Financial Analysis of Paringa Resources Limited and Neptune Marine Services Limited

This assignment analyzes the financial position of Paringa Resources Limited and Neptune Marine Services Limited, two companies listed on the Australian stock exchange and operating in the marine sector. The analysis covers debt-equity, cash flow statement, comprehensive income statement, and accounting for corporate income tax.

Accounting
Assignment

1
By student name
Professor
University
Date: 25th Sep 2018.
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Executive Summary
For the purpose of this assignment we have selected two companies which are listed in
the Australian stock exchange and we have also analyzed their annual reports. The primary
objective of this assignment is to comment on the overall financial position of both the
companies which are operating in the same industry and are rivals to one another. We have
analysed various elements of the financial statements like debt-equity, comprehensive income
statement details as well as the elements of cash flow. The purpose of this assignment is to
evaluate which company is more viable.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Owner’s Equity............................................................................................................................................4
Cash Flow Statement...................................................................................................................................7
Other comprehensive income statement..................................................................................................11
Accounting for Corporate Income Tax.......................................................................................................13
References.................................................................................................................................................16
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Introduction
For the purpose of preparing this assignment we have selected two companies, PARINGA
RESOURCES LIMITED and NEPTUNE MARINE SERVICES LIMITED. Both the above mentioned
companies are listed on the ASX stock exchange and belong to the marine sector.
Paring Resource Limited is one of the most renowned energy providing company which is based
in United States. It is considered as one of the highest producing company of the production of
both types of coals which has both highest as well as the lowest cost in the manufacturing
regions of the United States. The company is engaged in the provision of several unique kinds
of services. This company is mainly engaged in the exploration of US marine oils. The company
is also involved in providing various other kinds of services which are related to high complex
energy. Most importantly, it is involved in the Buck Creek Mining Complex development which
is located in the Illinois Coal Basin. We have downloaded the annual report of the company and
analyzed the several important aspects which are related to the equity and various other
elements are also discussed in this assignment.
Neptune Marine Services Limited is one of the major companies in the provision of integrated
services which also involves apart from inspection, repair and maintenance solutions to the oil
and gas and the various other sectors of marine as well as renewable energy sector. The
services that are provided by the company meet the requirement solution needs which are
basic needs of the companies. The Company is also involved in the provisioning of various other
services as a complete solutions package and individual solutions. The Company is having its
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headquarters in Perth. The other services which are provided by the Company to the clients
includes total solution package also. The various heads under which the company is registered
as a corporate are Subsea UK, IMCA, Subsea Energy Australia and the Petroleum Club. As per
the requirement of this assignment we have downloaded the annual report of the company
and discussed the various aspects which are considered as important in detail. (Abdullah &
Said, 2017).
Analysis
There exists a healthy competition between both the companies. We have discussed below
various significant points relating to the specific elements:
Shareholders’ Equity:
Shareholders’ Equity, in general terms, means the total amount of equity fund in a company.
This equity belongs to the shareholders of the company. That is the reason because of which
the shareholders are considered as the owners of the company. The company raises funds with
the help of issuing share to the outsiders. The company generally raises funds through issuance
of shares when it does not want to increase its debt equity ratio, and moreover, the risk
involved with such kind of investment is low in comparison to funds raised through debts and
other instruments. The liabilities are limited to the amount of investment made by the
shareholders in the company, in case of public listed companies. The company generally pays
returns to the shareholders in the form of dividends at the discretion of the board of directors.
Wealth maximization of the shareholders is the primary objective of the companies. (Alsagoff,
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2010). We have discussed the various elements which are included in the shareholder’s equity
and below-
 Equity Share Capital – Equity share capital of a company is the total amount of face
value of the shares issued to the shareholders of the company. The shares are generally
issued either at discount or premium or even sometimes at par. In case of public listed
companies there are various provisions to be followed which are laid down by stock
exchange also. There are various sub heads under this head like authorized share
capital, subscribed share capital, issued share capital and paid up share capital. In case
of Paringa Limited, the number of share issued by the company is 102 million shares and
no change in the overall structure of the equity shares of the company has been
noticed. In case of the other company, i.e., Neptune Limited, no change in the overall
equity structure have been observed either, but the company is involved in making
share based payment to the employees of the company which are paid at fair value,
from which we can observe the involvement of equity element in such share based
payment to the employees.
 Retained Earnings – Retained earnings are the accumulated amount of earnings of a
company till date. The retained earnings are reported in the annual report for the entire
period of a company’s existence. The company may accumulate the profit of every year
instead of distributing the same among the members, i.e., the shareholders. The
retained earnings increase the worth of a company. When the amount of retained
earnings is negative it is called accumulated losses, which occurs when the company is
incurring losses instead of profits. The existence of retained earnings affects to a great
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extent the dividend paying capability of a company. In case of Paringa Resources, we
have observed that there were huge losses incurred by the company, due to which the
company did not pay any dividend to its shareholders during the year.
In case of Neptune Limited, we have witnessed that the company has paid interim
dividend during the year but has not paid annual dividend, since the company has
accumulated losses. This is considered the reason behind non declaration of annual
dividend to the shareholders.
 Other Free Reserves- Free reserves are considered to be general reserves which the
company can utilize for any purpose since no specific elements are attached to these
reserves, hence the name free reserves the various things included in the free reserves
are the amount of shares forfeited, share premium received etc. In case of both the
companies no such free reserves were created since in case of both the companies
there were accumulated losses and losses were incurred in the current year as well.
 Non-Controlling Interests – Non controlling interests are minority interests, in simple
terms, these are amount of shares held by other shareholders of the subsidiary of the
holding company. We have observed in case of both the companies that both the
companies were involved in acquisitions under business combinations, in respect of
which there were certain non controlling interests of the subsidiaries of the above
companies in their annual report.
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(Amount in US $ ‘000)
Paringa Resources Limited - Owner's Equity
Particulars Financial Year 2017 Financial Year 2016
Equity 81,194 32,833
Reserves 457 (1,389)
Accumulated Losses (15,121) (15,121)
Total Equity 66,530 16,323
From the above tabular representation we can observe that Paringa Resources have issued
share during the year since there is an increase in the Equity of the company. There are
accumulated losses and the amount of reserves has increased during the year as compared to
the last year.
(Amount in US $ ‘000)
Neptune Marine Services Limited - Owner's Equity
Particulars Financial Year 2017 Financial Year 2016
Equity 2,73,540 2,73,540
Reserves (15,725) (13,722)
Accumulated Losses (2,00,164) (1,87,019)
Total Equity 57,651 72,799
From the above representation, we can observe that in case of Neptune Limited, there were no
changes in the equity of the company as compared to the last year. There is an increase in the
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accumulated losses of the company as compared to the previous year since the company has
incurred loss during the year and also there is a change in the reserves of the company.
2) There are various sources through which the companies can raise funds, these includes both
debt and equity. The rate of return as well as the element of risk is quite high in case of debt.
Whereas in case of equity the both risk involved as well as the rate of returns are lower as
compared to that of debt (Abdullah & Said, 2017). We have studied the debt-equity position of
both the companies and the analysis of the same has been presented by us below:
(Amount in US $ million)
Paringa Resource Limited - Owner's Debt-Equity Position
Category Description 2016 2017
Debt Other Financial Liabilities 3.750 1.500
Total Debt 3.750 1.500
Equity
Equity attributable to shareholders
60.575 16.323
Total Equity 60.575 16.323
Debt-Equity ratio 0.062 0.92
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(Amount in US $ million)
Neptune Marine Services Limited - Owner's Debt-Equity Position
Category Description 2016 2017
Debt Interest bearing Debts 0.150 0.465
Total Debt 0.150 0.465
Equity Equity attributable to shareholders 57.651 72.799
Total Equity
57.651 72.799
Debt-Equity ratio 0.0026 0.0064
From the above tabular representation we can observe that there are lot of difference between
the debt and equity position of both the companies. Paringa Resources have higher debt and
equity as compared to that of Neptune Limited. The debt – equity ratio of Paringa Resources is
higher than Neptune Marine Services. Since lower debt equity ratio is always preferred so we
can say Neptune has better D/E ratio.(Eddy, et al., 2004).
Statement of Cash Flows:
The cash flow statement is a statement which reflects the cash movement during the financial
year. It provides the various transactions which involves cash, thereby stating the actual
position of cash as at the year end. It reflects the liquidity position of the company in respect of
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income earned, that is , cash inflow and also cash outflow which is as per the relevant
provisions of the Australian Accounting Standards and the Corporation Act 2001. The three
major segments of the cash flow statement are discussed below-
 Cash flow from Operating Activities.
This covers the inflow and outflow of cash from operating activities; these are the transactions
which occur in the ordinary course of business. These have the effect of either increasing or
decreasing the overall amount of cash of the company. Some instances of these types of
transaction includes payment of cash to creditors, cash receipt from debtors, operating
expenses which are paid in cash, interest payment and various other current liabilities etc. In
case of Paringa Resources, we have noticed negative cash flow from operating activities; the
reason might be the payment of large amount to its creditors whereas in case of Neptune
Limited we have observed a positive cash flow from operating activities (Alsagoff, 2010). The
company various other kinds of operating activities such as cash receipts from customers,
receipt of interest, payment of interest, payment of income tax, payment to suppliers, and all
the operating activities taken together has resulted in a positive cash flow of $4,940 and that is
not the case in respect of the Paringa Resources Limited(Gray, 2018).
 Cash Flow from Investing Activities.
These are those activities which involves cash inflow and cash outflow from various investing
activities of the company. When a company has huge amount of funds lying idle, they tend to
invest such funds in order to earn returns on such funds to increase the net worth of the
company. The various kinds of activities which are included under this head are purchase of
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securities, investment in securities and other joint ventures etc(Gullet, et al., 2018). We have
observed that Neptune Limited has acquired various plants and properties during the year and
has also disposed few of them. During the year, the company has also acquired certain
intangible assets. Hence, the resulting cash flow from this activity is negative amounting to
$916 (Antle & Smith, 1985).
Paringa Resources Limited on the other hand has also acquired certain plants, properties and
equipments during the year. Moreover, we have also observed payment for certain deferred
considerations. During the year there was also payment for exploration of the assets evaluation
for the company. This has resulted in a negative net cash flow from the investing activities
amounting to $ 8575. So, we have observed that the cash flow is negative in case of both the
companies from investing activities. (Kusolpalalert, 2018).
 Cash Flow from Financing Activities.
These are the activities which involve cash inflow and outflow from financing activities that are
of capital nature and affect the financial position of the company. Some examples of such kind
of transactions are share issue or issue of debentures, long-term debt repayment, debenture
redemption, interest payment, receipt of interest etc. During the year Neptune Limited has paid
interim dividend to its shareholders and has also repaid the borrowings, received deposits this
has resulted in the net cash flow of $5,125 (Boghossian, 2017).
During the year, there were two financing activities in which Paringa Resources was involved
which includes the receipt of proceeds from issuance of shares and the payment of costs
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relating to issue of shares have resulted in a positive cash flow from financing activities
amounting to $48,128.
So, we can conclude from the above analysis that the cash flow of Paringa Resources is better
than Neptune Marine Services (Coate & Mitschow, 2017).
We have presented the cash flow of both the companies below-
Paringa Resource Limited:-
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Neptune Marine Services Limited:-
In the table given below we have provided a comparative analysis of the cash flow statement
for past three years of both the companies-
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Paringa Resource Limited – Analysis of
Cash Flows
2017 2016 2015
-4,990 -3,838 -5364
-8575 -858 -1,761
48128 3450 4,650
34,563 -1246 -2475
303 1611 4511
-64 -62 678
34,802 303 2104
Net change, i.e., increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the beginning of
Currency exchange fluctuations on cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the end of the
(Amount in million USD)
Periods covered
Particulars
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Neptune Limited – Analysis of Cash
Flows
2017 2016 2015
4,940 3,788 12321
-916 -1957 -9,191
-5125 -5029 1,173
-1,101 -3198 4303
14,165 17594 11955
-461 -231 1336
12,603 14,165 17594
Net change, i.e., increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the beginning of
Currency exchange fluctuations on cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the end of the
(Amount in million USD)
Periods covered
Particulars
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
From the data given we can analyse that in case of Paringa Resources, the cash flow from the
operating as well as the investing activities have been negative in all the three years. This
negative figure was reduced in the year 2016 but has increased again in 2017. We have also
observed a steady growth in the company’s financing activities in all the three years with a net
positive cash flow (Dan, 1995). All the activities taken together the company is generating a
positive cash flow in all the three years. However, the increase in the cash flow is not stable; the
trend of increase is somewhat lower in 2016 and too high in 2017 (Delone & Mclean, 2004). The
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management need to look into this matter to evaluate the rate of increase and work towards
making it stable (Sikka & Willmott, 2010).
On the other hand, there are positive cash flows from operating activities in cash of Neptune
Marine Services Limited and both the financing and investing activities generates negative cash
flow in the years 2017 and 2016, but in 2015 there were positive cash flow from financing
activities. In an overall basis the company is generating positive cash flow in all the three years
and the trend of growth is somehow constant. Although the company has positive cash flows
but the management is required to look for ways of increasing the same, especially in acse of
each activities (Richard & Stephan, 1995).
Statement of Other Comprehensive Income
We have provided the detail of the other comprehensive incomes of both the companies
below:
 During the year in case of Neptune Limited, there were foreign currency transaction
which has adversely affected the income of the company. The company has provided in
its income statement the net income or loss from hedge funds also. These incomes that
does not form part of the basic income statement of the company (MORGAN, 1988).
 In case of Paringa Resource Limited the gain or loss that the company has earned or
incurred from the foreign exchange transactions have been considered in the other
comprehensive incomes which has a great impact in their financial statement (Yadao,
2018).
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Treatment related to Corporate Tax:
During the year, Paringa Limited the company has incurred huge losses due to which the
company has not paid any taxes and so we do not have any statement in that reference.
(Eisemann, et al., 2017). But same was not the case of Neptune Limited, the company has paid
all the taxes and has disclosed all the relevant information required to be disclosed in this
regard. We have presented below a table containing the tax details of Neptune Marine Services
Limited for the past three years (Vieira, et al., 2017).
Neptune Marine Services Limited - Tax Details
Amount in US $ ‘000
Particulars 2017 2016 2015
Tax Expenses Incurred 309 (1,341) 1,353
Effective tax Rate 30.00% 30.00% 45.50%
Taxes paid in Cash 76 741 16
Deferred tax (5,737) (1,898) (1,970)
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