Discuss About The Comparison Steel Cement Industries Of India?
This analysis entails assessment of an organization capacity to settle all its short-term financial needs (Sharma & Sharma, 2014). The key ratios that are used in measuring Gelato Industries liquidity level include current and quick ratios.
This ratio is used in measuring an organization’s capacity in repaying all its short-term debt obligations such as salaries payables and accounting payables (Sharma & Sharma, 2014). Here, a higher current ratio shows higher liquidity status of an organization while a lower one shows less liquidity status. Based on the financial information of Gelato Industries, it is evident that its current ratio for the financial year 2014 was 63,125/34375 = 1.84.
The ratio is very significant in measuring an organization’s short term liquidity and in measuring an organization’s capacity to settle its short-term debts using quick assets (Sharma & Sharma, 2014). With these considerations, Gelato Industries quick ratio for the financial year 2014 was (63,125-36,250)/34375 = 0.78.
On overall, based on the current and quick ratio for the year 2014, it is clear that Gelato was financially liquid in that its current assets and quick ratio were relatively higher indicating its capacity to settle its short-term debts.
This analysis is used in assessing financial growth and health of an organization (Akhtar, 2014). The analysis helps in measuring how an organization finances its operations and growth through different sources of finances.
This ratio shows financial leverage of an organization. It usually indicates percentage of total assets that is financed by total liabilities (Arnold, 2011). Here, a higher debt ratio is said to shows greater leverage and high financing risk. With these considerations, Gelato Industries debt ratio for the financial year 2014 was70,313/140,625= 0.50.
This ratio helps in evaluating how easily a given firm could pay off its interest expenses. It is computed by dividing operating profit (EBIT) by its interest expenses (Arnold, 2011). In essence, interest coverage helps in measuring number of times an organization could settle its outstanding debts by using its net profit. With these considerations, Gelato Industries interest coverage for the financial year 2014 was18,000/5,719= 3.15
On overall, given the fact that Gelato Industries’ debt ratio was relatively low, below 1, it can be stated that the company leverage is low and there is also low financing risk. On the other hand, given that its interest coverage was relatively high it is clear that Gelato is able to finance its interest expenses.
This analysis shows or indicates how an organization generates profits (AlEid, 2015). In essence, profitability analysis entails utilization of profitability ratios such as operating profit margin, ROE, ROA and asset turnover in evaluating profitability of the organization.
This ratio emanates proportion of an organization’s revenue that is remaining after deduction of variable costs (AlEid, 2015). Thus, high operating margin is usually desirable for an organization in enabling paying fixed expenses like interest on debts, vital portion in improving its leverage and in building trust in investors. As a result, Gelato Industries operating profit margin for the financial year 2014 was 18,000/112,500= 0.16 or 16%
This financial ratio is crucial to investors since it help in measuring an organization’s success to generate income or profit for the benefit of the common shareholders (AlEid, 2015). As a result, Gelato Industries ROE for the financial year 2014 was 18,000/70,312*100%= 25.60%.
The ROA is usually important in measuring organization’s management efficiency in utilizing its assets to generate income (AlEid, 2015). Basically, ROA is used in measuring efficiency of an organization in its assets management. With these considerations, Gelato Industries ROA for the financial year 2014 was 18,000/140,625*100%= 12.80%.
On overall, it can be stated that Gelato was profitable enough given that it had high ROE, ROA and operating profit margin. Basically, with a high ROE and ROA, it is evident that Gelato management is effective enough in generating income from assets and from shareholder’s equity.
This analysis is used in assessing how efficiency and effectively an organization is in managing assets to generate revenue (AlEid, 2015). The key ratios used in assessing Gelato Industries asset management efficiency are inventory turnover, fixed assets turnover, asset turnover and average collection turnover
The ratios is used in measuring the number of times assets could be used in accomplishing total turnover and is calculated by subdividing total sales by its total assets (AlEid, 2015). As from, Gelato Industries financial statements, it is evident that the company asset turnover for the financial year 2014 was 112,500/140,625= 0.80;
This ratio is used in assessing number of times an entity’s fixed assets are used in accomplishing turnover and is calculated by subdividing total sales with its fixed assets (Sanghani, 2014). In essence, fixed asset turnover is useful in measuring how efficiently an organization utilizes its fixed assets in generating revenue or sales. It helps in measuring efficiency of an organization’s operations. From Gelato Industries financial statements, it is evident that the company fixed asset turnover for the financial year 2014 was 112,500/77,500= 1.45.
It is utilized in assessing how many times inventories are converted or sold. This is computed by dividing an organization’s COGS with its total inventories (Sanghani, 2014). A high number means that there is risk of stock-out. Based Gelato Industries financial statements, it is evident that the company inventory turnover for the financial year 2014 was 112,500/36,250= 3.10.
This ratio is used in measuring number of days it would take for an organization to collect amount on credit from debtors. Here, lower number is more preferred than higher number since it implies that the firm is getting its cash more quickly (Sanghani, 2014). The ratio is computed by dividing number of days in a year by receivable turnover. From the financial statements provided, it is evident that Gelato Industries’ average collection period for the financial year 2014 was 365/(112,500/15,625)= 50.69 days.
Based on the asset management efficiency analysis above, it is evident that Gelato is efficient in managing its assets to generate sales. To be more specific, it is evident that the company is efficient on how it manages its receivable collection and asset utilization.
Earnings per share also referred to as EPS is the proportion of an organization’s profit that is allocated to every share outstanding. It usually serves as the signal of an organization’s profitability (Sanghani, 2014). This ratio is crucial in determining the stock value. It is usually computed by dividing net income or profit by number of outstanding shares. Thus, in this case, Gelato industries EPS for the year 2015 = net profit/share outstanding = 22,884/5000= 4.58.
The Price-earnings ratio is a crucial financial ratio that is used in assessing an organization by measuring its present share price in relation to its EPS. With these considerations, price-earnings ratio for Gelato would be= price per share/EPS =15/4.58=3.28.
The market-to-book value or the price to book value is the financial ratio used in assessing an organization’s current market value in relation to its book value. It is used in measuring an organization’s market price relative to book value (Arbidane, 2015). Basically, it shows how much equity different investors are paying for every dollar in the total assets. Here, market value is usually the present stock price of all the outstanding share whole book value is usually the amount that is left in case an organization is liquidated. In essence, book value is equivalent to net assets of an organization (AlEid, 2015).Thus, market to book value of Gelato Industries is equal to = price per share divided by the book value or BV per share. The book value per share =different between assets and liabilities divided by share outstanding= (195,000-119535)/5000=75,465/5000=15.093. Thus, given that the book value per share is equal to 15.093, the market to book value for the company would be; price/BV = 15/15.093= 0.99
As from the analysis on section a and b above, it is evident that Gelato is performing relatively well in terms of its assets management and its capital structure. In addition, it is also clear that Gelato is profitable enough due to its high operating profit margin. The high ROA and ROE is also a clear signal of the profitability of the company in terms of equity and asset utilization to generate income. It is also evident from Gelato liquidity analysis that the company was having easier time in settling its short-term debt commitments.
By looking at section c above particularly on the EPS results, it is evident that Gelato Industries was profitable enough. This is evidence by relatively high EPS which shows that there is high profit allocated to outstanding shares. Further, given that the P/E ratio for Gelato for the financial year 2015 was relatively high at 3.28, it is evident that Gelato is financially healthy. In essence, the high P/E ratio is a clear indication that Gelato Industries expect to post higher returns growth in future. Furthermore, the observations on the section c on P/E ratios show that the stock is currently overpriced. Further, based on the calculations in section c above, it is evident that Gelato Industries stocks are undervalued. This is evidence by the fact that its market to book value for the financial year 2015 was below 1.
Warren Buffett’s advices on investment are timeless. One might loss tract on investment or might make several investment mistakes, but all of them fall under different investment tips provided by Warren. The world’s greatest investor for a long time has never been at any time shy on strategies that assisted or aided him accumulate the $72 billion and his growing company, Bershire Hathaway, into the juggernaut prized at more than $212 billion (YouTube, 2017). Nonetheless, Warren does not encourage average individual investors in trying to mimic his key success.
In his YouTube featuring interviews, a number of points that Warren makes in relations to investments. Some of these issues include advice on the worst investment one can make. In his commentary, the worst investment one can make is investing in cash over time. Basically, individuals always tend to keep sufficient cash so as to feel comfortable, but this is not necessarily because they like cash (YouTube, 2017). The second point is that to be a successful investor, one should focus on competition as well. In his commentary, Warren stated that in case one is determined in picking stocks, s/he should not venture in those businesses s/he does not understand. Thus, from his advices, it is good for one to take time to under a given business before making any investment move. Further, it is good while making any investment to have trust in oneself. One has to divorce himself from all greed and fears of individuals around them. This makes it easier for them to make better investments (YouTube, 2017)
References
Akhtar, N. (2014). Impact of efficient management of working capital on profitability: chemical companies listed at the KSE. Pakistan Business Review, 333.
AlEid, A. B. M. (2015). A Financial Statement Analysis on Three Major Construction Companies in the UAE (Arabtec Holding PJSC, Drake & Scull PJSC and Emaar Properties PJSC) (Doctoral dissertation, The British University in Dubai (BUiD)).
Arbidane, I. (2015). Management of current assets in the context of increasing the Enterprise’s Profitability. In Proceedings of the 10th International Scientific and Practical Conference. Volume II (Vol. 27, p. 34).
Arnold, T. (2011). Putting Ratios into a Firm Value Context for Entrepreneurs and Entrepreneurship Students. The Journal of Entrepreneurial Finance, 15(2), 23.
Sanghani, D. A. (2014). The Effect of Liquidity on the Financial accounting Performance of Non-Financial Companies Listed At the Nairobi Securities Exchange. Unpublished MBA Project.
Sharma, V., & Sharma, R. (2014). Relationship between working capital management and profitability: A comparison of steel and cement industries of India. International Journal of Management, IT and Engineering, 4(8), 211.
YouTube. (2017). Warren Buffet Best Advice on Successful Investing: Retrieved at 19th September 2017 from; https://www.youtube.com/watch?v=_5VQPIeZhMc
YouTube. (2017). Warren Buffet Financial Rules to Live By: Retrieved at 19th September 2017 from; https://www.youtube.com/watch?v=gUAtVyWS_4Y
YouTube. (2017). Warren Buffet on Why He’ll Never Sell a Share of Coke Stock: Retrieved at 19th September 2017 from; https://www.youtube.com/watch?v=4p1_5bZ8I4M
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