Income and Profitability in Mining and Manufacturing - Free Samples

Question: Discuss about the Income and Profitability in Mining and Manufacturing. Answer: Introduction The aim of this research is to explore relationship that exists between income and profitability of an organization considering the mining and manufacturing industries. The research would answer a key research question, which is Does the income and profitability relationship differ in thee cases of mining from manufacturing sector in Australia? It has been observed that in past five years, the two sectors show differential growth patterns and the research would make an attempt to understand the causes behind these differences. For this, a secondary data would be collected from Australian Bureau of statistics on the two industry from the year 2006. The data would include income and operating profits before tax management. This data would be collected into two variables including the income as independent and profit as the dependent variable and the statistical procedures would be run to determine the extent to which income and profit variations relate with each other. For this, a correlation and regression procedures would be used between the two variables. However, before this can be done, it is essential to study the background of the research and thus, the report would first explore the conceptual framework of this research to understand the fundamentals and then would explore existing researches conducted on the same subject to explore what is already known. The literature study gaps would be analysed which would justify the chosen approach for this research management (Walliman, 2011). This section explains the concepts that are the foundation of the current research. These include an understanding of the relationship between income and profitability of an organization or industrial sector and exploration of the two major industries including mining and manufacturing in Australia to assess their performance in the country with respect to revenues and profitability. This conceptual foundation would reveal insights that would help make a decision on what data has to be collected to be able to attain the objective of the current research(Yong, 2015). Income and Profitability relationship Revenue or income refers to the total amount that an organization earns through sales. However, in the process, the company also incurs certain expenditures. These expenses have to be deducted from the income to arrive at the figure of profit. On top of it, the company also needs to pay taxes that are further reduced from the profit amount to get to the final figure of the net profit. Net profit margin can be calculated by dividing the net profit by the total income generated for a specific duration. An organization takes decision on what revenues to be generated based on how the profits are achieved for every dollar gain. For instance, if the profit margin of a product were 7%, the product would be able to earn $1 as profit if $14 is obtained as a revenue(Greener, 2008). Manufacturing sector in Australia has seen a decline in past few years because of its reducing contribution to GDP because of reduced output. The graph below shows how share of manufacturing in GDP product has been declining continuously over the years in Australia(Deloitte , 2016).Profitability can be obtained from the gross operating profit margin as certain percentage of income generated from the sale of goods and services. Gross profit margin of the industry has also reduced during the same time from 9.55 in 2001 to 7.8 in 2014 in the manufacturing sector unlike other business sectors where profit margins are increased. As the graph shows, all the other industries put together, the gross profit margin increased from 10.9 to 12.7% during the same time(Kryger, 2014). Mining Industry The mining sector has experienced price falls but its sales volumes are increasing as the industry transitions into production. Before 2015, the economy faced an investment boom which has reduced in 2016. The year 2016 was dominated by service sector that gives the largest share of the output. In contrast, the mining sector is into the production phase and exports are increasing. During the same time, the Australian dollar fell from its peak of $1.08 USD to $0.71 USD(Cottarelli, 012). In recent years, a drastic decrease in the productivity of the mining sector observed because of certain factors like increase in commodity prices that lead to increase in expenses incurred during production work. It was initially predicted that mining would be on the top among industries in Australia after it entered into the production phase moving away from investment phase management. The actual result was an increase in the output of mining and thus, an increase in the export caapcities of the sector(Prepare for Australia, 2017). In the year 2004, mining industry began to rise in its contribution to GDP, which reached to 11%. This increase in the output of the mining industry could be majorly contributed to extraction of oil and gas, iron, coal, and other metals. Between the years 2004 and 2008, there was a huge rise in the production of coal, iron ore, and gas(Reserve Bank of Australia, 2009). There were royalties to be paid on the production of mining which has to be reduced from the income obtained from the sales of the mining produce. The royalties over mining output increased around 25% between 2003 and 2008 while investments increased by 30%. Growth in income influences the profitability of an industrial unit and profitability acts as a determinant of the value of the organization. Income and profitability figures are often used in strategic studies for indicating the organizational performance. Financial ratios can be very useful for explaining how the objectives of revenues and profits are achieved. These ratios include return on sales, return on assets, and returns on equity. Return on equity is a popular measure for income and it is calculated as profit margin X asset turnover X financial leverage. As per this formula, an increase in the financial leverage can result into an increase in the income of the organization. However, at the same time, it can also increases the fixed costs of the company and thus, add volatility to the earning(Chen Mintz, 2010). The net profit margin is the ratio of profits to sales, it gives the profits that are obtained after income taxes, and expenses are deducted from the income. It serves as a great measure of a firms effectiveness and reflects upon how well the working capital has been used by an organization. This metric can also be useful in making comparison of the companys performance with others in an industry. Net profit does not indicate true cash flows because it can involve certain non-cash expenses such as depreciation, amortization, and accrued expenses(Richardson Denniss, 2011). In Australia, the mining industry has entered into a production phase after the investment phase that lasted till 2015. This has resulted into increase in the output and in the exports. Big returns were generated by the Australian mining organization by exporting to the Asian countries. However, now the sector is on a decline again such that their profits can fall in near future unless the organizations realign their cost structures according to their changed capabilities. Between 2002 and 2011, the rise is seen in both the volumes and prices with 18% and 11% annual growth respectively. The industry is majorly benefited by rising output but not by the profit growth, as it was only marginal because of falling prices. Coal prices were dropped by 35% while iron ore prices fell by 30% in the year 2011(Vandenberg, et al., 2011). Pricing pressures continued to rise such that the economy is able to cope with the rise in inflation. The suppression in profits can also be accounted to introduction of carbon and mineral resource taxes. Considering this situation, mining industry needs to take a relook on its strategies and learn to deal with the situation of increasing production costs and falling output prices. Companies following the conventional approach may not be able to make the investments profitable and new sustainable approaches are required to be explored(Connolly Orsmond, 2011). A more informed approach called fit for growth involving increase in competitive positioning and increase in returns can be taken by the industry if it has to increase its productivity and reduce costs so that profitability can be enhanced. Steps that can help in attaining this objectives include enhancement of capabilities, rationalize cost, getting organizational support, and increasing output without affecting costs(ABS, 2018). There can be several opportunities for reducing costs of the mining sector such as rationalization of project portfolio, consolidation of overhead structures, rationalization of product grades, optimization of shift structures, improvement of maintenance processes, exit from specific minerals that may not be profitable enough, use of different mining methods such as underground exploration, and employment of remote mine operators(Hollander, et al., 2018'). Manufacturing sector of Australia on the other side has lost its momentum as the output production has slowed down. There is a wide gap between pricing and the pressure on profit margins is increasing. This demands for a reduction in operating costs and cut down on investments such that margins can be preserved(Scutt, 2018). Data would be collected through the online database of Australian Bureau of Statistics. The data would be collected for mining and manufacturing sectors. This data would include figures of income from sales and profit margins for mining and manufacturing industries in Australia involving different industry groups from Manufacturing and mining sectors. In the manufacturing industry, the industry groups would include industrial goods and consumer goods. Mining industry data would include data for industry groups like coal mining, oil and gas extraction, iron core mining, gold ore mining, copper ore mining, mineral sand mining, silver ore mining, other metal ore mining, and exploration of support services(Thornton, 2015). The income and profit margins data that would be collected for the years from 2006. For analysing the data collected, the income variable would be correlated with the profit margin values for mining and for manufacturing sectors. For every year, an analysis would be done by exploring if growth in the income is related to the profits after income tax. For this, correlation and regression testing would be done on the data obtained for two industries from the year 2006 to 2015(BU?E, et al., 2008). Gantt Chart The research project would be completed in 3 months with individual tasks following the timelines presented below: Milestone Step Milestone Dates Refining Aims and Objectives 18th April 2018 Introduction and Literature Review 10th May 2018 Refining methodology 15th May 2018 Secondary Data Collection 28th May 2018 Data Analysis 30th May 2018 Data Interpretation and Discussion 21st June 2018 Writing Report 5th July 2018 Proofreading and Editing 18th July 2018 References ABS, 2018. ABS. [Online] Available at: https://www.abs.gov.au/[Accessed 15 April 2018]. Backer, K. D., Desnoyers-James, I., Moussiegt, L. Ragoussis, A., 2015. AUSTRALIAN MANUFACTURING IN THE GLOBAL ECONOMY, s.l.: OECD. BU?E, L., GANEA, M. CRCIUMARU, D., 2008. USING LINEAR REGRESSION IN THE ANALYSIS OF FINANCIAL-ECONOMIC PERFORMANCES, s.l.: University of Craiova. Chen, D. Mintz, J., 2010. Effective tax rates on Australian mining and an evaluation of proposed increases in taxation of iron ore, s.l.: Minerals. Clark, C., Geer, T. Underhill, B., 2000. THE CHANGING OF AUSTRALIAN MANUFACTURING, s.l.: PC. Connolly, E. Orsmond, D., 2011. The Mining Industry: From Bust to Boom, s.l.: Reserve Bank of Australia. Cottarelli, C., 012. Fiscal Regimes for Extractive Industries: Design and Implementation , s.l.: INTERNATIONAL MONETARY FUND . Deloitte , 2016. Construction sector outlook, labour costs and productivity, s.l.: Master Builders Association of Victoria. Greener, S., 2008. Business Research Methods, s.l.: Oxford Brookes University. Hollander, D., Hertz, K. Wassink, B. K., 2018'. The journey toward greater customer centricity, s.l.: Ernst Young. Jong, M. d., Marston, N., Roth, E. Biljon, P. v., 2013. The Eight Essentials of innovation performance, s.l.: Mc Kinsey. Kryger, A., 2014. Performance of manufacturing industry: a quick guide, s.l.: parliament of Australia. Prepare for Australia, 2017. Mining in Australia, s.l.: Prepare for Australia. Reserve Bank of Australia, 2009. The Level and Distribution of Recent Mining Sector Revenue, s.l.: Reserve Bank of Australia. Richardson, D. Denniss, R., 2011. Mining the truth: The rhetoric and reality of the commodities boom, s.l.: TAI. Scutt, D., 2018. Australia's construction sector just slowed suddenly as new orders dry up, s.l.: Business Insider. Stanford, J., 2016. Manufacturing (Still) Matters: Why the Decline of Australian Manufacturing is NOT Inevitable, and What Government Can Do About It, s.l.: Centre for Future Work at the Australia Institute. Thornton, G., 2015. Mining Services Pulse Survey - Insights, s.l.: Grant Thornton. Vandenberg, J. et al., 2011. Profits in a slowdown: How Australian companies can cut costs and grow stronger, s.l.: PWC. Walliman, N., 2011. Research Methods; The Basics, s.l.: Oxford Brookes University. Yong, L., 2015. The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development, s.l.: United Nations Industrial Development Organization.