The company revealed amazing growth of profitability during the three periods. Sales increase more than 90% during 2003 and 70% during 2004. The growth of ROA, ROE and profit margin are all experiencing a considerable fluctuation due to acquisitions that increases assets and decreases equity. Some of the activities involve increasing level of operating costs that drag down the profit margin during 2003. Nevertheless, market demand started to kicked-into the next period and brought corporate profitability to an amazing outcome. The activity analysis ratios and the debt ratios indicated that 2003 is a year of massive investment activity.
This can be concluded by the decreasing quick ratio, due to an incline for stocks available; and by the increasing debt level for financing reasons. The market analysis ratio revealed a decreasing rate of PE ratio due to the massive incline in earning per share. In accordance to experts and analysts, the Xstrata Plc is considered to have a viable financial structure, which will lead to good future performance. Since the financial year of 2003 until the present, the company is noted to receive remarks, ranging from neutral to highly positive.
In 2003, Goldman Sachs greeted the company, predicting that the company will experience considerable growth in the future (Cozens, 2003). This is influenced by Glencore’s plan to issue a bond convertible to the corporate shares. JP Morgan Analysts, on the other hand, reiterate their neutral rating on the company on the same year because it believes that the healthy coal export price will benefit Xstrata. In 2004, Morgan Stanley changes their rating on Xstrata from underweight to equal-weight. However, the analyst mentioned that Xstrata is in well positioned to benefit from the increased thermal price during 2005-2006.
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In February 2006, however, Morgan Stanley started to see the bright side of the group as it recommended people to buy due to Xstrata’s strong copper, zinc and thermal market demand, and its current bid on Falconbridge (Lagorce, 2006). JP Morgan on the other hand, cuts its rating to overweight this month (Cozens, 2006). In 2004, this decision is rather in line with Merril Lynch’s comment. It believes that Xstrata is experiencing a year of two halves, where the prices of coal will only benefit the group in a single half. In the case of Xstrata, Merril Lynch is mostly neutral as long as 2004 and 2005.
Nevertheless, this March, it gave the group a higher ranking due to strong thermal coal and zinc prices. Merril Lynch recommended people to buy due to the increasing prices, good corporate cash flow and Xstrata’s bid on Falconbridge that will give the group a share of the nickel mining market (Kennedy, 2006). Being in the mining industry -where there are no substitute products-, the group has the advantage of considerably steady order from customers. Customers are international parties, most importantly from China, India, and the OECD countries. The issue of income instability however, comes from the product’s price fluctuations.
Due to fluctuations in economic conditions, the price of minerals could go up and down in a short amount of time. This will influence incomes that will finally effected share prices (Xstrata Plc, 2006). The company is the world’s largest exporter of thermal coal and mines coking coal, copper, zinc, ferrochrome and vanadium. Its CEO, Mick Davis is deemed as one of UK’s top 10 business leaders, considered to have significantly improved performance for all of its stakeholders (‘UK’s Top Business Leaders’, 2006). Nevertheless, the group is still looking to expand to new markets.
According to some financial news, Xstrata has become financially strong corporation with bright market prospects. The company is currently trying to expand its business by purchasing various mining companies all over the globe. For instance, it has attempted to acquire Falconbrigde, a Canadian nickel and copper miner in August 2005. Mick Davis also stated his interest in the platinum sector, a market that is predicted to serve as much as 9. 5 million ounces of demand annually by 2010 (‘Xstrata Eyes Iron Ore’, 2005). The high rate of growth of the Xstrata Plc is caused by the booming of several mineral products in the market.
For example, in Reuters (2005), Xstrata is stated to be expanding to foreign markets because there is an intense growth in the iron ore market (‘Xstrata Eyes Iron Ore’, 2005). The company had several low points during 2004 and 2005, but it was indicated that the condition was common in the mining industry. Price volatility is still the main concern of the industry. Nevertheless, recent reports indicated that mineral prices are in favor of Xstrata as copper, lead, and other metal products are displaying constant price incline. Xstrata Plc is still largely optimistic about market prospects.