Instructions:

Use 5 years’ financial statements for 2 listed companies in Dubai or Abu Dhabi Exchange from the same industry ( adnoc and enoc)

Conduct 5 key areas of these firms’ performance analysis using following financial ratios:

Liquidity ratios [Ability to meet the short-term financial obligations]
Solvency ratios: (also known as financial leverage ratios) [Ability to meet the long-term financial obligations]
Asset management ratios [Efficiency in managing firms’ assets to generate sales]
Profitability ratios [Accounting performance]
Market value ratios [Market performance]
Conduct a Du Pont analysis [This the breakdown of the return on equity into its three components, i.e. profit margin, turnover, and leverage].

Write your comments in comparing these two companies based on five groups of ratios plus the Du Pont Analysis.

Financial Ratios:

Profitability ratios

1. Profit margin: Net Income/Sales

2. Return on assets: Net Income/Total Assets

3. Return on equity: Net Income/Shareholders’ Equity

Asset utilization ratios

4. Receivable turnover: Sales/Accounts Receivables

5. Accounts Receivables Days: Accounts Receivables/Average Daily Sales

6. Inventory turnover: Cost of Goods Sold/Inventory

7. Average Payable Days: Accounts Payable/Average Daily Cost of Goods Sold

8. Fixed asset turnover: Sales/Fixed Assets

9. Total asset turnover: Sales/Total Assets

Liquidity ratios

10. Current ratio: Current Asset/Current Liability

11. Quick ratio: (Current Asset – Inventory)/Current Liability

12. Cash Ratio = Cash / Current Liability

Debt utilization ratios

13. Debt to Equity: Long-term Debt/Shareholders’ Equity

14. Debt to total assets (debt ratio): Total Liabilities/Total Assets

15. Times interest earned: EBIT/Interest Expense

Market value ratios

16. Earnings per share (EPS): Net Income/No of Shares Outstanding

17. Price/Earnings (P/E) ratio: Market Capitalization/Net Income OR Price per Share/Earnings per Share (EPS)

18. Market/Book (M/B) ratio: Market Value per Share/Book Value per Share

19. Dividend Payout Ratio= Dividend/Net Income

DuPont Analysis:

Involves breaking down ROE into three components of the firm:

20)a) Operating efficiency, as measured by the profit margin (net income/sales);

20)b) Asset management efficiency, as measured by asset turnover (sales/total assets); and

20)c) Financial leverage, as measured by the equity multiplier (total assets/total equity).

Retrun on Equity=(Net Income)/Sales X Sales/(Total Assets) X (Total Assets)/(Total Equity)=(Net Income)/(Total Equity)