International Fish Farming Holding Company - Corporate Vision, Strategic Goals, Financial Analysis - Example

PART 1 Student’s Name: Professors Name: Course: Date: International Fish Farming Holding Company Table of Contents Table of Contents 2 1.0 INTRODUCTION 3 2.0 CORPORATE VISION OF THE COMPANY 4 3.0 GLOBAL STRATEGIC OBJECTIVES 4 4.0 FINANCIAL ANALYSIS 5 4.1 LIQUIDITY RATIOS 5 4.1.1 Quick ratios 6 4.1.2 Current Ratios 7 4.2 PROFITABILITY RATIOS 7 4.2.1 Gross Margin Ratio 8 4.2.2 Net Profit Ratio 8 4.2.3 Returns on Assets (ROA) 9 4.2.4 Returns on Equity 10 4.3 SOLVENCY RATIOS 11 4.3.1 Debt to Equity ratio 11 4.3.2 Equity Ratio 12 4.3.3 Debt Ratio 13 4.4 EFFICIENCY RATIOS 13 4.4.1 Assets Turnover Ratio 13 4.4.2 Inventory Turnover Ratio 14 5.0 WEAKNESSES OF THE COMPANY 15 6.0 CORE COMPETENCIES OF THE COMPANY 15 7.0 AUDITOR’S OPINION REGARDING THE COMPANY’S PERFORMANCE 16 8.0 RECOMMENDATION AND CONCLUSION 16 1.0 INTRODUCTION International Fish Farming Holding Company (PJSC) is basically a United Arab Emirates based public listed company that trades its securities in Abu Dhabi Securities Exchange (ADX) since the year 2005. The company together with its many outlets carries out its business activities as an aquaculture business enterprise, that is, it is involved in the generation, management and controlling of operations of fish farms under its docket (www.asmak.biz) In its operations, the company spearheads the production, processing of the fish and other fish products as well as maintenance of their standards through preservation. Therefore, the major activities undertaken by this company includes investing in aquaculture, fish farming activities, sales and marketing, delivery services and consultancy services. Likewise, the company is also engaged in purchasing, selling, distributing, managing, developing and leasing of the real estate property(www.asmak.biz). The International Fish Farming Holding Company is an organization that was established in mid-1999 after an Initial Public offering (IPO) that rolled out in the early 1999 through the recommendation of United Arab Emirates Offsets Group in addition to the support of the Abu Dhabi Government which injected a capital of approximately US$82 million. The half of the injected capital was subscribed by the ordinary United Arab Emirates citizens who had been offered shares at a price of US$2.7 for every share during the Initial Public Offer (IPO). 2.0 CORPORATE VISION OF THE COMPANY The International Fish Farming Holding Company desires to be the leading producer, processor and distributor of fish and fish products across the Middle East as well as Asia. The vision of the company is to facilitate easier reach of its products and services to its wide customer base that had built a lot of trust of in the company while reaching out to the other customers that had become interested in the sea products (www.asmak.biz). At the same time, the company’s vision was also to assist the government in the stock restoration initiative while promoting the awareness about the health benefits derived from the seafood. The company’s mission is to give surety that through its subsidiaries it will offer fresh fish and fish products at friendly consumer prices while at the same time supplying directly to the consumers. On the other hand the company aspires to not only be a producer and distributor of the seafood but also to be an ambassador of healthy living through encouraging consumption of the seafood. 3.0 GLOBAL STRATEGIC OBJECTIVES The company has plans in place such that at every business operation interval, its employees will have to undergo training in a way that will equip them with the necessary skills to enable them work and be competitive in a performance-oriented business environment while assisting them to have hands-on experience and the management expertise that will be essential for the long-term success of the company in the fishing industry The company believes that in order to safeguard their continued existence, then it is of great importance to preserve the natural resource. In order to achieve this, the company has drafted regulations to have its team members take part in risk mitigations of stock depletion by avoiding overfishing while investing heavy in the generation of aquaculture oriented projects so as to supplement the fish distribution business and at the same time fulfilling the high consumer demand. The company plans to maintain high standard of health and safety through ensuring that while sourcing for the raw materials for the fish business and aquaculture, those processing and distributing these materials while maintain health and safety are given priority 4.0 FINANCIAL ANALYSIS 4.1 LIQUIDITY RATIOS As stated by Largay, James and Clyde (53), these ratios indicate the ability of the company to pay off its short term current liabilities whenever they fall due, that is, in most cases it shows the cash level within a company’s disposal or its ability to convert some of its assets into cash so as to settle the short term debts as well as other obligations that may be therein. Some of these ratios includes:- 4.1.1 Quick ratios Also known as acid test ratio, it portrays the ability of the company to pay off its current liabilities whenever they fall due using those assets that can be easily converted into cash within a span of 90 days. Quick Ratio= (Biological Assets + Due from related parties + Accounts receivable + Cash & Bank balance)/Current liabilities 2015 2014 AED(000) AED(000) Biological Assets 7,753 2,342 Due from related parties 53,763 54,199 Accounts receivables 125,740 139,084 Cash & Bank Balances 251,452 101,936 Assets classified held for sale - 233 Total 438,708 297,794 Current Liabilities 84,527 94,886 Quick Ratio 438,708/84,527 297,794/94,886 5.19 3.14 As indicated above, in 2014 the company had 3.14 times more quick assets than current liabilities which increased to 5.19 times more in 2015, these therefore confirms the ability of the company to pay of its current liabilities without necessarily having to sell off some of its long-term assets. 4.1.2 Current Ratios These shows the ability of the company to settle its short-term liabilities and other obligations based on its current assets. Current Ratio= Current Assets/Current Liabilities 2015 2014 AED (000) AED (000) Current Assets 458,749 324,480 Current Liabilities 84,527 94,886 Current Ratio = (458,749/84,527) (324,480/94,886) 5.43 3.41 In 2014, the company had 3.41 times more current assets as compared to current liabilities, the same increased to 5.43 times in 2015. These shows that the company had the ability to pay off its debt obligations much easy in 2014 and the same ability increased in 2015 4.2 PROFITABILITY RATIOS These are ratios that shows how well a company can generate profit from its operations, that is, it demonstrates the ability of the company to generate income from its fishing and other real estate activities relative to the amount of money injected in the business as stated by Largay, James and Clyde (53).Some of these rations includes:- 4.2.1 Gross Margin Ratio It indicates how profitable International fish company will sell its inventory and other merchandise within its disposal Gross Margin Ratio= (Gross Margin/Net Sales) 2015 2014 AED (000) AED (000) Gross Margin 43,209 51,736 Net Sales 354,135 299,087 Gross Margin Ratio (43,209/354,135) (51,736/299,087) 0.12 0.17 As shown above, after the company had paid its inventory costs in 2014, it still had 17% of its sales revenue left to take care of the other operating expenses meanwhile in 2015 the sales revenue left after payment of the inventory costs was 12%, therefore 2014 was favorable compared to 2015 since the sales revenue retained after payment of the inventory acquisition was much higher 4.2.2 Net Profit Ratio This shows the sales revenue that will be left after the company shall have paid off its operating expenses Net Profit Ratio= (Net Profit/ Net Sales) 2015 2014 AED (000) AED (000) Net Profit 56,380 42,143 Net Sales 354,135 299,087 Net Profit Ratio (56,380/354,135) (42,143/299,087) 0.16 0.14 Based on the calculations above, it can be deduced that the company’s management of its expenses in relation to its sales revenue was favorable in 2015 as compared to 2014. This is due to the fact that the company had 16% of its sales revenue left after the payment of its operating expenses as compared to 2014 where it had only 14% left after the payment of the related expenses. These would therefore enable it increase the amount of dividends paid to the shareholders hence encouraging them to invest more in the company. 4.2.3 Returns on Assets (ROA) This shows the profit percentage that the company will earn in relation to its total assets, that is , the efficiency of the company in terms of managing its assets so as to produce the profit during the business cycle Returns on Assets= (Net Income/Average Total Assets) 2015 2014 AED (000) AED (000) Net Income 56,380 42,143 Average total assets (20,041+26,686)/2 26,686 23,363.50 ROA 56,380/23,363.50 42,143/26,686 2.41 1.58 As shown above, in 2015 the Returns to Assets of this company was 2.41 being an improvement from the 1.58 in the previous year. This shows that the company was more effective in the management of its assets to generate income in 2015 than in 2014 hence increase in the profit earned. 4.2.4 Returns on Equity This demonstrates the ability of the company to generate profit based on the shareholders’ investment in the company. It outlines how a company earns in comparison to the amount of shareholders’ equity injected in the company Returns on Equity (ROE) = (Net Income/ Average Shareholders’ equity) 2015 2014 AED (000) AED (000) Net Income 56,380 42,143 Average shareholders’ equity (500,274+444,499)/2 (444,499+0)/1 472,386.50 444,499 Returns on Equity (56,380/472,386.50) (42,143/444,499) 0.12 0.09 According to the illustrations shown above, in 2015 the company was able to effectively utilize shareholders’ equity to generate profit as compared to the previous year of 2014, that is, for every shareholders’ equity, the profit realized was 12% as compared to the year before of 2014 where the profit generated was 9% in relation to the shareholders’ equity injected in International fish company. 4.3 SOLVENCY RATIOS These are ratios that portrays the company’s ability to sustain its operations in the long run through comparing the company’s debt obligations with available equity, assets and the earnings. They indicate the level of the company’s commitment in paying off its long term obligations to its creditors, financial institutions as well as bondholders (Gheorghe 53). Some of these ratios includes:- 4.3.1 Debt to Equity ratio This shows the percentage of the company’s financing that is achieved from creditors as well as investors through comparison of the total debt to the total equity. Debt to Equity ratio= (Liabilities/Equity) 2015 2014 AED (000) AED (000) Liabilities 99,028 107,283 Equity 506,967 451,911 Debt to Equity Ratio (99,028/506,967) (107,283/451,911) 0.20 0.24 According to the computations above, the company relies more on the equity financing than debt financing, that is, in 2014 the company’s debt financing was 24% as compared to the equity financing which was 76%. Likewise, there was upwards improvement in the company’s business operations in 2015 since the funding from the debtors was reduced to 20% as compared to the equity financing which stood at 80%. This demonstrates the stability of the fishing and real estate Company since it does not depend on debt financing so much to sustain its operations. 4.3.2 Equity Ratio This is an indication of the amount of company’s assets that is financed by the shareholders’ investment in the company, that is, the amount of the company’s assets owned by the shareholders of the company. Equity Ratio= (Total Equity/Total Assets) 2015 2014 AED (000) AED (000) Total Equity 506,967 451,911 Total Assets 605,995 559,194 Equity Ratio (506,967/605,995) (451,911/559,194) 0.84 0.81 As shown above, the amount of assets owned by investors in the company was 81% in 2014 and it increased to 84% in the 2015. This portrays the good performance of the company since investors are increasing their investment in the company. Therefore, as demonstrated by the shareholders, this company is worth investing and even the creditors should be willing to lend to the company without unnecessary worries. 4.3.3 Debt Ratio This demonstrates the company’s ability to pay off its total liabilities using its assets, that is, the total amount of the assets that the company must sell so as to be able to settle all its outstanding debt obligations Debt Ratio = (Total Liabilities/Total Assets) 2015 2014 ADE (000) ADE (000) Total Liabilities 99,028 107,283 Total Assets 605,995 559,194 Debt Ratio (99,028/605,995) (107,283/559,194) 0.16 0.19 The above ratios indicates that the company’s stability increases annually since its debt obligations decreased from 19% in 2014 to 16% in 2015. Therefore, the company had 81% assets compared to debt which stood at 19%, this arose to 84% in the following year as the debt reduced to 16% hence indicating that the company does not have to sell off its assets to meet its debt obligations 4.4 EFFICIENCY RATIOS These demonstrates how efficient the company can utilize its assets to generate income, that is, the time period taken to convert the company’s inventory into cash (Alali, Fatima and Paul 105). Some of these ratios include:- 4.4.1 Assets Turnover Ratio This shows how effective this company utilizes its assets to generate sales in the company. Assets Turnover Ratio = (Net Sales/Average Total Assets) 2015 2014 AED (000) AED (000) Net Sales 354,135 299,087 Average Total Assets (605,995+559,194)/2 (559,194+0)/1 582,594.5 559,194 Assets Turnover Ratio 354,135/582,594.5 299,087/559,194 0.61 0.53 As indicated above, the company’s ability to use its assets to generate sales increased from 53% in 2014 to 61% in 2015. This confirms that the company is quite stable and efficient in using its assets to generate sales 4.4.2 Inventory Turnover Ratio This demonstrates the ability of the company to sell off its inventory during a given business period. Inventory Turnover Ratio = (Cost of Goods Sold/Average Inventory) 2015 2014 AED (000) AED (000) Cost of Goods Sold 310,926 247,351 Average Inventory (20,041+26,686)/2 (26,686+0)/1 23,363.50 26,686 Inventory Turnover Ratio 310,926/23,363.50 247,351/26,686 13.3 9.27 As shown above, the company’s ability to sell off its inventory increased from 9.27 times in 2014 to 13.3 times in 2015. This shows that the company is in an upward trend to reduce the amount of expenditure incurred in the storage of unsold inventory. This confirms that the management of the company is determined to sell off the inventory it acquired so as to realize higher profit for the company. 5.0 WEAKNESSES OF THE COMPANY The company seems to be incurring more costs in production of fish and fish products as well as in putting acquiring the properties to lease as indicated in the computation of the gross profit margin, the company incurred in 83% in its cost of sales and thus had only 17% left cover for the operating expenses. In the same content, the subsequent year had more costs incurred in the generation of the sales revenue, that is, 88% hence leaving only 12% to cater for the operating expenses, therefore mechanisms should be put in place by the management of the company to cut on the cost incurred in production of sales. 6.0 CORE COMPETENCIES OF THE COMPANY The company has shown progress in its operations as illustrated by the performance measurement between 2014 and 2015. These could have been due to the following:- Readily available market; the company seems to have adequate market due to the wide variety of products and services at its disposal hence its ability to have increased inventory turnover from 9.27 in 2014 to 13.3 in 2015 Equity Financing; the company depends most on the shareholders’ equity to run the business operations hence minimizes the cost incurred in terms of interest payments to pay off debtors. 7.0 AUDITOR’S OPINION REGARDING THE COMPANY’S PERFORMANCE According to the Deloitte who audited the financial books of this company, the company’s consolidated financial statement adequately presented in all the material concepts, the consolidated financial position of this company together with its sub outlets as well as its consolidated financial performance and the consolidated cash flow position for the year ended 2015 in accordance with the International Financial Reporting Standards (www.asmak.biz). In relation to the Legal and regulatory Requirements:- The company had maintained proper books of account The financial information captured in the directors’ report was in line with the books of account of the company The auditors were provided with all the necessary information that was considered relevant for the purposes of the audit 8.0 RECOMMENDATION AND CONCLUSION The company’s operations in addition to its many subsidiaries seem to be in compliance with the required standards of financial reporting. However, the management should ensure that the new reporting standards, interpretations and amendments are adopted while reporting its consolidated financial statement as from 1st January, 2016 with the exception of the International Financial Reporting (IFRS) 9 and International Financial Reporting Standard (IFRS) 15 which may not necessarily have any material impact on the consolidated financial report of this company (Alali, Fatima and Paul 93) Work Sited Alali, Fatima A., and Paul Sheldon Foote. "The value relevance of international financial reporting standards: Empirical evidence in an emerging market." The international journal of accounting 47.1 (2012): 85-108. Gheorghe, Chitan. "The Effects of Corporate Governance on the Net Interest Margin and the Solvency Ratio-Evidence from Romania." Ovidius University Annals, Series Economic Sciences 13.1 (2013):47-77 Largay III, James A., and Clyde P. Stickney. "Cash flows, ratio analysis and the WT Grant Company bankruptcy." 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