Financial Analysis and WACC Calculation

The assignment presents a series of financial data points spanning from April 2016 to December 2017. It includes daily values for an unknown variable likely representing stock prices or some other financial metric. The task involves calculating the Weighted Average Cost of Capital (WACC) using provided information about equity and debt capital amounts, their respective costs, and percentages of ownership. The assignment emphasizes understanding and applying concepts related to financial analysis and cost of capital determination.

RUNNING HEAD: Financial analysis of Empire Resources Ltd 1
Name of the student
Topic- Financial analysis of Empire Resources Ltd
University name

Financial analysis of Empire Resources Ltd 2
Table of Contents
Introduction................................................................................................................................2
1. Ownership and governance structure..................................................................................2
2. Performance ratio analysis of Myer Holding Limited........................................................3
3. Movements in the share prices............................................................................................6
4.1 Graph of share price movement of Empire Resources Ltd..............................................6
4.2 Comparison of share price movement of Empire Resources Ltd with the all ordinary
index.......................................................................................................................................7
4. Announcements..................................................................................................................7
5. Research via internet...........................................................................................................8
6.1 The value of beta is calculated from the data fetch from Yahoo finance i.e. .15.............8
6.2 Computation of required rate of return by using CAPM method.....................................8
6.3 Determination of conservative investment.......................................................................9
6. Weighted Average Cost of Capital (WACC)...................................................................10
6.1 Cost of equity (calculated above using CAPM.........................................................10
7.2 Implications that a higher WACC on investment decision............................................10
7. Consideration of debt ratio for the company....................................................................10
8.1 Appear to stable..................................................................................................................10
8.2 Gearing ratio discussion.................................................................................................11
8. Divided policies of company............................................................................................11
9. Letter of recommendation.................................................................................................11
10. Conclusion.....................................................................................................................13
11. References.....................................................................................................................14
12. Appendix.......................................................................................................................15

Financial analysis of Empire Resources Ltd 3
Introduction
This report is based on the financial analysis of Empire Resources Ltd. There are
several financial tools such as bottom up analysis; ratio analysis and trend analysis have been
taken into consideration.
Present description of the company
Empire Resources Ltd is an international company, The headquarter of company is in
Australia. This company delivered the maiden revenues with its first gold pour, and is
expected to generate revenues. The share price movement of company has been given as
below.
(Yahoo finance,2017)
1. Governance structure and ownership
The CEO of Empire Resources Ltd is Steven Rodgers who has been managing the business in
determined approach.
Owner of company

Financial analysis of Empire Resources Ltd 4
 Institutional holders- 0%
 Mutual funds-0%
 Insiders-0% (Empire Resources Ltd, 2017)
 The entire share in Empire Resources Ltd has been hold by the private persons of
company who are also promoter.
2. Performance ratio analysis of Empire Resources Ltd
The financial ratio analysis has been used to determine the relation between two business
factors of organization (Empire Resources Ltd, 2015).
Calculation of ROA and ROE
Empire Resources Ltd
Particulars (Amount in Million 2014 2015 2016 2017
AUD$ AUD$
AU
D$
EBIT -1 -1 -2 -2
Interest 0 0 0 0
Net profit -1 -1 -2 -2
Total Assets 0 0 0 5.00
Total Liabilities 0 0 1 5
Shareholders' Equity 0 - 0 5.00
Computation of Return on assets
1. Rate of Return on Assets
2014 2015 2016 2017
A. Net income -1 -1 -2 -2
B. Total assets 0 0 0 5
(A/B) 0.00% 0% 0% -40%
Interpretation

Financial analysis of Empire Resources Ltd 5
It is evaluated that rate of return of company is zero in all the three years as company
had no income and no assets invested in its business. In addition to this, in 2017, it reflected
40% loss in its return on assets which may destruct the value of its assets (Brigham and
Ehrhardt, 2013)

Financial analysis of Empire Resources Ltd 6
Return on equity computation
2. Rate of Return on Equity
2014 2015 2016 2017
A. Net income available to equity
shareholders. -1 -1 -2 -2
B. Shareholder’s Equity 0 0 0 5.00
(A/B) 0.00% 0.00% 0.00% -40.00%
Interpretation
It is considered that return on equity of company is zero in all the years. However, in 2017,
shareholders will have to face decrease in their share value invested by 40% which is not
good indicators. Empire Resources Ltd has destructed the value of its investment (Brigham
and Ehrhardt, 2013).
Computation of Debt to equity
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 0 0 1 5
B. Total assets 0 0 0 5.00
(A/B) 0 0 0 100%
Interpretation
It is observed that Empire Resources Ltd has zero debt to equity since last four years.
However, in 2017, Empire Resources Ltd had equal debts and total assets in its business. It
reflects that company has very high financial leverage. Debt to equity ratio of company is
100%.
Proving the equation
This equation is given as below
EBIT
TA X NPAT
EBIT X TA
OE = NPAT
OE

Financial analysis of Empire Resources Ltd 7
Providing equation
2
014 2015 2016 2017
Net profit After tax/OE 0 0 0 -0.4
EBIT/TA*NPAT/EBIT*TA/OE 0 0 0 -0.4
(Please see the excel sheet for the proper calculation)
3. Share price movement
4.1 Share price of Empire Resources Ltd
12/31/2015
2/29/2016
4/30/2016
6/30/2016
8/31/2016
10/31/2016
12/31/2016
2/28/2017
4/30/2017
6/30/2017
8/31/2017
10/31/2017
12/31/2017
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
Average return-Empire Resources Ltd
Average return-Empire
Resources Ltd

Financial analysis of Empire Resources Ltd 8
4.2 share price comparison with the all ordinary index
2/29/2016
3/31/2016
4/30/2016
5/31/2016
6/30/2016
7/31/2016
8/31/2016
9/30/2016
10/31/2016
11/30/2016
12/31/2016
1/31/2017
2/28/2017
3/31/2017
4/30/2017
5/31/2017
6/30/2017
7/31/2017
8/31/2017
9/30/2017
10/31/2017
11/30/2017
12/31/2017
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
Average Return
Average return-Empire Resources Ltd 0.00 0.00
Average Return
Comparison of share price movement of Empire Resources Ltd with the all ordinary index
It is evaluated that the share price movement of all ordinary indexes is very high. It is
observed that as compared to all ordinary indexes, the share price movement of Empire
Resources Ltd is stable. However, investors will have more return if they invest their capital
in all ordinary indexes (Yahoo finance, 2017). Empire Resources Ltd has shown no upward
and downward slope in its share price (Empire Resources Ltd, 2017).
4. Announcements
1. In 2017, company kept its business stable since last four years. However, in the starting
company had high loss in its business which might impact the share price of company.
2. Company has no business functioning in its value chain activities (Empire Resources Ltd,
2017).
5. Research via internet
Stock Beta calculation

Financial analysis of Empire Resources Ltd 9
6.1 The beta value calculation
Regression
Statistics
Multiple R 0.199097397
R Square 0.039639774
Adjusted R
Square -0.006091666
Standard Error 0.024120874
Observations 23
ANOVA
df SS MS F Significance F
Regression 1 0.000504316 0.000504316 0.866795 0.362424562
Residual
2
1 0.012218148 0.000581817
Total
2
2 0.012722464
Coefficie
nts
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Interc
ept
0.00884
2786
0.00510
0819
1.73360
1342
0.097
648
-
0.00176
4947
0.019
451
-
0.00176
4947
0.01945
0519
X
Varia
ble 1
0.02428
9841
0.02608
9546
0.93101
8149
0.362
425
-
0.02996
634
0.078
546
-
0.02996
634
0.07854
6022
The beta value of company is .024 which is very low. It reflects that the share price of
Company will be fluctuated by .024 % with the 1 change in all ordinary indexes.
6.2 Return on capital through CAPM
E(R) = Rf + ( β∗Rp )
E(R) = Expected rate of return
Rf = Risk free rate of return
β = Beta
Rp= Market Risk Premium (Zhu, 2014).

Financial analysis of Empire Resources Ltd 10
Calculation of Required rate of return
Risk free rate (A) 4%
Beta (B) 0.024289841
Market Risk premium (C) 6%
Required rate of return [A+(B*C)] 4.15%
(Please see the excel)
The required rate of return of company is -45 (Empire Resources Ltd, 2017).
6.3 Determination of conservative investment
It is considered that return on capital of company employed of company is negative.
However, company is planning to expand its business. It is evaluated that company right now
is following aggressive investment policy. It is considered that due to sluggish market
conditions, Empire Resources Ltd has faced high loss in its business.

Financial analysis of Empire Resources Ltd 11
6. Weighted Average Cost of Capital (WACC)
6.1 Cost of equity (calculated above using CAPM
Cost of equity (calculated through CAPM) = -4.15%
Cost of Debt = 0%
WACC = Cost of debt (interest rate after tax) + cost of equity
Calculation of Required rate of return
Risk free rate (A) 4%
Beta (B) 0.024289841
Market Risk premium (C) 6%
Required rate of return [A+(B*C)] 4.15%
The cost of debt of company is zero as it is paying no interest (Empire Resources Ltd, 2016).
The weighted average cost of capital of company is 4.15%.
7.2 Implications that a higher WACC on investment decision
After evaluating the annual report of company, it is considered that higher WACC of
company restrict company to accept the particular project investment. It is observed that
company is having 4.15% WACCC. It will increase the overall return on capital employed of
company. Therefore, company could easily accept each and every project to make
investment. It will be easy for the company to accept the project.
7. Consideration of debt ratio for the company
8.1 Appear to stable
Company has no debt to equity in 2014, 2015 and 2016. However, in 2015 it had
100% financial leverage.
3. Debt Ratio

Financial analysis of Empire Resources Ltd 12
2014 2015 2016 2017
A. Total Liabilities 0 0 1 5
B. Total assets 0 0 0 5.00
(A/B) 0 0 0 100%
Interpretation
It is observed that Empire Resources Ltd has zero debt to equity since last four years.
However, in 2017, Empire Resources Ltd had equal debts and total assets in its business. It
reflects that company has very high financial leverage. Debt to equity ratio of company is
100%.
8.2 Gearing ratio discussion
It is evaluated that Empire Resources Ltd has zero interest payment. It is observed
that Empire Resources Ltd has no interest obligation to pay so company has zero gearing
ratios (Empire resources Ltd, 2014)
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 0 0 0 0
8. Divided policies of company
Company has adopted strong dividend policy. It has followed profit based dividend policy. It
is observed that company has been distributing zero amount of dividend from its business.
The dividend policy of company is completely profit based so dividend is offered to clients
due to loss in its business
9. Letter of recommendation
After evaluating all the key information about the company, it is inferred that Empire
Resources Ltd has been facing several problems due to sluggish market conditions. It is

Financial analysis of Empire Resources Ltd 13
evaluated that in 2017, Company increased its sales but due to its negative return on capital
employed, it had loss in its business. Investors should not take this company for their
investment purposes otherwise they will destruct the value of their invested capital.

Financial analysis of Empire Resources Ltd 14
10. Conclusion
It is observed that Empire Resources Ltd has negative output from its business. However,
management is planning to make its business effective. Investors should not invest their
capital in Empire Resources Ltd otherwise they will face high loss in their capital investment.

Financial analysis of Empire Resources Ltd 15
11. References
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Empire Resources Ltd, 2015, annual report, Retrieved on 29th November, 2017 from
http://www.resourcesempire.com.au/annual_report.htm
Empire Resources Ltd, 2016, annual report, Retrieved on 29th November, 2017 from
http://www.resourcesempire.com.au/annual_report.htm
Empire Resources Ltd, 2017, annual report, Retrieved on 29th November, 2017 from
Empire Resources Ltd, annual report, retrieved on 29th November, 2017 from
http://www.resourcesempire.com.au/annual_report.htm
http://www.resourcesempire.com.au/annual_report.htm
Yahoo finance, 2018, Empire Resources Ltd, retrieved on 19h January from
http://www.resourcesempire.com.au/annual_report.htm

Financial analysis of Empire Resources Ltd 16
12. Appendix
Empire Resources Ltd
Particulars (Amount in
Million 2014 2015 2016 2017
AUD$ AUD$ AUD$
EBIT -1 -1 -2 -2
Interest 0 0 0 0
Net profit -1 -1 -2 -2
Total Assets 0 0 0 5.00
Total Liabilities 0 0 1 5
Shareholders' Equity 0 - 0 5.00
1. Rate of Return on Assets
2014 2015 2016 2017
A. Net income -1 -1 -2 -2
B. Total assets 0 0 0 5
(A/B) 0.00% 0% 0% -40%
2. Rate of Return on Equity
2014 2015 2016 2017
A. Net income available to equity
shareholders. -1 -1 -2 -2
B. Shareholder’s Equity 0 - 0 5.00
(A/B) 0.00% 0.00% 0.00% -
40.00%
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 0 0 1 5
B. Total assets 0 0 0 5.00
(A/B) #DIV/0! #DIV/0! #DIV/0! 100%
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 0% 0% 0% 0%

Financial analysis of Empire Resources Ltd 17
Date
Average return-Empire Resources
Ltd Average Return
31-12-2015 0.00
31-01-2016 0.00
29-02-2016 0.20 -
31-03-2016 0.00
-
1.00
30-04-2016 -0.11 #DIV/0!
31-05-2016 0.13
-
2.13
30-06-2016 0.56 3.44
31-07-2016 -0.18 -
31-08-2016 0.57
-
4.17
30-09-2016 0.03
-
0.95
31-10-2016 0.03
-
0.03
30-11-2016 -0.16 -
31-12-2016 0.00
-
1.00
31-01-2017 -0.06 #DIV/0!
28-02-2017 -0.27 3.27
31-03-2017 0.09
-
1.34
30-04-2017 -0.04
-
1.46
31-05-2017 -0.04 -
30-06-2017 -0.09 1.09
31-07-2017 0.05 -
31-08-2017 0.10 0.90
30-09-2017 0.04
-
0.54
31-10-2017 0.04
-
0.04
30-11-2017 -0.12
-
3.88
31-12-2017 0.00
-
1.00

Financial analysis of Empire Resources Ltd 18
WACC
Capital
Amount
Cost of
capital
% of
portion WACC
Equity 1879 -45.40% 0.8548681 -0.3881
Debt 319 2.41% 0.1267382
0.0030
5
Total
capital 2198 WACC
-
0.3850
6

Financial analysis of Empire Resources Ltd 19