Introduction to Financial Analysis

INTRODUCTION TO FINANCIAL ANALYSIS
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Introduction
Namakwa Diamonds Ltd is among the listed companies in the Main Market in London Stock Exchange as it is a highly integrated resource group for diamond. Its resource base is construed to be approximately 26.6 Million of diamond carats and it is speculated to have s future increase of about 12 million diamond carats. The strategic goal for the company is to realize output and quantity of diamond that is mined in its current sites in order to minimize the effects of the future shortages in the future. This strategy ensures that Namakwa Diamonds realizes maximum revenue. I selected this company for financial analysis in an attempt to ascertain its going concern and its speculated profits as the commodities and services that it trades on are volatile.
The company has been recording operating loss for the last few years of its operations. Despite this, in 2010 the company’s operating loss decreased by approximately 100% from that of 2009; 89 808 and 30 531 losses for the year 2009 and 2010 respectively.
Return on Capital Employed = {Net profit before interest and tax / Share capital + reserves + long term loans} * 100
2009 = {77 / 81141} * 100
= 0.094%
2010 = {-1219 / 59202} * 100
= -2.06
In the case of the Return on Capital Employed (ROCE), there was a decrease by approximately 2.2% in 2010 as compared to that of 2009. The company’s ROCE of -2.06% in 2010 showed that the company is not using the available assets in efficiently in an attempt to offset the reported loss. The higher ROCE that was reported in 2009 showed that Namakwa Diamonds was able to use its assets extensively to mitigate the extent of the losses it was reporting. Following this trend the company’s profitability level will be at risk in the near future making it to report loss in the subsequent periods.
Operating Loss margin = {Net Loss / Net sales} * 100
2009 = {-89885 / 27270} * 100
= -329.33%
2010 = {-29312 / 81977} * 100
= -35.76%
The operating loss margin for the company was reported at -35.76% and -329.33% in the year 2010 and 2009 respectively. The decrease in negativity for the company’s operating margin was facilitated by the increased revenue outlay due to diversification and increased promotional activities for the Company’s products. Form this data; Namakwa Diamonds Ltd does not have sufficient revenues that will enhance the company to earn an additional dollar profit after imposing taxes on the amount realized. Following this trend, the company will r...