Question

Part 2:

NEWCREST	CASH FLOW FROM OPERATING ACTIVITIES	CASH FLOW FROM INVESTING ACTIVITIES	CASH FLOW FROM FINANCING
2018 US $M	$1434	$-833	$-140

NEWCREST	Ratio
Working Capital Ratio -Current assets/ Current liabilities=	1672/651=2.57
Cash Flow Adequacy Ratio (Liquidity): Acid Ration= Current assets (excluding inventory and prepayments)/ current liabilities=	1672(554-77)/651=1.60
Debt to Total Assets Ratio Short-Term Debt + Long-Term Debt/ Total Assets=	4018/11480=0.35
Debt Coverage Ratio (Solvency)= Net Operating Income/ The Debt Service=	1590/179=0.89
Cash Flow to Sales Ratio (Profitability) Operating cash flow/net sales=	1434/3562=0.40

FORESCUE	CASH FLOW FROM OPERATING ACTIVITIES	CASH FLOW FROM INVESTING ACTIVITIES	CASH FLOW FROM FINANCING
2018 US $M	$1,601	$-936	$-1,626

Forescue	Ratio
Working Capital Ratio -Current assets/ Current liabilities=	1650/1239=1.33
Cash Flow Adequacy Ratio (Liquidity): Acid Ration= Current assets (excluding inventory and prepayments)/ current liabilities=	1650(496+120)/1239=0.83
Debt to Total Assets Ratio (Short-Term Debt+Long-Term Debt/ Total Assets=	8117/1650=4.92
Debt Coverage Ratio (Solvency)= Net Operating Income/ The Debt Service=	1601/8117=0.20
Cash Flow to Sales Ratio (Profitability) Operating cash flow/net sales=	1601/6718=0.24

Part 3:

Based on the analysis, you are required to make conclusions and recommendation which will answer the following questions:

1. Which business would you expect to be a better short-term credit risk?
   2. Do you think both companies have adequate cash resources?
   3. Assess both companies’ ability to survive in the longer term.
   4. Which company is better at generating cash from their sales revenue?

Answer 1

A. Newcrest company was better credit risk when compared to Forescue , because it has more working capital ratio which meets it's short term credits.

B. If a company has a high ratio (anywhere above 1) then they are capable of paying their short-term obligations. The higher the ratio, the more capable the company. On the other hand, if the company's current ratio is below 1, this suggests that the company is not able to pay off their short-term liabilities with cash.

So that NEWCREST Company had high liquid ratio which was 1.6 when compare to forescue of 0.83. so in this situation Newcrest company better .

C. Acceptable solvency ratios vary from industry to industry, but as a general rule of thumb, a solvency ratio of greater than 20% is considered financially healthy. The lower a company's solvency ratio, the greater the probability that the company will default on its debt obligations.

So that the company NEWCREST Company had ability to survive in longer term.i.e 89% which was greater than 20% . It indicates that it had good future.

D. FORESCUE company is better generating cash flows . Because the net sales was greater than Newcrest company.