Fortescue Metals Group: Financial Strategies and Performance Review

This presentation provides a detailed financial analysis of Fortescue Metals Group Limited, covering its weighted average cost of capital (WACC), capital structure, dividend policy, and corporate financial policies. The analysis includes calculations of the cost of equity and debt, highlighting the company's capital structure ratio of 51:49 for debt and equity, respectively. The presentation also examines the company's dividend payout ratio and retained earnings, noting fluctuations due to taxation, economic factors, and profitability. Furthermore, it discusses the impact of dividend announcements on the company's stock price and overall market position, concluding that Fortescue Metals Group maintains effective financial and corporate policies. Desklib offers a variety of resources, including solved assignments and past papers, to aid students in their studies.

S T U D E N T ’ S N A M E
U N I V E R S I T Y N A M E
Financial Management

Introduction
The presentation focuses on the following
topics:
Fortescue Metals group limited overview
Fortescue Metals group limited’s weighted
average cost of capital
Fortescue Metals group limited’s cost of
capital
Fortescue Metals group limited’s dividend
structure
Fortescue Metals group limited’s corporate
financial policies

Fortescue Metals group limited
The company is running its operations under
the iron ore manufacturing industry.
The main operations of the company include
production and exploration of iron ore in
Australian market.
Company has started operating its business
in the year of 2003 (Home, 2018).
Company has been awarded as amongst the
top 5 iron ore production companies.

Weighted average cost of capital
Total cost of capital of an organization can be
calculated on the basis of the weighted
average cost of capital of the company.
Weighted average cost of capital (WACC) of
an organization could be derived from the
total cost of equity and total cost of debt of
the company.
Cost of equity and cost of debt is multiplied
from their capital fraction to measure the
total capital of the company.

Weighted average cost of capital
In case of Fortescue Metals group limited,
cost of equity of the company is 5.05%
Calculation of cost of equity (CAPM)
RF (Risk free rate) 2.75%
RM (Market premium) 10.16%
Beta 0.90
Cost of equity 5.05%

Weighted average cost of capital
Further, the financial performance and
annual report (2017) of the company explains
that the cost of debt of the company is 3.75%.
Calculation of cost of debt
Outstanding debt 12,19,57,87,831
interest rate 5.35%
Tax rate 30.0%
Kd 3.75%

Weighted average cost of capital
It further explains that the cost of equity and
cost of debt of the company is 5.05% and
3.75%.
The fraction of debt and equity in context
with the capital of the company is 49.08 and
50.92%.
So, the WACC of the company is:
= (5.05% * 49.08) + (3.75% + 50.92%)
= (0.0183+ 0.025)
= 4.41%

Weighted average cost of capital
The measurements and the analysis on
Weighted average cost of capital explains that
the total cost of capital of the company in
current scenario is 4.41%
It explains about the cost of the company’s
capital.
Company must ensure that the projects and
the investment of the company offers more
than 4.41%.

Fortescue Metals group limited’s Capital structure
Capital structure is a systematic approach
which focuses on the financing of a business
activities on the basis of the combination of
liabilities and the equities.
Capital structure techniques explores the
companionship among the equity and debt of
the company.
It briefs about the risk and return position of
an organization.

Capital Structure
Annual report (2017) of Fortescue Metals
group limited explains that the debt and
equity of the company is 51% and 49%
respectively.
49%51%
Weight
Debt Equity

Capital Structure
The capital structure of the company is
51:49.
The cost of equity is 5.05%
Cost of debt of the company is 3.75%.
It explains that if the debt amount is
increased more than the cost of capital of the
company would be reduced.

Continue:
However, if the risk position is concerned
than the debt position of the company must
be lower than the equity of the company.
So, the current position of the company is
optimal.
Company should not make further changes in
the structure.