Company Description

This report consists of financial analysis and how company has used this process to increase the overall outcomes throughout the time. In this report, Iron Road Ltd Company has been taken into consideration.

Iron Road Ltd is engaged in exploring Australia iron ore and mining business. The main headquarter of company is in in Perth, Western Australia. It develops world classified mining and iron ore products around the globe (Iron Road Ltd Company, 2017).

Iron Road Ltd Company is public working department in which more than 50% shares is hold by the government and other public working organizations (Iron Road Ltd Company, 2017).

Name of shareholders	Shares held Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	% of shareholding
1 HSBC Custody Nominees Australia Limited	570,680,789	84.23%
2. SANBA II Inv Company	9,861,112	1.46%

These shareholders do not have any interest with the business of Iron road and they are independent person to company (Vogel, 2014). 

CEO Of Company is Magnus Kniving who guides the employees towards effective achievement of goals.

• Peter Cassidy (Chairman);
• Andrew J. Stocks (Managing Director)
• Board members of Iron Road Company

Name	Position	Date of appointment	Independence status
Peter Cassidy	Chair	11 October 2012	Director of major shareholder
Andrew Stocks	Managing Director	29 November 2007	Executive position
Jerry Ellis AO	Non-executive director	20 December 2010	Associate of major shareholder
Leigh Hall AM	Non-executive director	2 November 2012	Associate of major shareholder
Julian Gosse*	Non-executive director	27 February 2009	Independent
Ian Hume	Non-executive director	27 February 2009	Associate of major shareholder

These board members do not have the same surname and they only have substantial shareholding in company (Robinson and Burnett, 2016).

Liquidity ratio

This ratio has shown that Iron Road Limited has increased its working capital and also increased its overall liquidity throughout the time. Current ratio has increased by 30 points in one year and on the other side, quick ratio has also increased by 40 points in one year.

Description	Formula	Iron Road Limited
		2017	2016
Liquidity ratio
cash ratio	cash equivalents + cash / current liabilities	0.539187469	0.172129759
Current ratio	Current assets/current liabilities	0.63	0.22
Quick Ratio	Current assets-Inventory/current liabilities	0.63	0.22

Iron Ore Company has negative profitability which has shown that company is not efficient in earning good amount of profit from its business. Return on equity, assets and other income of company is in negative which reflects that company is not creating value on its investment.

Description	Formula	Iron Road Limited
		2017	2016
Profitability
Return on equity	Net profit/revenues	-890.9199002	-1217.704433
Return on assets	Net profit/Equity	-0.030328888	-0.053489131
Financial leverage	EBIT / EBIT – Interest	1	1
Asset turnover	Total assets / total sales *365	10919194.4	8648542.745
Earnings per share	Net income – prep div / shares outstanding	-0.030328888	-0.053489131

This ratio has shown that company has been blocking very low amount in its business. However, the operating cycle of company is also not efficient which could reduce the overall cost of capital (Radebaugh, Gray and Black, 2016).

Description	Formula	Iron Road Limited
Efficiency ratio		2017	2016
Receivable turnover	Receivables/ Total sales*365	0.33	0.36
Inventory turnover	Inventory / cost of goods sold *365	–	–

Company has failed to have profit in its business and also has been finding difficulties in paying return to its investors. Since last two years, company has zero level of market based ratio which is not good indicators for business.

Description	Formula	Iron Road Limited
Market based ratios		2017	2016
Price / earnings ratio	Market value per share / earnings per share	(5.61)
Dividend yield ratio	dividend / current share price	–	–

Company has low debt in its business which reflects that company should raise the funds from the market by issue of debts in market. Company should diversify its business to increase its overall profit (Brigham, 2014).

Description	Formula	Iron Road Limited
Solvency		2017	2016
Times interest earned	EBIT / Interest expenses	0	0
Cash coverage ratio	EBIT + non-cash expenses / interest expenses	–	–
Debt to Equity Ratio	Debt/ Equity	0.02	0.04

Company has been facing decrease in its profit throughout the time which showcases that company has negative return on its total assets. On the other hand, same impact is seen on the return to equity shareholders. There is zero return offered to shareholders since last two years (Brigham and Ehrhardt, 2013).

Ownership-Governance Structure

It is observed that Iron road has facing decrease in its profit. It is reflected that company has same ROE and ROA in its business. Nonetheless, return on equity is less than return on assets due to its interest expenses and amount differences between assets and equity (Iron Road Ltd Company, 2017).

Share price fluctuation of Iron Road Company with ASX index graph

It is observed that as compared to ASX return, the share price of Iron Road has gone down. This plummeted share price led to major loss of business operations of the company.

It has shown that company has high fluctuation in its share price due to the loss of its business. In addition to this, ASX share price of company has less fluctuation and there may be chances that company would wind up soon if its business continues to operate in its present situation.

Significant factors affecting the share price

• High amount of loss in its business
• Less core competency in its business
• Non-effective business functioning and brand image of company.

Now in the end, it is concluded that investors should not invest their money in the Iron road otherwise they would have to face high loss in their investment.

The management department of company has selected two particular projects to make investment. It is observed that three Chinese banks have agreed to provide funds to company which will help the company to invest in better opportunities (Bekaert and Hodrick, 2017).

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.336703
R Square	0.113369
Adjusted R Square	0.071148
Standard Error	0.226876
Observations	23

ANOVA
	df	SS	MS	F	Significance F
Regression	1	0.138212	0.138212	2.685152	0.116184466
Residual	21	1.080929	0.051473
Total	22	1.219142

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	-0.01928425	0.049836319	-0.386951729	0.702685	-0.122924548	0.084356	-0.12292	0.084356
X Variable 1	3.093454821	1.887814577	1.63864336	0.116184	-0.83247051	7.01938	-0.83247	7.01938

The beta of company is 3.09 which is very high and reflect that company has high fluctuation in its business (Iron Road Ltd Company, 2017).

Computation of CAPM
Details	Amount
RF	4%
RM	10%
Beta	3.093
Return on equity	22.561%

Iron Road has faced high amount of loss in its business which reflects that company should invest its funds and capital in other diversified business. In addition to this, company has followed conservative investment policies in its business due to its loss.

The weighted average cost of capital is computed on the basis of % of debt and equity funding of company. In this case, company has zero long term debt which reflects that WACC of company will be equal to cost of equity.

Weighted average cost of capital
Particular	Amount	% of the debt	Cost of the capital
Equity	12,94,56,908	100%	0.225607289
Debts	–	0%	0%
WACC	0.225607289

If company has higher WACC then management of Iron Road company has to use capital budgeting technique to select the particular project. It is considered that higher WACC may destruct the return on capital employed by company.

It is considered that company has reduced its debt to equity ratio by 20% in 2017 as compared to last year data. However, management of company has taken steps to reduce its financial leverage and risk of the business (Iron Road Ltd Company, 2017).

Description	Formula	Iron Road Limited
Solvency		2017	2016
Debt to Equity Ratio	Debt/ Equity	0.02	0.04

Key People Involved in Governance

There is no borrowed funding in the business. It is observed that company has planned to raise capital by issue of debts in market. It is determined that directors cannot identify the optimum capital structure. It is based on the nature and other factors of business. However, debt to equity ratio should be around 30 to 70 i.e. 70% of the capital should be equity and 30% would be borrowing.

This Iron Road Company has no amount of interest payment. Therefore, there is no gearing ratio in this company. Gearing ratio define company’s ability to pay off its interest amount from its earning. It is evaluated that directors of company is planning to raise capital from its debt funding and will increase the gearing ratio as well.

Iron Road Company has not been paying any profit to its shareholders since last two years due to its loss in business. Company has followed profit based dividend policy in which it will pay dividend to its shareholders only when it has profit in its business.

It is observed that this Iron road company has not been performing well in the market. It has faced high amount of loss in its business which shows its inefficiency of running its business. In addition to this, company has faced high loss in its business which has destructed the value of invested capital. Investors should not invest its money in this business otherwise they will have to face high loss in their business.  

Conclusion

It is evaluated that if company could use proper level of strategic analysis and maintain proper capital structure then it would increase the return on capital employed of company as well. If investor wants to invest their money in Iron Road Company then they should invest for long run. Investing in Iron Road Company for short term will destruct the value of the investment.

References

Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge University Press.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Brigham, E.F., 2014. Financial management theory and practice. Atlantic Publishers & Distri.

Iron Road Company, 2017, annual report, retrieved on 18^th December, 2017, from <https://www.ironroadlimited.com.au/investor-centre/company-reports/annual-reports>

Radebaugh, L.H., Gray, S.J. and Black, E.L., 2016. International accounting and multinational enterprises. New York, NY: Wiley.

Robinson, C.J. and Burnett, J.R., 2016. Financial Management Practices: An Exploratory Study of Capital Budgeting Techniques in the Caribbean Region.

Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.