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Research Project: Strategic Briefing On The Management Finance Policy Decision-Making For Fortescue

Task: Your current role is the Manager of the Finance Division of Fortescue Metals Group Limited, and you report directly to the Chief Financial Officer (CFO) of the company. The CFO has requested you to attend a strategic retreat being held by the company to present to the Senior Leadership Group, including the Chief Executive Officer (CEO) and the Board of Directors, on the current financial policy platform of the company, the nature of the linkage or association between these policies adopted by the company, and how they integrate to influence the operating and share performance outcomes for Fortescue Metals Group Limited. Fortescue Metals Group Limited (FMG) is a leading iron ore production and exploration company which operates in the Pilbara region of northern Western Australia. The company is the fourth-largest listed resources company in Australia, behind BHP Billiton Limited, Rio Tin to Limited and Woodside Petroleum Limited, and the largest pure-play iron ore mining company listed in Australia. The company currently has two primary production sites in operation, namely the Chichester Hub located in the Chichester Ranges in the Pilbara region comprising the Cloudbreak and Christmas Creek mining projects, and the Solomon Hub, which is located 120 kilometers west of the Chichester Hub and comprises the Firetail and Kings Valley mines. The company’s current operational objective is to achieve iron ore production of at least 155 million tonnes per annum (Mtpa), and it has undertaken an aggressive expansion program in the last decade in pursuit of this objective. The iron ore produced by the company’s mining operations is transported to their port facilities at Port Hedland and is shipped for spot market or futures contract trading in a number of overseas locations, but predominantly China. The following table provides a summary of financial and structural information for Fortescue Metals Group Limited for their recent June 30th year ends (All figures, except for per share, issued capital, and percentage statistics, are expressed in A $Million): Further detailed overall summary, structure, financing, and performance information can be obtained from the 2016 Annual Report document for Fortescue Metals Group Limited, which is available from the subject LMS site. Prior year annual report documents and other filings and announcement information relating to the company can be obtained from the Fortescue Metals Group Limited website (www.fmgl.com.au) or from the Data Analysis Premium database available through the Databases link on the University Library website. Other relevant information relating to Fortescue Metals Group Limited or the wider corporate sector is as follows: Assume this analysis is being undertaken as at Monday 10th July 2017 Fortescue Metals Group Limited’s share price on Monday 10th July 2017 is $5.09 per share, and there are3,113.798 million issued ordinary shares on this date. Fortescue Metals Group Limited is part of the Materials Sector based on the Global Industry Classification Standards(GICS), and its GICS Industry is Metals and Mining. Fortescue Metals Group Limited’s beta coefficient on July 10th, 2017 is 0.89, compared to the beta coefficient for the overall industry of1.04. Required: The CFO has requested you to submit two documents in preparation for the strategic retreat A Background Briefing Report providing detailed explanation of the required content. The documents, prepared employing information from the annual report documentation and any other documentation or sources of information considered to be relevant, are required to identify and outline the following aspects of Fortescue Metals Group Limited’s management finance policies: The nature of the firm’s working capital management policies. Focus in this determination should be on overall current asset investment and financing policies, rather than the company’s adoption of policies relating to specific current asset categories, such as inventories or receivables. The nature of the firm’s capital structure determination policy, including identification of specific policy adoption or usage if relevant, whether the firm appears to have target or optimal capital structure ratios, and the determinants of the firm’s capital structure choice. The nature of the firm’s earnings distribution and dividend payout policies. This should include discussion of the type of dividend policy employed, whether the firm has a target dividend policy or payout ratio, changes in dividend payout amounts or patterns, and the consideration of taxation, dividend imputation and franking credit issues and any other relevant elements associated with the firm’s overall earnings management and distribution practices. The nature of the firm’s corporate governance structure, and particularly the board, committee, and key decision-making structures and mechanisms in place, and any changes in this corporate governance structure in recent years. The nature of any association or relationship between these various financial management policies employed by the firm, and how this may relate to Fortescue Metals Group Limited’s share and/or accounting performance outcomes.


Subject Name: Finance

Level: Postgraduate


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