INTRODUCTIONEmmerson Resource Limited is the company which is committed in exploration and evaluationof the mineral interests. The firm’s project covers the Tenant Creek Mineral Field in the Northregion in the UK. This has an aggressive exploration program and dominant position in theplanet (Anandarajan, Anandarajan and Srinivasan, 2012). The company is implementingadvanced exploration concepts and techniques to unlock production of gold and copper deposits. Question 1;Emmerson resources limited is an Australian gold resources company that is currentlyraise $ A20 million in wide oversubscribed IPO during 2007. They are entirely relying on goldand copper exploration. The company is aims to increase shareholders value by makingimprovisation an aggressive and planned exploration strategies during clear business procedure(Uwuigbe, Olusegun and Agu, 2012). Because of effective measure it aims to develop andmaintain a superior quality pipeline of projects and deploy with using latest technologies for thenext coming generation. In order to determine, its performance managers need to evaluate itspast couple of year financial position. The best techniques which is more useful in this particularprocess is through using ratios. Some of them are mention underneath: ROA: It is known as one of the crucial financial ratio that indicate total percentage ofgain a company is earning in accordance with its entire resources. It is mainly identifying as netincome divided by total assets. This provide managers an indicator of profitable Emmerson Ltdis relative to its total assets.ROE: It is referring as a quantity of net incomes returned as a total percentage ofshareholder equity. Through this, one can measures a corporation's profitability by revealingtotal gains a company is incurring from the total capital which is invested by shareholders. Infew situation this happens to be return on net worth.Debtratio: According to this particular ratio which is used to measure financial leverage ofEmmerson Ltd. It is termed as ratios of total assets those are expressed as a percentage or indecimal form. It would be analysing through a proportion of company’s total assets that arefinance by debt.RatiosFormula 2014201520162017ROANPAT / Total Assets8.8812.26-17.87-18.16ROENPAT/ ordinary equity-10.69-1.99-9.29-7.981
Debt ratioTotal Liabilities/ Total Assets0.970.030.030.03WACC: It is known as the rate that a company is expected to pay on average to itssecurity holders for the purpose of financing its assets. These are commonly termed as the firmscost of capital. Every sources of capital consists of ordinary share, preferred inventory and otherlong term liabilities.Formula: WACC: = E/ V x Re+ D/V x Rd x (1 – Tc) : ke/ (D+E) + Kd/ (D+E) : 16.78(0.97) + 10%(2.81) : 16.27+28.1= 44.37%Note: Kd is assume to be 10%.whereas, Ke= 16.78%D+E = 0.97 Question 2:There are various impacts those are affecting performance of the company. Thepracticability and demerits of using these assumptions are discussing underneath:It is more difficult to maintain capital structure.Maximum chances of accepting wrong projects rather than selecting positive projects.Plenty of difficulty in acquiring present market value of cost of capital.Conservative investment: Most of the companies those are in volatile or seasonalindustries such as farming, construction and tourism sectors can easily adopt these particularmethods in order to deal with risks those are arises in it (Habib, Kiani and Khan, 2012).According to the selected company which is Emmerson resource Ltd is not using conservativeinvestment method. This will be more effective working capital management techniques whichcan lower the risk of short term cash requirements and it can make huge impacts to attain longterm profitability.Question 2:The value of ordinary share must be calculated based on other available data usingvarious formula, estimation and adjustments. During the computation of return of assets, it hasbeen seen that decrease in return of assets shows that Emmerson resources Ltd is generating least2
Found this document preview useful?
You are reading a preview Upload your documents to download or Become a Desklib member to get accesss