Comparative Evaluation of NRW Holdings Limited and Reliance Worldwide Corporation Limited

This study evaluates the liquidity position, cash conversion cycle, and capital structure of NRW Holdings Limited and Reliance Worldwide Corporation Limited. It includes a comparative analysis of financial ratios and industry standards.

FINANCING ENTERPRISES
200910
SPRING 2018

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Question 1........................................................................................................................................3
Analyses of the liquidity position of NRW Holding Limited and Reliance Worldwide
Corporation Limited....................................................................................................................3
Question 2........................................................................................................................................5
Question 3........................................................................................................................................8
Part A...........................................................................................................................................8
Part B.........................................................................................................................................10
Question 4......................................................................................................................................10
Question 5......................................................................................................................................12
References......................................................................................................................................13

INTRODUCTION
The present study is based on a comparative evaluation of NRW Holdings Limited and Reliance
Worldwide Corporation Limited by computing their financial ratios and comparing with industry
standards. Overview of both the companies is as follows:
NRW Holdings Limited
NRW Holdings is well known for providing the diversified services to the resources, civil
infrastructure, energy, and urban development areas. The company is operating with a team of
nearly 2000 industry-experienced employees as a civil and mining service provider. Moreover,
they have boasted a solid position for carrying up multifaceted projects in a demanding
environment (Annual report of NRW Holdings Limited, 2017). NRW Holdings is a group of
leading business that supply services like civil construction and mining in Australia as a whole.
The Group is composed of Brisbane based civil and mining services business, Golding NRW
Civil and Mining based in Perth, Perth based maintenance and manufacturing provider AES
Equipment Solutions. Further, the cited company is one of Australia’s largest drill and blast
companies.
Reliance Worldwide Corporation Limited
Reliance Worldwide Corporation plans, produce, and supplies water control systems and
plumbing way out for domestic, industrial applications, profitable. It presents a choice of
thermostatic force, temperature control, dividing, and growth control, regulator (Annual report of
Reliance Worldwide Corporation Limited, 2018). Moreover, the company offers industrial and
airline fittings , tube connection fittings, water control devices, valves, threaded, adaptors, taps,
tubing and accessories PVC hoses, and fire plumbing products, for example, boosters, hydrant
valves standpipes, PEX pipes, and couplings. It makes delivery of the products for, plumbing,
sanitary, and heating industries in Europe as well as internationally.

QUESTION 1
Analyses of the liquidity position of NRW Holding Limited and Reliance Worldwide
Corporation Limited
The liquidity ratio assists the company to evaluate the liquidity position so that the company can
determine its capacity for the payment of the long-term debt obligation as well as the short-term
debt obligation. There are many types of liquidity ratio, by which the company can ascertain the
liquidity position. Among the various ration, in this current study ratio and the quick ratio has
been considered to evaluate the overall liquidity position of the company (Wahlen, Baginski, and
Bradshaw, 2014).
Current ratio determines whether the company can meet its short-term obligation of the debt as-
as when they arise. In other words, through the current ratio company can evaluate about its
resources and whether the resources are sufficient for the payment of the short-term liability of
the company (Yu, & et al. 2014).
The quick ratio, which is also known as the acid test ratio, measures the company’s capacity to
pay off its short-term debt in a more comprehensive manner. It determines how fast the resources
of the company can meet its current liability.
Calculation of the liquidity ratio of NRW Holdings Limited
Amount In Million $
Particulars Formula 2018 2017
Current Ratio Current Assets/Current Liabilities
Current Assets 206.631 116.098
Current Liabilities 186.035 83.206
Current Ratio 1.11 1.39
Quick Ratio
Current Assets-Inventory/Current
Liabilities
Current Assets-Inventory 184.154 99.81
Quick Ratio 0.99 1.19
Calculation of the liquidity ratio of Reliance Worldwide Corporation Limited

Amount In Million $
Particulars Formula 2018 2017
Current Ratio
Current Assets/Current
Liabilities
Current Assets 702.594 312.737
Current Liabilities 180.666 117.902
Current Ratio 3.88 2.65
Quick Ratio
Current
Assets-Inventory/Current
Liabilities
Current Assets-Inventory 499.954 151.494
Quick Ratio 2.77 1.28
From the above analysis, it has been seen that the current ratios of both the companies is greater
than one; it means that the liquidity position of the company is good and company can meet its
short-term liability as when the liability arises. However, the current ratio of reliance worldwide
corporation is much higher than as compared with the NRW holdings limited, which shows that
the RWC Company was not using its current asset in an effective manner.
Further, the quick ratio of the NRW holdings limited in the year 2018 was less than as compared
with the year 2018. It means that the company for payment of the current liability depends on the
inventory (Annual report of NRW Holdings Limited, 2018). Moreover, the quick ratio of the
RWC Company was also significantly higher as compared with the NRW holding limited.
Although the high quick ratio indicates the good liquidity position of the company, but on the
other hand too much high quick ratio indicates that the company was not using its short-term
asset in a better manner.
From the above analysis, it can be concluded that the liquidity position of both the companies is
good however the RWC company is much liquid as compared with the NRW holdings limited.
On the basis of this, it is also observed that the RWC Company was not utilizing its current asset
in an effective manner (Annual report of Reliance Worldwide Corporation Limited, 2018).

QUESTION 2
Cash conversion cycle ascertains about the management of the working capital of the company.
Through the cash conversion, Cycle Company can determine the gap between the purchase of
the inventory and the receipt from the debtors of the company (Marlin, and Geiger,2015).
The formula for cash conversion cycle= Inventory turnover ratio in days+ Receivable turnover
ratio in days- payable turnover ratio in days
Calculation of the cash conversion cycle for NRW Holdings Limited
Amount In Million $
Particulars Formula 2018 2017
Inventory Turnover
Ratio Cost Of Sales/ Average Inventory
Average Inventory Opening Stock +Closing Inventory/2
Cost Of Sales 116.374 48.112
Opening Inventory 16.288 16.538
Closing Inventory 22.477 16.288
Average Inventory 19.3825 16.413
Inventory Turnover Ratio 6.004076 2.931334917
In Days 61 125
Receivable Turnover
Ratio
Credit Sales/ Average Account
Receivables
Average Account
Receivables Opening Debtors +Closing Debtors/2
Credit Sales 685.431 344.56
Opening Trade Receivables 53.034 36.507
Closing Trade Receivables 120.699 53.034
Average Account Receivables 86.86 44.77
Receivable Turnover Ratio 7.89 7.69
In Days 46 47
Payable Ratio
Cost Of Sales/ Average Account
Payable
Average Account
Payable
Opening Creditors +Closing
Creditors/2
Opening Trade Payables 52.026 44.405
Closing Trade Payables 127.73 52.026

Average Account Payables 89.88 48.21
Payable Ratio 1.2948 0.99
In Days 282 366
Cash conversion cycle for the year 2018= 61+46-282
= -175 Days
Cash conversion cycle for the year 2017= 125+47-366
= -194 Days
Calculation of the cash conversion cycle for Reliance Worldwide corporations limited
Amount In Million $
Particulars Formula 2018 2017
Inventory Turnover
Ratio Cost Of Sales/ Average Inventory
Average Inventory
Opening Stock +Closing
Inventory/2
Cost Of Sales 452.413 349.471
Opening Inventory 161.243 119.109
Closing Inventory 202.64 161.24
Average Inventory 181.94 140.17
Inventory Turnover Ratio 2.49 2.49
In Days 147 147
Receivable Turnover
Ratio
Credit Sales/ Average Account
Receivables
Average Account
Receivables
Opening Debtors +Closing
Debtors/2
Credit Sales 769.38 601.693
Opening Trade Receivables 109.727 94.964
Closing Trade Receivables 204.92 109.73
Average Account Receivables 157.32 102.34
Receivable Turnover Ratio 4.89 5.88
In Days 75 62
Payable Ratio
Cost Of Sales/ Average Account
Payable
Average Account Opening Creditors +Closing

Payable Creditors/2
Opening Trade Payables 97.91 64.76
Closing Trade Payables 167.68 97.91
Average Account Payables 132.79 81.34
Payable Ratio 3.41 4.3
In Days 107 85
Cash conversion cycle for the year 2018= 147+75-107
= 115 Days
Cash conversion cycle for the year 2017= 147+62-85
= 124 Days
On the basis of the above calculation, it has been observed that in the case of NRW holdings
limited in both the year, the cash conversion cycle was negative. A negative cash conversion
cycle provides an indication that the company receipt by the debtors of the company was much
earlier than the payment by the company to its suppliers (Annual report of NRW Holdings
Limited, 2017). It means that the company is financing its activities of the business through the
credit taken from the supplier. It is good for the company, as the company financing its activities
as an interest-free rate by borrowing through the supplier.
On the other hand, in the case of the RWC Company cash conversion cycle was positive.
However, the conversion period in the year 2018 was less than as compared with the year 2017
(Annual report of Reliance Worldwide Corporation Limited, 2018). The period of the cash
conversion cycle in the year 2018 was 115 days, which indicates that the company takes 115
days to convert its inventory into cash.
QUESTION 3
Part A
 The position of the debt and equity of NRW Holding Limited
2018 2017

Total Equity $ 272.643 M $ 199.073 M
Total Debt $247.544 M $132.493 M
 The position of the debt and equity of Reliance Worldwide Corporation Limited
2018 2017
Total Equity $ 1324.019M $ 204.746 M
Total Debt $861.925 M $395.041M
Capital structure ratio- for analysing the capital structure of the company, debt-equity ratio and
the interest coverage ratio has been considered.
Calculation of the ratio of NRW Holding Limited
Amount In Million $
Particulars Formula 2018 2017
Debt to Equity Ratio Debt/ Equity
Debt 247.544 132.493
Equity 272.643 199.073
Total 520.187 331.566
% of debt 0.4758 0.3996
% of equity 0.5242 0.6004
Debt to Equity Ratio 0.91 0.66
Interest Coverage ratio
Earnings before interest and tax/ Interest
Expenses
Earnings before interest and tax 42.944 29.26
Interest Expenses 6.869 5.733
Interest Coverage ratio 6.25 5.10
 Earnings before interest and tax are calculated by adding the finance cost in the profit
before tax.
For the year 2018= 36.075+6.869=42.944
For the year 2017=23.527+5.733= 29.26

Calculation of the ratio of Reliance Worldwide Corporation Limited
Amount In Million $
Particulars Formula 2018 2017
Debt to Equity
Ratio Debt/ Equity
Debt 861.925 395.041
Equity 1324.019 204.746
Total 2185.944 599.787
% of debt 0.3943 0.6586
% of equity 0.6057 0.3414
Debt to Equity Ratio 0.65 1.92
Interest Coverage
ratio
Earnings before interest and tax/ Interest
Expenses
Earnings before interest and tax 111.1 101.298
Interest Expenses 11.911 5.061
Interest Coverage ratio 9.33 20.01
 Earnings before interest and tax are the operating profit of the company.
On the basis of the above analysis, it has been observed that, in the case of the NRW holdings
limited both the debt-equity ratio and interest coverage ratio was more as compared with the year
2017. It indicates that the company was managing its business activities by the external source of
finance. In the year 2018, the company through the debt funding acquired the asset (Annual
report of NRW Holdings Limited, 2018).
On the other hand, in case of RWC Company, was moving towards to facilitate business
activities through the internal source of finance as the proportion of the debt and the interest
coverage ratio in the year 2018 was less than as compared with the year 2017 (Annual report of
Reliance Worldwide Corporation Limited, 2017). Along with this in the year 2018, the equity
portion was significantly more than as compared with the year 2017.
Part B
The average debt ratio of the industry in the year 2018 was 50%. The debt ratio of the NRW
holdings limited and the RWC company, in the year 2018 was .91 and .65 respectively. It has

been seen that the normally the capital structure of the industry comprises with the equal debt
and equal equity. However both the companies followed the different strategy in their capital
structure and in the capital structure of the NRW debt position was more than as compared with
the RWC Company.
QUESTION 4
DuPont Method is the analysis, which breaks the return on equity into the three parts. It
calculates return on equity by considering the net margin, asset turnover ratio and the equity
multiplier (Ardalan, 2017). The net profit margin indicates return on the basis of the total
revenue of the company, asset turnover ratio ascertain the efficiency of the company for
enhancing the revenue of the company and the equity multiplier measure the debt capital
structure of the company, by comparing the total asset of the company with the shareholders
equity (Valickova,, Havranek, and Horvath, 2015).
ROE (DuPont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets /
Equity) = Net profit margin * Asset Turnover * Financial leverage
Calculation of the ROE of NRW Holding Limited
Particulars 2018 (amount in $M) 2017(amount in $M)
Net Profit 42.166 28.527
Revenue 685.431 344.560
Total Asset 520.187 331.566
Equity 272.643 199.073
ROE .15 .14
 ROE= (42.166/685.431)*(685.431/520.187)*(520.187/272.643)
= .06*1.32*1.91
=.15
 ROE=(28.527/344.560)*(344.560/331.566)*(331.566/199.073)
=.08*1.04*1.67
=.14

Calculation of the ROE of RWC Limited
Particulars 2018 (amount in $M) 2017(amount in $M)
Net Profit 75.101 64.103
Revenue 769.380 601.693
Total Asset 2185.944 599.787
Equity 1324.019 204.746
ROE .06 .31
 ROE= (75.101/769.380)*(769.380/2185.944)*(2185.944/1324.019)
=0.1*.35*1.65
=.06
 ROE= (64.103/601.693)*(601.693/599.787)*(599.787/204.746)
=.11*1*2.93
= .31
The above profitability of the companies is computed by the DuPont analysis. The profitability
of the NRW holding limited was constant. In the year 2018, there is a slight increase in the net
profit ratio. However, the asset turnover ratio of the company increased in the year 2018, which
indicates good asset utilization by the company.
In the case, RWC limited the performance of the company was not good on the basis of the
profitability analysis. All the ratios in the year 2018 were less than as compared with the year
2018.
QUESTION 5
On the basis of the above evaluation, it has been evaluated that overall the performance of the
RWC company was not as good as compare with the NRW holding limited. It will be
recommended to the investors to invest in the NRW holding limited, due to the good financial
performance of the company.

REFERENCES
Annual report of NRW Holdings Limited, 2017. [Pdf]. Available through
<https://nrw.com.au/wp-content/uploads/2017/10/NRW-Holdings-Annual-Report-FY17-Digital-
LowRes.pdf>. [Accessed on 18th October 2018].
Annual report of NRW Holdings Limited, 2018. [Pdf]. Available through <
https://nrw.com.au/wp-content/uploads/2018/08/FY18-Full-Year-Statutory-Accounts.pdf>.
[Accessed on 18th October 2018].
Annual report of Reliance Worldwide Corporation Limited, 2018. [Pdf]. Available through
<http://www.rwc.com/wp-content/uploads/2018/09/2018-Annual-Report-for-release-to-
ASX.pdf>. [Accessed on 18th October 2018].
Annual report of Reliance Worldwide Corporation Limited, 2018. [Pdf]. Available through
<http://www.rwc.com/wp-content/uploads/2017/09/2017-Annual-Report-FINAL-small.pdf>.
[Accessed on 18th October 2018].
Ardalan, K., 2017. Advancing the Interpretation of the Du Pont Equation. Journal of Modern
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Yu, Q., Miche, Y., Séverin, E. and Lendasse, A., 2014. Bankruptcy prediction using extreme
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