Current Ratio: The current ration always compares liquid assets of the business with their current liabilities

and in an ideal case a current ratio of less than one usually indicates that the liquid resources of a company are insufficient to cover short-term debts(Atrill & McLaney 2008).This ratio is an indication of the companys ability to pay its short-term debts.

2005 Lonmin PLC AngloAmerican PLC Rio Tinto PLC Xstrata PLC (Source: FAME 2010)
3

2006 1.87 1.48 1.19 1.28

2007 1.35 0.93 1.11 1.47

2008 2.25 0.69 0.84 1.41

2009 2.09 1.64 2.07 2.39

0.91 1.38 1.56 1.13

2.5

2 Lonmin PLC 1.5 Angloamerican PLC Rio Tinto PLC 1 Xstrata PLC

0.5

0 2005 2006 2007 2008 2009

The current ratio of Lonmin in 2009(2.09) has fallen marginally from 2008(2.25).This is inspite of an increase in assets in 2009.The reason is the rise in liabilities which can be attributed to the increase in trade receivables and loans.This indicates that the company has been borrowing heavily from various sources.This may be to recover from a decline in revenues due to an adverse economic situation(Lonmin Annual Report 2009).The ratio,however,still suggests that Lonmin is in a position to pay off its short-term debts due to the increase in assets.

There are two points where the current ratio has gone up by a huge margin.The first point which was 2006 was due to a sharp increase in trade receivables and cash or equivalent assets(Lonmin

Annual Report 2006).The steep rise in 2008 can be attributed to the rise in inventories which went up from 76 million GBP to 150 million GBP(FAME 2010).This was mainly due to the rise in W.I.P(Lonmin Annual Report 2008).

Due to the huge increases in 2006 and 2008,the current ratio of Lonmin has to stayed ahead of its competitors for a major part of the period.Its closest competitor has been Xstrata PLC,which incidentally had put up a bid for Lonmin PLC in 2008(Lonmin Annual Report 2008).

Acid-test ratio: The acid-test ratio,although similar to the current ratio,is a more rigid test of liquidity because it excludes inventories from the current assets(Atrill & McLaney 2010).

2005 Lonmin PLC AngloAmerican PLC Rio Tinto PLC Xstrata PLC (Source: FAME 2010) 0.55 1.01 1.13 0.76

2006 1.45 1.14 0.75 0.74

2007 1.02 0.73 0.84 0.77

2008 1.45 0.50 0.58 0.71

2009 1.42 1.16 1.56 1.51

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005 2006 2007 2008 2009 Lonmin PLC AngloAmerican PLC Rio Tinto PLC Xstrata PLC

It is evident from the graph that the acid-test ratio of Lonmin PLC was consistently above the industry average for 3 years before 2009.In 2009,the ratio is 1.42 which is a very healthy value.

The drastic rise of the ratio in 2006 can be attributed to the increase in Trade receivables and cash(FAME 2010).The dip in 2007 to 1.02 was due to the rise in liabilities of the company which went from 172 million GBP to 277 million GBP.Barring these years,the ratio has stayed consistent.

All the competitors witnessed low acid-test ratios for the years between 2005 and 2009.In 2009,however,the ratios of Angloamerican PLC and Xstrata PLC have overtaken Lonmins.

Financial Position: Overview:

Financial Performance
Profitability Ratios
Gross Profit Margin

Gearing

Liquidity Ratios

Investor Ratios

Strengths: Lonmin PLC returned to profit in the year 2010 after a disappointing performance in 2009 in the wake of the economic crisis.The firm met their sales and production targets in 2010(Lonmin 2010). An encouraging growth in the automotive industry has fuelled demand for PGM(Platinum Group Metals) and it augurs well for the future of the company.The demand for platinum jewellery has also shown an upward trend(Lonmin 2010).

Weaknesses: The company is suffering from reduced profit margins due to a strengthening South African Rand as a majority of their operating costs are paid in Rand(Lonmin 2010).Lonmin has a current debt of $375 million which is higher than what was planned at the beginning of the year(Lonmin 2010).In addition to this,the group is currently exposed to a significant trade receivable credit risk(Lonmin 2010).

Sales and Revenue analysis: