1) Three critical points are highlighted below.
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7) Three critical points are highlighted below.
8) The main points from the above discussion are below.
The various ratios are computed below.
Formula Used = (Gross Profit/Sales Revenue)*100
Gross Profit Margin (2017) = (13055/47631)*100 = 27.41%
Gross Profit Margin (2016) = (13097/49810)*100 = 26.29%
Gross Profit Margin (2015) = (13312/48385)*100 = 27.51%
The gross margins are the highest in 2015 while they are the lowest in 2016. In 2017, the company has improved on the gross margins as compared to the previous year.
Formula Used = (Operating Profit/Sales Revenue)*100
Operating Profit Margin (2017) = (3725/47631)*100 = 7.82%
Operating Profit Margin (2016) = (1320/49810)*100 = 2.65%
Operating Profit Margin (2015) = (2073/48385)*100 = 4.28%
The operating margins are the highest in 2017 while they are the lowest in 2016. In 2017, the company has improved on the operating profit margins as compared to the previous year.
Formula Used = (Net Profit/Sales Revenue)*100
Net Profit Margin (2017) = (-1972/47631)*100 = -4.14%
Net Profit Margin (2016) = (-5127/49810)*100 = -10.29%
Net Profit Margin (2015) =(7805/48385)*100 = 16.31%
The net profit margins are the highest in 2015 while they are the lowest in 2016. In 2017, the company has improved on the net profit margins as compared to the previous year.
Formula Used = (COGS/ Inventory)
Inventory Turnover (2017) = (34576/576) = 60.03
Inventory Turnover (2016) = (36513/716) = 51.00
Inventory Turnover (2015) = (35073/667) = 52.58
It is apparent that the inventory turnover for the company has reduced in 2016 but has increased in 2017 which augers well for the company as it reduces the days required to convert inventory into sales.
Formula Used = (Sales Revenue/Total Assets)
Total Asset Turnover (2017) = (47631/154684) = 0.308
Total Asset Turnover (2016) = (49810/169107) = 0.294
Total Asset Turnover (2015) = (48385/169579) = 0.285
The asset turnover ratio has improved during the given period from 2015-2017 which is apparent from the above computations and augers well for the asset utilisation.
Formula used = Current Assets/Current Liabilities
Current Ratio (2017) = (25542+ 17195)/(30595+11794) = 1.01
Current Ratio (2016) = (31938+ 3657)/(41797+438) = 0.84
Current Ratio (2015) = 27457/39979 = 0.69
From the above, it is apparent that over the period 2015-2017, there has been an improvement in the current ratio of the company which augers well for the short term liquidity.
Formula Used = Total Liabilities/Total Equity
Debt to Equity Ratio (2017) = (154684-73719)/73719 = 1.10
Debt to Equity Ratio (2016) = (169107-85136)/85136 = 0.99
Debt to Equity Ratio (2015) = (169579-93708)/93708 = 0.81
From the above, it is apparent that over the period 2015-2017, there has been an deterioration in the debt to equity ratio as the balance sheet has become more leveraged amidst reducing contribution from equity to assets.
Formula Used = (Current Assets-inventories)/Current Liabilities
Acid Test Ratio (2017) = (25542+ 17195 – 576)/(30595+11794)= 0.99
Acid Test Ratio (2016) = (31938+ 3657-716)/(41797+438) = 0.83
Acid Test Ratio (2015) = (27457-667)/39979 = 0.67
From the above, it is apparent that over the period 2015-2017, there has been an improvement in the acid test ratio of the company which augers well for the short term liquidity.
Formula Used = (Net profit/Total outstanding shares)
EPS (2017) = -€ 0.2251
EPS (2016) = -€ 0.2025
EPS (2015) = € 0.2733
From the above, it is apparent that EPS for the company has deteriorated for the company during 2015-2017 which may be attributed to falling topline owing to which there has been loss for the company in FY2016 and FY2017.
Formula Used = (Total Dividends Paid/Total outstanding shares)
DPS (2017) = € 0.1477
DPS (2016) = € 0.1448
DPS (2015) = € 0.1419
On the basis of the above, it is apparent that there has been increase in the DPS during the period 2015-2017 which augers well for the shareholders. This is despite the fact that company made losses in 2016 and 2017.
Formula Used = (EBIT/Interest Expense)
Interest Coverage Ratio (2017) = (3725/1406) = 2.65
Interest Coverage Ratio (2016) = (1320/2046) = 0.65
Interest Coverage Ratio (2015) = (2073/1399) = 1.48
On the basis of the above, it is apparent that there is no particular trend as the interest coverage ratio has slumped in 2016 but has shown significant improvement in 2017. However, going forward the company should ensure to stabilise this at the FY2017 level.
Formula Used = Total Liabilities/Total assets
Debt to Total Assets Ratio (2017) = (154684-73719)/154684 =0.52
Debt to Total Assets Ratio (2016) = (169107-85136)/169107 =0.50
Debt to Total Assets Ratio (2015) = (169579-93708)/169579 =0.45
From the above, it is apparent that over the period 2015-2017, there has been an deterioration in the debt to assets ratio as the balance sheet has become more leveraged amidst increasing contribution from debt towards assets.
Formula used = (Dividends/Net Income)*100
Dividend pay-out ratio (2017) = (3714/-6079)*100 = -61.1%
Dividend pay-out ratio (2016) = (4188/-5122)*100 = -81.76%
Dividend pay-out ratio (2015) = (3758/7477)*100 = 50.26%
It is evident that there the dividend pay-out ratio is positive in 2015 and cannot be compared with the subsequent years i.e. 2016 and 2017 as in these years the company has made losses.
Formula used = Cash flow from operating activities + Current Liabilities
Free Cash-Flow Ratio (2017) (€) = 14,223 + 30595 = 44,818 million
Free Cash-Flow Ratio (2016) (€) = 14,336 + 41797 = 56,133 million
Free Cash-Flow Ratio (2015) (€) = 12,668 + 39979 = 52,647 million
It is evident that there is no particular pattern with regards to free cash flow ratio but it is worse in 2017 as compared to 2016.
Formula Used = Net Profit from continuing operations/(Total Assets – Current Liabilities)
ROCE (2017) = (-1972/(154684-30595)) = -1.59%
ROCE (2016) = (-5127/(169107- 41797)) =-4.03%
ROCE (2015) = (7805/(169579 – 39979)) = 6.02%
From the above computations, it is evident that there has been deterioration of ROCE in 2016 and 2017 in comparison to 2015 owing to company incurring a loss from continuing operations in both 2016 and 2017.
Summary & Conclusion
The performance of the company seems to have deteriorated in the period from 2015 to 2017 with majority of the ratios peaking out in 2015 and the worst year being 2016. While 2017 has been a better year but still the company is facing issues with regards to profitability and also the balance sheet seems to be highly leveraged.
The stock does not seem a good investment considering the fact that in the last two years the company has posted losses. Also, the amount of leverage on the balance sheet has increased. Additionally, going forward there would be significant amount of capital investments that would be required. Besides, the revenue of the company has remained stagnant for the last 3 years. Also, the sector in general seems to be highly competitive owing to which the margins are quite thin.
With regards to giving loan, the liquidity and solvency ratios need to be taken into consideration. These ratios clearly are not very impressive for the company and also the profitability of the company is facing issues owing to which servicing of incremental debt and principal repayment may be a stiff task for the company and hence a company would not be happy by offering substantial loan to Vodafone.
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