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BEGA ELECTROMOTOR SA's Financial Condition Analysis for the Period from 01.01.2011 to 31.12.2011
1. BEGA ELECTROMOTOR SA's Financial Position Analysis 1.1. Structure of the Assets and Liabilities 1.2. Net Assets (Net Worth) 1.3. Financial Sustainability Analysis 1.3.1. Key indicators of the company's financial sustainability 1.3.2. Working capital analysis 1.4. Liquidity Analysis 2. Financial Performance 2.1. Overview of the Financial Results 2.2. Profitability Ratios 2.3. Analysis of the Business Activity (Turnover Ratios) 2.4. Labour productivity 3. Conclusion 3.1. Key Indicators Summary 3.2. Rating of the Financial Position and Financial Performance of BEGA ELECTROMOTOR SA 4. Appendix 4.1. Bankruptcy Test (Altman Z-score) 4.2. Calculation of the Final Rating of the Financial Condition
Change for the analysed period thousand ROL % (col.3-col.2) ((col.3-col.2) : at the end of col.2) the period analysed (31.12.2011)
5 6 7
Assets 1. Non-current assets 15,010,917 15,712,673 6,100,009 2,842,411 2,904,405 73.6 26.4 12.8 12.9 72 28 13 13.3 +701,756 +703,669 +224,053 +269,423 +4.7 +13 +8.6 +10.2
2. Current assets, 5,396,340 total Inventories Trade and other current receivables Cash and cash equivalents 2,618,358 2,634,982
68,639
281,471
0.3
1.3
+212,832
+4.1 times
Equity and Liabilities 1. Equity 2. Non-current liabilities 3. Current liabilities 20,407,257 21,812,682 100 100 100 100 +1,405,425 +1,405,425 +6.9 +6.9
According to the table above, non-current assets made about two thirds of BEGA ELECTROMOTOR SA's assets (72%) at the end of the period, while current assets took one third. For the period analysed, the assets significantly spiked to ROL 21,812,682 thousand (by ROL 1,405,425 thousand, or by 6.9%). Assets and equity were observed to grow simultaneously by 6.9% during the year. Growth of the equity value is a factor which positively describes the dynamics of BEGA ELECTROMOTOR SA's financial state. The total growth of BEGA ELECTROMOTOR SA's assets value is primarily connected with the value growth of the following assets (the sum of change and percentage of this change relative to the total assets growth are shown below):
q q q q
Property, plant and equipment ROL 701,756 thousand (49.2%) Trade and other current receivables ROL 269,423 thousand (18.9%) Current inventories ROL 224,053 thousand (15.7%) Cash and cash equivalents ROL 212,832 thousand (14.9%)
With that, growth in the section "Equity and Liabilities" of the company's balance sheet is caused with an increase in the following rates (the percentage from total equity and liabilities change is shown in brackets):
q q
Other reserves ROL 1,004,653 thousand (71.5%) Issued (share) capital ROL 400,772 thousand (28.5%)
One of the negatively changed assets during the year is the item "Other current non-financial assets" (ROL -20,066 thousand). Correlation of basic asset groups is demonstrated in the diagram below.
The inventories were found to spike appreciably to ROL 2,842,411 thousand (by ROL 224,053 thousand, or by 8.6%) during the reviewed period. For the last year, the current receivables increased by ROL 269,423 thousand, or by 10.2%.
Change
% of the balance total thousand ROL %, (col.3-col.2), ((col.3 at the end of the 01.01.2011 31.12.2011 -col.2) : period analysed col.2) (31.12.2011)
3 4 5 6 7
1. Net tangible assets 2. Net assets (Net worth) 3. Issued (share) capital 4. Difference between net assets and Issued (share) capital (line 2 - line 3)
8,285,961
9,290,614
For the reviewed period (2011), it was monitored that there was an appreciable increase in the net tangible assets to ROL 21,812,682 thousand, which made ROL 1,405,425 thousand. In this case, BEGA ELECTROMOTOR SA has no goodwill or other intangible assets. That is why rates of net worth and net tangible assets are equal On 31.12.2011. On 31.12.2011, the net worth (net assets) of BEGA ELECTROMOTOR SA is significantly higher (by 74.2%) than the share capital. Such a ratio meets common requirements, according to which the net worth (net assets) should not be less than the share capital of the company. The net worth (net assets) value is used as one of the tools to estimate the company's value (used together with other methods, such as discounted cash flow method, or an estimation based on shareholder's value etc.). But it is a key value in the estimation of the company's financial condition.
Change The indicator description and its recommended (col.3-col.2) value 01.01.2011 31.12.2011
2 3 4 5
Value
A debt-to-equity ratio is calculated by taking the total liabilities and dividing it by shareholders' equity. It is the key financial ratio and used as a standard for judging a company's financial standing. Normal value: 1.5 or less (optimum 0.43-1). A debt ratio is calculated by dividing total liabilities (i.e. long-term and short-term liabilities) by total assets. It shows how much the company relies on debt to finance assets (similar to debt-to-equity ratio). Acceptable value: 0.6 or less (optimum 0.3-0.5). This ratio is calculated by dividing long-term (non-current) liabilities by equity. This ratio is calculated by dividing long-term (non-current) liabilities by net worth (equity) and measures the extent of a company's investment in low-liquid non-current assets. This ratio is important for comparison analysis because it's less dependent on industry (structure of company's assets) than debt ratio and debt-to-equity ratio. Normal value: no more than 1.25. Calculated by dividing non-current liabilities by the sum of equity and non-current liabilities. This ratio indicates the extent to which the owners' cash is frozen in the form of fixed assets, such as property, plant, and equipment, investment property and non-current biological assets. Acceptable value: 0.75 or less. Current liability ratio is calculated by dividing non-current liabilities by total (i.e. current and non-current) liabilities.
0 0.74
0 0.72
-0.02
0 0.74
0 0.72
-0.02
Firstly, attention should be drawn to the debt-to-equity ratio and debt ratio as the indicators describing the capital structure. Both ratios have similar meaning and indicate that if there is not enough capital (equity) for stable work for the company. Debt-to-equity ratio is calculated as a relationship of the borrowed capital (liabilities) to the equity, while debt ratio is calculated as a relationship of the liabilities to the overall capital (i.e. the sum of equity and liabilities). On the last day of the period analysed, the debt-to-equity amounted to zero. The debt ratio did not change and remained on the level of 0 for the last year. According to the debt ratio, the percentage of the borrowed capital (liabilities) is significantly lower than the admissible value and makes 0% of overall capital at the end of the period reviewed. On the one hand it positively describes the financial situation of BEGA ELECTROMOTOR SA. On the other hand it says about missed opportunities to use borrowed capital for the extension of activity and acceleration of development rates. The company can increase the percentage of credits and debts without damage to its' financial situation if a plan on efficient use of additional capital is available. According to the principles of stable company development, investments with the least liquid assets
(non-current assets) should firstly be made with help from the most long-term sources of financing, i.e. with the help of owned capital (equity). An indicator of this rule is the non-current assets to net worth ratio. During the whole reviewed period, the ratio slightly fell (to 0.72; -0.02). On 31 December, 2011, the value of the ratio can be characterised as obviously excellent.
31.12.2011 (col.3-col.2)
3 4
1. Working capital (net working capital), thousand ROL 2. Inventories, thousand ROL 3. Working capital sufficiency (1-2), thousand ROL 4. Inventory to working capital ratio (2:1) Acceptable value: 1 or less.
+X,XXX,XXX
+X,XXX,XXX
+XXX,XXX
The working capital was equal to ROL X,XXX,XXX thousand on 31 December, 2011. During the year, it was monitored that there was a marked growth in the working capital, which made ROL +XXX,XXX thousand. According to calculations, working capital fully covers the inventories of the company and is deemed to be a positive factor. At the end of the period analysed, the inventory to working capital ratio was equal to X.XX. Such a correlation is deemed to be normal, although it can be achieved through warehouse inventories that are too low, but not through enough of long-term resources of financing in some cases.
Value
The current ratio is calculated by dividing current assets by current liabilities. It indicates a company's ability to meet short-term debt obligations. Normal value: no less than 2. The quick ratio is calculated by dividing liquid assets (cash and cash equivalents, trade and other current receivables, other current financial assets) by current liabilities. It is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Acceptable value: 1 or more. Cash ratio is calculated by dividing absolute liquid assets (cash and cash equivalents) by current liabilities. Acceptable value: 0.2 or more.
3. Cash ratio
At the end of the period analysed, the current ratio was equal to zero. During the entire period analysed, a
change in the current ratio was not noticed. On 31.12.2011, the value of the ratio can be deemed as a satisfactory one. At the end of the period reviewed, the quick ratio was equal to zero, having stayed at the same level as on the first day of the period analysed (01 January, 2011). At the end of the period, the value of the quick ratio can be deemed as a normal one. It means that BEGA ELECTROMOTOR SA has enough assets which can be transferred to cash in a very short time to meet current liabilities. Like the two previous rates, the cash ratio has a normal value () at the end of the period analysed which demonstrates that the company has enough liquid assets (cash and cash equivalents) to meet current liabilities.
2. Financial Performance
2.1. Overview of the Financial Results
The main financial results of BEGA ELECTROMOTOR SA's activities are given in the table below for the last year and also for the same period as last year. Value, thousand ROL Indicator
1
2010
2011
1. Revenue 2. Cost of sales 3. Gross profit (1-2) 4. Other income and expenses, except Finance costs 5. EBIT (3+4) 5a. EBITDA 6. Finance costs 7. Income tax expense (from continuing operations) 8. Profit (loss) from continuing operations (5-6-7) 9. Profit (loss) from discontinued operations 10. Profit (loss) (8+9) 11. Other comprehensive income 12. Comprehensive income (10+11)
10,268,109 9,821,479 10,668,881 10,913,885 -400,772 -400,772 130,420 -400,772 -1,092,406 -1,092,406 -523,911 8,250 -1,100,656
-4.3 +2.3
The revenue made ROL 9,821,479 thousand for the 2011; that is moderately lower (ROL -446,630 thousand) than for the same period of the previous year. The diagram below demonstrates the change in revenue and a comprehensive income for BEGA ELECTROMOTOR SA. For the year 2011, the gross loss was equal to ROL -1,092,406 thousand. In comparison with the previous financial year, the gross profit was seen to have a rapid lessening of ROL 691,634 thousand. The comprehensive loss of BEGA ELECTROMOTOR SA made ROL 1,100,656 thousand in total during the year.
Value in %
1. Gross margin. 2. Return on sales (operating margin). 3. Profit margin. Reference: Interest coverage ratio (ICR). Acceptable value: 1.5 or more.
All three profitability ratios given in the table have negative values during the year, as the company had losses from sales, operational and financial activities for this period. For the 2011, the gross margin equalled -XX.X%; it is much lower (-X.X%) than for the same period of the previous year. The profitability calculated by earnings before interest and taxes (Return on sales) is more important from a comparative analyses point of view. For the 2011, the return on sales made -0.11 (or -11.1% per annum), and profitability calculated by final financial results (net profit) made -11.2% per annum.
Profitability ratios
1
Value, % 2011
2
-X.X
ROE is calculated by taking a year's worth of earnings (net profit) and dividing them by the average shareholder equity for that period, and is expressed as a percentage. It is one of the most important financial ratios and profitability metrics. Acceptable value: 12% or more. ROA is calculated by dividing net income by total assets, and displayed as a percentage. Acceptable value: no less than 6%. ROCE is calculated by dividing EBIT by capital employed (equity plus non-current liabilities). It indicates the efficiency and profitability of a company's capital investments.
-X.X -X.X
For the year 2011, the return on assets has an unsasfactory value of -X.X%. A key indicator of business profitability is the return of equity (ROE), i.e. return from money invested by the owners. For the year 2011, a return on equity made -5.2% per annum. A negative rate value was as a result of a comprehensive loss obtained during the year.
Ratio 2011
3
103 0
3.5
Asset turnover
(average total assets divided by average daily revenue)
Capital turnover
(average equity divided by average daily revenue)
According to the table, the average collection period (days sales outstanding), calculated based on the data during the year, was 103 days, while average repayment period for credit debts (days payable outstanding) was 0 days. The rate of asset turnover means that BEGA ELECTROMOTOR SA gains revenue equal to the sum of all the available assets for 785 days (on average during the reviewed period).
3. Conclusion
3.1. Key Indicators Summary
The main financial state indicator values and BEGA ELECTROMOTOR SA's activity results are classified by qualitative assessment according to the results of the analysis for the year and are given below. The analysis discovered the following excellent financial rates:
q q q
the value of the non-current assets to net worth ratio equal to 0.72 can be specified as very good the net worth (net assets) of the company significantly exceeds (by 74.2%) the share capital on 31.12.2011 long-term resources of the financing of the company's activity are enough to form a normal amount of working capital which would cover the available inventories
The BEGA ELECTROMOTOR SA's financial situation is positively described with the following rate the debt-to-equity ratio and debt ratio demonstrate good values, but say about too cautious attitude of BEGA ELECTROMOTOR SA to use of the borrowed capital, which makes only 0% of the total balance of the company. There is one rate with a marginally acceptable value obtained during the analysis the increase in equity during the period analysed was lower than the growth rates of total assets. One can show the following financial rates of BEGA ELECTROMOTOR SA with critical values:
q q q
critical return on equity (-5.2% per annum for the year) critical return on assets, which made -5.2% for the entire period analysed the company reported a loss in earnings before interest and taxes (negative EBIT) to the amount of ROL 1,092,406 thousand during the last year, at the same time, a negative dynamics of the rate (ROL -691,634 thousand compared with the previous value was observed comprehensive loss from financial and operational activities made ROL 1,100,656 thousand for the last year
3.2. Rating of the Financial Position and Financial Performance of BEGA ELECTROMOTOR SA
Financial performance for the period analysed AAA (01.0131.12.2011) Excellent (AAA) Very good (AA) Good (A) Positive (BBB) Normal (BB) Satisfactory (B) Unsatisfactory (CCC) Adverse (CC) Bad (C) Critical (D) Financial position on 31.12.2011 AA V A BBB BB B CCC CC C D Final rating of the financial condition of BEGA ELECTROMOTOR SA (period analysed: from 01.01.2011 to 31.12.2011 according to the data of the one reporting period):
BB
(normal)
According to the results of the conducted analysis, the financial position of BEGA ELECTROMOTOR SA was assessed at a score scale in +1.33, which corresponds to the AA rating (very good position). The financial results of the company's activities were scored at -1.8 for the whole reviewed period, which corresponds to the D rating (critical results). One should mention that final scores are calculated considering both rates at the end of the period analysed and rates dynamics, including their forecasted values for the next year. The final score of the financial condition, which includes analysis of the company's financial position and financial performance, makes +0.08, which equals the rating scale to a normal (BB) condition. "BB" describes the financial condition of a company when the majority of rates are normal. Companies with this rating should be considered as business partners who will need to be treated carefully when managing risks. These companies can lay a claim to obtain credit but a decision mainly depends on the analysis of additional factors (neutral creditworthiness). One should mention, that this rating is made by analysing financial data during the entire period analysed. But it is necessary to make an analysis of a company's activity for at least the last 2-3 years to obtain enough objective results.
4. Appendix
4.1. Bankruptcy Test (Altman Z-score)
The Altman Z-score is a rate predicting the probability that the company will go into bankruptcy in the near future. The Z-score is calculated according to the following formula (a 5-factor model for private manufacturing firms is taken for BEGA ELECTROMOTOR SA): Z-score = X.XXXT1 + X.XXXT2 + X.XXXT3 + X.XXT4 + X.XXXT5 , where Ratio
1
Calculation
2
Weighting factor
4
T1 T2 T3 T4
Working Capital / Total Assets Retained Earnings / Total Assets Earnings Before Interest and Taxes / Total Assets Equity / Total Liabilities
X.XX 0 -X.XX XX
T5
X.XX
X.XXX
X.XX X.XX
Zones of Discrimination:
q q q
1.23 or less Distress Zone from 1.23 to 2.9 Grey Zone 2.9 or more Safe Zone
According to calculations, on 31.12.2011, the Z-score equalled X.XX for BEGA ELECTROMOTOR SA. It means that the probability of BEGA ELECTROMOTOR SA's bankruptcy is insignificant.
The final rating score of BEGA ELECTROMOTOR SA's financial condition: (+1.333 x 0,6) + (-1.8 x 0,4) = +0.08 (BB - normal) Reference: Financial condition scale Total score from 2 1.6 1.2 0.8 0.4 0 -0.4 -0.8 -1.2 -1.6 to
(inclusive)
Sign The qualitative assessment of a financial condition AAA AA A BBB BB B CCC CC C D Excellent Very good Good Positive Normal Satisfactory Unsatisfactory Adverse Bad Critical
The report was prepared by the financial analysis software. Date: 30-05-2012 09:19
Extra Tables
Analytic Balance sheet
Indicators
1
Value*
2
01.01.2011
3
31.12.2011
4
Non-current assets
15,010,917
15,712,673
x x 73.6% 15,010,917
x x 73.6% 5,396,340
Current assets
x x 26.4% 2,618,358
Current inventories
x x 12.8%
2,634,982
2,904,405
x x 12.9% 54,295
x x 0.3% 20,066
x x 0.1% 68,639
x 0.3% 20,407,257
Equity
x x 100%
12,121,296
12,522,068
x x 59.4% 8,285,961
Other reserves
x x 40.6% 20,407,257
x x
+1,405,425 +6.9%
* Line "% of total" indicates percentage ratio of the item to the total assets.
Value
2
2010
3
2011
4
Revenue
10,268,109
9,821,479
x x
-446,630 -4.3%
Cost of sales
10,668,881 10,913,885
x x
+245,004 +2.3%
Gross profit
-400,772
-1,092,406
x x -400,772
-691,634 -1,092,406
x x -400,772
-691,634 -1,092,406
x x
-691,634 8,250
x x -400,772
+8,250 -1,100,656
x x -400,772
-699,884 -1,100,656
Profit (loss)
x x
-699,884
COMPREHENSIVE INCOME
-400,772
-1,100,656
x x
-699,884