Financial Ratio Analysis of Gulf Livestock Company

College of Business AdministrationMaster of Business Administration ProgramMaster of Human Resource Management Program

Financial Management: FIN512

Spring Semester AY2013-2014

Financial Ratio Analysis of Gulf Livestock Company

Under the supervision of

Dr. Najla Ellili

Table of Contents

Introduction ————————————————————————————— 3

Companies Profile ——————————————————————————- 4

Company Analysis——————————————————————————– 6

Cross Sectional Analysis For the Three Companies ————————————– 21

Conclusion —————————————————————————————– 31

References —————————————————————————————– 32

Appendix ——————————————————————————————- 33

Companies Profile

Gulf Livestock Company

The company was founded in 1982 and is headquartered in Ras Al-Khaimah, the United Arab Emirates. The company was as a Kuwait shareholders company by Al-Homaizi group and other 38 employees. Currently Gulf livestock is among the largest specialized cross-breeding company involved in livestock trading. The company also process frozen and fresh meat and other animal products and these facilities are located in Australia.

The company’s history commenced in 1984 when Australian state asked the owner to infuse investment and consequently control a hybrid research program in developing high quality cross-breed sheep in Australia. This process went successfully and made the company to be popular and greater access to the marketplace.

Presently, Gulf livestock import nearly 150,000 sheep to other countries and Kuwait. The company got listed in Abu Dhabi securities Exchange in 2009 and in October 2009, Gulf Livestock Company offered 100 million shares with a nominal value of Dh1 of equivalent to $0.27.

The company’s owners are Sklyer Group General Trading who owns shares of 36.14 %, Naif Al Sabah who has 8.76 % worth of shares, Al Salem Ltd Co with 6.18 %, Ahmed Al Nuaemi with shares of 5.18 %, and Ras Al Khaimah Government who owns 5.00 % of shares.

Company AnalysisGulf Livestock Company

Liquidity AnalysisCurrent RatioThe total current assets in 2012 was 94,215,792 while in 2013 it was 112,881,415. The current liabilities in 2012 was 50,019,988 while in 2013, current liabilities was 48,749,478. Current ratio in 2012 was 94,215,792/50,019,988 coming to 1.883563. For 2013 current ratio was 112,881,415/48,749,478 coming to 2.315541. The current ratio increased indicating a strengthening company assets. The assets increased and liabilities decreased.

Quick RatioQuick ratio is obtained by (Current assets – Inventory) / Current Liabilities. The higher the quick ratio the higher the chances and ability of company to borrow on short term basis.

Year Current assets inventory Current liabilities Current assets minus inventory Quick ratio

2012 94,215,792 147,302 50,019,988 94,068,490 0.99844

2013 112,881,415 506,386 48,749,478 112,375,029 0.99551

The quick ratio decreased from 2012 to 2013 indicating that the liabilities reduced while assets increased for the company.

Cash RatioYear current and non-current assets current liabilities cash ratio

2012 521,552,624 50,019,988 10

2013 554,521,879 48,749,478 11

Cash ratio has increased from 10 to 11 indicating that the company has the amount of cash available to meet its short-term liabilities and because of this the creditors would be willing to extend to the company.

Long Term Solvency AnalysisTotal Debt RatioIt indicates the company’s leverage.

Year total liabilities total assets debt ratio

2012 50,019,988 307,884,208 0.162464

2013 48,749,478 333,701,647 0.146087

In 2012, debt ratio was 0.162464 while in 2013 it was 0.146087. This indicates that there was a decreasing leverage and reducing financial risks. The total debt ratio decreased, this means there is low degree of leverage and financial risk. The company had successfully reduced its outstanding debts.

Debt to Equity RatioIt indicates Company’s long term solvency.

Year total liabilities shareholder’s equity Debt to Equity Ratio

2012 50,019,988 213,668,416 0.234101

2013 48,749,478 220,820,232 0.220765

There is a reduction indicating there are more assets in 2013 compared to 2012 as is indicated in the decrease in debt to equity ratio. The reduction indicates that assets provided by the stockholders are more than assets provided by the creditors.

Time interest earnedYear Earnings before Interest and Tax Interest Expense Time interest earned

2012 94,215,792 50,019,988 1.883563

2013 112,881,415 48,749,478 2.315541

The increase in time interest earned indicates a strengthening company in terms of assets and its ability to pay its long term debts. The ratio increased from 1.88 to 2.32 indicating the company was able to pay its interest and debts compared to the previous year (2012). On the contrary, an increase in time interest earned indicates that company is excessively paying debts other than concentrating on other projects. It means the company is not using some funds properly.

Inventory AnalysisInventory Turnover RatioYear cost of goods sold average inventory Inventory Turnover Ratio

2012 94,215,792 213,668,416 0.440944

2013 112,881,415 220,820,232 0.511191

The inventory turnover ratio increased from 2012 to 2013 and this shows the company improved in its inventory and costs of goods sold. The company thus had more sales in 2013 compared to 2012. Normally, this ratio is high for companies selling perishable products like Gulf (selling milk).

Day Sales in InventoryThe day’s sales inventory for 2012 was 239.94 while for 2013 the value rose to 251.07. this was an indication that the company had increased its inventory sales but the increase was small indicating the company was not selling off its inventories. On the contrary, it could also indicate the company’s decision to maintain high inventory levels so that it can achieve high order fulfillment rates.

Receivables TurnoverYear net credit sales accounts receivable Turnover

2012 29,516,580 1,367,071 21.59111

2013 42,857,928 943,755 45.41213

The receivable’s turnover increased indicating the company was growing in assets and not using it effectively. The value in 2012 was 21.5911 while in 2013 the value rose to 45.41213 indicating almost a double the value. This is also indication that the company was able to effectively collect its receivables.

Total Asset turnoverYear Sales or Revenues Total Assets Asset Turnover

2012 29,516,580 46,000 641.6648

2013 42,857,928 76,942 557.016

The increase in asset turnover indicates the growth in sales between two years. The table indicates that converting asset ratio sales in 2013 was lower than in 2012. This indicates that only 5.5% was converted in 2013 compared to 6.4% converted in 2012. For the company it is a serious challenge to increase the ratio by improving its efficiency.

Profitability AnalysisProfit Margin Ratio

Revenue Profit Profit Margin Ratio

2012 29,516,580 9,328,884 0.316056

2013 42,857,928 26,879,473 0.627176

The company’s profit margin increased from 31% in 2012 to 62.7% in 2013. The possible reason might be increased sale or reduced operational and production costs. Increase in sales might be due to improved products or proper marketing techniques.

Return on Asset (RoA)Year net income total assets Return on Asset

2012 29,516,580 46,000 641.6648

2013 42,857,928 76,942 557.016

The returned assets decreased from 64% to 56% suggesting the profitability on total asset decreased and is negative sign the company since it indicates that in 2013, the company was bale to convert its investments to profits compared to 2012.

Return on Equity (RoE)Year net income shareholder’s equity Return on Equity

2012 29,516,580 193,263,741 0.152727

2013 42,857,928 204,166,600 0.209916

The value in 2012 was 0.15 while in 2013, the value rose to 0.21 indicating a growth in net income and reduction in shareholder’s equity. This is an indication that the company was rowing in its sales while reducing the further investments.

Market Value Ratios

Price to Earnings RatioThis is determined by dividing Market Value per Share by Earnings per Share (EPS). The share prices remained the same due to similar investments and shares.

price per share earnings per share P/E ratio

2012 0.20187696 30 0.006729232

2013 0.15978455 43 0.00371592

The investors for the company is decreasing as indicated by the ratio. This is an indication that the company is willing to pay fewer prices in 2013 compared to 2012. This will led to decrease in stock prices of the company.

Market to Book Ratiobook value per share earnings per share Market to Book Ratio

2012 4.953512278 30 0.165117076

2013 6.258427364 43 0.145544822

The value has decreased from 0.16 to 0.14 in 2012 and 2013 respectively. This is an indication that the company market value was reducing compared to the previous year. It also idnciates that the investors were not ready to pump in more money to the company.

References

Peterson, D. P., & Fabozzi, F. J. (2012). Analysis of financial statements.

Vandyck, C. K. (2006). Financial ratio analysis: A handy guidebook. Victoria, B.C: Trafford.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2012). Intermediate accounting. Hoboken, NJ: Wiley.

Appendix:

Summary of Financial ratios of the three companies

2013 Financial Ratios result

Average

liquidity current ratio 2.315541

quick ratio 0.99551

cash ratio 11

Solvency Total Debt 0.146087

debt/equity 0.220765

time interest earned 2.315541

inventory ratios inventory turnover 0.511191

days sales in inventory 251.07

receivables turnover 45.41213

days sales in receivable 140

total asset turnover 557.016

profitability profit margin 63%

return on asset 0.209916

return on equity 0.209916

market value PE ratio 0.00371592

market to book 0.145544822

2012 Financial Ratios result

Average

liquidity current ratio 1.883563

quick ratio 0.99844

cash ratio 10

Solvency Total debt 0.162464

debt/equity 0.234101

time interest earned 1.883563

inventory ratios inventory turnover 0.440944

days sales in inventory 239.94

receivables turnover 21.59111

days sales in receivable 126

total asset turnover 641.6648

profitability profit margin 31.6%

return on asset 3%

return on equity 0.152727

market value PE ratio 0.006729232

market to book 0.165117076

GULF LIVESTOCK PJSC CONSOLIDATED STATEMENT OF FINANCIAL POSITION DEC 31,2013 ASSETS Dec 31,2013 Dec 31,2012

NOTE AED AED

Non Current assets Property and equipment 5 506,386 147,302

Intangible asset 6 76,942 46,000

Investment in subsidiary 7 60,000 0

Investment properties 8 204,166,600 193,263,741

Available for sale investment 9 15,978,455 20,187,696

Refundable deposits 31,849 23,677

Total non current assets 220,820,232 213,668,416

Current assets Deferred revenue 743,160 743,160

Financial assets at fair value through profit or loss (FVTPL) 10 81,713,899 72,701,871

Trade and other recievables 11 943,755 1,367,071

Cash and cash equivalents 12 29,480,601 19,403,690

Total current assets 112,881,415 94,215,792

Total assets 333,701,647 307,884,208

EQUITY AND LIABILITIES Equity and reserves Share capital 13 100,000,000 100,000,000

Statutory reserve 14 50,000,000 50,000,000

General reserve 15 50,000,000 50,000,000

Retained carnings 83,356,601 55,498,673

Total equity and reserves 283,356,601 255,498,673

Non current liabilities Tenant’s refundable deposits 977,850 1,102,768

Provision for employees’ end of service indemnity 16 617,718 1,262,779

Total non current liabilities 1,595,568 2,365,547

Current liabilities Undistributed dividends 17 31,243,875 25,299,726

Other payables 18 17,505,603 24,720,262

Total current liabilities 48,749,478 50,019,988

Total equity and liabilities 333,701,647 307,884,208

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DEC 31,2013

Sales 19 0 302,313

Cost of sales 20 0 (427,187)

Gross (loss) 0 (124,874)

Loss on revaluation of property and equipment (126,570) (42,975)

Loss on revaluation of intangible assets (9,200) (82,000)

Selling, general and administrative expenses 21 (6,984,592) (3,840,342)

Gain from investments 22 50,805,027 35,291,685

Other income 23 1,643,235 856,583

Other cost (2,469,972) (2,541,497)

Net Comprehensive income for the year 42,857,928 29,516,580

Basic earnings per share (in UAE fils) 43 30