Financial Analysis

In a group, we have analysed Distell Group Ltd‘s annual financial statements of the years 2006, 2007, 2008 and 2009.

Assesing the year 2007:

Marketing Ratio:

Dividends Yield = Dividend per share/ Market price per share = 0.362

This is the ratio that identifies the return, in terms of cash dividends, on the current market price of the stock.

Price/Earnings Ratio (P/E) = Market Price per share/ Earnings per share = 1.271

This ratio is used as a guideline in measuring stock values. The higher the price-earnings ratio, the more opportunity a company has for growth.

The price/ earnings ratio rose from 2006 to 2007 from 1.248 to 1.271. This raise is positive for the growth rate of a company as it allows more opportunity for growth.

Earnings per share (EPS) = Net Income after tax/ No. of shares = 4.259

This measure indicated how much income was earned for each share outstanding.

The earnings per share increased vastly from 2.707 to 4.259 from the years 2006 to 2007. This is excellent as it means more income is gained for each share. Investor confidence would increase in the Distell brand.

Net Asset Value per share = Equity (Net Assets)/ No. of shares = 19727

This ratio identifies the realisable value of the entity should all assets be sold and liabilities repaid.

Ratio Analysis

Solvency

Financial Leverage = Total Assets/ Total Equity = 1521.843

Debt/ Equity Ratio = Total Liabilities/ Total Equity = 0.522

0.522 is the portion of the company’s assets that are contributed by the owners.

Liquidity

Current Ratio = Current Assets/ Current Liabilities = 2.241

This ratio determines whether the company has enough short-term assets to cover its short-term debts. A healthy current ratio turnover would be 2:1.

Acid Test (Quick) Ratio = Current Assets- inventory/ Current Liabilities = 0.801

This ration determines whether current liabilities can be paid without having to sell the assets that are difficult to quickly convert into cash. This ratio should be as close to 1:1 as possible. If it is above 1:1 the company is not utilising its assets as well as it could.

Profitability

Gross Margin = Gross Profit/ Sales = 0.136

This ratio is an indication of product pricing and product mix.

The gross margin has increased for 0.129 to 0.136. The increase in this ratio is positive.

Net Income Margin = Net income after Interest & Tax/ Sales = 0.103

0.103 is the average “bottom line” profit on each unit of sales.

Return on Assets = Net Income after Interest & Tax/ Total Assets = 0.141

This ratio assesses the ability to generate a return on assets.

The 2006 figure of 0.098 has also increased in 2007, which is a good thing as more can be pumped back into the company from its asset investments. Assets and what they give back can be recognized as a symbol of the value of a company, so the higher these ratios the better.

Return on Equity = Net Income after Interest & Tax/ Shareholder’s Equity = 0.215

This is the ratio measuring the return on historically accumulated owners’ investments.

An increase such as that from 0.1612 to 0.215 is also a positive. This ratio measures how much the shareholders is gaining from their input into the business.

Efficiency

Asset Turnover = Sales/ Total Assets = 1.367

The asset turnover has increased from 1.256 to 1.367 over the year period. This is the measurement of how efficient the assets have been in producing sales and drawing in income to the business.

Receivable Collection Period = Accounts Receivable/ Sales x 365 days = 36.009

This is the amount of days it takes on average to collect sales revenue.

Inventory Turn = Cost of Sales/ Inventory = 2.621

This is the level of inventories in relation to the volume of activity.

The level of inventories has also increased from year 2006 to 2007, which shows that inventory levels have increased in relation to the volume of activity, this is because the business is growing.

Days inventory of Hand = Inventory/ Cost of Sales x 365 days = 13.925

This is the number of days it takes on average to sell all stock on hand.

The amount of inventory days on hand has dropped immensely which is a good thing, as this tells us that stock is being sold at a much faster rate, which means the company is becoming more popular.

As you can see by looking at the above information the percentage change in all aspects of the business has been positive. This means that the company is growing and is becoming more profitable.

In the 2008 & 2009 Distell continue with prosperous growth and their annual turnover for 2009 was R10.9 billion.

Contributing composers:

Tara Louw, Kimon Christodoulou, Adderley Williams

Vicki Nortje and Matthew Rosenveldt