Financial Comparative Analysis of Stilsim - Example

Running Head: FINANCIAL ANALYSIS Financial Comparative Analysis of Stilsim Financial Comparative Analysis of Stilsim Introduction The following report deals with the financial analysis of StilSim from the perspective of an employee. StilSim operates in a virtual industry that relates to the generations of simulations for providing assistance to make the viewer see the unseen objective. The report is segmented into two parts. The financial analysis of StilSim’s is performed in the first part and the later part of the report is catering the comparative industry analysis and comments on the financial performance of StilSim. The chosen industry is very rare to find and growing rapidly and has become the need of developing world. Ratio Analysis 2007 2008 2009 2010 2011 Short-term Liquidity Ratios Current ratio 12.7 10.4 11.4 7.7 8.1 Cash ratio 9.2 6.3 7.3 4.4 5.2 Long-term Solvency Ratios Total debt ratio 0.12 0.17 0.16 0.23 0.23 Debt-equity ratio 0.09 0.11 0.10 0.13 0.13 Equity multiplier 1.14 1.20 1.18 1.29 1.29 Times interest earned 286878.5 480427.5 357559.2 430445.3 165418.8 Cash coverage ratio 36.0 40.6 31.8 18.2 8.2 Asset Utilization Ratios Receivable turnover 3.0 2.8 2.7 2.5 2.9 Days revenue in A/R 120 129 133 144 127 Total asset turnover 0.84 1.09 0.97 0.86 0.80 Capital intensity 1.19 0.92 1.03 1.16 1.26 Retained earnings, % 65% 74% 49% 38% -35% Dividend Payout, % 35% 26% 51% 62% 135% Profitability Ratios Profit margin, % 14.9% 15.5% 12.3% 10.9% 4.7% Return on assets (ROA) 12.5% 16.9% 11.9% 10.6% 4.2% Return on equity (ROE) 14.3% 20.3% 14.1% 13.7% 5.4% Revenue growth, % x 60.1% -5.6% 34.9% -10.3% Expense growth, % x 57.6% 1.4% 38.6% 1.1% Labour expense growth, % x 52.8% 1.6% 36.0% 1.3% Earnings per share, $ 0.40 0.66 0.49 0.48 0.18 Graphical Representation of Ratio In the following graphs, the analysed and computed ratios will be presented over the period of 5 years. Following is the ratio analysis of Manpower Group the biggest competitor and a stable giant in the industry of employment providing services renderer (Man Power, 2012) Current Ratio = Current Assets / Current Liabilities Particulars 2011 2010 Current Assets 4,991 4,874 Current Liabilities 3,762 3,290 Current ratio 1.33 1.48 Cash Ratio Particulars 2011 2010 Cash+ Cash equivalent+ Invested funds 4813.7 4676.4 Current Liabilities 3,762 3,290 Cash ratio 1.28 1.42 Debt Ratio = Total Debts / Total Assets Particulars 2011 2010 Total Debts or Total Liabilities 654 1,042 Total Assets 6,900 6,730 Debt ratio 9% 15% Debt to equity Ratio = Total Debts / Total Assets Particulars 2011 2010 Total Debts or Total Liabilities 654 1,042 Total equity 2,483 2,397 Debt to equity 26% 43% Equity multiplier ratio = total assets/ equity Particulars 2011 2010 Total Assets 6,900 6,730 Total equity 2,483 2,397 Equity multiplier 278% 281% Times interest earned = earnings before interest and tax/ interest expense Particulars 2011 2010 Earnings before interest and tax 480 -165 Interest expense 44 43 Times earnings ratio 10.91 3.82 Receivable days = receivables/ credit sales * 365 Description 2011 2010 Receivables 4,181 3,844 Credit sales 22,006 18,867 Receivable days 69.35 74.37 A/c Receivable (Debtors) Turnover Description 2011 2010 Net Sales or Net Credit Sales 22,006 18,867 Average of total receivables net 4,181 3,844 A/c Receivable Turnover (No. of times) 5.26 4.91 Assets turnover = Sales/ total asset   Description 2011 2010 Sales 22,006 18,867 Total assets 6,900 6,730 Asset turn over 318.94% 280.35% Capital intensity = total assets/ sales   Description 2011 2010 Total assets 6,900 6,730 sales 22,006 18,867 Capital intensity 31.35% 35.67% *The value of earnings before interest and tax for the year 2010 were negative and limited the scope of ratio computation for financial performance. Part 2 Financial analysis if StilSim and ManPower Group Trends The current ratios are constantly increasing and decreasing every year constantly but are significantly above the standard benchmark of 1. The ratio of cash is following the same trends and moving in a zigzag manner between increments and descrements. Due to these movements he performance of the company seems to be very predictable as petr the ratios trends of last 5 years. The debts are gradually covering up the proportion of assets by the passage of time and increasing year by year. The movements of debt to equity ratio also moves in the same way, this indicates that the debt is increasing year by year constantly. The trends observed in the equity multi plier in moving up every year whereas the times earnings is falling down. The cash coverage ratio of the organization is falling down while the receivable turnover has maintained its level again. The time period of revenue recovery from the debtors has, shorten over the period of 5 years. The turnover generated by assets has reduced notably. The trends of capital intensity have moved towards improvements. The retained earnings have fallen to a negative level over last 5 years. The dividend payout of the company has considerably improved and company is paying an increased dividend year by year. The liquidity ratio of Manpower Group (Man Power, 2012) has reduced with low variation. The ratio of cash has also fallen from 2010 to 2011. The debt ratio of the company is constant with no change in the figures. The ratio of debt to equity has dropped significantly more than the previous year indicating a reduction in the debt. Due to this movement, the equity multiplier ratio signifies a reduction of 3%. The value of the interest earned time and the cash coverage ratio is measured to be negative but has reduced from 2010 to 2011. There is a reduction in receivable days, seen in the years, which indicates that money of the organization is not tied up in the market for longer period. The turnover of receivable and assets has also increased from 2010 to 2011 due to the reduction and days. The intensity of the capital of Manpower has reduced in the past years. However, the asset turnover has increased. Problematic Areas of Stilsim The following are the identified areas of StilSim that are required by the management to be improved. The movements in the ratios of StilSim Personnel are very frequent and the ratio values change every year significantly that makes the reliability and dependence of the stakeholder’s (employee) on the performance of the company, weak . The liquidity ratios are needed to be maintained and the retained earnings of the company to be improved. The balances of the retained earnings are negative on the other side, increased and improved dividends are offered and paid to shareholders every year whereas the cash coverage, movement of cash and equivalents are increasing at a decreasing level and can easily cause company to face a lock up of resources. The cash coverage, asset turnover is increasing with a decline in the returns on assets. And the negative balances of the retained earnings is a serious matter of concern for the organization. The overall performance of the company seems very volatile and sensitive to multiple environmental factors that is why a frequent change in the costs and revenues is affecting the perfomance of every year. The receivable and payable days are very high that shows that money is bound in transactions and company may loose the interest that could be earned over this money by investing it into other sources. This may also cause liquidity issue to the company. Performance Comparison The performance of Stilsim has been discussed above in details; the performance of Manpower Group can be evaluated by the observation of the trends. Overall position of the company is highly risky, as the earnings are lowering and the debt is considerably increasing, the companies, StilSim and Manpower Group are nearly facing the same issues and problems relating to volatility of accounts. This can be deduced that the nature of this industry is highly exposed to multiple stimuli that affect the performances throughout the periods. Short Term Issues Consideration The company needs to focus on the cash availability and balances in the short term so that its ratios relating to cash movements can be stabilized as the cash coverage has fallen from 18.2 to 8.2. This can cause de-motivation and a can produce a wave of worry in the employees. Long term Issues Consideration StilSim should make serious efforts to convert its retained earnings positive and try to reduce or maintain its debts. The turnover of the assets also needs to be focused to make the company presentable across its stakeholders (employee). Competitive Advantage/ Disadvantage StilSim has a competitive advantage of being less risky than Manpower Group because of high liquidity and low debts. The biggest advantage to Stilsim is that the industry is growing very fast and Stilsim can make us best use of changing demands and technology by providing its customers a variety of innovative and rare services to gain market share. However, Manpower Group is an established organization, which has reached the wires of all the customers in the market (Dess & Lumpkin, 2011). Conclusion In the analysis and results obtained from the above report, it can be deduced that the overall performance of StilSim is satisfactory as per the nature of industry. The analysis of comparison with the competitors can make the stakeholders (employee) satisfy with the performance of Stilsim. Like an ideal organization, stakeholders expect and demands a lot from StilSim, the company should focus on its performance to be able to respond to these expectations. Bibliography Man Power. (2012, April 6). Home. Retrieved April 6, 2012, from http://www.manpowergroup.com/: http://www.manpowergroup.com/ Man Power. (2012). Investor Report. Retrieved April 3, 2012, from http://files.shareholder.com: http://files.shareholder.com/downloads/MAN/1771409670x0x553690/BEF89B5F-C787-4055-951D-1B7C3A5B3848/ManpowerGroupAR11_LR.PDF Strategic management: Creating Competitive Advantage2011IrwinMcGraw-Hill Read More