Open University Malaysia
Faculty of Business and
Management
BBAW 2103
Financial Accounting
Name: Adam Khaleel
Lecturer: Mohamed Shafeeq
Learning Centre: Villa College
Trimester: Two, May 2011
Introduction
Analyze of financial statements helps us to recognize a company’s strengths and weaknesses, which lead to good investment strategies and good financial planning. A large number of stakeholders will use and analyze financial statement information, particularly bankers, other lenders, suppliers, investors, and even some of the firm’s customers. For successful analysis and planning of financial statement require an understanding of a company’s external and internal environments. In this assignment includes the analysis of financial statements of State Trading Organization Plc and Bank of Maldives Plc which are two listed companies in different industries in Maldives. This analysis is based on both financial and non-financial information for the past two years from the company’s latest annual reports. In addition to this I will provide detailed profile of these companies, detailed explanation on the categories of ratios, description of these ratios, evaluation and interpretation of ratios by selecting better Performing Company and a conclusion.
- State Trading Organization Plc
STO group, with its subsidiaries, JVs and associates, is a national leader in business. It has significant and focused interests in petroleum, cooking gas, construction materials (including cement and roofing material), medical supplies and pharmaceuticals, home appliances, electronic items, supermarket products and insurance. The company is geographically diverse with operations and developments throughout Maldives and operations in Singapore.
This has been achieved by direct procurement and distribution as well as forming joint ventures to effectively trade in areas where it presents greater opportunity. STO maintains strong government ties, making it their trading partner of choice.
STO has diversified in to other sectors of business, competitively trading in construction materials, consumer electronics, home appliances, medical supplies and pharmaceuticals, and a range of high quality supermarket products.
Vision: Be a recognized trading leader in the region, creating enduring value for all stakeholders, positively influencing the lives of the communities we serve and be a catalyst of economic growth supporting economically and environmentally sustainable development.
Mission
- Work towards achieving profitability not losing sight of the company’s original founding purpose of ensuring supplies and stable prices of necessities and essentials.
- Offer a wide range of quality products and services targeted to the specific needs of consumers and businesses that cater to the changing demands of the market and maximize access to all corners of the country through an effective distribution network.
- Seek opportunities for investment abroad and engineer growth through expansion and diversification of our businesses, adapting to changing local and global business conditions.
- Contribute to the national economy through investing in local manufacturing, creating Opportunities to help the development of local businesses by offering retail opportunities and strategic partnerships.
- Contribute to society through the development of and participation in social programs that directly contribute to the community.
- Ensuring good governance through strict compliance with the highest standards of Corporate.
- Create a cooperative learning work environment and develop human resources of the company.
Core Values
Nation first - National interest is number one priority
Customer focus - Delight each and every customer
Employee well-being - Pleasant workplace, learning and growth
Leadership - Excel with reliability, integrity, honesty and transparency
Social Responsibility - Care for the society and the environment. State Trading Organization Plc. (2010).
- Maldives Transport and Contracting Company Plc
Maldives Transport and Contracting Company Plc (MTCC Plc) is the longest serving public company in Maldives, holding a little more than 50% shares by The Government of Maldives, and the rest by other companies within the Maldives and by the general public. MTCC Plc was established on 18th December 1980. Since its inception, MTCC Plc has expanded its businesses into contracting works, marine transportation, ferry services, selling and distribution of engines, spare parts, lubricants and paint.
Mission: To contribute fully, to the development of the economy and the country.
Vision: We want to lead in our respective business through organic growth and collaborative innovation and creativity in this fast changing socio economic environment where we foster continuous staff development and be known as the company to be trusted to deliver what the customer wants.
Core Values
- Collaborative innovation and creativity - continuous improvement as a work ethic.
- Changing the work environment for employees - people growth and development.
- Honesty and integrity - respect the fellow individual.
- Social Responsibility - community contribution and responsibility.
- Profit, but profit from work that benefits the economy - profitable growth. Maldives Transport and Contracting Company Plc. (2010).
Description of Categories of ratios
A ratio is simply a numerator divided by a denominator. The answer could be in percentage, times and number of days for certain activities to be completed. Ratio analysis refers to methods of calculating and interpreting financial ratios to assess a firm’s performance. It provides details for financial planning, puts details into perspective and manages expectations of creditors and investors. Financial information can be compared using three bases of within the company, between companies and industry average. There are three techniques of analysis of horizontal, vertical and ratio analysis. Horizontal analysis is the comparison in within the company. Vertical analysis is the comparison of within the company and between companies. Ratio analysis is done within the company, between the companies and an industry average. Financial ratios are classified in to four areas; liquidity, efficiency, profitability and debt management.
Liquidity Ratios
It measures the business capability to pay its short-term financial obligation. These ratios are:
- Working capital=Current assets-current liabilities
It is used to measure the business capability to fulfill its short-term debts. The result is stated in amount and the higher its value, the better.
- Current ratio=Current assets ÷ Current liabilities
It is used measure the adequacy of current assets to settle its current liabilities. The result is in the form of X: 1 and the higher the value X, the better.
- Quick ratio=Quick assets÷ Current liabilities
It is used measure the capability of the business to pay immediate short-term debts. The result is in the form of X: 1 and the higher the value X, the better.
Efficiency ratios
It is used measure the level of efficiency and capability of the management to operate its business especially in the usage of assets to generate sales. The efficiency ratios are:
- Account receivable turnover=Credit sales (net) ÷ Average AR (net)
Average AR = (AR last year + AR current year) ÷ 2
It is used to measure the capability to collect debts from customers. The result is in number of times and the higher the AR turnover, the better.
- Average collection period = AR × 365 ÷ credit sales (net)
It is used to measure the average number of days taken to collect the amount receivable. The result is in number of days. If the result is less, the better
- Inventory turnover = cost of goods sold ÷ Average inventory
Average inventory = (inventory last year + inventory current year) ÷ 2
It is used to measure the adequacy and management of the business’s inventory. The result is in times and the higher the inventory turnover, the better.
- Assets turnover = net sales ÷ average total assets
Average total assets = (total asset last year + total asset current year) ÷ 2
It is used to measure the capability of the business in using the asset to generate sales. The result is in times and the ratio is higher, the better.
Profitability ratio:
It measures the ability of the business to generate profit within a specified period. It is used as an indicator to analyze the efficiency and effectiveness level of the business in achieving its profit objective. The profitability ratios are:
- Gross Profit Margin =gross profit ÷ net sales × 100
It is used to measure the profit of sales that can be used to pay for the sales and administrative expenses. The result is in percentage and the higher this percentage is better.
- Net profit margin = net profit ÷ net sales × 100
It is used to measure the capability of the company to generate gross profit from every Rufiyaa of sales. The result is in percentage and the higher this percentage is better.
- Return on asset = net profit ÷ average total assets × 100
Average total assets = (total asset last year + total asset current year) ÷ 2
It is used to measure the management’s efficiency in using the asset to generate profit. The result is in percentage and the higher this percentage is better.
- Return of owner’s equity = net profit ÷ average owners equity × 100
Average owners equity = (total owners equity last year + total owners equity current year) ÷ 2
It is used to measure the success of a business in generating profit for its owner or share holder. The result is in percentage and the higher this percentage is better.
- Return on owners equity’s ordinary shares = net profit – dividend for preference share ÷ average owners equity’s ordinary shares × 100
Average owners equity’s ordinary shares = (total ordinary shares last year + total ordinary shares current year) ÷ 2
It is used to measure the effectiveness of the business to generate profit for the ordinary shareholders. The result is in percentage and the higher this percentage is better.
- Earnings per share = net profit – dividend for preference share ÷ average ordinary shares issued (unit)
Average ordinary shares issued (unit) = (ordinary share opening balance + ordinary share closing balance) ÷ 2
It is used to measure the net profit generated from each ordinary share. The result is in amount and the higher the value, the better.
- Price earnings ratio = market value of ordinary shares per unit ÷ earning per share
It is used to measure the amount paid by investor for every Rufiyaa earned. The result is in number of times and the higher the number, the better.
- Dividend yield = dividend of ordinary shares per unit ÷ market value of ordinary shares per unit
It is used to measure the percentage of returns obtained by ordinary shareholders for every Rufiyaa invested. The result is in percentage and the higher this percentage is better.
- Dividend payout ratio = cash dividend ÷ net profit
It is used to measure the percentage of profit distributed in the form of cash dividend to ordinary shareholders. The result is in percentage and the higher this percentage is better.
Debt Management Ratio:
It measures the ability of the business to continue its operation. The ratios are:
- Interest cover ratio = (net profit + taxation + interest expenses) ÷ interest expenses
It is used to measure the capability of business to pay interest of the current year from the profit of current year. The result is in times and the higher the ratio, the better.
- Debt ratio = total liability ÷ total asset × 100
It is used to measure the percentage of total asset financed by creditors. The result is in percentage and the higher the debt ratio, the lower the equity ratio.
- Equity ratio = total owner equity ÷ total asset × 100
It is used to measure the percentage of total asset financed by owner. The result is in percentage and the higher the percentage, the better for creditors.
- Debt to equity ratio = total liability ÷ total owner equity × 100
It is used to measure the percentage of liability covered by equity. The result is in percentage and the lower this ratio, the better. (Noor et al., 2010, p. 190-199)
Horizontal Analysis
MALDIVES TRANSPORT AND CONTRACTING COMPANY PLC
| ||||
Comparative Income Statement
| ||||
for the year ended 31 December 2009 and 2010
| ||||
2010 (MRF)
|
2009 (MRF)
|
Increase / Decrease
| ||
Amount (MRF)
|
Percentage (%)
| |||
Revenue
|
428,231,046
|
474,340,631
|
-46,109,585
|
-9.7
|
Cost of good sold
|
-349,263,930
|
-365,352,276
|
16,088,346
|
-4.4
|
Gross profit
|
78,967,116
|
108,988,355
|
-30,021,239
|
-27.5
|
Other income
|
4,268,547
|
3,871,310
|
397,237
|
10.3
|
Selling and distribution expenses
|
-10,154,730
|
-31,600,959
|
21,446,229
|
-67.9
|
Administrative expenses
|
-52,251,808
|
-63,842,665
|
11,590,857
|
-18.2
|
Other expenses
|
-6,133,959
|
-7,021,364
|
887,405
|
-12.6
|
Operating profit
|
14,695,166
|
10,394,677
|
4,300,489
|
41.4
|
Finance costs
|
-20,216,792
|
-22,750,016
|
2,533,224
|
-11.1
|
Profit for the year
|
-5,521,626
|
-12,355,339
|
6,833,713
|
-55.3
|
Earnings per share
|
-22.09
|
-49.42
|
27
|
-55.3
|
Maldives Transport and Contracting Company Plc. (2010, 2009).
MALDIVES TRANSPORT AND CONTRACTING COMPANY PLC
| ||||
Comparison Balance Sheet
| ||||
as at 31 December 2009 and 2010
| ||||
2010 (MRF)
|
2009 (MRF)
|
Increase / Decrease
| ||
Amount (MRF)
|
Percentage(%)
| |||
Assets
| ||||
Non-current assets
| ||||
Property, plant and equipment
|
201,690,888
|
222,609,795
|
-20,918,907
|
-9.4
|
Capital work-in-progress
|
1,899,089
|
12,873,127
|
-10,974,038
|
-85.2
|
Investment properties
|
33,273,838
|
-33,273,838
|
-100.0
| |
Intangible assets
|
1,454,510
|
2,245,055
|
-790,545
|
-35.2
|
Assets held for sale
|
9,376,330
|
552,800
|
8,823,530
|
1,596.2
|
Financial investments
|
53,070,728
|
48,031,520
|
5,039,208
|
10.5
|
Trade and other receivables
|
4,408,158
|
3,271,748
|
1,136,410
|
34.7
|
Total non-current assets
|
271,899,702
|
322,857,883
|
-50,958,181
|
-15.8
|
Current assets
| ||||
Inventories
|
113,416,738
|
135,911,034
|
-22,494,296
|
-16.6
|
Goods in transit
|
3,499,141
|
3,057,062
|
442,079
|
14.5
|
Trade and other receivables
|
154,747,714
|
192,159,494
|
-37,411,780
|
-19.5
|
Cash and cash equivalents
|
107,434,095
|
7,780,920
|
99,653,175
|
1,280.7
|
Total current assets
|
379,097,690
|
338,908,509
|
40,189,181
|
11.9
|
TOTAL ASSETS
|
650,997,391
|
661,766,392
|
-10,769,001
|
-1.6
|
Equity and Liabilities
| ||||
Equity
| ||||
Share capital
|
12,500,000
|
12,500,000
|
0
|
0.0
|
General reserve
|
149,539,082
|
152,039,082
|
-2,500,000
|
-1.6
|
Fair value reserve
|
28,941,426
|
23,902,218
|
5,039,208
|
21.1
|
Retained earnings
|
110,147,546
|
115,669,172
|
-5,521,626
|
-4.8
|
Total equity
|
301,128,054
|
304,110,472
|
-2,982,418
|
-1.0
|
Liabilities
| ||||
Non-current liabilities
| ||||
Borrowings
|
28,773,434
|
45,656,637
|
-16,883,203
|
-37.0
|
Trade payables
|
34,119,315
|
4,434,479
|
29,684,836
|
669.4
|
Total non-current liabilities
|
62,892,749
|
50,091,116
|
12,801,633
|
25.6
|
Current liabilities
| ||||
Borrowings
|
133,387,552
|
169,270,946
|
-35,883,394
|
-21.2
|
Trade and other payables
|
153,589,036
|
138,293,858
|
15,295,178
|
11.1
|
Total current liabilities
|
286,976,588
|
307,564,804
|
-20,588,216
|
-6.7
|
Total liabilities
|
349869337
|
357,655,920
|
-7,786,583
|
-2.2
|
TOTAL EQUITY AND LIABILITIES
|
650,997,391
|
661,766,392
|
-10,769,001
|
-1.6
|
Maldives Transport and Contracting Company Plc. (2010, 2009).
STATE TRADING ORGANAISATION PLC
| ||||
Comparative Income Statement
| ||||
for the year ended 31 December 2009 and 2010
| ||||
2010 (MRF)
|
2009 (MRF)
|
Increase / Decrease
| ||
Amount(MRF)
|
Percentage (%)
| |||
Sales
|
4,015,107,365
|
3,844,618,705
|
170,488,660
|
4.4
|
Cost of sales
|
-3,539,797,179
|
-3,423,060,306
|
-116,736,873
|
3.4
|
Gross profit
|
475,310,186
|
421,558,399
|
53,751,787
|
12.8
|
Other operating income
|
36,675,312
|
40,803,248
|
-4,127,936
|
-10.1
|
511,985,498
|
462,361,647
|
49,623,851
|
10.7
| |
Selling and marketing costs
|
-180,059,988
|
-149,625,843
|
-30,434,145
|
20.3
|
Administrative expenses
|
-158,878,995
|
-129,463,577
|
-29,415,418
|
22.7
|
Other operating cost
|
-3,087,998
|
-2,990,017
|
-97,981
|
3.3
|
Operating profit
|
169,958,517
|
180,282,210
|
-10,323,693
|
-5.7
|
Financial income
|
42,033,091
|
45,628,882
|
-3,595,791
|
-7.9
|
Financial cost
|
-88,197,326
|
-83,704,629
|
-4,492,697
|
5.4
|
Finance cost - net
|
-46,164,235
|
-38,075,747
|
-8,088,488
|
21.2
|
Share of profit / (loss) of associates
|
0
|
0
|
0
|
0.0
|
Profit before zakat
|
123,794,282
|
142,206,463
|
-18,412,181
|
-12.9
|
Zakat
|
-4,890,084
|
-2,182,183
|
-2,707,901
|
124.1
|
Profit after zakat
|
118,904,198
|
140,024,280
|
-21,120,082
|
-15.1
|
Attributable to:
| ||||
Equity holders of the Company
|
118,904,198
|
140,024,280
|
-21,120,082
|
-15.1
|
Minority interest
|
0
|
0
|
0
|
0.0
|
118,904,198
|
140,024,280
|
-21,120,082
|
-15.1
| |
Earnings per share for profit attributable to the
| ||||
equity holders of the Company during the year
| ||||
(expressed in Rf per - basic share)
|
106
|
124
|
-18
|
-14.5
|
STATE TRADING ORGANAISATION PLC
| ||||
Comparison Balance Sheet
| ||||
as at 31 December 2009 and 2010
| ||||
2010 (MRF)
|
2009 (MRF)
|
Increase / Decrease
| ||
Amount (MRF)
|
Percentage (%)
| |||
ASSETS
| ||||
Non-current assets
| ||||
Property, plant and equipment
|
507,962,614
|
294,917,633
|
213,044,981
|
72.2
|
Intangible asset
|
40,397,482
|
0
|
40,397,482
|
Not defined
|
Investments in subsidiaries
|
116,249,935
|
116,249,935
|
0
|
0.0
|
Investments in associates
|
10,567,267
|
10,567,267
|
0
|
0.0
|
Investment in joint venture
|
4,700,000
|
4,700,000
|
0
|
0.0
|
Available for sale investment
|
32,684,938
|
48,056,800
|
-15,371,862
|
-32.0
|
Trade and other receivables
|
0
|
997,330
|
-997,330
|
-100.0
|
712,562,236
|
475,488,965
|
237,073,271
|
49.9
| |
Current assets
| ||||
inventories
|
275,539,022
|
392,125,037
|
-116,586,015
|
-29.7
|
Trade and other receivables
|
769,651,685
|
989,526,133
|
-219,874,448
|
-22.2
|
Reinsurance contracts
|
0
|
0
|
0
|
0.0
|
Investment held to maturity
|
0
|
0
|
0
|
0.0
|
Cash and cash equivalents
|
466,035,754
|
385,440,399
|
80,595,355
|
20.9
|
1,511,226,461
|
1,767,091,569
|
-255,865,108
|
-14.5
| |
Total assets
|
2,223,788,697
|
2,242,580,534
|
-18,791,837
|
-0.8
|
EQUITY
| ||||
Capital and reserves for equity holders
| ||||
Share capital
|
56,345,500
|
56,345,500
|
0
|
0.0
|
Share premium
|
27,814,500
|
27,814,500
|
0
|
0.0
|
Currency translation reserve
|
0
|
0
|
0
|
0.0
|
Claim equalization reserve
|
0
|
0
|
0
|
0.0
|
General reserves
|
313,115,325
|
289,334,485
|
23,780,840
|
8.2
|
Fair value reserves
|
28,941,426
|
23,684,408
|
5,257,018
|
22.2
|
Retained earnings
|
523,283,358
|
504,789,879
|
18,493,479
|
3.7
|
949,500,109
|
901,968,772
|
47,531,337
|
5.3
| |
Minority interest
|
0
|
0
|
0
|
0.0
|
Total equity
|
949,500,109
|
901,968,772
|
47,531,337
|
5.3
|
LIABILITIES
| ||||
Non- current liabilities
| ||||
Borrowings
|
0
|
7,967,000
|
-7,967,000
|
-100.0
|
Deferred revenue
|
0
|
0
|
0
|
0.0
|
Current liabilities
| ||||
Trade and other payables
|
565,271,285
|
526,640,394
|
38,630,891
|
7.3
|
Insurance contracts
|
0
|
0
|
0
|
0.0
|
Borrowings
|
709,017,304
|
806,004,368
|
-96,987,064
|
-12.0
|
Total liabilities
|
1,274,288,589
|
1,340,611,762
|
-66,323,173
|
-4.9
|
Total equity and liabilities
|
2,223,788,697
|
2,242,580,534
|
-18,791,837
|
-0.8
|
State Trading Organization Plc. (2010, 2009).
Vertical Analysis
MALDIVES TRANSPORT AND CONTRACTING COMPANY PLC
| ||||
Comparative Income statement
| ||||
For the year ended 31 December 2009 and 2010
| ||||
2010
|
2009
| |||
Amount (MRF)
|
Percentage (%)
|
Amount (MRF)
|
Percentage (%)
| |
Revenue
|
428,231,046
|
100.0
|
474,340,631
|
100.0
|
Cost of goods sold
|
349,263,930
|
81.6
|
365,352,276
|
77.0
|
Gross profit
|
78,967,116
|
18.4
|
108,988,355
|
23.0
|
Other income
|
4,268,547
|
1.0
|
3,871,310
|
0.8
|
Selling and distribution expenses
|
10,154,730
|
2.4
|
31,600,959
|
6.7
|
Administrative expenses
|
52,251,808
|
12.2
|
63,842,665
|
13.5
|
Other expenses
|
6,133,959
|
1.4
|
7,021,364
|
1.5
|
Operating profit
|
14,695,166
|
3.4
|
10,394,677
|
2.2
|
Finance costs
|
20,216,792
|
4.7
|
22,750,016
|
4.8
|
Loss for the year
|
-5,521,626
|
-1.3
|
-12,335,339
|
-2.6
|
Earnings per share
|
-22.09
|
0.0
|
-49.42
|
0.0
|
MALDIVES TRANSPORT AND CONTRACTING COMPANY PLC
| ||||
Comparison Balance Sheet
| ||||
as at 31 December 2009 and 2010
| ||||
2010
|
2009
| |||
Amount (MRF)
|
Percentage (%)
|
Amount (MRF)
|
Percentage (%)
| |
Assets
| ||||
Non-current assets
| ||||
Property, plant and equipment
|
201,690,888
|
31.0
|
222,609,795
|
33.6
|
Capital work-in-progress
|
1,899,089
|
0.3
|
12,873,127
|
1.9
|
Investment properties
|
0.0
|
33,273,838
|
5.0
| |
Intangible assets
|
1,454,510
|
0.2
|
2,245,055
|
0.3
|
Assets held for sale
|
9,376,330
|
1.4
|
552,800
|
0.1
|
Financial investments
|
53,070,728
|
8.2
|
48,031,520
|
7.3
|
Trade and other receivables
|
4,408,158
|
0.7
|
3,271,748
|
0.5
|
Total non-current assets
|
271,899,702
|
41.8
|
322,857,883
|
48.8
|
Current assets
| ||||
Inventories
|
113,416,738
|
17.4
|
135,911,034
|
20.5
|
Goods in transit
|
3,499,141
|
0.5
|
3,057,062
|
0.5
|
Trade and other receivables
|
154,747,714
|
23.8
|
192,159,494
|
29.0
|
Cash and cash equivalents
|
107,434,095
|
16.5
|
7,780,920
|
1.2
|
Total current assets
|
379,097,690
|
58.2
|
338,908,509
|
51.2
|
TOTAL ASSETS
|
650,997,391
|
100.0
|
661,766,392
|
100.0
|
Equity and Liabilities
| ||||
Equity
| ||||
Share capital
|
12,500,000
|
1.9
|
12,500,000
|
1.9
|
General reserve
|
149,539,082
|
23.0
|
152,039,082
|
23.0
|
Fair value reserve
|
28,941,426
|
4.4
|
23,902,218
|
3.6
|
Retained earnings
|
110,147,546
|
16.9
|
115,669,172
|
17.5
|
Total equity
|
301,128,054
|
46.3
|
304,110,472
|
46.0
|
Liabilities
| ||||
Non-current liabilities
| ||||
Borrowings
|
28,773,434
|
4.4
|
45,656,637
|
6.9
|
Trade payables
|
34,119,315
|
5.2
|
4,434,479
|
0.7
|
Total non-current liabilities
|
62,892,749
|
9.7
|
50,091,116
|
7.6
|
Current liabilities
| ||||
Borrowings
|
133,387,552
|
20.5
|
169,270,946
|
25.6
|
Trade and other payables
|
153,589,036
|
23.6
|
138,293,858
|
20.9
|
Total current liabilities
|
286,976,588
|
44.1
|
307,564,804
|
46.5
|
Total liabilities
|
349,869,337
|
53.7
|
357,655,920
|
54.0
|
TOTAL EQUITY AND LIABILITIES
|
650,997,391
|
100.0
|
661,766,392
|
100.0
|
STATE TRADING ORGANAISATION PLC
| ||||
comparative Income statement
| ||||
For the year ended 31 December 2009 and 2010
| ||||
2010
|
2009
| |||
Amount (MRF)
|
Percentage (%)
|
Amount (MRF)
|
Percentage (%)
| |
Sales
|
4,015,107,365
|
100.0
|
3,844,618,705
|
100.0
|
Cost of sales
|
3,539,797,179
|
88.2
|
3,423,060,306
|
89.0
|
Gross profit
|
475,310,186
|
11.8
|
421,558,399
|
11.0
|
Other operating income
|
36,675,312
|
0.9
|
40,803,248
|
1.1
|
511,985,498
|
12.8
|
462,361,647
|
12.0
| |
Selling and marketing costs
|
180,059,988
|
4.5
|
149,625,843
|
3.9
|
Administrative expenses
|
158,878,995
|
4.0
|
129,463,577
|
3.4
|
Other operating cost
|
3,087,998
|
0.1
|
2,990,017
|
0.1
|
Operating profit
|
169,958,517
|
4.2
|
180,282,210
|
4.7
|
Financial income
|
42,033,091
|
1.0
|
45,628,882
|
1.2
|
Financial cost
|
88,197,326
|
2.2
|
83,704,629
|
2.2
|
Finance cost - net
|
46,164,235
|
1.1
|
38,075,747
|
1.0
|
Share of profit / (loss) of associates
|
0
|
0.0
|
0
|
0.0
|
Profit before zakat
|
123,794,282
|
3.1
|
142,206,463
|
3.7
|
Zakat
|
4,890,084
|
0.1
|
2,182,183
|
0.1
|
Profit after zakat
|
118,904,198
|
3.0
|
140,024,280
|
3.6
|
Attributable to:
| ||||
Equity holders of the Company
|
118,904,198
|
3.0
|
140,024,280
|
3.6
|
Minority interest
|
0
|
0.0
|
0
|
0.0
|
118,904,198
|
3.0
|
140,024,280
|
3.6
| |
Earnings per share for profit attributable to the
| ||||
equity holders of the Company during the year
| ||||
(expressed in Rf per - basic share)
|
106
|
0.0
|
124
|
0.0
|
STATE TRADING ORGANAISATION PLC
| ||||
Final statement balance sheet
| ||||
For the year ended 31 December 2009 and 2010
| ||||
2010
|
2009
| |||
Amount (MRF)
|
Percentage (%)
|
Amount (MRF)
|
Percentage (%)
| |
ASSETS
| ||||
Non-current assets
| ||||
Property, plant and equipment
|
507,962,614
|
22.8
|
294,917,633
|
13.2
|
Intangible asset
|
40,397,482
|
1.8
|
0
|
0.0
|
Investments in subsidiaries
|
116,249,935
|
5.2
|
116,249,935
|
5.2
|
Investments in associates
|
10,567,267
|
0.5
|
10,567,267
|
0.5
|
Investment in joint venture
|
4,700,000
|
0.2
|
4,700,000
|
0.2
|
Available for sale investment
|
32,684,938
|
1.5
|
48,056,800
|
2.1
|
Trade and other receivables
|
0
|
0.0
|
997,330
|
0.0
|
712,562,236
|
32.0
|
475,488,965
|
21.2
| |
Current assets
| ||||
Inventories
|
275,539,022
|
12.4
|
392,125,037
|
17.5
|
Trade and other receivables
|
769,651,685
|
34.6
|
989,526,133
|
44.1
|
Reinsurance contracts
|
0
|
0.0
|
0
|
0.0
|
Investment held to maturity
|
0
|
0.0
|
0
|
0.0
|
Cash and cash equivalents
|
466,035,754
|
21.0
|
385,440,399
|
17.2
|
1,511,226,461
|
68.0
|
1,767,091,569
|
78.8
| |
Total assets
|
2,223,788,697
|
100.0
|
2,242,580,534
|
100.0
|
EQUITY
| ||||
Capital and reserves attributable to equity holders of the Company
| ||||
Share capital
|
56,345,500
|
2.5
|
56,345,500
|
2.5
|
Share premium
|
27,814,500
|
1.3
|
27,814,500
|
1.2
|
Currency translation reserve
|
0
|
0.0
|
0
|
0.0
|
Claim equalization reserve
|
0
|
0.0
|
0
|
0.0
|
General reserves
|
313,115,325
|
14.1
|
289,334,485
|
12.9
|
Fair value reserves
|
28,941,426
|
1.3
|
23,684,408
|
1.1
|
Retained earnings
|
523,283,358
|
23.5
|
504,789,879
|
22.5
|
949,500,109
|
42.7
|
901,968,772
|
40.2
| |
Minority interest
|
0
|
0.0
|
0
|
0.0
|
Total equity
|
949,500,109
|
42.7
|
901,968,772
|
40.2
|
LIABILITIES
| ||||
Non- current liabilities
| ||||
Borrowings
|
0
|
0.0
|
7,967,000
|
0.4
|
Deferred revenue
|
0
|
0.0
|
0
|
0.0
|
Current liabilities
| ||||
Trade and other payables
|
565,271,285
|
25.4
|
526,640,394
|
23.5
|
Insurance contracts
|
0
|
0.0
|
0
|
0.0
|
Borrowings
|
709,017,304
|
31.9
|
806,004,368
|
35.9
|
Total liabilities
|
1,274,288,589
|
57.3
|
1,340,611,762
|
59.8
|
Total equity and liabilities
|
2,223,788,697
|
100.0
|
2,242,580,534
|
100.0
|
State Trading Organization Plc. (2010, 2009). Maldives Transport and Contracting Company Plc. (2010, 2009).
Ratio Analysis
Ratio Analysis for MTCC PLC and STO PLC
| |||||
Liquidity Ratios
|
MTCC PLC
|
STO PLC
| |||
Name of the Ratios
|
Formulas
|
2010
|
2009
|
2010
|
2009
|
Working capital
|
Current asset-current liability
|
MRF 92,121,102
|
MRF 31,343,705
|
MRF 236,937,872
|
MRF 434,446,807
|
Current ratio
|
Current asset current liability
|
1.3 : 1
|
1.1 : 1
|
1.2 : 1
|
1.3 : 1
|
Quick ratio
|
Quick asset current liability
|
0.91 : 1
|
0.65 : 1
|
1.0 : 1
|
1.0 : 1
|
Profitability Ratios
| |||||
Gross profit margin
|
Gross profit Sales (net)
|
18.4%
|
23.0%
|
11.8%
|
11.0%
|
Net profit margin
|
Net profit Sales (net)
|
-1.3%
|
-2.6%
|
3.0%
|
3.6%
|
Return on assets
|
Net profit Average total assets
|
-0.8%
|
-1.8%
|
5.3%
|
7.0%
|
Return on owners equity
|
Net profit/Average owners equity
|
-1.8%
|
-4.1%
|
12.8%
|
16.1%
|
Earnings per share
|
(Net profit-Dividend for preference share)/
|
MRF -22.1
|
MRF -49.42
|
MRF 106
|
MRF 124
|
Average ordinary shares issued(unit)
| |||||
Debt Management Ratios
| |||||
Debt Ratio
|
Total liability/Total asset
|
53.7%
|
54.0%
|
57.3%
|
59.8%
|
Equity Ratio
|
Total owner equity/Total asset
|
46.3%
|
46.0%
|
42.7%
|
40.2%
|
Debt to equity ratio
|
Total liability/Total owner equity
|
116.2%
|
117.6%
|
134.2%
|
148.6%
|
Efficiency Ratios
| |||||
Average collection period
|
AR×365/Net credit sales
|
118 days
|
132 days
|
70 days
|
94 days
|
Inventory turnover
|
Cost of goods sold/Average inventory
|
2.8 times
|
2.6 times
|
10.6 times
|
9.5 times
|
Asset turnover
|
Net sales/Average total asset
|
0.65 times
|
0.69 times
|
1.8 times
|
1.9 times
|
Interpretation of Ratios
- Working capital: If the working capital is higher, the better for the company because it shows the business ability to pay its short-term debts. The calculation shows that the working capital is increased for MTCC but for STO it has decreased from the year 2009 to 2010.
- Current ratio: The Current ratio should be 2:1. If it is too less or too high, shows that Current ratio for 10Tcc has increased from 1.1 to 1.3 but it is less than 2:1 which indicates that the company does not have enough current assets to pay off the current liabilities where as for STO this ratio has decreased from 1.3 to 1.2 and it indicates they too do not have enough current assets to pay off their current liabilities.
- Quick ratio: The quick ration should be 1:1. If it is too less or too high, it is not good for the company. The calculation shows that quick ratio for MTCC has increased from 0.65 to 0.91 but it indicates that they do not have enough quick assets to pay off immediate debts where as for STO this ratio was constant at 1:1 for both years. It indicates that have enough quick assets to pay off their immediate debts.
Profitability
- Gross profit margin: It is the profit on sales. If it is higher, the better for the company. The calculation shows that it has decreased from 23.0% to 18.4% for MTCC. Where as it has increased from 11.0% to 11.8% for STO. This means that for STO has good purchasing management but not for the MTCC.
- Net profit margin: It is the profit on sales after deducting the overhead expenses. If it is higher, the better. The calculation shows that it has improved from -2.6% to -1.3% for MTCC. Whereas for STO it has decreased from 3.6% to 3.0%. This means that for MTCC the overhead expenses decreased from the year 2009 to 2010 but for the STO the expenses increased from 2009 to 2010.
- Return on assets: If it is higher the better. The calculation shows that it has improved from -1.8% to -0.8% for MTCC. Where as it has decreased from 7.0% to 5.3% for STO. This means that there is good management of assets to generate profit for MTCC but inefficient management of assets for STO.
- Return on equity: it is higher the better. The calculation shows that it has improved from -4.1% to -1.8% for MTCC. Where as it has decreased from 16.1% to 12.8% for STO. This means that the business ability of generating profit for owners has improved for MTCC but it has decreased for STO.
- Earnings per share: It is the profit generated for each ordinary share. If it is higher the better. The calculation shows that it has improved from MRF-49.42 to MRF-22.1 for MTCC. Where as it has decreased from MRF124 to MRF 106 for STO. This means that there is a loss of MRF-22.1 for MTCC’s shareholders and profit of MRF 106 for STO’s ordinary shareholders in 2010.
Debit management Ratio
- Debt ratio: It calculates the total assets financed by creditors. Owners prefer higher debt ratio as funds financed by loans can generate higher returns. The calculation shows that it has decreased from 54.0% to 53.7% for MTCC and it also has decreased from 59.8% to 57.3% for STO. This means the MTCC’s assets of 53.7% are financed by its creditors. Whereas 57.3% of STO’s assets are financed by its creditors in 2010.
- Equity ratio: It calculates the assets financed by the owner. The creditors prefer higher equity ratio. The calculations show that it has increased from 46.0% to 46.3% for MTCC and it has increased from 40.2% to 42.7% for STO. This means that this is a positive sign for their creditors as they can get credit more easily.
- Debt to equity ratio: It is the liability covered by equity. The lower this ratio, the better. The calculations show that it has decreased from 117.6% to 116.2% for MTCC and it has also decreased from 148.6% to 134.2% for STO. This means that there are more liabilities in STO compared to MTCC.
Efficiency Ratios
- Average collection period: It calculates the number of days taken to collect the amount receivable. If it is lower, the better for the business. The calculations show that it has decreased from 132 days to 118 days for MTCC and it also has decreased from 94 days to 70 days for STO. This means that STO is taken less number of days to collect receivables compared to MTCC.
- Inventory turnover: It measures the number of times the inventory has been sold out in a given period of time. If it is higher, the better. The calculations show that it has increased from 2.6 times to 2.8 times for MTCC and it also has increased from 9.5 times to 10.6 times for STO. This means that the performance of STO is high compared to MTCC. It might not show the true picture because both the companies are from two different industries.
- Assets turnover: It measures the capability of the business in using the assets to generate sales. If it higher, the better. The calculation show that it has decreased from 0.69 times to 0.65 times for MTCC and it also has decreased from 1.9 times to 1.8 times for STO. This means that the STO is more capable of using its assets to generate sales compared to MTCC.
Maldives Transport and Contracting Company Plc. (2010, 2009). State Trading Organization Plc. (2010, 2009).
Cash flow statement
The cash flow statement shows how an organization raises money and how it spent those funds during a given period of time. It is also an analytical tool which measures an enterprise’s ability to cover its expenses in the near term. Suppose, if a company is consistently bringing in more cash than it spends, it shows that company is considered to be of good value. The cash flow statement includes of three parts; the operations, investing and financing sections.
Operating activities generally reflect cash generated and paid for the firm’s core business functions. Investors prefer companies that produce a net positive cash flow from operating activities.
Investing activities describe the activities of cash associated with outside financing activities. It would normally include long term asset items and sale of non current asset.
Financial activities relates on the amount of cash the company has spent on capital expenditures, such as new equipment or anything else that needed to run the business. It includes acquisitions of other businesses and monetary investments such as money market funds.
It shows that the cash flow statement of MTCC has positive cash flows from operating activities but negative cash flows from financing activities and investing activities, the overall cash flow shows negative for the year 2009 but positive for the year 2010. So their cash flow performance is not good.
The cash flow statement of STO shows positive cash flows from operating activities but negative for the investing activities. It shows positive cash flow of financing activities in the year of 2009 but negative in the year 2010. The overall cash flow is positive for the both years and their cash flow performance is good. (Noor et al., 2010, p. 117-118).
Best company selection
After the analysis of ratios it is understood that STO plc is able generate more profit than MTCC, since STO’s net profit margin, return on asset, return on owners equity and earnings per share are high comparing to MTCC.
The liquidity ratios show that the liquidity position of STO is better compared to MTCC. The STO has enough quick assets to pay off its immediate debts but MTCC does not have enough liquid assets.
The debt management ratios show that the STO has more liabilities compared to MTCC which is not good for the company because these liabilities are secured against the fixed assets of the business.
The efficiency ratios show that the efficiency of STO is better compared to MTCC since the STO takes less number of days to collect debts and the rate of selling items much faster than MTCC.
It is understood that the STO plc is performing well compared to MTCC plc although their debt management is not well compared to MTCC. So it is advisable to reduce the number of liabilities to be more successful in future.
Conclusion
Although ratio analysis is very important tool to judge the company’s performance there are several problems inherent in attempting to use accounting ratios to assess company performance. Ratios give meaningless figures if the company has generated a loss and there is no absolute definition as to what constitutes a “correct” ratio. They may be calculated almost as one likes, which means that they are capable of manipulation compounding and ratios are often just presented as figures, without any supporting calculations or definitions. Ratio analysis deals only with financial numbers and does not take account of other factors which may affect company performance. If they are calculated over a period of years to provide longitudinal data, then the value of currency in later years will not be the same as that of earlier years, owing to the effect of inflation, etc. It is very difficult to get the better analysis since the both companies are from two different industries which made unable to get industry average.
Appendix 1
Workings of ratio analysis for STO plc
| ||||
Liquidity Ratios
|
2010
|
2009
| ||
Working Capital =
|
1,511,226,461
|
MRF 236,937,872
|
1,767,091,569
|
MRF 434,446,807
|
-1,274,288,589
|
-1,332,644,762
| |||
Current Ratio =
|
1,511,226,461
|
1.2 : 1
|
1,767,091,569
|
1.3 : 1
|
1,274,288,589
|
1,332,644,762
| |||
Quick Ratio =
|
1,235,687,439
|
1.0 : 1
|
1,374,966,532
|
1.0 : 1
|
1,274,288,589
|
1,332,644,762
| |||
Profitability Ratios
| ||||
Gross profit margin =
|
475,310,186
|
11.8%
|
421,558,399
|
11.0%
|
4,015,107,365
|
3,844,618,705
| |||
Net profit margin =
|
118,904,198
|
3.0%
|
140,024,280
|
3.6%
|
4,015,107,365
|
3,844,618,705
| |||
Return on assets =
|
118,904,198
|
5.3%
|
140,024,280
|
7.0%
|
2,233,184,616
|
2,011,539,929
| |||
Return on owners equity =
|
118,904,198
|
12.8%
|
140,024,280
|
16.1%
|
925,734,440.5
|
872,009,697
| |||
Earnings per share =
|
118,904,198
|
MRf 106
|
140,024,280
|
MRF 124
|
1,126,910
|
1,126,910
| |||
Debt Management Ratios
| ||||
Debt Ratio =
|
1,274,288,589
|
57.3%
|
1,340,611,762
|
59.8%
|
2,223,788,697
|
2,242,580,534
| |||
Equity Ratio =
|
949,500,109
|
42.7%
|
901,968,772
|
40.2%
|
2,223,788,697
|
2,242,580,534
| |||
Debt to equity ratio =
|
1,274,288,589
|
134.2%
|
1,340,611,762
|
148.6%
|
949,500,109
|
901,968,772
| |||
Efficiency Ratios
| ||||
Average collection period =
|
769,651,685×365
|
70 days
|
989,526,133×365
|
94 days
|
4,015,107,365
|
3,844,618,705
| |||
Inventory turnover =
|
3,539,797,179
|
10.6 times
|
3,423,060,306
|
9.5 times
|
333,832,029.5
|
358,914,697.5
| |||
Asset turnover=
|
4,015,107,365
|
1.8 times
|
3,844,618,705
|
1.9 times
|
2,233,184,616
|
2,011,539,929
|
Workings of ratio analysis for MTCC plc
| ||||
Liquidity Ratios
|
2010
|
2009
| ||
Working Capital =
|
379,097,690
|
MRF 92,121,102
|
338,908,509
|
MRF 31,343,705
|
-286,976,588
|
-307,564,804
| |||
Current Ratio =
|
379,097,690
|
1.3 : 1
|
338,908,509
|
1.1 :1
|
286,976,588
|
307,564,804
| |||
Quick Ratio =
|
262,181,809
|
0.91 : 1
|
199,940,414
|
0.65 : 1
|
286,976,588
|
307,564,804
| |||
Profitability Ratios
| ||||
Gross profit margin =
|
78,967,116
|
18.4%
|
108,988,355
|
23.0%
|
428,231,046
|
474,340,631
| |||
Net profit margin =
|
-5,521,626
|
-1.3%
|
-12,355,339
|
-2.6%
|
428,231,046
|
474,340,631
| |||
Return on assests =
|
-5,521,626
|
-0.8%
|
-12,355,339
|
-1.8%
|
656,381,892
|
689,690,947
| |||
Return on owners equity =
|
-5,521,626
|
-1.8%
|
-12,355,339
|
-4.1%
|
301,128,054.0
|
304,110,472
| |||
Earning per share =
|
-5,521,626
|
MRf -22.09
|
-12,355,339
|
MRF -49.42
|
250,000
|
250,000
| |||
Debt Management Ratios
| ||||
Debt Ratio =
|
349,869,337
|
53.7%
|
357,655,920
|
54.0%
|
650,997,391
|
661,766,392
| |||
Equity Ratio =
|
301,128,054
|
46.3%
|
304,110,472
|
46.0%
|
650,997,391
|
661,766,392
| |||
Debt to equity ratio =
|
349,869,337
|
116.2%
|
357,655,920
|
117.6%
|
301,128,054
|
304,110,472
| |||
Efficiency Ratios
| ||||
Average collection period =
|
138,392,236×365
|
days 118
|
172,137,376×365
|
132 days
|
428,231,046
|
474,340,631
| |||
Inventory turnover =
|
349,263,930
|
2.8 times
|
365,352,276
|
2.6 times
|
124,663,886
|
138,047,912
| |||
Asset turnover=
|
428,231,046
|
0.65 times
|
474,340,631
|
0.69 times
|
656,381,891.5
|
689,690,947
| |||
References
Dr. Jane, F. H., Mike, S., Jo, P. (n.d). Inherent limitations in using financial ratio analysis to assess small and medium sized company performance. Retrieved July 02, 2011, from http://docs.google.com/viewer?a=v&q=cache:RxcAPtIXq4QJ:www.sheffield.ac.uk/content/1/c6/06/89/64/2007-01.pdf+limitation+of+ratio+analysis&hl=en&gl=mv&pid=bl&srcid=ADGEESgzzLen1LEdvtdhyV-quz1ZWLzs41A2Hb78Mgofh_9WuwKu7I0pid9mBnkbEJO3oHFy-qqLLlCjOqd_JL-JhVQk6G_93qEcLWxCe7uBS3-_BvMoBKW8dmuiZlxaq2QG1m4D0lD6&sig=AHIEtbQ2pKti6Ugc9g8QNiqib20Y_Nho7A
Noor, A. J., Nor, A. L., Junaidah, H. A., Azlan, Z. A., Amin, A., Norazita, M. A. A., (2010). Financial Accounting. Meteor Doc.Sdn.Bhd: Malaysia.
Maldives Transport and Contracting Company Plc. (2009). Annual Report.
Maldives Transport and Contracting Company Plc. (2010). Annual Report.
State Trading Organization Plc. (2009). Annual Report.
State Trading Organization Plc. (2010). Annual Report.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.