Financial Statement Analysis – Whitehaven Coal GPFS
Executive Summary
The assignment’s main purpose is to analyze the financial statement of the chosen company, Whitehaven Coal. The report will be examining the financial position of the company for the financial year of 2020. Further, the report will be analyzing the profitability of the business, asset efficiency of the firm, liquidity, capital structure, and its market performances for the year. Therefore, with the help of the financial report for the chosen company, the report will be ending up with a conclusion, which will tell about the overall condition or situation of the firm.
Contents
Introduction 4
Profitability 4
Asset Efficiency 5
Introduction
The overall report analyzes the financial position of WHITEHAVEN COAL, which is one of the leading Australian producers of premium quality coal. The company is a publicly listed company listed on the ASX since 2007, and the WHC is the ASX code of the company. The main vision of the company is to be the leading independent coal company in Australia. The company employs around 1,600 people, functions predominately in New South Wales, and is managed by its headquarter in Sydney. Over 75% of employees of the company live locally, and the company has build-up $850m to North West NSW since 2012. The company currently runs a number of mines in the Gunnedah Basin, situated in the north-west of New South Wales. The principal products of Whitehaven Coals are high in quality, low ash, high energy, and low sulphur thermal coal and metallurgical practiced in steel production. The coal production of high margin metallurgical could exceed 40% of overall production when Maules Creek is fully ramped in the post-financial year 2018.
However, the overall report will illustrate the company’s financial analysis, including profitability, asset efficiency, liquidity, capital structure, market performance, and recommendations for the overall examinations.
Profitability
The profitability of the company generally reflects the profit with one key difference. When profit is an unqualified amount, profitability is a qualified one. It is the metric used to decide the level of a company’s profit in regards to the business size. It is commonly the measurement of efficiency and, eventually, its failure or success. The other definition of profitability is the ability of the business to generate a return investment in contrast with an alternative investment (Medium.com, 2020). Despite the fact that the company can recognize a profit, it does not essentially mean that it is profitable.
Fig 1- Financial Performance of WHITEHAVEN COAL for the last five years
Sources- (WHITEHAVEN COAL, 2020)
As per the above figure, it is clear that the company’s profitability has been slow down as compared to the three consecutive years, that is, 2017, 2018, and 2019. The revenue of the company shows in 2016 is $1,164.4 million, in 2017 is $1,773.2 million, in 2018 is $2,257.4 million, in 2019 is $2,487.9 million and in 2020, the total revenue is $1,721.6 million. On this note, it can be said that the company’s financial performance in 2020 has been slowed down as compared to the four consecutive years. Thus, focusing on the net profit after the tax payment of the company, the figure shows that the company has been immensely loss track as it shows $30.0 million when the net profit is compared to past three years that shows $527.9 million in 2019, $524.4 in 2018, $405.4 in 2017 (Whitehavencoal.com.au, 2020). As a result, it can be said that the financial position of the company is yet to be on track as it is running in loss, but if the financial performance of the past four years are examined, then it can be said that the company had a profitable financial status.
Asset Efficiency
Asset Efficiency is the performance attribute that illustrates the aptitude to practice assets optimally to produce revenue or perform a task. However, after analyzing the consolidated statement of the company’s financial position, it has been found that the cash and cash equivalents as compared to the financial year 2019 is lower than that of 2020 that is $119,535 in 2019 and $106,760 in 2020.
Fig 2- Consolidated Statements of the company’s Financial Position
Sources- (WHITEHAVEN COAL, 2020)
However, Asset Efficiency has three dimensions, and they are:
Asset Availability– It is the metric that is practiced to evaluate the percentage of time an asset can be used. It measures the possibility that the tools will be available without being down for preventative maintenance interventions or breakdowns during the scenario. Therefore, as per the above financial performance statement, it can be said that the total current asset is $433,009 in 2020, wherein in 2019 it is $424,266.
Asset Performance– It is the ability to well practice the asset throughout the time it is available; hence in this regard, it is important to consider tangible productivity as a percentage of probable output. Thus, as per the given figure, the company’s asset performance is also not stable compared to the financial year 2019 as in 2020; it has been increased to $5,212,037. Therefore, the company’s asset performance is good compared to the prior year as the total non-current asset shows $4,779,028 in the FY20 and $4,420,866 in FY19.
Asset Yield– It is the ability to practice the asset qualitatively to generate outcomes within the stipulations. Thus, in this, the company shows the good output as a total output percentage wherein they are compared to the other attributes of performance that include cost, adaptability, dependability, sustainability, and responsiveness (Efficiency, 2020). Hence, it can be said that the company that optimizes and measure the working capital will be in a better position to prevent the deficit of working capital. After analyzing the overall financial report of the company, it can be said that in FY19, the saleable coal production decreased by 11% to 8.2Mt that reflects both the reduction in ROM coal production and a reduction in mine yields that eventually shows that the asset yield has been decreased in the FY2020.
Liquidity
It refers to alleviation with which the security, or asset, can be converted into ready cash without affected its value in the market. Thus, liquidity illustrates the scope to which an asset can be promptly sold or bought in the market at a price reflecting its intrinsic value. Universally, cash is measured as the most liquid asset as it can most rapidly and effortlessly be converted into other assets. However, a tangible asset that includes fine art, real estate, and collectibles are all particularly illiquid. Thus, financial assets that range from equities to the units of partnership fall at several places on the spectrum of liquidity (Nejadmalayeri, 2020). Additionally, liquidity is the ability of the company to increase cash when it requires it. Hence, there are two key determinants of the company’s position of liquidity. The initial is its ability to change assets to cash to pay its short-term liquidity or its current liabilities. It can be said that managing and understanding the cash flow is critical to any business, but it is not the only calculate of the financial health of the business that is important to the success of the business (Charoenwong, Chong, and Yang, 2013). Therefore, it can be said that the ease with which an asset can be converted into cash wherein it can be just as important for the company.
However, as per the company’s financial report, the available liquidity is $468.8 million on 30 June 2020 that consists of $106.8 Million of cash holdings and undrawn capacity that consists of $360.0 million under the facility of senior ban facility at 30 June 2020. The company’s annual report shows the risk of the capital requirement that shows the insufficient liquidity or not having the ability to access finances on terms of acceptable that might affect ongoing operations and raises possibilities. Whitehaven handles liquidity risk by managing a prudent level of available cash that has been maintained adequately through facilities of credit, which have been delivered by various panel of Australian and International banks and refinancing committed within the facilities of credit well prior they turn out to be current liabilities.
Capital Structure
As per the review of the financial report of Whitehaven Coal, it has been identified that the company has delivered a less impressive return on equity, which is 15.08 % over the past year as compared to the return created by the company, which is 17.04%. An investor might feature a lower return on equity to a comparatively incompetent performance and at the same time as this can often be the case, keeping in mind that the nuts and bolts of the return on equity calculation may change that perspective and give you a deeper insight into the company’s past performance. The company’s main aim is to anticipate their customer nations to capitalize on their developed and intended power generation of coal-fired to strengthen their financial revivals when the threat of the pandemic is moreover got ridden of or could be sustainability managed (Wsj.com, 2020).
Figure 4: Capital Structure of Whitehaven Coal
Sources: (WHITEHAVEN COAL, 2020)
As per the overall review of the company’s financial report, the calculation of capital structure indicates that the current liability is lower in the financial year 2020 than that of the financial year 2019. The total amount for the year 2020 is $81,553, and for the year 2019 was $81, 720, which is more than that of the current year. It has been identified that there has been a decrease in current liabilities. It means that the decrease in the current liabilities is the utilization of funding, and it represents cash outflows in the business firm. On the other side, the non-current liabilities are showing more amount, i.e., $943,008 for the financial year 2020 and $333,529 for the financial year 2019. Therefore, there has been an increase in non-current liabilities in recent years (oreilly.com, 2020).
However, as per the overall review, there has been a change in the business’s overall capital structure in the financial year 2020. In comparison, the company’s capital structure for the previous financial years has indicated that there was a positive improvement of the firm, and the overall structure has shown a positive figure compared to 2020.
Market Performance
The financial report of the business of Whitehaven Coal shows that the company’s overall market performance has declined in the financial year of 2020 because of the company’s massive losses and financial crisis. The company’s shareholder has stated in the financial report that the financial year 2020 was not a year for them to improve or maximize their entire profitability. There has been an identification in which the company is facing a tough time lately because of the pandemic situation that occurred in the entire globe. Thus, the company has not been immune to the challenges brought by the recent pandemic condition. However, at a certain level, the firm’s overseas market responded well through the ongoing pandemic, which has been the only positive thing about the firm in the current year (Whitehavencoal.com.au, 2020).
Throughout the cyclical lows that the company has faced recently towards the end of the financial year, 2020 might hint the firm for the price improvement in the future financial years, significant uncertainly regarding the recovery of the universal economy and related changes in the market condition remains. However, it has been identified that through the second half of the financial year 2020, their coal remained well sold in most of their key markets. It also provides a positive hope to the firm for improvement in the future.
As a whole, it can be said that the market performance of the firm has gone down poorly because of the loss and financial crisis faced by the firm and a massive downfall in the operational level of the firm. However, as per the statement of the shareholders and CEO of the firm, it can be assumed that the firm is looking forward to covering up the losses in the firm in a positive manner and is focusing on the opportunities that they could get in the future and use them in an efficient way to recover very soon (Whitehavencoal.com.au, 2020).
Figure 5: Market Performance of Whitehaven Coal
Source: (In.wallmine.com, 2020)
Conclusion
To conclude, it can be said that the overall financial report of Whitehaven for the financial year 2020 indicates that the firm has been facing a lot of downfalls in its business as well as in the financial sector. The overall assignment has analyzed the entire financial report for the FY 2020 and has identified that there has been a reduction in the level of profitability in the business, and the overall capital structure of the firm has changed with a certain level of loss faced by the business. Therefore, the decline in the level of business in Whitehaven Coal is because of the impact of the COVID 19 pandemic, which has affected the business’s operational structure with which there has been a financial crisis at a massive level. In comparison, the financial report of the previous year, i.e., 2017, 2018, and 2019 has indicated that the company had been progressing positively, and the firm’s overall scenario was indicating that there is no crisis of finance. However, as soon as the outbreak of coronavirus was spread all over the world, there has been an immediate decline in every aspect of the business, such as market performance, asset efficiency, profitability, and capital structure of the firm.
Recommendations
After reviewing the financial report of Whitehaven Coal for the financial year 2020, there has been a massive level of financial loss because of the recent pandemic. Therefore, there are a few recommendations that can be used in the company, which are as follows:
- Do on Procrastinate: In the case of a financial crisis in the business organization, it is necessary for the firm to ensure that there is no wastage of time and money. Staying away from the financial crisis and keeping themselves busy does not help them to overcome stress.
- Stop Using Credit Cards: In order to overcome the financial crisis in the business, there should be a proper track of expenses in the firm. With this, the firm is supposed to ensure that there are no extra expenses that can stop the firm from overcoming the crisis. Hence, the firm should stop using credit cards.
- Get a Quick Loan: At the time of a financial crisis in the business, it will be impossible for the firm to pay its daily expenses. Therefore, for this purpose, the firm should always look up to quick loans. It is necessary because non-payment of daily wages will disable the firm to cover up its financial loss.
- Ensure monthly payment: If the firm gets a quick loan, the monthly or daily payments should be immediately done or met to avoid an additional financial crisis. Hence, there should be proper planning of the cash outflows and inflows to control or manage the business’s overall financial situation (finsmes.com, 2020).
References
Charoenwong, C., Chong, B., and Yang, Y., 2013. Asset Liquidity and Stock Liquidity: International Evidence. Journal of Business Finance & Accounting, 41(3-4), pp.435-468.
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finsmes.com, 2020. 6 Quick Tips To Help You Get Out Of A Financial Crisis |Finsmes. [online] FinSMEs. Available at: <https://www.finsmes.com/2017/08/6-quick-tips-to-help-you-get-out-of-a-financial-crisis.html> [Accessed 18 November 2020].
In.wallmine.com, 2020. Whitehaven Coal (WHC) Stock Analysis (November 2020) – Wallmine.Com. [online] In.wallmine.com. Available at: <https://in.wallmine.com/asx/whc> [Accessed 18 November 2020].
Medium.com, 2020. What Is Profitability And Why Is It More Important Than Profit?. [online] Medium. Available at: <https://medium.com/learn-finance/what-is-profitability-and-why-is-it-more-important-than-profit-198d861e3ea0> [Accessed 17 November 2020].
Nejadmalayeri, A., 2020. Asset liquidity, business risk, and beta. Global Finance Journal, p.100560.
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WHITEHAVEN COAL, 2020. [online] Available at: <https://drive.google.com/file/d/1S0zLwc8AwzZll4-dBqtI4fie0h2iDGHN/view> [Accessed 17 November 2020].
Whitehavencoal.com.au, 2020. Full Year Results FY20 – Whitehaven Coal. [online] Whitehavencoal.com.au. Available at: <https://whitehavencoal.com.au/full-year-results-fy20/> [Accessed 18 November 2020].
Whitehavencoal.com.au, 2020. Half Year Results FY2020 – Whitehaven Coal. [online] Whitehavencoal.com.au. Available at: <https://whitehavencoal.com.au/half-year-results-fy2020/> [Accessed 18 November 2020].
Whitehavencoal.com.au, 2020. Our Business – Whitehaven Coal. [online] Whitehavencoal.com.au. Available at: <https://whitehavencoal.com.au/our-business/> [Accessed 17 November 2020].
Wsj.com, 2020. WHC.AU | Whitehaven Coal Ltd. Financial Statements – WSJ. [online] Wsj.com. Available at: <https://www.wsj.com/market-data/quotes/AU/WHC/financials> [Accessed 18 November 2020].