Financial Analysis: Ardent Leisure - Case Study Example

Financial Analysis: Ardent Leisure Student’s Name Course Name Date Price to cash flow ratio= stock price/operating cash flow; is valuation ratio that is adopted to analyse the capacity of a company of being a good investment (Babalola, & Abiola, 2013). It is computed using the formulae; stock price/ (operating cash flows/ no, of outstanding shares). It is basically used to assess whether a firm’s stocks are either over or under-priced. A company with a lower ratio is always considered to be a good investment. The price to cash flow ratio of Ardent Leisure decreases slightly from 7.8 to 7.6 in the period between 2012 and 2016, with the decrease being a good investment position. Price/tangible BV= stock price/ tangible BV per share is a ratio used to assess a firm’s market price in regards to its overall tangible book value. It clearly ascertains the amount of money existing investors have spent on each dollar of the physical assets present (Babalola, & Abiola, 2013). A low ratio value is preferred since it means that the stocks of a company are would leave investors with a greater level of share price losses as opposed to those trading at high ratios. For the case of Ardent Leisure increases from 1.6 to 2.3 in the period between 2012 and 2016, which is considered to be poor progress as investor would possibly suffer from greater share price losses given that the tangible book value per share could be perceived as being a lower price the stock could possibly trade within the period at hand. Enterprise value/ free cash flow= enterprise value/ (operating cash flow-capital expenditure); is a valuation ratio that seeks to establish if a firm is able to produce enough cash flows (Babalola, & Abiola, 2013). A lower ratio is always preferred since it means that a firm will quickly be able to pay back the costs incurred in the course of acquiring or even producing cash for purposes of reinvesting within the business as a whole (Babalola, & Abiola, 2013). The firm’s enterprises value/free cash flow; of the firm significantly decreases from 75.9 to -33.8 in the period between 2012 and 2016, which is a strong indication that it will quickly be able to pay back costs incurred while acquiring capital assets for purposes of reinvestment. Current ratio=current assets/current liabilities; is a ratio that seeks to establish whether a company is able to meet its short-term obligations. For the case of Ardent Leisure, the ratio decreases insignificantly from 0.5 to 0.4 in 2012 and 2016 respectively, which is a poor indication that it has not made efforts to meet its short-term commitments as and whenever they fall due Sales per employee= net sales or revenues/ no. of employees; is an efficiency ratio that is used to measure the manner for which a firm has been efficient in the utilisation of its overall employees (Babalola, & Abiola, 2013). A high ratio is always preferred since it means that the company is able to push for its employees to post a specific percentage of revenue generation (Babalola, & Abiola, 2013). For the case of Ardent Leisure, the ratio improves from 0.12 to 0.20 in the period between 2012 and 2016, which means that the firm has been strong in its efforts to have employees post enough revenues. Operating profit per employee= operating income/ no. of employees; is a ratio that a company uses to analyse its efficiency in utilising the existing number of employees to generate operating income within any given period. A high ratio is always preferred (Babalola, & Abiola, 2013). Ardent Leisure’s ratio remains stable at 0.01 in the five-year period, which is an average indication as it means that similar level of efforts have been made to ensure that enough operating income is got from each employee. Net income per employee=net income/ no. of employees; is a ratio that is used to measure how efficient existing employees have been used to generate net income (Babalola, & Abiola, 2013). A high ratio is always preferred. For the case of Ardent Leisure, the ratio improves averagely from 0.003 to 0.01 in the five-year period between 2012 and 2016, which is an indication that average level of efforts have been adopted to ensure that each employee is able to contribute to net income generation within the periods. Assets per employee=total assets/ no. of. Employees; is a ratio that measures the number of assets existing employees have for purposes of ensuring that they conduct their tasks efficiently (Babalola, & Abiola, 2013). A high ratio is preferred since it means that employees will have a substantial level of assets that they can use for their day-to-day operations hence generate even more profits in the future period. For the case of Ardent Leisure, the ratio increases significantly from 0.2 to 0.3 within the five-year period, this means that the firm has made average efforts to ensure that employees have access to enough assets that they can efficiently use to generate revenues within the period. The total asset turnover= total assets/net sales; a ratio that is used to measure the efficiency of a company to generate enough sales from the underlying set of asset-base. For Ardent Leisure, the ratio remains steady at 0.6 for the entire five-year period, which indicates an average performance in utilising its asset base to produce sales revenues. Inventory turnover=costs of goods sold/ average inventories; is a ratio that is used to measure the rate at which inventories are translated into sales revenues (Babalola, & Abiola, 2013). A high ratio value is always preferred. For the case of Ardent Leisure, the ratio decreases significantly from 35.7 to 12.4 in the five-year period from 2012 and 2016. This means that the firm has been poor to ensure that stock levels are converted into sales revenues within the period. Receivables turnover= net credit sales/ average accounts receivables; is a measure of the number of times a firm can translate its accounts receivables into operational cash within a given period (Babalola, & Abiola, 2013). In fact, it measures the number of times a firm is able to collect cash for goods sold on credit. For Ardent Leisure, the ratio decreases significantly from 68.4 times to 36.5 times in 2012 and 2016 respectively. This means that the firm’s ability to collect its cash is now averagely placed hence there is a need to improve on the ratio to what it was four years ago. Payable turnover= cost of goods sold/purchases/ average accounts payables; is a ratio that portrays how well a company is able to for its accounts payable within a given period of time usually a full operational year (Babalola, & Abiola, 2013). A high ratio is preferred. For the case of Ardent Leisure, the ratio increases significantly within the five-year period from 24.5 to 41.3 in 2012 and 2016 respectively. The increase is a string indication the firm is fairly positioned to pay off its debts to suppliers and creditors more times within a given operational period. Dividend per share= total dividends / no. of outstanding shares; is a ratio that measures the value of dividends for each number of shares outstanding. A high ratio is always preferred (Babalola, & Abiola, 2013). Ardent Leisure’s ratio remains stable at 0.1 within the five-year period, which is a poor indication that it has not made enough efforts to improve on its dividend value. Dividend yield= dividends per share/ stock market price; is a ration that is used to measure the level of cash dividends that is distributed to the existing shareholders in relation to their market value (Babalola, & Abiola, 2013). A high dividend yield is preferred. Ardent Leisure’s ratio decreases from 0.07 t0 0.04 within the period meaning that the firm’s ability to pay investors a substantial percentage of dividends is average compared to the market value of the stocks. Dividend pay-out ratio is a measure of how net income is being distributed to the underlying existing shareholders of common stock. A consistent ratio is mostly preferred since enough percentage of income should be set aside for maintaining operations (Babalola, & Abiola, 2013). Ardent Leisure’s ratio increases within the period from 133.5% to 164.65% within the five-year period, which is an indication that the firm has tried to maintain an average pay-out ratio over the period. References Babalola, Y. A., & Abiola, F. R. (2013). Financial ratio analysis of firms: A tool for decision making. International Journal of Management Sciences, 1(4), 132-137. Read More