Two Types Of Ratio Comparisons For Etisalat Finance Essay - Free Essay Example

In this  report  we will  analyze two Types of Ratio Comparisons first ratio Trend or time-series analysis and second Cross-sectional analysis for Etisalat. We will find liquidity ratios, activity ratios, leverage ratios, profitability ratios, market ratios and the DuPont system for Etisalat. Etisalat Overview Etisalat; UAEs first telecommunication company laid its foundation in 1976, with a paid up principal of about (AED) 7,906,140,000 And the par value per share is (AED): 1.00. The number of current employees is about 10500 persons. Major owner The Federal Government of UAE own Etisalat up to 60.03% Actions It is the prime objective of Etisalat to offer services that suits everyones needs. Etisalat is responsible for providing telephone, TV and Internet services and a host of other services, serving everyone across UAE. It is a multinational firm with presence in most of the International markets. It provides state-of -the-art services to its clientele. Reach out. The worlds waiting. (ETISALAT) (ETISALAT) (ETISALAT) Vision A world where peoples reach is not limited by distance. People stay in touch with each ither, beyond boundaries. Businesses of all types, stay connected with the rest of the world, enabling sources to reach their customers. Introducing latest technologies by providing chances of access to the ones who want to utilize them. (ETISALAT) Mission To extend Etisalats services by extending clients reach. It strives to continuously enhance its network enabling clients to grow, learn and innovate. (ETISALAT) Values Energy Etisalat values the energy to attain the desired outcome in any business. It is ready to face the future challenges and chances to grow. Openness It has an open door policy, and it truly believes in honest, fair and straight forward business dealings. Enablement Our aim is to open up opportunities and to actively help people reach their goals. We always deliver what we say we will. (ETISALAT) We will use Trend or time-series analysis to evaluate Etisalats performance for year 2010 and 2009. Short-term solvency, or Liquidity Ratios Etisalats Ratio for 2010 = 19313791 /24477988 = 0.79 Etisalats Ratio for 2009 = 19562585 / 23488380 = 0.83 Etisalats ratio for the year 2009 is better than that of 2010; (0.83) But as per the studies it has to be greater than 1, hence here no ratio is higher than 1. (ROSS, 2008) Etisalats Quick Ration for 2010 = (19313791-316261 ) / 24477988= 0.78 Etisalats Quick Ration for 2009 = (19562585- 272410 ) / 23488380= 0.82 (ROSS, 2008) Etisalats Quick ratio in 2009 is better off because it is close to1, but it is not that liquid because in order for it to be liquid it should be more than 1. Assets Utilization, or Turnover Ratios Etisalats Inventory Turnover 2010 = 4126455/316261 = 13.05 Etisalats Inventory Turnover 2009 = 3919638 / 272410 = 14.4 This calculates Etisalats liquidity of an inventory; how quick it sells its products and services. Hence, it is better in the year of 2009; 14.4; higher than 2010 (13.05). (ROSS, 2008) Etisalats Days Sales in inventory in 2010 = 365 / 13.05 = 27.97 days Etisalats Days Sales in inventory in 2009 = 365 / 14.4 = 25.3 days This ratio informs us about the average age of inventory; the average days sales in inventory. Based on our findings, the ratio in 2009 was better than 2010, because it was lower, so the lower number of days, the better it is. (ROSS, 2008) Receivables Turnover Receivables Turnover in 2010 = 8448082 / ( 29359666 ) = 28.77 Times Receivables Turnover in 2009 = 3264142 / ( 30831390 ) = 10.58 Times This ratio tells us about the amount of time required to collect the accounts receivable, which in this case is better for the year 2009 (10.58 Times), so the fewer the better. (ROSS, 2008) Days Sales In Receivable = Year 2010 = 365 / 28.77=12.69 Days Year 2009 = 365/10.58=34.50 Days In this ratio, Etisalat did better in 2009, as compared to 2010, as the more number of days also helped it to pay to suppliers in more days. (ROSS, 2008) Total Asset Turnover Total Asset Turnover for 2010 = 31929488/ 20078214 =1.59 Total Asset Turnover for 2009 = 31334387/ 71378596 = 0.43 This ratio informs us, as to how nicely Etisalat used its assets to generate sales. It is better in 2010, as it is higher (1.59). (ROSS, 2008) Capital intensity = For Year 2010: 20078214/31929488 =0.63 For Year 2009: 71378596/31334387=2.27 Long Term Solvency, Or Financial Levarage Debt Ratio = Total Liabilities / Total Assets Debt Ratio 2010 =33041805 / 75607132 = 43.70% Debt Ratio 2009 = 30989298 / 71378596 = 43.41% The debt shows the total money utilized to have profits, which is better in 2010, as its higher (43.70%), so Etisalat has a graeter degree of independence and higher financial leverage. (ROSS, 2008) Debt-equity Ratio: total debt/total equity Debt-equity Ratio in 2010 = 33041805/42565325=0.77 Debt-equity Ratio in 2009 = 30989298 /40389298=0.77 The Debt-equity Ratio remained the same for both years. Times Interest Earned = EBIT / Interest For year 2010 = 6996442 / 384836 = 18.18 For year 2009 = 8814963 / 571493 = 15.4 This determines Etisalats efficiency to make interest payments as in contracts; it is also termed as interest coverage ratio, which is better in 2010 for Etisalat. (ROSS, 2008) Profitability Ratios Profit Margin PM = Net Income / Net Sales Profit Margin in 2010 = 27802963 / 31929488 = 87.07 % Profit Margin in 2009 = 26911751 / 30831390 = 87.3 % The higher the profit margin the better it is, the lower the relative cost of products sold. It was higher in 2009, as compared to 2010. (ROSS, 2008) Earnings Per Share (EPS) EPS in 2010 = 7428778 / 7187400 = 1.03 AED EPS in 2009 = 8582733 / 7187400 = 1.19 AED EPS demonstrates the amount earned on each outstanding share of common stock in dirhams , but not the amount of earnings divided among its shareholders. It was better in 2009 as it was higher (AED 1.19). (ROSS, 2008) Return on Total Assets (ROA) = ROA in 2010 = 7428778 / 75607130 = 9.82 % ROA in 2009 = 8582733 / 71378596 = 12.02% R.O.A determines the profits made with available assets; also termed as Return on Investments (ROI). This ratio was better for the year 2009, as Etisalat made a profit of AED 12.02% on each asset investment in Dirhams. (ROSS, 2008) Return on Equity (ROE) = ROE in 2010 = 7428778 / 42565325 = 17.45% ROE in 2009 = 8582733 / 40389298 = 21.3 % It determines the return earned on common stockholders investment in Etisalat. Here, the stakeholders were better off in 2009 than in 2010, as the return on equity was 21.3%. (ROSS, 2008) Market Ratios Price Earnings (P/E) Ratio = P/E in 2010 = 9.983 / 1.03 = 9.69 P/E in 2009 = 10.95 / 1.19 = 9.20 P/E determines the amount that the investors are willing to pay for each dirham of the firms earnings. Hence, higher the rate, the better it is, which shows the confidence of investors in investing in Etisalat, which is better for the year 2010. (ROSS, 2008) Market/Book (M/B) Ratio M/B in 2010 = 9.983 / 4.95= 2.01 M/B in 2009 = 10.95 / 5.62 = 1.95 Market/book ratio in 2010 is higher for Etisalat, demonstrating better growth chances. (ROSS, 2008) DuPont system analysis DuPont system analysis = ROA = It will be equal to the answer we got from ROA †¦ (ROSS, 2008)