Trend Analysis Of Newcrest Mining Limited Using Horizontal And Vertical Analysis

Trend Analysis using Horizontal Analysis

Based on the horizontal analysis, we can identify how in the last three years, there has been an increasing trend of the revenue of the company. In addition to this, the cost of goods sold although reduced from $2,648.00m in 2019 to 2,568.00 in 2020 but again increased to $ 2805 during 2021. In this regard, we can identify how there has been a fluctuating trend in terms of the sales growth of Newcrest Mining (Finance.yahoo.com 2022). In terms of trend analysis of the sales with the use of horizontal analysis began depict the growth in sales from 74% to 69% in 2020 and 69% was only 72% in 2021. As per the depiction of the interest expense, this is also identified with a decreasing trend, as it reduced from 5% in 2020 to -13% in 2021. The overall gross profit margin has been also identified with the linear increase from 2018 to 2021. This is evident in form of gross profit margin increasing by 23.27% in 2018, 29.24% in 2019, 34.52% in 2020 and 38.70% in 2021. There is also a significant growth in the operating profit which is evident with 28% in 2020 to 36% in 2021. It is worth mentioning that Newcrest Mining has been able to make significant initiative for reducing the overall operating expenses. In this regard, the company has been able to reduce operating expenses from 22% in 2020 to 14.29% in 2021 (Newcrest.com .2022a).

The various types of trend observation using the horizontal analysis has been able to suggest how there has been a significant growth in the basic earnings per share of Newcrest Mining Limited. In addition to this, the number of basic shares is also slightly increased over the years. It is worth noting that as per the trends in income and earnings per share parameters, the net income growth has increased from 15% in 2020 to 80% in 2021 (Newcrest.com. 2022b). 

Figure 1: Newcrest Mining Limited Trend from the Horizontal Analysis

(Source: As created by the author)

The vertical analysis has been able to demonstrate how the overall current asset of the company has increased from 16.25% in 2020 to 17.68% in 2021. Along with this, the total non-current assets have slightly decreased over the years, which is evident with the long current assets trend of 83.12% in 2017, 83.64% in 2018, 84.08%  in 2019, 83.75% in 2020 and 82.32% in 2021. It is important to note that the overall trend of current liabilities has remained stagnant for Newcrest Mining Limited. This is evident with how the current liabilities has only changed from 83.75% in 2020 to 82.2% in 2021. Newcrest mining Ltd is has been successful in reducing its reliance on long-term debts. This is evident in form of the total long-term debt being reduced from 0.29% from 2018 to 0.22% in 2021. This can be observed as a great initiative by the company for reducing its dependency on the capital and rely more on the capital to finance its operations or expansion projects. As per the Vertical Analysis of Newcrest Mining Limited we are able to understand that the overall trends in the non-current liabilities have been seen with the reducing trend which is a positive sign for Newcrest Mining. The trend pertaining to total liabilities on the other hand can be depicted with an almost stagnant trend as it is changed from 98.88% in 2019 to 98.74% in 2020 and 98.62% in 2021. Based on the vertical analysis we have an also would identify how the trend of total equity has been demonstrated with the increasing trend. This is evident in form of the total equity increasing from 1.10% to 1.12% in 2019 and 1.26% to 1.38% as on 2021 (Newcrest.com .2022a). 

Trend Analysis using Vertical Analysis

Figure 2: Newcrest Mining Limited Trend from the Vertical Analysis

(Source: As created by the author)

Kindly refer to the list of appendices for all the relevant financial ratios along with their calculations.

The non-financial indicators include Technology & Innovation and Operating Performance. In this manner, based on the analysis of non-financial indicators suggest a religion innovation we can clearly see how this has decreased from 12% in 2019 to 10% in 2020 and 2% in 2021. On the other hand, the operating performance has substantially improved from 11% in 2019 to 12% in 2020 to 16% in 2021 (Kourtis, Kourtis and Curtis 2019).

The measurement of sustainability indicator using the stability and safety parameter values we can clearly see that the company’s effort in increasing the stability and safety has reduced from 11% in 2019, 10% in 2020 to 5% in 2021. On the other hand, the sustainability measure in terms of improving water efficiency has clearly improved from 2% in both 2019 and 2020 to 3% in 2021 (Faccia and Mosco 2019).

The main reason for the improvement in the growth of total revenue is seen with significant increase in the production of copper and at the same time due to increasing the price of this metal over the years, the company has been able to make significant amount of growth in profit. The copper production itself has been able to contribute 22% of total net revenue during 2021 (Wild 2019). The significant decrease in interest expense is due to the decreased reliance on long-term debt such as long-term loans taken from banks. On a similar note, due to the increased demand of copper, Newcrest Mining has been able to increase its gross profit margin and operating profit as well (Daryanto 2018).

The continuing trend of reduction in the costs is due to the specific initiatives taken by the company which has emphasized on low-cost production model and can forward to organic growth options as stated in the latest annual report of Newcrest Mining Limited. Along with this, the improving performance of net income is also evident with the aforementioned factors (Easton et al. 2018). The improvement in the earnings per share is based on the resuscitation of the investors about the prices of the shares of Newcrest Mining to go up in the coming years. Moreover, the company has always been able to maintain its position as a leader in gold exploration and other important minerals, the shareholders has retained their trust in the company since 2018 to the present year. The vertical analysis of balance sheet implies that the total current asset has been able to improve as a result of maintaining higher cash and cash equivalents. In addition to this, as a result of increased fixed assets such as PPE over the years, the company has been able to improve its total assets as well (Edmonds et al. 2019).

The rationale for the increase in the current liabilities of numerous mining is evident due to reduction in trade and other payables, lease liabilities, provisions and current tax liabilities over the years selected for the analysis. On the other hand, the non-current liabilities have slightly increased in the recent years due to increase in the short-term borrowings. It is further worth mentioning that due to increase in the issued capital and plummeting at -related losses, the total equity has experienced a significant amount of growth over the last three years (Wild 2019).

Non-Financial Indicators

The interpretation of the liquidity ratios such as current ratios and quick ratio enumerates that the overall durability of Newcrest Mining Ltd to fund its short-term debt obligations has significantly improved in comparison to the previous year. Such an improvement is possible with an increasing amount of cash and cash equivalents which is mentioned in the previous sections. 

Figure 3: Current Ratio 

Figure 4: Quick Ratio

 In addition to this, the company is able to collect its debt in a shorter period of time which is evident with average production period. This is due to the improved selection of suppliers by the company. Additionally, as a result of maintaining better PPE the fixed asset turnover ratio has also improved. The stability ratio has been computed by debt ratio and debt to equity ratio. In terms of debt ratio, it is evident how Newcrest Mining has shown this reliance on borrowing long-term debts (Li et al. 2018).  

Figure 5: Average Collection Period 

Figure 6: Fixed Asset Turnover 

Figure 7: Total Asset Turnover

Similarly, the plummet in the debt to equity ratio has revealed that the company has been able to implement more amount of equity finance in contrast to risky debt finance.  

Figure 8: Debt Ratio 

Figure 9: Debt to Equity Ratio

Based on the analysis of profitability ratio, we are able to understand that due to the increasing speculation of demand for copper, Newcrest mining Ltd has experienced a significant improvement in the gross profit margin, net profit margin and operating margin (Haralayya 2021). In this regard, we are able to identify how the company has been able to improve its profitability indicators such as ROE, ROA, net profit margin, operating profit margin and gross profit margin.  

Figure 10: Gross Profit Ratio 

Figure 11: Net Profit Ratio 

Figure 12: ROA 

Figure 13: ROE

Based on the interpretation of the investment ratios, there has been a significant improvement in both earnings per share and price-earnings ratio. This suggests that the company is able to earn more money from its equity shares. This is possible as Newcrest Mining has been able to retain the confidence of the investors. Furthermore, the price-earnings ratio of 8.7 in the latest year implies that the share is not overvalued or undervalued (Jeppesen 2019).

Figure 14: EPS 

Figure 15: PE Ratio

As a result of failure of the company to improve its current technology to the ongoing Covid-19 pandemic, the non-financial indicators suggest technology and innovation has decreased substantially. However, the operating performance has improved due to focus on hiring a greater number of workforce. In terms of sustainability indicators, the reason for decline in the safe and sustainable development is due to increasing cost of using biodegradable materials. However, the company has tried its best to improve water consumption (Zolfani, Yazdani and Zavadskas2018).

Strength

Some of the main strength of the company can be inferred in form of strong resource base and reserve of gold. Moreover, the current efficiency in the production rate is also conducive in contributing to higher net income. Additionally, with the present global workforce of more than 16,000 workers, there has been a tendency of rapid expansion of markets and operations possible with strategy acquisitions and mergers. In addition to this, Newcrest Mining Ltd has taken significant initiative in attaining a loyal customer base as a result of being able to be consistent with quality produce (Newcrest.com. 2022b).

Measurement of Sustainability Indicators

Weakness

The unstable copper and gold prices in the international scene have been one of the major challenges of the company to take ambitious strategic decisions. Furthermore, the adherence to the cost intensive operations of mines especially in high-cost areas of production has led to rely on exorbitant capital.

Opportunities

The important form of opportunities identified as per the analysis of annual reports of the company can be identified with expansion of research in the field of copper and other extraction activities related to this metal. Along with this, Newcrest Mining to look forward to acquire a greater number of power plants for developing mines in countries where there is insufficient source of reliable power. There is also a significant amount of opportunity for the company in securing large number of mineral districts which can be created through negotiation with policies pertaining to local government and ensure the sustained growth. The increasing demand of gold and copper in both America and Asia is also seen as a promising opportunity for Newcrest Mining in the years to come (Newcrest.com 2022a).

Competitor’s Outlook

Despite of being identified as one of the global leaders in gold exploration, the potential competitors of Newcrest Mining can be identified with Barrick Gold with a market capitalisation of over USD 9B. Additionally, Newmont Corporation, DRD Gold, Harmony Gold Mining Company and Gold Fields can be depicted as all the top competitors (Finance.yahoo.com 2022).

Conclusion and Recommendation

Based on the interpretation of financial summary, we are able to identify how Newcrest Mining Ltd has been able to demonstrate a strong financial performance. It is further expected to gain the confidence of the shareholders and a viable company for investment. However, in terms of non-financial and sustainability indicators, there are significant scope of improvement to be made in technology and innovation along with safety and sustainability measures. 

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Easton, P.D., McAnally, M.L., Sommers, G.A. and Zhang, X.J., 2018. Financial statement analysis & valuation. Boston, MA: Cambridge Business Publishers.

Edmonds, T.P., Edmonds, C.T., Edmonds, M.A., McNair, F.M. and Olds, P.R., 2019. Fundamental financial accounting concepts. McGraw-Hill Education.

Faccia, A. and Mosco, D., 2019. Understanding the Nature of Accounts Using Comprehensive Tools to Understand Financial Statements.

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Haralayya, B., 2021. Ratio Analysis at NSSK, Bidar. Iconic Research And Engineering Journals, 4(12), pp.170-182.

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Li, J., Wei, L., Lee, C.F., Zhu, X. and Wu, D., 2018. Financial statements based bank risk aggregation. Review of Quantitative Finance and Accounting, 50(3), pp.673-694.

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Newcrest.com. 2022b. Welcome. Available at: https://www.newcrest.com/ (Accessed: 22 January 2022).

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Zolfani, S.H., Yazdani, M. and Zavadskas, E.K., 2018. An extended stepwise weight assessment ratio analysis (SWARA) method for improving criteria prioritization process. Soft Computing, 22(22), pp.7399-7405.