FMG share price in focus
Fortescue Ltd, founded in 2003 and headquartered in Perth, is a leading iron ore production and exploration company with assets located in the Pilbara region of Western Australia.
The company primarily focuses on iron ore production, shipping over 190 million tonnes annually. In addition to its iron ore operations, Fortescue has been expanding its exploration efforts across Australia, Argentina, Chile, Brazil, and Kazakhstan, targeting key materials such as copper, rare earths, and lithium.
This expansion aligns with the company’s long-term strategy to capitalise on the growing demand for these resources, driven by the global shift to renewable energy. Fortescue aims to meet the increasing need for copper, lithium, and other rare earths in the coming years.
The key metrics
For investors, FMG’s revenue, gross margin, and profit can provide valuable insights into the company’s performance.
FMG last reported an annual revenue of $18,220m with a compound annual growth rate (CAGR) over the last 3 years of -6.5% per year. While the absolute number is useful to know, the key point is the trend. We want to see a consistent, upward trajectory in revenue.
Gross margin measures profitability before taking into account overhead costs – it reflects the strength of the company’s core business operations. FMG’s latest reported gross margin stood at 52.4%.
Finally, the number we’re most interested in – profit. Last financial year Fortescue Ltd reported a profit of $5,683m. Three years ago they made a profit of $10,295m, representing a CAGR of -18.0%.
Financial health of FMG shares
Profitability is important, but equally important is the capital health of the company. We want to know about the company’s leverage, their capacity to pay debts, and their ability to generate a return on assets. One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
Fortescue Ltd’s net debt currently sits at $497m. Higher debt levels can increase sensitivity to interest rate changes and economic cycles.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity – this is also known as leverage. FMG has more equity than debt, with a debt/equity ratio of 27.6%.
Finally, we can look at the return on equity (ROE). The ROE tells us how efficiently the company is turning shareholder equity into profit – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. FMG generated an ROE of 30.2% in FY24.
What to make of FMG shares?
The high return on equity might suggest that FMG is a company worth watching, but I’d be wary of the negative trend in profit and revenue.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company’s financials and compare it to its peers. It’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
