Valuation Ratios

The dividend payout ratio for both Focus mineral and Azure mineral is zero, indicating that neither organization has paid dividends to their shareholders throughout the period of analysis. The asset turnover ratio for Focus mineral shows a declining trend, whereas Azure mineral's ratio has been increasing, suggesting that Azure mineral is more efficient in using its assets. The financial statements of both organizations are analyzed to provide insights into their financial performance and sustainability.

Running head: PRINCIPLES OF FINANCIAL MARKETS
Principles of financial markets
Student Name:
University Name:
Author Note

2PRINCIPLES OF FINANCIAL MARKETS
Executive Summary
The report demonstrated the top up and bottom down analysis of mineral industry that leads to
fundamental analysis. Selected organization for conducting the fundamental analysis is Focus
mineral and Azure mineral that are the leading producers of mineral in Australian mineral sector.
Fundamental analysis is evaluated by conducting the top down and bottom up analysis of mineral
industry. Background of Australia mineral sector has also been demonstrated and top down
analysis is conducted by considerations of various macro-economic factors such as inflation rate,
exchange rate, gross domestic product rate and unemployment rate of Australian economy.
Report presents several graphs that depicts the presentation of performance of economy
numerically. Bottom up analysis of organizations have been conducted by the implementation of
tool of ratio analysis. Ratio analysis is considered as crucial tool for investors in making
investment decisions. Furthermore, it helps in making comparison of performance of both the
selected organizations of mineral sector. Later part of report details about the summary of report
and provides with the recommendation to investors for enabling them to make favorable
investment.

3PRINCIPLES OF FINANCIAL MARKETS
Table of Contents
Introduction......................................................................................................................................6
Background of Australian mining industry.....................................................................................6
Mission Statement of the companies...............................................................................................7
Top down analysis...........................................................................................................................8
Bottom up analysis........................................................................................................................13
Summary and Recommendations..................................................................................................22
References......................................................................................................................................24
Appendices....................................................................................................................................27

4PRINCIPLES OF FINANCIAL MARKETS
Introduction:
It is essential for investors to conduct the proper analysis of organization in which they
are seeking investment. Such types of analysis incorporates top down analysis and bottom up
analysis of the industry. An investor is presented with the macro environment of the industry b
conducting top down analysis. On other hand, bottom up analysis depicts the micro
environmental picture of particular organization. In the current report, fundamental analysis of
two Australian listed companies of mineral sector is selected. These two organizations include
Focus mineral limited and Azure mineral limited.
Background of Australian Mineral industry:
Mineral industry of Australia is strong despite fall in price and they are the biggest
contributor of export trade of country. One of the leading mineral resource nation is Australia
and is the largest producer of primary aluminum and largest refiner of bauxite. Australia is
experiencing strong economy that is driven by low unemployment rate and continuous economic
growth rate. As the prices of commodity is falling, mineral industry is transitioning from
investment to production phase along with continuous expansion of export volume. Nonetheless,
mineral industry ash been increasingly viewed by investors as industry having high level of risks
as small exploration organizations are adversely impacted by paucity of venture capital. 60%-
70% of mining software is supplied worldwide according to Mineral council of Australia and
center for international economics. A greater interest is created in the frontier areas due to
technological development and rapid improvement in exploration of petroleum (Carlon et al.
2015). This has enabled drilling of horizontal wells, mapping data of petroleum exploration and
development options of diverse petroleum production that are of diverse range.

5PRINCIPLES OF FINANCIAL MARKETS
More than 50% of needs of Australia is provided by mineral sector and they are considered as
essential for economic growth of nation.
Overview and Mission statement of organizations:
Focus mineral is the leading explorer of gold having one of the largest bank balance of
explorer listed on ASX. The goal of organization is to ensure efficient use of capital and
leveraging strong financial position for increasing the wealth of shareholders. Organization is
current exploring at Coolgardie and Laverton and they are continuing to reemerge as producer.
Coolgardie and Laverton belt form the strategic portfolio of assets (focusminerals.com.au 2017).
Azure Mineral is an Australian based organization engaged in exploration and development of
minerals. Primary activities of organization is to explore for silver, copper, gold and zinc
deposits. Incorporation of company was done in year 2003 that is based in West Perth Australia.
Project based work of organization is progressed in partnership with two major mining
companies that includes Alacnran project and Promontorio project (azureminerals.com.au 2017).
They intends to undertake some other development projects that involve mining, infrastructural,
environment, hydrological along with social and environmental aspects.
Australia has a diverse and abundant energy and mineral resources, the critical factor to
the economic success and performance is the growth of resource sector, and they are a significant
contributor to export earnings. Mineral sector is the cornerstone of the economy of country with
vale of exports being made is recorded at $ 157 billion that accounts 51% of export of goods and
services. Mining sector attracted a total investment worth $ 76 billion in ear 2015-2016. Total of
$ 26 billion of wage sand salaries were paid to labor from this sector in year 2015-2016. Around
2280000 people are directly employed in the mineral sector and since year 2000, employment

6PRINCIPLES OF FINANCIAL MARKETS
rate has been more than doubled. Export market of Australia’s energy and resources comprised
of Japan, India, China, South Korea, EU 28 and other Asia. Country has over more than 260
mineral producing and gas operations.
One of the biggest industry contributor toward the economic growth of country is mineral
sector and resilience and tenacity of mineral sector was underlined and year 2016. However,
despite the lower price or falling prices of commodities, a recorded growth in export of resources
was delivered by Australian mineral sector. Over the recent year, there was a combination of
relentless pursuits of productivity gains and long phase of investment. Such transition was a
proof of the fact that expanded mineral sector is continuing to make a vast difference in economy
of country. Growth of mineral resources along with mineral sector guarantees long-term
dividend payment to nation. Australian citizens would live with high living standard and social
welfare net that is driven by exports income, job, hundred billion of dollar in royalties and taxes
and regional communities.
Top down analysis
Overview of Australian economy:
Top down analysis of industry is done by analyzing various macro-economic indicator
such as employment rate, gross domestic product, inflation rate, output rate. Economy of
Australia is considered as growing economy and there is a considerable growth in rate at 4.40%.

7PRINCIPLES OF FINANCIAL MARKETS
From the above chart, it can be inferred that Australian growth rate is higher with a
considerable decline in rate of unemployment. Furthermore, there has been increase in current
account deficit with increase in inflation at the same time. Increase in rate of inflation is not
viewed as something positive as this reduces the purchasing power of people and in this regard,
government is required to take some measures for reducing the rate of inflation in economy.

8PRINCIPLES OF FINANCIAL MARKETS
Resource boom in the mineral sector has transitioned the industry from investment to
production phase and the sector produced record commodity volume in year 2016. Concentrates
produce and volume of iron ore was significantly higher by 66.3% in year 2016 as compared to
year 2012. During the boom in mineral investment, there was reversing appreciation in
Australian dollar resulting from lower international demand and increase in volume of
commodity. The Australian dollar fell to $ 0.76 USD in year 2016 as compared to $ 1.08 USD in
year 2011. Australian terms of trade are the main reason for decline in exchange rate (Marshall
2016).
Australia terms of trade and terms of trade:
Source: Henderson et al. 2015)
Source: Henderson et al. 2015)

9PRINCIPLES OF FINANCIAL MARKETS
Growth of GDP is attributable from the increase in net exports and household
consumption and a positive contribution aroused from the government expenditure. Growth in
gross domestic product was detracted from the business investment. Mineral sector was the
reason behind the continuous fall in business investment. Business investment in year 2014-2015
stood at $ 74.8 compared to $ 52.4 in ear 2016-2016 indicating that there was a decline of 29.9%.
Fall in mineral investment is more than rise in mining investment (Christensen et al. 2013) .
Business investment by industry from June 2006 to June 2016:
Source: Henderson et al. 2015)
Mineral industry of Australia has been witnessing a contraction in employment and there
is uneven in distribution of employment growth rate throughout country. Compared to national
average of employment growth rate of 1.4%, the employment growth rate in Western Australia
and Queensland was recorded at 1.3% and 0.3%. The possible reason for this pattern is transition
of mineral sector away from investment to production phase.

10PRINCIPLES OF FINANCIAL MARKETS
Data for full time, part time and underemployed persons:
Source: Henderson et al. 2015)
Employment and output by industry:
Source: Henderson et al. 2015)
Compared to a relatively lower employment growth rate at 1.0% in the mining and
mineral sector, they were the strongest performer in terms of growth in rate of output at 6.2%.
With increase in overall level of employment by 1.8% and increase in construction output by

11PRINCIPLES OF FINANCIAL MARKETS
2.8%, the taper in mining industry has not been able to adversely affect the same (Sharma and
Panigrahi 2013).
Despite the fall in price, mineral and mining sector is witnessing strong volumes because
of its transition into the production phase. The contribution of mineral sector in the gross
domestic product of Australia stood at 6.9% at $ 114.9 billion. After the construction and
service sector, mining sector is the third largest contributor to gross domestic product. The
growth rate of miming output was higher than all the industries and the output growth at 6.2% in
year 2016. Production phase in mining sector requires fewer employees compared to investment
phase and recorded export volume continued to be produced by mining sector. The volume of
key commodity export in year 2015-2016 increased by 3.0% and the major component involved
metallurgical, iron ore and thermal coal.
Value and volume of mineral commodity exports:
(Source: Henderson et al. 2015)
In case of top down analysis, analysis of particular organization is the last step. With the
growth in GDP rate of Australia, it is indicated that there is positive impact on performance of

12PRINCIPLES OF FINANCIAL MARKETS
Azure mineral and Focus mineral. Both the organizations would be able to increase their market
capitalization if there is reduction in unemployment rate and increase in gross domestic product
of economy. Azure mineral continues to direct a fair of share of its budget toward exploration
and future performance of group is dependent upon development of project, success exploration
and continuous funding (Golden and Kohlbeck 2017). Asset base of organization would be
strengthen by strategy followed by company and they are second largest concentration of copper
deposits in the world.
Bottom up analysis
Bottom up analysis is a tool used by investors for analyzing the performance of specific
organization. Implementation of bottom up analysis of organization is done by adopting the
approach of Company, Industry and Economy. For conducting the analysis, investors seeking
investment in any specific organization involves analysis of business of organization, industry in
which they are operating and economy in which they are operating. Therefore, for conducting the
bottom up analysis, investors is required to analyze the performance of selected organization in
mineral industry that is Focus Mineral and Azure Mineral that is listed on Australian stock
exchange.
Applying the tool of ratio analysis would help investors in depicting the financial teed of
both the organization. For the evaluation of the financial performance, several ratios that are
calculated involves profitability ratio, liquidity ratio, efficiency ratio and growth ratios (Nilsson
and Stockenstrand 2015). Furthermore, application of this tool would also help in comparing the
performance of both the organization and making comparison with the industry standard.

13PRINCIPLES OF FINANCIAL MARKETS
Analysis of profitability position of selected organization:
Profitability position of organization can be analyze by calculating profitability ratio and
depicts the ability of organization to generate profit. This particular ratio is used by investors of
organization for judging the return that will be generated on their investment. Some of major
profitability ratio that has been calculated are operating margin ratio, gross profit ratio and
dividend payout ratio.
The percentage of change in operating income of organization over the sales revenue is
reflected by operating ratio. It is the amount of profit that is generated by company after meeting
all the basic expenses.
2014 2015 2016
-7
-6
-5
-4
-3
-2
-1
0
-
6.9306049822
0641
-
1.1310951239
0088
-
1.5493917274
9392
Net Profit Margin
Net Profit Margin
Net profit Margin of Focus mineral

14PRINCIPLES OF FINANCIAL MARKETS
Net Profit Margin
0.00%
500.00%
1000.00%
1500.00%
2000.00%
2500.00%
3000.00%
3500.00%
4000.00%
4500.00%
5000.00% 4650.49%
294.94% 159.90%
Net Profit Margin
2014 2015 2016
Net profit Margin of Azure mineral
It can be clearly depicted from above graph presented that the net profit margin of Azure
mineral is much better than Focus mineral. Focus mineral is incurring loss in the current
operating year as against Azure mineral that is generating positive net profit margin. Compared
to financial year 2014 where net profit loss of Focus group stood at 693.06% as against 154.94%
in year 2016. Loss generation has been reduced in recent year. Net profit margin of Azure
mineral has fallen significantly since year 2014 from 4650% to 159.9% in year 2016. Therefore,
comparing the value of ratio of both organization, it can be said that management of Azure is
successful in minimizing direct and indirect expenses that has resulted in offsetting increasing
cost.

15PRINCIPLES OF FINANCIAL MARKETS
2014 2015 2016
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
-
0.79922894424673
8
-
0.43365307753797
-
0.26666666666666
7
Oper ating m ar gin
Operating margin
Operating Margin of Focus mineral
2014 2015 2016
0.00%
2000.00%
4000.00%
6000.00%
8000.00%
10000.00%
12000.00%
14000.00%
16000.00%
18000.00% 16778.60%
321.51% 1060.89%
Operating Margin
Operating Margin
Operating Margin of Azure mineral
From graph, it can be said that loss resulting from operations of organization is declining
as operating loss stood at 79.92% in year 2014, 43.37% in year 2015 and 26.67% in year 2017
respectively. Looking at the graph of Azure mineral, it is depicted that operating margin of

16PRINCIPLES OF FINANCIAL MARKETS
organization has fallen considerably. Operating margin of Azure mineral for year 2014 stood at
16778.60% that declined to 321.51% in year 2015 and in year 2016, value increased to
1060.89%. When comparing the figure of both the organization, it is concluded that performance
of azure mineral is better than Focus mineral in respect of generating operating margin.
Dividend payout ratio-
Total amount of dividend that is paid to shareholders with respect to net income of
company is depicted by dividend payout ratio. It is the indicator that is used by investor when
they are seeking investment in any particular organization.
2014 2015 2016
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 0 0
Dividend payput ratio
Dividend payput ratio
Dividend payout ratio of Focus mineral

17PRINCIPLES OF FINANCIAL MARKETS
2014 2015 2016
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
0.00% 0.00% 0.00%
Dividend payout ratio
Dividend payout ratio
Dividend payout ratio of Azure mineral
It is easily depicted from the above two graphs that both the organization that is Azure
mineral and Focus mineral has zero dividend payout ratio. This is indicative of the fact that both
the organization has not paid any amount of dividend to their shareholders throughout the period
of analysis. No dividend has been paid to shareholders by Focus mineral and Azure mineral for
three consecutive years that is 2014, 2015 and 2016 respectively.
Analysis of efficiency ratio:
Efficiency ratio helps in explaining to the investors about the efficiency level of
organization while utilizing their assets. Efficiency position of both the organization can be
analyzed by calculating asset turnover ratio. Asset turnover ratio depicts the efficiency of
organizations in utilizing their assets. It reflects how well organization is utilizing their assets for
generating revenue.

18PRINCIPLES OF FINANCIAL MARKETS
2014 2015 2016
0
0.005
0.01
0.015
0.02
0.025
0.02471198663266
2
0.01915406698564
59 0.01590101905800
97
Asset Turnover ratio
Asset Turnover ratio
Asset turnover ratio of Focus mineral
2014 2015 2016
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.00471320996281
787
0.02100036621863
28
0.03456634758634
36
Asset Turnover ratio
Asset Turnover ratio
Asset turnover ratio of Azure mineral
It can be observed very easily by looking at graph, that asset turnover ratio of Focus
mineral has been falling as compared to Azure mineral throughout the analysis period. Focus

19PRINCIPLES OF FINANCIAL MARKETS
mineral has been witnessing reverse trend and the ratio is continuously declining. Asset turnover
ratio of Focus for year 2014 stood at 0.024 compared to 0.015 in year 2016. On other hand, for
Azure mineral, ratio stood at 0.004 in year 2014 and thereafter value rose significantly to .034.
Therefore, from figure it is very clear that Azure mineral have been efficiently utilizing their
assets for generating income.
Analysis of liquidity position:
Liquidity position of organization can be analyzed by calculating ratio such as current
and quick ratio. It depicts the ability of companies to pay off their short-term obligations using
their current assets. Higher ratio is indicative of the fact that current assets are efficiently utilized
for meeting obligations. On other hand, lower ratio indicates that organization are not efficiently
utilizing current assets for meeting short-term obligations.
2014 2015 2016
0
10
20
30
40
50
60
70
80
90
100
16.04046106798
4
96.41243862520
46
21.08104685521
32
Current ratio
Current ratio
Current ratio of Focus mineral

20PRINCIPLES OF FINANCIAL MARKETS
2014 2015 2016
0
1
2
3
4
5
6
7
8
9
3.55831543261292
8.62261486888611
7.52435212744249
Current ratio
Current ratio
Current ratio of Azure mineral
From above graph, it is depicted that liquidity position of Azure mineral is better than
Focus mineral. This is so because current ratio of Focus mineral is unnecessarily higher and is
going beyond the industry standard. Current ratio of Focus mineral stood at 16.4 in year 2014,
further increased to 96.41 in year 2015, and thereafter declined to 21.08 in year 2016. Looking at
the figure of current ratio for Azure mineral, it can be seen that current ratio increased in year
2015 to 8.622 compared to 3.55 in year 2014. Ratio value further declined to 7.52 in year 2016.
This particular value of current ration does not depict that current assets are not efficiently
utilized for meeting obligations.
Summary and recommendations:
From the above analysis of the mineral sector of Australia, it can be concluded that
despite the fall in the prices of commodity, there has been rise in the mineral sector and it was
the highest contributor in the export department of nation. Growth of gross domestic product of

21PRINCIPLES OF FINANCIAL MARKETS
Australia largely accounts the mineral sector that is the major contributor. It can be evaluated
from the bottom up analysis that performance of Azure mineral is much better in terms of
liquidity, efficiency and profitability position. However, both the organizations have not paid
dividend to their shareholders in the period of analysis. The reason is attributable to the fact that
organizations have not been able to generate sufficient profit for paying back to their
shareholders.
Furthermore, it is depicted from the bottom down analysis that during recent financial years, both
organization that is Focus mineral and Azure mineral have been struggling for curtailing their
liquidity status and operating expenses. Nonetheless, Focus mineral has been generating net loss
from its operating activities compared to azure mineral that has generated profit. In this aspect, it
can be said that performance of Azure mineral is far better than Focus mineral.
It is reflected by top down analysis that there is steady movement in Australian economy
in recent years. However, during the last few years, the overall unemployment rate, level of
interact rate and current account deficit was expanding. Therefore, for the long-term investment,
it is recommended that investor can make investment in Azure minerals. Nonetheless, investor
cannot be bearish about making investment in Focus mineral as its performance might improve
with economic improvement and prosperity of mineral sector.

22PRINCIPLES OF FINANCIAL MARKETS
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