Business Finance Report: Comparative Analysis of Gold Mining Firms

This report provides a detailed financial analysis of New Mount Corporation and Goldcorp Corporation, two competitors in the gold mining industry. The analysis focuses on key financial ratios, including short-term and long-term solvency, asset utilization, profitability, and market value ratios. The report compares the performance of both companies, highlighting their strengths and weaknesses. The analysis includes a review of liquidity ratios such as current, quick and cash ratios, and also evaluates the long term solvency ratios. The report also examines asset utilization and profitability ratios, including gross margin, operating margin, and profit margin. Finally, the report assesses the market value ratios and provides an overall comparison of the two companies. The report concludes by offering recommendations based on the financial performance analysis.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student
Name of the University
Author note

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Executive Summary
The report has helped in analysis of the operations and performance management of New
Mint Corporation and Goldcorp Corporation. The different analysis of the financial ratios has
been analysed for both the companies in order to understand the different kinds of long term
and short-term solvency ratios of the companies. It has been noticed that New Mount
Corporation has been successful in different operations and performance wise in comparison
to Goldcorp Corporation. It was noticed that both the companies are the competitors,
however it has been noticed that Goldcorp Corporation has been unsuccessful in their
operations in comparison to New Mount Corporation.

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Table of Contents
Introduction................................................................................................................................4
Five aspects of ratios in New Mount Corporation.....................................................................5
Short Term Solvency (Liquidity Ratios)................................................................................5
Long Term Solvency (Financial Leverage Ratios)................................................................6
Asset Utilisation (Turnover Ratios).......................................................................................6
Profitability Ratios.................................................................................................................7
Market Value Ratios..............................................................................................................8
Goldcorp Inc Corporation..........................................................................................................8
Short term solvency (Liquidity ratios)...................................................................................9
Long term solvency (Financial Leverage ratios).................................................................10
Asset utilization (efficiency or turnover ratios)...................................................................11
Profitability ratios.................................................................................................................11
Market value ratio................................................................................................................12
Comparison between Goldcorp and New Mount Corporation................................................14
Conclusion................................................................................................................................15
References................................................................................................................................17
Appendices...............................................................................................................................19
Appendix 1...........................................................................................................................19
Appendix 2...........................................................................................................................19
Appendix 3...........................................................................................................................20
Appendix 4...........................................................................................................................21

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Appendix 5...........................................................................................................................22

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Introduction
The report helps in analysis of the evaluating and comparing the performance and
operations of New Mount Mining Company and Goldcorp Inc Corporation. The main
objective of the report is to perform peer group analysis in which it has been noticed that the
respective organizations are competitor of one another with the usage of financial analysis
technique. The main aim and purpose of the report is to analyse the different kind of ratios of
the company and on such basis, the entire analysis is required to be done.
Furthermore, the performance and operations analysis can be conducted based on
extraction of the financial ratios of the company effectually. the major five aspects have to be
kept in mind that includes profitability ratios, market value ratios, long term solvency, short
term solvency and asset utilisation ratios. The proper evaluation and comparison to the
different two companies from the same sector is done as this will assist in analysis of the
company that is most promising in nature in the entire future. Lastly, proper recommendation
is required to be provided after the entire comparison of the two reports of the companies.
Lastly, the comparison has to be done for both the companies in such a manner that
this will help in analysing the financial strengths and weaknesses of both the companies. The
financial growth ratios will help in analysing and identifying the issues faced by them and
solve them with recommending strategies as this can help in managing the same effectively in
the competitive market effectively.
New Mount Mining Corporation
New Mount Mining Corporation is one of the Greenwood Village, Colorado that is
based in The United States of America that helps in tracing the roots to diversified holding
company named Willian Boyce Thompson (Newmont.com, 2018). It was established in the

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year 1916 and it was incorporated in the year 1921. The respective company has different
active gold mines in Nevada, Indonesia and Australia. New Mount has been ranked as
number two behind Barrack and they produces more than 5.2 billion ounces of gold annually.
The company produces more than 121 pounds of copper manually and started publicly
trading in the year 1925. There are major competitors of the firm, however the top competitor
is the Goldcorp Corporation.
Five aspects of ratios in New Mount Corporation
Short Term Solvency (Liquidity Ratios)
It helps in measuring the entire ability of the organization in meeting the short term
financial obligations. This ratio seeks in determining the entire ability of the organization to
avoid the financial distress in the short span of time. The liquidity ratio includes the cash
ratio, current ratio and quick ratio. It has been noticed the current ratio of the company New
Mount Corporation has increased from 267% to 363% and this means that the company has
the ability to pay off the obligations and the assets are greater than the liabilities.
Furthermore, the quick ratio is the measure that helps in analysing how well the
organization can meet the different short term financial liabilities. It is known as the acid test
ratio. Furthermore, it has been identified that the quick ratio of New Mount Corporation has
increased from 188% to 266% in the year 2017 and this indicates that the higher is the quick
ratio, higher is the liquidity position of the company. However, it has been noticed that when
the quick ratio is lower than 1, it does not necessarily mean that the company is facing
bankruptcy and this includes that the organization is highly dependent on inventory to pay the
different short-term liabilities (Wang, Ma and Yang 2014).
Similarly, the cash ratio is defined as the ratio of liquid assets of the company to the
current liabilities. It is defined as the extreme liquidity ratio as only the cash and cash

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equivalents are compared with the current liabilities. It has been noticed that the cash ratio of
New Mount Company has increased from 161% to 238% and this means that since it is above
1, the company has the capability to pat all the current liabilities in immediate span of time.
Long Term Solvency (Financial Leverage Ratios)
The financial leverage ratio is the measure of how much the different assets the
company holds relative to the equity. The high financial leverage ratio means that the
company is using the debt along with other liabilities to finance the assets. The long-term
solvency of New Mount Corporation has been such that it is efficient and appropriate in
nature to meet the debts and other obligations. It was noticed that the company New Mount
Corporation has enough cash flow in order to meet the short-term along with long-term
liabilities. The net income of the company has helped in analysing and identifying that the
company has huge profit that has been generated by them in the year 2017 as this helped and
assisted the company in meeting the different debts in an effectual manner.
Asset Utilisation (Turnover Ratios)
The turnover ratios are the financial kind of ratios wherein the annual income
statement amount has been divided by average balance of the asset or the group of assets
throughout the year. The receivable turnover ratio has changed in different quarters such as in
the first quarter it was 26.09, however it increased to 26.58 in the last quarter. This implies
that the company has high rate of turnover and it implies that the company has strong sales
and therefore, there is no such excess inventory as well (Henisz, Dorobantu and Nartey
2014).
From the analysis of the receivables turnover ratio, it can be analysed that the
company New Mount Corporation is effective in nature and this has been seen that low
turnover has implied that the company did not focus much on the receivable turnover ratio

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and this caused huge loss to the company in the year 2015. The return on investment of the
company was has been increased to more than 2.47% in the year 2017 (Chiaramonte and
Casu 2017).
Profitability Ratios
The gross margin is the total sales revenue that is deducted form cost of goods sold
and furthermore it is divided by the total sales revenue. The higher percentage of the gross
margin, this helps in increasing the entire ability of the company in servicing the other costs
along with debt obligations. It has been seen that the gross margin percentage of New Mount
Corporation has increased from 44% to 45% and this implies that the company has been more
developed in nature in meeting the different obligations and debts effectively (Piketty 2015).
The operating margin is defined as the measure for profitability and this helps in
indicating the different costs that are included by calculating operating earnings divided by
revenue as to gain the operating margin effectually. It has been noticed that in the year 2016,
the value of the operating margin was 0%, however there was a huge increase of 17% in the
year 2017. This implies that the company has the high potential in meeting the different
variable costs and make profit appropriately (Newmont.com, 2018).
The profit margin is the amount through which the entire revenue from the sales
exceeds the costs in the business. In case of New Mount Company, it was analysed that the
profit margin has decreased as in the year 2016, the percentage was 9%, however it has been
analysed the revenues of the company has been fallen down to 1% that can create negative
influence on the business (Iwatsubo, Watkins and Xu 2017). The profit margin has been
decreased which has affected the brand image of the company that has to be analysed
effectively (Van den End 2016).

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Lastly, Pre-Tax ROE is defined as the amount of the entire net income returned as the
percentage of the equity of the shareholders. It helps in revealing the amount of profit that
can be earned by the company in comparison to the total amount of equity of the shareholders
found in the balance sheet of the company (Acharya and Mora 2015). Furthermore, in case of
the respective company named New Mount Corporation, it was seen that the rate has been
increased from 2% to 10% that helped in analysing that the company has huge capacity to
handle the percentage of the equity of shareholders (Banerjee and Mio 2017).
Market Value Ratios
The market value ratios help in evaluating the current share price of the stocks of the
company that is held publicly. These are the different ratios that are held and employed by
potential and current investors as to determine the shares of the company and whether they
are under-priced or over-priced. It has been noticed that the market value ratio of New Mount
Corporation in the year 2017 is under-priced amounting to (0.18) and the market value ratio
was under-priced in the year 2016 as well (Pierdzioch, Risse and Rohloff 2014).
The earnings per share of the respective company can be calculated by subtracting
preferred dividends from net income. Furthermore, the divide the earnings divided by the
number of the outstanding shares that is listed in the balance sheet (Bai, Krishnamurthy and
Weymuller 2018). The over-priced or under-priced market value ratio helps in indicating that
New Mount Corporation’s profitability of the company. From the under-priced market value
ratio, it can be assumed that New Mount Corporation has (0.18) that indicates the company is
losing money and this is not applicable as the company is reported for loss (Machin 2017).
Goldcorp Inc Corporation
Goldcorp Inc Corporation is one of the gold production companies that is
headquartered in Canada (Goldcorp.com 2018). The company falls under the category of gold

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mining industry that was founded in the year 1994 that is twenty years ago. The company has
employed more than 15800 employees in the company. Furthermore, the company was
ranked among the top 100 employers in Canada. The respective company’s operating assets
includes different mines in Canada, Mexico, South America and Central. The total assets of
the company have been increased to $2.15 billion till the year 2017.
Short term solvency (Liquidity ratios)
The short-term solvency or the liquidity ratio is a measure that is used to measure the
firm’s ability to meet the organization’s short-term financial obligations. The ratios are useful
in determining the firm’s ability to avoid financial distress in the short-run. Few of the most
important ratios that are useful in ascertaining the short term ratios of the all the company are
current ratio and quick or acid test ratio (Rasoolpur 2014).
Current ratio is ascertained by dividing all the Current assets by Current liabilities.
Current assets are such assets of the firms that are expected to be converted into cash in the
coming years. On the other hand, current liabilities represent all such liabilities that are to be
paid in cash in the coming financial years (Petria, Capraru and Ihnatov 2015). The adequate
value of the ratio mostly depends on the nature of the organization’s industry and also the
composition of the current assets. Therefore, the minimum current ratio is expected to be
greater than 1. Current Ratio= Total Current assets/Total current liabilities
The current ratio of Goldcorp Inc. (GG) for the year 2017 is 91% or 0.91. It is less
than 1 and is therefore is not adequate to achieve maximum growth or profit.
Quick Ratio represents that inventories can rather be in illiquid in nature. If such
inventories are to be sold off to meet the obligations of the firm than the organization may
have difficulty in to find a buyer and the inventory items. This should be sold at a discount
rate as compared to the fair market value of the firm.

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Quick ratio= (Total current assets- Inventory)/ Total current liabilities
The Quick ratio of the company is 56% or 0.56 and is very low. In addition to this the
cash ratio of the company is 19%. The Quick ratio is the company’s ability to pay the debt of
the company and cash as well as the marketable securities are some of the quick sources of
cash. As the quick ratio is less than 1, the company is actually going into bankruptcy and
mostly relying on inventory.
The higher is the company liquidity ratio, the better sis the organization’s liquidity
ratio. The other issues that are included to record the current assets are marketable securities.
Quick ratio is also known as the acid test ratios as in the earlier times this ratio was used by
the early miners to evaluate the ratio related to gold. The acid test ratio actually showcases
how quickly an organization can convert their cash to pay off its current liabilities.
Long term solvency (Financial Leverage ratios)
Long-term solvency ratio is the key element for measuring the ability of an
organization to meet the debt of the companies and various other obligations. This help in
indicating whether an organization cash flows is effective enough to meet both the long-term
and short-term liabilities if the company (Margaretha and Supartika, 2016). The lower the
solvency ratio of the company the maximum is the probability for the organization that it will
default on its debt obligations. The financial ratios are also known as the debt ratio or debt to
equity ratio of the company.
Using last fiscal year end Interest dividend, it can be divided by the latest two-year
average debt to get the simplified cost of debt.
As of Dec. 2017, Goldcorp Inc's interest expense (positive number) was $99 Mil. Its total
Book Value of Debt (D) is $2741 Mil.
Cost of Debt = 99 / 2741 = 3.6118%.

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Asset utilization (efficiency or turnover ratios)
The asset turnover ratio of Goldcorp Inc. is 0.16%. The asset turnover ratio should
measure the value of the sales of the company, which is close to the assets value. The asset
turnover ratio is use as an indicator to calculate the efficiency with which the company is
deploying to particular assets to generate the revenue of the firm (Li, 2015).
Asset Turnover= Sales/ Average Total Assets.
The higher is the amount of asset turnover ratio; the better is the company’s
performances. As higher ratio of the company generally showcases that the organization is
creating more income per assets.
Profitability ratios
Profitability ratios are classified as the financial metrics that is used for assessing the
business’s ability to create earnings as compared to the expenses and other relevant costs that
is incurred during a specific time period. If the ratios are at higher value in relation to the
competitors ratio or same ratio from the previous period than it showcases that the company
is performing well.
The profit margin of Goldcorp Inc. is 19%. The net profit margin actually indicates
the organization’s ability to create Maximum earnings after taxes. The net profit margin of
the company shows that how much of the company’s profitability is left after distributing the
net income and expenses (Jami and Bahar 2016). The company and the organization’s ability
to measure the profitability after considering all the expenses include taxes, depreciation and
interest.
The operating margin ratio is 8%. Operating margin is actually the percentage of sales
that is remaining after covering the additional operating expense. Operating profit if the
company is also known as its Earnings before Interest and tax.