Comprehensive Financial Analysis Report: Stanmore Coal

This report presents a financial analysis of Stanmore Coal, examining its performance through various financial ratios and metrics. The analysis covers key areas such as profitability, including net and gross profit margins, and return on assets. It also assesses liquidity using current and quick ratios, solvency through debt-to-equity and debt-to-total-assets ratios, and efficiency by evaluating accounts receivable, payable, and inventory turnover. The report highlights the company's strengths and weaknesses, noting declining profitability but efficient cash management. Market value ratios, like earnings per share, are also considered. The report provides recommendations for improvement, focusing on capital structure adjustments and efficient resource utilization to enhance investor confidence and overall financial health. The analysis uses financial data from 2017 and 2018.

Running Head: FINANCIAL ANALYSIS 1
FINANCIAL ANALYSIS

Running Head: FINANCIAL ANALYSIS
Executive
Stanmore Coal works the Isaac Plains coking coal mineshaft in Queensland's prime Bowen
Basin district. Stanmore Coal possesses 100% of the Isaac Plains Complex which
incorporates the first Isaac Plains Mine, the bordering Isaac Plains East (operational), Isaac
Downs (open cut mine venture) and the Isaac Plains Underground Project. It was founded in
the year 2008 and the headquarters of the company are situated in Australia. It offers an
attractive entry point into the coal sector of the Australia.

Running Head: FINANCIAL ANALYSIS
Table of Contents
Overview...............................................................................................................................................5
Market and company Review................................................................................................................5
Ratio Analysis.......................................................................................................................................5
Profitability........................................................................................................................................5
Liquidity............................................................................................................................................6
Solvency............................................................................................................................................7
Efficiency..........................................................................................................................................8
Market value ratios............................................................................................................................8
Recommendations and Conclusion........................................................................................................9
References...........................................................................................................................................10

Running Head: FINANCIAL ANALYSIS
Overview
Stanmore Coal works the Isaac Plains coking coal mineshaft in Queensland's prime Bowen
Basin district. Stanmore Coal possesses 100% of the Isaac Plains Complex which
incorporates the first Isaac Plains Mine, the bordering Isaac Plains East (operational), Isaac
Downs (open cut mine venture) and the Isaac Plains Underground Project. It was founded in
the year 2008 and the headquarters of the company are situated in Australia. It offers an
attractive entry point into the coal sector of the Australia.
Market and company Review
The Company is centred on the making of investor esteem through the effective activity of
the Isaac Plains Complex and the recognizable proof of further improvement openings inside
the district. What's more, Stanmore Coal holds various top notch improvement resources
(both coking and warm coal assets) situated in Queensland Bowen and Surat bowls
(Stanmore, 2018). The market tends to be fluctuating and the share prices are falling.
Ratio Analysis
Ratio Analysis is one of the tool or the technique that is used by the Stanmore in order to
analyse the performance of the company over the period of the last two years. This will also
give them a key-insight about which particular area is facing problems and how to deal with
it on an emergency basis. In the ratios there are majorly five categories that are being
assessed which are, efficiency, liquidity, profitability, solvency and the performance in terms
of the market and the market forces. A detailed discussion is being carried out to analyse
whether Stanmore is walking on the positive front or needs a revision in its policies as well as
procedures.
Profitability
The profitability of the company is one of the most important measures that are used for the
purpose of analysing the financial health of the company. There are several parameters
through which the profitability of the company can be denoted and some of them are net
profit margin, gross profit margin, return on assets as well as return on equity.
The net profit margin of the Stanmore can be seen to decline from 8.7% to 2.9% and the
major contributor of such situation is the other expenses. As the other expenses tends it

Running Head: FINANCIAL ANALYSIS
increase from $17227 to $37786, this indicates whatever the company earns, 60% of it is
consumed in the expenses and this is not a beneficial situation from the point of view of the
company (Stanmore, 2018).
The gross profit ratio on the other hand determines the ability of the company to find out the
raw income that is associated only with the revenue and the costs incurred in the production
of the product or the services. The gross profit ratio of Stanmore also decreased from 11.4%
to 9% in the year 2018. This again reflects the sales volume grabbed by the company is not
increasing at the pace, rather the cost of the goods sold are increasing at the high rate,
The return on total assets determines the ability of the company to generate the sales with
the help of the assets in the most potential manner. In this current situation, Stanmore’s return
on total assets can be observed at 9.4% with a decline in comparison to the previous year,
which was at 18.6%. The overall situation of the company indicates the necessary initiatives
are required on an immediate basis so that the company can be in the line with the
competitors. Further, the company also needs to look after the profitability section as it is the
main area which most of the users look at while analysing the financial statements, may it be
suppliers, investors, management or the customers (DeFusco, et al 2015).
In order to overcome such kind of the situation Stanmore needs to address the problem at the
lower level by eradicating the overhead expenses. The coal projects have been initiated
however, the company shall review all the prices of the company. One of the methods could
be taking the cash discounting from the suppliers (Gitman, Juchau and Flanagan, 2015).
Liquidity
The liquidity position of the company can be evaluated by calculating the current as well as
quick ratio. The current ratio deals with the current assets and the current liabilities whereas
the quick ratios deal with the assets that can realize the cash easily. It is additionally a
proportion of how simple it will be for the organization to raise enough money or convert
resources into money (Krantz and Johnson, 2014).
The current ratio of the Stanmore will define the ability of the company, how well the
current assets are used to pay back the current liabilities. The current ratio of the company is
1.69 and earlier it was 1.66 times, which is still not equivalent to the industry benchmark. The
quick ratio of the company however increased from 1.04 to 1.19 in the year 2018. But this

Running Head: FINANCIAL ANALYSIS
replacement alone cannot help the situation of the company and yet the current ratio needs to
be improved.
 The out of date resources will be sold so the worth got can be used in the potential
territories (Rathi and Pradhan, 2017).
 It can begin with the early accommodation of the accounts receivables where the
records receivables will be acknowledged at the quicker pace.
 The overhead costs will be checked to such a degree, that it can improve the general
execution of the business
 The organization will move from the transient liabilities to long haul liabilities.
Solvency
The solvency ratios of the company are one of the most crucial ratios which basically govern
the capital structure of the company. The solvency proportions are intended to enable
Stanmore to quantify the level of money related hazard that your business faces. The
obligation in relation to the money in this unique circumstance implies the degree to which
you have obligation commitments that must be met, paying little respect to your income
(Laas, and Siegel, 2017).
The debt to Equity ratio of the company can be defined as how many funds are acquired by
the business in terms of the debt as well as the equity. The debt to equity ratio of the
Stanmore is 0.77 in the year 2018, whereas the same was 0.774 in the year 2017. Overall the
debt proportions tend to be more than the equity and this shall be revised by the company on
the immediate basis as too much financial burden leads to the problems for the business. For
the purpose of the tax advantage the debt is suitable whereas the excessive debt would
increase the financial burden on the company. Instead of financing through debt, the equity
shall be opted to bring a balance in the capital structure of the company (Nikolai, Bazley, and
Jones, 2009).
The debt to total assets ratio of the company is again the ratio which indicates the use of the
assets that are being financed with the help of the debt. The debt to total assets stands
between 0.30 to 0.33 times. The ratio is positive as not much of it is financed in terms of the
debt. Alternatively to improve the ratio the value of the assets must be extended (Stanmore,
2018).

Running Head: FINANCIAL ANALYSIS
The times interest coverage ratio is another ratio that defines the capacity of the business to
pay back the financial costs in order to find out the ability, else it can threaten the strength of
the business. The times interest coverage ratio of Stanmore is positive in comparison to the
previous year as it was 1.65 times and it reached to 2.07 times. Overall the payment capacity
of the company is sound; however, the capital structure needs to be changed to align the
resources properly (Olson, 2015) .
Efficiency
The efficiency ratio mainly deals with the cash of the company and cash seems to be the
king of the company. The current parameters that are used in the efficiency of the business
are accounts receivable, accounts payable, inventory turnover as well as fixed asset turnover
ratio of the business (Petruzzo, et al 2015).
The accounts receivable turnover ratio of the company was 44.06 days and the same
reduced to 39.34 days is one of the positive things for the company as the cash is realized
faster than expected. However the accounts payable ratio of the company was 78 days and
the same reduced to 63 days as well indicates the cash generated is utilised to pay back to the
creditors. The inventory turnover ratio of the company has been commendable with
respect to the previous year from 96.32 days to 49.12 days is the most profitable point of the
company. Overall it can be analysed that the efficiency is maintained by the company beyond
the par level and this is why still the investors tends to invest in the business (Barkan, Bintliff
and Whisner, 2015).
Market value ratios
The term income per share (EPS) speaks to the bit of an organization's profit, net of charges
and in favour of the stock profits that is assigned to each portion of basic stock. The figure
can be determined essentially by dividing the net income with the weighted average
outstanding shares for that period. Since the quantity of offers remarkable can change, a
weighted normal is ordinarily utilized for the calculation of EPS. The EPS of Stanmore
currently is valued at 2.70 whereas it was valued at 5 in the earlier years. The overall scenario
reflects that earlier the investors and the shareholders were getting enough for the investment
made by them however today the scenario has been changed. The major reason is the decline
in the net profit of the company and apart from that company must extends the margins and
the financial engineering shall be implemented to cater the needs of the investors as well as
the shareholders (Stanmore, 2018).

Running Head: FINANCIAL ANALYSIS
Recommendations and Conclusion
In order to stay in the competitive business it is necessary for Stanmore to bring the
resources back to the basics and reuse them efficiently and effectively. It was observed that
the profitability and the liquidity position of the company were not smooth enough. The
capital structure needs to be changed and the overall earnings received by the shareholders
are also less. However, the company is quite efficient in realizing the cash and making the
payment for the current liabilities. This indicates that the company needs to work upon the
certain areas and if improved can definitely be the right choice on account of the investors.
From the point of view of the investor the, shares must be sold as of now to not to bear any
loss and on the other hand the company must improve by settling the extra cash to the
investors in order to keep them in the company.

Running Head: FINANCIAL ANALYSIS
References
Barkan, S.M., Bintliff, B. and Whisner, M., (2015) Fundamentals of legal research. United
States: John and Wiley sons.
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. and Runkle, D.E.,
2015. Quantitative investment analysis. John Wiley & Sons.
Gitman, L.J., Juchau, R. and Flanagan, J. (2015) Principles of managerial finance. Australia:
Pearson Higher Education AU.
Krantz, M., and Johnson, R. R. (2014) Investment Banking for Dummies. New Jersy: John
Wiley and Sons.
Laas, D. and Siegel, C.F., (2017) Basel III versus Solvency II: An analysis of regulatory
consistency under the New Capital Standards. Journal of Risk and Insurance, 84(4), pp.1231-
1267.
Nikolai, L. A., Bazley, J. D., and Jones, J. P. (2009) Intermediate Accounting. USA: Cengage
Learning.
Olson, D.M., (2015) Democratic Legislative Institutions: A Comparative View: A
Comparative View. California: Routledge.
Petruzzo, P., Gazarian, A., Kanitakis, J., Parmentier, H., Guigal, V., Guillot, M., Vial, C.,
Dubernard, J.M., Morelon, E. and Badet, L., 2015. Outcomes after bilateral hand
allotransplantation: a risk/benefit ratio analysis. Annals of surgery, 261(1), pp.213-220.
Rathi, K. and Pradhan, H.K., 2017. Liquidity of Government of India Bonds: Trading
Volume Based Analysis.
Stanmore, (2018) Annual Report [online] Available from
https://stanmorecoal.com.au/sites/default/files/2018-09/2018%20Annual%20Report.pdf
[ Accessed on 18th August 2019]