Assignment on Financial Analysis (pdf)
Added on 2021-04-19
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RUNNING HEAD: FINANCEFinancial analysis
Finance 1ContentsFinancial overview......................................................................................................................................2Change in ratios...........................................................................................................................................2Comparison – Gulf VS RAK.......................................................................................................................4Companies VS Industry...............................................................................................................................5DuPont Analysis..........................................................................................................................................6Dividend Discount Model...........................................................................................................................6References...................................................................................................................................................7Appendix 1..................................................................................................................................................8Appendix 2................................................................................................................................................13Appendix 3................................................................................................................................................16
Finance 2Financial overviewGulf 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 inyear 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 ratiosReferring 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 3fall in the total liabilities of the company. The ICR and Cash coverage ratio of Gulf co. was sameas 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.
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