Two Types of Ratio Comparisons for Etisalat Finance Essay

In this report we will analyze two Types of Ratio Comparisons first ratio Trend or time-series analysis and second Cross-sectional analysis for Etisalat. We will find liquidity ratios, activity ratios, leverage ratios, profitability ratios, market ratios and the DuPont system for Etisalat.

Etisalat

Overview

Etisalat; UAE's first telecommunication company laid its foundation in 1976, with a paid up principal of about (AED) 7,906,140,000 And the par value per share is (AED): 1.00. The number of current employees is about 10500 persons.

Major owner

The Federal Government of UAE own Etisalat up to 60.03%

Actions

It is the prime objective of Etisalat to offer services that suits everyone's needs. Etisalat is responsible for providing telephone, TV and Internet services and a host of other services, serving everyone across UAE. It is a multinational firm with presence in most of the International markets. It provides state-of -the-art services to its clientele. Reach out. The world's waiting. (ETISALAT) (ETISALAT) (ETISALAT)

Vision

A world where people's reach is not limited by distance.

People stay in touch with each ither, beyond boundaries. Businesses of all types, stay connected with the rest of the world, enabling sources to reach their customers. Introducing latest technologies by providing chances of access to the ones who want to utilize them. (ETISALAT)

Mission

To extend Etisalat's services by extending client's reach. It strives to continuously enhance its network enabling clients to grow, learn and innovate. (ETISALAT)

Values

Energy Etisalat values the energy to attain the desired outcome in any business. It is ready to face the future challenges and chances to grow. Openness It has an open door policy, and it truly believes in honest, fair and straight forward business dealings. Enablement Our aim is to open up opportunities and to actively help people reach their goals. We always deliver what we say we will. (ETISALAT)

We will use Trend or time-series analysis to evaluate Etisalat's performance for year 2010 and 2009.

Short-term solvency, or Liquidity Ratios

Etisalat's Ratio for 2010 = 19313791 /24477988 = 0.79

Etisalat's Ratio for 2009 = 19562585 / 23488380 = 0.83

Etisalat's ratio for the year 2009 is better than that of 2010; (0.83) But as per the studies it has to be greater than 1, hence here no ratio is higher than 1. (ROSS, 2008)

Etisalat's Quick Ration for 2010 = (19313791-316261 ) / 24477988= 0.78

Etisalat's Quick Ration for 2009 = (19562585- 272410 ) / 23488380= 0.82

(ROSS, 2008)

Etisalat's Quick ratio in 2009 is better off because it is close to1, but it is not that liquid because in order for it to be liquid it should be more than 1.

Assets Utilization, or Turnover Ratios

Etisalat's Inventory Turnover 2010 = 4126455/316261 = 13.05

Etisalat's Inventory Turnover 2009 = 3919638 / 272410 = 14.4

This calculates Etisalat's liquidity of an inventory; how quick it sells its products and services. Hence, it is better in the year of 2009; 14.4; higher than 2010 (13.05).

(ROSS, 2008)

Etisalat's Day's Sales in inventory in 2010 = 365 / 13.05 = 27.97 days

Etisalat's Day's Sales in inventory in 2009 = 365 / 14.4 = 25.3 days

This ratio informs us about the average age of inventory; the average days sales in inventory. Based on our findings, the ratio in 2009 was better than 2010, because it was lower, so the lower number of days, the better it is. (ROSS, 2008)

Receivables Turnover

Receivables Turnover in 2010 = 8448082 / ( 29359666 ) = 28.77 Times

Receivables Turnover in 2009 = 3264142 / ( 30831390 ) = 10.58 Times

This ratio tells us about the amount of time required to collect the accounts receivable, which in this case is better for the year 2009 (10.58 Times), so the fewer the better. (ROSS, 2008)

Days Sales In Receivable =

Year 2010 = 365 / 28.77=12.69 Days

Year 2009 = 365/10.58=34.50 Days

In this ratio, Etisalat did better in 2009, as compared to 2010, as the more number of days also helped it to pay to suppliers in more days. (ROSS, 2008)

Total Asset Turnover

Total Asset Turnover for 2010 = 31929488/ 20078214 =1.59

Total Asset Turnover for 2009 = 31334387/ 71378596 = 0.43

This ratio informs us, as to how nicely Etisalat used its assets to generate sales. It is better in 2010, as it is higher (1.59). (ROSS, 2008)

Capital intensity =

For Year 2010: 20078214/31929488 =0.63

For Year 2009: 71378596/31334387=2.27

Long Term Solvency, Or Financial Levarage

Debt Ratio = Total Liabilities / Total Assets

Debt Ratio 2010 =33041805 / 75607132 = 43.70%

Debt Ratio 2009 = 30989298 / 71378596 = 43.41%

The debt shows the total money utilized to have profits, which is better in 2010, as its higher (43.70%), so Etisalat has a graeter degree of independence and higher financial leverage. (ROSS, 2008)

Debt-equity Ratio: total debt/total equity

Debt-equity Ratio in 2010 = 33041805/42565325=0.77

Debt-equity Ratio in 2009 = 30989298 /40389298=0.77

The Debt-equity Ratio remained the same for both years.

Times Interest Earned = EBIT / Interest

For year 2010 = 6996442 / 384836 = 18.18

For year 2009 = 8814963 / 571493 = 15.4

This determines Etisalat's efficiency to make interest payments as in contracts; it is also termed as interest coverage ratio, which is better in 2010 for Etisalat. (ROSS, 2008)

Profitability Ratios

Profit Margin PM = Net Income / Net Sales

Profit Margin in 2010 = 27802963 / 31929488 = 87.07 %

Profit Margin in 2009 = 26911751 / 30831390 = 87.3 %

The higher the profit margin the better it is, the lower the relative cost of products sold. It was higher in 2009, as compared to 2010. (ROSS, 2008)

Earnings Per Share (EPS)

EPS in 2010 = 7428778 / 7187400 = 1.03 AED

EPS in 2009 = 8582733 / 7187400 = 1.19 AED

EPS demonstrates the amount earned on each outstanding share of common stock in dirhams , but not the amount of earnings divided among its shareholders. It was better in 2009 as it was higher (AED 1.19). (ROSS, 2008)

Return on Total Assets (ROA) =

ROA in 2010 = 7428778 / 75607130 = 9.82 %

ROA in 2009 = 8582733 / 71378596 = 12.02%

R.O.A determines the profits made with available assets; also termed as Return on Investments (ROI). This ratio was better for the year 2009, as Etisalat made a profit of AED 12.02% on each asset investment in Dirhams. (ROSS, 2008)

Return on Equity (ROE) =

ROE in 2010 = 7428778 / 42565325 = 17.45%

ROE in 2009 = 8582733 / 40389298 = 21.3 %

It determines the return earned on common stockholders' investment in Etisalat. Here, the stakeholders were better off in 2009 than in 2010, as the return on equity was 21.3%. (ROSS, 2008)

Market Ratios

Price Earnings (P/E) Ratio =

P/E in 2010 = 9.983 / 1.03 = 9.69

P/E in 2009 = 10.95 / 1.19 = 9.20

P/E determines the amount that the investors are willing to pay for each dirham of the firm's earnings. Hence, higher the rate, the better it is, which shows the confidence of investors in investing in Etisalat, which is better for the year 2010. (ROSS, 2008)

Market/Book (M/B) Ratio

M/B in 2010 = 9.983 / 4.95= 2.01

M/B in 2009 = 10.95 / 5.62 = 1.95

Market/book ratio in 2010 is higher for Etisalat, demonstrating better growth chances. (ROSS, 2008)

DuPont system analysis

DuPont system analysis = ROA =

It will be equal to the answer we got from ROA … (ROSS, 2008)

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