Introduction

Whitehaven and Macarthur both are public companies in the coal mining industry. The

purpose of this report is to evaluate the annual reports for the periods 2008 to 2010 from the

perspective of investors by assessing the liquidity, profitability gearing and efficiency levels.

Trend Analysis and Financial Ratios

Ratios are calculated and analysed to examine a company’s performance and efficiency

PROFITABILITY RATIOS

Return on Investment

Profitability ratios assist in assessing the operating performance of the business. The figures

and diagrams show that ROI for Whitehaven and Macarthur rose in 2009 as follows; 24.25%

and 11.80% respectively. In 2010 Whitehaven’s ROI fell by 15.75%, while Macarthur’s had

a steady fall of 3.82%.

Whitehaven Macarthur
Return on Investment 2008 8.32% 7.01%
2009 24.25% 11.80%
2010 8.50% 7.98%

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Net Profit Margin

Both companies’ profits increased in year 2009. Whitehaven coal sales grew by 40%

thereby increasing the net profit margin by 29.32%. Whitehaven increased underwriting

capacity by 15 tons in sales. The company also used US forward exchange contracts for

accounts receivables. Macarthur’s sales grew by 42% and increased the net profit margin by

6.08%. In 2010 sales for both companies fell.

In 2010 Whitehaven’s sales fell by 16.87% and Net Profit Margin also declined by 21.66%.

Macarthur’s sales fell by 3.58% and a Net profit margin declined by 5.58% .Reason being

large closing inventories for both companies and increase in expenses. The ratios show that

Whitehaven is comparatively better than Macarthur.

Whitehaven Macarthur
Net Profit margin 2008 20.58% 18.16%
2009 49.90% 24.24%
2010 28.24% 18.66%

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LIQUIDITY RATIOS

Whitehaven Macarthur
Working

Capital/Current ratio 2008 289.81% 242.30%

2009 166.01% 374.88%
2010 223.01% 368.20%

Whitehaven Macarthur
2008 277.14% 224.27%
Acid Test (quick ratio) 2009 159.54% 350.72%

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 2010 213.72% 344.70%

The liquidity ratios show financial condition and how well a company manages its working

capital including payment of short term loans. Both companies have been able to cover their

current liabilities in the short term.

The current ratios for Macarthur are all above 200% with the highest working capital at

374.88% in 2009, which reasonably declined in 2010. Whitehaven’s working capital

decreased from 289.80% to 166.01% in 2009 and it increased by 57% in 2010 due to use of

forward exchange contracts. Macarthur’s working capital increased in 2009 and fell by small

margin in 2010. The quick asset ratio in Macarthur shows a huge growth of 126.45% in 2009.

This is also attributable to increase in the accounts receivable, and cash and equivalents.

Whitehaven’s working capital fell by 117.60%. This was due to increase in huge current

liabilities. The total debt liability increased by 112.33%. In 2010 the company regained 54.18

% in working capital due to reduction in liabilities. Comparing both the companies

Whitehaven seemed to highly liquid and for Macarthur it seems are not utilising their assets

well.

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Gearing (Leverage) ratios

Macarthur Whitehaven
Debt to equity 2008 0.50 0.27
2009 0.42 0.39
2010 0.39 0.32

Macarthur Whitehaven
Debt to total Assets 2008 33.43% 21.47%
2009 29.34% 28.22%
2010 27.98% 24.28%

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These ratios show balance between borrowed funds and shareholders equity.

Whitehaven’s ratio went up in 2009 and then went down in 2010. Based on debit to equity

ratios the lenders and creditors contributed $0.32 (30%) for $1 contributed by equity

shareholders while Macarthurs lenders and creditors contributed to $0.39 (30%) in 2010.

The debt to total assets ratios indicates that the lenders and creditors in Macarthur provided

33.43%, 29.34% and 27.98% while Whitehaven 21.47%, 28.22% and 24.28% in 2008 to

2010 , to the total funds required to finance the total assets of the business.

The trend shows Macarthur’s gearing ratios are good and the declining which shows

improvement in gearing.

EFFECIENCY RATIOS

Whitehaven Macarthur
Inventory Turnover 2008 3.41 times 8.71times

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 2009 25.51 times 11.59times
2010 13.83 times 8.52 times

Whitehaven Macarthur
Total Asset turnover ratio 2008 0.40 times 0.39 times
2009 0.49 times 0.49 times
2010 0.30 times 0.43 times

To check the best efficient use of assets to generate sales, we use the activity/efficiency

ratios. In 2009 both companies had a turn around of .49 times followed by a decline to .30

times and .43 times in 2010 for Whitewhaven and Macarthur respectively . This suggests

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that every dollar invested in assets of the business generated 0.30 times and 43 times in sales

per year. This suggest that the assets are not efficiently used for returns in both companies.

Inventory turn over indicate the same result as total asset turn over ratio. A decline in ratios

suggests that they are maintaining higher levels of inventory and resulting in higher current

assets as shown by the acid test ratio. Closing inventories for both companies have continued

to increase in 2010, Whitehaven 12% and Marcarthur 34%.

Shareholders Returns

Dividends per share

Whitehaven Macarthur
Dividends per share 2008 1.7 17
2009 6 13
2010 2.8 25

Looking at the dividends per share for both the companies the dividend per share of both the

companies has fluctuated in the three years but for Macarthur coal it has gone up in 2010

where as it has gone down for Whitehaven so Macarthur coal looks in better possition.

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Earnings Per Share

Whitehaven Macarthur
Earnings per share 2008 14.5 36.6
2009 60.5 79.3
2010 24.2 49.3

Earning per share for both the companies risen in 2009 from 2008 figures and then gone

down again in 2010. The earning per share for both the companies has gone down because of

theprices going high and lower profits.

Red Flags

Whitehaven:

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 • Werris Creek Pty Ltd which is a 100% owned by Whitehaven was accused by EPA

for a breach of an environmental license in 2008. Werris Creek Pvt Ltd admitted to

liability offence and was fined $49000 in 2009. Werris Creek Pty Ltd was also asked

payment of $34700 to the prosecutors. All this was published in Sydney Morning

Herald and Australian Financial Review to warn other companies.

• At the end of June 2007 Whitehaven invest in foreign currency through AMCI (this

company is ruled by Hans Mende one of the director of Whitehaven) and at the end of

June 2008, the company acquired a loss $1,867,000.

• Because of the floods Whitehaven lost about 650000 tons of production in the second

half of 2010 which is a significant quantity when three of the mines produce 1.9

million tons for the period.

• Whitehaven Coal in the second half of 2010 acquired an overall net loss of $35

million.

Macarthur:

• The profit for Macarthur has been reduced down by 22 percent in four weeks because

of the floods that hit Queensland. As anticipated by theaustralian.com.au first half net

profit after tax would be in lower end of the guidance range of $97 million to $102

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 million provided to the market on December 16 following the first flooding in the

state.

• According to The Australian of 5th January 2011 lower coal volumes will be produced

in 2011 as a result of bad weather in Queensland.

Assessment of Qualitative and non-financial information:

Annual reports of Whitehaven contained information about mines owned, sales, revenue

forecasts, corporate governance, director’s reports, principle activities during the year,

independent auditor’s reports, shareholder information and any likely developments in future.

One important event took place in 2008 when Mr. Keith Ross restired as Managing director.

Mr. Ross was integral in the development of Whitehaven. This might have been an anxious

moment for some investors who do not feel comfortable when changes take place at the top

management level.

In 2010 it was decided to sell Whitehaven and it was estimated of the value of $3.5 billion.

The Annual reports of Macarthur contains information about chairman’s report, Risk

management and environmental issue management, regulatory developments and climate

change, directors report, financial reports, auditors reports, shareholder information. Which is

useful information.

$250000 was donated by Macarthur Coal to Premier’s Flood Relief Appeal to help the

affected.

The report mentions Macarthur coal’s target was to avoid any environmental issues in 2010

but the business incurred two penalty infringement notices due to the new water management

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regulations introduced by the Queensland department of Environment and Resource

Management.

The information qualitative and non-financial information contained in the annual reports of

both the companies help to gain a better understanding of both the company’s financial

operation.

Evaluation of notes to the Account

Annual report and financial statements give basic understanding to the investors about

accounting policy, standards and practices to allow accurate interpretation and analyses of the

information. The notes to the financial statements provide essential information which must

be read in conjunction with the figures provided in the balance sheet, income statement and

cash flow statement.

Whitehaven mentions in the notes to the accounts that the Group initially recognises loans

and receivables and deposits on the date that they are originated. All other financial assets

(including assets designated at fair value through profit or loss) are recognised initially on the

trade date at which the Group becomes a party to the contractual provisions of the instrument.

The investors might be interested to know that in April 2010, 2.18% of shares in

Middlemount were transferred by Macarthur Coal under the terms of the share sale

agreement. The remaining derivative liabilities relate to the obligation for the final sell trigger

under the share sale agreement and the obligation under the call option agreement.

The notes to the accounts help to provide the financial clarifications but sometimes the

information maybe hidden or indirectly mentioned.

Utility of Annual Reports and Financial statement analysis

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The annual reports of both the companies contain the necessary information that is needed to

help the investors make informed decisions. However, in order to substantiate the direct

information provided in the annual reports, carrying out the financial statement analysis is

essential. The financial statement and trend analysis for both the companies have resulted in

realizing a clearer picture of the two companies, as explained.

Conclusion

Looking at the ratios, trends and other information provided for both the companies

Macarthur Coal looks a better choice from the investors’ point of view.

References

• Atrll P, Harvey D, Mclaney E Accounting for Business 2 Ed 1994

• Bazley M and Hancock P Contemporary Accounting 6 Ed 2004

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 • Bazley M and Hancock P Contemporary Accounting 7 Ed 2006

• Macarthur Coal(2008,2009,2010) Macarthur Coal limited Annual report:

Strenghtening production: Securing Growth, Accessed on March 27,2011

www.macarthurcoal.com.au/Potals/0/2008%20 Annual%Report.pdf

• Whitehaven(2008,2009,2010) Whitehaven Coal Annual Report> Assessed, March

27,2011 www.whitehaven.net.au/investors/documents/26092008WHCAnnual

ReporttoShareholders

• Business with the Wallstree Journal 2011, Floods sweep Macarthur Coal

profits lower. Viewed on 02 April 2011.

http://www.theaustralian.com.au/business/mining-energy/macarthur-coal-

trims-profit-guidance-due-to-queensland-floods/story-e6frg9e6-

1225982331278

• Financial Review 2010, MACARTHUR COAL LIMITED. Viewed on 03 April

2011.

http://afr.com/tags;jsessionid=2CC23F9EEB4AFD2B1C168F95B6B01642?

tag=C_MACARTHUR%20COAL%20LIMITED-MCC

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