Financial Performance Analysis of Newcrest Mining Company Report

This report provides a comprehensive financial analysis of Newcrest Mining Company over a five-year period (2015-2019), assessing its financial performance using ratio analysis. The analysis includes an examination of liquidity ratios (current and quick ratios), profitability ratios (gross profit margin, operating profit margin, net profit margin, return on assets, and return on equity), and solvency ratios. The report highlights Newcrest Mining's high liquidity but also its high financial leverage. The analysis reveals fluctuations in profitability, with a high gross profit margin but a zero net profit margin in 2019 due to high operating expenses. Comparisons with competitors like Rio Tinto are also included. The report concludes with recommendations for improving Newcrest's financial performance, focusing on reducing capital blockage and improving overall profitability.

Executive Summary
With the changes in time, every organization needs to deploy its financial resources
effectively. The objective of this report is to assess the financial performance of the Newcreat
mining company throughout the five years. In order to evaluate the financial situation and
performance of company, there are financial tools available. In this report, wer have used the
ratio analysis method by gathering the financial data from the annual report of company and
assessing it with the help of ratio analysis. The liquidity, solvency and profitability ratio of
company has been computed to assess financial business functioning of Newcreat mining
company. In this report, Newcreat mining company has been assessed and its financial
performance have been evaluated to identify whether financial business functioning of Newcreat
mining company is good or not. This report has divulged that company has maintained high
liquidity and at the same it has high FL (Financial leverage) in business). In addition to this, in
context with the profitability of the company, there is uncertain ups and down in the operating
profit earning margin of the company since last five years. The gross profit margin of Newcrest
Mining Company is way too high and company has kept it to 48.7% in 2019. This has increased
by 23% in 2019 since last five years. However, it has maintained high financial leverage which is
weak while considering the low profitability and sluggish market condition.

Table of Contents
Executive Summary...............................................................................................................................1
Introduction...........................................................................................................................................2
Ratio analysis.........................................................................................................................................3
Liquidity ratio........................................................................................................................................3
Current and quick ratio analysis....................................................................................................3
Profitability ratio....................................................................................................................................6
Solvency ratio........................................................................................................................................9
Conclusion...........................................................................................................................................12
References...........................................................................................................................................13
Appendix.............................................................................................................................................15

Introduction
In this changing business needs and complex business structure, every investor is inclined
to make the return on his invested capital. There are veracious parts of the ratio analysis which
assess the liquidity, solvency and profitability ratio and bottom analysis. These tools are used to
assess the financial functioning of Newcrest Mining Company and estimating how well company
will perform in long run. In this report, implication and deployment of the financial ratio have
been used to assess the financial functioning of Newcrest Mining Company. In the starting of
this report, ratio analysis has been used to assess the financial functioning of Newcrest Mining
Company. Initially, profitability of the company have been computed which reveals the profit
earning capacity of the company. After that liquidity ratio of the company has been assessed
which reveals the liquidity of the company. Afterward, apital structure ratio analysis of the
company has been computed to identity whether the company would be able to generate the
good return out of the invested capital. In the end of this report, conclusion has been given which
reflects the changes in the capital structure of Newcrest Company needs to be made for its better
financial performance.

Ratio analysis
The ratio analysis assess and evaluate the relation between the two financial factors and on the
basis of same, financial factors of the company is assessed (Zhu, 2014).
Profitability ratio
This ratio reveals company’s ability to earn profit out of its business operation. It has been
evaluated that company has kept high amount of profitability which reveals that company good
sustainability in long run. The profitability ratio of company is based on the ROCE (Return on
available capital deployed), gross earning capacity, return on capital, operating profit and net
profit earning capacity of the organization.
Particular Formula 2019 2018 2017 2016 2015
Gross Profit Margin gross profit/total revenue
48.7
%
44.6
%
25.0
%
41.7
%
25.0
%
Operating Profit Margin
operating income (i.e.,EBIT)/total
revenue
24.0
%
14.4
%
20.8
%
17.7
%
15.4
%
Net Profit Margin net income/total revenue 0.0% 5.7% 8.9%
10.1
% 8.9%
Return on Total Assets
(ROA) net income/total assets 0.0% 1.8% 2.7% 3.0% 2.6%
Return on Equity (ROE) net income/(total equity) 0.0% 2.7% 4.1% 4.7% 4.0%

2019 2018 2017 2016 2015
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Gross Profit Margin Net Profit Margin
Return on Total Assets (ROA) Return on Equity (ROE)
Figure 1 Profitability ratio
Source: - (The Newcrest Company. (2019).
This is the % of total revenue left after all expenses have been deducted from sales. It is analyzed
that the net profit margin of the Newcrest Mining Company has been zero in 2019 which reflects
that company failed to earn any profit out of its overall turnover. It is analyzed that company had
to face high loss in its 2019 due to the high operating expenses. Nonetheless, in 2015, Newcrest
Mining Company maintained 8.0% profit earning capacity which reveals that in 2015 company
used to have good amount of profit earning capacity (The Newcrest Company, 2018). In addition
to this, operating profit margin of the Newcrest Mining Company has been increased to 24% in
2019 which shows that company has kept high operating profit but due to the operating loss from
other areas, the net profit margin of company went to zero. Furthermore, there is uncertain ups
and down in the operating profit earning margin of the company since last five years. The gross
profit margin of Newcrest Mining Company is way too high and company has kept it to 48.7% in
2019 (Carson, Fargher, & Zhang, 2016). This has increased by 23% in 2019 as comparing with
(five year data). This reveals that company has kept good amount of earning capacity but due to
the sluggish market factors company fails to create value o in its capital employed. In addition to
this, due to the zero net profit margin of the company, the return on equity of the company has
also been zero which reflects that company has failed to distribute any amount to its shareholders
as part of the profit (The Newcrest Company, 2018). In 2015, Newcrest Mining Company

maintained 5% return on equity which went down in 2016 and followed by downward slope by
2% in 2017 and 2018. This reveals that company is able to earn good profitability but due to the
high operating expenses, it has been facing high loss in its business. Therefore, it is concluded
that profitability of the Newcrest Company is very good in last four years but in the present year,
company had to face huge loss. In addition to this, it is found that the increment in the overall
turnover of company has been seen by 13% since last three years and as compared to five year
the data have been increased by 28% (The Newcrest Company, 2018). The increment in the
turnover has shown the positive outcomes on the profitability of company in long run (Eilifsen,
Hamilton, & Messier Jr, 2017).
2.93 2.57 1.88 1.198508149
2019 2018 2017 2016
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
New Crest Operating Profit Margin New Crest Operating Profit Margin
Newcrest Net Profit Margin Rio Tinto (Gross profit)
Rio Tinto (Operating profit) Rio Tinto (net profit)
Figure 2 Profitability ratio comparison with Rio Tinto
Source:- (The Newcrest Company. (2019).
After comparing the profitability of the Newcrest Company with the Rio Tinto, it has been
analyzed that company has faced downfall profitability. The net profit earned by Newcrest
Company is zero in 2019 which is nothing as compared to the net profit earned by the Rio Tinto
company. In addition to this, operating profit margin of Newcrest Company is 24% which is 2%
higher as compared to data given of Rio Tinto Company. In addition to this, gross profit margin
of the company is also 48% in 2019 which is 4% higher as compared to Rio Tinto Company

(Lakis, & Masiulevičius, 2017). Newcrest in terms of its overall turnover and gross profit
working effectively but due to the high operating losses from other units, it had faced loss in
2017. In context with the profitability, it has been found that Newcrest company has increased its
overall turnover and at the same time but loses from the other units of the company has huge
negative impact in the profit earning capacity of the company in 2019. As compared to Rio Tinto
Company, Newcrest has performed well in other years but in 2019 it had to face huge loss. In
addition to this, the loss made in 2019 will also put negative impact on the brand image of
company as in this year, it would not be able to pay off its interest charges out of the available
earnings before interest and tax (Mobbs, 2015). In addition to this, operating profit margin of the
Newcrest Mining Company has been increased to 24% in 2019 which shows that company has
kept high operating profit but due to the operating loss from other areas, the net profit margin of
company went to zero while on the other hand, Rio Tinto has lower profitability as compared to
the Newcrest but due to the sudden change in the market factors, Newcrest had to face high loss
in 2019 which might be the negative factor for the future growth and sustainability of the
company
Liquidity ratio
This ratio is computed to assess the liquidity position of company and how well company has
been keeping the liquidity assets in its books of accounts. This ratio is accompanied with the two
parts named quick ratio and current ratio. Both ratios has their own meaning but current ratio
reveals the actual liquidity of the company. However, quick ratio does not cover the capital
blockage in the inventory held in warehouse (Yazdanfar, and Öhman, 2015).
Current and quick ratio analysis
This ratio depicts capacity of company to meet and discharge its short term borrowing liabilities
and long borrowing liabilities with its available current assets.
Newcrest Mining Limited (NCM.AX

Computation of all the ratio given as below
Particular Formula 2019 2018 2017 2016 2015
Current
Assets
Related to the balance
sheet
3,396,5
49
2,262,2
11
1,623,7
65
1,081,3
36
10,912,5
66
Quick Assets Related to the balance
sheet
0 0 72,803 2,693 2963
Computation of the current ratio
Current
liabilities
Related to the balance
sheet
1,157,8
50
880,80
1
863,23
5
902,23
5
922326
Current ratio Current assets/Current
liabilities 2.93 2.57 1.88 1.20
1.18
Quick ratio Quick assets/ current
liabilities 0.00 0.00 0.08 0.0030
0000.29
(The Newcrest Company. (2019).

2019 2018 2017 2016 2015
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Liquidity Ratio
Current ratio Quick ratio
Figure 3 Liquidity ratio of Company
Source:- (The Newcrest Company. (2019).
According to the financial data given of the Newcrest Mining Company, it has been observed
that the current assets of the company was increased to $ 3396549000 which is 300% higher as
comparing with (five year data). In addition to this, current liabilities of the company of
company has also increased to $ 1157850000 which is 150% higher as comparing with (five year
data). The changes in the current assets and current liabilities has shown that company has
strengthen its liquidity position throughout the time. In 2019, Newcrest Mining Company has
maintained its current ratio to 2.93 points which is 1.73 points higher as comparing with (five
year data).
In 2015 company kept current ratio way too low which increased by 200 % in 2019 since
then. This shows high cash blockage of the capital funding in its current assets. This change has
occurred due to the high investment in its current assets and shown the increment in its financial
liquidity position. In 2019, Newcrest Mining Company kept the zero quick ratio as there is no
amount of quick assets. Most of the current assets maintained by Newcrest Mining Company is
blocked in the inventory. This shows that quick ratio of company is zero in 2019. However, in
2016, it kept quick ratio to 0.0030 points in 2016 which further increased to .08 points in 2017

(Yahoo finance, 2019). Therefore, after assessing the liquidity position of the company, it is
concluded that Newcrest Mining Company has strong liquidity position but at the same time high
blockage of the capital in its current assets would increase the overall cost of capital. It will
eventually decrease the ROCE (Return on available capital deployed). In this case, Newcrest
Mining Company needs to lower down its financial liquidity by reducing its cash blockage in
current assets.
Improvement required
Company firstly needs to focus on reducing the capital blockage in its current assets and then it
could incline towards increasing the overall current liabilities in its business process. It is
analyzed that the increment in the current assets have occurred due to the high blockage of the
funds in its inventory assets. It is analyzed that company has increased its cash blockage in its
inventory by increasing its cash blockage by 24% since last three years (Yahoo finance, 2019).
Therefore, it is concluded that company is able to meet its current and long term liabilities with
its available current assets but at the same time it has been keeping high capital blockage. It has
several negative impacts such as high cost of capital, ideal capital in process and low effective
business functioning. If financial managers of the company does not change its financial policies
then it will surely in the coming time company has to face downfall in its business performance.

2019 2018 2017 2016
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Current ratio
Newcrest (Current ratio) Newcrest (Quick Ratio)
Rio tinto (Current ratio Rio tinto (Quick ratio
Figure 4 Liquidity Ratio and comparison with the RIo Tinto
Source:- (The Newcrest Company. (2019).
However, in terms of assessment of the liquidity position of the Newcrest Company with its
rivals, it is concluded that company has kept strong liquidity position. However, Rio Tinto
Company has kept increment in its current ratio and resulted to the 2.2 points liquidity in 2019
which is .65 points higher as comparing with (five year data) (The Newcrest Company. (2019).
This reveals that company Newcrest Company has been keeping its business effectively and
managing high liquidity. Nonetheless, Newcrest Company could reduce its cash blockage in its
current assets to reduce the overall cost of capital I long run. The current liquidity of the
company is way too strong as compared to other market rivals but at the same time it will have
negative impact on the increased business costing of company. It is analyzed that if company
wants to sustain in market and increase its overall ROCE (Return on available capital deployed)
then there is need to reduce the capital blockage in its current assets and increasing the overall
current liabilities (The Newcrest Company, 2018). Therefore, it is concluded that company needs
to learn how to save the cost in its business and if the cost of the business is kept high due to the
high liquidity then it will negatively impact the profitability, efficiency and solvency of the
company at large.

.
Solvency ratio
The solvency ratio reveals how well company would be sustainable in the market with its
existing financial resources and business capabilities. It is analyzed that company needs to
strengthen its overall business program by reducing the overall debt funding and increasing the
share capital (Renz, & Herman, R. 2016). The solvency ratio of company is computed by using the
interest paid by company, its own EBIT, debt portion to its equity capital (Netten, & Beecham,
2018). It is analyzed that debt to equity capital ratio has been computed to assess the capital
structure and how much total assets of the company has been funded with its total equity and
debt capital.
Particular Formula 2019 2018 2017 2016 2015
Total Debt
Ratio
total liabilities/total assets 0.355
32649
7
0.349
99997
4
0.349
56405
4
0.363
77447
0.349
99997
4
LT Debt to
Equity
Long term debt/equity 1.249
5044
1.326
30150
6
1.387
11411
3
1.475
35862
1.326
30150
6
Times
Interest
Earned
EBIT (i.e., operating
income)/interest expenses in
absolute value.
#DIV/
0!
4.204
90591
6
5.395
52371
6
3.939
18213
7
4.204
90591
6
(The Newcrest Company. (2019).
Total debt to equity ratio
This ratio reveals the total debt and equity funding in the business process of
organization. The Newcrest Company has been keeping the .35 part of the debt funding in its
capital structure in 2019. This shows that 35% of total capital of the company is funded by the
debt capital and rest of the capital is funded by issue of the shares in market. In 2019, company
had .35 points total debt funding which is .01 points lower as compared to last five year data
(Yahoo finance, 2019). This reveals that Newcrest Company has kept stable debt to equity
capital funding. It has booked or maintained high level of FL (financial leverage) by keeping the
high debt funding (Zopounidis, & Galariotis, 2015). Therefore, it is concluded that company should