Uyar 2013). The ratio analysis considers certain key elements of the business such as profitability, efficiency and solvency of the business. A figure showing the computed ratios are given below:

2017

2016

Particulars

Formulas

Whitehaven Coal Ltd

Wollongong Coal Ltd

White Energy Co ltd

Whitehaven Coal Ltd

Wollongong Coal Ltd

White Energy Co ltd

Revenue

A

1773

35820

341

1164

7705

0

Gross Profit

B

915

-21982.6

-10519

428

-36427

-13205

Net Profit

C

406

-7217

-32335

20

-181934

-34077

Total Assets

D

4290

822

58751

4383

757

104889

Total Equity

E

3292

-7

17084

2889

-9

52075

Current Assets

F

302

24

31389

233

20

20194

Current Liabilities

G

215

795

45164

179

741

36878

Inventories

H

99

6

0

69

7

1763

Current Ratio

E/F

1.405

0.030

0.695

1.302

0.027

0.548

Quick Ratio

(E-G)/F

0.944

0.023

0.695

0.916

0.018

0.500

Gross Profit Margin

B/A

51.61%

-61.37%

-9482.40%

36.77%

-472.77%

na

Return on Equity

C/E

12.33%

103100.00%

-189.27%

0.69%

2021488.89%

-65.44%

Return on Assets

C/D

9.46%

-877.98%

-55.04%

0.46%

-24033.55%

-32.49%

 

The current ratio considers the relationship between current assets and current liabilities of the business. The current assets of the company represent the company’s ability to meet the short-term financing obligation of the business (Agha 2014). In other words, current ratio shows the ability of the business to meet the liquidity requirements of the business and meet the current expenses of the business with the current assets which the company possess. This is regarded as one of the most important liquidity ratios and is also considered to be one of the financial indicators of the businesses performance (Zygmunt 2013). It is considered favorable that the current ratio of the company is greater than 1 which signifies that the current assets are equal or more than the current liabilities of the business. This ratio is very valuable for the investors and potential investors of the business as with one analysis of this ratio, the investor of the business is able to tell whether the company has a sound financial health or not. Generally, companies which have difficulty in acquiring payment from their debtors or have a high inventory turnover will be facing liquidity problem which can be depicted by current ratio (Ehiedu 2014). The formula of current ratio which is used in the computation is shown below

Ratio Analysis

This ratio is quite similar to current ratio and it also deals with the liquidity condition of the business. This ratio also is a measure of the ability of the company to meet the current liabilities of the business which are short-term in nature. However, the difference lies in the recognition of the quixk ratio of the company. The quick assets of the business include all the current assets expect inventories of the business (Bhandari and Iyer 2013). In other words, quick ratio takes into consideration the most liquid assets which a business possesses for the purpose of calculations. Quick ratio is also known as acid test ratio and is an essential element of the ratio analysis of the business. The quick ratio also informs the shareholders about the liquidity position of the business. The formula which is used for the purpose of computing the ratio is shown below:

Gross Profit Margin is computed by dividing the gross profit which is generated by the company with the total revenue which is generated by the business (Muhammad, Shah and ul Islam 2014). In simple words it can be described as financial analysis tool which informs the users about the financial health of the company and the ability of the company to generate profits which are left out from revenues after deducting the cost of goods sold of the business (Garcia-Castro and Aguilera 2014). The gross profit margin is also considered to be a financial indicator of the performance of the business. The formula which is used for the computation of Gross Profit margin is given below

The return on equity ratio refers to the amount of net returns which the shareholders of the company receive from the company in respect of the shares which the investors hold. The ratio demonstrates the profitability of the business and how much profit the business can generates at their current (Hevert 2013). This ratio is very important as the investors decide whether they want to invest in the shares of a company or not on the basis of the return on equity of the company. The ratio is also considered to be financial indicator as to whether the business is profitable or not. In addition to this, it reflects what percentage of return the investors are getting or expected to get when profits of the business are distributed (Heikal, Khaddafi and Ummah 2014). The formula which is used for the purpose of calculation are shown below:

Current Ratio

As per this ratio. It measures the profits which a business can generate while using the resources which are available to the business. Such resources are assets of the business (Al Nimer, Warrad and Al Mari 2015). This is also considered to one of the financial indicators of the business as they reflect for which activities the assets of the business are being used and whether the business is able to generates profits with the same. The return on assets is generally computed when the net income of the business is divided by the total assets possessed by the company. The formula which is used for the purpose of computing return on assets is shown below:

Ratio analysis is the process of analyzing the company’s financial statements to evaluate the aspects of the operating and the financial performance of the company with the help of the efficiency, liquidity, profitability and solvency ratio (Ozcan 2014). In the given scenario the analysis is to be made of the Whitehaven Coal Ltd by comparing the ratios with the two other companies namely Wollongong coal ltd and white energy coal limited of the two years 2017 and 2016. The comparison has been made both year wise and company wise.

The current ratio of the Whitehaven coal ltd has been increased from the year 2016 which was 1.302 to 1.405in the year 2017. This shows that there has been increase in the current ratio indicating the enhancement of the company’s ability to pay off its obligations.

The current ratio of other company did not increase much as compared to Whitehaven Coal Ltd, the Wollongong coal ltd increased from 0.027 in 2016 to 0.30 in 2017, which is much less if compared to Whitehaven Coal. White energy coal limited also rose from 0.548 to 1.302 at a much lesser rate. If the current ratio of Whitehaven coal ltd is compared with the other two, the ratio is much greater in the present financial year.

Similarly, the quick ratio that deals with the ability of the company to meets its short-term liabilities is much more in Whitehaven Coal Ltd that is 0.944 as compared to the other two which are 0.023 for Wollongong coal ltd and 0.695 for white energy coal ltd. Moreover, as compared to 2016 the ratio increased from 0.916 to 0.944in 2017. However, White energy coal limited has increased more from 0.5 to 0.695 than Wollongong coal ltd and Whitehaven Coal Ltd.

Quick Ratio

The net profit margin also is more in case of Whitehaven Coal Ltd that is 22.90% whereas the other two companies has much less percentage or rather running in negative. Wollongong coal ltd has -20.15% in 2017 and white energy coal ltd had -9482.40%. This represents that the profitability of the company is higher. More over there has been a drastic increase in the ratio in case of Whitehaven Coal Ltd from 1.72% in 2016 to 22.90% in 2017.

The return on Equity is quite more in case of Whitehaven Coal Ltd is 12.33% in 2017 as compared to Wollongong coal ltd which is 103100.00% and for White energy Coal Ltd which is -189.27%. The return on equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Therefore, as compared to 2016 the return on equity has been improved from 0.69% in 2016.

Return on assets that represents the profit  percentage a company earns in relation to its overall resources is 9.46% for Whitehaven Coal Ltd which is much higher as compared to the other two company which is -877.98% for Wollongong coal ltd  -55.04% for White energy Coal Ltd. Therefore, Whitehaven earns more profit. Moreover, there has been a rise in the return on assets from 2016 which was 0.46%.  The rate of increase is also more than White Energy Coal Ltd and Wollongong coal ltd.

References

Agha, H., 2014. Impact of working capital management on profitability. European Scientific Journal, ESJ, 10(1).

Al Nimer, M., Warrad, L. and Al Mari, R., 2015. The Impact of liquidity on Jordanian banks profitability through return on assets. European Journal of Business and Management, 7(7), pp.229-232.

Bhandari, S.B. and Iyer, R., 2013. Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), pp.667-676.

Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Garcia-Castro, R. and Aguilera, R.V., 2014. Family involvement in business and financial performance: A set-theoretic cross-national inquiry. Journal of Family Business Strategy, 5(1), pp.85-96.

Heikal, M., Khaddafi, M. and Ummah, A., 2014. Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), p.101.

Hevert, S.R.B., 2013. Return on Equity.

Muhammad, H., Shah, B. and ul Islam, Z., 2014. The impact of capital structure on firm performance: Evidence from Pakistan. Journal of Industrial Distribution & Business, 5(2), pp.13-20.

Ozcan, Y.A., 2014. Evaluation of Performance in Health Care. In Health Care Benchmarking and Performance Evaluation(pp. 3-14). Springer, Boston, MA.

Zygmunt, J., 2013, March. Does liquidity impact on profitability. In Conference of informatics and management sciences, March (pp. 38-49).

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