Investment: Company Valuation Assignment

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timer Asked: May 1st, 2017

Question description

Hey, i only need help with part 2. It should be around 2000 words excluding appendix and reference. Please insert appendix of all calculations as well as the reference. Ive attached 2 documents about all the information of the assignment.. Ive also attach a sample assignment to make things easier :). i have to turnitin for this assignment so plagarism must not be higher than 20-30..

BAFI1042 Investment Company Valuation Assignment (30%) Semester 1 2017 Company: Website: Submission Date: Primary Health Care Limited (PRY) www.primaryhealthcare.com.au Monday 01. 05. 2017, 5:00pm (Beginning of Week 9) [Group Composition for Group Assignment: strictly 3 students per group within the same tutorial] For this assignment you are required to use publicly available information to analyse a publicly listed company and prepare a report which provides an assessment of the company’s current position and future prospects, and which incorporates the use of a range of valuation models to arrive at an estimate of the company’s share price. To provide structure the assignment should include the points listed below: The final submission of the assignment should include the following: Part 1: Conduct Financial Performance and Analyse Current Issues (10%) In this section, students are expected to provide: • • • An evaluation of the company’s brief recent history and financial performance over time and also include peer group analysis. Conduct ROE for the company following the DuPont ROE approach and include peer group comparison. An analysis of the current issues facing the company, the industry it operates in, and explain the impact of the issues on the company’s future earning. Part 2: Estimate Valuation Models (15%) The second part/section of the assignment should contain the estimation of the value of the company’s share using:  Dividend discount/valuation model (DDM)  Free cash flow to equity model (FCFE) You are expected to use the Capital Asset Pricing Model (CAPM) - discussed in topic 3 - to estimate the required rate of return or discount rate needed for each model. For CAPM estimation, you are required to calculate the following: 1. Beta: You cannot pick a beta value estimated elsewhere (e.g., Bloomberg) and use it in your report. Follow topic 3 lecture notes and relevant chapter (chapter 3) of the prescribed textbook to estimate the beta of the company and attach details of your work as an appendix. Also adjust the raw beta using appropriate methodology (refer to topic 3 lecture notes). 2. Risk-Free Rate: Use 10 years Govt. Bond Yield as a proxy for the risk-free rate. Indicate any advantages or disadvantages if there are any. 3. Market Risk Premium: The estimation of the expected market risk premium is crucial. You must carefully explain what you do and any assumption you make while estimating market risk premium. • Risk Premium Estimation To estimate the risk premium, first, you have to estimate the expected market return (ASX200 is your market portfolio). Then, subtract the RFR from the expected market return and arrive at your market risk premium. Once you estimate these three figures (1-3) you will be able to estimate the required rate of return or discount rate following CAPM that can be used in valuation models. Important points to be covered in Part 2: • • Explain any assumptions made in implementing the models. Where appropriate, explain how you arrived at the variables you are using. E.g., it is not enough to say you are assuming a 2 percent growth rate. You would be expected to provide justification/motivation of how you arrive at 2 per cent growth rate. Part 3: Evaluate/Discuss the value/price of the company (5%) Comment on your valuations from part 2, including a discussion of possible explanations of why your valuations differ from the current/recent share price. If appropriate, discuss why some of the above models may be unsuitable for valuing the company. Maximum word limit for the Company Valuation Assignment is 6,000 words excluding executive summary and appendices. Note: Every single member of the syndicate is expected to do a part of implementing the valuation models. That is to say, there should not be the situation where a member only does the history and financial performance of the company without any input in the actual implementation of valuation model. The focus of this assignment is on the valuation, specifically generating the inputs into the valuation process and applying valuation models to these inputs to arrive at a range of share price estimates. The requirements outlined above have been designed to aid this process. For the discounted cash flow valuation models the primary requirement is to produce the appropriate expected return measures and discount rates to use in the models. 2 It is important that forecasts of expected returns reflect the impact of the factors identified as current issues facing by the company. A common mistake is to identify a range of issues which will impact on the company’s future earnings or cash flows, but then produce a set of return forecasts which are simply extrapolations of historical returns, ignoring the impact of the factors identified as current issues. The development of return estimates requires judgement; it is not simply a statistical or mathematical forecasting exercise. References/Resources for group assignment Islam, S.Z., Fundamental of Investment, Corpus Education (2016). Reilly, Frank K. and Keith C, Brown, Investment Analysis and Portfolio Management (10th Edition), Thomson South-Western (2012): Chapters 10, 11, 12, 13, and 14. [Much of the material in these chapters is covered in earlier courses and these chapters should be used for revision purposes]. Search Bloomberg, Yahoo! Finance, Google Finance site for business and financial market news. These deliver world economic news, stock futures, stock quotes, & personal finance advice. Damodaran, Aswath, Investment Valuation [3nd Edition], available online at: http://people.stern.nyu.edu/adamodar/New_Home_Page/Inv3ed.htm Assignment submission procedure All assignments must be submitted online through the course Blackboard as well as in a hard copy. They must be accompanied by an assignments cover sheet and submitted through Turnitin on the blackboard, a plagiarism checking tool. For information on Turnitin see: Student FAQ, http://www.rmit.edu.au/academicintegrity/studentfaq Student procedures and account setup (pdf), http://www.rmit.edu.au/academicintegrity/studentprocedures Turnitin student information page, Student Quick Guide - How to submit an assignment through Turnitin available from the ADG webpage; http://www.rmit.edu.au/bus/adq Turnitin will assess your work in approximately one minute, and return a colour coded response for the originality of the text. Penalties for late submission All assignments will be marked as if submitted on time then the mark awarded will be reduced by 10% each day (or part of a day) it is late. Assignments that are late by 7 days or more will not be marked and will be awarded zero marks. 3 Presentation of Report The report is to be presented in the form of a business report. It should have an executive summary, outlining the main findings, at the beginning. The remainder can be structured in line with the above points. Calculations should be included in appendices. Reports are to be typed in Arial/Times new roman with a font size 12 in single or one and one-half space on A4 paper. Reports are to be stapled with two staples down the left-hand side, or secured with a fold-back clip. Do not attach information you have used in compiling the report, i.e. annual reports, newspaper articles etc., to the report. Group Composition Group members are strictly limited to three (3) students. Experience has shown that numbers either smaller or larger than these are dysfunctional. Group composition is to be formed within week 2. Contribution Statement All groups are expected to include a CONTRIBUTION STATEMENT detailing (the form can be found in the Blackboard), in exact terms, what each person in the group has done, when you submit the assignment. Please note marks of the group assignment will be allocated to each members based on their contribution percentage. That is all students are expected to participate and contribute to the group assignment. Free riding would not be rewarded. As such students would be given a zero mark if it is shown that s/he did not contribute enough to the final output. 4
Investment Assignment Silvia Zia Islam silvia.islam@rmit.edu.au Executive Summary Company overview Historical performance reflects companies earnings How the nature of the company decide the level of the risk/return/earnings Decisions that you made about the company based on your analysis [outside of the word limit] RMIT University©2017 BAFI1042 Investment 2 Part 1 [10%] Part 1 contains 4 questions: Q1) Evaluate the company’s recent and overtime financial performance by analysing the companies share price performance, financial statements and other relevant news during the last five years. • Focus points: 1. Recent financial performance [past 2 years] - choose a time frame (Look for any major public announcements) 2. Overtime financial performance [past 5 years] - choose a time frame Q2) Peer group comparison/industry analysis [only choose 5 major competitors from the list for discussion] Q3) Analyse the company’s/industry current issues and explain the impact of these issues on the company’s future earnings 1. At Macro Level - general factors that apply for the industry (income, growth of the industry, govt. regulation etc.) 2. At Micro Level - the company specific requirements (operation, level of debt, directions/goals, competition etc.) RMIT University©2017 BAFI1042 Investment 3 Part 1 (cont.) Q4) Estimate the ROE of the company for last five years [for example; 2010-2015] using the DuPont ROE approach. – DuPont Analysis can be done using either of the following steps - 3 steps: Profit Margin, Total Asset Turnover and Financial Leverage - 5 steps: In addition, Interest Expense rate and Tax Retention Ratio Refer to chapter 4 or Topic 4 Lecture slides for formulas – Compare the financial performances of the company with its peer groups • Choose 2 peer (competitor) companies for comparison [Approximately 2500 words!] RMIT University©2017 BAFI1042 Investment 4 Part 2 – Valuation [15%] Part 2 contains 2 questions: Q1) Start your valuation analysis with the CAPM estimation You need 3 variables to calculate the CAPM: – Estimate Beta (β): You can estimate beta by using regression analysis Or by manual calculation  For both approach you need to use the stock price data of the company and ASX/S&P200 to estimate return for five years  Then follow the formula of beta estimation on topic 3 – Risk-Free Rate of Return: Take the 10 year Govt. bond yield rate as a proxy for RFR – Risk Premium: It is the difference between expected market return E(Rm) and RFR  We have provided E(Rm)= 9.610% [source: Bloomberg] Once you estimate the CAPM required rate of return denoted as E(Re) following the steps above, you can use this return (also known as cost of equity, ke) in the valuation model RMIT University©2017 BAFI1042 Investment 5 Part 2 (cont.) Q2) Estimate the valuation model using two different techniques to estimate the intrinsic value of the company discussed in topic 6 (chapter 6): – Estimate dividend discount model or dividend valuation model (DDM) – Estimate free cash flow to equity model (FCFE)  Dividend Valuation Model (DDM): Follow the formula discussed in chapter 6 - Use CAPM return - Estimate the growth rate (g = Retention ratio x DuPont ROE) - Use assumptions if necessary - Forecast dividends (if applicable)  Free Cash flow to Equity (FCFE): Follow the formula discussed in chapter 6 - Growth rate of FCFE (you can take changes in FCFE values over the past five years to predict the growth rate) - Use assumptions if necessary - Forecast FCFE (if applicable) [Approximately 2000 words!] BAFI1042 Investment RMIT University©2017 6 Part 3 [5%] Part 3 contains the evaluation of the value/price of the company Write this part answering the following questions:  Why the intrinsic value (you estimated) of the company differs from the current/recent share price?  Why the value of the company differs across different valuation models?  Which model is the most appropriate and why?  And most importantly, what is your investment decision based on your evaluation? [Approximately 1500 words!] RMIT University©2017 BAFI1042 Investment 7 Last Notes • The report is to be presented in a form of a business report • Reference • No copy and paste • Keep it short, but logical and concrete!! RMIT University©2017 BAFI1042 Investment 8
9/172015 Newcrest Mining Limited Company Valuation Prepare by Davy Kong (3300698) Chamithika Luvis (3498816) Mui Yen Chia (3416723) Alexander El Bazouni (3380735) Executive Summary Newcrest Mining Limited (NCM) is one of the largest gold mining companies, it have been established in Australia Since 1966 and listed on Australian Stock Exchange (ASX) 1986. Newcrest are operation with geographic in four countries in six production provinces such as Cadia, Hihair, Telfer, Gosowong, Bonikoand Hidden Valley. In current year, NCM has focus on investment strategic in research and technical development of caving mining methods with different area at Cadia and Telfer. Base on financial analysis, it shows that statutory profit (loss) and underlying profit have a decrease in past fives yeas financial performance of NCM. Sines 2013, the slumped of gold price led to NCM made loss -5,783 million in operation and there no dividend was declared in that year. However, as in 2015 the fallen of gearing ratio from 33.8% to 25.3%, strongly operation cash flow, and improvement on technical in mining operation, it look likely company will place well return to shareholder with future financial year. Three steps Dupont analysis has been used to evaluate the performance of Newcrest Mining Limited compared to competitors such as Evolution Mining Limited and Oz Minerals Limited. These analysis shows that Newcrest did not perform well in recent years as they have been struggling to repay the debts and the fall in gold price that influence their profitability. The main objective is to determine the value of Newcrest Mining Limited share in the future and compared it with current market price. We have used a range of share price estimation models including dividend discount model and free cash flows to equity. Assumptions have been made for the initiation of dividends and growth rates for these models. Finally, the outcome of the intrinsic share price in both models will be made explanation and comparison. 1 2 Table of Contents Introduction ............................................................................................................................................ 4 Financial Performance and Analyse Current Issues .............................................................................. 5 Overview......................................................................................................................................... 5 Financial Performance .................................................................................................................... 5 Corporate Strategy ......................................................................................................................... 7 Industry Analysis .................................................................................................................................... 8 Peer Analysis ........................................................................................................................................ 11 Macroeconomic Factors ...................................................................................................................... 13 Australian Dollars .............................................................................................................................. 13 Price of Gold ...................................................................................................................................... 13 Microeconomic Factors ........................................................................................................................ 14 Level of Debt ..................................................................................................................................... 14 Ratio Analysis and Comparison with its Peer Groups ......................................................................... 15 Net Profit Margin .............................................................................................................................. 15 Total Asset Turnover ......................................................................................................................... 16 Financial Leverage ............................................................................................................................. 17 Return on Equity .............................................................................................................................. 18 Capital Assets Pricing Model ................................................................................................................ 19 Dividend Valuation Model (DDM) ....................................................................................................... 22 Sensitivity Analysis ........................................................................................................................... 24 Free Cash Flow to Equity ..................................................................................................................... 25 Sensitivity Analysis ............................................................................................................................ 28 Conclusion ........................................................................................................................................... 29 Reference Lists ..................................................................................................................................... 30 Appendix .............................................................................................................................................. 32 3 Introduction The purpose of this report is to conduct a company valuation analysis of New Crest Mining. The report includes an analysis of the industry and the current issues pertaining on a macro and micro level. We also have conducted a peer group analysis to determine the level of competition faced by New Crest mining and supported the findings through a DuPont analysis. We have comprised a collection of share price estimation models including CAPM, dividend discount model and free cash flows to equity through the data gathered through the financial reports from the last five years. This report intends to provide relevant information to investors regarding their investment position on Newcrest securities. This report structure has been broken down into three parts; Financial Performance and Peer group analysis, Valuation Models and finally an evaluation on the findings of the different models constructed. 4 Financial Performance and Analyse Current Issues Newcrest is the largest gold producer listed on the Australian Securities Exchange and one of the world’s largest gold mining companies gold reserves and market capitalisation. Currently Newcrest operates mines in four countries are Australian, Papua New Guinea, Indonesia, and West Africa. With a near-term focus on fully realising the potential of each asset in the portfolio, the company’s key priorities are operating discipline, cash generation and profitable growth. Newmont Mining Corporation was founded in 1921 in New York by Colonel William Thompson. To find and develop gold prospects in Australia, Newmont mining limited incorporated an Australian subsidiary in 1966. When in 1990 the company acquired Australmin Holdings Limited and BHP Gold Mines Ltd, the merged entity changed its name to Newcrest Mining Limited. Since 1987 Newcrest has been listed on ASX and it also listed on the Port Moresby Stock exchange by successful merger with Lihir Gold Limited in 2010. In March 2012, Newcrest successfully applied for a secondary listing on the Toronto Stock Exchange. Financial Performance Figure 1 According to the financial years 2015 reports, NCM statutory profit has been increased by $2726 million as net profit of $546 million for this end of this year after loss of $2221 million from previous year. Currently year statutory profit include asset impairment reversal of $55 million and a gain of $19 million on the partial 5 Figure 2 sell down of shares in Evolution Mining Limited , offset of inventory write downs by $43 million. This position performance was derived by low production stripping and Edge program helping to reduce sustaining capital requirements in production. Decreased 4% in USD gold price and 8% in USD copper price , offset weakening of AUD to USD by 9% also points help NCM improve performance during the year. Underlying Profit had growth by 19% to $515 compare to 2014 and the main reflects The growth of Underlying Profit $515 compare to 2014 and the main reflects a lower Australian dollar helped the miner’s bottom with increased contribution from higher margin production at Cadia East. The slipping of AUD dollar against caused increase AUD gold and copper price, and it also inversely impacted on the operation costs outside Australia. By the NCM maintain low product costs together with keep increase in gold and copper prices, its most likely the shares price expect to increase. The weaker in AUD in current year was reduced in NCM USD- denominated net debt which result an increased in equity and deceased gearing ratio from 33.8% to 29.3% at the end of 2015.(Annual Report, 2015). In 2013 the share price of NCM had Share Price History 40 decreased from 22.61 to 9.87 compare to 2012. The decline in gold price over 30 Years; 37.71 35 the strong of Australian Dollars; increased in 30 25 labour cost and energy; and challenging in 22.61 20 operation 15 10 9.87 10.52 13.02 environment, these were significant external challenging which impact on company performance and share price. 5 0 2011 2012 2013 2014 2015 In annual report 2015, the share price of NCM had increased compare to 2014 by 24%. This result from appreciate 9% in Australian dollars gold price and met to target total gold production of 2.2 to 2.4 million ounces in 2015. 6 Start from 2013 while fall in gold price there weren’t dividends declared until 2015; the board of NCM will consider returning as debt is further reduced and taking market and operating conditions into consideration instead of paying dividends. However, it most likely to be paying dividend in year 2016 while signification of fallen in gearing ratio in 2015 Corporate Strategy Figure3 Newcrest strategy is providing competitive 1500 shareholder returns by improve performance 1000 each phase of the mining value chain within 500 selected geographic areas (Cadia, Telfer, Lihir, Gosowong, Bonikro, Hidden Valley). This set 0 2011 2012 2013 2014 2015 of actives spans exploration, development -500 and reduce the cost of operation together -1000 with long life gold and gold-copper mines. Building a portfolio of gold opportunities to -1500 convert into operating mines. Opportunities -2000 to grow the business include brownfield and All in Sustaining cost Free Cashflow greenfield exploration, combined with a focus on early entry merger and acquisition prospects in known gold regions. Base on the annual report for 2015, we can see NCM has good operating and performance as the company’s main object on reducing cost and capital expenditure maximising cash flow generation across the business. Edge program was used to improvement across all areas of the business by help Company’s deliver cash benefits which from development in operational performance, costs, working capital and overhead. And its also focus on maintaining a safe environment for people, operating and developing mines in line with good environmental practices As in figure 3, increased free cash flow generation started from 2014 to 2015 financial year follows major expansion investments at Cadia Valley and Lihir, improved operating performance across all operations, and a reduction in All-In Sustaining Cost expenditure if we compare to last 3 years. By this , NCM one of the ASX’s low cost producer. 7 Industry Analysis The mining industry is one of the most important contributors to the Australian economy and infrastructure. It has also been a major pioneer in contributing towards the globalisation of Australia with not only being suppliers to the US and Europe but also to Japan, India and China thus becoming a world player in the mining industry. For the year 2013-2014 mineral exports accounted for 52% of Australia’s exports and is responsible for 7% of the GDP. This industry is also the biggest employer of environment professionals. Although it is believed that profits were at it’s highest over the last 5 years, as a result of falling commodity prices and increased industry costs, profits are comparatively decreasing There are 4 main types of mining, namely ‘copper ore mining’, ‘gold ore mining’, ‘silver, lead and zinc ore mining’ and ‘mineral exploration’. NCM specialises in both gold ore and copper ore mining. Other players alongside NCM are GHP Pty Ltd (Glencore Xstrata in Australia), BHP Billiton Ltd, OZ minerals Ltd and Sandfire resources Ltd. DEMAND DETERMINANTS 1. Gold ore The Figure 4 factors that influence the demand for gold are changes in household incomes, changes in the economic conditions such as interest rates, inflation and exchange rates of the customer countries and changes in style and trends. Over the years, there has also been a change of the customer countries, and major players of the Asian region such as India and china have been demanding increased levels of gold imports. (Figure 4) The demand for grew rapidly after the global financial crisis because Gold is a form of monetary investment but a more secure form of investment, this increase in demand in turn led to higher prices and thus higher profits, this however lasted only till 2011. 8 2. Copper ore Copper is used in construction, power generation and transmission, production of electronics’, industrial machinery and vehicles. The demand for copper is negatively affected due to increased competition faced by its substitutes such as optic fibre, plastics and aluminium. After the GFC China’s construction activity dropped, but its requirements for minerals such as copper from Australia increased swiftly as they needed their economy to get back on track. This as a result led to higher copper demand, also adding to the fact that whilst the US copper prices drastically fell, Australian copper prices on the other hand were much more stable. REVENUE FLUCTUATIONS. The expected depreciation of the AUD and increasing trends seen in gold prices will reduce the level of competition faced by the gold exporting companies and thus assist in increasing the revenue, for the year 2015-2016 the revenue is expected to rise by 3.3% (IBIS World). (Figure 5) Reduced copper prices and the closing down of Aditya Birla Minerals Limited mine slowed down copper production massively. As a result the copper revenue is expected to decrease by 0.6% for the year 2014-2015. (Figure6) Figure 5Gold revenue Growth 9 Figure 6 copper Revenue Growth RATE OF GROWTH The gold mining industry will be facing expanding growth rates due to the increase in gold prices, larger mines run by Major players such as New Crest and Evolution mining will bring a significant increase in the gold production, the gold output is expected to increase by 1.2% annually for the next 5 years. Growth in the copper industry depends on the growth rates of the customer countries, which is slower levels of economic growth in customer countries will adversely affect the copper output in Australia. The fall in copper prices in 2011 remained through till 2015 and the slower pace in economic growth for china and India suggest that growth rates for copper seem to be contracting. FLUCTUATIONS IN PRICES OVER THE YEARS. The production of gold depends heavily on the world gold prices, exchange rates and demand for gold by central banks and the economic conditions. Because gold is considered a safe monetary investment during the financial crisis the demand for gold was higher and therefore the prices raised rapidly .In the recent years the world gold prices have remained more stable showing almost no fluctuations. However world gold price is expected to increase in 2015 -16(IBIS World). Figure 7 The world copper prices rose drastically between the years 2009-2011 and have been steadily decreasing since. This fall in copper prices did not affect Australian copper production because the Australian dollar remained strong between years 2012-2013. However the recent depreciation of the AUD will result in a fall in copper prices. 10 Figure 8 Peer Analysis - GOLD MAJOR PLAYERS - COPPER MAJOR PLAYERS Looking at the above graph for copper ore mining and gold ore mining we will take into consideration Evolution mining ltd and OZ minerals Ltd as they are the companies that hold an approximately similar market share along with NCM and operate in both copper and gold ore mining, as this will assist in conducting a more precise peer analysis. Evolution mining ltd Evolution Mining Limited is a locally owned business found in the 2011 through a merge of the two companies Catalpa Resources Ltd and Conquest Mining Ltd. Its mining operations focus around exploration of gold, silver and copper ore. It carries out operations in 7 locations all fully owned by Evolution, namely; Cowal in New South Wales, Cracow, Mt Carlton, Mt Rawdon and Pajingo in Queensland and Edna May in Western Australia. The company has an employee base of around 820 people with its headquarters located in Sydney. July of this year Acquired Barrick Gold’s Cowal operation for US$550 million and followed it by the acquisition of La Mancha Australia’s Mungari operation for 322.0 million Evolution shares in August. 11 Oz minerals OZ Minerals was formed in June 2008 when Oxiana limited merged Zinifex Limited. On 17th June 2009, Chinese company, China Minmetals Non Ferrous Metals Co purchased OZ minerals assets for USD 1354 million, except Prominent hill due to national security reasons. It has an employee base of 370 employees as of 2014, and has operations in south Australia, Jamaica and British Columbia. Their headquarters are located in Melbourne. Due to the lowered copper prices that led to lower copper production in 2012 and 2013, the revenue is expected to fall by 6.4% over the five years to 2015. In the years 2011 and 2012 profits fell as production dropped as a result of OZ minerals decision to perform deeper underground mining that was not successful. (Figure 9) Figure 9 12 Macro-economic Factors Australian Dollar Exchange impact rate Figure 10 have on serious company performance especially which operate in different countries. The changing in conversion rate might effect to profit or loss of company when report to shareholders. If Australia based firm makes earning on US dollars, it can earn much more or less than what they thought up on the movement of Australian dollars. Newcrest revenue is heavily associated with the US dollar, as produce is sold on a basis of the US Dollar price. As the Australian dollar has become weaker over the last year, it has created more demand as Newcrest commodities are relatively cheaper. As the AUD continues to fall it is expected for an increase in revenue. However, a decreasing AUD also has a negative impact on costs associated with the USD, which can evidently reduce the contribution margin and profits are affected negatively. Overall it may have an impact on continuing operations, project development decisions, Mineral Resource and Ore Reserves estimates and the assessment of the carrying value of Newcrest’s assets. Price of Gold Figure 11 The Value of Gold has drop over the past year demonstrated in figure 11, which major influences are related to the relationship demand of the commodity. This become an issue for Newcrest, as production costs still remain high, however profit margins will decrease do to the output level of revenue of gold. If gold prices continue to fall, Newcrest will find themselves 13 with a major issue, as they will struggle to make profits and need to either reduce production costs or hold onto the commodity until they are comfortable to sale. The seriouly fallen in price of gold might also impact on company financial performace like in the case of Newcrest, the slump in price of gold led to statutory loss -5,783 million in 2013 financial year.(figure 1) Micro-economic Factors Level of debt The level of debt is debt that outstanding and the flow of debt is level of debt movement over the time base on macroeconomic. The level of debt normally uses to indicate debt ratio. The higher debt level requires high cash flow to place pressure on business if the incomes are volatile .however, it also have some advantage to business if they have high level in debt as it will reduce interest expense which give tax advantages and high return on equity . In the Newcrest case, in order to fund future operating and capital cost they need to have enough operating cash flow. If they are unable to do so, they are required to seek additional funding through debt facilities. This becomes an issue, as debt will increase through outsourcing cash in order to meet conditions of future funding agreements. If Newcrest are unsuccessful in obtaining additional funding with acceptable terms, its financial condition and ability to continue operating may be adversely affected. 14 Ratio analysis and comparison with its peer groups Net Profit Margin Figure 12 Net Profit Margin (%) Net Profit Margin 0.5 0 -0.5 2011 2012 2013 2014 -1 -1.5 -2 Newcrest Mining Limited Period Evolution Mining Limited Oz Minerals Limited Net Profit Margin (NPM) is used as an indicator of business risk. It measures rate of profit on sales after operating expense available for shareholder. NPM for Newcrest has been decreasing since 2012 as can be seen in Figure 1. NPM in 2013 fall the most over time can be attributed by the price of gold dropped in the mid-2013 (Pearson 2014). It is also due to the lower production and higher costs as the production fell to 2.1m ounces compared to 2.3m in 2012, also the labour and energy costs has increased significantly (Sodhi 2013). In addition to that, the sales revenue for 2013 was 15% lower than the prior period primarily as a result of reduction in total gold sales volume and fall in average gold price. As a result, net profit margin fall significantly (Annual report 2013). The fall in gold price also impact on the other two competitors in 2013. However, Newcrest did not seem to improve in 2014 due to sharp plummet in precious-metal process that overshadowed efforts to increase production and reduce spending at the same time, the two competitors have increase their NPM to a positive value, which are more profitable than Newcrest (Hoyle 2014). 15 Net Profit Margin Figure13 Total asset turnover ratio Total asset turnover 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Newcrest Mining Limited Evolution Mining Limited Oz Minerals Limited 2011 2012 2013 2014 Period Asset turnover measures the efficiency of a company’s use of its assets in generating sales revenue. The total asset turnover for Newcrest has been the lowest over time compared to Oz Minerals and Evolution Mining as can be seen in the figure 2. However, we can view that Newcrest has had an increasing trend in their TAT since 2012 compared to the other two competitors because the net sales has increased a little bit from 2013 while total assets have decreased, as a result, TAT improved. Evolution has increased its TAT significantly from 2012 to 2013 due to 30% higher gold sales which results in higher sales revenue (Financial report 2013). Despite the increasing of TAT for Newcrest, it is still lower compared to competitors thus Newcrest may need to review their asset to determine how they could use assets effiently when competing with Evolution Mining and Oz Minerals. 16 Financial Leverage Figure 14 Financial Leverage ratio Financial Leverage 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Newcrest Mining Limited Evolution Mining Limited Oz Minerals Limited 2011 2012 2013 2014 Period Financial leverage measures the level of debt the firm use to finance its asset which means that the more debt financing a company undertake, the higher its financial leverage. Financial leverage of Newcrest can be seen increasing over time in Figure 3. Newcrest’s prior year shows their financial leverage ratio was 1.76 compared to Evolution’s 1.48 and Oz’s 1.07, which is the highest among the other two competitors. The increase of financial leverage over time might be because of the level of debt of Newcrest as it has about $A4.1 billion of debt on its balance sheet in 2014, pushing its gearing ratio to beyond 30% (Ker 2014). However, Oz Minerals seems to be consistently stable over the period, which signify that they are controlling their level of debt efficiently. Therefore, Newcrest needs to improve on their use of debt in order to compete with its competitors. 17 Return on Equity Figure 15 Return on equity 20 Return on equity (%) 10 0 -10 2011 2012 2013 2014 -20 -30 -40 -50 -60 -70 Period Newcrest Mining Limited Evolution Mining Limited Oz Minerals Limited ROE ratio consists of all component ratio which includes net profit margin, total asset turnover and financial leverage. By observing all of the component ratio, the main factor that affect on ROE might be the net profit margin. The negative value of net profit margin for all three companies in 2013 causes their ROE to deteriorate from an upward trend to downward trend. As for the total asset turnover, Newcrest has been increasing since 2012 but still lower compared to the other two competitors. Besides that, Newcrest has an increasing trend of financial leverage which shows that they are using high level of debt to finance the firm’s assets. Lastly, Newcrest was the only company that has negative value for ROE in the past two years among others which indicate the rate of return that management has earned on the capital contributed by stockholders was poor. 18 Capital Asset Pricing Model (CAPM) CAPM model is widely used as the evaluation of managed portfolios performance which determines relationship between assets return and risk. Sharpe pointed out the covariance matters between the security’s return and the market portfolio. Investors might be relied on this model to make investment decision based on the expected return and variance return. The CAPM requires the estimation of threes components, there are beta, risk free rate and risk premium. CAPM formula Beta coefficient Figure 16 Beta is important component in order to calculate CAPM. It is a measure of systematic risk which is the risk inherent in the whole financial system; Beta coefficient is an index of the volatility of the individual asset relative to the volatility of the market. The correlation coefficient indicates whether this greater variability is important. Beta equal to 1 indicate that the stock return moves same direction with the market, so the correlation coefficient between the return of the individual and the return on the market is 1. A below 1 mean the volatile will get lower than the market while above 1 the volatile will higher than the market. 19 Percentage change in monthly price of NCM and ASX/S&P200 for over five years have been used to estimate raw beta value in Regression analysis model. 0.6748 Raw beta was given by historical price movement between 2011 to 2015 which this beta is unreliable for predict future stock value. Therefore, adjusted beta using to adjustment from raw beta Adjusted beta = Raw beta (0.67) + 1.00(0.33) = 0.6748(0.67) + 0.33 = 0.7821 By adjusted beta less than 1, we indicated that NCM less risky than ASX/S&P200. It means if investor investment in NCM stock, once the market prices decline by 10 precent then this stock should fall only 0.7821 precent. Risk Free Rate Figure 17 Risk free rate is rate of return on investment with no risk. Investor will expect this risk free rate from totally risk frees investment over specific period of time. Government bond is risk-less investment which yields rise as prices fall than shares and property. By there are no risk less asset exists, we using Australian government 10 years bond yield rate as proxy which 2.621% at 01st September 2015. Long term 10 years bond yield is the best proxy for risk free rate as it reflects the default free holding period returns available on long lived investments. From the graph on the right hand side, the yield had decreased from 3.159% in July 2012 to 2.621% in Sep 2015 which result 0.538 % gain on capital. RFR= 2.621% 20 Expected Market Return and Risk Premium Market risk premium is variance of expected return for the market portfolio and risk free rate .Historical returns and surveys for investor expectations are the concepts using to determine expected market return and these concepts result in a proxy for risk premium. To estimating the expected return usually historical returns which examine on market data likes return on bonds or stocks over long periods and computing the average historical risk premium. Arithmetic averages or geometric averages are average component generally use to find expected marker return. The arithmetic average provides a better estimate of current risk premium with shorter future, based on the future assumption the past return. And geometric average is good at estimate risk premium over a longer future period of time. However, we found arithmetic averages were appropriate to estimate market return then to determine Market return, we used ASX 200 opening and closing to find holding period return and yield for 2010-2015(See Appendix6). Weigh index model had been used to justified that R(m) given in question whether correct or not. In this our case, we choose GDP growth rate to determine effect on market return. From market model 1 and 2 ,we have market return 9.97% which based on current economic factors. As Market return from Average of 2 model greater than what was given in question , therefore we decide to use expected market return based on Bloomberg which is 9.96%. 21 Calculation CAPM RFR = 2.62% Beta=0.7821 E(Rm)=9.96% Therefore we have: E(Ri)= 2.62%+0.7821(9.96%-2.62%) = 2.62%+5.74% = 8.36% Dividend Discount Model (DDM) Dividend Discount Model (DDM) is used to value the share of common stock, which is the present value of all future dividends. There are different types of DDM model, which are constant growth rate model, zero growth rate model and multi stage model. These models help to evaluate the intrinsic share price of a company. The constant growth rate model assumes a constant dividend growth rate, where it might be suitable for an equitably high- yielding company but not acceptable for stocks with higher dividend growth and lower dividend yields. However, DDM model has its limitation on company who do not pay dividends as in the case of Newcrest Mining Limited, it has not been paying dividends for the past two years. Basically, the required rate of return (k) is larger than the growth rate (g). However, in the case of Newcrest Mining, it could happen that g is greater than k because of the opportunities of some growth companies to earn return on investments, which is more than their required rate of return. As a result, growth can be larger than required rate of return, which is inconsistent with the constant growth rate of DDM model. In order to fix this, we are using a multi stage dividend discount model, which allows us to estimate that the dividend will grow at a slow rate for a number of years, then high growth rate and subsequently return to stable growth rate after that period. Firstly, to calculate the dividend growth rate for the past 2011 to 2015, we are using the formula: g = Retention Rate (RR) x Return on Equity (ROE) 22 Table 1 : Growth rate Year 2011 2012 2013 2014 2015 Growth (%) 4.32% 5.57% -46.30% -28.82% 6.03% ROE (%) 6.54% 7.40% -58.15% -28.82% 6.03% RR(%) 66.0% 75.3% 79.6% 100.0% 100.0% Dividend paid per share ($) 0.5 0.35 0.12 0 0 Payout ratio 0.34 0.2474 0.2038 0 0 * The ROE for Newcrest Mining Limited in 2015 is shown in appendix 5 By reviewing Newcrest’s dividends data over the last five years, the dividends have not been paid consistently over the years. Since 2014, Newcrest has stopped paying dividends. Although there were no dividends paid in 2015, the growth rate is 6% compared to 2014 -28.82%. Thus, we assume that in 2015, Newcrest is experiencing a high growth period. On the other hand, there were no final dividend paid for the 2014 due to the reduced level of profitability in the period, the level of gearing at 30 June 2014 and the planned application of operating cash flow to completion of the Cadia East Panel Cave 2 in the 2015 financial year (Newcrest Mining Limited 2015). However, Newcrest did not pay dividend in 2015 despite the gold price increased. This is because Newcrest’s gearing ratio has been quite high over recent years therefore Newcrest wish to reduce debt before continuing dividends and would likely need to spend on project expansions soon (Ker 2015). In order to estimate the future dividends, we assume that the company goes through three stages of growth rate. There are slow, high and stable growth stages. In the five years through 2015 to 2016, Newcrest’s industry specific gold revenue is expected to increase at an annualized 2.9% to $1.7 billion. This is better than industry growth over the same period, which is 1.7% in nominal terms, due to higher gold production growth in some years and Newcrest’s expansion of the Cadia operation, which result in increase of production output. Newcrest projects Cadia gold output to increase to 700,000 ounces in 2016, with additional growth in 2017 (IBIS World 2015). Besides that, it was estimated that there are 50% chance of Newcrest breaking its dividend drought in the 2016 financial year and the company was most likely to pay dividends in 2017 (Ker 2015). Therefore, we assume that Newcrest will start paying dividend from 2016 onwards and will be in a high growth period until 2020 because of the increase gold output. We then assume that in 2020, Newcrest will slow down 23 their growth to normal growth rate of 6% and then on 2022 onwards falls to 3% of stable growth rate. Hence, like the table below: Table 2: Multi stage growth model Phase 1-High Growth Phase 2- Slow Growth Phase 3-Stable Growth 2016-2019 7% 2020-2021 6% 2022 Onwards 3% Table 3: Intrinsic Share Price Dividend Growth Rate DPS (cents) PV5 Time Period Required Rate of Return Discount Factor NPV ($) 2015 2016 0 0.35 0 1 8.36% 0.3230 11.40 2017 7.00% 0.37 2018 7.00% 0.40 2019 7.00% 0.43 2 8.36% 0.3189 3 8.36% 0.3149 4 8.36% 0.3110 2020 6.00% 0.45 2021 6.00% 0.48 9.5274 5 6 8.36% 8.36% 0.3042 0.2976 2022 3.00% 0.51 7 8.36% We assume that Newcrest ROE will increase from 6% this year to around 7 or 8 % in 2016. As we refer to past years dividend paid, Newcrest paid 35 cents per share when the company’s ROE is 7.4%. Hence, we forecast the dividend that Newcrest going to pay on 2016 will be 35 cents per share. The required rate of return is 8.36%, which we obtained from the CAPM model. As can be seen from the table above, the intrinsic share price is $11.52. Comparing our share value of $11.40 and current market price on the 10 September 2015 of $11.19, this suggests that Newcrest share price are overvalued. It would recommend that we should not buy the stock. However, for non-dividend paying companies, it is usually difficult to estimate the timing of the initiation of dividends and dividend policy that will then be established by the company. Therefore, it is to suggest a free cash flow or residual income model for valuing company (Stowe 2007). Sensitivity analysis Sensitivity analysis is used to check the accuracy of share prices and the changes of the components that would change the DDM model and to find the difference from the change of data. Table 4 shows how the share price is affected by the changing of growth rate (g) and required rate of return (Re). Table 4 uses change of 0.10% in required rate of return (Re) and 0.05% in Growth. After identifying all the values, we could see that the value of stock decreases when Re increase. On the other hand, share price and growth have a positive relationship, where share price increases when growth increase. 24 Table 4 : Sensitivity Analysis DDM Var Var Re/Growth -0.15% -0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 2.70% 2.85% 2.95% 3.00% 3.05% 3.15% 3.30% -0.40% 7.36% 12.89 13.25 13.51 13.64 13.78 14.06 14.51 -0.30% 7.76% 12.00 12.31 12.52 12.63 12.75 12.98 13.36 -0.20% 8.06% 11.42 11.69 11.88 11.98 12.08 12.29 12.62 -0.10% 8.26% 11.06 11.31 11.49 11.58 11.68 11.87 12.17 0.00% 8.36% 10.89 11.14 11.31 11.40 11.49 11.67 11.96 0.10% 8.46% 10.73 10.97 11.13 11.22 11.30 11.48 11.76 0.20% 8.66% 10.42 10.64 10.80 10.87 10.95 11.12 11.38 0.30% 8.96% 9.04 10.19 10.33 10.4 10.48 10.62 10.86 0.40% 9.36% 9.60 9.66 9.78 9.84 9.90 10.03 10.24 Free Cash Flow to Equity Model (FCFE) Free cash flow to equity model is the amount that is left after the company has met all it obligations to its other investors, it is therefore the cash available to the shareholders after funding capital requirements, working capital requirements and debt financing requirements. The FCFE model is used when the company’s capital structure stable, making it a very straightforward and easy model. FCFE model is preferred over a dividend-based model because many firms pay no/low cash dividends. The FORMULA for free cash flow to equity: FCFE = – – – – – 25 Net Income + (Depreciation Expense – Capital Expenditures) - D in Working Capital - Principal Debt Repayments + New Debt Issues The FCFE formula has been broken down as follows; The Net Income is the profit for the year found on a firm's income statement. Capital expenditure is the amount spent to obtain and/or improve a country’s fixed assets and can be found on the company’s cash flow statement. The working capital is the difference between current assets and current liabilities and is taken from the balance sheet as of that period. Net borrowing is the difference between the debt repayments value and new debt issues. The FCFE is shown in Table 12 has been computed based on data gathered from the Income Statement and the Statement of Cash Flows for the last five years (2011-2015). Table: FCFE per share derivation 26 The year 2011 showed a good operational and financial performance resulting in the highest net income for the 5 years considered and a strong cash flow position. The production increased 43% with the successful takeover of “Lihir Gold Limited”. Adding to that the prices of the minerals also increased, thus explaining a value of 3.06 as the FCFE per share for the year 2011. The graph above shows the FCFE per share and its changes over the five years. The graph indicates drastic ups and downs in the FCFE per share with no signs of stability. The year 2014 recorded the lowest FCFE. Despite making a lower net loss than the year before the increase in the capital expenditure’s and debt repayment led to the lowered FCFE for the year 2014. Added to this depletion the mineral resources of the ‘Lihir’ gold mine have been depleted by 0.54 million ounces gold, decreasing production. The year 2015 experienced an increase in the FCFE from 0.12 per share to 1.38 per share. This can be explained by the Improved operational and financial performance through the company wide program that Newcrest has implemented named “Edge” which has led to progresses in all aspects of the business and resulted in cash benefits of AUD 390 million (Financial report 2015) Table: Equity Price Derivation The present value of the expected FCFE discounted at the required rate on equity gives the firms equity value. In the derivation of the above results we have used the expected growth rate and the required rate of return as the DDM model. 27 Sensitivity analysis Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key predictions. (Investopedia) The sensitivity analysis conducted shows how changes in the growth rate and required rate of return will affect the equity price. The growth rate has been adjusted with additions of 5% and the required rate has been amended with additions of 1%. According to the analysis it can be seen that as the growth rate increases and the required rate of return reduces the share price increases, and a higher required rate and lowered growth rates will result in the opposite. This suggests that there is an inverse relationship between the required rate of return and growth rate. Table: Sensitivity Analysis 28 Conclusion As at the 10th of September 2015, Newcrest share price is valued at $11.19. Our founding of intrinsic value was $11.40, compared to the market value of $11.19 this suggests that Newcrest share price is overvalued. This is due to the diversity of the two, as the intrinsic value being a fundamental value, which is driven by private or internal options and expectations. The market value is predominantly driven by the public or external options and expectations. The most appropriate model is multistage growth model as the last two years Newcrest didn’t pay any dividends, as the money is assumed to be distributed as reinvest for other investment, thus growth can be greater than RR so inconsistent with constant growth rate. The free cash flow ratio shows how much cash is available to be paid out to shareholders, which is given in a form of dividends and buybacks, whereas dividend discount model uses the present value of all future dividends. A main difference between the two is that they provide different estimates of values. Overall, FCFE is the most appropriate as there is little cash dividends supplied by Newcrest and they have a stable capital structure. Also, DDM isn’t suitable as it is difficult to determine the dividends in the future. It is clear that FCFE method is more popular then DDM due to the above reasons, is has also been told that FCFE uses more proxies which will provide a better valuation that is more reflective of Newcrest performance and cash flow. Ultimately, given the above analysis we have concluded that the market value of the share is overvalued. This judgement was made on a basis of our valuation models throughout the report, which had included Newcrest current financial position. On this note, we recommend that our investors either sell or stop purchasing Newcrest equity. 29 Reference Lists The Motley Fool, is this the secret ti the ricketing shar price of Newcrest Mining Limited?, [Online] Available at: http://www.fool.com.au/2015/04/10/is-this-the-secret-to-the-rocketing-share-priceof-newcrest-mining-limited/< Viewed 10Apr15> Business spectator, Newcrest swings to FY profit, [Online] Available at: http://www.businessspectator.com.au/news/2015/8/17/resources-and-energy/newcrest-swings-fyprofit 2015 Full Year Financial Results, (2015),[ebook] Newcrest Mining Limited, PP 21,27,46 Available at: http://www.newcrest.com.au/media/presentations/2015/201415_Full_Year_Financial_Results_Presentation_Final.pdf Full Year Financial Results ,(2014), [ebook] Newcrest Mining Limited, PP2-4,7-8 Available at:http://www.newcrest.com.au/media/financial_reports/2014/FINAL_FY14_Financial_Results_Rele ase_180814.pdf Herbert Mayo, 2010, Investments: An Introduction, Cengage Learning Bloomberg Business, Australian Government Bonds, [online] Available at: http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia < Viewed 25Aug2015> Investopedia, Risk Free Rate of Return, (2015), [online] Available at: http://www.investopedia.com/terms/r/risk-freerate.asp By H. Kent Baker, Gary Powell, Understanding Financial Management: A Practical Guide, John Wiley & Sons, [ebook] Available at: https://books.google.com.au/books?id=CAunuvnh91EC&pg=PA352&dq=risk+free+rate&hl=en&sa=X &ved=0CE8Q6AEwB2oVChMIvLXIhbfSxwIVQeGmCh0N2gMv#v=onepage&q=risk%20free%20rate&f= false About the industry | Mining Careers. 2015. About the industry | Mining Careers. [ONLINE] Available at: http://www.miningcareers.com/about-the-industry. [Accessed 23 August 2015]. Market Research Reports & Analysis | IBISWorld AU. 2015. Market Research Reports & Analysis | IBISWorld AU. [ONLINE] Available at:http://clients1.ibisworld.com.au/reports/au/enterprisepremium/environment.aspx?entid=811. [Accessed 23 August 2015]. Australian Mines Atlas. 2015. Australian Mines Atlas. [ONLINE] Available at:http://www.australianminesatlas.gov.au/index.html. [Accessed 23 August 2015]. Uses of Copper | Supply, Demand, Production, Resources. 2015. Uses of Copper | Supply, Demand, Production, Resources. [ONLINE] Available at:http://geology.com/usgs/uses-of-copper/. [Accessed 23 August 2015] 2015. . [ONLINE] Available at: http://www.evolutionmining.com.au/. [Accessed 24 August 2015]. 30 About OZ Minerals, management, directors, history and corporate governance . 2015. About OZ Minerals, management, directors, history and corporate governance. [ONLINE] Available at:http://www.ozminerals.com/About-OZ-Minerals.html. [Accessed 24 August 2015]. Sensitivity Analysis Definition | Investopedia. 2015. Sensitivity Analysis Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/s/sensitivityanalysis.asp. [Accessed 24 August 2015]. Pearson, R 2014, Newcrest Mining Limited announces 88% fall in profit, The Motley Fool, viewed 23 August 2015, Sodhi, G 2013, Newcrest Mining: Result 2013, Intelligent Investor, viewed 23 August 2015, Hoyle, R 2014, Newcrest’s profit plunges after gold-price fall, Market Watch, viewed 23 August 2015, Newcrest Mining Limited 2013, Annual Report 2013, Newcrest Mining Limited, viewed 23 August 2015, Newcrest Mining Limited 2015, Market Release Newcrest Mining 17 August 2015, Newcrest Mining Limited, 23 August 2015, Evolution Mining Limited 2013, Appendix 4E and Annual Financial Report for the year ended 30 June 2013, Evolution Mining Limited, 23 August 2015, Ker, P 2014, No need for equity, says Newcrest Mining, The Sydney Morning Herald, viewed 23 August 2015, Ker, P 2015, Debt reduction tipped to outweigh shareholder dividend at Newcrest Mining, The Age, viewed Sep 10 2015, IBIS World 2015, Competitive Environment, IBIS World, viewed Sep 10 2015, Stowe JD 2007, Equity Asset Valuation, John Wiley & Sons, Inc., New Jersey, viewed 10 September 2015, 31 Appendix 1 32 Appendix 2 33 Appendix 3 NEWCREST MINING LIMITED 2011 2012 Net income 908 Net income Net sales 4102 Net sales Net profit margin 0.22 Net profit margin 2013 1117 Net income 4416 Net sales 0.25 Net profit margin 2014 -5778 Net income 3775 Net sales -1.53 Net profit margin -2221 4040 -0.55 Net sales Total assets Total asset turnover 4102 Net sales 17282 Total assets 0.24 Total asset turnover 4416 Net sales 20509 Total assets 0.22 Total asset turnover 3775 Net sales 17073 Total assets 0.22 Total asset turnover 4040 13587 0.30 Total assets Equity Financial leverage 17282 Total assets 13875 Equity 1.25 Financial leverage 20509 Total assets 15094 Equity 1.36 Financial leverage 17185 Total assets 10002 Equity 1.72 Financial leverage 13587 7707 1.76 ROE* 6.54% ROE 7.40% ROE EVOLUTION MINING LIMITED Net income -2303 Net income Net sales 121870 Net sales Net profit margin -0.02 Net profit margin 37313 Net income 469484 Net sales 0.08 Net profit margin -58.15% ROE -28.82% -307421 Net income 605034 Net sales -0.51 Net profit margin 50017 634420 0.08 Net sales Total assets Total asset turnover 121870 Net sales 225496 Total assets 0.54 Total asset turnover 469484 Net sales 1269449 Total assets 0.37 Total asset turnover 605034 Net sales 1021970 Total assets 0.59 Total asset turnover 634420 1109523 0.57 Total assets Equity Financial leverage 225496 Total assets 154691 Equity 1.46 Financial leverage 1269449 Total assets 1056416 Equity 1.20 Financial leverage 1021970 Total assets 785304 Equity 1.30 Financial leverage 1109523 747255 1.48 ROE -1.49% ROE 3.53% ROE Oz Minerals Limited Net income Net sales Net profit margin 274.5 Net income 1115.9 Net sales 0.25 Net profit margin 152 Net income 985.7 Net sales 0.15 Net profit margin Net sales Total assets Total asset turnover 1115.9 Net sales 3022.5 Total assets 0.37 Total asset turnover 985.7 Net sales 3085.6 Total assets 0.32 Total asset turnover 644 Net sales 2517.1 Total assets 0.26 Total asset turnover 831 2408.7 0.34 Total assets Equity Financial leverage 3022.5 Total assets 2794.2 Equity 1.08 Financial leverage 3085.6 Total assets 2785.9 Equity 1.11 Financial leverage 2517.1 Total assets 2327.9 Equity 1.08 Financial leverage 2408.7 2249.1 1.07 ROE 9.82% ROE 5.46% ROE * ROE= Net profit margin x Total asset turnover x Financial leverage 34 -39.15% ROE -294.4 Net income 644 Net sales -0.46 Net profit margin -12.65% ROE 6.69% 48.5 831 0.06 2.16% Appendix 4 Appendix 5 Newcrest Mining Limited 2015 Net income 546 Net sales 4344 Net profit margin 0.13 Net sales 4344 Total assets Total assets turnover Total assets 15368 0.28 15368 Equity 9059 Financial leverage 1.70 ROE 35 6.03% Appendix 6 36

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