Capital Structure and Financial Analysis
Added on 2020-05-16
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Running head: FINANCE FOR BUSINESS - MASTERSFinance for business – MastersName of the studentName of the universityAuthor note
FINANCE FOR BUSINESS – MASTERS 11.Description of Capital Mining LimitedCapital Mining Limited was formed in 2003 and the company is based inRivett, Australia. The company carries on the activities related to exploration of themineral resources in Australia. The company primarily explores for the copper, silver,lead, gold, Zinc, Uranium, Platinum, thorium, earth elements and other metal in southAustralian and South Wales (Capitalmining.com.au 2018). 2.Ownership structurei)Major substantial shareholders More than 20% shareholding – among the shareholders of the company no oneis holding greater than 20% sharesMore than 5% holding of shares – “HSBC Custody Nominees Australia Ltd”falls under the substantial shareholder as out of total shares it holds 80,000,000shares that is, 5.28% (Capitalmining.com.au 2018).ii)Name of main people Chairman – Robert McCauleyBoard membersPeter Torney – Non-executive directorAnthony Dunlop – Non-executive directorPeter Dykes – Non-executive directorRobert McCauley – Executive DirectorJames Ellingford – Non-executive DirectorCEO – Robert McCauley (Capitalmining.com.au 2018).
FINANCE FOR BUSINESS – MASTERS 23.Key ratios i.Return on assets (ROA) = (NPAT / Total Assets)Return on Equity (ROE) = (Net profit after tax / Ordinary equity) Debt ratio = Total liabilities / Total assetsRatioFormula2016201520142013Return on assetsNAPT / Total asset-0.991-2.567-2.108-0.697Return on equityNPAT / Ordinary equity-1.062-9.489-2.696-0.755Debt ratio Total liab / Total assets0.0670.7300.2180.077EBIT/TA * NPAT/EBIT * TA/OE = NPAT/OEEBIT/TA * NPAT/EBIT * TA/OE = -37,36,555/37,70,735 * -37,36,555/-37,36,555* 37,70,735/35,16,843 = -1.06NPAT/OE = -37,36,555 / 35,16,843 = -1.06Hence, it can be proved from the above that –EBIT/TA * NPAT/EBIT * TA/OE = NPAT/OEii.Phenomenon of TA/OEIt analyses the insolvency risk and leverage level of the company with the helpof the total assets as compared to the owner’s equity. It also present the percentage ofasset held by the shareholders of the company. If the ratio goes up it represent that thecompany’s equity portion will go down and debt portion will go up (Scholes 2015).Therefore, the company may reach to unsustainable level as additional debt willincrease the interest cost and will deteriorate the financial status of the company.However, various factors on which the ratio depends are industry status, presenteconomic scenario and the assets and liability of the company.iii.Reasons why ROE being higher than ROAThe biggest factor that segregates the ROE and ROA is the financial leverage orthe debt. The fundamental equation of balance sheet that is (Assets = Liabilities +
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