Delta SBD has had negative economic profit for the last three years and then a positive economic profit in 2013. The primary reason for the general negative trend is due to the difference between return on net operating assets and the cost of capital. For the past three years, the company had net operating asset ratios of 7.20%, 7.23% and-132.57%, which is well under the consistent cost of capital of 10%. Hence the past three years of economic profit are negative, and that is why 2013 made economic profit. Another important thing to not is the economic profit is low in 2014. This low economic profit is seen throughout the: return on equity, return on net operating assets and the profit margin, and the reason for it is the mining boom that took place at the start of 2014.
Assignment 2 step 3
I found restating the financial statements to be quite difficult not in terms of work load but in terms of grasping what we are actually required to do. Luckily I sat down to actually read chapter 4 of the study guide, which gave me more of a guide. There was a fair bit of thought that went into the process like “are taxes operating or financial”? Or “do we keep current and non-current assets, or are they combined”. Fortunately for me I relied strongly on the study guide for guidance, along with our lecturer coming around and correct my “current and non-current” errors.
My draft for Assignment 1
The company I am to investigate is Delta SBD, “One of the leading mining services companies in Austarlia” (2012, Delta SBD Ltd). The company is in business with: Anglo Coal, BHP Billiton, BMA, Boral, Centennial coal, Felix, Guarat NRE, Pacific Resources, Peabody coal and Yanzhou. The company also wants to expand further to Gunnedah coalfield in NSW (Delta SBD Limited, Annual report 30 June 2016). Reading through the company’s annual report and reading up on the company’s history; there are details that one can pick up on that the company wishes one wouldn’t notice. These details consisted of the company’s history in the share market, the company’s investment returns and the company’s growth rate.
Firstly, Delta SBD would not want investors considering their history in the stock exchange as it is material. The reason for this is that Delta SBD was marked at $1.40 a share in 2011 and is now going for 20 cents a share on the ASX. The company clearly is on its way down, although it is gradual and quick investors can profit from micro spikes in the company’s value, passive investors will be losing their money. Delta SBD is hinting at a rise as the company is expanding to Gunnedah coalfields in NSW and it has a turning point near the end of 2015. This is still highly unlikely when the company’s history, in the ASX, is considered. The company has had 4 turning points in its past which has eventually returned to the consistent negative slope. Another piece of material is the company’s returns on their investments.
Secondly, Delta SBD would not want their investors to see the company’s net cash from used from investment activities. On the annual report the company has identified a -$2,292,000 under their net cash from investment activities, in comparison to $9,646,000 in 2015. This means that Delta SBD lost 2 million dollars in 2016 just on investment activities. A company that was sitting at 5 cents a share in 2015 lost $2 million just on investment activities the following year is a reckless company. This is because Delta DSB is in no position to be losing money let alone $2 million. Another issue with Delta DSB losing $2 million on investment activities is that companies usually utilise the money of investors to invest into other companies, so if they do make a bad investment it does not damage the company’s funds. So when Delta SBD loses by such a margin their investors make zero profit, investors will then invest in different companies instead. This is so damaging because it will affect the rate at which the company grows, as they will have minimal funds to utilize as there will be a scarcity of investors.
Thirdly, Delta SBD would not want their investors to look at the rate of their growth over the past couple of years. Over the past 2 years Delta DSB has gone from 10 cents to 20 cents, which is not dramatic at all considering that commonwealth Bank went from $81.30 a share to $86.09 a share in the month of February alone (shareprices.com, 26/3/2017). Delta DSB is not competing with Commonwealth bank but the figures encompass what real growth looks like. This growth rate is not pleasing to both passive and active investors, as profit will be minimal and the company itself is an investment risk. The company does however share its annual report that there is expansion happening over in NSW, but the question is to be asked; is this another one of their investment activities that will cost the company $2 million dollars?
To conclude, Delta SBD “one of the leading mining services companies in Australia” (2012, Delta SBD Ltd) is struggling to stay a-float with their massive drop in the ASX, their terrible investments and their terrible growth rate. It is not recommended for any investors to invest into this company as it is showing signs of future bankruptcy.
Some useful links about Delta SBD
These are just some useful links That helped me with my accounting assignment #1:
http://www.asx.com.au/asx/share-price-research/company/DSB
https://www.intelligentinvestor.com.au/company/DeltaSBD-Limited-DSB-6563862
https://www.bloomberg.com/quote/DSB:AU
https://www.wsws.org/en/articles/2016/12/31/labo-d31.html
https://www.centraltelegraph.com.au/news/baralaba-coal-appoints-new-ceo/3130928/ .
Step 4
Hey blog world! I was just wondering if anyone knew whether financial statements took into account inflation (economics term for currency losing its value)?
My first post
I am very new to writing blogs, but I must do this for assessment so here I go. I am a uni student at CQU doing a double degree of business and business commerce. I am a bit behind on my studies and I do enjoy long walks on the beach. Until next post, this is all I have to say.
A day in uni with Rudolf 