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world’s fourth largest producer of iron ore. This type’s production is a high volume low margin
business efficiently and aims to increase the shareholders value with being the safest, cost
The facts and figures of the audited consolidated financial statements of last three fiscal
Total debt is calculated by taking only long term and short term borrowings and finance
lease liabilities.
The analysis complies with relevant Australian and International accounting standards.
3. Analysis on Income Statement Items: Income Statement evaluates the profitability of the
company by deducting all the expenses from revenues. Three core items of income statement of
Sales Revenue: Sales revenue is one of the major and important elements of income
statement as it depicts the company’s main turnover from the product or services. The
sales revenue of Fortescue has increased to $11,753 million in FY 2014 from $8,120
revenue was $6,716 million which boost in FY 2013 with a growth of 20.91%. The
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increasing trend is possible because of supplying superior products in the both local and
global market.
serve the interest a company can become insolvent and loss goodwill in the market. The
finance expense of Fortescue has increased in last three years. The finance expense was
$741 million in FY 2014, $586 million in FY 2013 and $565 million in FY 2012. This is
Net Income after Profit: This element measures the overall profitability of the company.
It is the major indicator of a company’s profitability. The net profit after tax was $1,559
again boost to $2,740 million. The growth in sales has led to improve the net profit after
tax.
4. Analysis on Balance Sheet Items: The balance sheet is the snapshot of the entity comprised
of Assets, Liabilities and Total shareholders’ Equity. For scrutinizing the financial performance
of Fortescue, the main three items of balance sheet are illustrated below:
Total Current Assets: Currents assets are important aspect for an organization as current
assets assist to solve the liquidity problems of the company. There are many companies
which are profitable but have been bankrupted for liquidity crisis. The current assets of
Fortescue consist of cash and cash equivalents, trade and other receivables, inventories,
current tax receivable and other current assets. The total current assets have increased to
2013 to FY 2012, the current assets declined slightly as in FY 2012 the current assets was
$ 3,650 million. The increase in cash, inventory and other current assets has enhanced the
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total current assets in FY 2014. Excess cash tied in current assets forgo the further
investment opportunities.
crucial to know from what sources and from what amount the company is funding the
investment. It helps to determine the leverage and coverage ratios. Fortescue current
portion of borrowings and finance lease liabilities decreased in the last three years. It was
$283 million in FY 2012, $205 million in FY 2013 and 154 million in FY 2014. The
long-term portion borrowings were 9,403 million in FY 2014, 12,486 million in FY 2013
Retained Earnings: Retained earnings are profits generated by a company that are not
earnings are imperative as its shows the net worth of the company. Fortescue retained
earnings was $6,221, $4,043 and $2,428 in FY 2014, FY 2013 and FY 2012 respectively.
5. Major Changes in Cash Flow Statement: Analyzing the cash flow statement of Fortescue,
the three major changes over the last three years in investing and financing activities are
Payments for property, plant and equipment - joint operations in investing activities and
Proceeds from borrowings and finance leases & Repayment of borrowings and finance leases in
financing activities.
In FY 2014, the acquisition of property, plant and equipment in joint operation of $64
million was notable as there were no such investments in the last two years.
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In investing activities the Proceeds from borrowings and finance leases was $7,330
The repayment of borrowings and finance lease has improved dramatically in the last
three years. In FY 2012 the repayment of $15 million significantly improved to $3,232
$15 million in FY 2013 was found in the cash flow statement. There was no such
company. Solvency ratios measure how a company meets its debt obligations, Leverage ratios
assess the company’s financial structure, Profitability ratios compute profitability and Operation
efficiency ratios determine the operating efficiency of a company. Analysis of different ratios is
demonstrated below:
a) Solvency Ratio
Times Interest Earned Ratio: Times Interest Earned ratio which is also known as Interest
Coverage Ratio measures how well a company can cover the interest obligations. The
ratio shows an increasing trend which is 6.25 times in FY 2014, 5.15 times in FY 2013
Cash Coverage Ratio: Cash coverage ratio measures the cash available to pay interest.
This ratio also shows an increasing trend which is 6.53 times in FY 2014, 4.95 times in
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7.00
Times Interest
6.00
Earned ratio
5.00 (EBIT/Interest)
4.00
3.00 Cash Coverage
2.00 Ratio
(EBITDA/Interest)
1.00
0.00
FY 2014 FY 2013 FY 2012
b) Leverage Ratio
Total Debt Ratio: Total debt ratio was 41.11% in FY 2014 against 60.82% in FY
2013 and 56.44% in FY 2012. This ratio means that In FY 2014, 41.11% of
Debt to Equity Ratio: This ratio was 55.76% in FY 2014 which means the
80.00%
70.00%
60.00%
50.00%
Total Debt ratio (Total
40.00% Debt/Total Assets)
30.00% Debt to Equity ratio
20.00% (Debt/(Debt+ Equity)
10.00%
0.00%
FY 2014 FY 2013 FY 2012
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c) Profitability:
Net Profit Margin: The net profit margin declined to 21.50% in FY 2013 from
ROA: The ROA was 12.07% in FY 2014 against 8.37% in FY 2013. It shows
that every $100 dollar of asset the company is making 12.07 worth of net
income.
25.00%
20.00%
0.00%
FY 2014 FY 2013 FY 2012
d) Operating Efficiency
Cost to Revenue Ratio: This ratio was 59.58% in FY 2014, 63.30% in FY 2013
and 59.68% in FY 2012. This ratio presents the percentage of cost in terms of
revenue.
Total Asset Turnover: This ratio enhanced to 0.52 times in FY 2014 from 0.39
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70.00%
60.00%
50.00%
40.00% Cost to Revenue Ratio
30.00% (Costs of sales/Sales)
20.00% Total Asset turnover (
10.00% Sales/Total Asset)
0.00%
FY 2014
FY 2013
FY 2012
7. Two Important Aspects for making Investment Decision: The financial analysis is based on
audited consolidated statements. The individual financial statements of Fortescue are not
presented clearly in the audited report. Before making an investment decision the investors
mostly considers the financial statements to know the overall performance of the company and
without the individual statements it is hard to understand what actually the position of the parent
company is.
Now-a-days investors not only consider the quantitative factors but also qualitative factors before
making investment decisions. As Fortescue is an iron producer, it has a significant effect on the
environment, however in the financial statements they didn’t mention about the management and
accounting, the company can save its cost by improved use of resources and contribute positive
8. Conclusion: Fortescue is one of the key major players in industry of iron ore producer.
Scrutinizing the qualitative factors like corporate governance, management etc. and financial
quantitative factors, it can be stated that the company is proficiently executing its operation.
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Appendix
Ratio Formulas
Profitability Margin
Operating Efficiency
Leverage Ratio
Solvency Ratio
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Top 10 Iron Ore Producers
(thousands of tonnes)
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