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Financial Analysis 

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Introduction 

The study is conducted to the analysis of the financial performance of the company and also suggests the company for listing in FTSE 100. For this analysis, Central Asia Metals PLC is taken as the company for this financial ratio is calculated and overall analysis is conducted. In this assignment, financial analysis is conducted on Part A and in Part B Strategic decision discussed for the overall requirement listed in FTSE 100.

Financial Analysis of Company

  1. Profitability ratios – The profitability ratio can be helpful in better understanding the financial performance of the company and also suggest the profit generation capacity of any business activities to their business operations (Corporate Finance Institute, 2020). Furthermore, these ratios also help in better assessment of the financial performance of the company which can help decide for an investment of shares and funds in the company.
    • As per the financial analysis, the line of margin profit on sales reflects stability in the performance of the company from the last five years and financial ratio analysis also reflects the fluctuation in between performance of return on capital employed for the company in the last 5 years. In 2017 company has a downfall in its performance for return on capital employed and after that, they are again declining in a descriptive way which helps to understand investors that the company is continuously falling from the returns perspective throughout the years. Margin profit on sales and return on capital employed reflects that company had declined in their profitability which is the major concern for the investor as the financial performance of the company is continuously declining from the last 5 years.Further, Company is working and performing well in the industry as they are generating more profit as compared to the standard of the company which is 0.09 for FY 2020. But, Company does not provide well return to the capital employed to shareholders as they hold 24% in FY 2020 which is lower than the standard of 1.03 as per the standard for FY 2020.
  2. Liquidity Ratios – The liquidity ratio can be the useful ratio that helps the investor in better identification of liquidity status of the company and also help in understanding the performance of cash flows for the business activities by the management of the company (Tran, Et. Al., 2017). This ratio provides a brief scenario of working capital management and short-term provisions related to liquidity and emergencies and the short-term position of liquidity status for cash & cash equivalents of the company.
    • As for the financial analysis conducted in table 1.2 cash flow off the company has a continuous decline in the financial performance as per the trend analysis of quick ratio and current ratio. Furthermore, As per the analysis company reflects the overall lower capacity of certain of their current like this through quick assets and current assets for the year as compared to past years. The liquidity ratio reflects the company is not able to set off their current liabilities at least for the year through their working capital management which is not appropriate science for a suitable company as a standard current ratio is 1.33: 1 market. For investors prospective company is not suitable as per the analysis of liquidity rations in the last five years as this ratio continuously declines in their business activities which means liabilities can't be recovered through current assets of the company. In the Liquidity status company is struggling with its stability in cash and cash equivalent and also performed low to the standards of the metal mining industry.
  3. Efficiency RatioEfficiency ratio is the financial rate of which help management or investor to identify the effectiveness for efficiency of production activities of the company which can help identify profit maximization of company. This ratio discusses the operational capabilities of the company-specific fiscal year.
    • As per the financial analysis, the efficiency ratio reflects the company had stability in the stock turnover ratio for the last 3 years but when it comes to 5 years companies had a decline of approx. 100% in their number of days for inventory rotation which can be a good sign for operational activities of the company as the company is efficiently used their raw material for their production activities (Soboleva et. Al., 2018). Debtor turnover period reflects overall data on the sales for the company which helped investor in identifying the credit sale which company makes out the years full stop as per the analysis company had declined in return over the period for last 3 years and when will look on the five years company has to increment from 2016 in their data turn over period which makes company e more sales on credit as compared to last five year but in last year the company has declined their credit sale which makes a good sign of profitability for the business activities and the liquidity status of the company.In the term of inventory, rotation company is performed exceptionally well as they are far low from the standard rotation period in the industry. Further, Company takes 39 Days for debtor turnover which is higher than the standard of 28 days. This figure negatively impacts the image or goodwill of the company as they have taken more days for recovery of their credit sales in the market.
  • Gearing RatiosThe gearing ratio can be the tool that helps in identifying a better compensation of their depth services for the business activity in a specific fiscal year or throughout the financial year (Kumbirai, M. and Webb, R., 2010). This ratio provides the overall finance cost of the company and also assists invested to identify how the company copper with the financial cost from the year which provides a better assessment of financial performance for their debts funding of the business. This ratio provides a better understanding of overall debts acquired by the company and whatever the cost they need to be here for the financial cost as the charges of borrowing from the market.
  • As for the analysis conducted on gearing ratio company had our decline in the past three years for gearing ratio and increment of 0.13 in gearing ratio from last five years as in 2016 the gearing ratio is 0.09 and in 2020 that gearing ratio is 0.22 (Central Asia Metals Plc, 2021). There is a disaster change from 2016 to 2019 for interest coverage ratio which indicates that the company had acquired more borrowing from the market on which day need to pay the financial cost in a year. 2016 company had finished the cost of 158 and in 2020 20 company at the financial cost of 6,673 which is the key concern for investors to invest their points as a company manages their point on additional borrowing from the market.Central Asia Metals Plc is holding a lower share of debts in their capital structure by the standard of the industry but Financial cost can be a major concern for business because the industry cover Interest of 4.36 on profit for FY 2020 and the company is right now having 14% share of financial cost on the profit of the company which is not a good sign for investor towards the company.
  • Investor Ratios -Investor ratios can be the key ratios which attracts investor in investment funds in the shares of company full stop these ratios are the overall best attractive ratios for investors to invest they're found in the share market as most of the investors are looked on the investor ratios for the company. This provides an overall assessment of the returns that can achieve from the business activities throughout the year.
  • Earnings per share are the ratio that helped investors to identified their per earning on are share purchases of the company as per the analysis of table 1.2 is company hard return of 24.75 for a share invested in the company for FY 2021 (Central Asia Metals Plc, 2021). When it compares to 2016 there are no more changes in earning per share ratio which helps investors and identifies the stability of Britain which company profile in last 5 years to their shareholder's full stop this can be a useful tool to identify and overall return for the investors from the company and this ratio reflects good return for the investor's investments in the company.

As per the perspective of earning Business provide earning of 24.75% to their shareholder which is very high as per the standard of the industry. This can be an attractive tool for shareholders to invest their funds in the company.

Recommendation on the financial performance of the company

Here are some of the recommendations for investment in the company based on the financial analysis conducted for the year. This is recommendation is solely based on the financial ratio analysis and assumption on other things are constant in the market.

  • As per the financial analysis of profitability ratio investors should not give priority to the company for an investment of their capital or fund as the company reflects a continued decline in the financial performance of the company.
  • As per the financial analysis of efficiency Ratio Company is reflecting improvement in their operation which suggest investor invest their fund in the company so that they can earn a high return in near future.
  • The gearing ratio reflects companies are more adopting financial debts or borrowings in the market which increased the overall financial cost burden on their operational or business profit. This reflects a downfall in profitability and also increment on equity on trading so the investor should invest their fund in the company.
  • The liquidity ratio provides financial information that the company is not able to set off its current liability through its current assets for FY 2020 (Haralayya, B., 2021). This financial information restricts investors to invest their funds in the company so the study suggested not to invest their funds in business based on liquidity analysis.
  • The investor ratio is the tool that assists actual return from the investment in shares of the company so as per the investor ratio analysis investor had good and stable earnings on the share which they invested in the company so the investor should invest their fund in the company.

As per the overall analysis if investors or stakeholders look at the liquidity or profitability then they should not invest their fund in the company but if they ignore those ratios and prioritize investor, gearing, and efficiency ratio then they can invest their fund in the company.

SWOT Analysis for the company.

SWOT analysis can be a useful tool that helps in better analysis of the macro and microenvironment of the company in which they need to operate their business activities. SWOT Analysis is Generally used for identifying the opportunity in the environment which they can achieve through their strength and also work on identified the weakness for the company which management needs to resolve for overall improvement. In the end SWOT analysis also aware management for Threats in the market for the company.

Strength – The Key strength of Central Asia Metals Plc is their Supply chain management which is a very big network around the country. This provides a better approach to every market for their products. Further, Central Asia Metals Plc works on a low-cost structure which helps them in providing their products at a better price and margin as compare to their competitors.

Weakness- Central Asia Metals Plc is spent a very high amount on research and development on their products as compared to other companies in industries. This high amount of research expenditure results on low profitability and also impact on current ration which is also low than the industry average which reflects that company is not able to fulfill their short term requirements.

Opportunity – As E-Commerce are captured the larger side of business around the world. This can be used as an opportunity for the supply of products in the global market for the company. Further Government also helps mines and other mineral production areas with subsidies and lower tax plans to boost up their production and GDP of the country. After the Covid-19 wave government is work to boost up their projects which is a great opportunity for Central Asia Metals Plc as they are government contractors.

Company’s corporate governance compliance & Impact on Branding

Corporate governance can be identified as a set of rules, principles, and theories that can be used to control businesses and companies in the market and also provide a safeguarding framework for society (Bayer et. Al., 2018). Corporate Governance defines the framework in which corporate bodies operate their business activities and working in a corporate environment.

  • CAML is a sound corporate practice that helps the company to work in the market in exchange for power, source, and policies (Esser et.al, 2020). This had a huge impact on the branding and marketing position of the company as very well design policies guide management's inadequate performance in the market.
  • Some of the policies like Human rights policies, Modern slavery polices, Anti-bribery policies, whistle-blowing policies, and many more affect the brand and image of a company for their stakeholders in the market which include internal as well as external stakeholders.
  • All of the policies of the company impact the perceptions of the employee, shareholders, customers, and suppliers in the market which majorly influenced by policies that are standardized as per industry norms and beneficial for every work with an adequate code of conduct (Miles, S. and Ringham, K., 2019).
  • The perception of stakeholders is reflected on various platforms like social sites, press, and other industry magazines and blogs. This kind of channel generates trust and builds goodwill in the market which results in the high brand value of the company.

Proposed medium-term financial strategies for Central Asia Metals PLC 

As per the norms, the company needs to clear the standard level of the index level which is weighted of free-float capitalization of the company. The company is required to fulfill the number of norms and policies created by FTSE Groups. FTSE 100 is calculated based on the weight of all stocks listed under the London stock exchange for the company (Elmghaamez, I.K., and Akintoye, E., 2021). As the stock holds high markets caps so that they have a high rate of movement in their index's price in the market.

The company is required to be worked more on share trading which can increase their working capital as well as assets in the market so that they can maximize their market value/cap which makes them come into the top 100 Companies which have high market capitalization.

For Central Asia, Metals PLC management needs to redraft their assets strategies which they can utilize for more profit generation activities. As the profit increment company had reflected in their net assets although the company can be repaid their liabilities through additional borrowings of share issued in the market.

Management can also rethink their credit policies which can increase the net value in assets for the company and also positively impact the market value of the company.

Conclusion

The overall study is conducted to analyze the financial performance of the company which can be helpful in better assessment of the performance of the company. This study further provides a broad understanding of FTSE 100 listed companies and how can a company reform its assets and liabilities so that they can be listed under this. This study overall provides a conclusion on the performance of Central Asia Metals PLC and how a company can make strategic changes listed in FTSE 100.

Reference

  • Central Asia Metals Plc, 2021, Annual Reports – 2020, [Online]. Beaconlightinggroup. Available at: https://www.centralasiametals.com/investors/reports-and-presentations/[ Accessed on 03.08.2021]
  • Corporate Finance Institute (2020), What is Ratio Analysis?, [Online], Corporatefinanceinstitute. Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/ratio-analysis/ [Accessed on 03.08.2020]
  • Soboleva, Y. P., Matveev, V. V., Ilminskaya, S. A., Efimenko, I. S., Rezvyakova, I. V., & Mazur, L. V, 2018, Monitoring of businesses operations with cash flow analysis. International Journal of Civil Engineering and Technology, 9(11), 2034.
  • Tran, H., Abbott, M., & Yap, C. J, 2017, How does working capital management affect the profitability of Vietnamese small-and medium-sized enterprises? Journal of Small Businessand Enterprise Development.
  • Abdelsalam, A., & Nobanee, H, 2020, Financial Statement Analysis of Google, Available at SSRN 3647444.
  • Central Asia Metals Plc, 2021,Corporate Policies, [Online]. Beaconlightinggroup. Available at: https://www.centralasiametals.com/corporate-governance/company-policies/[ Accessed on 03.08.2021]
  • Kumbirai, M. and Webb, R., 2010. Financial ratio analysis of commercial bank performance in South Africa. African Review of Economics and Finance, 2(1), pp.30-53.
  • Haralayya, B., 2021. Financial Statement Analysis of Shri Ram City Union Finance. Iconic Research And Engineering Journals, 4(12), pp.183-196.
  • Bhowal, C., COMPARATIVE ANALYSIS OF THE TREND AND FINANCIAL PERFORMANCE OF PRIVATE INDIAN AIRLINES. Interpretation, 2018, p.19.
  • Haralayya, B., 2021. Working Capital Management at TVS Motors, Bidar. Iconic Research and Engineering Journals, 4(12), pp.255-265.
  • Bragg, S.M., 2018. The Interpretation of Financial Statements. Accounting Tools, Incorporated.
  • Bayer, C.N., Margherita, M., Vogel, G. and Xu, J., 2018. GLOBAL GOVERNANCE–Compliance and Conformance with UK MSA and Good Practice in Human Rights: FTSE 100 and Real Estate 100.
  • Elmghaamez, I.K., and Akintoye, E., 2021. Internal corporate governance mechanisms and financial performance: evidence from the UK's top FTSE 100 listed companies. International Journal of Business Governance and Ethics, 15(2), pp.190-214.
  • Esser, I.M., MacNeil, I. and Chalaczkiewicz-Ladna, K., 2020. Engaging stakeholders in corporate decision-making through strategic reporting: an empirical study of FTSE 100 companies (Part 2). European Business Law Review, 31(2), pp.209-242.
  • Miles, S. and Ringham, K., 2019. The boundary of sustainability reporting: evidence from the FTSE100. Accounting, Auditing & Accountability Journal.
  • Ready Ratio, 2021, Metal Mining: average industry financial ratios for U.S. listed companies, [Online] Ready Ratio, Avaiable at: https://www.readyratios.com/sec/industry/10/ [ Accessed on 13.08.2021 ]
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