HI5002 Finance for Business: Marmota Ltd Financial Performance Report

This assignment provides a comprehensive financial analysis of Marmota Limited, an Australian company focused on mining and exploring gold, copper, and uranium. It examines the company's core markets, activities, and key financial indicators such as return on equity, debt ratio, and return on assets, over several years. The analysis includes an assessment of the company's share price movement in relation to the All Ordinary Index, the impact of company announcements on its share price, and the calculation of its beta and weighted average cost of capital (WACC). The report concludes with a recommendation against investing in Marmota, citing its lack of profitability and returns for investors. Desklib is a platform where students can find similar assignments and study resources.

Running head: FINANCE FOR BUSINESS - MASTERS
Finance for business - Masters
Name of the Student:
Name of the University:
Authors Note:

FINANCE FOR BUSINESS - MASTERS
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Table of Contents
1. Portraying company’s information, while depicting core markets, activities, and factors:...2
2i. Mentioning the substantial shareholders:..............................................................................2
2ii. Mentioning the people involved in firm governance:..........................................................2
3i. Mentioning the return on equity, debt ratio, and return on assets of the company:..............2
3ii. Mentioning the variable of TA/OE and stating its impact on return on assets and return on
owner’s equity:...........................................................................................................................3
3iii. Mentioning the reason behind ROE being greater or less than ROA:................................4
4i. Mentioning the return of the company and All Ordinary Index in graph/chart:...................4
4ii. Mentioning the correlation of company with All Ordinary Index:......................................5
5. Mentioning the impact of announcements on share price of the company:...........................5
6i. Mentioning the calculated beta of the company:..................................................................5
6ii. Mentioning the rate of return of the company:....................................................................5
6iii. Mentioning whether the company is a conservative investment:.......................................6
7i. Mentioning weighted average cost of capital of the company:............................................6
7ii. Mentioning the overall impact of higher WACC has on decisions conducted by
management:..............................................................................................................................7
8i. Mentioning the optimal capital structure used by the company:..........................................7
8ii. Mentioning the steps taken by the company in adjusting their gearing ratio:.....................7
9. Mentioning the current dividend policy used the management:............................................8
10. Recommending adequate investment opportunities, which could be used by investors:....8
Reference and Bibliography:......................................................................................................9

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1. Portraying company’s information, while depicting core markets, activities, and
factors:
The company is relatively focused in mining and exploring gold, copper, and uranium
in Australia. Marmota Limited is mainly situated in south of Australia, where relevant fields
are controlled by the company for its mining needs. The company operations in Australia and
is linked with the Australian consumer demand, which could help in generating higher rate of
return. The company has many projects in Australia, where it could acquire the required level
of copper, gold, and uranium products to support its rising demand (Marmota.com 2018).
2i. Mentioning the substantial shareholders:
Main substantial shareholders Number of Share held % of issued share
Colin Rose 65,873,242 12.74%
Southern Cross Capital Pty Ltd 46,000,000 8.89%
2ii. Mentioning the people involved in firm governance:
Position Name of the Persons
The Chairman Dr Colin Rose
Executive Director Dr Kevin John Anson Wills
Director Mr Peter R Thompson
Managing Director Mr L D Williams
Managing Director Mr I Warland
Company Secretary Ms V Allinson
3i. Mentioning the return on equity, debt ratio, and return on assets of the company:
Particulars 2017 2016 2015 2014

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Net Profit After Tax (389,655) (445,750) (1,081,872) (18,625,655)
Total Assets 6,001,626 4,438,827 3,434,694 4,315,834
Ordinary Equity 34,909,527 33,064,883 31,577,896 31,239,006
Total Liabilities 206,167 117,125 197,132 345,450
Return on Assets -6.49% -10.04% -31.50% -431.57%
Return on Equity -1.12% -1.35% -3.43% -59.62%
Debt Ratio 3.44% 2.64% 5.74% 8.00%
Particulars 2017
EBIT (368,545)
TA 6,001,626
NPAT (389,655)
EBIT (368,545)
TA 6,001,626
OE 34,909,527
NPAT/OE (EBIT/TA) * (NPAT/EBIT) * (TA/OE)
NPAT/OE -1.12%
3ii. Mentioning the variable of TA/OE and stating its impact on return on assets and
return on owner’s equity:
Particulars 2017 2016 2015 2014
TA/OE 17.19% 13.42% 10.88% 13.82%

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From the overall evaluation of the above able it could be identified that total assets of
the company in comparison to its equity has relatively increased from 2014 to 2017. This
increment is only possible when the company has acquired more assets to support its overall
operations (Vogel 2014).
3iii. Mentioning the reason behind ROE being greater or less than ROA:
The overall equity level maintained by the company is relatively lower than its assets
level, which is why the ROA is less than ROE. In addition, the equity value listed in financial
accounts is higher than assets value, which in turn reduces the return that could be provided
from ROA.
4i. Mentioning the return of the company and All Ordinary Index in graph/chart:
11/1/2015
12/1/2015
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
(0.60)
(0.40)
(0.20)
-
0.20
0.40
0.60
Share Price Movement
Return MEU.AX Return All Ordinary Index

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4ii. Mentioning the correlation of company with All Ordinary Index:
The graph is representing the correlation between return provide by ALL Ordinary
Index and shares of MEU. The correlation of 0.054886 is relatively at the lowest indicating a
low correlation between both the returns. Therefore, the correlation value cannot be used by
investors in formulating its portfolio, as it does not suffice investment criteria (Floyd, Li and
Skinner 2015).
5. Mentioning the impact of announcements on share price of the company:
Date Announcements Factors
15-Dec-2017 Cleansing notice and Appendix 3B Industry wide factors
14-Dec-2017 Change in Directors Interest Notice Significant management changes
08-Dec-2017 SA Exploration and mining conference
presentation
Macroeconomic factors
04-Dec-2017 $1 million placement to sophisticated
investors
Changes in management earnings
forecast
24-Nov-2017 WPG and Marmota form strategic
alliance
Industry wide factors
6i. Mentioning the calculated beta of the company:
Beta of the company as detected from Reuters are at the values of 0.34, where the
organisation is not considered to be a risky investment for investors.
6ii. Mentioning the rate of return of the company:
Particulars Values
Beta 0.34

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Risk free rate 4%
Market risk premium 6%
CAPM 4.68%
6iii. Mentioning whether the company is a conservative investment:
The company mainly falls under conservative investment scope, as the beta is
relatively lower than 0.50, while a return of 4.68% can be provided from investment
(Au.reuters.com 2018). This relatively indicates that Marmota falls under conservative
investment.
7i. Mentioning weighted average cost of capital of the company:
Particulars Values
Total Equity 34,909,527.00
Total Debt 0
Total Capital 34,909,527.00
Cost of debt 0
Cost of equity 4.68%
Tax 30.00%
WACC 4.68%

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7ii. Mentioning the overall impact of higher WACC has on decisions conducted by
management:
The calculation of Weighted Average Cost of Capital (WACC) is conceited to
identifying the minimum return that is needed by the company to conduct its operations. Cost
of capital is the minimum expenses, which is conducted by the company to maintain the level
of capital to support its activities. In addition, higher WACC would reduce its capability to
accommodate high-end projects, as its returns needs to be higher than its cost of capital.
Thus, the high WACC would restrict the management in making adequate decisions to
support its future investment needs (Krüger, Landier and Thesmar 2015).
8i. Mentioning the optimal capital structure used by the company:
Particulars 2017 2016
Total Assets 6,001,626 4,438,827
Total Liabilities 206,167 117,125
Debt Ratio 3.44% 2.64%
The debt ratio of the company has mainly increased from 2016 to 2017, which
indicates that debt fuels its operations. The company has been acquiring debt to support its
activities, which could improve its financial position and allow the management to increase
its profitability.
8ii. Mentioning the steps taken by the company in adjusting their gearing ratio:
The company has been increasing its Exploration and evaluation assets value, which
is relatively increasing the total assets and supporting its gearing ratio.

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9. Mentioning the current dividend policy used the management:
Marmota’s management follows non-paying dividend policies, as the company has
not paid any dividends to its investors in recent years. The company mainly follows this
dividend policy due to the loss incurred from operations.
10. Recommending adequate investment opportunities, which could be used by
investors:
From the evaluation of share price movement and financial position of Marmota, it is
advisable to not invest in the stock. The company has not profited or provided any kind of
return to its investor. Therefore, investment in the conman would be a loss for the investors
and block its investment capital.

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Reference and Bibliography:
Au.finance.yahoo.com. (2018). MEU.AX Historical prices | MARMOTA FPO Stock - Yahoo
Finance. [online] Available at: https://au.finance.yahoo.com/quote/MEU.AX/history?
period1=1446229800&period2=1515349800&interval=1mo&filter=history&frequency=1mo
[Accessed 9 Feb. 2018].
Au.reuters.com. (2018). Company Profile for ${Instrument_CompanyName}. [online] IN.
Available at: https://au.reuters.com/finance/stocks/company-profile/MEU.AX [Accessed 9
Feb. 2018].
Floyd, E., Li, N. and Skinner, D.J., 2015. Payout policy through the financial crisis: The
growth of repurchases and the resilience of dividends. Journal of Financial
Economics, 118(2), pp.299-316.
Krüger, P., Landier, A. and Thesmar, D., 2015. The WACC fallacy: The real effects of using
a unique discount rate. The Journal of Finance, 70(3), pp.1253-1285.
Marmota.com.au. (2018). Downloads | Annual Reports. [online] Available at:
http://www.marmota.com.au/site/investors/corporate-reports/annual-reports/doc_view/600-
2017-annual-financial-report.html [Accessed 9 Feb. 2018].
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.