FIN5FMA Semester 1: Financial Analysis of Fortescue Metals Group

This report provides a comprehensive financial analysis of Fortescue Metals Group (FMG), a major iron ore producer. It examines the company's working capital management, including its current and quick ratios, highlighting its liquidity position and stability. The analysis delves into FMG's capital structure, assessing its debt levels and liabilities. Furthermore, the report investigates FMG's dividend policy, tracing its dividend payments over several years and relating them to the company's revenue and profit generation. The corporate governance structure and policies are also scrutinized, focusing on the roles of the board and management, and adherence to principles such as transparency and accountability. Finally, the report explores the relationships between various management policies, including the impact of the company's policies on its market position and recommendations for future financial strategies, such as shifting from loans to equity financing.

FINANCIAL MANAGEMENT
ASSIGNMENT 1 (FIN5FMA) –
SEMESTER 1, 2018

INTRODUCTION
 Fortescue metal group is a pioneer when it
comes to the production of iron ore and
exploration (Fortescue Metals Group, 2017)
 Major competitor BHP Billiton, Rio Tinto and
Woodside petroleum.
 Objective - Massive iron ore production
 Presence of aggressive policies

FINANCIAL POLICIES AND WORKING CAPITAL
INVESTMENT UNDERTAKEN BY THE COMPANY
 Working capital = Current assets – current
liabilities
 current ratio of more than one in the five-
year span which shows the optimum strength
of the company to short-lived liquidity (Bodie
et. al, 2014)
 In 2017 going below 1 that emphasize the
attention of the management

 The company is in a very stable state because it
has resources of funds which can be taken to pay
off all the debts if required (Deegan, 2011).
 Quick ratio is slightly less than 1 while current
ratio more than 1 emphasizing that the business
will be able to pay off the liabilities.
2013 2014 2015 2016 2017
0
0.5
1
1.5
2
2.5
3
Current ratio
Current ratio
2013 2014 2015 2016 2017
0
0.5
1
1.5
2
2.5
Qucik ratio
Qucik ratio

ASCERTAINMENT OF CAPITAL STRUCTURE
MEASURE THAT IS ADOPTED BY THE COMPANY
 Expanded empire of the Fortescue Company is
estimated to be $10897.02 billion (Fortescue
Metals Group, 2017)
 liability reduced from $14719 to about $12214
which is quite impressive
 The present statements show that the liabilities
and the loans have been eliminated a bit but then
also the ratio is above 0.5 with an advice to pay
off some better part to keep the statements in the
future intact

DETERMINATION OF THE EARNINGS DISTRIBUTION
AND DIVIDEND POLICY EMPLOYED BY THE FIRM
 It is seen that in the year 2013 and 2014 the
dividend payment was at a maximum which
certainly declined in the year 2015 due to the
decrease in the overall revenue generation of
the company.
 In 2017 witnessed a strong jump in dividend
that is 45 cents (Fortescue Metals Group,
2017).
 Accumulated data show that though there was
is an increase in the revenue generation and
profits of the company but then also the
dividend payment was low as compared to
other years.

DETERMINATION OF THE CORPORATE GOVERNANCE
STRUCTURE AND POLICIES EMPLOYED BY THE FIRM
 Members of the board and also the company
management are delivering their best to
complete the targets and the objectives of
the company
 integrity, transparency, stewardship and
corporate accountability are regularly
followed by the company.
 Gender, race, age and physical capabilities
are barred while selecting the candidates by
the directors.

 Workings of the senior post executives of the
company are strictly monitored
 The doubts prevailing in the company were
settled because of the platform provided by
the corporate governance structure (Davies
& Crawford, 2012)
 Board members had the opinion that the
numbers of independent directors are
enough but in 2017 they said that the
numbers are lesser than though

ASSOCIATIONS AND RELATIONSHIPS BETWEEN THE
VARIOUS MANAGEMENT POLICIES EMPLOYED BY THE FIRM
 Policies of the company have led the company to
gain the upper hand in the market.
 . Dividend policy has been strict as the dividend
payouts have been followed for the last five years
straight.
 Permanent current assets, fixed assets, and
temporary current assets have been seen to have
the backup of many sources of investments as per
a conservative policy with a fat cat policy of the
year 2013 and 2014

 The company needs to changes its policies
and plans as soon as possible.
 Retained earnings and the storage of the
same has been the first priority operations of
the company now
 It is advised for the company that it should
eliminate the use of loans and should now
lay more stress on equity financing for
carrying on the daily operations (Deegan,
2011)

CONCLUSION
 FMG is a competitive organization and has
strong fundamentals through which it has
been able to cement its place in the industry
 Though the liquidity is slight low yet it has
the power to meet the obligations as it has
global presence.

REFERENCES
Bodie, Z., Kane, A. and Marcus, A. J. (2014) Investments.
McGraw Hill
Brigham, E. & Daves, P. (2012) Intermediate Financial
Management. USA: Cengage Learning.
Choi, R.D. and Meek, G.K. (2011) International
accounting. Pearson .
Davies, T. and Crawford, I. (2012) Financial accounting.
Harlow, England: Pearson.
Deegan, C. M. (2011) In Financial accounting theory.
North Ryde, N.S.W: McGraw-Hill
Fortescue Metals Group. (2017) Fortescue Metal Group
Annual report and accounts 2017 [Online]. Available at:
https://www.fmgl.com.au/docs/default-source/default-do
cument-library/fy2017-annual-report.pdf?sfvrsn=1f9318
75_2
[Accessed 25 May 2017].