2- Financial Statement Analysis

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)