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Financial Reporting And Analysis Essay

Financial Reporting & Analysis This particular assignment is about financial research assignment in which shares analysis of a company has been conducted through different angles. The assignment has been divided into 5 different sections and every section has been related to the end result of the research. It is prerequisite for this particular assignment to select a company which has been listed on the Financial Times Stock Exchange (FTSE-100). The company which has been chosen for this particular work is Anglo American. The first part of the assignment is to define about the primary business activities of the company, let's now start the same.

A Helicopter View Anglo American Company

Anglo American has been counted among one of the largest mining companies of the world which merely focuses on the platinum group, metals, copper, diamond, nickel, iron and thermal coal. The company has its headquartering located in London, United Kingdom, with 7 different subsidies in seven countries worldwide.

The company was formed in the year 1917 to explode the global mining scene. After that period the company emerged remarkably well as a leading global mining company. The merger with Luxembourg-based Minorco gave a real boost to the operations to the company and helped the company to form Anglo American Plc.

At the start of this century, the company has been registered with the FTSE-100 with total market capitalization of U.S.$21.6 billion which is enough to know that the company is now the leading mining company of the world. The company not only worked for itself but it also indulged itself in the social works like the company supported the first HIV testing campaign with the Chamber of Mines in South Africa in the year 1986 (Value Line Investment Survey, 2010).

The company is committed towards its services and is keen to deliver the operational excellence in a well defined and responsible way which not only adding values for the portfolio of the company itself but also for the employees and investors. The company has been engaged in the process of mining, melt and manufacturing different things from gold, copper and platinum (Value Line Investment Survey, 2010). The company earned net revenue of U.S.$32,929 million in the year 2010 which is a clear indication of the remarkable financial health of the company. The major competitor of the company is UK Coal, but the operations of Anglo American are more sophisticated than its major competitor. Let's now move towards the second part of the assignment which is all about ten-year's market analysis of the financial statements.

Part-2

Ten Year Market Analysis

In this part market analysis is required of last 10 years of the company. This particular report has been made from the standpoint of an investor that is why only those things have been analyzed which are important before the investors like Net Profit and Earning Per Share. Let's first talk about the net income of the company, mentioned below table and graph will be quite fruitful to gauge the ten-year's profitability of the company.

Net Income

Years

in Million U.S.$

3,085

2001

1,563

2002

1,592

2003

3,501

2004

3,521

2005

5,189

2006

5,294

2007

5,215

2008

2,425

2009

6,544

2010

From the analysis, it has been found that the company is in a good financial health which can be measured from the level of net income earned by the company (Wall Street Journal, 2009). From the year 2003, the company's net income has been increasing with a reasonable pace for the next five years. The year 2004 was very profitable for the company as the company's net income increased by 120% in that period as compared to the same period of last year. Anglo American is among those companies who performed extremely well even at the time of economic hardship (Value Line Investment Survey, 2010). The company's net income decreased marginally in the year 2008 and 2009 by 1.49% and 53.5% respectively due to the severity of the current economic crisis. The resiliency power of the company is tremendous, that is why the ban increment of around 170% has been envisaged in the year 2010 which is indeed a positive sign for the investors of the company. Let's now move towards the Earning per Share (EPS) analysis. Mentioned below is the graph and table of the EPS of the company.

EPS

Years

in U.S.$

2.23

2001

1.18

2002

1.16

2003

2.52

2004

2.55

2005

3.73

2006

3.99

2007

4.29

2008

1.98

2009

5.18

2010

With reference to the above mentioned table and graph, it can be clearly seen that the company is in a good financial health as far as generating the EPS is concerned. The EPS of the company has been in the positive node throughout the analytical period which is indeed a positive sign for the investors. Likewise the net income, the EPS of the company has been increasing substantially from the year 2003 to 2008. Downward effect has been envisaged in the year 2009 in the EPS because the company loses its earnings momentum due to the brutality of the current economic downturn. Fiscal year 2010 is the most productive year for the company in terms of revenue and EPS generation. The EPS of the company reached on all times high at $5.18 which is...

High earning per share means that the company is able to generate high profits on their shares which will ultimately attract lost of investors to park their money in the company's stocks.
By seeing the net income and EPS of the company it can be said that the company is in a good financial position and is quite desperate while creating economic values for the investors. Let's now move towards the third section which is the ratio analysis section.

Part 3

Ratio Analysis

In this part industry ratios will be analyzed. There are so many types of ratios but for this assignment, ratios related to investment will be consider like Net Profit Margin (NPM), Current Ratio (CR), Terminal value and Operating Cash Flow to Sales (OCF/S). An investor always concerned with the amount of profitability of the company that is why selecting these ratios will certainly fulfill the appetite of this assignment.

Profitability Ratio

Net Profit Margin (NPM)

NPM is one of the largest used profitability ratios in the literature of finance (Cinnamon & Larsen, 2007). It apprises the analysts that how much the company has earned by investing a certain amount of money. It usually measured in percentage, so a NPM of 10% means that the company is generating 10$ by investing 100$. Below mentioned table and graph will reveal the rest.

NPM

Sales

Net income

Year

24.753

24,991

6,186

2006

28.677

25,470

7,304

2007

19.821

26,311

5,215

2008

11.626

20,858

2,425

2009

23.405

27,960

6,544

2010

21.656

Mean NPM

18.56

Industry Average

NPM is one of the most widely used tools to assess the financial health of an organization. With the help of the above mentioned table and graph it can be said that the company is indeed in a good financial position. The NPM of Anglo American increased for two consecutive years (2006 & 2007) is reasonable percentages. The NPM of the company decreased for by 8.85% and 8.194% in the year 2008 and 2009 respectively due to the pressure of the current economic slump. Though the NPM of the company decreased in that period but the company managed to cut off its position in positive node that is the main reason why the company's NPM reached again on a good level in the year 2010. The average NPM of Anglo American is 21.65% which shows that the company is able to generate 22$ by investing 100$ which is good as compared to the industry average.

Liquidity & Management Ratio

Current Ratio (CR)

Liquidity in finance means a thing which has the propensity to sell and buy instantaneously (Christopher, 2008). Current ratio is the most important liquidity ratio which measures the compatibility of a company to pay its short-term financial obligations through in hand cash, inventory and receivables. The computed result is mentioned below

CR

Current Liabilities

Current Assets

Year

1.346

8,799

11,844

2006

0.849

11,354

9,643

2007

0.709

13,124

9,305

2008

1.544

6,745

10,411

2009

1.820

7,882

14,348

2010

1.254

Mean NPM

1

Industry Average

According to the finance theory, Current Ratio should be more than 1 which shows that the company is able to fulfill its short-term financial obligations. Fulfilling the financial obligations increases the morale and confidence of the investors on the company's operations. From the above mentioned table, it can be said that the company is in a good position in fulfilling its short-term financial promises as the CR of the company has been more or less above the psychological level of 1. The average CR of Anglo American is 1:25 which shows that the company is able to fulfill its short-term obligations. The CR of the company is well above the industry average which is a clear indication of the company's well going. Let's now move towards the next ratio.

Cash Flow and Investment Ratios

Operating Cash Flow to Sales

The amount of net income is not the actual amount which a company earns because lots of items and income has been recorded in the financial statements on accrual bases. Operating Cash Flow to sales ratio is one of the best measures to judge the actual financial performance of the company.

OCF/S

Sales

Operating Cash Flow

Year

33.252

24,991

8,310

2006

28.520

25,470

7,264

2007

30.653

26,311

8,065

2008

19.594

20,858

4,087

2009

27.636

27,960

7,727

2010

27.931

Mean NPM

23.54

Industry Average

Operating Cash flow shows how much the company received on Sales. The OCF of Anglo American is in a very good position according to the above mentioned computed result. The OCF/S of the company was 33.25% in the year 2006 which then decreased for three consecutive years by 4.73%, 2.133%, 11.08%…

Sources used in this document:
Bibliography

Bierman, H.Jr. (2007), Lesson on Accounting & Finance, World Scientific Publishers, Cornell University, USA

Bierman, H.Jr. (2008), Lesson on Accounting & Finance, World Scientific Publishers, Cornell University, USA

Cinnamon, R & Larsen, B.H (2006), How to understand Business Finance, McGraw Hill Publications

Cinnamon, R & Larsen, B.H (2007), How to understand Business Finance, McGraw Hill Publications
Financial Information of Anglo American, retrieved from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=GB%3AAAL
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