Financial Management: Analysis of State Trading Organization PLC

Running head: FINANCIAL MANAGEMENT
Financial management
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1FINANCIAL MANAGEMENT
Abstract
The report focuses on the financial performance and financial position of State Trading
Organization PLC. Various long tern sources of fund available to the company as stated are
equity share, preference shares and debentures, borrowing from banks and retained earnings.
It is found that 80% of the company’s long term capital is raised from equity and only 20% of
the long term capital is raised through loans and borrowings. However, from the debt ratio
and debt equity ratio of the company it is found that the company is exposed to financial risk.
From the computation of financial leverage it is found that more than 2/3rd of the capital is
raised through debt and 1/3rd of the capital is raised through equity. Further, financial
leverage of 2.07 is indicating that the company is highly leveraged and financial risk is high.
It is further found that the company is that the company is regular in paying dividend to the
shareholders and creating return for the shareholders. However, the profitability ratios of the
company are in decreasing trend.

2FINANCIAL MANAGEMENT
Table of Contents
Introduction................................................................................................................................2
Availability of long-term finance...............................................................................................2
Long-term source of capital...................................................................................................2
Long-term capital structure of the company..........................................................................3
Optimum capital structure......................................................................................................4
Risk attitude...........................................................................................................................4
Leverage of the company...........................................................................................................5
Operating leverage.................................................................................................................5
Financial leverage..................................................................................................................6
Implications of findings for the investor................................................................................6
Dividend policies available to the company..............................................................................7
Dividend policy of State Trading Organization PLC.............................................................8
Profitability of the company and profitability trend..................................................................9
Conclusion and recommendation.............................................................................................10
Reference..................................................................................................................................11

3FINANCIAL MANAGEMENT
Introduction
State Trading Organization PLC along with the subsidiaries are engaged in
distribution, import, retail and wholesale of petroleum, construction materials and cooking
gas, pharmaceuticals, medical supplies, electronics, home appliances, insurance products and
supermarket products. The company was formerly known as Athireemaafannu Trading
Agency and during 1969 it changed its name to State Trading Organization PLC. However,
the company was established in Male, Maldives during 1964. Over the years the company
entered into wide areas of business and other trade for meeting the rising demand of the
developed nation with the growth in standards of living. Further, the company expanded
geographically, formed partnership and spun of the subsidiaries for meeting the available
opportunities. The company truly became diverse with regard to business organization
(Sto.mv, 2018).
Availability of long-term finance
Long-term source of capital
Various long-term sources available to the company are –
 Equity shares – the equity shares represent the firm’s ownership capital. The company
may obtain the funds from the promoters or from public as the equity shares through
issuance of ordinary equity shares. The ordinary shareholders are those who receive
the return and dividend on the capital after payment to the preference shareholders are
made. Main advantage of equity shares is that it does not involve any fixed charges.
The company makes payment of dividends only when it earns sufficient divisible
profits (Véron & Wolff, 2016). However, legal obligation is not there to pay the
dividends. On the other hand, the main disadvantage of this is that the payment of
dividend is not deductible as expenses under tax.
 Preference share – generally the preference shareholders are entitled to receive the
dividends at fixed rate before payment of other shares. Long-term fund raised from
the preference shares are done through public issue of the shares. However, it does not
have any impact on the ownership of the business and no security is required. The
characteristics of preference share involve both the characters of equity capital as well