Following the discussion in class regarding the information that can be gained from using various financial ratios, for this week's blog activity, you need to compare the four key financial ratios for Pick n Pay Stores and Shoprite Checkers for their latest financial results. More important that just calculating the formula, is to comment on what they mean, especially when comparing one store to another.
NOTE: It was pointed out to me at the end of class that everyone will essentially repeat each others entries given that you are all working with the same two companies. I should have spotted that :) So - thanks to Caitlin who has responded thus far using P & P and Shoprite, for the rest of you, I need to you identify two other companies from the same JSE sector and do the comparison. Apologies to those of you who have already started looking at the P & P/Shoprite financial information.
By looking at their financial statements, we can compare Pick n Pay Stores to Shoprite Checkers in terms of their performance. Firstly we shall compare liquidity using the current ratio. Shoprite's liquidity is higher than PnP's (0.912>0.86). This indicates that it is easier for Shoprite to turn their assets to cash than PnP, putting them at an advantage. Next we shall compare activity using the inventory turnover ratio. Shoprite turns over their inventory on an average of 1.2 times a month, and PnP turns over their inventory 0.7 times a month. This indicates that PnP sells all of their inventory faster than Shoprite does. Next we will compare profitability. With regards to profit margin, Shoprite more than doubles PnP's margin (5.36%>2%)making them a far more attractive investment choice. Looking at the return you get on assets, Shoprite's return again more than doubles that of PnP (18.72%>9.9%), putting them at a favourable advantage. Lastly, looking at leverage using the debt ratio to determine the proportion of the company that is financed by debt, both Shoprite and PnP have a healthy debt ratio of less than 1. Shoprite's ratio is lower (0.65<0.8), showing they use more equity to finance their business. All these ratios indicate that Shoprite is a far better choice to invest in with regards to return and risk.
ReplyDeleteThe two Companies that I have chosen to do the comparison with:
ReplyDelete1. Anglo Gold Mining
2. Goldfields Gold Mining
In terms of liquidity, using the current ratio:
1. Anglo: (2617/963)= 2.718
2. Goldfields: (14,768.3/8604.3)= 1.716
This comparison shows that Anglo is closer to the ideal of 2.4, meaning that they will be able to turn their assets to cash quicker than Goldfields,, should they run into financial instability in the near future.
Inventory Turnover Ratio:
1. Anglo: (1,684/1,138)= 1.48
2. Goldfields: (1,407.6/8,089.7)= 0.174
Now taking these inventory turnover ratios and dividng the amount of days in a year by these ratios, we will have an estimate of how often stock is completely replaced:
1. Anglo: 246.62
2. Goldfields: 2097.7
What this means is that Goldfields obviously has a lot more stock on hand, or it could be that they are not using resoources adequately in retreiving their stock in terms of mining in order to increase the production cycle of tradeable Gold.
In terms of Profit Margin:
1. Anglo: (285/1,684)= 0.169
2. Goldfields: (207.1/1,407.6) = 0.147
Obviously for the investor he will invest in the company with the higher profitability, and in this case it is Anglo (16.9%)
The return on Assets:
1. Anglo: (285/11,293)= 0.025
2. Goldfields: (207.1/1,407.6)= 0.002
From this we can see that Anglo has a much higher return on Assets than that of Goldfields (about 10 times higher). This can also be said to attribute to the reason for Anglo being a better investment option.
Debt Ratio:
1. Anglo: (5,656/11,293)= 0.501
2. Goldfields: (11,457.4/90,171.7)= 0.127
We know that the debt ratio should not exceed 1.0 and from this coparison we can see that Anglo has a higher Debt Ratio than that of Goldfields. This is not necessarily a shortfall from Anglo. Many successful companies have found that having the correct balance between debt and equity for funding has proved to be more sustainable for the business in the long run, and we can see that Anglo are doing considerably well in terms of profitability.
In conclusion, I would invest in Anglo, based on the results obtained from comparing both companies Financial Statements
The 2011 financial statements of Clicks and Spar were used in this comparative analysis.
ReplyDeleteLiquidity
Current Ratio:
Clicks- 0.94
Spar- 1.10
Clicks has a ratio of less than one. This means that the company has more liabilities than assets. Spar therefore operates better in that their ratio indicates good short term financial strength. Companies can improve the current ratio by paying down debt, converting short-term debt into long-term debt, collecting its receivables faster and buying inventory only when necessary.
Solvency
Debt Ratio:
Clicks- 0.77
Spar- 0.70
The debt/asset ratio shows the proportion of a company's assets which are financed through debt. The higher the ratio, the greater risk will be associated with the firm's operation. Clicks is therefore more at risk as more of the company's assets are financed through debt.
Profitability
Profit Margin:
Clicks- 23.97%
Spar- N/A
Efficiency
Inventory Turnover Ratio:
Clicks-6.04
Spar-N/A
Could not compare as Spars expenses were not on the statement of comprehensive income.
The 2011 statements for edgars and foschini were used in the analysis below:
ReplyDeleteLiquidity
Current ratio:
Edgars- 2.67
Foschini- 2.44
this ratio shows how quickly you can pay off your short term debt, it is relatively the same for both edgars and foschini. Both of the companies current assets are more than their current liabilities. They can pay off their current liabilities twice over with their current assets
Solvency
Debt ratio:
Edgars- 1.10
Foschini- 0.44
This ratio compares total liabilities to total assets. a low percentage shows that a company is less dependant on using debt as a financing option. from the above results we can see that foschini has less debt that foschini whose total assets are financed entirely by debt.
Profitability
Profit Margin:
Edgars- 70.42%
Foschini- 59.88%
the higher the profit margin the more profitable the comapany is and the more control a company has over its costs. therefore edgars is more profitable and has better control over its costs than edgars.
Efficiency
Inventory Turnover ratio:
Edgars- 5.46
Foschini- 3.20
a high turnover rate can indicate that a company has inadequate amount of inventory and cant keep up with the demand and a low turnover can be a result of over stocking, therefore foschini does not sell as much as edgars but edgars could have inadequate amounts of inventory which is just as bad.
The two companies that I have selected for comparison are:
ReplyDelete• Woolworths Holdings Limited
• The Spar Group Limited
The figures used are reported from these companies’ financial statements in 2011.
1. LIQUIDITY
CURRENT RATIO = current assets/current liabilities
WW: 4950/3512 = 1.409 = 1.41
SPAR: 5 523/5 132 = 1.076 = 1.08
Woolworths Holdings Limited has a higher current ratio than that of the Spar Group Limited, which indicates that it has a greater ability to meet its current obligations. Woolworths Holdings Limited also displays a current ratio closer to the ideal amount (2.4) than that of the Spar Group Limited. As such, Woolworths is the more liquid firm.
2. ACTIVITY RATIOS
INVENTORY TURNOVER = Total sales/average inventory
WW: 25 841/1 892 = 13.658 = 13.66
SPAR: 38 820/959 = 40.479 = 40.48
Spar has a higher inventory turnover than Woolworths, which indicates that its inventory is used to meet sales demand more often than Woolworths.
DAILY STOCK HOLDING = 365/stock turnover
WW: 365/13.66 = 26.72
SPAR: 365/40.48 = 9.02
On average, it takes Spar 9 days to sell their inventory whereas it takes Woolworths 27 days to do so.
Overall, Spar has a greater overall internal performance than Woolworths, although Spar appeals to a broader mass-market in comparison to Woolworths, hence sales demand would be higher.
3. PROFITABILITY RATIOS
PROFIT MARGIN ON SALES = Net income/sales
WW: 1 667/25 841 = 0.0645 = 6.45%
SPAR: 953/38 820 = 0.0245 = 2.45%
Woolworths was clearly the more profitable company of 2011, posting a 4% higher overall profit margin than that of Spar.
4. LEVERAGE RATIOS
DEBT RATIO = Total debt/total assets
WW: (1460+3512)/ 9 065 = 0.548 = 0.55
SPAR: (217+5 596)/8 302 = 0.700 = 0.70
It is important that a company’s debt ratio does not exceed 1.00. Woolworths funds its activities with borrowed money to a lesser extent than Spar does, making it the less risky investment choice. However, both debt ratios are within the realm of what is deemed to be acceptable in terms of financing assets with debt.
CONCLUSION
Despite having an inventory turnover greater than that of Woolworths, Woolworths is clearly the more financially desirable company, given that it is the comparatively more liquid, profitable and less risky (on the basis of its assets being financed with less debt) company to invest in, based on a detailed comparison of the two companies’ 2011 financial statements.
Listed below are the financial ratios of MTN & Vodacom
ReplyDeleteCurrent Ratio
MTN – 1.22
Vodacom – 0.96
This means MTN has a better ability to cover its short term debt than Vodacom.
Inventory turnover
MTN – 81.9
Vodacom – 36.4
Inventory turnover reflects how quickly a firm turns inventory into sales. The reason the ratios are so high, is because the two companies are in the service industry and hold very little physical stock. The bulk of their sales are acquired in service delivery.
Profit margin
MTN – 0.17
Vodacom – 0.15
This is the percentage of each sales rand remaining after all costs, incld interest and taxes, have been deducted.
Gross margin
MTN – 0.44
Vodacom – 0.55
This is the percentage of each rand remaining after firm has paid for its goods. Vodacom is better in this regard.
Return on Assets
MTN – 0.13
Vodacom – 0.21
Measures the overall effectiveness of management in generating returns to ordinary shareholders with its available assets.
Debt Ratio
MTN – 0.60
Vodacom – 0.49
Measures the proportion of TA financed by a firms creditor.
Ill be comparing Truworths and Mr Price
ReplyDeleteCURRENT RATIO:
Truworths: 4.69
Mr Price: 2.5
This ratio is an indication of a company's ability to meet their short term debts. the ideal figure for this ratio is 2.4, as you can see from the above figure both companies are able to meet their short term debts comfortably.
INVENTORY TURNOVER
Truworths:14.83
Mr Price: 8.6
This ratio shows how many times a company's inventory is sold and replaced over a period. A low turnover, which Mr Price has compared to Truworths, indicates that there is poor sales and excess inventory on hand.
PROFIT MARGIN ON SALES
Truworths: 0.25
Mr Price: 0.39
profit margin gives an indication on whether the average markup on goods and services is sufficient to cover expenses and make a profit. it is clear that Mr Price is making a better profit at the end of the day compared to Truworths.
RETURN ON ASSETS
Truworths: 0.31
Mr Price: 0.47
ROA gives an idea as to how efficient management is at using its assets to generate earnings. clearly Mr Price is better at this than Truworths is.
DEBT RATIO
Truworths: 0.95
Mr Price: 1.4
This will tell you how much the company relies on debt to finance assets. altought Mr Price is in a bad situation as he is using a great deal of debt to finance its assets, truworths is not far behind. the ideal situation is to be below <1. both companies are very close to the undesirable figure.
Liquidity Ratio :Current Assets
ReplyDeleteClicks: 0.94
Dis-chem: 1.20
Clicks has a ratio less than 1, which is not a good sign meaning that it might not be able to meet it's short term obligations. The ideal current ratio would be greater than 1 such as Dis-chems.
Slovency: Debt Ratio
Clicks: 0.77
Dis-chem: 0.65
This indicates that Dis-chem does not rely on its debt to finance its assets as much as Clicks does. They are however still both below 1 which means that they are both still in the ideal debt position.
Profitability: Profit Margin
Click: 0.24
Dis-chem: 0.19
This figure shows us what percentage of each rand of sale is profit. Clicks has a higher profit margin which could be seen as 'better' however this could also mean that Click's prices are more expensive.
Inventory turnover:
Clicks: 6.04
Dis-chem: 6.79
The two pharmacies have very similar turnover rates, probably because they are very similar stores. However Dis-chem's turnover rate is a little higher than Clicks and this could mean that Dis-chem is a little better at meeting sales demand.
I looked at two heavy construction companies: Aveng Ltd (AVENG) and Murray and Roberts (M&R). Aveng showed a higher liquidity ratio than M&R (1.47 vs. 1.00). This means that Aveng can pay off their debt 1.47 times, while M&R can only pay their debt off one time. However, both companies are below the ideal, 2.4. In terms of their activity ratios, M&R showed a higher ratio (37.37 vs. 16.61), meaning that M&R has been more effective at turning over their inventory. However, the inventories of Aveng amounted to 2066,5, while M&R’s amounted to only 817,2. The two companies’ total sales were comparable. While M&R showed a higher activity ratio, their inventory was significantly smaller than Aveng meaning that they are moving less inventory through their company. This could theoretically be a disadvantage, especially considering that the two companies are in the same field. The profitability ratios of the two companies were next analyzed. The profit margin on sales was larger for Aveng (0.04 vs. -0.05). M&R demonstrated a negative profit margin on sales because they ended the year with a net loss in income of -1648,3. This is not good. A higher profit margin on sales is better because it means that you are bringing in more money (or losing less) in addition to sales revenue. The gross margin for Aveng was 0.16, while M&R’s was almost zero (-0.003). This is because of M&R’s negative gross income of -92.6. As mentioned before, Aveng and M&R had similar totals for sales. M&R’s negative net and gross incomes are bad signs. However, it is also interesting that the difference between Aveng’s gross and net incomes is 3951.1, while M&R’s is only 1555.7. This needs to be further investigated.
ReplyDeleteAveng showed a 0.06 return on assets, while M&R showed a -0.08 loss. This is, again, because of M&R’s net income for the year of -1648.3. In terms of their leverage ratios, Aveng showed a lower debt ratio than M&R (0.47 vs. 0.73). This means that Aveng is a safer bet than M&R for loans. Aveng showed both a lower total debt and a higher total assets amount than M&R.
I would obviously choose Aveng over M&R for an investment. I am a bit surprised that M&R performed so poorly, because I thought it was one of the largest (and assumed one of the best) construction companies in South Africa. I don’t know much about Aveng. What I do know about M&R comes from seeing their large yellow signs at construction sites (good advertising). Their loss needs to be further investigated.
M&R has been experiencing a downward spiral since the economic crash in 2008. The share price has dropped from an impressive R110 (2006/7) to an embarressing R21 last week. It has a lot to do with internal problems which stem from managerial to contract issues. They had big involvement in the UAE, Dubai etc. Which since 2008 has been experiencing little activity. In SA they have struggled to sign big contracts which is what they are all about.
DeleteThey (M&R) very recently issued a rights issue to shareholders in order to try raise some capital, but from what I've seen - nothing amazing has come from it yet (only a futher drop in share price).
Last year the CEO (Brian Bruce) was chucked out, after receiving 99 million in 2007 of remuneration (salary and shares). This may be a good sign for M&R as an introduction of a new CEO brings different ideas and stratergy and may be the only thing that will save them now.
I have a large interest in M&R because one day I will inherit my grandfathers M&R investment!
The two companies I will be comparing are Illovo and Sasol. The comparisons were made for financial year ending March 2011 and December 2011 respectively.
ReplyDeleteThe liquidity ratios (Current ratio):
1. Illovo : 1736.4/818.2 = 2.12
2. Sasol : 59781/27274 = 2.19
Sasol has got higher liquidity ratio than Illovo Company. This means that Sasol has greater ability to cover its short-terms debts obligations. This is because generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.
The activity ratios (Inventory turnover):
1. Illovo : 1279.2/525 = 2.43
2. Sasol : 38 639/18 512 = 2.09
Illovo has higher turnover than Sasol, which indicates that its inventory meets sale demands faster than that of Sasol.
Profitability ratios (Return on assets):
1. Illovo : 994.5/4501.3 = 0.22 = 22%
2. Sasol : 51969/177972 = 0.29 = 29%
Sasol has higher return on assets than Illovo, which indicates that it generates more earnings from invested capital (assets).
Leverage ratios (Debt ratio):
1. Illovo : 3861.3/4501.3 = 0.86
2. Sasol : 9990/177972 = 0.056
Both of the companies have assets which are greater than debts because their debt ratios are less than 1. It must be noted that Sasol are in a better position because its debt ratio is smaller.
In conclusion, I would invest in Sasol because they make higher profits than Illovo.
The two companies that I will be using are:
ReplyDelete1. Famous Brands- Own Steers, Wimpy and Debonairs
2. Spur Corporation- Own Spur, Panarottis and John Dory’s
*Current Ratio=current assets/current liabilities
1. Famous Brand=1.36
2. Spur Corporation=1.08
Shows the companies’ ability to meet short term debt, both are fairly good with Famous Brand being the better of the two.
*Return on Assets= Net Income/Total Assets
1. Famous Brands=0.19
2. Spur Corporation=1.30
Spur Corporation has a better return but remember that the higher the return, the greater the risk.
*Profit Margin=Net income/Sales
1. Famous Brands=0.12
2. Spur Corporation=0.25
Spur Corporation is more profitable.
*Debt Ratio=total debt/total assets
1. Famous Brands=0.22
2. Spur Corporation=1.01
Shows the amount of financing through debt, Spur Corporation is rather high with Famous Brans in the ideal position.
In conclusion Spur Corporation seems like the better investment.
The two companies I have chosen are Foord Compass Limited and Cadiz, which are both financial institution that trade on the JSE, which have very similar financial statements.
ReplyDeleteCurrent ration(CA/CL)
Foord Compass Limited: 2012.2/806 =2.49
Cadiz: 580.9/265.6 = 2.18
Both companies have a very reliable current ratio, meaning they would both be able to cover there short term debts. But Foord Compass Limited has a higher ratio and therefore has greater cover for its short term obligations, compared to Cadiz.
Debt ratio (TA/TL)
Foord Compass Limited: 2012.2/1969.9 = 1.02
Cadiz: 3189/2050 = 1.55
In this situation Cadiz would be seen as a riskier investment due to the fact that their assets are funded by debt. Foord Compass would be less reliant on financing and therefore has less risk as an investment.
Return on assets: (NI/TA)
Foord Compass Limited: 528.6/2012.12 = 0.26
Cadiz: 231/3189 = 0.07
This ratio is good for comparing the performance of financial institutions which these two companies are. It helps to indicate their capital intensity. This shows how profitable a company is before leverage. So with regards to this we can see that Foord Compass uses its assets more efficiently than Cadiz.
Other ratios have been difficult to apply to the the fact that the companies are financial institutions. There is also a lack of shares earnings, number of shares and dividend. But I will update this post on retrieving that.
But overall it can be seen that Foord Compass would be the best investment smaller risks and greater capital intensity.
The two companies I am comparing are Woolworths and Truworths. I will be using the 2011 financial statements to compare the two companies.
ReplyDeleteCurrent Ratio:
• Woolworths- 1.41
• Truworths- 4.69
• The current ratio indicates the company’s ability to pay short term obligations/debt. The above figures suggest Truworths is more capable of paying off its short term debts than Woolworths.
Return on assets:
• Woolworths- 0.18
• Truworths- 0.31
• This gives us an indicator of how efficient management is at using their assets to generate profits. Again we see that Truworths is better at this than Woolworths
Profit margin:
• Woolworths- 0.065
• Truworths- 0.22
• This is a measure of how well a company controls its costs. Truworths controls its costs better than Woolworths does.
Debt ratio:
• Woolworths- 0.55
• Truworths- 0.19
• The debt ratio shows how much of the company is financed through debt. More than 50% of Woolworths is financed on debt with Truworths using or trying to use minimal amount of debt to finance their costs.
Making a comparison of SAB Miller (SAB) and British American Tobacco (BTI):
ReplyDeleteBoth these companies sell luxury goods to the market, are both in the consumer, non-cyclical sector and both are ranked on the FTSE/JSE Africa Top 40 tradable index.
Price to Earnings Ratio:
This ratio looks at what investors are paying, relative to what they are earning and the lower this ratio the better (from an investor perspective)
BTI: 19.68
SAB: 16.61
SAB has a lower P/E ratio, which means that this is the more desirable investment because investors will pay less for each unit of net income compared to BTI.
Earnings per share:
This ratio looks at profit/weighted average common shares and looks at the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.
BTI: 1.62
SAB: 2.67
BTI has a lower EPS ratio, which is more desirable because that means that there is less outstanding common stock per unit of profit than with SAB
Price/Book
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company.
BTI: 8.58
SAB: 2.94
It is evident that SAB has a lower Price/Book ration, which could mean that either SAB’s stock is undervalued or else SAB is underperforming, compared to BTI.
Price/Sale
As with earnings and book value, you can find out how much the market is valuing a company by comparing the company's price to its annual sales. Low P/S ratios (below one) are usually thought to be the better investment since their sales are priced cheaply.
BTI: 4.04
SAB: 4.20
Both companies have a similar P/S ratio yet neither are below 1, which means these shares can’t be bought cheaply by investors, hence for both companies, the price is lower than its annual sales.
**Information from www.bloomberg.com
The two companies I have chosen are Anglo American Gold Mining and Cerro Corona Gold Mine. They are two very closely linked mines in terms of the gold they mine, however, they are not situated together, as they reside on different continents.
ReplyDeleteUnder the terms of the current ratio :
Anglo American = (2617/963)= 2.718
Cerro Coron = (1196/14320= .084
We are able to see that in terms of liquidity, Anglo American is situated in a much better position, as they can turn majority of their assets into cash very quickly.
With regards to the return on Assets:
Anglo American(285/11,293)= 0.025
Cerro Coron (368/21593) = 0.017
We can see here that Anglo is a better suited as a better investment option due to their higher returns. They have established a dominant and secure form of asset returns.
In terms of the Profit Margin:
Anglo American (285/1,684)= 0.169
Cerro Coron ( 121/897) = 0.135
Clearly Anglo American has a higher profit margin, so again in terms of investing , this would be the better option.
In terms of the Debt Ratio:
Anglo American (5,656/11,293)= 0.501
Cerro Coron (14320.6/21749)= 0.658
We can see that Cerro Coron has a higher debt ratio, but this may not necessarily be a negative aspect, as you compare this to their liquidity ratio and it tends to balance itself out. As long as this number stays below 1.0, then the companies are able to continue in production.
In, conclusion, by looking at these two companies financial statements, Anglo American looks like a more profitable and better investment strategy.
CURRENT RATIO
ReplyDeleteTruworths: 4.7
Edgars: 2.67
-Reflects the company’s ability to pay of its short-term debt. The ratios suggest that Truworths is a better capability of doing so.
INVENTORY TURNOVER:
Truworths: 6.4
Edgars: 5.46
-Reflects the management of inventory in terms of amounts of a product sold per year. Both reflecting quite a high turnover rate however Truworths possibly reflecting a higher demand for their products.
PROFIT MARGIN
Truworths: 0.22
Edgars: 0.18
-Reflects the amount of profit per rand of sales. Generally reflects a proportionate relationship with price increases. We can see that both company’s reflecting similar margins.
ASSET TURNOVER
Truworths: 1.3
Edgars: 1.11
-Measures the asset use efficiency. In other words the ability of management to use their assets and convert them into profits. Truworths slightly outdo Edgars in this regard.
DEBT RATIO:
Truworths: 0.95
Edgars: 1.10
-Reflects how much of a company’s assets are financed using debt and we can see that Edgars requires more debt usage than Truworths.
Comparing the financial statements of Pick n Pay and Spar.
ReplyDeleteSolvency Debt Ratio: Pick n Pay- 0.8 Spar- 0.70
This debt/asset ratio determines the proportion of the company’s assets, which are financed through debt. The level of risk is directly linked to this ratio, as when the debt increases so does the level of risk. This therefore illustrated that Spar has a lower ratio and therefore will be at advantage over its competitor.
Liquidity Current Ratio: Pick n Pay- 0.86 Spar- 1.10
Pick n Pay has a ratio of less than one, which illustrates that the company has greater liabilities than assets. It is therefore easier for Spar to convert their assets into cash and giving them the first advantage in this analysis.
Turnover Ratio: Pick n Pay- 0.7 times per month Spar- 0.29 times per month
This therefore illustrates that Spar has a much shorter turnover ratio which can be seen as a major advantage as inventory levels are changed constantly.
Profitability Profit Margin: Pick n Pay- 9.9% Spar- N/A
The above comparative statements were unable to be indentified through Spar, so therefore cannot be used in this analysis.
In conclusion by using the first three comparative measures it seems that Spar has a favorable advantage over Pick n Pay and would be a better choice in this analysis.
The companies that I looked at:
ReplyDeleteEdgars and Truwoths
Current ratio:
Edgars- 2.67
Truworths- 4.69
This isan indication of a companies ability to pay its current debt. the figure 2.4 is ideal and in this case both companies are able to meet their debt demands, both of the companies currents assets are greater than current liabilities.
Debt ratio:
Edgars- 1.10
Truworths-0.95
This figure should not exceed 1.0 as it shows the proportion of assets financed through debt, indicating credit risks. The higher the ratio, the greater the risk. Truworths is more attractive with regards to investment as it has a lessor credit risk than edgars. Edgar's ratio exceeds 1.0 and this means it is largely financed by debt.
Inventory turnover ratio:
Edgars- 5.46
Truworths- 14.83
this indicates how often inventory is used to meet sales demand, the higher the turnover the better. This ratio reveals that Truworths sells its inventory faster than what edgars does, making truworths attractive for investent compared to Edgars.
Profit Margin:
Edgars- 18%
Truworths- 25%
This is the profit per rand of sales. Thruworths has a slightly higher profit margin and this is attractive for future investors.
The two companies that I will be comparing are ABSA Bank and Capitec Bank Holdings Ltd.
ReplyDeleteCurrent ratio:
ABSA: (177,503.0/537,982.0) = 0.33
Capitec: (2,976.6/7,546.4) = 0.39
The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets. The higher the current ratio, the more capable the company is of paying its obligations. As we can see, both the ratio’s under 1 suggests that the companies would be unable to pay off their obligations if they came due at that point.
Debt ratio:
ABSA: (144,313.0/786,719.0) = 0.18
Capitec: (3,273.4 /14,439.5) = 0.23
A ratio that indicates what proportion of debt a company has relative to its assets. A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Both companies have similar ratio’s.
Profit margin:
ABSA: (9,674.0/40,749.0) = 0.24
Capitec: : (656.0/2,775.5) = 0.24
A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage and reflects the percentage of profit per rand. Both ABSA and Capitec have the same profit margin.
Asset turnover:
ABSA: (40,749.0/786,719.0) = 0.05
Capitec: (2,775.5/14,439.5) = 0.19
Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It is clear to see that Capitec has a much higher asset turnover figure.
The two companies that I chose for the comparison are Growth Point Properties and WHBO which are two large companies in the construction sector.
ReplyDeleteCurrent ratio:
Growth Point: (1498.0/4318.0) = 0.347
WHBO: (8298.4/6855.1) = 1.21
These ratios indicate that WHBO has more liquid assets which can be turned into cash faster than that of Growth Point.
Inventory turnover:
Growth Point: No data available
WHBO: (16917.6/230.3) = 73.45
There is insufficient data to suggest anything about the inventory turnover for these two companies
Profit Margin:
Growth Point: (1471.0/5290.0) = 0.278
WHBO: (648.8/17893.4) = 0.036
This data suggests that Growth Point has a higher profit margin and will appeal to investors more than WHBO.
Asset Turnover:
Growth Point: (5290.0/55786.0) = 0.095
WHBO: (17893.4/11246.3) = 1.591
These ratios indicate that WHBO has a higher return on assets than Growth Point which could be as a result of a more effective management structure.
Debt Ratio:
Growth Point: (25062.0/55786.0) = 0.449
WHBO: (7018.1/11246.3) = 0.624
The data shows that Growth Point has a financing structure which favours equity as less than half of their total assets are funded through debt. WHBO has about 60% of their assets funded through debt which makes them more vulnerable to creditors if the company was ever liquidated