* Home Page » * Business and Economics Ratio Analysis On Bata & Apex Submitted by funwithsabbir on July 1, 2011 * Category: Business and Economics * Words: 5922 | Pages: 24 * Views: 177 * Report this Essay • Context 1. Introduction 2. Financial Analysis 3. DuPont Calculation 4. Conclusion 5. Appendix 6. Notes on Analysis Introduction Purpose- The purpose of this project is to fully analysis the financial data of the companies. In addition, to compare their Liquidity, Asset management, Debt, profitability, and market value ratio. This would enable us to conclude upon whom is in a better position.
In addition, in this project we will look at the DuPont value, which will help us to see weather the company is fully utilizing its Total asset turnover, Equity multiplier, and profit margin all together.
Target Company- A leading manufacturer and exporter of leather footwear from Bangladesh to major shoe retailers in Western Europe, North America and Japan. The company has revenues of USD 42 million in 2006. AAFL pioneered the export of value added finished products export in the leather sector of Bangladesh and is also involved in the local footwear retail business with the second largest shoe retail network in the country.
AAFL has equity, technical and marketing participation from La Nuova Adelchi one of the largest footwear manufacturers of Italy. Apex-Adelchi Footwear Limited, the leading footwear manufacturer of Bangladesh. It was enlisted in Bangladesh share market in 1993, and it has a Market category of A. Competing company- Bata Bangladesh is affiliated to the Bata Shoe Organization, the world’s largest footwear manufacturing and marketing organization. Started operation in Bangladesh in 1962, Incorporation in Bangladesh in 1972.
Currently, Bata Bangladesh operates two manufacturing plant Tongi and Dhamrai, Bata Bangladesh is producing around 110,000 pairs of shoes daily. It has a modern tannery with the latest technological facilities torocess 5 million square feet of leather yearly. It was enlisted in Bangladesh share market in 1985, and it has a Market category of A. Financial ANALYSIS Financial ratios are useful indicators of a firm’s performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms.
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used: 1. Liquidity ratios 2. Asset management ratios 3. Debt management ratios 4. Profitability ratios 5. Market value ratios LIQUIDITY RATIO Liquidity ratios are the first ones to come in the picture. These ratios actually show the relationship of a firm’s cash and other current assets to its current liabilities. Two ratios are discussed under Liquidity ratios. They are: 1.
Current ratio 2. Quick/ Acid Test ratio. 3. Working capital Ratio 1. Current ratio- This ratio indicates the extent to which current liability are covered by those asset expected to be converted to cash in the near future. This ratio is calculated by dividing current asset by current liability. Current ratio= Current Asset Current liability The table below shows the Current ratio of both BATA Shoe and APEX Adelchi form year 2006-08. Current ratio Year |2006 |2007 |2008 | |Company name | | | | |Apex |1. 01 |1. 02 |1. 03 | |BATA |1. 50 |1. 2 |1. 54 | From the analysis, we can see that the Current ratio of APEX has not increase that much it has increase at a steady rate of 0. 01throughtout the year 2007 and 2008. Whereas BATA had a fluctuation in their current ratio in 2007 in decrease by 0. 08, but in 2008 it increase by 0. 12. Both of them have an average, but the most favorable Current ratio value is 2:1. Therefore, for this reason we can say that BATA has a better current ratio then APEX because it is close to the benchmark value.
This may have happened due the reduction of the number of Debtor’s and due to an increase in the number of creditors of BATA, which has helped it to be in a better position. The trend analysis graph will help us to fully compare the current ratio of both companies much better. Current Ratio trend analysis graph [pic] Acid test (Quick) ratio Acid test are those which can be converted into quickly into cash as the need arises, and stocks and work-in-progress are excluded as being, generally, slow moving asset. It is calculated by dividing current asset minus inventory by current liability. The ideal ratio for this is 1:1.
It can be calculated like this, Acid test ratio = (Current asset – inventory) Current liability The table below shows the acid test ratio of both BATA Shoe and APEX Adelchi form year 2006-08. Acid test ratio | | |Year | | | |2006 |2007 |2008 | |Company name | | | |Apex Adelchi |0. 503 |0. 582 |0. 592 | |BATA shoe |0. 624 |0. 404 |0. 406 | From the analysis we can state that BATA has deteriorating Acid test ratio as we can see from the chart it’s ratio has decline further year by year starting from 0. 624 and falling back to 0. 06. On the other hand, APEX has experienced an increase in its acid test ratio. The benchmark for ACID test ratio is 1:1, so for this we can say that APEX is in a better position than BATA. This indicated that BATA has lots of work-in-progress or unsold product, which has caused it, inventory to be high. The trend analysis graph will help us to fully compare the ACID test ratio of both companies much better. ACID TEST RATIO TREND ANALYSIS [pic] Working Capital ratio Working capital ration Indicate weather a firm has enough short-term assets to cover its immediate liabilities.
It is calculated by dividing current asset by total asset. It can be represented by this formula – |= | | | |Current Assets | | |[pic] | | | Total Asset | Working Capital Ratio The table below shows the Working capital ratio of both BATA Shoe and APEX Adelchi form year 2006-08. Working Capital ratio | |Year | | |Company name |2006 |2007 |2008 | |Apex |85% |88% |85. 3% | |BATA |81% |81% |81% |
From the analysis we can see that APEX is in a much better position to pay off it short time liabilities in compares to BATA, this might have occurred due to the lower days of inventory turn over and less spending on fixed asset. The trend analysis graph will help us to fully compare the ACID test ratio of both companies much better. Working Capital RATIO TREND ANALYSIS [pic] ASSET MANAGEMENT RATIOS Asset management ratios are the financial statement ratios that measure how effectively a business uses and controls its assets.
Below are discussed four types of asset management ratios: 1. Inventory turnover ratio 2. The days sales outstanding 3. Fixed asset turnover ratio 4. Total asset turnover ratio 1. Inventory turnover ratio: The ratio is regarded as a test of efficiency and indicates the rapidity with which the company is able to move its merchandise. Inventory turnover ratio = Sales Inventories The following chart shows the Inventory turnover ratio for BATA SHOE and APEX ADELCHI for 2006-08 Inventory turnover ratio Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |3. 91 times |4. 21 times |4. 77 times | |BATA shoe |3. 91 times |3. 47 times |3. 16 times |
The Inventory turnover ratio shows us a much clear picture on the Asset management, as we can see that for Inventory turnover ratio the higher the number of times the better it is. In that case, APEX is in a better position because it has experience a increase in its Inventory turnover ratio which might have occurred due to more sales and less no of inventory in the warehouse, Whereas BATA is suffering from a decreasing value of Inventory turnover ratio this may be due to less sale and more number of inventories in the warehouse. The trend analysis graph will help us to fully compare the Inventory turnover of both companies much better.
Inventory turnover ratio Trend analysis [pic] 2. The Days Sales Outstanding: The Days Sales Outstanding ratio shows both the average time it takes to turn the receivables into cash and the age, in terms of days, of a company’s accounts receivable. This ratio is of particular importance to credit and collection associates. Days Sales Outstanding (DSO) = Trade Debtors (Annual gross turnover/365) Following table shows the DSOs of Apex adelchi and BATA shoes of 2006-08 are given below DSO | |Year | | |Company name |2006 |2007 |2008 | |Apex |66. 61 Days |57. 24 Days |58. 70 Days | |BATA |10. 96 Days |3. 0 Days |6. 27 Days | The days sales outstanding is better for firms if it has lower days it is paid back. In this case, BATA is in much better position it might have been able to achieve this milestone by using good credit sale collection and may be has less number of Debtors and has maximum of its sale in cash. Never the less APEX has a very poor The days sales outstanding as it has gone above 58 days in 2008, so in order to lower the number of day APEX has to employ more strict rule for credit sale collection.
The trend analysis graph will help us to fully compare the day’s sale outstanding of both companies much better. The days sales outstanding trend analysis [pic] 3. Fixed asset turnover ratio: The Fixed Asset Turnover ratio measures the effectiveness in generating Net Sales revenue from investments in Net Property, Plant, and Equipment back into the company evaluates only the investments. Fixed assets turnover ratio (FATO) = Sale Net fixed assets
Following table shows the FATO of BATA SHOE and APEX ADELCHI for year 2006-08 The Fixed Asset Turnover |Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |10. 8 |13. 53 |11. 8 | |BATA shoe |10. 1 |10. 84 |9. 83 | The Fixed Asset Turnover ratio is better for a company if it is higher; in this case, APEX is in much Better position as its has a much higher Fixed Asset Turnover ratio. This might have resulted due to an increase in its annual sale and other reason may be that it had invested less on fixed asset, which has lead to an increase in its Fixed Asset Turnover ratio.
Whereas BATA has incurred a fall in sale and it might have invested more in fixed asset, which lead to its downfall. The trend analysis graph will help us to fully compare the day’s sale outstanding of both companies much better. The Fixed Asset Turnover ratio trend Analysis [pic] 4. Total asset turnover ratio: The Total Asset Turnover is similar to fixed asset turnover since both measures a company’s effectiveness in generating sales revenue from investments back into the company. t Total assets turnover ratio (TATO) = Sales
Total Assets Following table shows the TATO ratios of both BATA SHOE and APEX ADELCHI for the year 2006-08 Total Asset Turnover |Company name | |Year | | | |2006 |2007 |2008 | |Apex |1. 66 |1. 9 |1. 73 | |BATA |1. 88 |1. 77 |1. 85 | Apex had a quit reasonable TATO through out 2006-08. This is an indicator of company’s pricing strategy, as company with high profit margins tends to have low asset turnover. It is in fact might be one of the reasons for why the assets turnover was low, in 2006 its profit margin was 1. 0% and in 2007 and 2008 it was 3. 81%,3. 37% respectively. Therefore, for this TATO of 2007 was lower than 2006 and in 2008, it increased again due to a fall in profit margin. Another reason is the percentage increase in sale from 2007 to 2008 was 26. 8% whereas Total asset increase was only 16. 3%, so this might has caused the TATO to increase in 2008. Whereas BATA has experienced a fall in it’s TATO due as sales could not keep up with assets. Long-term investment, capital work-in-progress, inventories, short-term loan was also high during his year. On the other hand, the profit margin was only 8. 17%, which is higher than 2006 that is 7. 17%. Therefore, it can be concluded that higher profit margin may not be the actual reason for the turnover to go down. Perhaps the company is not utilizing its assets efficiently. However, they managed to improve their TATO in 2008. We can conclude that BATA has a better TATO as higher TATO value is preferable and BATA has fulfilled all of these criteria. Total Asset Turnover ratio trend analysis [pic] 3. Debt Management Ratios
Debt management ratios reveal 1) the extent to which the firm is financed with debt and 2) its likelihood of defaulting on its debt obligations. These ratios include: 1. Debt ratio 2. Times-Interest-Earned (TIE) ratio 3. Debt-Equity Ratio 4. Cash Flow to Debt Ratio 1. Debt ratio: The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of funds provided by the creditors. Debt ratio = Total Liability Total Assets Following table shows the Debt ratios of BATA SHOE and APEX ADELCHI for the year 2006-08
Debt Ratio |Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |86% |87% |121% | |BATA shoe |60% |63. 5% |61. % | The debt ratio for APEX is miserable after calculating the debt ratio; we came to see that this company highly leveraged one. In 2006, it was 86%, in 2007, it went up to 87%, and than again in 2008, it climbed up to 121%. A massive bit of fluctuation is seen here in debt management, which is actually nothing but their strategic move. As APEX has a high Debt ratio and is considered risky for this APEX is offering high Earning per share, which is 168. 74 in 2008, to make it more stable.
On the other hand, BATA has a high debt ratio but it is lower than APEX and BATA was able to reduce its debt ratio as seen in 2008, which is 61. 1% lower than before 63. 5%. THEREFORE, we can conclude that BATA has a better debt ratio than APEX. DEBT RATIO TREND ANALYSIS [pic] 2. Times-Interest-Earned (TIE) ratio: This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest cost. TIE ratio = EBIT Interest Charges
Following table shows the times-interest-earned (TIE) ratios of BATA and APEX ADELCHI for year 2006-08 TIE |Company name | |Year | | | |2006 |2007 |2008 | |Apex |1. 92 |1. 2 |1. 66 | |BATA |103. 4 |158. 6 |128. 5 | After the analysis, we can conclude that BATA is in much better position than APEX, one reason for this is that BATA has fewer amounts of Debt and long-term loan, whereas APEX has a large amount of long-term loan, which lead to an increase in the interest paid and hence lead to a very low TIE ratio. As we can see in 2008, Apex had a 39. % increase in their EBIT, but their interest paid increased to 44. 3 %, so this has lead to a fall in it’s TIE in 2008 in compare to 2007. TIE [pic] 3. Debt-Equity Ratio Debt-equity ratio indicates the proportion that total debt represents in relationship to the shareholders equity (common stock and retained earnings) at the balance sheet date. It can be calculated using the following formula Debt-Equity Ratio = Total Debt Shareholder’s equity The following chart shows the Debt- Equity ratio of BATA SHOE and APEX ADELCHI for year 2006-2008 Debt- Equity Ratio Company name | |Year | | | |2006 |2007 |2008 | |Apex |5. 93 |6. 66 |4. 77 | |BATA |1. 32 |1. 57 |1. 7 | In the following chart, APEX has higher percentage of debt, which represents the shareholders equity. It increased in 2007 to 6. 66% but in 2008 it is went down to 4. 77%. Therefore, this is an indication that APEX has a high amount of debt, which might have resulted from an increase in its working capital loan, which was TK 1133506627 in 2007, and in 2008, it was TK 1279955606, however the shareholder equity increased due to the issue of new share. As the increase in the shareholders, equity was much higher than that of debt increase so its D/E ratio went down.
Never the less, BATA has managed to keep its D/E ratio at it is lowest by taking less loan and increasing the shareholders equity. We can conclude that BATA has a better D/E ratio than APEX. DEBT-EQUITY RATIO TREND ANALYSIS [pic] 4. Cash Flow to Debt Ratio This ratio measures how long it would take the company to payoff a firm’s debt. It can be calculated by using the following formula Cash Flow to Debt Ratio= Cash flow from operation Total Debt The following chart shows the cash flow to debt ratio of both BATA SHOE and APEX ADELCHI for year 2006-08
Cash Flow to Debt Ratio |Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |3. 46% |7. 05% |7. 13% | |BATA shoe |27. 3% |24. 1% |30. 7% |
As we can see from the chart, that BATA is in a better position than APEX. As it is seen APEX has a high amount of Debt, also they have a high Debt ratio, in regards to their Debt their operating cash flow has not increase that much, hence this has caused a Lower TIE. On the other hand BATA has got a low amount of debt, however their operating cash flow has increased a lot, which has lead to a fall in their cash flow to debt ratio. So this states that BATA is able to cover a large amount of its debt from its operation activities.
Cash flow to debt ratio trend analysis [pic] 4. PROFITIBILITY RATIO Profitability is the net result of a number of policies and decisions. Profitability ratios show the combined effects of liquidity, asset management, and debt on operating results. There are four important profitability ratios that we are going to analyze: 1. Net Profit Margin 2. Gross Profit Margin 3. Return on Asset 4. Return on Equity 1. Profit Margin: Net Profit Margin gives us the net profit that the business is earning per dollar of sales. The equation is as follows:
Net Profit margin = Net income available to the stockholders Sale Following shows the Net Profit Margin of BATA SHOE and APEX ADELCHI of 2006-08 Profit margin Ratio |Company name | |Year | | | |2006 |2007 |2008 | |Apex |1. 0% |3. 81% |3. 37% | |BATA |7. 17% |8. 17% |9. 72% | Apex Net Profit Margin was 1. 7% in 2006, increase to 3. 81% in 2007, and then again decreased to 3. 37% in 2008. The main reason that the profit margin declined is high cost. High cost, in turn, generally occurs due to inefficient operations.
Whereas BATA has managed its operation in such a way that it was able to achieve higher Profit margin and also it’s profit margin increase every year from 2006-08. Therefore, we can say that BATA has a much better Profit Margin ratio then APEX. Profit Margin trend analysis [pic] 2. Gross Profit Margin: Gross Profit Margin gives us the amount of Gross profit a firm is earning per dollar of its sales. The equation is as follows: Gross Profit Margin (GPM) = Gross profit Sale Following shows the Gross Profit Margin of BATA SHOE and APEX ADELCHI of 2006-2008 Gross profit Margin Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |8. 98 % |11. 59 % |11. 68 % | |BATA shoe |39. 7% |41. 5% |34. 5% | As the Gross Profit Margin has increased through out the whole three years. It indicates that Square Pharmaceutical is managing its Sales and Cost of Goods Sold very well. In addition, APEX was able to increase it sale by using good marketing strategy and by offering discount and other attractive package. In addition, it has managed to reduce its cost of production, which has lead to rise in its Gross profit margin. ON the other hand, BATA had a raise in its Gross profit margin in 2007, which increased from 39. 7% to 41. 5%, but it had a massive fall in 2008 to 34. 45%.
The reason for this is that in 2008 BATA had a slight increase in sale 16. 3% whereas it Cost of good sold increased to 14. 2%, which were lower than that of year 2006-07. Therefore, we can say that BATA has a better Gross profit margin than APEX. Gross Profit Margin trend analysis [pic] 3. Return on Total Assets (ROA) Return of total asset measures the amount of Net Income earned by utilizing each dollar of Total Assets. The equation is: Return on Total Assets (ROA) = Net income available to total common shareholders Total assets
Following shows the Return on Total Assets of BATA SHOE and APEX ADELCHI for the year 2006-2008 Return on total Asset |Company name | |Year | | | |2006 |2007 |2008 | |Apex |2. 86 % |4. 46% |5. 4% | |BATA |13. 5% |14. 4% |17. 98% | In the chart, we can see that APEX had a very low ROA in 2006; this was due to a very low net profit after tax. In 2006, it had a high amount of total Asset and low Net profit after tax. However, in the recent years, APEX has managed to earn more profit and had a slow steady increase in its Total Asset, which has enable APEX to improve its ROA, but still it is low.
On the other hand, BATA has maintained a steady Total asset increase and a high Net profit after tax, which helped BATA to have an increasing ROE throughout these three years. Therefore, we can say that BATA has a better ROA than APEX. Return on Total Asset trend analysis [pic] 4. Return on Equity (ROE): Return on Equity measures the amount of Net Income earned by utilizing each dollar of Total common equity. It is the most important of the “Bottom line” ratio. By this, we can find out how much the shareholders are going to get for their shares. The equation is:
Return on Equity (ROE) = Net income available to common shareholders Total common equity Following shows the Return on equity of BATA SHOE and APEX ADELCHI for the year 2006-08 Return on Equity |Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |19. % |46. 5% |33. 7% | |BATA shoe |33. 8% |39. 5% |46. 23% | The chart shows the ROE of both APEX and BATA. It can be said APEX had a great change in its ROE in 2007, from 19. 9% in 2006 to 46. 5% in 2007. The main reason behind this is the massive increase in its net profit after sale, which increased by 239. 2%, which caused the ROE to increase that dramatically.
In addition, in 2008 it’s ROE decreased a little bit due to a low rate of increase in which is 12. 1% in 2008, where as the shareholder equity increased by 54. 7%, this is the major reason for the slight fall in ROE in 2008. However, BATA has encountered a steady increase in its ROE throughout the three years. The ROE of BATA is much better than APEX as higher percentage is preferable in ROE. RETURN ON EQUITY trend analysis `[pic] 5. MARKET VALUE RATIOS The final group of ratios, the market value ratios relates the firm’s stock price to its earnings and book value per share.
These ratios give management an indication of what investors think of the company’s past performance and future prospects. In this section, we are going to have a discussion mainly on four types of ratios: 1. Price/ Earnings ratio 2. Market/ Book ratio 3. Book value per share 4. Dividend Yield 1. Price/ Earnings ratio: The Price/ Earnings ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the income or profit earned by the firm per share. P/E ratio – Price per share Earnings per share The following chart shows P/E ratio of BATA SHOE and APEX ADELCHI for year 2006-08 Company name | |Year | | | |2006 |2007 |2008 | |Apex |7. 20 |9. 61 |10. 37 | |BATA |6. 00 |9. 41 |9. 6 | APEX has got a strong hold in the P/E ratio, as we can see APEX has a higher P/E ratio due to an increase in it price per share and also due to the increase in Earning per share. These are the reason for its increased P/E ratio. Whereas BATA has experienced a low increase in its share price and it has a low earning per share, which caused a low raise in its P/E. Therefore, APEX has a better P/E ratio than BATA, as higher P/E ratio is satisfactory. PRICE-EARNING RATIO TREND ANALYSIS [pic] 2. Market/ Book ratio: This ratio shows the book value to market value of stocks.
It can be calculated by the following formula. Market/Book ratio (M/B) = Market price per share Book value per share Following table shows the M/B ratio of both BATA SHOE and APEX ADELCHI for the year 2006-08: Market/ Book ratio: |Company name | |Year | | | |2006 |2007 |2008 | |Apex Adelchi |1. 3 |4. 47 |3. 55 | |BATA shoe |0. 157 |0. 372 |0. 536 | From the chart we can see that APEX was got a good grip on the M/B ratio, the sole reason for this is the increase in the market price of the share of APEX which increase in a abnormal way from 2007-2008. In addition, this shows that APEX is a safe share to buy as it has market price above it book value price.
However, BATA has a problem with their share market price. BATA has had a small increase in market price; this has lead to a fall in its M/B ratio. As APEX has a higher M/B ratio so, it is in a better position in M/B ratio in compares to BATA. Market/Book ratio trend analysis [pic] 3. Book value per share Book value per share expresses the shareholders’ equity on a per share basis. It can be calculated by using the following formula Book value per share= Share holder’s equity Number of shares
The following chart shows the book value per share of both APEX ADELCHI and BATA SHOE for the 2006-08 Book value per share |Company name | |Year | | | |2006 |2007 |2008 | |Apex |334 485 |500 | |BATA |598 |601 |711 | From the analysis, we can see that APEX is experiencing a raise in its Book value of share. It would have increase much if new shares were not issued. In 2007, Apex has issued 75000, but in 2008, it issued 112500, which has caused it Book value of share to fall on the other hand its shareholder’s equity did not increase largely.
Whereas BATA has not issued any new share and its shareholder’s equity increased year by year. Therefore, in terms of higher value BATA has a better Book value of share. BOOK VALUE OF SHARE trend analysis [pic] 4. Dividend Yield It is the expected dividend divided by the current price of a share of stock. It can be calculated using the following formula Dividend yield= Expected dividend Current price of the share The following chart shows the dividend of BATA SHOE and APEX ADELCHI for the year 2006-08 Dividend yield Year |2006 |2007 |2008 | |Company name | | | | |Apex Adelchi |5. 36 |1. 15 |1. 26 | |BATA shoe |19. 36 |11. 18 |6. 86 |
The above analysis shows that BATA pays a higher dividend in compare to its market share, if we look at the market price of BATA, it can be seen that BATA’s price has increased by a small amount, and its net profit has increased. Therefore, for this it was able to pay higher dividend and a higher dividend yield. Whereas APEX has a massive increase in it’s share price, but it has paid a low dividend because of its low net profit. Therefore, we say that BATA has a better Dividend yield. Dividend yield ratio trend analysis [pic] DuPont System The DuPont system provides a good starting point for any financial analysis.
It shows the financial strength that comes from many sources (profitability, asset utilization, leverage). It reinforces the concept that good financial analysis requires looking at each ratio in the context of the other. Whenever we are presented with financial statements, it is important that we look at a sample of ratios from each major category to identify areas of strength and weakness. It can be calculated using the following formula. ROE = (NI/Sales) x (Sales/TA) x (TA/Equity) The following chart shows the DuPont of BATA SHOE and APEX ADELCHI for the year 2006-08- DuPont Company Name | |Year | | | | | | | | |2006 |2007 |2008 | |APEX ADELCHI |19. 9% |46. 5% |33. % | |BATA SHOE |36. 2% |39. 6% |46. 2% | The DuPont chart shows that BATA was able to maintain a pretty stable increase in it’s DuPont system, the main reason for this is that BATA has a pretty high profit margin and TATO which has help it to achieve this kind of milestone. However, APEX has experience a massive increase in its DuPont in 2007 because of its high profit margin and a somewhat reasonable increase in the TATO.
Nevertheless, in 2008 its DuPont fell due to a fall in profit margin. DuPont TREND ANALYSIS [pic] CONCLUSION Liquidity RATIO- We can come to a conclusion that APEX is in a better condition in case of Liquidity position in compare to BATA, as it has a better position in Acid test ratio and Working capital ratio, which makes it more available to pay of its liabilities without making a loss. It is advisable to Apex to reduce it’s creditors and they should try to increase their Debtors which will allow them to gain a stronger liquidity ratio then they have now. 2. Asset Management In asset management it is not clear upon who has the advantage.
As APEX has a good inventory turnover and fixed asset turnover, and BATA has a good grip over Days sale outstanding and Total asset turnover. So it’s a mixed bag for this. However APEX can improve on its Asset management by using a strict rule for DSO, for a company of their standards a DSO above 50 is not acceptable. They should try to reduce their credit sale or give incentive to debtor to pay of their debts by giving discounts. And also Apex should consider to boost their sale to improve upon its TATO. And it can purchase new equipment which will enable it to produce the product more efficiently and also improve its Asset management.
Never the less Apex has a somewhat reasonable Asset management. 3. Debt management In debt management Apex has a miserable condition. It is suffering from a very deteriorating debt rations. As it is seen APEX has a very high debt ratio. The reason for this is that Apex has a high amount of debt which has caused its debt ratio to increase. And also its debt contribute a high amount of their share holder equity. And also they have very low interest earned. The thing which APEX should consider in looking in is how to make its company less risky.
They may use some procedure like reducing their debt by lowering the bank loans that they take or they may increase their total asset to improve their Debt ratio. And D/E ratio. Also they can boost sale to earn more EBIT or by reducing their COGS which will allow them to earn more TIE and Cash flow from operation. We can conclude say that BATA has a very good Debt management ratio in compare to Apex. 4. Profitability In profitability Apex is not in a favorable ratio. It has good Profit margin, gross profit to sale, ROA and ROE but BATA has a much better ratio in contrast to them.
However Apex can improve its profitability ratio by increasing it sale and reducing its operating expenses which will leave apex with a high net profit available to shareholders, so this will improve its ROE, ROA, gross profit to sale and profit margin. Apex has somewhat good profitability ratio but when you compare it with BATA then it will look really poor. But if they use these procedure then they can improve on it. 5. Market value In Market value, APEX has a somewhat a strong grip. It has a high value in P/E ratio and in M/B ratio. In the other ratio of Book valueof shre and dividend yield,. it has a reasonable value .
To improve on it other two ratio it can use some methods like increasing the shareholders equity. As the sole purpose of a financial manager to increase its shareholder equity,which in return improves its company value. And also they might try to improve their net income which will enable it to pay its shareholders more dividend. We conclude saying that Apex has a good market value. Overview 1. Liquidity- Apex is in a good liquidity position. 2. Asset management- Apex is in somewhat good Asset management position. 3. Debt management- Apex is in a poor debt management position it is in a risky condition. . Profitability- Apex has somewhat reasonable Profitability position. 5. Market value- Apex is in a good market value position. APPENDIX Financial Analysis of year 2008 |RATIO |Formula for calculation |APEX ADELCHI |BATA SHOE |COMMENT | | | |(Target Company) |(Competing Company) | | |Liquidity |Current Assets/Current Liabilities |1. 03 X |1. 4 X |Poor | |Current ratio | | | | | |Quick ratio |(Current Assets-Inventories)/Current |0. 592 X |0. 406 X |Good | | |Liabilities | | | | |Working Capital ratio |Current Asset/ Total Asset |85. % |81 % |Good | |Asset Management Inventory |Gross Turnover / Inventories |4. 77 X |3. 16 X |Good | |turnover ratio | | | | | |The days sales outstanding |Trade Debtors/(Annual gross |58. 7 Days |6. 7 Days |High ( risky) | | |turnover/365) | | | | |Fixed asset turnover ratio |Sale/net fixed asset |11. 78 X |9. 83 X |Good | |Total asset turnover ratio |Sale/ Total Asset |1. 73 X |1. 5 X |Low | |Debt Management Debt ratio |Total debt/Total Asset |121 % |61. 1 % |High ( really risk) | |Times-Interest-Earned (TIE) |EBIT/Interest charge |1. 66 X |128. 5 X |Very low | |ratio | | | | | |Debt-Equity Ratio |Total debt/Total equity |4. 7 X |1. 57 X |High (risky) | |Cash Flow to Debt Ratio |Cash flow from operation/ Total debt |7. 13 % |30. 7 % |Low | |Profitability |Net Profit/Sale |3. 37 % |9. 72 % |Low | |Net Profit Margin | | | | | |Gross Profit Margin Gross Profit/ Sale |11. 68 % |34. 45 % |Low | |Return on Asset |Net Profit/ Total Asset |5. 84 % |17. 98 % |Low | |Return on Equity |Net Profit/ Total equity |33. 7 % |46. 3 % |Low | |Market Value Price/ Earnings|Price per Share/ Earning per share |10. 37 X |9. 76 X |Good | |ratio | | | | | |Market/ Book ratio |Market price per share/Book value per |3. 55 X |0. 36 X |Good | | |share | | | | |Book value per share |Equity/ share outstanding |500 |711 |Low | |Dividend Yield |Expected Dividend/Market price |1. 6 X |6. 86 X |Low | 6. Note on Analysis ? Asset management- For BATA Revenue is taken as total sale. ? Debt ratio- For both BATA and APEX total debt is the total current liability. And interest charged for BATA is the financial expenses. And cash flow for BATA and Apex is the NOPAT plus depreciation. ———————– North South University Project