Lithium Australia NL (LIT) Financial Analysis: A Comprehensive Report

This report provides a comprehensive financial analysis of Lithium Australia NL (LIT), examining various financial aspects relevant to investment decisions. It includes a description of the company's core activities, ownership structure, and key financial ratios calculated over the past four years, such as return on assets, return on equity, and debt ratio. The report also analyzes the movement of the company's share price in comparison to the All Ordinaries Index, identifies significant announcements that may have influenced the share price, and calculates the company's beta and required rate of return. Finally, it assesses whether Lithium Australia is a conservative investment and provides a recommendation on whether to include it in an investment portfolio. Desklib provides this and many other solved assignments for students.

Finance for Business
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Table of Contents
Introduction:................................................................................................................................3
1...........................................................................................................................................4
2...........................................................................................................................................5
3...........................................................................................................................................7
4.................................................................................................................................................11
5.........................................................................................................................................14
6.........................................................................................................................................16
7.........................................................................................................................................17
8.........................................................................................................................................18
9.........................................................................................................................................19
10.......................................................................................................................................20
Conclusion:................................................................................................................................21
References:................................................................................................................................22
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Introduction:
This preparation of this report is essential for the proper acknowledge of financial
environment related to Lithium Australia NL (LIT) Company to concerning various issues
and financial matters which directly affects the decision of the company. This report includes
various facts such as dividend policy, dent ratio analysis, WACC and changes in share prices
based on financial performance of the company. A brief introduction to company’s core
activities, changes in management, factors that affect share prices movement, identification
those nature and components that impact company’s financial performance through ratio key
analysis. A deep discussion in company's position and whether it would be included in the
investment portfolio or not" included in this report to make proper recommendation to the
client for accordingly.
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1.
Prepare a brief description of the company.
Lithium Australia NL (LIT) is a company with one over-arching Goal; an application of the
disruptive processing technologies related to the production of Lithium Chemical on the scale
of a commercial economy at operating cost or at minimum Quartile. Company follows the
following concept to achieve its ends targets (Lithium Australia, 2017)
LIT is a management of: -
 Procuring access to get material with their lowest exposure to mining expenses.
 A procedure of material considered to be wasted by other miners.
 Developing strong strategic investment policies and partnerships goals.
 Maintenance of equity in resource projects globally.
Core activities of the company:
LIT engages in recognising the necessity and requirement for metal and lithium security while
developing exposure "SiLeach® processing hubs with the company's results and position
which would be taken into major Lithium Provinces Across the world. LIT is also negotiating
farm out position based on the plenty of exploration properties in return of refusal from that
field which is to be retained in accessing to the supply chain without evaluating and spending
high-risk dollars of exploration to revalue and release their reserves (Lithium Australia, 2017)
(Source: Lithium Australia, 2017)
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2.
Specify ownership-governance structure of the company.
(i) Substantial shareholders of a company:
 With higher than 20% of shareholdings
 With higher than 5% of shareholdings
Solution:
Substantial shareholders of the company was Lanstead Capital L.P. with 30,000,000 of
shareholding around 12.95% of total shares in 2016 annual report, this shareholding was
categorised in the second category of higher than 5% of shareholding but in FY17 company
has no substantial shareholder as on 20 September 2017 (Lithium Australia, 2017)
(ii) Name the main people involved in the firm governance:
a. Chairman
b. CEO
c. Board Members
Solution:
a. Name of the Chairman is George Bauk (Non-Executive Chairman).
b. CEO: there is no specific declaration in the name of CEO.
c. Board members:
Board members of the Company are:
Ranking Member name position
1 Adrian Griffin Managing Director
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2 George Bauk Non-Executive Chairman
3 Bryan Dixon Non-Executive Director
(Source: Lithium Australia, 2017)
Notes:
No, there is no specific people (board members) with the same surname under 20% or 5% of
shareholding, so this company cannot be considered as the family organisation. There is
specific interference of any family member in corporate governance of Lithium Australia
(NL).
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3.
Calculate the following key ratios for your selected company for the past 4 years.
Calculated key ratios are given under:
Return on asset = NPAT/Total assets: return ion asset is computed after dividing net
earnings after interest and taxes from total assets. It is indicated the relation between net
profits of the company during a particular financial year in proportion to total assets employed
in particular year.
Return on equity = NPAT/Common equity – this ratio is calculated by dividing Net profit
after tax with the common equity used by the company in FY.
Debt ratio: total liability/total asset = the dent ratio is represented the solvency capacity of the
company which is exhibited the ability to pay all the debts in comparison to total assets of the
company.
Calculation given below:
Particular 2017 2016 2015 2014
NPAT -4,592,255 -1,774,446 -1,470,265 -2,646,780
Total asset 16,026,524 10,621,644 982,075 557897
Total liabilities 898,030 569,017 425,535 538167
ordinary equity 15,128,494 10,052,627 556,540 19730
ratio analysis
Return on assets -0.28 -0.167 -1.49 -4.74
Return on
equity
-0.3 -0.17 -2.64 -134.15
Debt ratio 0.056 0.0564049 0.43 0.96
(Source: Lithium Australia, 2017)
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Analysis to be proven:
EBIT/TA * NPAT/ EBIT * TA/ OE should be equal to NPAT/ OE
(4,592,255)/ 16,026,524*-4,592,255/ (4,592,255)* 16,026,524/15,128,494 = -
4,592,255/15,128,494
0.30 = 0.30 (hence proved).
Through this satisfied equation, it is concluded that the total assets of the company could be
directly related to ordinary equity of the company when NPAT get influenced with the Cost of
capital of the company related to the balance sheet. By the above analysis, it is interpreted that
the overall ratio that indicates actual company's financial position. Vis such analysis it can be
indicated that return on assets would be greater than the return on equity from past two years
in 2017 and 2016 respectively. This is occurred due to excessive employed value of equity
employed by the management comparatively to the assets employed in the Lithium Australia
Company (Lithium Australia, 2017)
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Explain what phenomenon is being “captured” by the variable TA/OE, and how it is
impacting on the relationship between Return on Assets and Return on Owners Equity.
The above analysis indicates actual results related to return on investment. The actual relation
between total return on asset and return on owners’ equity represents company’s liabilities in
subject to recognising owner’s leverages the relationship between owner's equity and
company's assets measure changes in financial performance of the company. Total assets
include measurement of the total property of the company tangible plus intangible property.
On the other side owner's equity includes differences between total assets and total liabilities
(Entrepreneur, 2017).
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III. Explain why the ROE (EBIT) is significantly greater than or less than the ROA
(EBIT):
Return on equity is considered as ROE (EBIT) and Return on asset indicated as ROA (EBIT).
The relation between ROE and ROA shows crucial measurement related to the financial
performance of the company. ROE analysis represents and provides company acknowledge
dictating company’s strategic benefit in the case of sales and profit margin, declining in the
value of ROA (net margin profit) will lead their financial performance towards negative
growth and the level of sales will be declined on the other hand if ROA increases the level of
sales would be increased and it would be predetermined the value based on ROE and ROA
relation (Entrepreneur, 2017).
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4.
I) prepare a graph/chart for movements in the monthly share price over the last two
years for the company that you are investigating. Plot them against movements in the All
Ordinaries Index.
Solution:
Comparison between All Ordinaries share prices and movement in share prices of Lithium
Australia based one-year performance:
(Source: Hot copper, 2017).
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Comparison based on two-year fluctuation in share prices of LIT:
(Source: Invest SMART, 2018).
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