A-Cap Resources Ltd. Financial Analysis

This assignment delves into a comprehensive financial analysis of A-Cap Resources Ltd. It examines the company's performance through the lens of various financial ratios, incorporating data from their annual reports and market sources like Yahoo Finance. The analysis aims to assess A-Cap's profitability, liquidity, solvency, and overall financial health, ultimately evaluating its investment potential and risks.

Running Head: FINANCE
Financial analysis

Finance 1
Contents
Introduction...........................................................................................................................................2
About A-cap Resources Limited............................................................................................................2
Structure of ownership and governance.................................................................................................2
Calculation of Key ratios.......................................................................................................................2
Comparison of share prices...................................................................................................................4
Announcements.....................................................................................................................................5
Beta and required rate of return calculation...........................................................................................5
Weighted Average Cost of Capital........................................................................................................6
Analysis of Debt ratio............................................................................................................................6
Dividend Policy.....................................................................................................................................7
Recommendation...................................................................................................................................7
References.............................................................................................................................................8

Finance 2
Introduction
The report contains an overall financial analysis of the performance of A-Cap resources
limited in past four years. The analysis include the calculation of ratios like ROA, ROE and
debt ratio. Further, stock price analysis and calculation of WACC is also done along with the
evaluation of debt ratio and dividend policy. The report also contains some announcements
made by the company which affected its stock prices.
About A-cap Resources Limited
An ASX and Botswana listed company that deals in exploration of minerals in Australia. It
mainly explores coal deposits and uranium. The main focus of the company is to advance its
significant uranium project operating in Botswana. The ticker of the company is ASX: ACB
and BSE: A-Cap ("A-Cap Resources Ltd.", 2018).
Structure of ownership and governance
(i) Main shareholders
 More than 20% shareholdings: Jiangsu Chixiang Precision Gear Co. Ltd (41.04%)
 More than 5% shareholdings: Ansheng Investment Co Ltd (19.78%)
(ii) Firm governance
 The Chairman: Mr Angang Shen
 Members of Board: Mr Jijing Niu, Mr Chenghu Zhu and Mr Michael Muhan Liu
 The CEO: Mr Paul Thomson
None of these people are involve in substantial shareholdings of the company.
Calculation of Key ratios
(i) Return on Assets and Return on equity
A-Cap Resources Limited Financial Statements for year 2013-16
Particulars 2014 2015 2016 2017
AUD$ AUD$ AUD$ AUD$
EBIT -2,145,610 -2,969,116 -1,307,836 -2,762,418
Net profit -3,005,965 3,508,626 -344,606 -4,144,083
Total Assets 42,633,116 50,180,731 54,595,069 55,060,277
Total Liabilities 1,193,038 974,181 772,756 492,656
Shareholders'
Equity 41,440,078 49,206,550 53,822,313 54,567,621
("Annual report 2015", 2015)

Finance 3
1. Rate of Return on Assets
2014 2015 2016 2017
A. Net income -3,005,965 3,508,626 -344,606 -4,144,083
B. Total assets 42,633,11
6 50,180,731 54,595,06
9 55,060,277
(A/B) -7.05% 7% -1% -8%
("Annual report 2017", 2017)
2. Rate of Return on Equity
2014 2015 2016 2017
A. Net income available to equity
shareholders -3,005,965 3,508,626 -344,606 -4,144,083
B. Shareholder’s Equity 41,440,078 49,206,550 53,822,313 54,567,621
(A/B) -7.25% 7.13% -0.64% -7.59%
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 1,193,038 974,181 772,756 492,656
B. Total assets 42,633,11
6 50,180,731 54,595,069 55,060,277
(A/B) 3% 2% 1% 1%
Proving the equation
EBIT
TA X NPAT
EBIT X TA
OE = NPAT
OE
2014 2015 2016 2017
AUD$
AUD
$ AUD$ AUD$
EBIT -2,145,610 -2,969,116 -1,307,836 -2,762,418
NPAT -3,005,965 3,508,626 -344,606 -4,144,083
OE 41,440,078 49,206,550 53,822,313 54,567,621
TA 42,633,116 50,180,731 54,595,069 55,060,277
EBIT/TA (1) - 0.05 - 0.06 - 0.02 - 0.05
NPAT/EBIT (2) 1.40 - 1.18 0.26 1.50
TA/OE (3) 1.03 1.02 1.01 1.01
NPAT/OE (4) - 0.07 0.07 - 0.01 - 0.08
1*2*3= 4 - 0.07 0.07 - 0.01 - 0.08

Finance 4
(ii) TA/OE stands for Total Assets/ Owners’ equity, the variable used as a formula of
equity multiplier. The multiplier is used in DuPont analysis in which ROE is
divided into its components. The multiplier measure the degree of financial
leverage of a company. TA/OE do impact the relationship between ROA and
ROE. With an increase in Total assets, the multiplier increases resulting in
decrease in ROA. On the other side ROA increases which boosts up ROE but the
multiplier remains same. Thus, it can be concluded that rise in equity multiplier
will increase ROE but reduces ROA (Leach & Melicher, 2011).
(iii) In 2015, company has earned profits which makes its ROE positive to 7.13%,
greater than ROA of 7%. This is because shareholders’ equity is comparatively
less than the total assets acquired by the company. In remaining years, A-cap was
making losses, resulting in negative ratios. Despite of being negative, ROE was
greater than ROA.
Comparison of share prices
(i) Share price graphs
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
-
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
A-Cap Resources Limited
Months
share prices
(Yahoo Finance, 2018).

Finance 5
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
Ordinaries Index
Months
share prices
(Yahoo Finance, 2018).
(ii) The share price of A-Cap was continuously increasing from starting of 2016 and
by the end of the year it reaches $0.08, which was the highest among all. The
price remain stable for the January 2017 and after that a sudden fall was there and
in May it was $0.05. After that, there was a slight increase but at the end of the
year 2017 it again falls to $0.05. Less movements were there in ordinaries index
and seems to be stable. The fluctuations in company’s share price is independent
of market movements.
Announcements
(i) On September 20, 2017 the company announced that it will be placing its
securities in Trading halt session state for making the announcement in the market
about company’ mining license for Letlhakane project (Acap.com.au. 2017)
(ii) A-Cap announce about its CEO on 28 August 2017. It declared Paul Thomson to
be the Chief Executive Officer of the company, effective from September 1, 2017
(Acap.com.au. 2017).
(iii) On October 2017, the company announced about getting extension for its coal
prospecting licenses (Acap.com.au. 2017).
Beta and required rate of return calculation
(i) Beta =5.43
(ii) E(R) = Rf +( β∗R p)

Finance 6
Calculation of Required rate of return
Risk free rate (A) 4%
Beta (B) 5.43
Market Risk premium (C) 6%
Required rate of return [A+(B*C)]
36.58
%
(iii) Conservative investment means having low return and low risk. Company has
negative ROE from the past two years and its standard deviation is also 0.22
which is very low. It cannot be considered as conservative because it provides
negative return to its shareholders and was making losses from past years.
Weighted Average Cost of Capital
(i) As company does not carry any sort of non-current liabilities, so it’s cost of debt
will be zero.
Cost of Equity (calculated above) = 36.58%
Cost of Debt = 0%
WACC= cost of equity + cost of debt
= 36.58% + 05%
= 36.58%
(ii) Higher WACC can impact the evaluation decision of management because
increase in WACC will result in rise in the risk associated with investment
proposal. As and when beta rise, WACC rise making the risk higher. Therefore,
rise in WACC may affect the decision of management regarding a project (Pratt &
Grabowski, 2010).
Analysis of Debt ratio
(i) The debt ratio of the company seems to stable in past two years along with its
reduction. In 2014, it was 3% and in 2017, it was 1% same as 2016. This means
that company is good at managing its debt and despite of making losses, it is
capable enough to pay off its liabilities (Tracy, 2012).
(ii) As A-Cap does not have any long term borrowings, so no adjustments can be
made regarding gearing ratio.

Finance 7
Dividend Policy
A-Cap follows no dividend policy as its main activities are exploration of minerals, so it has
not yet declared any dividends to its shareholders. Moreover, it was earning losses and does
not sufficient earnings to declare dividends (Gitman, Juchau & Flanagan, 2015)
Recommendation
From the overall analysis it will be recommend not to include this company is investment
portfolio. Reasons being its negative returns, no dividends declaration and net losses. Its
financial performance is not so much promising, so it will be better to avoid making
investment in it.

Finance 8
References
Annual report 2015. (2015). Acap.com.au. Retrieved 1 February 2018, from
https://acap.com.au/wp-content/uploads/2015/10/Annual-Report-2015.pdf
^AXJO Historical prices | S&P/ASX 200 Stock - Yahoo Finance.
(2018). Au.finance.yahoo.com. Retrieved 1 February 2018, from
https://au.finance.yahoo.com/quote/%5EAXJO/history?
period1=1454265000&period2=1517423400&interval=1mo&filter=history&frequenc
y=1mo
A-Cap Resources Ltd.. (2018). Acap.com.au. Retrieved 1 February 2018, from
https://acap.com.au/
ACB.AX: Summary for ACAP RES FPO - Yahoo Finance. (2018). Finance.yahoo.com.
Retrieved 1 February 2018, from https://finance.yahoo.com/quote/ACB.AX?
p=ACB.AX
Annual report 2017. (2017). Acap.com.au. Retrieved 1 February 2018, from
https://acap.com.au/wp-content/uploads/2017/10/2017-Annual-Report.pdf
CEO SERVICE AGREEMENT AND BOARD CHANGES. (2017). Acap.com.au. Retrieved
1 February 2018, from
https://acap.com.au/wp-content/uploads/2017/08/43lt1xzdv1ghfg.pdf
EXTENSION OF COAL PROSPECTING LICENSES. (2017). Acap.com.au. Retrieved 1
February 2018, from https://acap.com.au/wp-content/uploads/2017/10/Extension-of-
Coal-Prospecting-Licences.pdf
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson
Higher Education AU.
Leach, J. C., & Melicher, R. W. (2011). Entrepreneurial finance. Cengage Learning.
Pratt, S. P., & Grabowski, R. J. (2010). Cost of capital in litigation: applications and
examples (Vol. 647). John Wiley & Sons.
Tracy, A. (2012). Ratio analysis fundamentals: how 17 financial ratios can allow you to
analyse any business on the planet. RatioAnalysis. Net.
Trading Halt. (2017). Acap.com.au. Retrieved 1 February 2018, from
https://acap.com.au/wp-content/uploads/2017/09/10-Trading-Halt-20-Sep-17.pdf