Strategic Briefing: Financial Management of Fortescue Metals Group

This report provides a comprehensive analysis of the financial management policies of Fortescue Metals Group (FMG). It examines the company's working capital management, revealing a decrease in working capital and a fluctuating current ratio, alongside an increasing quick ratio and a decreasing cash conversion cycle, indicating improved efficiency. The report further delves into FMG's capital structure, highlighting its equity and debt ratios and factors affecting its capital structure. The analysis extends to the company's dividend policy and corporate governance structure, including key executives and their roles. Finally, it identifies the links between FMG's financial management and corporate governance policies and their impact on operating and share performance, supported by financial data from 2014 to 2018. The report fulfills the requirements of a strategic briefing for the Senior Leadership Group, addressing key aspects of FMG's financial strategy.

FINANCIAL MANAGEMENT
FORTESCUE METALS

Working capital management
policies of the company:
 the amount has decreased when compared over the period of
years from 2014 to 2018
 The current ratio shows a decrease which could mean liquidity
issues for the company in the near future
 The calculation for quick ratio shows an increase which could
mean liquidity stability for the company in the near future

Working capital management
policies of the company
contd.. In respect of cash conversion cycle, the number of days shows a
decrease which is good for the company since it indicates that
that the company is now taking lesser amount of time for the
purposes of converting investment into cash
 The company has made more investments into the non-current
assets of the company. This means lesser liquidity for the
company

Capital structure
determination policy of the
company Equity ratio: calculated ratio shows that the company has 58%
capital employed which belongs to the shareholders equity
 Debt to equity ratio: The calculated ratio shows a higher ratio
which means that the company is more exposed to risk
 Debt ratio: the calculated ratio, the ratio though shows a
decrease but more debt should be reduced so that this % further
comes down

Factors affecting capital
structure:
 Profitability
 Liquidity
 Control
 Competition
 Nature of the industry
 Timing of the issue
 Characteristics of the company

Company’s earnings
distribution and divided pay
out ratios: The company does not employ any specific or any fixed policy of
dividend.
 A certain % should be fixed for the purposes of distributing them
as profits

Corporate governance
structure of the company:
 Tranparency
 Integrity
 Empowerment
 Corporate accountability
 Stewardship

Management of the company:
 No change after year 2014.
 Executives in year of 2018:
 Andrew Forrest AO: Chairman
 Mark Barnaba AM: Lead independent director/ Deputy chair
 Elizabeth Gaines: Chief Executive Officer/Managing Director
 Sharon Warburton: Deputy Chair
 Lord Sebastian Coe CH,KBE: Non-Executive Director
 Jennifer Morris OAM: Non-Executive Director

Management of the company
Contd..:
 Dr Jean Baderschneider: Non-Executive Director
 Penny Bingham-Hall: Non-Executive Director
 Dr Cao Zhiqiang: Non-Executive Director
 Cameron Wilson: Company Secretary
 Alison Terry: Group Manager Corporate Affairs and Joint Company
Secretary
 Cao Huiquan: Former Non-Executive Director

Relationship between structural
policies & financial management of the
company:
Areas on which company pays concentares on:
 Driving collaboration
 Change in the research of global cancer
 Ending the modern slavery
 Creation of the parity for the Indigenous Australians
 Ensuring that all children in the country of Australia reach their
full potential
 Nurture the new talents
 Generation of the world changing research and innovation.