Financial Strength Analysis Of Petra Diamond Group - Key Corporate Actions, Strengths, Weaknesses, Opportunities, And Threats Essay.

Key Corporate Actions

This current section of the study focuses in analysing the financial strength of a company with special reference to the operations of the business concern Petra diamond group. Besides this, this present segment also elucidates in detail major corporate actions as well as other developments over the past years alongside key areas of strength as well as weakness and nature and degree of competition and geographic location.

Petra diamond group, a publicly listed company, headquartered win Jersey is a leading diamond mining group and is increasingly becoming an important supplier of rough diamonds to the world market (Petradiamonds.com 2017).

Size: This large sized enterprise is a mid- tier quoted producer that

Turnover: The production output of the business is registered 3700000 carats during the period 2016. Apart from this, revenue of the enterprise recorded to be 430.9 million USD during the year 2016, whilst operating revenue of the firm is enumerated to be 108.4 million USD and the net income of the firm is registered to be 66.8 million USD during the FY 2016 (Petradiamonds.com 2017)

Market Share: Founded on the facts and figures of FY 2015, with production of around 3.7 Mcts and an amount of sales of approximately US$430.9 million, the company Petra accounted for nearly 2.9% of global supplyin terms of volume and 3.1% from the perspective of value.

Location of markets: The company has primary interest in six different producing operations that includes five mines located in South Africa that includes Finsch, Cullinan, Kimberley Underground as well as Koffiefontein), wide-ranging tailing functionalities in Kimberley as well as one mine in Tanzania. In addition to this, this large sized business enterprise also undertakes exploration programs both in Botswana as well as South Africa (Petradiamonds.com 2017).

Resources:The world-class resource of the company that is Petra’s 312Mcts(approx.)essentially ranks fourth in terms of size only after the Majors that includes De Beers, ALROSA and Rio Tinto. Thus, it can be said that the company Petra Diamonds handles one of the world’s major diamond resources of above 300 million carats expressed as (“Mcts”) (Petradiamonds.com 2017).

In essence, this major resource indicates towards the fact that the latent mine lives of core assets of Petra Diamonds can be considered to be relatively longer than present mine policies and can sustain considerably higher rates of production. The primary reason for upsurge in gross Diamond Resources can be related to a 42% growth (represented as ca. 2.6 Mcts) in the Resource of especially the Petra’s Combined Kimberley functionalities. However, the gross reserves of the firm declined around 4% to approximately 49.8 Mcts owing to the depletion of mining activities as well as reassessment of different mine scheme revisions and simulation of plants (Petradiamonds.com 2017).

Financial Strength Analysis

Analysis of key financial variables of Petra and analysis of the structure of capital of the firm

As rightly indicated by Bodie (2013) financial variables assist a business to analyse different aspects of business profitability, analysis of liquidity, debt, and investment. In addition to this, the financial variables also help in the process of management of the corporation by analysis of different worldwide aspects, comparative position of the firm from other players in the industry and the comparative performance over a period of time. The current study uses key financial ratio such as the liquidity ratio, profitability ratio, financing ratio along with diverse market based investment ratio. Enumeration and analysis of the important financial ratio help in evaluating liquidity position as well as the structure of the assets.

The table below presents key financial information of the company for five year period (FY2012 to FY2016):-

Liquidity Ratio: As rightly indicated by Brighamand Ehrhardt(2013), liquidity ratio is essentially a ratio between liquid assets and liabilities that essentially enumerates ability of the firm to repay different debt obligations of a firm. Kaplanand Atkinson (2015) opine that current ratio is essentially ratio of current assets with current liabilities whereas quick ratio is the ratio of quick assets with the current liabilities.

Analysis of the liquidity ratio for the past five years reveals the fact that the company’s current as well as quick ratio are declining indicating decline in both current and quick assets of the firm in terms of liabilities during FY 2012 to FY 2016.

Efficiency Ratio: As asserted by Pettyet al.(2015), efficiency ratio helps in enumeration of capability of the firm to utilize assets and at the same time manage different liabilities effectually. This current segment describes about debt turnover ratio, inventory turnover ratio, and average days in collection of different debtors in addition to collection period of average inventory.

Analysis of the efficiency ratio replicates the fact that the corporation has high debtor as well as inventory ratio that refers to fact that corporation has high demand over inventory and debtor during 2016 as compared to the financial year 2012. Average debtor collection period and the average inventory period of collection has declined over the year that indicates a favourable financial position (Wahlenet al. 2014). This is because this ratio indicates that the business corporation has proper company strategies for conversion of debtors as well as inventory in cash. Thus, this subsequently helps in improvement of the overall structure of liquidity of the firm.

Liquidity Ratio

Profitability Ratio: As such, profitability ratio indicates towards association between assets and the sales of the firm. In essence, profitability ratio indicates towards capability of the firm to generate higher earnings as compared to overall expends as well as other pertinent costs during a particular period of time (Warren et al. 2013).

Analysis of profitability ratio reveals the fact that operating profit ratio of the firm has declined, though the business concern has persistent upsurge in sales. Nevertheless rise in non-operating incomes leads to rise in the net profits ratio.

Financing ratio:As rightly put forward by Needleset al. 2013), financing ratio refers to the association between long term funds of the corporation and earnings. The current report presents analysis of debt to total assets, debt to equity, interest coverage, and flow of cash from different operations. Particularly, this ratio expresses the capability of the firm to discharge different liabilities of the long term from internal along with external finances (Wild et al. 2014).

Analysis of the financial leverage ratio replicates the fact that debt to equity ratio of the firm has increased considerably owing to increase in debts of the corporation. This in turn has led to increase in payments of interest. Again, increase in dents has led to high debt equity ratio that can be considered to an unfavourable financial condition (Kothariand Ball2014).

Different market investment ratio: Abor (2017) opines that market based ratio of investment takes into account market price, specific earnings that are distributed to different shareholders. This current report essentially elucidates different ratio namely: dividend yield ratio, P/E (Price/Earning) ratio and the dividend coverage ratio.

Analysis of the market investment ratio reveals the fact that earnings per share of the firm has considerably increased during the specific period on account of enhancement of earnings that are available to all the shareholders. However, considerably fluctuations can be witnessed in the price earnings ratio as there are significant inconsistency in the market price of the share.

The major corporate actions undertaken by Petra Group are hereby mentioned below:

• Petra has acquired five diamond mines in Tanzania South Africa, four diamond production firms in South Africa that has contributed positively towards revenue generation (com 2017).
• Petra has purchased Cullinan mine and has obtained 37% share of the same and undertaken disinvestment from particularly Angola for enhancement of cash generation
• During the period 2009, the company has acquired the Willianson Mine that has enhanced the goodwill of the company and has augmented production that in turn has helped in attainment of economies of scale (com 2017)
• During the year 2010, the firm has obtained majority of shares in Kimberley underground mine that has increased yearly production to over and above 1 million c.a
• During 2011, the firm has acquired Finsch mine and this has made the firm the largest diamond producer.
• During the year 2015, Petra Diamond Group has carried out disinvestment from essentially Fissure, Star and Sedibeng mines. This in turn has directed towards increase in yearly production over and above 3.1 million c.a. (com 2017)
• During the period 2015, Petra Group has issued dividends of around 3US cents per share
• In 2016, Petra Group has acquired around 49% share of Kimberley mines. This, consequently has led to joint venture among Petra Diamond, Ekapa Mining and essentially Kimberley mining (com 2017)
• The corporation Petra Group has also restructured the entire debt profile by acquiring funds amounting to around US$ 650 million (com 2017).

The major developments of the company is that worldwide production of the company in terms of volume is registered to be 127.4 Mcts and worldwide production in terms of value is recorded to be US$13.9 billion. Founded on the figures of production of the FY 2015, it can be said that production of firm is recorded to be 3.7 Mcts and sales amount to US$430.9 million and the company Petra accounted for nearly 2.9% of global supply in terms of volume and 3.1% in terms of value (Petradiamonds.com 2017).

Efficiency Ratio

Petra diamonds limited has essentially established smooth and flat organizational framework that assists the corporation in developing associations with different business partners and augmenting efficiency and generating a well working environment (CovinandSlevin 2012).  This flat organizational framework is considered to be a horizontal structure where there is delayering.  Again, management framework has very few level of mid management in the organization. Analysis of the structure reveals the fact that there are less strata in the middle management level and less levels in the corporate managers and members of the staff and functional level of corporation (CovinandSlevin 2012). In essence, an organizational framework exerts impact on the overall functioning of the corporation and exerts influence on the nature of information flow as well as flow of resources between different level of management (CovinandSlevin2012). Particularly, a corporation can also have tall and at the same time flat organizational framework. However, in the present case of Petra diamonds limited, it can be said that there exists flat organizational framework. However, this essentially replicates that functional level managers otherwise members of the staff of the business concern can directly interconnect with all the corporate level managers ().

Competitors Analysis: Analysis of the market reveals the fact that the company Petra Group encounters stiff competition from the tier one companies that are the major producers. The major producers include De Beers, ALROSA and the Rio Tinto that accounts for around 66% of the world diamond production in terms of value (Petradiamonds.com 2017). In addition to this, the company also faces competitors from the peers that are in the mid-tier group and these companies include Dominion Diamonds, Lucara as well as Gem Diamonds. However, different aspects that assists the firm to gain competitive advantage include good market position, superior brand reputation, positive responses from clientele and many others.

Geographic Location: Geographical location can be regarded as the place, where the corporation currently wants to operate and where it already functions. However, the company Petra Group plays a very important role in the worldwide market and plays key role in the process of determination of important factors of success. The company has operations in five mines situated in South Africa that includes (Finsch, Cullinan, Kimberley Underground as well as Koffiefontein), extensive tailing operations in Kimberley along with a mine in Tanzania. Other than this, this company undertakes exploration programs both in Botswana as well as South Africa (Petradiamonds.com 2017).

Conclusion

The above mentioned study helps in gaining comprehensive understanding concerning the operations of a firm with special reference to different descriptive that includes size, turnover, industry, share of the market, market location as well as important resources. In addition to this, this study elucidates in detail the financial position of the corporation using key financial ratio. Analysis of the important ratio replicates that the unfavourable liquidity position of the firm, and profitability condition of the corporation has also decreased. In addition to this, earnings per share of the firm has increased and price-earnings ratio has fluctuated considerably during the specific period. Again, the debt to equity ratio has increased indicating undesirable financing decision as debt has increased considerably in comparison to the equity.

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