In-Depth Financial Report: Champion Iron Limited (CIA) Analysis

This report provides a detailed analysis of Champion Iron Limited's financial statements, focusing on its capital structure, cash flow, and financial resource requirements. The analysis covers the composition of Champion Iron Ltd.'s capital structure, including shareholder equity and debt, and examines the statement of cash flows, categorizing items related to the balance sheet and capital structure. It also explores the material movements in the statement of changes in equity as reflected in the cash flow statement, discusses the company's financial resource requirements, and outlines disclosure requirements for publicly listed companies. The report highlights key financial metrics, such as net income, capital expenditure, and operating cash flow, to assess the company's financial performance and stability.

ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
capital structure of the company..................................................................................................3
Explanation on the statement of cash flow and item in related to the items categorised in the
balance sheet and company’s capital structure............................................................................4
Material movement in the statement of change in equity reflected and reported into the
statement of cash flow.................................................................................................................5
Financial resources requirement..................................................................................................5
Disclosure of financial statement.................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial statement is formal document which shows liquidity, profitability and solvency
of the company. This report will be prepared on the basis of financial statement of Champion
Iron Limited. Champion Iron Limited (CIA) is engaged in the exploration, acquisition,
development and production of iron. It is mainly involved in the business of iron ore concentrate
in japan, china, India and world-wide. Headquarter of champion Iron Limited is in Australia and
Rozelle. It is traded on ASX under the symbol of CIA. This report will analyse the capital
structure of champion Iron Limited. Further, this report will also study the cash flow statement of
the company. It will address the financial resources and its requirement of the champion
company.
MAIN BODY
Capital structure of the Champion Iron Ltd.
Champion Iron Ltd. capital structure consist various form of external and internal fund
which is used to finance a business. It includes shareholder equity and debt, right issue etc.
Shareholder capital is the type of external fund which is used by company to raise capital from
the public at large. Champion Iron Ltd has 891.08M (including reserves) shareholder capital
which keep increasing year-on-year basis. Moreover, company also use long term debt fund in
order to pay fixed interest with no dilution of voting right. Optimum capital structure is used by
company to maintain debt and equity proportion. Total debt of Champion Iron Ltd. is 226.53M
which is decrease in the year 2021 as compare to previous year. Champion CEO also said
“modified capital structure will provide suitable cost saving capital structure to the company”.
Champion Iron Ltd. has a strong balance sheet by using low amount financial leverage. CDPQ's
total commitment to the company increases approximately C$57 million long debt to C$185
million preferred share. Perpetual Preferred share is the type of preferred stock which used by the
company in order to pay fixed dividend to their investor as long as company remain in business.
It also has retain earning which is increased from 2020 to 2021 from -151.75M to 284.24M.

Explanation on the statement of cash flow and item in related to the items categorised in the
balance sheet and company’s capital structure
Cash flow statement is a part of financial statement which summarize the cash inflow and
outflow from business operating, investing and financing activities. Operating activity on the
cash flow statement include sources and uses of cash from core business activity. Moreover,
Champion Iron Ltd. has made an adjustment of change in current assets and liabilities that
further added and subtracted on cash inflow and outflow basis. Investing activities includes
sources and usage of fund from company's investment. Champion Iron Ltd. has recorded
investments and capital expenditure in the investing activity. Cash flow from financing activity
includes usage and sources of fund from dividend payment, redemption of share and repayment
of loan etc. Annual cash flow statement of Champion Iron Ltd. has shown that net income is
increased by $375.00M as compare to the previous year. Further, it has also reported that capital
expenditure of CIA decreases by $ 27.24M. It is showing that company is emphasizing over
increasing its cash inflow by reducing cash outflow (Agustiningsih, Murni and Putri, 2017).
During the period of 2021, total cash flow from investing and financing activities are -244.14M
and -26.3M receptively. When company issue share than the cost of equity fund that is dividend
attach to it. As company issue equity shares then it is required to pay dividend to its shareholder
which is shown as outflow of cash in the cash flow statement. Company has paid dividend to
their shareholder 28.44M in 2021 which come under the cash flow from financing activity.
Moreover, capital expenditure of the company increased from 2020 to 2021 by 148M to
175.23M. In addition to this, under the financing activities of cash-flow statement company has
paid net borrowing amount of 26.25M which is higher than the previous year. It is required to
analyse cash flow from operating activities for conforming the business operation suitability.
Champion Iron Ltd. has 623.48 operating cash flow which better than past year data that is
309.57M. Company took long term loan and on the behalf of raising fund it is required to pay
interest to the lenders. During the year 2021, company had long-term debt 214.95M and it is
required to pay interest on it which is shown in financing activity as cash outflow (Abernathy
And et.al., 2019).

Material movement in the statement of change in equity reflected and reported into the statement
of cash flow
Champion Iron Ltd. equity structure consist of retain earning, treasury stock, capital
surplus and other shareholder equity. Current shareholder equity is decrease from 2020 to 2021
by 75.72M to 30.5M. The shareholder capital reduces due to net profit margin, dilution of equity
into treasury stock and long term borrowing etc. The interest paid amount is increases from 2020
to 2021 by 456k to 26.3M (Chakraborty And et.al., 2021). Interest paid is recorded in the cash
flow statement under the head of financing activity. The changes occur in the interest payment
from the past year to current year are subtracted -26.25M as cash outflow. The borrowing
amount of the company has directly impacted on equity capital structure. Every company want to
create balanced structure in which proportion of debt and equity uniform. Moreover, dividend of
the company is constant from 2020 to 2021 by 28.44M. Further, dividend payment is shown
under the head of financing activity because it is related to the business finance source. The
change that occur has been subtracted in cash flow statement that is 28.44M. Retain earning of
the company is increased from 2020 to 2021 by -151.75M to 284.24M. Retain earning is the part
of equity structure but changes not included in cash flow statement. Treasury stock of the
company is decreasing from 2020 to 2021 by 75.72M to 30.5M. Further, capital surplus of the
company is increasing from 2020 to 2021 by 21.02M to 22.31M due to high earning (Endrawes
and et.al., 2020). Other cash flow from financing activity has reduced from 2020 to 2021 by
10.53M to 7.89M. Due to these changes, equity share capital structure of the company has
impacted.
Financial resources requirement
Equity shareholder capital: Equity share capital is used by the company to raise capital
from the public. Equity shareholders are the owner of the company who possess the voting right.
This share of capital remain in the company till wind-up. There is no fixed cost attached to
equity capital and it fluctuates according to the profit earned. On the other side, Champion Iron
Limited pay dividend against the shareholder amount. Shareholder always demand high
devidend but company pay after subtraction of all the expenses and outsider liabilities.
Champion Iron Limited has issued 30.5M equity and dividend is to be paid 28.44M. Moreover, it

dilutes voting right which may cause of interference in decision-making (Gupta And et.al.,
2020).
Long term debt: generally company choose debt option to avoid dilution of voting right.
It includes debenture, bank loan, long term borrowing from the market. Debt issue are also called
as corporate bond, which allows investors to become a lender of the company. Moreover,
company pay fixed interest on a regular basis in fixed interval. Champion Iron Limited has raised
214.95M debt capital in the year 2021 that is lower than the past year. Company need to balance
its capital structure by taking right proportionate of equity and debt fund. On the other hand,
Company need to pay high interest amount to their lenders if there is no goodwill presented in
the market place. Further, Champion Iron Limited is required to pay principle and interest
amount at the maturity. It creates a fixed obligation for the company for the long run. If company
is unable to pay interest and principal amount then lender can sue.
In addition to the existing funding options avail by the Champion Iron Limited there are
other options also like retain earning to meet its funding requirements. Retain earning is the
residual profit after paying interest and dividend amount. With the help of retain earning,
company doesn't have any obligation to pay back principle and its cost amount in the form of
interest and dividend. This save the company cost and increase the profit by utilized capital in
high return project. It gives freedom to invest their fund according to their own high return
project. There is no legal obligation but company can use retain earning if it is earning high
amount of profit and all the profit is reserved in the form of retain earning (Hajek and Henriques,
2017).
Other sources of fund: company also use private equity, right issue and debenture etc.
Company can use private equity capital so that it minimizes the dilution of ownership right.
There is no obligation to pay fixed dividend but private equity holder become a part of the profit
sharing. Moreover, company also choose right issue in which company give a right to its existing
shareholder to purchase new shares. In addition to this company also use convertible debenture
which helps to avoid payment of principle at the maturity date.
Disclosure requirement for publicly listed companies in the financial statements in comparison to
other non-listed companies
The company which are listed on the stock exchange need to comply all the rules and
regulation formed by stock exchange. Disclosure of all the information is required to avoid the

situation of fraud. Investor take decision on the basis of information mention in the financial
statement of the company. Those companies who don't follow disclosure rules and regulation
than regulator of stock market cancel their licence. Company need to disclose information related
to the buy back of security, voluntary de-listing, fund-raising and declaration of bonus securities
etc. Further, all those informations which affect decision-making of the investor are to be
disclosed in financial statement (Sunardi and Amin, 2018). These informations can be related to
the price sensitivity, company's crucial action etc. If company make any significant changes
related to the accounting policies, inventory valuation method, depreciation method etc.
Moreover, all the accounting error due to mathematical computation, transposition and incorrect
implementation GAAP and fail to revalue the fair assets value are to be included in financial
statement. Some voluntary information that management seem important are to be added. Some
information which are related to the capital structure and assets like long term borrowing, long
term assets, investment etc. are to be shown in the footnote of the annual report. Because if
company's capital structure is highly based on debt fund than it create hurdle for the creditor or
supplier to provide inventory on credit basis. Long term debt structure create a risk for lender to
provide fund to the company. So that it is required for the company to disclose all the relevant
information which influence the decision of stakeholders. All the sub information related to the
financial accounts are to be shown in the foot note. All the long term project and long term
investment decision are to be mentioned in annual report (Omidi and et.al., 2019).
Benefits
 All the financial information helps the user to take an appropriate decision for long term.
 All the sub notes helps the stakeholder to know true and fair position of the company.
These informations are like changes in the method of valuation of inventory and
depreciation etc.
 Shareholder use balance sheet to analyse the assets and liability of the company which is
also connected to its sub information, need to be mention by management in the foot
notes.
 Creditor also use financial statement to study liquidity position of the entity. Further, it is
required to disclose all the relevant information which affect creditors decision to supply
material and goods (Seifzadeh and et.al., 2020).

CONCLUSION
This report has studied financial structure of the Champion Iron Limited through which
company raise long term fund. As analysed, company has reduced its debt capital to make
balanced capital structure of the company. Further, this report also analysed cash flow statement
of the company which is showing increment in financial and investment activities from the past
year performance. Further, all the fund-raising sources have evaluated in which company can
select new source like retain earning, private institutional investor etc. can be used. At the end,
this report evaluated all the disclosure requirement to prepare financial statement. Disclosure of
all the information helps the internal and external user to take true and fair decision. This
decision helps company to build long term relation with company.

REFERENCES
Books and journals
Abernathy, J. L. And et.al., 2019. Financial statement footnote readability and corporate audit
outcomes. Auditing: A Journal of Practice & Theory. 38(2). pp.1-26.
Agustiningsih, S. W., Murni, S. and Putri, G.A., 2017. Audit findings, local government
characteristics, and local government financial statement disclosure. Review of Integrative
Business and Economics Research. 6(3). p.179.
Chakraborty, I. And et.al., 2021. Financial Statement Complexity and Bank LendingComplexity
and Bank Lending. The Accounting Review.
Endrawes, M. and et.al., 2020. Audit committee characteristics and financial statement
comparability. Accounting & Finance. 60(3). pp.2361-2395.
Gupta, V. K. And et.al., 2020. CFO gender and financial statement irregularities. Academy of
Management Journal. 63(3). pp.802-831.
Hajek, P. and Henriques, R., 2017. Mining corporate annual reports for intelligent detection of
financial statement fraud–A comparative study of machine learning methods. Knowledge-
Based Systems. 128. pp.139-152.
Omidi, M. and et.al., 2019. The efficacy of predictive methods in financial statement
fraud. Discrete Dynamics in Nature and Society, 2019.
Seifzadeh, M. and et.al., 2020. The relationship between management characteristics and
financial statement readability. EuroMed Journal of Business.
Sunardi, S. and Amin, M. N., 2018. Fraud detection of financial statement by using fraud
diamond perspective. International Journal of Development and Sustainability. 7(3).
pp.878-891.
Online references
Sebi proposes listed firms disclose financial results within 30 minutes of board nod.2021.
[Online]. Available through <https://economictimes.indiatimes.com/markets/stocks/news/fo-
buy-on-dips-puts-nifty-back-on-winning-track-vix-declines-too/articleshow/
86396570.cms>