Sharjah Cement and Industrial Development Company: The Ratio Analysis

Executive Summary

This report covers the ratio analysis of Sharjah Cement and Industrial Development Company. The ratios covered include profitability, liquidity, asset management, and debt management ratios.

The report concludes that Sharjah Cement and Industrial Development Company is profitable, liquid, and has a low gearing level.

Introduction

The company selected for ratio analysis is Sharjah Cement and Industrial Development Company. It is situated on the Sharjah-Dhaid road near Sharjah city in the United Arab Emirates. It operates limestone quarries from which it extracts the cement. It also manufactures paper sacks and synthetic ropes (Sharjah Cement & Industrial Development Company).

Ratio Analysis for Sharjah Cement and Industrial Development Company

Companies produce financial statements to communicate with their stakeholders about their financial performance. This information is usually summarized by the balance sheets and the income statements. However, in order to produce sufficient information for decision-making, financial analysis becomes necessary (Jackson, Sawyers and Jenkins 494). Ratio analysis is one form of financial analysis. The ratios extracted from the financial statements include profitability, liquidity, debt management, leverage, and asset management ratios. Some of the ratios are analyzed for Sharjah Cement and Industrial Development Company in appendix 3.

Profitability ratios

Profitability ratios show the ability of companies to provide a return on the capital injected (Narayanaswamy 543). The gross profit margin shows the part of sales that remains after meeting the production costs. The net profit margin indicates the proportion of revenue left after the payment of operating expenses. The gross and net profit margins for Sharjah Cement and Industrial Development Company for the year 2013 were 8.42 and 7.86 percent respectively.

The return on assets ratio shows the amount of profit earned by each monetary unit of assets. The profit earned by shareholders’ funds is measured using the return on equity ratio. All the above ratios were positive for the year 2013. The ratios were also positive for the year 2012, but less in value (see appendix 3). This increase shows an improvement in the performance of the Company.

Liquidity ratios

The liquidity ratios measure the ability of businesses to repay their debts falling due within the next twelve months of operation (Gitman and McDaniel 392). The amount of finances available to repay creditors’ funds is measured using the current and quick ratios. A current or quick ratio of below 1.0 is an indication of a poor liquidity position. For Sharjah Cement and Industrial Development Company, the current ratios during the two years (2012 and 2013) were above 1.0; an indication of a good liquidity position. However, the quick ratios were below 1.0, but the trend was towards improvement.

Debt management/Leverage ratios

Debt management ratios measure a company’s use of debt in its capital structure (Crowther 58). In the year 2013, Sharjah Cement and Industrial Development Company had a debt to equity ratio and a borrowing ratio of 3.09 and 2.34 respectively. The same ratios were 0.0 in the year 2012. The equity to assets ratio for the year 2013 was 75.85; an increase from 74.78 in 2012. The company was, therefore, not highly geared as it was financed mainly by equity capital.

Asset Management ratios

Asset management ratios show whether the persons entrusted with the management of the assets of the company utilize those assets effectively to make profits (Jackson, Sawyers and Jenkins 508). The profit from each monetary unit of assets is measured using the asset turnover ratio. Inventory turnover ratio shows the pace at which stock was produced and sold in the company (Juan 384). For Sharjah Cement and Industrial Development Company, the asset turnover and inventory turnover ratios were almost constant during the financial years 2012 and 2013, an indication of consistency in the management of assets.

Conclusion

Ratio analysis is an important tool for the managers and other stakeholders as it enables them to interpret the performance of the company for purposes of decision-making. Sharjah Cement and Industrial Development Company is profitable, liquid, not highly geared, and has effective techniques for managing its assets as shown by its ratios.

Works Cited

Businessweek.com. Sharjah Cement & Indus Devel (SCIDC:Abu Dhabi). 2014. Web.

Capital Cube. Sharjah Cement and Industrial Development Company (PSC) . 2014. Web.

Crowther, David. Managing Finance. Burlington: Elsevier Butterworth-Heinemann, 2007. Print.

Gitman, Lawrence and Carl McDaniel. The future of business : the essentials. Mason: South-Western Cenage Learning, 2009. Print.

Jackson, Steve, Roby Sawyers and Gregory Jenkins. Managerial accounting : a focus on ethical decision making. Mason: South-Western, 2009. Print.

Juan, Donatila Agtarap-San. Fundamentals of accounting : basic accounting principles simplified for accounting students. Bloomington: AuthorHouse, 2007. Print.

Narayanaswamy, R. Financial accounting : a managerial perspective. New Delhi: PHI Learning, 2008. Print.

Sharjah Cement & Industrial Development Company. Home. 2014. Web.

Appendices

Sharjah Cement and Industrial Development Company balance sheet data.

31/12/2013 (AED ‘000’) 31/12/2012 (AED ‘000’)
Cash
Inventories
Account Receivable
Other Current Assets
37,474
313,479
203,144
N/A
56,038
288,725
194,292
N/A
Current Assets 566,296 549,457
Current Liabilities 387,806 422,398
Total Assets 1,883,814 1,755,287
Working Capital 178,490 127,059
Capital 552,958 552,958
General reserves
Other reserves
226,373
N/A
226,373
N/A
Long Term Debt 44,100 N/A
Total Liabilities 454,874 442,695
Owners’ equity 1,428,940 1,312,592
Equity + Liabilities 1,883,814 1,755,287

Sharjah Cement and Industrial Development Company Income Statement data.

31/12/2013 (AED ‘000’) 31/12/2012 (AED ‘000’)
Sales 624,592 614,948
Cost of Sales 572,032 571,576
Gross Profit 52,560 43,372
General Administrative Expenses 15,642 15822
Other Income 206 1,966
Other Expenses 16,063 17,360
Depreciation and Amortization 48,138 50,765
Pre-tax Profit 49,067 24,200
Net Profit 49,067 24,200
Total Dividends 27,648 27,648

Yearly Financial Ratios.

Ratio Formula 31/12/2013 31/12/2012
Gross Profit Margin (%) Gross profit × 100
Sales
8.42 7.05
Net Profit Margin (%) Net Profit × 100
Sales
7.86 3.94
Return on Assets (%) Net Profit × 100
Total Assets
2.60 1.38
Return on Equity (%) Net Profit × 100
Shareholders’ Equity
3.43 1.84
Asset Turnover (%) Net Sales × 100
Average Total Assets
33.16 35.03
Inventory Turnover (%) Cost of Sales
Average Inventory
1.90 1.97
Current Ratio Current Assets
Current Liabilities
1.46 1.30
Quick Ratio Current Assets – Stock
Current Liabilities
0.65 0.62
Borrowing Ratio (%) Total Borrowings × 100
Net Worth
2.34 0
Debt to Equity (%) Long Term Debt × 100
Shareholders’ Equity
3.09 0
Equity to Assets (%) Equity × 100
Total Assets
75.85 74.78
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