| Businesses today are faced with greater challenges and complications than ever before,as economical,technological and legal interdependence become more common and pronounced.Due to these developments,risks may go unidentified too long and early warning indicators ignored.It is therefore assumed that every business organization has put in place risk management and risk control systems in order for the organization to continue running.In light of this,this research is undertaken to find out more about the financial risk control and financial risk in the mining sector of the Mongolian economy.First chapter introduces background information,objective of research,theoretical and practical importance,literature review and research methodology.Mongolia is considered one of the most resource extraction dependent countries in the world.According to statistics,Mongolian economy has started expanding at the onset of increase in price for minerals in 2006 and in 2011 economic growth reached 17.3 percent a year,was considered the fastest growing economy in the world.However,the economy plummeted in 2015 at 2.3 percent,following the drop in minerals price.Mongolia has a very unhealthy economic structure and it will take a long time to change the structure of the economy dependent on mining.Therefore,mining companies have to well manage their risks.Under this circumstances purpose of my thesis is to discover a financial risk factors of coal mining sector by using several financial statement analysis tools and deeply analyzing current situation to identify and to prevent financial risks.Chapter two discusses theoretical part of the study including theory of risk,strategic management and enterprise risk management,and describes the application of financial analysis methods that used in this research work.As one of the risk factor of enterprise,when describing financial risk I used three main concepts.Corporate Financial Risk from the Perspective of Financing,financial risk is the risk that an enterprise creates in the process of raising capital,due to the uncertainty of future earnings.Business borrowing funds must be repaid on schedule,interest rates in the future debt independency is uncertain,it will increase the pressure and burden on enterprises,so that enterprises are faced with the potential risk of insolvency,which also formed the corporate financial risk.Corporate Financial Risk from the Perspective of Uncertainty,risk is the variability of future outcomes,or an objective reflection of the uncertainty about the unintended occurrence.Therefore,financial risk refers to the uncertainty of obtaining expected financial results during the financial activities of the enterprise.Corporate Financial Risk from the Perspective capital structure refers to the composition of the various types of corporate capital.and its proportional relationship.There are usually two sources of corporate funds:one for own funds,two for debt funds,which form the capital structure of the enterprise.The key to the problem of capital structure is the proportion of debt capital in the capital structure.The application of financial analysis methods are by using absolute indicator and relative indicator to assess company's payment ability and financial stability,and Z score models applied to predict bankruptcy risk of companies.Chapter three identifies the Mongolian mining sector's current situation specially the coal sector and risk factor.Currently the mining sector is possessing leading position in Mongolian economy by means that the sector produces 20 percent of gross domestic product,71.2 percent of the total industrial products and 89.2 percent of exporting goods by 2016.Mongolian Government has defined its mining sector as a leading economic sector within framework of policy to promote export-oriented production and has emphasized to accelerate the sector's development,to keep stable legal environment,to use leading techniques and technologies and to produce finished products.The Parliament of Mongolia has approved the Government of Mongolia Action Program(GAP)for 2016-2020 in September,2016.The GAP identified several measures to establish a favorable investment environment for the geology and mining sector,and improve Mongolia's competitiveness at international minerals market.Major mining projects generally have six distinct phases;scoping studies,prefeasibility studies,definitive feasibility studies,design and construction,operations,and closure.A typical Mongolian mining industry process generally consists of exploratory,planning,construction,operational,and a closure phase.Coal is the second main export commodity of the Mongolia and economy's dependence on coal grew rapidly from 2011.Mongolian coal production has increased for the last 10 years,and the total coal production reached 32 million tons in 2011.At the current stage,the main market for Mongolian coal is China's market.As China's economic growth slowed,the demand for coal-driven energy has been falling which led to drastic price falls for thermal coal in general.Specifically,Mongolian coal production and exports had declined considerably in comparison with the previous years but in fourth quarter of 2016 exports picked up and prices increased considerably.Poor infrastructure,changes in laws and regulations,price fluctuation of minerals,incorrect mineral resource calculation,owner's financial difficulties,incorrect financial resource calculation,diesel shortage in the country,railway transportation delay etc are Mongolia's mining industry's risk factor.The Parliament of Mongolia has approved the Government of Mongolia Action Program(GAP)for 2016-2020 in September,2016.The GAP identified several measures to establish a favorable investment environment for the geology and mining sector,and improve Mongolia's competitiveness at international minerals market.Chapter four analysis and assessed 6 coal mining companies' overall financial position from 2013-2016 by using absolute,relative indicator and Z scores models and results were generally similar.Some parameters were differ depending on the specifics of the model.When absolute indicators was used to assess solvency and financial stability analysis,solvency of three companies are in good situation,ability to pay short-term debts of three companies were weak.As for financial stability,the status of three companies are stable,half of the companies have been worsened.And general financial situation of sector is unstable.The relative indicator result was also the same.The sector's average indicator was below the required level.When comprehensive scoring model is used to evaluate the financial condition,result was financial situation is unstable,risk of establishing business relationships,insufficient capital structure and solvency are at the lowest level.The Z score models' results are half of the companies will bankrupt in near future,remaining three companies positions are in good mood.Chapter five includes conclusion and suggestion.As a result of the research,Mongolia's mining sector performance has declined due to the commodity prices in the world market,also there is a significant deficit in the state budget due to the lack of appropriate measures in line with its circumstances.We see that our economy is not sustainable and is dependent on price fluctuation for minerals.At the same time,it lacks resource management.For companies covered in the research,the financial performance has been worsening in 2014 and half of companies are rated as unstable and weak in payment ability.Based on my research result I put forward few suggestions for companies Mongolian government.Companies should develop and use financial and operational risk models based on their operating conditions and accounting practices and monitor their activities to prevent some of the future risks.Pay more attention to how to reduce the cost for per ton coal.Mongolian government have to have a full control over the implementation of the recovery and diversification programs,should strengthen to enforce regulations and enforcement controls.To improve our competitiveness in coal market,Mongolia has to offer a price that is below the price offered by its competitors especially related to transportation cost. |
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