Financial Analysis of Emmerson PLC

This assignment delves into the financial health of Emmerson PLC, a company focused on gold-copper exploration. It examines key financial ratios like ROE, ROA, and Debt Equity ratio to understand its profitability, efficiency, and financial risk. Despite unfavorable performance in some areas, the analysis highlights opportunities for improvement based on the company's high return rate and initiatives to reduce borrowing obligations. The exploration of new projects and the application of advanced predictive data analysis are also discussed as positive aspects.

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

1FINANCE FOR BUSINESS
Table of Contents
Introduction......................................................................................................................................3
1. Brief description of the company............................................................................................3
2. Ownership-governance structure.............................................................................................3
i. Substantial shareholders.......................................................................................................3
ii. The main people involved....................................................................................................4
3. Calculation of Key Ratios........................................................................................................4
i. Ratio Calculation..................................................................................................................4
ii. TA/OE Impacting on the relationship between ROA and ROE...........................................6
iii. Rationale for ROE significantly greater than ROA..........................................................6
4. Using the information from the ASX website.........................................................................7
i. Graph for movements in the monthly share price over the last two years...........................7
ii. Comparison of movements in the companies’ share price index.........................................7
5. Research via the internet or financial/business publications...................................................7
6. Capital Asset Pricing Model....................................................................................................8
i. Calculated beta (β) for the company.....................................................................................8
ii. Rate of return for the companies’ shares..............................................................................9
iii. Rationale for conservative investment............................................................................10
7. Weighted Average Cost of Capital (WACC)........................................................................10
i. WACC Calculation.............................................................................................................10

2FINANCE FOR BUSINESS
ii. Management’s evaluation of WACC..................................................................................11
8. Debt Ratio of the Company over the past two years.............................................................11
i. Working towards the maintenance of a preferred optimal capital structure.......................11
ii. Amendments on gearing ratio.............................................................................................12
9. Dividend Policy.....................................................................................................................12
10. Letter of recommendation to the client...............................................................................12
Conclusion.....................................................................................................................................13
List of Bibliography.......................................................................................................................15

3FINANCE FOR BUSINESS
Introduction
The report aims to outline the core activities of and the market in which the company is
seen to be operating. Some of the important concepts of the financial aspects of the discussion is
seen with calculation of the key ratios, evaluating the information from ASX website, evaluation
of WACC and calculating the rate of return. In addition to this, the learnings from the report has
evaluated Rate of return for the companies’ shares, Amendments on gearing ratio and Working
towards the maintenance of a preferred optimal capital structure.
1. Brief description of the company
Emmerson resources is considered as Australia’s one of the most eminent Tennant Creek
mineral field holder. This field is characterised with the use of extremely high quality of gold
& gold-copper deposits. The company has produced in excess of 5.5 million ounces of gold
and 488000 tonnes of copper. The main operations of the company are owned by Warrego
Gold Plant which is located 35 kilometres north-west of Tennant Creek having an annual
capacity of 300000 tonnes.
2. Ownership-governance structure
i. Substantial shareholders
The two main shareholders of the company are identified with “Evolution Mining
Limited” and “J P Morgan Nominees Australia”. “Evolution Mining Limited” constitutes
of 49,144,000 shares having a total percentage of 12.92% and J P Morgan Nominees
Australia” constitutes of 45,236,446 shares having a total percentage of 11.89 %.

4FINANCE FOR BUSINESS
ii. The main people involved
Andrew McIlwain is identified as the Non-Executive Chairman. Dr Allan Trench
is considered to be important member of board of director. In addition to this, Robert
Bills is the Managing Director and Chief Executive Officer.
3. Calculation of Key Ratios
i. Ratio Calculation
Profitability Ratio Analysis: -
Emmerson Resources
Particulars 2017 2016 2015 2014
$ $ $ $
Net Profit/Loss (D) -3525346 -4095855 -837620 -4495664
Ordinary shareholders equity(H)
1878736
9
2226359
3
2721712
4
2522636
7
Total Assets (F)
1940299
1
2290747
4
2809692
1
2588413
7
Return on Equity (ROE) (A/H) -19% -18% -3.08% -17.82%
Return on assets (ROA) (D/F) -0.182 -0.179 -0.030 -0.174

5FINANCE FOR BUSINESS
2017 2016 2015 2014
-20%
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
-19% -18%
-3%
-18%
Return on Equity
Emmerson
Resources
2017 2016 2015 2014
-0.200
-0.180
-0.160
-0.140
-0.120
-0.100
-0.080
-0.060
-0.040
-0.020
0.000
-0.182 -0.179
-0.030
-0.174
Return on assets
Emmerson
Resources
Solvency Ratio Analysis: -
Emmerson Resources
2017 2016 2015 2014
Total Liabilities (D) 615622 643880 879797 657770
Total Assets (E) 19402991 22907474 28096921 25884137

6FINANCE FOR BUSINESS
Debt Equity Ratio (D/B) 0.032 0.028 0.031 0.025
(EBIT/ TA) x (NPAT/EBIT) x (TA/OE) = (NPAT)/(OE)
(EBIT/ TA) x (NPAT/EBIT) x (TA/OE) = EBIT x NPAT/EBIT x 1/OE
EBIT x (NPAT/EBIT) x (1/OE) = (NPAT)/(OE)
2017 2016 2015 2014
0.032
0.028
0.031
0.025
Debt Equity Ratio
Emmerson Resources
ii. TA/OE Impacting on the relationship between ROA and ROE
As per the depiction of Dupont analysis ROE helps in the depiction of investors to
gauge their investments and income generated from the same. On the other hand, ROA is
conducive in measurement of how the investors are able to measure the assets and the

7FINANCE FOR BUSINESS
resources to generate more income. A higher proportion of assets in compare to the
shareholder’s equity shows the extent to which the company used the debt leverage for
the capital structure.
iii. Rationale for ROE significantly greater than ROA
As per the reducing trend of ROA, it needs to be understood that the company is
carrying a significant portion of the debt. It needs to be further discerned that based on
the evaluation of both ROE and ROA the company as the ROA is very low the ROE is
also not al all favourable.
4. Using the information from the ASX website
i. Graph for movements in the monthly share price over the last two years

8FINANCE FOR BUSINESS
ii. Comparison of movements in the companies’ share price index
As per the significant nature of the assertions of the share price index, it needs to
be understood that the ERM has depicted a low market volatility in terms of the closing
price of the shares when compares to closing price all ordinary index.
5. Research via the internet or financial/business publications
As per the recent assertations Emmerson commenced the exploration on new gold-copper
projects in NSW which is identified with the strategic alliance as per Kenex Limited. In addition
to this, the application of “big multiple independent datasets” considered the increased
probability of the discovery through enhanced predictive capability. The five-exploration project
is attributed with the known deposits which are within the scope of Macquarie Arc. However,
these are considered with the several types of the historical impediments, including overlying
cover (plus farm lands) and a lack of exploration focus. The only potential of the company is
considered to be Kadungle and Aurelia Metals covering 43km2 which is close to Emmerson’s
Fifield project.
6. Capital Asset Pricing Model
i. Calculated beta (β) for the company
Calculation of Required Rate of Return and Beta
Date
Closing
Price of
ERM
Percentage daily
change of ERM
Closing Price Of
^AORD
Percentage change
closing price of
^AORD
11/30/201
7 0.083 6167.299805
10/31/201
7 0.082 -1.205% 6023.5 -2.332%

9FINANCE FOR BUSINESS
9/30/2017 0.083 1.220% 5976.399902 -0.782%
8/31/2017 0.09 8.434% 5744.899902 -3.874%
7/31/2017 0.096 6.667% 5776.299805 0.547%
6/30/2017 0.11 14.583% 5773.899902 -0.042%
5/31/2017 0.1 -9.091% 5764 -0.171%
4/30/2017 0.09 -10.000% 5761.299805 -0.047%
3/31/2017 0.085 -5.556% 5947.600098 3.234%
2/28/2017 0.097 14.118% 5903.799805 -0.736%
1/31/2017 0.105 8.247% 5761 -2.419%
12/31/201
6 0.12 14.286% 5675 -1.493%
11/30/201
6 0.13 8.333% 5719.100098 0.777%
10/31/201
6 0.14 7.692% 5502.399902 -3.789%
9/30/2016 0.165 17.857% 5402.399902 -1.817%
8/31/2016 0.15 -9.091% 5525.200195 2.273%
7/31/2016 0.12 -20.000% 5529.399902 0.076%
6/30/2016 0.085 -29.167% 5644 2.073%
5/31/2016 0.049 -42.353% 5310.399902 -5.911%
4/30/2016 0.056 14.286% 5447.799805 2.587%
3/31/2016 0.047 -16.071% 5316 -2.419%
2/29/2016 0.04 -14.894% 5151.799805 -3.089%
1/31/2016 0.035 -12.500% 4947.899902 -3.958%
12/31/201
5 0.03 -14.286% 5056.600098 2.197%
11/30/201
5 0.037 23.333% 5344.600098 5.696%
10/31/201
5 0.04 8.108% 5218.200195 -2.365%
9/30/2015 0.054 35.000% 5288.600098 1.349%
8/31/2015 0.034 -37.037% 5058.600098 -4.349%
7/31/2015 0.032 -5.882% 5222.100098 3.232%
6/30/2015 0.032 0.000% 5681.700195 8.801%
5/31/2015 0.028 -12.500% 5451.200195 -4.057%
4/30/2015 0.03 7.143% 5774.899902 5.938%
3/31/2015 0.034 13.333% 5773.700195 -0.021%
2/28/2015 0.026 -23.529% 5861.899902 1.528%
1/31/2015 0.03 15.385% 5898.5 0.624%

10FINANCE FOR BUSINESS
The Beta value is calculation in done with by covariance of Percentage daily change of ERM
and ^AORD divided by the variance of Percentage daily change of ^AORD. The beta value is
depicted to be 4.462.
ii. Rate of return for the companies’ shares
βa 4.462
Risk Free Rate (Rf) 4.00%
Expected market return of
Emmerson Resources (Rm1) 6.00%
Required rate of return 12.924%

11FINANCE FOR BUSINESS
iii. Rationale for conservative investment
Despite of having a high rate of return (12.924%) in compare to the risk-free rate
of 4% and excepted market rate of 6%, the investment decision needs to considered with
several other factors. This is mainly depicted with consecutive looses accounted in the
last four years and decreasing trend of return on equity. The high Beta of 4.462 shows the
company is more prone to fluctuate with the share price index.
7. Weighted Average Cost of Capital (WACC)
i. WACC Calculation
Re Cost of equity
Rd Cost of debt
Equity
Market value of the firm’s
equity
Debt
Market value of the firm’s
debt
E/V
Percentage of financing that
is equity
D/V
Percentage of financing that
is debt
TC Corporate tax rate
Re 13%
Rd 6%
Equity 18787369
Debt 2730372
E/V 0.873111
D/V 0.126889342
TC 30%
WACC 11.82%

12FINANCE FOR BUSINESS
ii. Management’s evaluation of WACC
A high “weighted average cost of capital” is a significant factor for high risk
related to the operations of the firm. The investors need additional return for the
consideration of higher risk. The WACC evaluation can be used to estimate t5he
expected costs required to finance its resources. This particular shows that the company
has more debt obligations, cost of debt and lower cost of equity.
8. Debt Ratio of the Company over the past two years
i. Working towards the maintenance of a preferred optimal capital structure
Based on the calculation of the solvency ratio for the past four years it has been
seen that the company is having a debt equity ratio of 0.025 in 2014, 0.031 in 2015, 0.028
in 2016 and 0.032 in 2017. Due to such fluctuating trend of the debt equity ratio, the
company is not maintaining to lower its net debt. Henceforth, it is not proceeding towards
a preferred optimal capital structure.
ii. Amendments on gearing ratio
As per the amendment of the annual report there is not significance of gearing
ratio. The company is able to reduce the total borrowing from $ 643,880 to $ 615,622.
The company has further issued 0.26% of the Holdings less than a marketable parcel of
shares.

13FINANCE FOR BUSINESS
9. Dividend Policy
The interpretations made in the annual report has been able to depict that the company used
to follow constant dividend per share, however no dividends were paid or declared by the
Company since the end of the previous financial year.
10. Letter of recommendation to the client
Dear XYZ,
NSW
Australia
Dear Sir/Madam,
We are delighted to provide you with our recommendation for investment as per the
evaluation of financial statement of the last four year. Despite unfavourable performance in
areas pertaining to ROE, ROA and Debt equity ratios. There is significant scope of
improvement as per the rate of return from the stock price. In addition to this, the initiatives
taken by the company has ensured that it is able to reduce the overall obligations for the
borrowings. Emmerson commenced the exploration on new gold-copper projects in NSW
which is identified with the strategic alliance as per Kenex Limited. In addition to this, the
application of “big multiple independent datasets” considered the increased probability of the
discovery through enhanced predictive capability. The five-exploration project is attributed
with the known deposits which are within the scope of Macquarie Arc. This shows that the
company is having significant scope for the improving in other areas in future. The two main
shareholders of the company are identified with “Evolution Mining Limited” and “J P

14FINANCE FOR BUSINESS
Morgan Nominees Australia” are further discerned to having significant scope of
improvement for developing the future prospect of the company.
Conclusion
The findings of the report have shown that the in terms of both “Return on Equity
(ROE)” and “Return on assets (ROA)” the company has been able to depict a reducing trend.
The depiction of the debt equity ratio has also been evident with a negative trend. Moreover, the
two main shareholders “Evolution Mining Limited” constitutes of 49,144,000 shares having a
total percentage of 12.92% and J P Morgan Nominees Australia” constitutes of 45,236,446
shares having a total percentage of 11.89 %. Despite of the unfavourable performance for ROE,
ROA and Debt equity ratios. There is significant scope of improvement as per the rate of return
from the high rate of return of 13%. In addition to this, the initiatives taken by the company has
ensured that it is able to reduce the overall obligations for the borrowings. Emmerson
commenced the exploration on new gold-copper projects in NSW which is identified with the
strategic alliance as per Kenex Limited. In addition to this, the application of “big multiple
independent datasets” considered the increased probability of the discovery through enhanced
predictive capability.

15FINANCE FOR BUSINESS
List of Bibliography
Cucchiella, F. and Rosa, P., 2015. End-of-Life of used photovoltaic modules: A financial
analysis. Renewable and Sustainable Energy Reviews, 47, pp.552-561.
Cucchiella, F., D’Adamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy
decisions in the renewable energy sector. Clean Technologies and Environmental Policy, 17(4),
pp.887-904.
Dewachter, H., Iania, L., Lyrio, M. and de Sola Perea, M., 2015. A macro-financial analysis of
the euro area sovereign bond market. Journal of Banking & Finance, 50, pp.308-325.
Kallala, R.F., Vanhegan, I.S., Ibrahim, M.S., Sarmah, S. and Haddad, F.S., 2015. Financial
analysis of revision knee surgery based on NHS tariffs and hospital costs. Bone Joint J, 97(2),
pp.197-201.
Rigamonti, L., Ferreira, S., Grosso, M. and Marques, R.C., 2015. Economic-financial analysis of
the Italian packaging waste management system from a local authority's perspective. Journal of
Cleaner Production, 87, pp.533-541.
Shouman, E.R., El Shenawy, E.T. and Khattab, N.M., 2016. Market financial analysis and cost
performance for photovoltaic technology through international and national perspective with
case study for Egypt. Renewable and Sustainable Energy Reviews, 57, pp.540-549.
Stone, A.B., Grant, M.C., Roda, C.P., Hobson, D., Pawlik, T., Wu, C.L. and Wick, E.C., 2016.
Implementation costs of an enhanced recovery after surgery program in the United States: a

16FINANCE FOR BUSINESS
financial model and sensitivity analysis based on experiences at a quaternary academic medical
center. Journal of the American College of Surgeons, 222(3), pp.219-225.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge
University Press.
Yoder, J.R., Alexander, C., Ivanic, R., Rosch, S., Tyner, W. and Wu, S.Y., 2015. Risk versus
reward, a financial analysis of alternative contract specifications for the miscanthus
lignocellulosic supply chain. BioEnergy Research, 8(2), pp.644-656.