Financial Statements Analysis of Saracen Mineral Holdings Ltd.

BAFI 1070 – FINANCIAL STATEMENTS
ANALYSIS

TABLE OF CONTENTS
1. Executive Summary.....................................................................................................................5
2. Introduction..................................................................................................................................6
3. Methodology................................................................................................................................6
Identification of economic characteristics of the industry:..........................................................6
Identification of company strategy..............................................................................................6
Assessment of financial statement quality...................................................................................6
Preparation of the forecasted financial statement........................................................................7
Corporate value............................................................................................................................7
4. Results and Discussion................................................................................................................7
4.1 Qualitative analysis................................................................................................................7
4.1.1 Company background.....................................................................................................7
4.1.2 Strategies adopted by company......................................................................................8
4.1.3 Competitive analysis.......................................................................................................8
4.1.4 Economic analysis..........................................................................................................9
4.1.5 Porter five forces.............................................................................................................9
4.1.6 Industry risk analysis....................................................................................................10
4.2 Historical Financial Performance........................................................................................11
4.2.1 Financial Performance and profitability ratio...............................................................11
4.2.2 Balance sheet and Asset Management ratio.................................................................12
4.2.3 Liquidity ratio...............................................................................................................14
4.2.4 Long Term leverage ratio.............................................................................................15
4.2.5 Market Performance ratio.............................................................................................16
4.2.6 Bankruptcy analysis......................................................................................................17
4.2.7 Ratio comparison with benchmark...............................................................................17

4.3 Forecast Financial Performance..........................................................................................22
4.3.1 Assumption to forecast.................................................................................................22
4.3.2 Forecast.........................................................................................................................23
4.4 Valuation..............................................................................................................................23
4.4.1 Required Rate of Return on Equity Capital..................................................................23
4.4.2 Valuation Method 1 – Free cash flow model................................................................24
4.4.3 Comparison of Valuations and Recommendation........................................................25
Conclusion.............................................................................................................................25
References......................................................................................................................................26

LIST OF FIGURES
Figure 1: Chart representing operating profit margin and NPAT in %................................. 12
Figure 2: Chart representing profitability ratios............................................................................12
Figure 3: Chart presenting total asset turnover ratio.....................................................................13
Figure 4: Chart representing account receivable and payable turnover........................................14
Figure 5: Chart presenting liquidity ratios.....................................................................................15
Figure 6: Chart presenting long term leverage ratios....................................................................16
Figure 7: Chart presenting EPS.....................................................................................................17
Figure 8: Chart presenting market performance ratios..................................................................17
Figure 9: Chart representing comparison of current ratio of both the companies.........................19
Figure 10: Chart representing comparison of asset turnover ratio of both the companies............20
Figure 11: Chart representing comparison of current interest coverage of both the companies...20
Figure 12: Graph representing comparison of net margin ratio of both the companies................21
Figure 13: Graph representing comparison of return on asset ratio of both the companies..........22
Figure 14: Graph representing Z-score of both the companies.....................................................22
Figure 15 : Graph representing forecasted as well as actual performance of Saracen Mineral
Holdings Ltd..................................................................................................................................24
Figure 16: Figure representing net present value of forecasted free cash flows...........................25

1. Executive Summary
The primary objective of this study is the critical evaluation of listed company named as Saracen
Mineral Holding Ltd. A detailed examination has been conducted with respect to internal and
external arrangement of the company. On the basis of outcomes a recommendation was made
whether investor should purchase, hold, or sell the shares of Saracen Mineral Holding. In this
study for valuation, dividend discount model and free cash flow model is applied. The main
objective of these techniques is to predict investment opportunities in company. It indicates that
shares of company are undervalued; therefore investor should hold or purchase shares and sell in
the future period for maximization of profit.

2. Introduction
Saracen Mineral Holdings Limited runs as a holding company. The company with its
subsidiaries, discovers and mines gold as well as other related minerals. It serves customers
predominantly in Australia. The company discovers for gold as well as nickel deposits and has
the ownership of 100% interest in the Carosue Dam operations and Thunderbox operations. The
major competitors of the company are Newcrest Mining Limited and Evolution Mining Limited.
The present study was evaluated by considering the macro and microeconomic aspect where
questions were responded of earnings of the business, future growth, efficiency level, financial
stability, and recommendations to the investors. Ratio analysis of the Saracen Moneral Holdings
Limited was examined from 2013 to 2019. Profitability ratio of the company shows about future
growth. Indicators of market performance (EPS and PE) show the positive performance of
company. Overall, historical data and past trend are used for analysis of overall position of
company.
3. Methodology
The overall analysis is followed by considering the below-presented structure:
Identification of economic characteristics of the industry:
In this section, the company background is covered wherein its products and services are
discussed while discussing on the micro-economic factors as well.
Identification of company strategy
Under this sector, the internal, as well as external strategies of the company, are explained, with
putting weight on how the company has attained its goals and objectives, stood apart from the
competitions and how it gained a leading position in the gold industry.
Assessment of financial statement quality
In this part, there has been an examination of three key financial statements conducted, which are
supported by the company performance delivered. The profit and loss statement depicted a
direct link among Earnings before interest and tax, operating profit, and Net profit after tax,
where earnings had increased in subsequent years. On the basis of Balance Sheet of company,
there is slow enhancement in total assets of company as compared with its previous year. On the