You already have a significant investment portfolio, funded in large part by pro

Question

You already have a significant investment portfolio, funded in large part by proceeds of stock options received as compensation for your internship at Apple. You have recently received some additional funds and are now wondering how to invest them.

After doing some research, you decided that a good dividend-paying stock is the perfect investment for your new funds. Evaluating your options, you discovered an interesting company by the name of Bling Gold Mines. The company’s stock is publicly traded under the ticker symbol: BLMS. You are particularly interested in this company given its stable history and attractive dividend. Last year BLMS paid a dividend of $3.90 per share, which at the stock’s current price of $22 would give you an annual return of almost 18%. This return is over three times what you can obtain from most major gold mining stocks. In today’s financial climate, a return of almost 18% is one which you’d be very happy with.

Completing a Financial Accounting class has given you the skills to evaluate financial statements. Therefore, you download BLMS’s latest annual report dated December 31, 2014 to evaluate it in order to make a decision on your possible investment. Relevant parts of this report are included below.

After a considerable time pouring through BLMS’s annual report, you decide...

Bling Gold Mines, Inc. CONSOLIDATED STATEMENTS OF INCOME (US dollars in thousands, except per share amounts) Bling Gold Mines, Inc. CONSOLIDATED BALANCE SHEETS (US dollars in thousands, except share amounts) Years ended December 31, As Of December 31, 2014 2013 2013 Revenue 134,255 Operating expenses: Cash and cash equivalents Accounts receivable, net Inventories Prepaids and other 17,932 23,522 15,814 16,145 16,847 14,220 984 48,196 Production costs Depreciation and depletion 15,014 37,125 37,867 Total cost of sales 54,082 52,139 58,432 1,810 24,153 Current assets Exploration, development, and land holding Corporate general and administrative Restricted cash Other assets, non-current Plant and equipment, net Mineral properties, net 11,762 2,962 17,647 17,299 Income from operations 74,427 58,506 50,907 92,341 Other income (expense) Total assets 158,985 186,505 Interest income Interest expense Foreign exchange gain, net Other income, net 648 6,102 269 45,645 lities: Accounts payable Interest payable Other liabilities, current Debt, current Deferred tax liabilities, current Income before income taxes 70,930 53,595 Income tax (expense) benefit 1,999 1,006 10,001 2,023 Net income 28,300 Current liabilities 9,381 Dividends paid Addition to retained earnings 39,000 4,977 29,000 4,229 Other liabilities, non-current Debt, non-current Deferred tax liabilities, non-current 11,788 74,004 3,300 54,068 1,026 Income per share: Total liabilities 65,132 96,149 3.32 2.75 Shareholders' Equity 10 Common stock, $0.001 par Shares issued and outstanding 2012-10,000,000 and 2011-10,000,000 Additional paid-in-capital Treasury stock Retained earnings 70,631 25,702 93,853 70,631 (1010) 20,725 90,356 186,505 Total shareholders' equity 2 Total liabilities and shareholders' equity 158,985

Explanation / Answer

Bling Gold Mines Inc

Based on the below reasons, even though the performance of the comapny is very good it is not advisable to invest in the shares of this company

Bling has a current ratio which is 5.13 in 2013 and 6.23 in 2014. This increase has happened due to a 39% increase in accounts receivable and accounts receivables contribute to nearly 50% of total curent assets. There appears to be some difficulty in colleciton of accounts receivables.

The company has around 7% of their assets in an asset called Restricted cash. This is the money which is paid into an escrow account as per the covenants of lenders. This cash may be earning interest in escrow account, but is not useful for its operations.

Mineral Properties got depleted by 30% between 2013 and 2014 from $ 92.341 Million to $ 61.521 Million. Even if a part of this depletion happened due to the reduction in rate of gold value which was taken at $300 per ounce, a major depletion would have happened due to extraction of material. The balance of Mineral Properties valued at $ 61.521 Million if extracted at current rate would last for not more than 2 years.

Data from Financial Statements

2012 2013 2014 Sales 124379 134255 152573 Income from Operations 50907 58506 74427 Interest Expense 6102 5737 4545 Net Income 28300 33229 43977 Dividends 25000 29000 39000 Retained Earnings 3300 4229 4977 2013 2014 Current Assets 48196 58432 Total Assets 186505 158985 Restricted Cash 11762 11810 Current Liabilities 9381 10001 Mineral Properties 92341 61521 Debt 74004 54068 Equity 90356 93853 Total Shares outstanding 20000000 Only one property in Nevada Pricing of gold at $300 per ounce extracted 2014 2013 Return on Equity 0.468573 0.367756 retention ratio 0.113173 0.145828 growth rate 0.05303 0.053629 Current Ratio 6.22876 5.137619 Debt Equity 0.819027 0.576092 Mineral Properties extracted 30820 Expected life of remaining 1.996139 years

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