Financial Statement Analysis of Etihad Etisalat Co



Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc394139965” Financial Statement Analysis for the year 2011 and 2012 PAGEREF _Toc394139965 h 2

HYPERLINK l “_Toc394139966” Company overview PAGEREF _Toc394139966 h 2

HYPERLINK l “_Toc394139967” Ratio Analysis PAGEREF _Toc394139967 h 3

HYPERLINK l “_Toc394139968” Statement of cash flows PAGEREF _Toc394139968 h 7

HYPERLINK l “_Toc394139969” References PAGEREF _Toc394139969 h 10

HYPERLINK l “_Toc394139970” Appendix PAGEREF _Toc394139970 h 12

HYPERLINK l “_Toc394139971” Income Statement PAGEREF _Toc394139971 h 12

HYPERLINK l “_Toc394139972” Balance sheet PAGEREF _Toc394139972 h 13

HYPERLINK l “_Toc394139973” Cash Flow Statement PAGEREF _Toc394139973 h 14

Financial Statement Analysis for the year 2011 and 2012In the given report, analysis of the financial statement of the company Etihad Etisalat CO is conducted which help to provide a clear and precise idea at about the company financial performance over the given period of time i.e. 2011 and 2012. The financial analysis help to provide a clear understanding on the financial position of the company in the UAE business environment and the financial market and also help other user to take effective decision related to the investment in the given company (Horrigan, 1967).

Company overviewEtisalat is one of the first telecommunication firms in United Arab Emirates, which established in the year 1976 with around paid capital of (AED) 7906140000 and the par value of the share is 1.00 AED. The trade aim of the ETIHAD ETISALAT CO, which was launched in the year 2005, the company, is the winning bidder for Saudi Arabia second best GSM licence in the year 2004, which in real helps to provide mobile communication around the nation. The major owner of the the company is the federal government of UAE, which have 61.03% of total share of the company. The prime services of the company are to provide suitable offer, which suit each and everybody need. Etisalat is also provide several other core service to the nation which are TV, internet and host of other significant service which provide service across the UAE.

Financial statement helps to provide a clear knowledge of the financial position of the company in the financial market. The financial statement is generally prepared with the help of several key team or committee. The audit committees of the company consist of a Chairman and member. The Chairman of the audit committee is H.E. Essa Abdulfattah Kazim and the team member of the audits committees six key member, which under the supervision of the Chairman prepare the audit report of the financial statement. The auditor report to the shareholder help to provide a identification of the problem determined from the financial statement analysis which is evaluated on the basis of the International Financial Reporting Standard (IFRS) (Helfert, 1987). According to the auditor report, the company consolidated financial statement determined fairly and the financial performance, cash flows for the given year ended in accordance with the international financial reporting standard.

Total asset, Total liabilities and Total stockholder equity

ETIHAD ETISALAT CO (7020) BALANCE SHEET

Year 2011-12 2012-12

Total assets 37501 38623

Total liabilities 19113 17717

Total stockholders’ equity 18388 20906

From the analysis of the table given above clear indicate that the total asset and total stockholder equity is increase for the given company which is a positive sign for the company financial potion in the market as the liabilities is decreasing the capital flow for the company is increasing. On the contrary, the liability of the company is decreasing which help to provide the company increase in the liquid asset.

Ratio AnalysisThe financial ratio analysis is obtained from the key financial statement, which are income statement, statement of financial and the cash flow statement. The three financial statement are the most essential statement which help to calculate the significant ratio which help to determine the company several significant aspect such as solvency risk, liquidity risk, profitability, efficiency , activities and market ratio (Gil Lafuente, 2005). The ratio helps the company and other key several users to determine the company current financial position in the market and its ability to generate income and sustainability in the coming future.

Liquidity: Liquidity ratio help to provide a clear and precise idea about the company current asset and liabilities also help to determine the company capability to meet its short-term obligation. In the year, 2011 the company is at liquidity risk as the current and quick ratio are both below one. It indicate in the year 2011 the company is not able to meet its short-term obligation. On the other hand the company financial capabilities increase which is indicate in the current ratio and quick ratio which signify that the company was able to meet its short-term obligation in the year 2012.

Liquidity/Financial Health 2011-12 2012-12

Current Ratio 0.55 1.03

Quick Ratio 0.44 0.72

Activities: The activities help to determine the significant ratio of the company, which is calculate from the financials statement, which are also termed as the efficiency ratio. The efficiency ratio include the days sales outstanding, days inventory ratio, payable period, receivable turnover ratio, inventory turnover ratio, fixed asset turnover ratio and the asset turnover ratio (Fridson & Alvarez, 2002). The given ratio helps to identify the overall management capability of the company. The company is able to manage it overall business operation or not is determined with the help of significant activity. From the overall analysis of the activities of the company, indicate that the company is efficiently manage it inventory, fixed asset turnover, payable turnover and receivable turnover which help the company to maintain its asset management which eventually help the company to earn more revenue for the given period of time.

Key Ratios -> Efficiency Ratios    

Efficiency 2011-12 2012-12

Days Sales Outstanding 110.06 94.52

Days Inventory 14.38 18.73

Payables Period 271.66 215.61

Receivables Turnover 3.32 3.86

Inventory Turnover 25.39 19.49

Fixed Assets Turnover 1.39 1.4

Asset Turnover 0.57 0.62

Leverage: Leverage also help to determine the company susceptible to the long term solvency risk. The gearing ratio is determined with the help of the debt equity ratio and the financial advantage ratio or debt ratio. The financial leverage ratio which indicate that the total capital used to increase the level of profit is better in the year 2011 which help the company Etisalat to have greater degree of independence and higher financial leverage. Debt to equity ratio is one of the most significant indicators of the leverage of the company which is determined with the help of the debt to equity ratio. The debt to equity ratio indicates the ratio between debt and equity. The ratio is less in the year 2011 however in the year 2012 the ratio increase which indicate that the company is able to meet its current liabilities.

Financial Gearing Ratio 2011-12 2012-12

Financial Leverage 2.04 1.85

Debt/Equity 0.05 0.36

Profitability: Profitability ratio is determined with the help of the income statement of the company. The income statement is also known as the profit or loss statement, which helps to signify the income, incurred and expense occurred for the given period. The profitability ratio include net profit margin, gross profit margin, operating margin, asset turnover, return on asset, financial leverage, return on equity and return on invested capital which collectively help to indicate the profitability ratio of the company. The profitability ratio analysis helps to determine that the company net profit margin is increasing which is a positive for the company overall growth (Palmer, 1983). The higher the profit margin more the better it is for the company overall growth which help to lower the relative price of the product which are sold. Return on asset help to calculate the profit incurred with the available asset, which from the analysis indicate that the company is generated profit from the last year. Return on equity is one of the most significant factors to determine the profitability ratio of the company. It helps to determine the return total earned on common stockholder investment in the company ETISALAT. The analysis help to determine the ROE, which indicate that the company were off better in the year 2012 than in 2011as the return on equity, is increasing in the year 2012 (Financials.morningstar.com, 2011).

Key Ratios -> Profitability

Year 2011-12 2012-12

Revenue 100 100

COGS 48.51 49.1

Gross Margin 51.49 50.9

Operating Margin 53.14 26.19

EBT Margin 25.62 25.75

Profitability 2011-12 2012-12

Tax Rate % 1.06 1.15

Net Margin % 24.68 25.45

Asset Turnover (Average) 0.57 0.62

Return on Assets % 14.98 15.81

Financial Leverage (Average) 2.04 1.85

Return on Equity %  29.56 30.63

Return on Invested Capital %  26.12 25.19

Market ratio: Price earnings ratio (P/E) helps to determine the amount of the investor who is interested to pay each dirham of the organization total earning. Higher the rate of the share betters the chance or the confidence level of the investor in the company ETISALAT. The market ratio consists of the book value, earning per share which collectively help to determine the market of the company.

Price earnings ratio of the company in the year 2011 and 2012 help to provide clear and precise idea that the company is better in the year 2012 which help to increase the level of confidence in the investor to invest in the given company which will yield the investor a better return in the coming future (Financials.morningstar.com, 2011).

Financials

2011-12 2012-12

Revenue SAR Mil 20,052 23,642

Earnings Per Share SAR 7.12 7.82

Dividends SAR 2.95 4.55

Shares Mil 700 770

Book Value Per Share SAR 26.95 27.15

Statement of cash flowsThe statement of cash flow is one of the most significant financial statements, which help to provide a clear and precise idea about the company three primary activities, which are operating activities, financing activities and investing activities, which help to generate the net cash inflow and outflow incurred for the given period.

Determine the changes in cash

The net cash flow is determine with the help determining the difference between the cash at the beginning and the cash at the end of the period which is also termed as the total cash inflow and total cash outflow. The change in the cash flow calculated in the year 2011 is positive on the contrary, the total cash flow in the year 2012 is negative which indicate that the company is not able to generate revenue from the overall activities (Financials.morningstar.com, 2011).

ETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Net change in cash 28 -387

Cash at beginning of period 1661 1690

Cash at end of period 1690 1302

Net change in cash 28 -387

Determine the net cash flow operating activities

The cash flow statement consists of three primary activities, operating activities is one of the activities in the cash flow statement. The net cash flow from operating activities helps to provide the cash flow from key operating activities. In the year 2011 the cash flow from operating activities is 6673 where as the cash flow from operating activities in the year 2012 is increases 7037 (Financials.morningstar.com, 2011).This indicates the cash flow from the operating activities is increases in the year 2012.

ETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Cash Flows From Operating Activities    

Inventory -173 -252

Prepaid expenses   -1094

Accrued liabilities   -356

Other working capital -1423 46

Other non-cash items 8269 8692

Net cash provided by operating activities 6673 7037

Determine cash flow from investing and financing activities

The cash flow statement consist of the three core activities investing and financing activities are the two core part of the cash flow statement which help to generate the net cash flow for the given period of time (Ardalan, 2000). The cash flow statement helps to determine the cash flow from investing activities and financing activities, which indicate that the company that the company is making efficient use of the resource. The investing activities of the company in the year are -3408 and -5408 in the year 2011 and 2012 respectively. On the other hand, the financing activities the company cash flow is -3237 and -2338 for the year 2011 and 2012 respectively which indicate the company net cash flow from investing and financial activities is not efficiently managed.

ETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Cash Flows From Investing Activities    

Investments in property, plant, and equipment -3700 -4860

Property, plant, and equipment reductions 10 84

Acquisitions, net -168  

Purchases of intangibles   -310

Other investing activities 450  

Net cash used for investing activities -3408 -5086

Cash Flows From Financing Activities    

Debt issued 870 7415

Debt repayment -1832 -6253

Dividend paid -2275 -3500

Other financing activities    

Net cash provided by (used for) financing activities -3237 -2338

ReferencesArdalan, A. (2000). Economic & financial analysis for engineering & project management (1st ed.). Lancaster, Penn.: Technomic Pub. Co.

Bowlin, O., Martin, J., & Scott, D. (1990). Guide to financial analysis (1st ed.). New York: McGraw-Hill.

Financials.morningstar.com,. (2011). Growth, Profitability, and Financial Ratios for Etihad Etisalat Co (7020) from Morningstar.com. Retrieved 26 July 2014, from http://financials.morningstar.com/ratios/r.html?t=7020&region=sau&culture=en-US

Financials.morningstar.com,. (2014). Growth, Profitability, and Financial Ratios for Etihad Etisalat Co (7020) from Morningstar.com. Retrieved 26 July 2014, from http://financials.morningstar.com/ratios/r.html?t=7020&region=sau&culture=en-US

Fridson, M., & Alvarez, F. (2002). Financial statement analysis (1st ed.). New York: John Wiley & Sons.

Gil Lafuente, A. (2005). Fuzzy logic in financial analysis (1st ed.). Berlin: Springer.

Hansen, B., & Palmer, A. (1997). FRAN, Financial Ratio ANalysis and more (1st ed.). Radnor PA (5 Radnor Corp CTR Suite 200, Radnor 19087-4585): U.S. Dept. of Agriculture, Forest Service, Northeastern Forest Experiment Station.

Helfert, E. (1987). Techniques of financial analysis (1st ed.). Homewood, Ill.: Irwin.

Horrigan, J. (1967). An evaluation of financial ratio analysis (1st ed.). Chicago: University of Chicago.

Horrigan, J. (1978). Financial ratio analysis (1st ed.). New York: Arno Press.

Morley, M. (1984). Ratio analysis (1st ed.). Berkshire, England: Published for the Institute of Chartered Accountants of Scotland by Gee & Co.

Palmer, J. (1983). Financial ratio analysis (1st ed.). New York, N.Y.: American Institute of Certified Public Accountants.

AppendixIncome StatementETIHAD ETISALAT CO (7020) INCOME STATEMENT

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Revenue 20052 23642

Cost of revenue 9728 11608

Gross profit 10324 12034

Operating expenses    

Sales, General and administrative 2870 3443

Other operating expenses 2149 2399

Total operating expenses 5019 5842

Operating income 5305 6192

Interest Expense 213  

Other income (expense) 46 -104

Income before taxes 5138 6088

Provision for income taxes 54 70

Net income from continuing operations 5083 6018

Other -5083  

Net income   6018

Net income available to common shareholders   6018

Earnings per share    

Basic   7.82

Diluted   7.82

Weighted average shares outstanding    

Basic   770

Diluted   770

EBITDA 7500 8591

Balance sheetETIHAD ETISALAT CO (7020) BALANCE SHEET

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Assets    

Current assets    

Cash    

Cash and cash equivalents 1690 1302

Short-term investments    

Total cash 1690 1302

Receivables 6334  

Inventories 470 721

Prepaid expenses   2493

Other current assets 1399 5910

Total current assets 9893 10427

Non-current assets    

Property, plant and equipment    

Gross property, plant and equipment 16412 24716

Accumulated Depreciation   -7461

Net property, plant and equipment 16412 17255

Goodwill 1530  

Intangible assets   10942

Other long-term assets 9665  

Total non-current assets 27607 28197

Total assets 37501 38623

Liabilities and stockholders’ equity    

Liabilities    

Current liabilities    

Short-term debt 6096  

Accounts payable 8002  

Other current liabilities 3949 10075

Total current liabilities 18047 10075

Non-current liabilities    

Long-term debt 977 7506

Other long-term liabilities 89 137

Total non-current liabilities 1066 7643

Total liabilities 19113 17717

Stockholders’ equity    

Retained earnings 9810 11726

Accumulated other comprehensive income 8578 9180

Total stockholders’ equity 18388 20906

Total liabilities and stockholders’ equity 37501 38623

Cash Flow StatementETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Cash Flows From Operating Activities    

Inventory -173 -252

Prepaid expenses   -1094

Accrued liabilities   -356

Other working capital -1423 46

Other non-cash items 8269 8692

Net cash provided by operating activities 6673 7037

Cash Flows From Investing Activities    

Investments in property, plant, and equipment -3700 -4860

Property, plant, and equipment reductions 10 84

Acquisitions, net -168  

Purchases of intangibles   -310

Other investing activities 450  

Net cash used for investing activities -3408 -5086

Cash Flows From Financing Activities    

Debt issued 870 7415

Debt repayment -1832 -6253

Dividend paid -2275 -3500

Other financing activities    

Net cash provided by (used for) financing activities -3237 -2338

Net change in cash 28 -387

Cash at beginning of period 1661 1690

Cash at end of period 1690 1302

Free Cash Flow    

Operating cash flow 6673 7037

Capital expenditure -3700 -5170

Free cash flow 2973 1867