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STO ; A Financial Analysis

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    State Trading Organization (STO) A Financial Analysis For the 3 years ; 2015, 2016 and 2017 Sana Abdulla Ium-003455  Sana Abdulla 003455 BIBF B04 1 | Page   Table of Contents Introduction:  .................................................................................................................................................... 2    Profitability ratios:  ...................................................................................................................................... 3 1.   Net profit margin:  ................................................................................................................................... 3 2. Return on capital employed (ROCE)  ................................................................................................... 3    Liquidity ratios :  .......................................................................................................................................... 4 1.   Working capital ratio  .............................................................................................................................. 4 2. Working capital:  ..................................................................................................................................... 5    Efficiency ratios :  .................................................................................................................................... 5 1.   Trade receivables collection period (in days): ..................................................................................... 5 Trade receivables turnover:  ...................................................................................................................... 5 2.   Trade payables outstanding period (in days)  ...................................................................................... 6 Trade payables turnover:  .......................................................................................................................... 6 3.   Gearing ratio  .......................................................................................................................................... 6 Capital contribution:  .................................................................................................................................. 6 4.   Interest cover ratio:  ................................................................................................................................ 7    Investment ratios:  ...................................................................................................................................... 7 1.   Dividend per share  ................................................................................................................................ 7 2.   Earnings per share:  ............................................................................................................................... 8 3.   Price to earnings ratio  ........................................................................................................................... 8 Suggestions to the potential investors in terms of investment viability with the facts from the report:  ............................................................................................................................................................... 9 Summary  ........................................................................................................................................................ 11 References......................................................................................................................................................... 12 Annex:  ............................................................................................................................................................. 13  Sana Abdulla 003455 BIBF B04 2 | Page   Introduction: In order to ascertain long term success in a market, a business must analyze its financial reports and ratios thoroughly and find out the areas where they need to improve; to take a beneficial decision that ensures the company performs well in terms of its profitability, liquidity, efficiency and debt management. In this assignment, I have attempted to do that on a minor scale, for the three years; 2015, 2016 and 2017 for the company; STO Group (listed companies, n.d.). I have also provided recommendations for the management of STO regarding its profitability, liquidity, efficiency and debt management for these three years and suggestions for the investors who might wish to invest in this company. STO was formed in the 1 960’s; a time when the Maldivians relied on tuna and fishing for survival. The development was very slow and the outlook of the Maldivian economy was not a very promising outlook. The Maldivians were in desperate need for an organization which would import goods and sell them at the market for a cheap price. Thus in 1960, a company known as  Athireemaafannu Trading Agency (ATA) was formed which later became the State Trading Organization (STO) in 1979 (overview). STO soon diversified into different areas; not only selling the imports at an affordable but also in many other fields. With many subsidiaries, associates and joint ventures even in Singapore, STO group had diversified into many areas including, insurance, supermarket products electronics, home appliances, pharmaceuticals and medical supplies as well as construction materials, cooking gas and petroleum (Abdul Hadi Hussain Fulhu, 2017). Its mission includes expansion of its existing businesses whilst entering into new ventures and trying new opportunities. They also wish to establish the business as an international player while providing the basic goods and services at a cheap price. In addition to that, they also plans on building a skilled workforce and achieve sustainable growth to achieve their beautiful vision of “enriching lives through expansion and accessibility”  (Amir Mansoor, 2018).  Sana Abdulla 003455 BIBF B04 3 | Page   Below calculated are some ratios and its comparison over the three years along with recommendations to the management of STO on how to further improve them.    Profitability ratios : 1. Net profit margin:       100  Profitability ratios calculate the amount of profitability in a business. The net profit margin calculates the net profitability. This ratio measures the overall success of the business. In profitability ratios, it is the higher the better. The net profit margin seems to have increased by 0.25 % in 2016, compared to 2015, which is a good sign. This might be because the other income increased by 9740010/- along with a reduction of 58063998/- in selling and marketing expenses. However, in 2017, the net profit margin had decreased vastly, by a difference of 4.46 %. The net profit might have decreased due to increase in almost all the expenses including marketing expense and administrative expenses and other operating expenses in 2017. The management of STO could try to reduce the expenses and increase the gross profit to increase the net profit if they were to increase the net profit margin. They could increase the gross profit by reducing the cost of sales and increasing the sales. They could try finding cheaper alternative suppliers to purchase their goods. Or they could purchase in greater bulk quantities or buy from a supplier who provides trading discount. This would indirectly lend a hand in increasing this ratio. Furthermore, they could also try to increase the income to compensate for the increased expenses; they could also reduce the number of advertisements for a year in order to reduce the marketing expenses. 2.   Return on capital employed (ROCE)  :      100   Return on capital employed or ROCE is calculated as the percentage return on the long term capital employed within the business. It is calculated by adding capital to long term liabilities. It is the most important ratio in profitability ratios as it shows the amount of profit derived from each 100 per investment. Capital employed is the money invested in the business. 2015 435349237 / 7313248218 X 100 5.95 % 2016 430593863 / 6939049552 X 100 6.21 % 2017 159680681 / 9099847272 X 100 1.75 % 2015 435349237 / 5712420480 X 100 7.62 % 2016 430593863 / 7049511283 X 100 6.11 % 2017 159680681 / 7737822886 X 100 2.06 %

Alex Kronos

Sep 10, 2019
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