Excelsior Gold Limited: A Comprehensive Financial Analysis

This report provides a comprehensive financial analysis of Excelsior Gold Limited, a gold exploration and development company. The analysis covers various aspects, including the company's ownership structure, fundamental ratios, share price trends, beta value, expected rate of return, weighted average cost of capital, optimal capital structure, and dividend policy. The report also includes a letter of recommendation for investors considering investing in the company.

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Subject Finance for Business
Subject Code & Group ____ HI5002____ Group1 Group 2 Ggroup 3 Group 4
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Assignment Title Finance for Business - Assignment 1
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Melbourne - 185 Spring Street, Melbourne Australia 3000, Telephone: [phone], Facsimile: [phone]
Sydney - Level 6, 91 York Street, Sydney Australia 2000, Telephone: + 61 2 9299 1400, Facsimile: [phone]
Holmes Commercial Colleges (Melbourne) Ltd ABN 50 005 085 585Email: [e-mail] Website: www.holmes.edu.au
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HI5002: Finance for Business
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Contents
Introduction.................................................................................................................................................3
Questions.....................................................................................................................................................4
1. Brief Description of the company....................................................................................................4
2. Ownership Governance Structure....................................................................................................5
3. Fundamental Ratios.........................................................................................................................6
4. Graphs and the description of results...............................................................................................8
5. Significant factors that influenced the share price.........................................................................10
6. Calculation of Beta value and expected rate of return....................................................................11
7. Weighted Average Cost of Capital................................................................................................12
8. Optimal Capital Structure..............................................................................................................13
9. Dividend Policy.............................................................................................................................14
10. Letter Recommendation.............................................................................................................15
Conclusion.................................................................................................................................................16
References.................................................................................................................................................17
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Introduction
This report deals with the analysis of the Excelsior Gold Limited which will help in evaluating
the financial performance of the organization so that the shareholders can make the decisions for
the investment in the organization. The shareholders of the organization are examined who have
invested their shares in the organization with that the various ratios are also calculated which will
help in evaluating the financial performance of the organization by analysing the liquidity as well
as the profitability within the organization. The factors which may impact the share prices of the
Excelsior Gold Limited are also identified. With that, the dividend policy of the organization is
also explained which will help in evaluating the criteria for the distribution of profits. The
various recommendations are also provided at the last which when considered by the
organization will help them in increasing the profits for the organization so that the sustainability
can be attained.
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Questions
1. Brief Description of the company
The Excelsior Gold Limited is the development and the self-funded gold exploration company
which has its assets located in the heart of Australia’s one of the most specific gold producing
region (Excelsior Gold Limited, 2018). The main aim of the company is to convert the large
resources to the standalone process plant so as to explore the next major discovery. It was
established in 2007 and has the primary assets located between 30 and 55 kilometers at the north
of Kalgoorlie situated in Western Australia’s prolific Eastern Goldfields region. The company
has successfully delineated 887000 ounces of gold resources (Excelsior Gold Limited, 2018).
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2. Ownership Governance Structure
I)
More than 20% shareholdings: There are various shareholders in the organization out of which
the main substantial shareholder is the one who has the share capital of more than 20% (Finance
Management, 2018). So, it can be seen from the reports of the organization that there is no such
shareholder who has the share capital more than 20%.
More than 5% shareholdings: In the organization the shareholders who have more than 5% of
the shareholdings are examined (Finance Management, 2018). There are many shareholders who
have the much share capital in the organization such as Rigi Investment Pty Limited who have
the holdings of 2.31% and have the shares of 18800000.
II)
Chairman David Hatch
Board Members
Managing Director Rowan Johnston
Non-Executive Director Jonathan West
Non-Executive Director Jimmy Kong Keng Lee
The Rowan Johnston is also acting as the CEO of the organization. The company is not the
family organization as none of the people has the substantial interest in the organization
(Excelsior Gold Limited, 2018).
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3. Fundamental Ratios
Fundamental Ratios
Sr.
No.
Particular Year 2017 $M Year 2016 $M
1 Total Asset 7732846.000 20558241.000
2 Total Liabilities 13120482.000 35330143.000
3 Equities 5387636.000 14771902.000
4 Net profit After Tax (NPAT) -104982.000 -18896776.000
5 Current Asset 6730057.000 7808291.000
6 Current Liability 6877029.000 17929430.000
7 Inventory 3944828.000 182084.000
8 Quick Asset 2785229.000 7626207.000
9 Debt 13120482.000 35330143.000
10 Net Sales 51046255.000 19634502.000
11 Gross profit 8677501.000 -549658.000
12 EPS (Cents) -0.014 -3.490
Current Ratio = Current Asset/
Current Liability
0.98 0.44
Debt Equity ratio = Debt/ Equity 2.44 2.39
Asset Turnover Ratio = sales /
Inventory
12.94 107.83
Return on Assets = Net Income /
Total Asset
6.60 0.96
Quick Ratio = Quick Asset/ Current
Liability
0.41 0.43
Gross Profit Margin Ratio = Gross
profit / Sales
0.17 -0.03
Earnings per share -0.01 -3.49
The various ratios are calculated so as to evaluate the financial performance of the organization
(Excelsior Gold Limited, 2018). The liquidity ratios help in analysing the liquidity position of the
company which can be depicted by the calculation of the current and quick ratios. These ratios
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show the ability of the company to pay back its debts from its assets (Excelsior Gold Limited,
2018). The profitability ratios such as the gross profit ratio are calculated which will examine the
profitability of the organization in the long run (Finance Management, 2018).
For measuring the solvency of the Excelsior Gold Limited the debt-equity and turnover ratio is
calculated which will help in analysing the long-term solvency of the organization (Shah and
Noreen, 2016). The efficiency ratios are also calculated by evaluating the return on assets and the
assets turnover ratios so that how the company has utilized its resources can be determined
(Kennon, 2017). It can be seen that the current ratio is 0.98 in 2017 but in 2016 it was 0.44 which
can be seen the current ratio has been increased during the year (Pradhan and Dahal, 2016). The
quick ratio has been decreased from 0.43 to that of 0.41 which can be seen that the situation is
satisfactory for the organization to pay its debts. Debt to equity ratio has been increased from
2.39 to 2.44 this is also the good situation for the organization as the debt and the equity both are
managed in the capital structure (Excelsior Gold Limited, 2018).
So, it can be evaluated from the ratios above that the organization was earlier incurring the losses
but in the current year the organization has increased the equities and the assets due to which the
performance of the organization has increased and the situation is satisfactory for the
organization. The shareholders can make the decisions related to investment in the organization
for gaining the maximum returns (Excelsior Gold Limited, 2018).
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4. Graphs and the description of results
(I)
Image: Share Price Graph of 2 Years
Source: Excelsior Gold Ltd, 2018
Image: Share Price comparison with all Ords Index
Source: Atkinson, G., 2018
II)
Introduction
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This part explains about the movement in the share prices of the company with that of all Ords
Index so that the comparison can easily be done and the relation, as well as the correlation
between the various factors on the basis of volatility, can be determined.
Content
The price of the shares in the organization is fluctuating as it can be seen that the company have
been through various changes during the year as well as the month (Velnampy and Niresh,
2012). It can be seen from the graph that in the beginning, the share prices of the organization
were increasing and suddenly after some time the share prices were decreased this was due to
various factors which have affected the share price of the organizations (Excelsior Gold Limited,
2018). When the comparison was done with that of the All Ords Index, the results showed that
the company performed almost the same in other aspects as well. So, it can be seen that the
results which were compared showed the positive results with the change in the price of the
shares in the organization (Shah and Noreen, 2016).
Conclusion
It can be stated that from the above report the share price of the company is positive so the price
is higher with that of the All Ords Index. There are various fluctuations which are faced by the
organization but then too the organization maintained the strong spirit of the organization.
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5. Significant factors that influenced the share price
There are various factors which influence the share price of the organization but as the Excelsior
Gold Limited is the organization which deals with the materials such as gold so majorly which
will affect the share prices are the gold (Hossan, 2010). The factors can be both internal as well
as external which may affect the price of gold in the organization. All the factors need to
carefully consider the organization as if one of the factors will be ignored so it will lead to the
change in the determination of the prices (Hossan, 2010). The major factor that may impact the
share price is that of the macro factors such as the macro factors are those factors that externally
affect the share prices of the organization. The macro factors such as the political factors or the
economic factors if there will be a change in any of these factors then the whole of the
organization will get impacted (Hossan, 2010).
The changes that are made in Australia will affect the share prices as the prices are determined
according to the earlier share price so if there will be a change in any of the factors so the prices
of the shares will get impacted (Anuar and Chin, 2016). The other factor that may impact is the
uncertainty as there’s always the uncertainty about the future prices so this can lead to the wrong
analysis which is done by the analyst of the organizations. Rather than this, there may be the
public relations, cost of the labour and the political situations which may impact the share prices
of the organization (Hossan, 2010).
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6. Calculation of Beta value and expected rate of return
I) The beta value of the organization is 0.37.
II) According to the Capital asset Pricing Model,
Rate of return is =Rf+ (β)* Market risk Premium
The Risk free rate= 4%
So, Rate of Return= 4%+ 0.37*6%
= 4%+2.22%
= 6.22%
III) The conservative investment is the investment strategy which seeks to preserve the
investment in the low-risk securities (Ergun, 2012). So, it can be seen that the
company has the low rate of return so it can be chosen as the conservative investment
(Situm, 2014). The low rate of return means that the company has less risk above the
involvement of the risk-free components (Excelsior Gold Limited, 2018). So, the
shareholders can easily make the investments in the organization as there are fewer
chances of bearing the loses in the organization for the long run. If it is to be looked
according to the returns on the shares then it can be seen that the shares will provide
the high returns in the long run and in the short run it will be fluctuating that means it
may or may not provide the satisfactory returns to the shareholders (Excelsior Gold
Limited, 2018).
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7. Weighted Average Cost of Capital
I) WACC=ExRe+ Dx Rd (1-T)
V V
Here,
Re= Rate of return according to 6(II)
E= Equity
D= Debts
Rd=Cost of Debts
T= Tax rates
V=Equity + Debt
WACC= 5387636x 0.0622 + 13120482x (237/ 13120482) (1- 0.30)
18508118
WACC=3351.11+ 165.9
WACC=3517.01
WACC= 35.17%
II) The implication of the higher WACC on the management from the perspective of the
investment project can better be determined by the above analysis which is examined
(Excelsior Gold Limited, 2018). The cost of WACC can be should be covered by the
organization so that the shareholder's needs can be satisfied and the investments can
be done accordingly. The main focus of them is on the company’s performance so
that the better returns can be provided. The investment decisions of the organization
are affected by the higher WACC as it will generate the pressure on the managers for
managing the returns in the organization (Hossan, 2010). For the project to be
successful in the long run the company should select those resources through which
the high cost of capital can be rejected and the returns can be maximized (Excelsior
Gold Limited, 2018). According to the above calculation, the WACC is lower so the
shareholders can easily take the investment decision which will provide them great
returns in the long run (Shah and Noreen, 2016).
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8. Optimal Capital Structure
I) The optimal capital structure is considered when the balance sheet of the organization
shows the difference between the debt and the equity of the organization (Excelsior
Gold Limited, 2018). These are only two of the sources through which the
organization can raise the capital so that the overall profitability of the organization
can be increased. But the company has to keep the check on its debts as increasing the
debts may increase the liability for the organization (Caroll, 2017). The gearing ratio
for the organization has been from 2.39 to that of 2.44 over the years so it can be seen
that the situation is satisfactory for the organization. So, the returns will be high if the
investors invest in the organization as the amount of the equity is more than that of its
debts within the organization (Hossan, 2010).
II) The change has been seen in the gearing ratio of the organization as earlier the debt
was $35330143 but it has been decreased to $13120482 and with that, the funds of
the equity has also been decreased. In the directors report, it has been stated that the
equities are the element of remuneration which helps in generating the wealth for the
organization (Caroll, 2017).
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9. Dividend Policy
The dividend is the sort of income for the shareholders of the organization as the dividends are
distributed from the profits irrespective of profits and losses gained by the organizations. As the
company has not paid any of the dividends so there is no such policy for the dividends in the
organization (Caroll, 2017). The organization does not have much of the funds so that the funds
can be distributed to the shareholders of the organization.
So, it can be said that the financial health of the organization is not good so there are no such
amounts for the dividends to the shareholders of the organization who have invested their funds
in the organization (Caroll, 2017).
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10. Letter Recommendation
To,
The Client,
It can be explained that the above company is suitable for making the investment in the
organization as the returns will be good if the shares are invested (Sekar, et. al., 2017). The
company will be able to provide the maximum returns by providing the less risk on the
investment activities. The organization has incurred the loses during the last year but this year
the organization has examined the great profits and attained the sustainability (Caroll, 2017). The
performance of the organization will be difficult to improve but the profits will be managed
during the year. In future, the organization can be looked at the strong by investing the low cost
of capital to the organization. The WACC is also low so the shareholders can take the decision
for making the investment decision in the organization which will give the maximum amount of
returns (Caroll, 2017).
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Conclusion
It can be concluded from the report that organization should maintain all the resources of the
organization efficiently so that the operations can run effectively and efficiently. With this, the
ratios which are calculated shows that the financial health of the organization is in good
condition so the investment related decisions can be taken easily by the stakeholders. The
recommendations are provided so that can be considered for increasing the profitability of the
organization and the dividend policy is not maintained within the organization as the
organization has not paid the dividends.
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References
 Caroll, A., 2017. Did Excelsior Gold Limited (ASX:EXG) Create Value For
Shareholders. [Online]. Simply Wallst. Available at: https://simplywall.st/news/did-
excelsior-gold-limited-asxexg-create-value-for-shareholders/. [Accessed On 23 May
2018]
 Excelsior Gold Limited, 2018. Overview. [Online]. Excelsior Gold Limited. Available at:
http://www.excelsiorgold.com.au/. [Accessed On 23 May 2018]
 Hossan, F., 2010. Performance evaluation and ratio analysis of Pharmaceutical Company
in Bangladesh. West. [Online]. Also available at
http://hv.diva-portal.org/smash/get/diva2:323754/FULLTEXT01.pdf. [Accessed on 23
May 2018].
 Finance Management, 2018. Importance and Use of Weighted Average Cost of Capital
(WACC). Finance Management. [Online]. Available at
https://efinancemanagement.com/investment-decisions/importance-and-use-of-weighted-
average-cost-of-capital-wacc. [Accessed on 23 May 2018]
 Shah, S.A. and Noreen, U., 2016. Stock price volatility and role of dividend policy:
Empirical evidence from Pakistan. International Journal of Economics and Financial
Issues, 6(2).
 Velnampy, T. and Niresh, J.A., 2012. The relationship between capital structure and
profitability. Global Journal of Management and Business Research, 12(13).
 Anuar, H. and Chin, O., 2016. The Development of Debt to Equity Ratio in Capital
Structure Model: A Case of Micro Franchising. Procedia Economics and Finance, 35,
pp.274-280.
 Situm, M., 2014. Inability of Gearing-Ratio as Predictor for Early Warning Systems.
Business systems research journal: international journal of the Society for Advancing
Business & Information Technology (BIT), 5(2), pp.23-45.
 Sekar, M., Gowri, M.M. and Ramya, M.G., 2014. A Study on Capital Structure and
Leverage of Tata Motors Limited: Its Role and Future Prospects. Procedia Economics
and Finance, 11, pp.445-458.
 Pradhan, R.S. and Dahal, S., 2016. Factors Affecting the Share Price: Evidence from
Nepalese Commercial Banks.
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 Ergun, U., 2012. Internal Determinants of the Stock Price Movements on Sector Basis.
International Research Journal of Finance and Economics, 92.
 Kennon, J., 2017. What Is a Good Return on Your Investments?. The balance. [Online].
Available at https://www.investsmart.com.au/shares/asx-wow/woolworths-group-
limited/announcements?page=2. [Accessed on 23 May 2018]
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