An Analysis and Evaluation of the Financial Performance of Hoshschild Mining Plc Assignment Sample

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Section 1 - Introduction: Financial Performance Analysis of Hoshschild Mining

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Financial analysis refers to the process of evaluating and analyzing the financial statement of the business entity to determine overall performance and stability of organisation. This analysis assists managers to take effective decision after evaluating various crucial aspects of the organisation. Hoshschild mining was incorporated on 10911 as the British gold and silver mining company in South America and north central. The company is having headquartered in London and listed on FTSE 250 index and London stock exchange. The company is annual revenue of 555.9 m in year 2022 (Annual revenue of Hochschild mining, 2022). This report will includes the analysis of the financial statement of Hochschild Mining, which will help in determining the accurate position of the company. These reports will also provide suggestions to investors reading the feasibility of investment.

Section 2- Analysis Of Financial Performance

Financial ratios are the metric which is used by company to determined overall financial position of the organization. This ratio helps in identifying the liquidity, solvency, efficiency and profitability position of the company. This financial ratio analysis of Hochschild Mining’s is as follows:

2.1 Current ratio

It is the ratios which indicate the liquidity position of the organization by determine its capability in paying off its short term liability. This ratio is being calculated by using current assets and liability which helps in determines overall performance of the business entity. This ratio also indicates the efficiency of manager in effectively managing assets and liabilities.

From the above analysis, it has been determined that company is having low current ratio which indicates the incapability of company in fulfilling its liabilities (Auboin and Blengini, 2019). It has been identified that 2: 1 is the ideal current ratio which should be maintained by each company to work efficiently. Hochschild Mining’s current ratio is only 1.6 which indicates that company will be incapable to pay off all its liabilities by selling current assets. It has been identified that company’s current ratio is decreasing in 2021. This has been occurred as company is focusing towards involve short term loan to fulfil its debt liabilities. These result increasing liabilities leading to decreasing current ratios (Financial statement of Hochschild mining, 2023). Current assets of the firm has been reduces as company is investment towards acquiring fixed assets has been increased.

There are increases in liabilities which results in creating interest obligation for firm leading to reducing overall cash in hand. To improve the current assets, manger should focus on reducing the drawing from the organization which helps in increasing cash with the firm. Concentration should be paid towards marketing strategies which helps in increasing sales leading to enhancing overall profitability. Fixed or capital assists which are not providing effective outcomes should be sold off resulting in improving amount of cash.

2.2 Gross profit ratio

This is the ratio which helps in identifying the profitability position of the company. This ratio indicates the efficiency of organization in using its resources to generate profits. This ratio helps in determining the long term stability and efficiency of the business entity. Higher ratio indicates the effective organizational efficiency and vice versa.

The ideal gross profit ratio of company should be 50% to 70% which will help in covering all the cost and assist in maintaining stability within the industry. It has been depict from the above analysis that business entity is having very less amount of gross profit indicating inefficiency in carrying out its operation (Chairunisa, Digdowiseiso and Karyatun, 2023). It has been identified from the analysis that gross profit of the company has been reduced overall years which is not good indicators for investors. Company’s amount of sales has been increased but the overall gross profit ratio has been reduced which indicates firm’s deficiency in adopting adequate pricing strategies. Operating cost of organisation has been increased which results in decreasing in overall profitability.

The company should focus towards increasing its gross profit margin by investing on integrated marketing channels. This will help in tatarcting large number of customer towards organisation leading to attaining economies of scale. This will help in reducing overall cost and helps in enhancing profitability of company.

2.3 Return on assets ratio

Return on assets ratios is the measures which help in determining the efficiency of the organisation. This ratio indicates the firm’s profitability position in relation to its assets. This is calculated to determine the capability of the reorganisation in using its assets which help in generating revenues.

After analysis the return on assets ratio, it has been identified that company is effectively using its assets in generating profit for the organisation. This ratio indicates that Hochschild Mining’s assets are efficiency used and the investment done by company is optimum. This represents the efficiency and effectiveness of manager in the firm in forming strategies and decision (Husna and Satria, 2019). By comparing the financial data of two continuous years, it has been depicted that company’s return on assets over year is constant which the good indicator for organisation. This has been achieved as company is optimally using all its fixed assets which help in reducing wastage and improving efficiency.

2.4 Interest coverage ratio

This is the type of solvency ratio which indicates the ability of firm in paying all its interest liability by using the profit. Interest coverage ratio helps in determining the number of time firm’s profit could be used to pays off all its interest. This ratio is calculated by determining earning before interest and tax and dividing it by total expense.

The ideal interest coverage ratio is 1.5 whereas company is having the ICR of 1.56 which represent company; s incapability to pay off all its interest liability. This indicates that decisions taken by the manager of firm are ineffective and operations of organization is not optimum which results in decreasing overall profitability of the firm. Based on the above evaluation, it can be depicted that interest liability of organisation is increasing over year. The company has been facing this issue as the operating expense of organisation has been increased which results in remaining less amount to pay of its interest liabilities (Izzalqurny, Subroto and Ghofar, 2019). To increase the ICR Hochschild Mining should focuses towards including equity financing in its structures which will reduces its interest liability.

2.5 Leverage ratio

Leverage ratios help in determining the amount of assets that has been financed through debt capital. This helps in identifying determining the total amount of debt in the capital structure which assists in identifying the long term obligations of firm in paying off its loan. Leverage ratio help in determining the amount of risk associated with company and assist in taking effective capital structure decision.

According to industry analysis, the ideal leverage ratio for organization should be less than 0.5. From the above analyse, it has been identified that company is having ideal ratio 0.19 which indicate the amount of capital that has been raised through debt fund. Increase in debt amount in the capital structures results in increasing the interest liability of the business entity. It has been depicted that company is operating financially responsible as the leverage ratio has been reducing overall period of time.

2.6 Return on equity ratio

To determine the profitability position of the organisation, return on equity ratio has been calculated. This ratio helps in providing assurances to investors regarding the efficiency in using their funds. This ratio is calculated by dividing the net income by the equity fund of the company. Higher ratios help in attracting new investors which assist in raising additional funds.

It has been depicted form the above analysis that company is not able to sufficiently utilize the funds generated from its shareholder. The ideal ROE should be 15% to 20% where as Hoshschild mining is having very low ratio. This indicates inefficiency of organisation in using its funds for generating profits (Nugraha, Puspitasari and Amalia, 2020). From the past two year, it can be describing that company is not using shareholder’s fund in an optimum manner as the ratios are below prescribed range. This ratio could be improved by increasing the sales and reducing the amount of equity in capital structure. Company should emphasis towards adopting various cost control measures which will help in reducing the cost and assist in enhancing overall profitability of organisation.

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Section 3- Investment

After evaluating company’s financial statement it can be suggested that investors should not invest in the firm. Hochschild mining‘s profitability and liquidity position is declining over years. Reducing gross profit will creates obstacle in getting adequate amount of return for the investor’s results in decreasing financial position. Due to low profit, companies will unable to incur cost towards marketing strategies which results in firm’s incapability in creating competitive edge results in generating barrier in maintaining stability (Oktavian and Handoyo, 2023). It has been identified that company is having very less amount of profit which will enable firm to invest towards diversifying its operations leading to creating constraints in surviving in extremely competitive market. From the analysis, it can be argued that company’s liquidity position is not optimum which results in facing difficulty in paying of its liability.

 This indicates that large amount of profit and additional capital will be used in paying off its current liabilities resulting in reduction in the amount of dividend for the investors. Based on the above analysis, it has been interpreted that return on equity of Hichschild mining is kelp on reducing over years. This represent the inefficiency of comapnuy’ management in adequately use the shareholder’s fund results in reducing the amount of dividend for the investors. The interest coverage ratios of the company is reducing representing that compsny’s profit are not be able to pay off all interest obligation. Dividend for preference share is decided after paying of all the other liabilities and rest amount has been dividend among shareholders. Reducing interest coverage ratio indicates that company’s profit will be use to pay off interest and the investors will be left with less amount. This will results in reducing the return for the shareholders results in reducing their motivation to invest in the firm. So it can be concluded that investors should not invest in the company due to the disappointing results and outcome provided by firm.

Conclusion

By summing up the report, it can be concluded that financial analysis is the efficiency measures by which the efficiency and effectiveness of organisation; s operation could be determined. This has been identified that company’s current ratio is decreasing overall year indicating poor liquidity position. This has been determine that firm’s is not having an adequate amount of gross profit ratio due to its inefficiency in controlling its cost which results in reducing overall income of the organisation. Company is not efficient in using shareholder’s fund in generating profit which results in reducing the confidence of shareholder results leading to negatively impacting organisation’s working. Based on this analysis it was suggested that investors should not invest in the company as it will unable to provide desire outcomes.

An Analysis and Evaluation of the Financial Performance of Hoshschild Mining Plc Assignment Sample

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References

Books and Journals

• Auboin, M. and Blengini, I., 2019. The impact of Basel III on trade finance: the potential unintended consequences of the leverage ratio. Journal of Banking Regulation, 20, pp.115-123.
• Chairunisa, S.S., Digdowiseiso, K. and Karyatun, S., 2023. The Effect of Total Assets Turnover, Debt to Assets Ratio, Cash Ratio and Current Ratio on Financial Performance of Companies The Hotel, Restaurant and Tourism Subsector in IDX for The Period 2016-2020. Jurnal Syntax Admiration, 4(3), pp.548-558.
• Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), pp.50-54.
• Izzalqurny, T.R., Subroto, B. and Ghofar, A., 2019. Relationship between financial ratio and financial statement fraud risk moderated by auditor quality. International Journal of Research in Business and Social Science (2147-4478), 8(4), pp.34-43.
• Nugraha, N.M., Puspitasari, D.M. and Amalia, S., 2020. The effect of financial ratio factors on the percentage of income increasing of automotive companies in Indonesia. International Journal of Psychosocial Rehabilitation, 24(1), pp.2539-2545.
• Oktavian, E. and Handoyo, S., 2023. The Effect of Leverage, Profitability, Liquidity Ratio, and Inflation towards Financial Distress: Study From the Manufacturing Industry in Indonesia. International Journal of Management Science and Application, 2(1), pp.11-27.

Online

• Annual revenue of Hochschild mining. 2022. Online Available through: < https://www.hochschildmining.com/investors/results-reports-presentations/>
• Financial statement of Hochschild mining. 2023. Online Available through: < https://www.annualreports.com/Company/hochschild-mining-plc>