The Basics of Financing a Business -

Running head: BUSINESS FINANCE
Business Finance
Name of the Student
Name of the University
Author’s Note

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Table of Contents
1. Introduction...............................................................................................................2
2. Description of the Company.....................................................................................2
3. Net Working Capital Position Analysis.....................................................................3
3.1 Analysis of Working Capital Position..................................................................3
3.2 Calculation of Net Working Capital and Opinion on Working Capital Position...3
4. Cost of Equity Calculation........................................................................................4
5. Liquidity and Capital Structure Analysis using Ratios..............................................4
5.1 Liquidity Ratios....................................................................................................5
5.2 Capital Structure Ratios......................................................................................6
6. Conclusion and Recommendation...........................................................................6
7. References...............................................................................................................8
8. Appendix.................................................................................................................10

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1. Introduction
Measuring financial performance and financial position of the business
organizations is considered as a crucial aspect for analysing the overall financial
health and standings of those companies. The requirement is to take into
consideration some important aspects of the companies that help in analysing the
performance and position; such as working capital analysis, payment of dividend
analysis and analysis of crucial ratios like liquidity ratios, capital structure ratios and
others (Singh, Darwish and Potočnik 2016). This analysis provides the investors and
other business analysts major assistance in taking decision on whether a particular
organization is suitable for making investments or not. Moreover, managements of
the companies can identify the areas that require their attention to improve the
situation from the outcome of this kind of analysis (Delen, Kuzey and Uyar 2013).
Therefore, this provides the scope to increase the overall financial performance of
the companies. The main aim of this report is the analyst of the above-mentioned
aspects in relation to Australian Pacific Coal Limited. There are four key parts of
the report. The first part discusses about different information associated with the
chosen company. The second part discusses about different aspects associated with
the management of networking capital in the company. The third part of the report
shows the calculation of cost of equity of the company by considering all the required
information. The last part undertakes analysis of the liquidity and capital structure
position of the company by using relevant ratios. A conclusion and recommendation
is provided at last on the basis of the whole analysis.
2. Description of the Company
Australian Pacific Coal Limited is considered as an emerging coal miner. It is
an Australian pubic company with a shareholder base of 2000. The company got
enlisted in the Australian Stock Exchange (ASX) in the year 1999. From the
inception, the company has become a strong competitor in the junior mining and
exploration industry. The core business activities of Australian Pacific Coal Limited
are the evaluation of coal exploration tenements in the Bowen, Surat and Galilee
basins in Queensland, Australia; identification of the opportunities to explore on
chosen coal tenements that include exploration through joint ventures agreements;
and planning of different types of programs of explorations in the chosen coal
tenements (aqcltd.com 2020).
The operations of Australian Pacific Coal Limited can be seen in two
segments. They are Exploration and Evaluation and Bentonite Mining. The main aim
of the segment of exploration and evaluation is the identification of the potential
areas of resources along with securing tenure over the relevant tenements and the
management of the exploration and evaluation procedures. The main aim of
Bentonite Mining segment is the mining of bentonite in order to sale them. This
particular segment is accountable for operating Dartbrook Coal Mine that is in the
coal region of the Hunter Valley in New South Wales. The other assets of Australian
Pacific Coal Limited include South Clermont, Cooroorah, Dingo, Blackwater and Mt
Hilalong (markets.ft.com 2020).
In order to gain the required competitive advantage, Australian Pacific Coal
Limited has completed the full acquisition of Dartbrook Cola Mine with the aim to
enhance the operational production. The company has all of its operations in the
junior mining and exploration industry. Companies under this industry have major
reliance on the listed equity in order to finance their mining and exploration

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operations. Junior mining and exploration companies do not have any project that
progresses from exploration phase to operation phase as their aim is to sell these
discoveries to large mining and exploration companies (rba.gov.au 2020).
3. Net Working Capital Position Analysis
3.1 Analysis of Working Capital Position
Working capital can be described as an indicator of a company’s short-term
financial position and this helps in measuring the overall efficiency of a company.
This can be obtained by subtracting the current liabilities from the current assets. In
order to analyse the working capital position of Australian Pacific Coal Limited, it is
needed to asses and evaluate the changes in current assets and current liabilities
(Hoque, Mia and Anwar 2015).
When considering the composition of current assets and current liabilities of
Australian Pacific Coal Limited over the last two years, it can be seen that the main
components under current assets are cash and cash equivalents, trade and other
receivables and others; and the main components of the current liabilities are trade
and other payables, borrowings and provisions (aqcltd.com 2020). Analysis of these
components of current assets shows that there is a major fall in the total current
assets from $3,396,217 in 2018 to $1,337,698 in 2019. This is because of the
decrease in trade and other receivables in the presence of the increases in cash and
cash equivalent and other current assets. The same trend can be seen in case of the
current liabilities as total current liabilities has registered a major fall in 2019 as
compare to 2018; that is from $58,620,203 to $17,323,994. The main reasons are
the payment of the dues of trade and other payables and repayment of borrowings
(Ajibolade and Sankay 2013). The presence of a positive and a negative aspect can
be seen from the analysis. Major decrease in the current liabilities is a positive
aspect as this implies the increased payment of short-term debts by the company.
However, negative aspect is the large decrease in current assets due to decrease in
trade and other receivables; and the main reason for the decrease in trade and other
receivable is the fall in sales in 2019 by large margin.
On the overall basis, it can be observed from the information of 2019 and
2018 that Australian Pacific Coal Limited does not have more current assets than
current liabilities which implies that the company more current liabilities as compared
to current assets. This is an unfavourable situation for the company’s overall working
capital position as it denotes that Australian Pacific Coal Limited does not have
adequate working capital to carry out its core business operations in smooth manner
(Khatik and Varghese 2015).
3.2 Calculation of Net Working Capital and Opinion on Working Capital
Position
Table 1: Net Working Capital
The above calculation of networking capital of the business of Australian
Pacific Coal Limited shows that the company has negative networking capital in both
the years of 2019 and 2018. The presence of networking capital can be described as
the situation when the total current liabilities of a company surpass the total current