Analysis of Financial Statements: Energia Minerals Limited Report

This report provides a comprehensive analysis of the financial statements of Energia Minerals Limited, formerly known as Energia Minerals Limited. The report begins with an executive summary and introduction, followed by a detailed overview of the company, including its ownership governance structure, substantial shareholders, and key management personnel. The core of the report focuses on a thorough analysis of various financial ratios, categorized into short-term solvency, long-term solvency, asset utilization, profitability, and market value. The analysis covers the years 2016 and 2017, highlighting trends and changes in these ratios. The report also examines share price fluctuations, significant events impacting the share price, and the company's debt ratio and dividend policy. Finally, the report concludes with a summary of findings and recommendations. The data used for this report was obtained from reliable sources, including the company's annual reports. The report aims to assess the company's financial position, performance, and overall viability.

Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................3
DETAILS OF THE SELECTED COMPANY.........................................................................................................3
OWNERSHIP GOVERNANCE STRUCTURE.....................................................................................................4
SUBSTANTIAL SHAREHOLDERS................................................................................................................4
MAIN PEOPLE IN GOVERNANCE..............................................................................................................5
ANALYSIS OF THE RATIOS............................................................................................................................6
DETAIL OF SHARE PRICES.............................................................................................................................7
SIGNIFICANT EVENT AFFECTING THE SHARE PRICE.....................................................................................8
BETA, REQUIRED RETURN RATE, CONSERVATIVE AND WACC.....................................................................8
ANALYSIS OF DEBT RATIO............................................................................................................................9
ANALYSIS OF THE DIVIDEND POLICY..........................................................................................................10
CONCLUSION.............................................................................................................................................10
LETTER OF RECOMMENDATION................................................................................................................10
REFERENCES..............................................................................................................................................10
EXECUTIVE SUMMARY
Financial statements are one of the pillars of each and every company which helps in making the
useful decision about the company on the basis of looking after the financial position and the
financial performance of the company. Through this report, financial position and the financial
performance has been measured in the greater respect. The basic purpose of the report is to
analyze as to at which place the selected company is operating. The report has been prepared
with the four basic aims. The first aim is to have an understanding of the nature of the business
of the company and the size of the company. The second aim is to know the composition of the
management of the company. The third aim is to discuss and analyze the financial ratios of the
company which is calculated from the annual report of the company and the last aim is to
analyze the overall functioning of the company with regard to the profitability and the viability
of the company to continue in going concern. With these considerations and aims, the report has

been presented with the proper headings and sub headings and the data has been obtained from
the reliable sources.
INTRODUCTION
The position and performance of every company is judged by having the financial statements of
the company. It is because of the fact that the financial statements contain the figures which are
useful for the managers of the company to take the efficient and the effective decision. The
financial statements consist of the balance sheet and the profit and loss account which helps the
managers of the company to assess the financial position and the financial performance of the
company.
For the purpose of furtherance of the report, the company – Energia Minerals Limited has been
selected and accordingly the analysis has been made. The report has started with the
determination of the nature of the business of the company and the relevant composition of the
management of the company. Then the financial ratios have been calculated for the last two
years under the five major broad heads. The analysis has been done with reference to each of the
ratios. Then the fluctuation in the share price over the last two years have been discussed as to
which have led the share price of the company to fluctuate. Along with this the events have been
traced which have led to the fluctuation in the share price of the company. Then the weighted
average cost of capital has been calculated and analyzed with the given figures. Apart from the
financial ratios, more emphasis has been placed on the debt ratio. After that the dividend policy
of the company in the current as well as the previous year has been discussed and lastly the
report has been ended with the appropriate conclusion and the letter of recommendation.
DETAILS OF THE SELECTED COMPANY
The company which has been selected for the purpose of the report is Energia Minerals Limited.
It is the company listed in the recognized stock exchange of Australia and is one of the top
hundred listed companies of Australia. The headquarters of the company is located at South
Perth of Australia. The company has changed its name from Energia Minerals Limited on the
23rd of November 2017 in the duly convened general meeting. The new name of the company is
Alta Zinc Limited (Energia Minerals Limited, 2017). The company is into the mining sector for
the last so many years since its incorporation. The company owns the zinc project located at

Lombardia region of Northern Italy. The project has its own history. Currently the company is
planning to have the recommencement of the mining activities and that too with the full support
of the local ones. The project has provided the company with the licenses in number 10 for the
exploration of the base metal and 6 number of licenses applications for exploration. The
company apart from mining activity is into the exploration and extraction of the metals including
base as well as Zinc. The metals include lead, silver and uranium. This type of portfolio
company is carrying is located in Italy and Australia (Alta Zinc Limited, 2017).
The development that the company has made from the past so many years has created the actual
picture of the company as to be in the mining and the exploration sector.
OWNERSHIP GOVERNANCE STRUCTURE
The ownership governance structure is referred to the composition of the governing members
who governs the management of the affairs of the company. In other words, the structure which
owns the governing function of the company is defined as the ownership governance structure.
The governance structure shall be maintained in the proper manner because if the governance
structure is not as per the needs and the requirements of the company then the structure so made
will be futile and will serve no purpose of the organization (Zimmerman, 2015). The structure of
the ownership governance of the company plays very significant role in assigning the roles and
responsibilities of each and every present therein like the role and responsibility of the chairman
and chief executive officer of the company and the composition of the board members and
majorly the shareholders of the company having more than twenty percent share. Thus, the
structure shall be formed and operated in the defined and effective manner.
SUBSTANTIAL SHAREHOLDERS
Substantial shareholders of the company are those shareholders of the company which have more
than twenty percent share in the share capital of the company. These shareholders can participate
in the voting rights of the company and can have the effect of passing or non passing of the
resolution at the general meeting of the company. The main substantial shareholders of the
company are:
- With the shareholding of more twenty percent there is only one shareholder namely
Alexander Burns and Associates. It holds 22.96 percentages of shares of the company.

- With the shareholding of more than five percent there are only five shareholders which
has also been disclosed in the annual report of the company and it is Pollara Pty Limited,
Westoz Funds Management ASIM Holdings Pty Ltd, Zero Nominees Pty Ltd and
RBSMSF Pty Ltd (Alta Zinc Limited, 2017).
- Company will not be treated as family company as no sister concern are there in which
the directors relatives are involved and will thus be treated as non family company.
MAIN PEOPLE IN GOVERNANCE
In the governance of the company, people involved are those people which manage the affairs of
the company in the efficient and effective manner. In case the people involved in the governance
are not in accordance with the nature and size of the business of the company then the work of
the company will be in total mismanagement of the affairs of the company which in turn will
affect the company very badly and may even result to the closure of the company. Thus, the
people involved in governance shall be with requisite experience and knowledge. In the given
case of Woolworths Limited, following persons are involved in the governance and the name of
them has been reproduced below:
- The chairman of the company is Mr Alexander Burn. In the beginning of the annual
report of the company, chairman has sends their message and includes that the company
will prosper in the future years.
- The board member of the company includes person acting as the part of the board of
directors of the company including the independent directors of the company. Stephen
Hills is the Finance Director and Marcello Cardaci is non executive director.
- The Chief Executive Officer of the company is Mr Alexander Burns. He is also the
managing director of the company (Alta Zinc Limited, 2017).
No the above mentioned names as required in accordance with the governance structure does not
contain any person having the surname of the substantial shareholders of the company. None of
the Members with more than 5% share capital is involved in the firm governance.
It ensures that the decision taken by the board members in the meeting is totally independent and
is not affected by the personal bias or prejudice. On the other hand, if the answer would have

been positive then there may be the likelihood that the company better decisions would have
been taken keeping in view their concern as he or she will be representing the all of the
substantial shareholders of the company and also being the part of the board of members.
In this manner, the company is maintaining its structure of governance.
ANALYSIS OF THE RATIOS
The ratios are the accounting or the financial ratios which help the management of the company
as well as the users of the company to have an understanding as to how the company is
functioning in the market, whether the company would be able to survive in the future, whether
the company is working as per the needs of the industry, whether the company has been able to
achieve its obligations in time and many more situations. These ratios have been divided into
major five categories – short term solvency, long term solvency, asset utilization, profitability
and the market value (Horngren, 2012). All these ratios have been calculated and arrived for the
last two years ending on 2017 and 2016 and has been in the separate excel sheet. All these ratios
have been analysed below one by one.
- Short term solvency ratio – Two ratios have been calculated namely the current ratio and
quick ratio. Both ratios informs about the ability of the company to repay its short term
obligations in the due course of time. Former includes the inventory and latter excludes it.
Current ratio has decreased from 3.36 in 2016 to 0.72 in 2017. It means that the
repayment capacity of the company has been decreased and will not be able to meet its
obligations in time.
- Long term solvency ratio – Under this head, Debt to equity ratio and Equity ratio has
been calculated. Higher the ratio, lower will be the probability of the company making
default in the payment. Debt to equity ratio has been decreased considerably as there is
no long term borrowing outstanding in the name of the company which has posed the
threat on the survival of the company as the company will not be able to work.
- Asset utilization ratio – This ratio informs about the company’s ability to generate the
revenue with the use of the assets of the company. It has been noticed that the ratio has
been kept intact as 0.01 in 2016 as well as in the year of 2017 which ensures that the

company is making the use of its to the best possible extent and will be able to generate
the higher revenue in the future if it focuses on the expansion of the company.
- Profitability ratio – Two ratios have been calculated under this head. One is the net profit
margin and other is the return on total assets. Net profit margin has been decreased
considerably due to the increase in losses from the year of 2016 to the year of 2017. The
variance is much higher as the reported loss in 2016 is $7944426 and in 2017 is
$10715180. It shows that the company is not performing its functions very well and
efficiently. Secondly, Return on total assets have also been decreased from negative
94.94 to negative 376.22 which again doubts on the functioning of the company.
- Market Value Ratio – There are two ratios which have been used for the purpose of the
analysis. One is the earnings per share and second one is the dividend per share. The
higher the value more investors including the potential investors will get attracted leading
to the efficient functioning of the company in the market. The company has not paid any
dividend in the year 2017 and the earnings per share have been decreased from negative
1.28 in the year of 2016 to the negative of 1.46 in the year of 2017.
Each of the ratios has its own significance and overall the company is not working effectively
and there is reasonable doubt to believe that the going concern assumption will be affected.
DETAIL OF SHARE PRICES
The share price of the company has been obtained from the reliable source for the last two years
and the same has been maintained in the separate excel sheet. The graph has also been plotted in
excel sheet. Excel sheet has detailed the open price, high price, low price and the closing price.
On the plain reading of the share prices, it has been observed that there has been very much
difference as the share price is ranging from 45 cents to 1 cent but when it has been checked in
the graph, it is depicted that the share price of the company is highly volatile in nature. For
instance, share price on 17th May 2018 is 0.01 and on 30th March 2018 are 0.009. It exhibits that
the share price of the company is highly volatile it keeps on changing very frequently and is very
sensitive to the external environment.

SIGNIFICANT EVENT AFFECTING THE SHARE PRICE
One significant event that has occurred during the year and has been properly noticed and
reported is about the higher net loss from the continuing operations to the tune of $10715180
along with the net cash outflow from the operating activities to the tune of $10912327. It has
been mentioned as the key audit matters in the independent auditors report. It states that with this
loss the going concern assumption of the company has come into doubt where there are reasons
to believe that there exists the material uncertainty in the future which can affect not only the
share price of the company but also will affect the working of the company. Along with this
decrease the company has been into the relinquishment of various projects. For instance on the
basis of the review, the company has relinquished the project of Nabberu tenements and in Mc
Arthur river project no work has been carried out since the past so many years. (Premnath,
2012).
Thus, in this manner, the share price is affected by the impairment of Big W segment.
BETA, REQUIRED RETURN RATE, CONSERVATIVE AND WACC
The beta has been calculated in the separate excel sheet and 0.33 beta has been calculated.
Under the CAPM mode, required rate of Return = Rf + β (Rm – Rf) = 4% + 1.01(6% - 4%) = 4%
+ 2.02 = 6.02%
Yes, as per the financials of the company and the analysis that has been done earlier, the
company is regarded as the conservative investment for the investors. It is because it ensures the
dividend to their equity shareholders of the company. Secondly if the dividend is later on paid by
the company then also the principal is considered as the safest investment in the sense that the
principal amount invested by the investor does not gets eroded. It will keep on adding
irrespective of the fact of low risk and less return.
The Weighted Average Cost of Capital has been identified using the annual report of the
company for the year ending two thousand and seventeen. It is the average of cost of company’s
source of finance. The calculation has been made below:

WACC = {Equity divided by Total value multiplied by Cost of Equity} + {Debt divided by
Total value multiplied by Cost of Debt multiplied by (1 – Tax Rate)}
Cost of Equity = 0 /0.010 = NIL %
Cost of Debt = 0 /0 = NIL% and After tax Cost of Debt NIL.
Heads Amount W C WACC
Equity 1410082 1.00 6.02% 6.02
Debts 0 0.00 0.00% 0.00
Total 1410082 6.02
In this manner, the WACC has been calculated and arrived at 6.02%.
WACC will provide the best results as required by the management as the required rate of return
is higher than the WACC.
In case the WACC is higher than the present value of the inflows for the evaluation of the
projects, WACC will help in covering other costs and generating the higher revenue.
ANALYSIS OF DEBT RATIO
The debt ratio for both of the past two years has been arrived and these are 0.00 in the year of
2017 and 0.01 in the year of 2016.
No, it does not appear to be stable. It is because it has been decreased from the year of 2016 to
the year of 2017. To evaluate the debt equity ratio it is stated that higher the ratio, lower will be
the chance of making the defaults and accordingly here the company has the high chances of
making the default in repayments.
The company has not done anything in this matter but as per the ratio and its analysis the
company shall try to expand the business and avail loan from the banks or any other financial
institutions (Kaviyani, 2011).

ANALYSIS OF THE DIVIDEND POLICY
The dividend policy that the company has adopted is to pay out the divided to the shareholders of
the company. Along with that some amount shall also be infused into the business of the
company. But as per the annual report of the company, the company has not paid any dividend
for the last three consecutive years due to which the investors have also lost their interest and as
on date the company does not have funds borrowed from the banking or the financial institutions.
CONCLUSION
The financial statements are the one of the pillar which helps the investors including the other
stakeholders in taking the decision. Managerial accounting has provided various tools as to how
the same shall be analysed. Analysis through the financial or the accounting ratios is the part of
that. In report, the major emphasis has been placed on the working and the operations of the
company. Through the accounting ratios and other parameters the working of the company has
been depicted and accordingly modified. In order to conclude the report, the deep analysis of the
annual report of the company – Alta Zinc Limited (Former Name – Energia Minerals Limited)
has been checked and detailed.
LETTER OF RECOMMENDATION
In accordance with the detailed analysis that has been made of the company – Alta Zinc Limited
(Former Energia Minerals Limited), it has been observed that though the company will not be
able to improve some of its accounting ratios like current ratio, debt equity ratio, etc. but have
adopted the measures which will persuade the investors to make the investment in the company.
Secondly as the company has been into the business for the last so many years, the chances of
getting it closed are very less and chances for its very growth. Although it is apparent from the
annual report of the company that in case the company does not functions well than the company
will soon be closed or will be liquidated. Therefore, keeping in the view of these developments
in the financial matters of the company, it is recommended for the investors including the
potential investors and other stakeholders to not to invest in this company as per the current
scenario.

REFERENCES
Alta Zinc Limited, (2017), “Annual Report 2017”, available on http://www.altazinc.com
accessed on 17-05-2018.
Energia Minerals Limited, (2017), “Change of Company Name and Constitution”, available on
http://www.publicnow.com/view/E2AC060CACE8640C5DFB60E95BB8E2929AFD7855
accessed on 17-05-2018
Horngren, C. T, (2012), ”Introduction to Management Accounting”, Chapters 1-17. Prentice
Hall.
Kaviyani M, (2011), “A Theory to Analysis of Annual Report ”, Research Journal of Finance
and Accounting, Vol 10, No. 15, pg 192-202
Premnath S, (2012), “Analysis of the Financial Statements”, International Journal of
Accounting and Finance, Vol20, Issue 17, pp 24-42.
Alta Zinc Limited, (2017), “Annual Report, 2017” available on accessed on
http://www.altazinc.com/investor-centre/asx-announcements , 13-05-2018
Zimmerman, (2015), “Accounting for Managers” Issues in Accounting Education, 35, 77-99.