Financial Analysis: Eagle Mountain Mining Limited and BHP Billiton

This report provides a financial ratio analysis of Eagle Mountain Mining Limited, evaluating its financial performance and comparing it with BHP Billiton. The analysis covers profitability, asset efficiency, liquidity, and capital structure ratios for both companies. Eagle Mountain Mining has been experiencing losses due to high expenses and low revenue, while BHP Billiton demonstrates positive financial performance. The report recommends that Eagle Mountain Mining reduce expenses and diversify its capital to improve its financial stability. The analysis concludes that Eagle Mountain Mining needs to improve its financial position to ensure long-term sustainability, while BHP Billiton is a successful and stable company in the same industry. Desklib offers this and other solved assignments for students.

Accounting in Business

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Contents
Introduction...........................................................................................................................................2
Overview of the organisation.................................................................................................................2
Financial Ratio......................................................................................................................................2
Recommendation...................................................................................................................................5
BHP Billiton..........................................................................................................................................6
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9

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Introduction
The main objective of this report is to understand the concept of financial ratio analysis. In
this report, Eagle Mountain Mining Limited has been taken into consideration to evaluate the
financial performance. In this report, ratio of two companies is evaluated to examine the
financial performance of both the companies. BHP Billiton is the other company which is
selected to compare with the Eagle Mountain Mining Limited.
Overview of the organisation
Eagle Mountain is a copper-gold explorer company that mainly focuses on the strategic
exploration and development of silver mountains projects. It is established in the year 1992,
by Charles with the partnership of Tony Poli. The company is operating in America operated
the mining industry as it is the heart of America Mining industry. It is popular for its services
in America and it also recognise as the world largest copper company. Silver Mountain
comprises three prospects and these are Pacific Horizon, Scarlett, and Red Mule. It lies on the
southern extension of the metallogenic belt that hosts United Verde and Iron King. The
company form a gold explorer in iron ore and coal (Eagle Mountain Mining, 2018). The main
service provided by the company is copper and iron ore. In this report, the financial analysis
will be done to evaluate the financial condition of the organisation.
Financial Ratio
Financial Ratio Analysis
2017 2018
Profitability Ratio
Return on Assets Net income - -

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1,32,340 14,62,406
Total assets 2491870 -0.05 84,23,211 -0.17
Profit Margin Profit
-
1,32,340
-
14,62,406
Sales Revenue -70464 1.87 28,151 -51.94
Asset Efficiency
Ratio
Fixed asset turnover Net sales -70464 28,151
Average fixed
assets 1245935 -0.05 5457540.5 0.005
Liquidity Ratio
Current Ratio Current assets 1251406 68,55,140
current liabilities 317732 3.9 65,149 105.2
Capital structure
Ratio
Total Liabilities 317732 99,680
Debt Ratio Total Assets 2491870 0.12 84,23,211 0.01
(Source: Eagle Mountain Mining, 2018)
Profitability Ratio
Profitability ratio is the financial metrics which is used to evaluate the profit of the
organisation. The ability and capacity of the organisation is to generate the balance sheet
assets, revenue and shareholders’ equity, operating costs by using the specific data in time is
evaluated. Eagle Mountain Mining Limited is suffering from the loss from the last two years.

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It has been seen that the company suffered with the heavy amount of loss in both years such
as 0.05 and in 2018 it is 0.17(Eagle Mountain Mining, 2017). It states the company is not in
the stable position to generate the revenue and operating cost.
Asset Efficiency Ratio
The Asset Efficiency Ratio is used to determine the capability of the organisation to use its
assets to manage its liabilities in the short term. It can be said that this ratio examine the
ability and capacity of the organisation is to generate the revenue from its assets. The ratio is
effective in showing the sales that are generated from each dollar for the asset of the
company. It has been seen that the asset efficiency ratio is 0.056 in the year 2017 and 0.05 in
the year 2018 (Eagle Mountain Mining, 2018). The ratio is constant in both the years but it is
observed that the net sale of the company is in negative as the net sales reflect is in negative
amount. In the year 2018, the amount of sale become positive which states that all debts of
the company is now amounted due to which it is capable to overcome the liabilities from
asset.
Liquidity Ratio
The liquidity ratio of the company states that the capacity of the organisation to pay off
current debts without issuing the external capital. As per the evaluation of liquidity ratio, it is
observed that the ratio of the company is increases in the year 2018. The current asset of the
company is 1251406 in the year 2017 and it is increases in the year 2018 with the amount 68,
55,140. The company is able to survive for long time in the market as it is able to pay its
current liabilities. It can be said that the financial condition of the company is improving with
the passage of time. It has been seen from the liquidity ratio of the company such as 3.9 in the
year 2017 and 105.2 in the year 2018 (Eagle Mountain Mining, 2018).

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Capital structure Ratio
The ratio refers the long term stability of the firm as it is evaluated by from total liabilities
and total asset. This ratio reflects the fund which is provided by the lenders and owners to
assure the long term funds (Fundamentals of Accounting , 2018). The ratio contains the
various ratios such as equity ratio and debt ratio. Debt ratio includes the short term as well as
long term debts, bonds, debentures, and the bank borrowings. As per the evaluation of debt
ratio, it has been seen that the debt ratio of the company is reduces due to decreasing the
liabilities and increasing the asset. The asset amount is decreases 0.13 to 0.01(Eagle
Mountain Mining, 2017). It can be said that the asset of the company is increases due to
which the financial position of the company is stable. The company is in the stable position
as there is less liability amount and high asset due to which it can easily pay off its debts.
Recommendation
Reducing Expenses
As the net income of the organisation indicates the negative amount that is why; it is
recommended that the company has to reduce its expenses. There is a high expense due to
which the company is not able to earn the high profit. The amount of profit is invested in
paying the expenses due to which the company suffer with the loss. That is why; the
company has to reduce the expenses and the other activities which affects the profit.
Diversification
As the sales revenue of the company is also in the negative amount due to which it is
recommended that it has to diversify the capital. It is a process of allocating capital in a way
that reduces the exposure to any one particular asset or risk is called diversification. Reducing
the investing in a path helps to invest in the variety of asset. This recommendation helps the

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organisation to increases the asset due to which the company is able to pay its current
liabilities by increasing the current asset (Business.gov., 2018).
BHP Billiton
Financial Ratio
Analysis
Profitability Ratio 2017 2018
Return on Assets Net income 5890 3705
Total assets 1,17,006 0.05 1,11,993 0.03
Profit Margin Profit 5890 3705
Sales Revenue 38285 0.15 43638 0.08
Asset Efficiency Ratio
Fixed asset turnover Net sales 38285 43638
Average fixed
assets 117979.5 0.32 114499.5 0.38
Liquidity Ratio
Current Ratio Current assets 21,056 35,130
current liabilities 11,366 1.85 13,989 2.51

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Capital structure Ratio
Total Liabilities 59,748 56,401
Debt Ratio Total Assets 1,17,006 0.51 1,11,993 0.50
(Source: BHP Billiton, 2018)
BHP Billiton is also a mining company which is operated under the same industry of Eagle
Mountain Mining Limited. The same ratio has been used to evaluate its performance which is
used to evaluate the performance of Eagle Mountain Mining Limited. As discussed above,
the purpose of all ratios analysis is to evaluate the stability of the organisation in future. The
reason to evaluate these ratios is that it is easy to evaluate and analyse the financial condition
of the company. The reason is to choose these ratios is that the analysis can be done with the
effective manner because it is also evaluated for the Eagle Mountain Mining Limited.
As per the analysis, it is observed that the BHP Billiton is just opposite to the Eagle Mountain
Mining Limited. The Eagle Mountain Mining Limited, suffered with loss due to high
expenses and less amount of revenue (Robinson, Henry, Pirie, and Broihahn, 2015). It has
been seen that the Liquidity ratio of BHP Billiton is increases continuously with the positive
rate as it has the large amount of current asset more than the current liabilities. But in the case
of Eagle Mountain Mining Limited, it is observed that the company did not in the position to
pay all debts in the year 2017 but in the year it is improving with the positive amount (BHP
Billiton, 2018). It has been seen that the BHP Billiton is a successful company but Eagle
Mountain Mining Limited is struggling company that face the challenges.

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Conclusion
As per the above discussion, it is concluded that the Eagle Mountain Mining Limited require
to improve the financial position. The financial performance of the company is not good as it
is evaluated it’s suffered with the heavy amount of losses. It is recommended that the
company has to reduce its expenses and diversify the capital so that the revenue amount of
the company will increase. Diversification recommendation helps it to increase the value of
asset so that it can be stable in future to pay off liabilities. BHP Billiton is selected for the
comparison as it operated in the same industry “mining industry”. The ratio evaluation of
both the companies state that both are opposite in nature as the BHP Billiton is successful but
Eagle Mountain Mining Limited face the challenges to survive. It has been seen that the
performance of company is improving that is why; it can be said that the company has the
chance to survive in the market.

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References
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A. (2015) International financial
statement analysis. John Wiley & Sons.
Fundamentals of Accounting . (2018) Capital Structure Ratios. [online] Available from:
https://www.fundamentalsofaccounting.org/capital-structure-ratios/ [Accessed 17/05/19].
Business.gov. (2018) Improve your business' financial position. [online] Available from:
https://www.business.gov.au/finance/accounting/cash-flow-and-budgeting/improve-your-
business-financial-position[Accessed 17/05/19].
Eagle Mountain Mining. (2018) Annual Report 2018. [online] Available from:
https://www.asx.com.au/asxpdf/20180824/pdf/43xnn7jcwfwrg1.pdf[Accessed 17/05/19].
Eagle Mountain Mining. (2018) Financial Report. [online] Available from:
file:///C:/Users/SYSTEM~1/AppData/Local/Temp/3245598_1813755996_Eagle-
2.pdf[Accessed 17/05/19].
Eagle Mountain Mining. (2018) Board amd Management. [online] Available from:
http://eaglemountain.com.au/board-management/ [Accessed 17/05/19].
BHP Billiton. (2018) BHP Annual report 2018. [online] Available from:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed 17/05/19].

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