Sn Colonnade Financial Analysis

INTRODUCTION

SN Colonnade (Pty) Ltd is a financial services provider that offers advisory on a business’s finances, strategic options and its operations. Our company’s vision is to provide our clients with quality service that exceed their expectation.
YJ Ltd is a UK Company listed on the AIM in January 2007 with an initial public offering of US$60 million. It has been formed two years earlier with the purpose of identifying potential oil and gas fields that could be brought into production. The principal activity of YJ is the exploration of, and production from the oil and gas fields. YJ has been successful in identifying and bringing into production three oil and gas fields and has therefore been successful in achieving investor’s expectations.

Even though both ratios improved significantly over the last year, and the company is clearly able to cover its finance costs (interest cover ratio and cash flow statement), they are limited as they may not be able to acquire more debt finance now and in future. Lenders and investors may consider YJ as a risky borrower and may possibly be sceptical in providing YJ with the necessary funds needed for expansion. In comparison to other companies in the oil and gas industry, the levels of debt carried is too much.

It is evident that they will encounter liquidity problems if they do take on all of these projects at once. They are unable to cover their current obligations using all their liquid funds. If they do decide to take on the additional projects, of which the total cost is $88 000 000, the company will be faced with the problem of not being able to pay for impromptu costs including administration costs, flights costs and other miscellaneous costs.
Through a thorough analysis of YJ’s financial statements, we have concluded that YJ does not have the financial capacity to test drill all the sites at

This would mean that they would have to use their available cash together with the funds from the farm out agreement to invest in one of the proposed, licensed projects particularly GGG. This is because the available funds to YJ will amount to $23 600 000 and the cheaper alternative is chosen (GGG is more affordable).

5.2 Financial forecast analysis

After preparing the financial forecast, we have noticed the company has a healthy cash flow system as the cash flows are expected to increase significantly in the next coming months. This means that they may be able to further their expansions as they wish.

The introduction of the dividend pay-out policy will come at the appropriate time as the company is expected to be profitable and they will be investing surplus profits back into the company. However, from a different perspective, the company can declare scrip dividends in order to have more funds that can be reinvested back into the company to have more. It is important to note that once they have decided to adopt the scrip dividend policy, the relevant shares cannot be converted back to earnings as it will increase the share capital and change the level of ownership.

Please note
• Appendix B: Forecasted financial