Fundamental Analysis of Seven Group Holdings

Fundamental Analysis of Seven Group Holdings 1
FUNDAMENTAL ANALYSIS OF SEVEN GROUP HOLDINGS
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Fundamental Analysis of Seven Group Holdings 2
Table of Contents
Introduction....................................................................................................................3
Performance Ratios Analysis of Seven Group Holdings...............................................3
Short-Run Solvency or the Liquidity Ratios..............................................................4
Current ratio...........................................................................................................4
Quick ratio..............................................................................................................5
Long-Term Solvency or the Financial Leverage Ratios............................................6
Debt to total assets.................................................................................................6
Debt to equity.........................................................................................................7
Interest coverage....................................................................................................8
Asset Utilization or Turnover Ratios.........................................................................8
Inventory turnover..................................................................................................9
Assets turnover.......................................................................................................9
Receivable turnover.............................................................................................10
Profitability Ratios...................................................................................................11
Gross Margin........................................................................................................11
ROA.....................................................................................................................12
ROE......................................................................................................................13
Market Value Ratios................................................................................................14
EPS.......................................................................................................................14
P/E ratio................................................................................................................14
Seven Group Share Price Movements.........................................................................15
Share Valuation............................................................................................................17
Conclusion...................................................................................................................18
Recommendation.........................................................................................................18
REFERENCES.............................................................................................................20

Fundamental Analysis of Seven Group Holdings 3
Introduction
Seven Group Holdings is usually a diversified investment and operating firm
operating in construction, mining and media industries (Reuters.com 2018). The
company was established in the year 1991 by the receivers with the aim of bundling
together assets Christopher’s failed business. Its segment comprises of Wes Trac
Australia that is currently the authorized caterpillar seller in the Australian Capital
Territory as well as in New South Wales (Investsmart.com 2018). The second
segment is Wes Trac China that is currently the only authorized caterpillar trader in
North Eastern China. Finally, there is AllightSykes that operates in sales, assembly,
manufacture as well as support of the lighting, dewatering equipment and power
generation as well as in distribution of the Perkins engines. The company operates in
two key countries; that is, China and Australia (Market Index 2018). Seven Group
Holdings has great assets, strong management team as well as engaged personnel that
enable it to capture any opportunity of improving markets where it operates. As such,
the paper present analysis of financial ratio analysis based on five categories; that is,
profitability, market value, liquidity, efficiency and financial leverage in determining
strength and weakness of the firm (Seven Group Holdings 2017). It also presents
historical share trend and value of the company’s stock based on dividend growth rate
model. These would help in the researcher in evaluating Seven Group Holdings and
provide financial advice to the client on whether or not the client should include share
of Seven Group Holding in his investment portfolio.
Performance Ratios Analysis of Seven Group Holdings
Financial ratio analysis is usually the tool developed in performing quantitative
analysis on figures reported on the financial statements (Lewellen 2004). This assists

Fundamental Analysis of Seven Group Holdings 4
in linking the three forms of the financial statements all together and provides figures
which are comparable between firms and across sectors. Basically, ratio analysis if the
most widely utilized fundamental analysis approaches (Halkos & Salamouris 2004).
Nonetheless, ratios differ across different sectors and comparisons in between
completely different forms of organization are usually not valid (Kumbirai & Webb
2010). Ratios falls into numerous categories and for this purpose, the analysis would
use the five commonly used categories to analyse financial performance and position
of Seven Group Holdings in the past two years. These categories include profitability
ratios, asset utilizations, liquidity ratios, market value as well as financial leverage
ratios.
Short-Run Solvency or the Liquidity Ratios
Liquidity or short-term solvency ratios are the widely used financial ratios. These
ratios are very significant especially to the creditors as they measure an organization’s
capacity of meeting its immediate or short-term debts (Lewellen 2004). In this case,
quick as well as current ratio would be used in evaluating liquidity of Seven Group
Holdings over the past two years.
Current ratio
This form of financial ratio would be useful in measuring Seven Group Holdings
current assets against current liabilities (Halkos & Salamouris 2004). It would indicate
or signals whether Seven Group Holdings could settle its short-term debts obligations
by liquidating all its current assets (Kumbirai & Webb 2010). In this case, a low ratio
would signal that Seven Group Holdings might be experiencing hard times in settling
its current debts and therefore require immediate investigations; nonetheless, high
ratio means that Seven Group Holdings is having easier times in settling its short-term

Fundamental Analysis of Seven Group Holdings 5
debts. . In this case, Seven Group Holdings current ratio for the past two years was as
follows:
2016 = 1,783.1/907.4 = 1.97
2017 = 1,909.4/686.6= 2.78
Figure 1: trend in current ratio 2016-2017
2016 2017
0
0.5
1
1.5
2
2.5
3
1.97
2.78
Current ratio
Current ratio
Based on the above results, it is evident that Seven Group Holdings current ratio
increased over the last two years moving from 1.97 in 2016 to 2.78 in 2017. The
increase in current ratio is attributable to introduction of assets held for the sales in
2017. Besides, the increase in this ratio implies that for the last two years, Seven
Group Holdings has been having easy time in settling all its short-term debts.
Quick ratio
The ratio is a bit stringent compared to current ratio. It would help in comparing cash,
the short-term marketable stocks as well as the account receivables of Seven Group

Fundamental Analysis of Seven Group Holdings 6
Holdings to its current liabilities (Halkos & Salamouris 2004). In this case, Seven
Group Holdings quick ratio for the past two years was as follows:
2016 = 1,783,100- 831,300 /907,400 = 1.05
2017 = 1,909,400- 654,700 / 686,600 = 1.83
From the above outcome, it is evident that Seven Group Holdings quick ratio
increased over the past two years. The increase implies that the company has been
having easy time in turning its most liquid assets to settle its short-term debts.
Long-Term Solvency or the Financial Leverage Ratios
Financial leverage are the financial ratios used in measuring an organization’s
capacity of meeting most of its long-term debts (Kumbirai & Webb 2010). This offers
some insights on an organization’s capital structure and level of the financial leverage
the company is utilizing. In this case, financial leverage ratios such as debt to asset,
interest coverage and the debt/equity ratios would be useful in Seven Group Holdings
case since it would permit Seven Group Holdings’ potential investors to determine
whether SVW has enough cash flows in settling its interest expenses and other
expenses (Halkos & Salamouris 2004).
Debt to total assets
This ratio is one of the most common solvency ratios and would be used in measuring
percentage of Seven Group Holdings total assets which is mostly financed by the
debts. It is usually computed by dividing the total debts by the total assets (Halkos &
Salamouris 2004). Here, higher figure implies that the company is utilizing huge