Annual Report Analysis for Lonmin Plc--论文代写范文

51Due论文代写平台report代写范文:“Annual Report Analysis for Lonmin Plc”，这篇论文主要描述的是Lonmin企业的财务状况和销售额进行估值，我们需要从资产负债表、现金流量表等方面入手，来对该企业的年度财务报告进行分析，分析Lonmin的销售状况是呈增长还是下降趋势，并预测Lonmin未来几年的企业发展趋势。

This paper applied various valuation models to evaluate Lonmin’s financial performance in the year 2007. Based on the main calculations, Based on the calculations, the companys value of share price was $31.77. However, the market value of the share price for Lonmin was $38.25 (30/09/07).

Annual Report Analysis for Lonmin Plc

1. Introduction

This report aims to analyse the annual performance of Lonmin Plc in this financial year, especially to evaluate the company’s balance sheet, income statement and cash flow statement recorded in the latest annual report (2007). Additionally, the report will focus on conducting a deep analysis of this companys five year financial performance by calculating some key financial figures to analyze the financial reviews of Lonmin’ Annual Report.

2. Critical Evaluation of Performance as Detailed in Most Recent Annual Reports

2.1 An Overview of the Business Performance based upon the 5 Year Review

During the past few years, Lonmin has experienced a significant increase in the amount of revenues, which stood at $1,941 million and increased by 149.17 per cent compared with the financial year of 2003 ($779 million), especially, in comparing with the figure in the prior year (2006: $1,855 million), the revenues in 2007 has witnessed an upward trend of 4.64%. It can be illustrated in the following table (Table 2.1):

Table 2.1 Five-Year Financial Performance of Lonmin Plc

2007

$m

2006

$m

2005

$m

2004

$m

2003

$m

Revenue 1,941 1,855 1,128 1,030 779

Net operating costs (1,147) (1,013) (778) (726) (481)

Operating profit 794 842 350 304 298

Financial income and expenses (net) (89) (209) (31) (14) (7)

Profit before tax 705 633 319 290 291

Income tax expense (391) (320) (139) (165) (217)

Profit for the financial period 314 313 180 125 74

Source: Investors Relations of Lonmin Plc (2008),

After investing a great amount of capital in developing future business streams, especially in mineral resources and reserves, Lonmin has witnessed a growth in final dividends per share of 9.1% during the year 2007 (Lonmin Annual Report, 2007). Especially, this group highly focused on corporate sustainability and consistently took this concern as one part of the company’s cultures.

Particularly, this report aims to provide a valuation on Lonmin’s financial performance based on its Annual Report 2007, as well as an analysis on its major financial statements, the relevant ratios analysis, and the capital structures. By estimating the value of the company, it will also make appropriate References to accounting policies, board members reports and corporate governance issues as to forecast its future performance during the next few years.

2.2 An Overview of Lonmins Five-Year Business Performance

Noticeably, the company’s revenue experienced a growth rate of about 149.17 percent during the period from year 2003 to 2007, that arrived over $1,941 million at the end of 2007 (Figure 1(a)&(b)).

Figure 1 (a)

Figure 1 (b)

Source: Lonmin Annual Report 2007

The South Africa-Based Company Lonmin Plc specializes in a wide range of the supply of precious properties, including platinum production, oxidisation and corrosion resistance as well as electricity conduction (UK Yahoo Finance, 2008). This can be one of the attributors why the company can attract so many buyers from the public stock market. In the following, this Table demonstrates earnings per share with unit in cents of Lonmin during the period from 2003 to 2007 (Table 2.2)

Table 2.2 Earnings per Share (2003-2007)

Year 2007 2006 2005 2004 2003

Earnings per share (in cents) 205.1 219.5 111.5 88.4 52.5

Source: Lonmin Annual Report 2007

This seems that the company has witnessed a surge in the number of basic earnings per share in the last five years. It was achieved by the efforts of all the suppliers, advisors and customers engaged with Lonmin. Also, the firm planned to continue its development plans and would retain a strong emphasis on cash management and some financial control systems.

2.3 A Detailed Review of the Business Performance Based on the Lonmin Annual Report 2007

2.3.1 Valuation from the Analysis of Financial Statements

2.3.1.1 Profit and Loss Account

This term refers to an account compiled at the end of an accounting period to show gross and net profit or loss. In other words, it is also known as the Income Statement of a company’s Annual Report, and reflects the company’s profit on the sale of their goods or service over a specific period of time, normally one year.

Compared to last year (2006), this company has witnessed an increase in the figure of dividend per share which implies more returns Lonmin gained from its business operations for its sharesholders. Also, considering its profit in the stock market, earnings per share of its outstanding share volumes was experienced a slight downward trend (5.2%) over the specific period from 2006 to 2007. All the data changes showed that although this company has performed better for its stockholders, more values from the stock market were still highly expected.

2.3.1.2 Balance Sheet

Generally, the balance sheet shows the assets and liabilities for the business. On the balance sheet we can see the cash balance at the start and end of the period. For Lonmin, whose current assets are experiencing a significant raise during the two years (2006 & 2007) will easily create cash from those assets within one calendar year. Referring to the total liabilities illustrated from the Annual Report 2007, this is an upward trend of 10.4% between the two years’ figures. This implies that the amount of debts and monies that are owed to the company’s outside creditors, vendors, or banks was increasing and the remaining monies that are owed to shareholders, including retained earnings reinvested in Lonmin’s business was also climbing. According to this point, the existing investors may reinvest in the company and some more potential investors may be attracted by Lonmin.

2.3.1.3 Cash Flow Statement

For the proposed company in this report, according to the cash flow statement in 2007 Annual Report of Lonmin Plc, it seems that the biggest cash out is the investing activities including acquisition of subsidiaries, purchase of intangible assets and property, plant and equipment etc. Furthermore, the cash out of financing activies are much less. For cash in items, it can be seen that in this company starting line, depreciation and other investing cash flow items all exceed $1000 million. Still, non-cash items, changes in working capital, financing cash flow items and insurance of debt also have big cash in. Consequently, it can be evaluated that Lonmin experienced a positive cash stream which can help the company gain more profits.

3. Annual Report Analysis of Financial Year 2007

In this section, a number of calculations will be conducted in order to review the financial performance of Lonmin in the financial year. Generally, it is proposed to analyse the data by computing some relevant ratios associated with the companys financial performance as well as observing some importance financial items such as accounts receivables, sales or revenues and long-term debt etc.

3.1 Relevant Ratios Calculated

3.1.1 Market Value Ratio Calculations

Table 3.1 Market Value Ratio

2006 2007

Total Assets ($m) 2,741 3,938

Total Debt ($m) (1429) (1,578)

Cost of Goods Sold ($m) (904) (1,017)

Net Earnings ($m) 842 794

Accounts Receivables ($m) 396 338

Inventory ($m) 135 186

Sales ($m) 1,855 1,941

Current Assets ($m) 601 764

Current Liabilities ($m) (322) (564)

Net Profit After Taxes ($m) 431 408

Shareholders Equity ($m) 313 314

The Number of Shares Outstanding 2,021,331 1,324,642

Share Price (mid) 31.12 31.77

Cash Flow ($m) 290 380

Asset Management

Inventory turnover (COGS/Inventory) (6.70) (5.47)

Days of sale outstanding (365/Inventory turnover) (205.06) (514.08)

Profitability

Net profit margin (Net profit after taxes/sales) 23.23% 21.02%

Return on investment (Net profit after taxes/Total assets) 15.72% 10.36%

Return on equity (Net profit after taxes/Shareholders’ equity) 137.70% 129.94%

Liquidity

Working Capital Ratio (Current assets/Current liabilities) (1.87) (1.35)

Acid-test [(Current assets-Inventory)/ Current liabilities] (1.45) (1.02)

Debt Management

Debt-to-equity (Total debt/ Shareholders’ equity) (4.57) (5.03)

Debt-to-total-assets (Total debt/Total assets) (0.52) (0.40)

Market Value Ratio

Earnings per share (EPS) 21.95 20.51

Price earnings (Share price/Earnings per share) 1.42 1.55

Free Cash Flow Margin (Free Cash Flow/Sales) 15.63% 19.58%

Price to Sales Ratio (Todays Price /EPS) 1.42 1.55

Cash flow per share (Cash flow/The number of shares outstanding) 143.47 286.87

According to the figures illustrated and calculated above, the change trend in accounts receivables was negative of about 14.65%. This seems that it was a good new for the company because of less customers were not paying their bills to Lonmin, which indicated that more cash has been received by the firm and less bad debt would be probably produced. Additionally, there was a significant increase in the number of inventories owned by the corporation (37.78%) while there was a slight increase in the figure of sales (4.64%). This implied that competition and pricing for the company would be a big problem due to the faster rising of inventories than sales.

Considering the number of shares outstanding trend, a significant decrease of 34.47% has been demonstrated from the Lonmins Annual Review 2007 which meant that the company should be caution about this figure. Also, the company had experienced a great upward trend in the number of cost of goods sold that hindering possibilities for the firm to attract more shareholders.

With regard to the cash flow growth of Lonmin Plc, about 31.03% increase has occurred mainly due to an inflow on working capital of $81 million compared with an outflow of $202 million last year (Lonmin Annual Review 2007). Moreover, the growth in cash flow margin was substantially over 10 which was excellent and needed to be continuing.

As stated in Lonmins Annual Review 2007, the number of net cash received in 2007 was $137 million as well as the figure of net income ($408 million) in this financial year, both have experienced a decrease compared with the figures last year. These were mainly caused by the declined operating profits for the financial year. Nevertheless, to compute the cash position per share (net cash/the number of shares outstanding), there was $103.42 per share in cash that represented actual cash included in the price of each share of stock which was great. As computed above, the inventory turnover ratio decreased within the two financial years (2006-2007) which might lead to unqualified merchandise and improper pricing of the proposed company.

Finally, the price to sales ratio is the amount invested for each dollar of sales. This ratio is Industry sensitive. With regard to this ratio, the figure in 2007 was higher than the number of 2006 for Lonmin with high profit margins and growth. However, the lower the the amount the better, thus the company should take more care of their growth in profit.

3.1.2 Other Significant Ratio Calculations

3.1.2.1 Contribution Margin

The Contribution Margin Ratio is the percentage of contribution over sales, which can be calculated from the unit contribution over unit price or total contribution over total sales (Wikipedia, 2008)

Accordingly, the total contribution margin of Lonmin in 2006 is $1,855,000,000-$240,000,000=$1,615,000,000; Similarly, in 2007 the total contribution margin is $1,941,000,000-$132,000,000=$1,809,000,000. Then, the contribution margin ratio is $1,809,000,000/$1,941,000,000=93.2% (Year 2007)

3.1.2.2 Net Margin

Net Income after taxes

Revenue

Net Profit Margin =408,000,000

1,941,000,000= 0.21

3.1.2.3 Return on Capital Employed

Operating profit

Equity Shareholders’ Funds

ROCE = 794,000,000

314,000,000= 2.53

3.1.2.4 Sales per $ Capital Employed

Revenue

Equity Shareholders’ Funds

Sales per $ Capital Employed =1,941,000,000

314,000,000= 6.18

3.1.2.5 Gearing Ratio

Gearing Ratio = Total Borrowings / (Total Borrowings + Total Equity) * 100

= 596,000,000/ (596,000,000+2,360,000,000) * 100

= 20.16%

3.1.2.6 Price-earnings Ratio (P/E)

- Current share price as at 31/12/2007 is $30.35

- Current EPS = $20.51

- Growth rate = 4.64%

- Expected EPS = Current EPS* (1+growth rate) = $20.51 * (1+4.64%) = $21.46

Table 3.2 - Calculation of P/E multiple

P/E Multiple Formula Calculations

Trailing P/E 1.4798

Leading P/E 1.4143

The P/E value of Lonmin Plc is 1.4798; this high multiple may due to the superior growth opportunities and superior investments that occurred during past few years, rather than mispricing the value. 3.1.2.7 Intrinsic value of Lonmin Plc

V Lonmin = P/E (benchmark Multiple) x

= 1.4798* (408,000,000 / 1,324,642)

= $455.79

3.1.2.8 Price-Book Ratio (P/BV)

Table 3.3 P/B Ratio

2007 2006 2005 2004 2003 Average

Common Equity $1,968m $1,089m $838m $744m $645m $1056.8m

Outstanding shares 1,324,642

BV $797.8/share

Current Price $30.35

P/B 26.29

3.1.2.9 PEG Ratio

Formula Calculations Results

PEG 1.4798 /0.0464 31.89

Lonmin’s PEG ratio is significant high in the industry. Actually, firms that look overvalued based on direct comparison of the PEG ratios may in fact be firms with lower risk, lower growth, or lower ROE that are, in fact correctly valued. It is reasonable because Lonmin is the one of the leading firms in the industry, it may have lower growth and lower risk than the others in the same area. This is why the PEG ratio is much higher than the industry average.

3.2 Company’s Weighted Average Cost of Capital (WACC)

Capital is a necessary factor of production, and like any other factor, it has a cost. The cost of each capital component is defined as the component cost of that particular type of capital.

3.2.1 Cost of Debt

The cost of debt used to calculate the WACC is the interest rate on debt, less the tax savings because interest is deductible. An estimate for the interest rate was derived using interest expense, interest paid as a percentage of interest-bearing debt.

Table 3.4 – Cost of debt (accounting method) unit: $m

2007 2006

Interest expenses 7 6

Short-term debt 237 -

Long-term debt 359 499

Total interest-bearing debt 596 499

Interest Rate1

Interest Exp t

Interest-bearing debtt-1 1.17% 1.20%

Interest Rate2

Interest Exp t

Aver Interest-bearing debt(t, t-1) 1.40% -

Therefore, from accounting method, the average cost of debt over the past two financial years is:

Cost of Debt = 1.40%/2 = 0.7%

3.2.2 Cost of Equity

The basic rate of return investors require on a company’s common equity is a most important quantity. For equity shares in equilibrium, the required rate of return should equal to the expected rate of return, that is, a risk-free rate plus a risk premium. Hence, the Capital Asset Pricing Model (CAPM) becomes the most widely used model to help estimate the cost of equity, that is:

Required rate of return = Expected rate of return = Rf + ? (Rm – Rf)

= 5.1% + 1.53 * 5%

= 12.75%

Although the CAPM model appears to yield an accurate estimate of the cost of equity, we still have the following limitations on obtaining the correct estimates of the inputs required to make it operational, they are:

- There is uncertainty about whether to use long-term (i.e., ten-year bond) or short-term government securities (i.e., 3-month bills) for risk free rate.

- It is hard to estimate the true beta that investors expect the company to have in the future.

3.2.3 WACC

Table 3.5 WACC Calculation

No. Of Items Items Lonmin Plc.

①　 Long-Term Debt (Long-Term Loans) $359m

②　 Number of shares outstanding 1,324,642

③　 Share Price $31.77

④　 Market value of Equity (Number of Shares Outstanding * Share Price $42,083,876

⑤　 Interest cost $7m

⑥　 Cost of Debt 0.7%

⑦　 Tax rate 31%

⑧　 Risk free rate 4.7-5.5%

⑨　 Market spread(Rm-Rf) 5%

⑩　 Beta 1.53

11　 Cost of Equity 12.75%

12　 D/(D+E) 5.20446%

13　 E/(D+E) 94.79553%

14　 WACC% [12 * 6 * (1-7) + 13 *11] 12.11%

All in all, the companys WACC is a very important number, both to the stock market for stock valuation purposes and to the companys management for capital budgeting purposes. As mentioned in Lonmins Annual Review 2007, the expected return of potential investment was $8 million and had negative relationship with actual return this year (-$3 million). However, as calculated above, the companys WACC was 12.11% which may result in a decrease in stockholder value and should be avoided by the company.

3.2.3.1 Financial Risk Analysis

Beta > 1 (Lonmins beta of this financial year was 1.53) implies the stock is of a higher risk (expected return is higher). So long as debt is roughly riskless, equity ends up picking up all the variability in firm value. As more debt is issued, this variability per unit of equity value becomes larger which increases the beta of equity. This in turn increases the cost of equity. In consequence, the expected return on equity of shareholders is meanwhile increased.

3.2.3.2 Business Risk Analysis

An asset with a beta of 1.53 means the asset generally do not follow the market. Higher-beta stocks mean greater volatility and are therefore considered to be riskier, but are in turn supposed to provide a potential for higher returns (Wikipedia). Accordingly, the figure of 1.53 which is higher than the market’s underlying beta (1.00) illustrates that assets of Lonmin cannot follow the market generally and offers a lower expected return for its shareholders.

3.2.3.3 Minimum Risk

The risk-free rate of return which has been calculated previously is a performance measure that adjusts for the initial risk an investor takes at the time of a purchase (BNET Editorial). 12.75% cost of equity is so high in risk thus a higher level of return requirement will be posed by shareholders.

3.3 Other Explanations of Financial Items

The term "notes to account" refers to a series of notes at the end of a companys financial statements including details of certain explanations about figures and items in the balance sheet and income statement. For example, the figure of profit before tax ($705 million) is adjusted for depreciation, amortization, negative goodwill, gain/loss on sale of property, plant & equipment, equity settled share based expenses as well as financial income and expenses (net). This kind of notes makes important reading for financial analysts as they flesh out much of the story behind the declared numbers, and then to avoid misleading between report creators and readers.

More specifically, as shown in the notes, it can be clearly found out that which director of this company paid the most at the end of the year 2007, and how much money they received from the company that could be illustrated in the annual report or even in the notes. For example, in the page 17 of the Annual Review, in the section of “Remuneration Committee Report”, Roger Phillimore: was appointed as an independent Director who has been a member of the Remuneration Committee and its Chairman since September 2002. During the year he received a fee of ￡121,250 from this company which is not included in the above figures. In other words, from the notes to accounts, the cash allocation for top personnel of the company can be apparently seen and it means that this company is open to the public to show its salary system.

Furthermore, as shown in the Annual Report, targets of major shareholders of Lonmin for the next year (2008) were also demonstrated. Following this, the actual share price in recent stock market could be posted in the section of notes to accounts, thus it can be clearly seen that whether this company has achieved shareholders’ targets in the following year.

4. Conclusion 

This paper applied various valuation models to evaluate Lonmin’s financial performance in the year 2007. Based on the main calculations, Based on the calculations, the companys value of share price was $31.77. However, the market value of the share price for Lonmin was $38.25 (30/09/07). It seems the share price was overvalued by the market. The reason behind this was that the 2006 based data was used to calculate the P/E ratio. Although there are several limitations behind the valuation, the evaluation is still useful because there is actually a forecast of the future movement of the company in the market rather than give a true value of the company.

Although there are such limitations behind the valuation, the evaluation is still useful because the future movement of the company in the market was actually forecasted rather than give a true value of the company.

In addition, in the last few years, an increasing number of active investors have successfully developed both an understanding and a disciplined approach to using options in their investment strategies. For those investors, the rewards of using options to manage their risks and exposure to underlying stocks have more than offset the time required to develop these skills. Consequently, Lonmin Plc should be committed to leading UK markets in minimising the effects of climate change, investing in sustainable energy businesses and innovative environmentally friendly projects as well.

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