Financial Decision Making: Analysis of SAUDI TELECOM CO and Competitors

Running Head: Financial Decision Making
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Project Report: Financial Decision Making

Financial Decision Making
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Contents
Introduction.......................................................................................................................3
Company description........................................................................................................3
Financial ratio analysis.....................................................................................................3
Critical reflection on the financial reports of the company............................................13
Corporate governance.....................................................................................................13
Share price evaluation.....................................................................................................14
Recommendation and conclusion...................................................................................15
References.......................................................................................................................16
Appendix.........................................................................................................................18

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Introduction:
Financial decision is a process which takes the help of various tools to reach over a
conclusion about the performance of the company. It is a financial tools which lead to the
financial department of the business to a conclusion about the changes and the strategically
performance of the business. The main focus of this process is on the financial statement of a
company to identify the current financial position and make the new financial strategies of
the business. the process of financial decision not only helps the businesses to identify the
performance and make decisions but it also helps the individuals, financial analyst, investors
and other stakeholders of the business to identify the position of the company in terms of
management of the financial factor and the investment level of the company (Madhura,
2014).
In the report, financial decision making process has been applied on SAUDI
TELECOM CO and its competitors which are ETIHAD ETISALAT CO and MOBILE
TELECOMMUNICATIONS Company. The financial statement of the company has been
evaluated and it has been compared with the competitors to reach over a conclusion about the
performance of the company. Corporate governance of the company has also been studied
along with the analysis on the financial ratios of the business.
Company description:
SAUDI TELECOM CO (STC) is a Saudi Arabian company which operates its
business under the telecommunication industry. It mainly offers the landline, internet
services, and mobile and computer network to the customers. The company and monopoly on
mobile phone service before the entry of ETIHAD ETISALAT CO. the company is running
from last 20 years in the industry. Headquarter of the company is in Riyadh, Saudi Arabia.
The subscribe services of mobile is around 81% in the Saudi Arabia market who are almost
contributing 73% in the total revenue of the company (Home, 2018). The current turnover of
the company is describing about the improved changes in the overall position of the business.
The main competitors of the company are ETIHAD ETISALAT CO and MOBILE
TELECOMMUNICATIONS Company which are also operating their business under the
telecommunication industry.
Financial ratio analysis:

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The financial performance of STC has been measured and compared with the
competitor companies to identify the overall performance of the business. Ratio analysis
study has been conducted on all the three companies. Ratio analysis is a quantitative tool of
information which briefs the financial statement of the business (Moles, Parrino and
Kidwekk, 2011). It is used to evaluate the numerous factors of the financial and operating
performance of the business. In the ratio analysis, profitability, liquidity, efficiency and
solvency position of the business is identified, the ratio analysis study of all the three
companies are as follows:
Profitability analysis:
Profitability analysis is one of the essentials ratios of a business which describe about
the capability of a business to generate profits after deducting all the expenses against the
available resources of the business (Madhura, 2014).
Return on capital employed:
Return on capital employed ratio brief great increment in the profitability level of
STC. It has been improved from 17.86% to 27.28% in 2018. However, the ROCE of Etihad
has been reduced at great level as well as the Zain ROCE level is also lower than the STC. It
explains that the profitability level of STC is way better in the industry.
Figure 1: Return on capital employed
(Morningstar, 2018)
Gross profit margin:

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Gross profit margin ratio briefs 58.1% of gross profit of STC. The gross profit level of
the company been reduced from 60.1% in 2013. On the other hand, the gross profit margin of
Etihad has been improved at great level as well as the Zain’s gross profit level has also been
improved than the STC. It explains that the profitability level of STC is lower in the industry
because of higher cost of goods sold.
Figure 2: Gross profit margin
(Morningstar, 2018)
Operating profit margin:
Operating profit margin ratio briefs 58.11% of operating profit of STC. The operating
profit level of the company been reduced from 26.52% in 2013. On the other hand, the
operating profit margin of Etihad has been lowered at great level as well as the Zain’s
operating profit level is also lower in the industry. It explains that the profitability level of
STC is better in the industry.

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Figure 3: Operating profit margin
(Morningstar, 2018)
Efficiency analysis:
Efficiency analysis describe about the capability of a business to manage the cash
conversion cycle of the business through administrating the credit policies of the business
(Lumby and Jones, 2007).
Trade payable payment period ratio:
Trade payable payment period ratio briefs 11.12 credit days of STC. The Trade
payable payment period of the company has been reduced from 55.41 days in 2015. On the
other hand, the credit days of Etihad has been improved at great level as well as the Zain’s
credit level has also been improved than the STC. It explains that the efficiency position of
STC is worst in the industry (Gapenski, 2008).

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Figure 4: Trade payable payment period ratio
(Morningstar, 2018)
Inventory turnover ratio:
Further, the inventory turnover period ratio briefs 725.45 days of turning the
inventory. The inventory period of the company has been improved from 71.03 days in 2013.
On the other hand, the inventory days of Etihad has been reduced as well as the Zain’s
inventory days have also been improved. It explains that the efficiency position of STC is
better in the industry.
Figure 5: Inventory turnover ratio

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(Morningstar, 2018)
Receivable turnover ratio:
Lastly, the receivable turnover period ratio briefs 0 days of turning the receivable into
cash. The receivable period of the company has been reduced from 61.47 days in 2013. On
the other hand, the receivable days of Etihad has been reduced as well as the Zain’s inventory
days have also been reduced to 66.36 days (Lord, 2007). It explains that the efficiency
position of STC is average in the industry.
Figure 6: Receivable turnover ratio
(Morningstar, 2018)
Liquidity analysis:
Liquidity analysis is one of the essentials ratios of a business which describe about the
capability of a business to manage the current liabilities and debt against the available short
term resources of the business.
Current ratio:
The current liquidity ratio briefs 1.34 current assets against the current liabilities of
the business. The current liquidity ratio of the company has been reduced in current year in
order to manage the working capital of the company. On the other hand, the current liquidity
ratio of Etihad is quite lower as well as the Zain’s current liquidity ratio has also been
reduced. It explains that the current liquidity ratio of STC is better in the industry.