[PDF] Financial Analysis of Gulf Cement Co. and RAK Cement & Constructions

The assignment provides a comprehensive financial analysis of two companies, Gulf Cement Co. and RAK Cement & Constructions. It includes calculations for various financial ratios such as profit margin ratio, return on assets, return on equity, price-earnings ratio, price-sales ratio, market-to-book ratio, and required rate of return using the Capital Asset Pricing Model (CAPM). The document also estimates growth rates of dividend for both companies and calculates intrinsic value per share. This analysis is a valuable resource for students studying finance and accounting.

RUNNING HEAD: FINANCE
Financial analysis

Finance 1
Contents
Financial overview......................................................................................................................................2
Change in ratios...........................................................................................................................................2
Comparison – Gulf VS RAK.......................................................................................................................4
Companies VS Industry...............................................................................................................................5
DuPont Analysis..........................................................................................................................................6
Dividend Discount Model...........................................................................................................................6
References...................................................................................................................................................7
Appendix 1..................................................................................................................................................8
Appendix 2................................................................................................................................................13
Appendix 3................................................................................................................................................16

Finance 2
Financial overview
Gulf Cement Company P.S.C is a UAE based manufacturing firm that is engaged in the
production and marketing of all types of cements. It makes ordinary Portland cement, sulphate
resisting Portland cement and many more. The company made revenue of AED 583.20 million in
year 2017 (Reuters.com. 2018).
Ras Al Khaimah Co. For White Cement & Construction Materials also operates in the same
industry and deals with the production and distribution of white cements, lime and concrete
blocks. It is also situated in UAE and had made revenue worth AED 307 million in year 2016
(Rakwhitecement.ae. 2018).
Change in ratios
Referring to the calculation in Appendix 1, it can be said that the current and quick ratio of Gulf
Co. has reduced in 2016 by 14% and 11% respectively. Along with this, a reduction in the cash
ratio and net working capital to total asset ratio was also noticed by 22% and 17% in 2016,
respectively. This is because Gulf’s annual report recorded a decrease in its current assets and
current liabilities. A reverse trend was observed in RAK’s current and quick ratios, as both of
them increased by 10% and 23% in 2016 as compare to 2015. A major change was there in
RAK’s cash ratio as it increases by 594% in 2016, whereas the same figure reduces by 35% in
2015. Reason being, a huge increase was there in the amount of cash in 2016. Its NWC/TA ratio
has also rises by 22% due to an increase in the total assets of the company.
Talking about the leverage ratios, Gulf Co. had less financial risk as a continuous decrease is
noticed in the ratios over the three years. Its total debt ratio, D/E ratio, Long term debt ratio and
equity multiplier reduces by 11%, 13%, 36% and 2% respectively. This is due to the consistent

Finance 3
fall in the total liabilities of the company. The ICR and Cash coverage ratio of Gulf co. was same
as there was no depreciation expense reported in firm’s income statement. However, both these
ratios show an upsurge of 21% in 2016. In contrast to it, RAK’s debt has been increased in the
past years which boosted up its ratios in 2016. The debt ratio and D/E ratio rise by 19% and 27%
along with an increase of 51% in Long term debt ratio. This is because of the increased bank
borrowings of the company in 2016. (Lee & Lee, 2016)
Gulf’s Co. efficiency has reduced during the years, apart from its Inventory turnover ratio which
shows a slightest increase in 2016 by 16%. Also its days Sales in inventory has reduced by 14%
in 2016. But apart from this, its DTR, TATR and FATR, all reduces by 22%, 4% and 14%
respectively. The reason behind this is the downfall in the overall turnover of company. Looking
at RAK’s efficiency ratios, the same trend follows. It’s ITR and DTR both reduce by 10% and
8% as well as an increase of 12% and 9% was observed in its days’ sales in inventory and
receivables. The TATR, FATR and NWCTR also reported a downfall in year 2016. Reason was
the reduction in amount of total assets and total revenue over the years.
As far as profitability is concerned, the net profit margin of Gulf Co. has reduced by 23% in
2016 as compare to 2015. As a result of which, it’s ROA and ROE has decreased by 28% and
27% in year 2016, respectively. This is due to the decline in the net income earned by the firm.
While, RAK shows an increasing trend in all of its profitability ratios because of the huge
increase in its net profit in 2016 as compare to 2015. The net profit margin was increased to a
great extent of 197% in 2016 while the same figure reduces by 41% in 2015. Similarly, its ROA
and ROE also reported a huge upsurge of 173% and 155% in 2016.

Finance 4
The P/E ratio of Gulf has increased by 47% in 2016 along with an increase of 7% in it price to
sales ratio. However its PEG ratio reported a huge downfall of 188% in 2016 and 140% in 2015.
This is because of the negative growth in its earnings. No change was notice in its Market to
book ratio due the same number of shares issued. On other hand, reverse trend was observed in
RAK’s market ratios. Its P/E ratio, PEG ratio, Price to sales and Market to book ratio, all reduces
by 69%, 109%, 10%, and 17% respectively. Reason being the reduced market price of the share
and the number of shares issued.
Comparison – Gulf VS RAK
In order to compare the financial performance of both the companies, ratio analysis is done.
Referring to Appendix 2, it is observed that the liquidity position of RAK Company is much
better than Gulf Cement Co. This is due to increase in its current and quick ratio. This implies
that company has enough cash and current assets to meet its current liabilities. Unlike liquidity,
RAK involves a huge financial risk as compare to Gulf Co. because of the increased debt ratios.
The total debt Ratio of RAK was 31% whereas the same reported by Gulf was only 14%. RAK’s
debt to equity was 44% in 2016 which is more than double of Gulf’s D/E ratio. This implies that
most of the assets of RAK are financed through debt and thus the company has greater risk.
Talking about the efficiency, Gulf is much more efficient in utilizing its assets than RAK for the
purpose of generating revenue. The total asset and fixed assets turnover, DTR, ITR of Gulf is
slightly more than RAK’s ratio. Also the company takes less time to collect its debtors and
convert its inventory into cash. Thus it can be said that Gulf Cement Co. is more efficient than
RAK. The profitability position of RAK is better because of the 8% increase in its net profits.
This upsurge boosted up its profit margin and the company made more returns on its assets and

Finance 5
equity in year 2016. As far as, share price is concerned, RAK’ shares has a high market price as
compared to Gulf Co. However, its market value ratios have reduced to the low number of shares
issued and reduction in the market price (Tracy, 2012).
Companies VS Industry
Ratios Gulf Cement
Co.
RAK White Cement co. Industry Average
Current ratio 4.02 1.77 1.75
Quick ratio 2.68 1.12 1.42
Inventory turnover 2.55 2.28 7.1
Receivables turnover 3.85 3.39 2.5
Fixed asset turnover 0.71 0.33 2.7
Total asset turnover 0.41 0.25 0.66
Days’ sales in inventory 143 160 52
Days’ sales in receivables 93 108 145
Total Debt ratio 14% 31% 40.7%
Long term debt ratio 4% 19% 123.5%
D/E ratio 16% 44% 68.6%
Equity Multiplier 1.16 1.44 3.8
Times Interest earned 2.74 6.57 5.0
Profit Margin 9% 14% 3.5%
ROA 4% 3% 2.3%
ROE 4% 5% 9.3%
Market to Book ratio 0.65 1.55 1.6
When comparing with the industry averages, the liquidity position of RAK is better because
Gulf’s current and quick ratios are way higher than its industry average. The turnover ratios of
both the companies are less than their industry ratios which means they are not efficient enough
to generate more sales from their assets, debtors and inventories. The same trend follows in the
leverage ratios also. Comparing with the industry averages, RAK has high financial risk has
compare to Gulf Cement Co. However, the trend got reversed when profitability ratios of the
companies are measured against the industry averages. Apart from ROE, both the companies has

Finance 6
high profit margin and ROA, as compare to industry. This means they have a good profitability
position in the market.
DuPont Analysis
Net Income
Sales X Sales
Total assets X Totalassets
Total Equity = Net Income
Total Equity
Gulf Cement Co.
0.09 X 0.41 X 1.16=4.2%
RAK White Cement co.
0.14 X 0.25 X 1.44=5.04 %
The return on equity of RAK is more than Gulf co. due to the high profits and high multiplier.
According to DuPont analysis, it can be observed that RAK is able to generate more profits from
its sales and also most of its assets are finance through equity. The weakness of the company is
that it is not efficient enough to make more revenue from its total assets. On the other hand, the
analysis shows that the weakness of Gulf Co. is that it is not able to make more earnings from its
sales and also it has less equity financing. The strength of the firm is that it can generate high
revenue by utilizing its total assets effectively and efficiently.
Dividend Discount Model
Referring to Appendix 3, the intrinsic value for both the company is in negative. Gulf Cement
Co. IV is AED -0.57 whereas its current stock price is AED 1.06. On the other hand, RAK’s IV
is AED -0.75 and it current market price of the stock is AED 0.94. This implies that investors
should not buy the shares of both the companies as they are been overvalued. So, it can be said
that it will be better not to invest in these firms

Finance 7
References
Lee, J. C., & Lee, C. F. (2016). Financial Analysis, Planning & Forecasting: Theory and
Application Third. 3rd ed. Singapore: World Scientific Publishing Company.
Rakwhitecement.ae. (2018). About Us. Retrieved from http://www.rakwhitecement.ae/company-
profile/
Reuters.com. (2018). Gulf Cement Co PSC (GCEM.KW). Retrieved from
https://www.reuters.com/finance/stocks/overview/GCEM.KW
Tracy, A. (2012). Ratio analysis fundamentals: how 17 financial ratios can allow you to analyse
any business on the planet. RatioAnalysis. net.

Finance 8
Appendix 1
Liquidity Ratios
Current ratio = Current
Assets / Current liabilities
2014 2015 2016 % change (2014-15) % change (2015-16)
Gulf Cement Co. 3.89 4.67 4.02 20% -14%
RAK Cement & Constructions 0.94 1.60 1.77 70% 10%
Quick ratio = Quick Assets /
Current liabilities
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 2.53 3.02 2.68 19% -11%
RAK Cement & Constructions 0.62 0.92 1.12 47% 23%
Cash ratio = Cash / Current
liabilities
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 0.65 1.56 1.22 139% -22%
RAK Cement & Constructions 0.05 0.04 0.25 -35% 594%
Net working capital to Total assets ratio = Net
working capital / Total assets
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 0.35 0.36 0.30 3% -17%
RAK Cement &
Constructions (0.01) 0.09 0.10 -776% 22%
Financial Leverage ratios
Total debt ratio = Total assets - Total

Finance 9
equity / Total Assets
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 20% 16% 14% -19% -11%
RAK Cement & Constructions 29% 26% 31% -11% 19%
Debt to equity ratio = Total
Debt / Total Equity
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 24% 19% 16% -23% -13%
RAK Cement & Constructions 41% 35% 44% -14% 27%
Long term debt ratio = Long term debt / (Long
term debt + Total equity)
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 8% 6% 4% -26% -36%
RAK Cement & Constructions 7% 13% 19% 69% 51%
Equity Multiplier = Total assets /
Total equity
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 1.24 1.19 1.16 -5% -2%
RAK Cement & Constructions 1.41 1.35 1.44 -4% 7%
Interest coverage ratio = EBIT /
Interest Expense
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 1.14 2.26 2.74 98% 21%
RAK Cement & Constructions 2.98 4.05 6.57 36% 62%
Cash coverage ratio = EBIT +
Depreciation / Interest Expense
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 98% 21%

Finance 10
1.14 2.26 2.74
RAK Cement & Constructions 2.98 4.05 6.57 36% 62%
Asset management ratios
Inventory Turnover ratio =
COGS / Inventory
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 2.40 2.21 2.55 -8% 16%
RAK Cement & Constructions 3.86 2.54 2.28 -34% -10%
Days' sales in inventory = 365 /
Inventory turnover
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co.
152.1
1
165.4
4
143.0
9 9% -14%
RAK Cement & Constructions 94.50
143.5
8
160.3
3 52% 12%
Receivables Turnover ratio = Sales /
Account Receivables
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 4.72 4.91 3.85 4% -22%
RAK Cement & Constructions 4.01 3.70 3.39 -8% -8%
Days' sales in receivables = 365 /
Receivable turnover
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 75.41 72.46 92.55 -4% 28%
RAK Cement & Constructions 91.13 98.73
107.7
3 8% 9%

Finance 11
NWC Turnover ratio = Sales /
NWC
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 1.34 1.18 1.36 -12% 15%
RAK Cement & Constructions
(25.5
0) 3.42 2.42 -113% -29%
Total Assets Turnover ratio =
Sales / Total Assets
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 0.47 0.42 0.41 -9% -4%
RAK Cement & Constructions 0.32 0.29 0.25 -9% -14%
Fixed assets Turnover ratio = Sales / Net
fixed assets
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 0.94 0.83 0.71 -11% -14%
RAK Cement & Constructions 0.41 0.38 0.33 -7% -13%
Profitability Ratios
Profit margin ratio = Net
Income / Sales
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 9% 12% 9% 36% -23%
RAK Cement & Constructions 8% 5% 14% -41% 197%
Return on Equity = Net Income /
Total equity
ROE = Profit margin x Asset turnover x
Equity multiplier
2014 2015 2016
% change
(2014-15)
% change
(2015-16)

Finance 12
Gulf Cement Co. 5% 6% 4% 18% -28%
RAK Cement & Constructions 4% 2% 5% -48% 173%
Return on Assets = Net Income /
Total Assets
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 4% 5% 4% 24% -27%
RAK Cement & Constructions 3% 1% 3% -46% 155%
Market value ratios
Price-earning ratio = Price per share /
Earnings per share
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 17.14 10.67 15.67 -38% 47%
RAK Cement & Constructions 45.33
105.6
7 32.63 133% -69%
Price-sales ratio = Price per share
/ Sales per share
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 1.39 1.29 1.38 -7% 7%
RAK Cement & Constructions 3.28 4.73 4.25 44% -10%
PEG ratio = P/E ratio / Earnings
growth rate
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co.
(147.
85) 59.46
(52.4
9) -140% -188%
RAK Cement & Constructions
(120.
67)
(206.
91) 19.01 71% -109%
Market to Book ratio = Market Value per share /
Book value per share

Finance 13
2014 2015 2016
% change
(2014-15)
% change
(2015-16)
Gulf Cement Co. 0.81 0.65 0.65 -20% 0%
RAK Cement & Constructions 1.49 1.87 1.55 25% -17%
Appendix 2
Liquidity
Ratios
Current ratio = Current Assets /
Current liabilities
Cash ratio = Cash / Current
liabilities
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 3.89 4.67 4.02
Gulf Cement
Co. 0.65 1.56 1.22
RAK Cement &
Constructions 0.94 1.60 1.77
RAK Cement &
Constructions 0.05 0.04 0.25
Quick ratio = Quick Assets /
Current liabilities
Net working capital to Total assets ratio
= Net working capital / Total assets
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 2.53 3.02 2.68
Gulf Cement
Co. 0.35 0.36 0.30
RAK Cement &
Constructions 0.62 0.92 1.12
RAK Cement &
Constructions (0.01) 0.09 0.10
Financial
Leverage ratios
Total debt ratio = Total assets -
Total equity / Total Assets
Debt to equity ratio = Total
Debt / Total Equity
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 20% 16% 14%
Gulf Cement
Co. 24% 19% 16%
RAK Cement &
Constructions 29% 26% 31%
RAK Cement &
Constructions 41% 35% 44%
Equity Multiplier = Total assets /
Total equity
Long term debt ratio = Long term debt /
(Long term debt + Total equity)

Finance 14
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 1.24 1.19 1.16
Gulf Cement
Co. 8% 6% 4%
RAK Cement &
Constructions 1.41 1.35 1.44
RAK Cement &
Constructions 7% 13% 19%
Interest coverage ratio = EBIT /
Interest Expense
Cash coverage ratio = EBIT +
Depreciation / Interest
Expense
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 1.14 2.26 2.74
Gulf Cement
Co. 1.14 2.26 2.74
RAK Cement &
Constructions 2.98 4.05 6.57
RAK Cement &
Constructions 2.98 4.05 6.57
Asset
management
ratios
Inventory Turnover ratio = COGS
/ Inventory
Days' sales in inventory = 365 /
Inventory turnover
2014 2015 2016 2014 2015 2016
Gulf Cement Co. 2.40 2.21 2.55 Gulf Cement Co. 152 165 143
RAK Cement &
Constructions 3.86 2.54 2.28
RAK Cement &
Constructions 95 144 160
Receivables Turnover ratio =
Sales / Account Receivables
Days' sales in receivables = 365 /
Receivable turnover
2014 2015 2016 2014 2015 2016
Gulf Cement Co. 4.72 4.91 3.85 Gulf Cement Co. 75 72 93
RAK Cement &
Constructions 4.01 3.70 3.39
RAK Cement &
Constructions 91 99 108
NWC Turnover ratio = Sales /
NWC
Fixed assets Turnover ratio = Sales /
Net fixed assets
2014 2015 2016 2014 2015 2016

Finance 15
Gulf Cement Co. 1.34 1.18 1.36 Gulf Cement Co. 0.94 0.83 0.71
RAK Cement &
Constructions (25.50) 3.42 2.42
RAK Cement &
Constructions 0.41 0.38 0.33
Total Assets Turnover ratio =
Sales / Total Assets
2014 2015 2016
Gulf Cement Co. 0.47 0.42 0.41
RAK Cement &
Constructions 0.32 0.29 0.25
Profitability Ratios
Profit margin ratio = Net Income /
Sales
Return on Assets = Net Income /
Total Assets
201
4
201
5
201
6
201
4
201
5
201
6
Gulf Cement Co. 9%
12
% 9% Gulf Cement Co. 4% 5% 4%
RAK Cement &
Constructions 8% 5%
14
%
RAK Cement &
Constructions 3% 1% 3%
Return on Equity = Net Income /
Total equity
ROE = Profit margin x Asset
turnover x Equity multiplier
201
4
201
5
201
6
Gulf Cement Co. 5% 6% 4%
RAK Cement &
Constructions 4% 2% 5%
Market value
ratios
Price-earnings ratio = Price per
share / Earnings per share
PEG ratio = P/E ratio / Earnings
growth rate

Finance 16
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 17.14 10.67 15.67
Gulf Cement
Co.
(147.
85) 59.46
(52.4
9)
RAK Cement &
Constructions 45.33 105.67 32.63
RAK Cement &
Constructions
(120.
67)
(206.
91) 19.01
Price-sales ratio = Price per share
/ Sales per share
Market to Book ratio = Market Value
per share / Book value per share
2014 2015 2016 2014 2015 2016
Gulf Cement
Co. 1.39 1.29 1.38
Gulf Cement
Co. 0.81 0.65 0.65
RAK Cement &
Constructions 3.28 4.73 4.25
RAK Cement &
Constructions 1.49 1.87 1.55
Appendix 3
Gulf Cement Co.
Estimated growth rate of
dividend
Years Dividend % Growth
2013 0.05
2014 0.05 0%
2015 0.07 40%
2016 0.09 29%
2017 0.10 11%
19.92%
Required rate of return using
CAPM
Beta 0.89
Risk free rate 5%
Market risk premium 0.57%
6%
Intrinsic value
Dividend for next year 0.08
Required rate of return 6%

Finance 17
Estimated growth rate 20%
Intrinsic value per share (0.57)
RAK Cement Co.
Estimated growth rate of
dividend
Years Dividend % Growth
2013 0.05
2014 0.05 0%
2015 0.05 0%
2016 0.07 40%
2017 0.08 7%
12%
Required rate of return using
CAPM
Beta 0.21
Risk free rate 5%
Market risk premium 0.57%
5%
Intrinsic value
Dividend for next year 0.05
Required rate of return 5%
Estimated growth rate 12%
Intrinsic value per share (0.75)