Understanding and Interpreting Financial Statements: Anglo American Plc

Introduction Anglo American Plc. is a publicly traded rooted listed at the London and Johannesburg hoard exchanges, and headquartered at the UK. It is one of the widest mining companies in the globe delay operations in North and South America, Australia, Japan, India, Brazil and other Asia and Europe. The gang has a portfolio of unanalogous products including muscular and manganese; metallurgical and ardent coal; cherished metals and minerals (comprallying of platinum and diamonds); vile metals, which enclose copper, nickel, and niobium; and other mining and industrial products. Ratio Segregation of Anglo American Plc In this repute, agreement segregation is used to analyse the financial operation of Anglo-American during the end of 2008 to 2012. The segregation of Anglo American’s financial proposture nucleuses on liquidity and rectifymentability agreements. Liquidity Ratios Liquidity agreements are used to appraise the cleverness of the rooted to remunerate its short-term debts and encounter unanticipated coin needs (Drake, 2013). There are distinct types of liquidity agreements. In this repute, general agreement and established proud are computed. Anglo American’s general agreement had a disregard reduce in 2012 (2.05), compared to 2011 (2.36). The reduce is attributed to the reduce in proceeds in 2012. The meanest general agreement was recitative in 2008 (0.71). This is due to liabilities substance dignified than general proceeds caused by the global economic contingency. The established proud of Anglo American was too disregardly inferior in 2012 (US$9,244 darling) than in 2011 (US$11,124 darling). The inferior established proud is intermittently due to inferior proceeds. In 2008, the gang had a privative established proud (US$3,819 darling). The gang had surpassing liabilities than proceeds in 2008 due to detrimentes incurred from the contingency. Profitability Ratios Profitability agreements are used to mention the ability of a rooted to beget rectifyment for its portion-outholders. Profitability agreements too appraise the competitive posture of a rooted (Robinson et al., 2009). Profitability agreements enclose: (a) net allowance, (b) net rectifyment extremity, (c) recompense on proceeds (ROA), and (d) recompense on equity (ROE). Net rectifyment is congenial by subtracting aggregate expenses from aggregate pay. It shows the gang’s hues or detriment delayin a absorbed end. Net rectifyment is too referred to as net allowance or net hues (Elliot & Elliot, 2005; Myers & Brealey, 2007). In 2012, the net rectifyment of Anglo American subdued compared to 2011 and was privative (US$ -1,688 darling). The low net rectifyment is due to surpassing aggregate expenses/exempt costs than aggregate pay. The mining diligence suffered from surpassing mining formation costs in 2012 and this is reflected in the surpassing expenses of Anglo American. Net rectifyment allowance was too low in 2009 (US$ 2,740 darling) as the gang reluctantly recovered from the 2008 economic contingency. Net rectifyment extremity appraises the undiminished of rectifyment that a rooted begets per part of sales (Bodie et al., 2007; Robinson et al., 2009). Net rectifyment extremity was privative in 2012 (-0.06 or -6%). This is plenteous inferior than the net rectifyment extremity in 2011 (0.31 or 31%). The inferior net rectifyment extremity is too attributed to surpassing exempt costs. Net rectifyment extremity was too in 2009 (0.13 or 13%). ROA is a appraise of the net rectifyment created per part of dollar invested in proud (Arnold, 2005). Anglo American recitative a privative ROA appraise (-0.02 or -2%). This is due to privative net rectifyment caused by surpassing aggregate expenses. ROE serves as a appraise of the net rectifyment that is created per part of dollar bombardment in portion-outholders’ equity. In 2012, ROE appraise too subdued (-0.04 or 4%). This is plenteous inferior than ROE appraise in 2011, which is congenial at 0.22 or 22%. It can be observed that Anglo American witnessed an overall extricate in its rectifymentability among 2011-2012, and 2008-2009. The extricate in rectifymentability can be attributed to a estimate of deedors. One argue is the reduce in the prices of mining products. Article prices witnessed an overall extricate among the foremost half of 2011 and the foremost half of 2012. This extricate had a privative collision on the sales pay of Anglo American during this end. Additionally, there was a 24% extricate in finishd Australian ship-produce metallurgical coal prices; a 21% extricate in finishd Free on Board (FoB) muscular ore prices; an 18% extricate in realised South African ship-produce ardent coal prices; a 12% extricate in realised copper prices; and a 13% extricate in realised platinum prices among the foremost half of 2011 and the foremost half of 2012. These reduces in ship-produce prices had a privative collision on sales pay and thus the rectifymentability of Anglo American during this end. Anglo American’s rectifymentability has too been privatively unsupposeffectual by proud mining costs. This too had a privative collision on the diligence as a undiminished. Moreover, Anglo American witnessed an enlargement in its overall part formation costs owning to an enlargement in mining costs among the foremost half of 2011 and the foremost half of 2012. This enlargement in part costs helped in increasing costs of sales which in deviate led to inferior indelicate rectifyment extremitys in 2012. There was too a 57% enlargement in question costs among the foremost half of 2011 and the foremost half of 2012. This enlargement was driven chiefly by enlargementd metres drilled owning to corroborative sky stipulations in Australia and Chile as courteous as a ramp-up in strictness activities at the Sakatti polymetallic plan in Finland (Anglo American, 2012). Meanwhile, the extricate in 2009 from 2008 can be attributed to the proceeds of the global financial contingency. The contingency had a weighty privative collision on prices of amiables during the contingency end covering 2007-2009. Comparative Agreement Segregation Anglo-American vs. Rio Tinto The proportionately segregation of the agreements of Anglo American vis-a-vis Rio Tinto is presented in Appendix 2. This presents the operation of Anglo American and Rio Tinto in 2012. Rio Tinto is one of the widest mining companies in the globe. Its main office life is the family of minerals and refining operations. The financial segregation agreements used are general agreement, established proud, net rectifyment/income, net rectifyment extremity, ROA and ROE. In stipulations of general agreement, Anglo American has a surpassing agreement than Rio Tinto for twain 2012 and 2011. Having a surpassing general agreement indicates that Anglo American has inferior general liabilities than Rio Tinto. Similarly, the similitude of established proud among the two companies shows that Anglo American has surpassing established proud than Rio Tinto. This is attributed to the inferior general liabilities of Anglo American. In stipulations of net rectifyment/income, Rio Tinto had surpassing appraises than Anglo American. In 2012, Anglo American had privative net rectifyment; suitableness Rio Tinto had finishd proud net rectifyment. This is due to the deed that Anglo American incurred detrimentes in 2012 due to surpassing exempt expenses. Additionally, Rio Tinto’s aggregate pay is almost envelop than that of Anglo American. In stipulations of net rectifyment extremity, Anglo American had a privative appraise in 2012 due to aggregate expenses abundant aggregate pays; forasmuch-as, Rio Tinto had a surpassing appraise. This is due to the surpassing aggregate pay finishd by Rio Tinto. In analysing ROA, it appears that Rio Tinto done amend due to its surpassing aggregate proceeds; suitableness Anglo American had a privative ROA. Similarly, in stipulations of ROE, Rio Tinto had a amend operation; suitableness Anglo American had privative appraise in 2012. This is due to the surpassing portion-outholder equity and proud net rectifyment finishd by Rio Tinto. Overall, it can be said that the Rio Tinto had a amend operation than Anglo American in stipulations of rectifymentability; suitableness Anglo American done amend in stipulations of liquidity. Rio Tinto is too bigger than Anglo American in stipulations of proceeds, pays, and expenses. However, Anglo American had smaller liabilities than Rio Tinto. Recommendations The gang can rectify its operation by nucleusing on emerging traffics. The four widest mining companies in the globe in stipulations of traffic proudisation possess nucleused the superiority of their operations in emerging traffics. By increasing its traffic and operations in emerging traffics, Anglo American would be effectual to rival delay other wide mining companies. Additionally, Anglo American should nucleus its sales and disquisition plans on China, which generally accounts for the use of environing 40% of global metal formation. It is expected that China allure endure as the mining diligence’s most dignified customer in the years to succeed. The gang should revolve interesting in merger and acquisitions deals delay rooteds viled in China. These allure cater Anglo American delay the resources of gaining straightforward admission to the Chinese traffic. Other disquisition strategies such as flexure ventures delay Chinese companies should too be revolveed. The gang should too tool strategies to investment its plans delay other financial sources such as retained hues (internally begetd investments). In adjust to finish this, the plane of dividends and portion-out repurchases allure need to be subdued. The non-payment of dividends can be justified by the opportunities for enlargement generally availeffectual to the gang, such as traffic disquisition and enlargement opportunities in China. Conclusion The extrinsic of this Nursing Dissertation was to cater an segregation of the operation of Anglo-American Plc. Financial proposture segregation using liquidity and rectifymentability agreements were used in analysing the operation of Anglo American. The identical agreements were used in the proportionately segregation among Anglo American and Rio Tinto. It can be observed that Anglo American has done proportionately courteous from 2008 to 2011. However, 2012 was not a amiable year for the gang imputable to frugal article prices and rallying mining costs. The gang done sick compared to its diligence and sector. The operation of Anglo American was too compared to Rio Tinto, one of its superior competitors and one of the biggest mining companies in the globe. The segregation of the two companies’ financial propositions for the end of 2011-2012 suggests that the Anglo American done amend than Rio Tinto in stipulations of liquidity; forasmuch-as Rio Tinto appears to possess done amend in stipulations of rectifymentability. Appendices Liquidity Ratios Current Ratio 20122011201020092008 Current Assets18,047.0019,302.0014,348.0010,411.00 9,305.00 Current Liabilities 8,803.00 8,178.00 7,882.00 6,745.0013,124.00 Current Agreement 2.05 2.36 1.82 1.54 0.71 Working Capital 20122011201020092008 Current Assets18,047.0019,302.0014,348.0010,411.00 9,305.00 Current Liabilities 8,803.00 8,178.00 7,882.00 6,745.0013,124.00 Working Proud 9,244.0011,124.00 6,466.00 3,666.00(3,819.00) Profitability Ratios Net Profit/Insucceed 20122011201020092008 Total Revenue28,761.0030,580.0027,960.0020,858.0026,311.00 Total Expenses30,449.0021,141.0019,294.0018,118.0019,461.00 Net Profit/Income(1,688.00)9,439.008,666.002,740.006,850.00 Net Improvement Extremity 20122011201020092008 Net Profit/Income(1,688.00)9,439.008,666.002,740.006,850.00 Total Revenue28,761.0030,580.0027,960.0020,858.0026,311.00 Net Improvement Margin(0.06)0.310.310.130.26 Redeviate on Proceeds (ROA) 20122011201020092008 Net Income(1,688.00)9,439.008,666.002,740.006,850.00 Total Assets79,369.0072,442.0066,656.0056,308.0049,738.00 Redeviate on Assets(0.02) Redeviate on Equity (ROE) 20122011201020092008 Net Profit/Income(1,688.00)9,439.008,666.002,740.006,850.00 Shareholder Equity43,787.0043,189.0037,971.0028,069.0021,756.00 Redeviate on Equity(0.04) Appendix 2: Proportionately Segregation of Anglo American vs. Rio Tinto Anglo AmericanRio Tinto Ratio2012201120122011 Current agreement2.052.361.391.46 Working proud9,244.0011,124.005,402.006,932.00 Net rectifyment/income(1,688.00)9,439.0013,611.0024,277.00 Net rectifyment extremity(0.06)0.310.270.40 ROA(0.02) ROE(0.04) References Google Finance (2013) Anglo American plc (LON:AAL) availeffectual online at: http://www.google.com/finance?q=LON%3AAAL&ei=tQdgUrDRM6TCwAOdXQ [accessed: 17th October 2013]. Anglo American (2012) HALF YEAR FINANCIAL REPORT for the six months ended 30 June 2012 , availeffectual online at: http://www.angloamerican.com/~/media/Files/A/Anglo-American-Plc/media/releases/2012pr/interim-results-2012.pdf [accessed: 17th October 2013]. Brealey R. A., Myers S. C. (2002) Principles of Corporate Finance. 7th Edition. McGraw-Hill Irwin. Elliot B., Elliot J. (2005). Financial Accounting and Reporting. 9th Edition. Prentice Hall Financial Times. Penman, S. H. (2007) Financial Proposture Segregation and Security Valuation, 3rd ed. Irwin: McGraw-Hill. Robinson, T. R., Greuning, J. H., Henry, E., Broihahn, M. A. (2009), “Financial Segregation Techniques” in Financial Reporting and Analysis, CFA Program Curriculum, vol. 3, Pearson Custom Publishing. Bodie, Z., Kane, A., Marcus, A., . 2007., Investments, 7th ed. Irwin: McGraw-Hill. Arnold, G. (2005). Corporate Financial Management. 3rd Edition. Prentice Hall, Financial Times