Financial analysis of Aluminium Bahrain (ALBA) Company

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Course title Corporate Finance

Coursework title


Submission deadline date 24/12/2014

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Table of Content

Topic

Page No.

Pro Forma

Income Statement (POS Method)

2

St. of Financial Position (Judgemental Approach)

3

Notes

4

Ratios

Profitability ratios

6

Liquidity ratios

6

Activity ratios

6

Debt Ratios

6

Forecasted Cash Flow

8

Appendix

9

Tasks

A)

Aluminium Bahrain (ALBA) Company

Pro forma Statement of comprehensive income for the year ending 31 December 2014 (POS Method)

Description

2014 $ (000's)

2013 $ (000's)

Sales

899205.6

749338

COGS

-762517

-640751

Gross Profit

136688.6

108587

Other Income

8764.8

7304

Selling & Distribution Expenses

-21088.8

-17574

Administration Expenses

-36730.8

-30609

Gain on Forex translation

232.1

211

Directors' fees

-209

-190

Finance costs

-6987.6

-5823

Profit for the year before derivitives

80669.3

61906

Gain on revaluation/settlement of derivitive

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19658.1

17871

Total Comperhensive Income of the year

100327.4

79777

Aluminium Bahrain (ALBA) Company

Pro forma Statement of Financial Position as at 31 December 2014 (Judgemental Approach)

Description

2014$ (000's)

2013$ (000's)

ASSETS

Non-current assets

Property, plant and equipment (Note 1)

1283566

868318

Long term receivable

7564.7

6877

Total Non-current Assets

1291130.7

875195

Current assets

Inventories

173916

144930

Current portion of long term receivable

3781.8

3438

Accounts receivable and prepayment (Note 2)

101210.2

85375

Other assets

5280

4800

Derivative financial instruments

-

-

Bank balances and cash

74221

64540

Total Current Assets

358409

303083

Total Assets

1649539.7

1178278

EQUITY AND LIABILITIES

Equity

Share capital

142000

142000

Treasury shares

-5672.7

-5157

Statutory reserve

71000

71000

Capital reserve

249

249

Retained earnings (Note 3)

667135.9

629381

Proposed dividend

34075.8

30978

Total equity

908788

868451

Non-current liabilities

Borrowings

92842.2

84402

Derivative financial instruments

5844.3

5313

Employees’ end of service benefits

1023

930

Total Non-Current Liabilities

99709.5

90645

Current liabilities

Borrowings

128075.2

116432

Accounts payable and accruals (Note 4)

113216.6

97960

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Derivative financial instruments

5269

4790

Total Current Liabilities

246560.8

219182

Total liabilities

346270.3

309827

External financing required

394481.4

TOTAL EQUITY AND LIABILITIES

1255058.3

1178278

Analysis of the Pro forma Percent of Sales Method and Judgemental Approach

After preparing the pro forma statement of both, statement of comprehensive income (percent of sales method) and the statement of financial position (Judgemental approach) for the year ending 31 December 2014, we came up with the conclusion that Alba Company has higher assets than both liabilities and equity therefore, Alba should take into consideration that they need external financing of BD 320260.4 (000’s) in order to cover up for their assets.

Notes

  1. Non-Current Asset Calculations

Calculations

BD (000's)

Increase in PPE value

Cost of Property, Plant & Equipment

1933643 x 130%

2513735.9

580092.9

Depreciation

87013.9 + 1065325 + 77831

1230169

(580092.9 x 15%) 87013.9

Net Book Value

1283566

493079

  1. Account Receivables and Prepayments Calculations

Calculations

BD (000's)

Trade accounts receivable

(72977/749338) x 899205.6

87572.4

Other receivables

9820 x 110%

10802

Prepayments

2578 x 110%

2835.8

Total A/Receivables and Prepayments

101210.2

  1. Retained Earnings Calculations

Calculations

BD (000's)

Balance as at 31/12/2013

629381

Profit for year

93943.2

Interim dividends 2014

19729 x 110%

-21701.9

Final dividend 2014

30978 x 110%

-34075.8

Excess of final dividends 2012

14

loss on resale of treasury

386 x 110%

-424.6

Total Retained Earnings

667135.9

  1. Account Payables and Accruals Calculations

Calculations

BD (000's)

Trade payables

(54606/749338) x 899205.6

65527.2

Retentions payable

94 x 110%

103.4

Employee related accruals

30582 x 110%

33640.2

Accrued expenses

9709 x 110%

10679.9

Advances from customers

1667 x 110%

1833.7

Alba Savings Benefit Scheme

501 x 110%

551.1

Social Insurance Organisation

801 x 110%

881.1

Total A/ Payables and Accruals

113216.6

B)

2014

2013

Profitability Ratios

Gross Profit Margin

15.20%

14.49%

Profit before Derivitives

8.97%

8.26%

Comp. Income for the year

11.16%

10.65%

Liquidity Ratios

Current Ratio

1.45

1.38

Quick Ratio

0.75

0.72

Working Capital Ratios (Days)

Inventory Turnover

-2.39

-2.02

Average Collection period

35.55

35.55

Average Payment period

29.98

31.04

Debt Ratios

Debt Ratio

20.99%

26.29%

Times interest earned ratio

-10.54

-11.63

We have calculated certain accounting ratios that we found important to a company like Alba. We have calculated the profitability, liquidity, activity and debt ratios of the company. We will analyse and compare ratios of 2013 year end and the projected year end of 2014 (pro forma in Task A). Overall, Alba’s performance when it comes to comparing ratios is quite extraordinary except in certain areas in which they need to focus more on.

When it comes to Profitability ratios, we can see that there is a minor increase in all the ratios which is a good thing. Although 2014 profitability ratios have increased than the previous year, Alba needs to reduce their cost of sales and other expenses in order to increase their profits.

On a positive note, Alba has improved their liquidity status. The company’s current ratio increased by 0.07 and their acid test ratio increased by 0.03. Although it is a minor change, the company is doing well when it comes to how fast they liquidate their assets over liabilities. However, even though Alba has improved in their liquidity ratios, the company’s acid test ratio is lesser than 1 which means that they heavily rely on their inventories. For a company like Alba, yes the quick ratio will be low because they produce aluminium and their inventory is important to them.

Similarly, when it comes to comparing their activity ratios, Alba is in a slight downhill. The inventory turnover of the company increased by 0.37 times which means that the company is moving away their inventories slower and they need to reduce it. The lower the value inventory turnover, the better the status of the company will be. Nevertheless, there is no change in the collection period of Alba. The company pays of their trade receivables every 35.55 days in both years. Whereas, the payment period of the company has decreased which means that Alba have to pay their trade payables 1.06 days less in 2014.

Lastly, the company is going through a debt situation between the 2 years. The debt ratio of Alba decreased significantly by 5.3% and this is a bad sign for the company because the lower the amount of other’s people money is being used to generate profits which means that Alba are generating profits from their own money.

D)

Forecasted Cash Flow IR = 12%

0 1 2 3 4 5

165882 196175.808 228424.3006 262734.0188 291216.9785337991.0189

X0.893

175184.996X0.797x0.712x0.636x0.567

182054.167

187066.616

190301.998

191640.907

1092130.687

For this question, we have used the single deposit discounting table In order to find out the present values of each cash flow through years 1 to 5. The reason behind using this table instead of the annuity factor table is because the cash flows are mixed stream. In addition, we added the base year cash flow to the discounted PV’s because we do not discount the cash flow of year 0.

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