Sonic Healthcare Financial Analysis
Sonic Healthcare Limited's 2008 Annual Report can be found on their website at: www.sonichealthcare.com/investor-information/annual-report.aspx. The following information can be located in this report.
| |Pages |
|Income Statements |46 |
|Balance sheets |47 |
|Cash flow statements |49 |
|Notes to the financial statements |50-62 |
In addition to the above, the following year 2006 information is extracted from Sonic Healthcare …show more content…
Limited's 2006 Annual Report and provides the 2006 values for certain items. This information is needed to calculate some of the comparative ratios for 2006:
|Item |2008 Value 2 |2007 Value 2 |2006 Value 1 |
| |$’000 |$’000 |$’000 |
|Shareholders' equity |$1,962,079 |$1,438,445 |$1,302,345 |
|Number of ordinary shares |326,845,998 |297,247,195 |295,203,095 |
|Total assets |$3,629,001 |$2,900,462 |$2,354,387 |
|Inventories |$41,342 |$32,429 |$26,926 |
|Receivables |$314,151 |$247,601 |$197,553 |
|Current Assets |$447,843 |$341,399 | |
|Current Liabilities |$831,193 |$705,582 | |
|Cash Flow from Operations |$331,885 |$267,935 | |
1 Taken from 101 Info Kit SP2 2009
2 Taken from the Consolidated Balance Sheet for the year 2008
Sonic Healthcare Limited's share price was $15.06 in 2007 and $14.55 in 2008.
Using consolidated figures, the following ratios are derived for the year 2007 and 2008.
Short-term solvency or liquidity ratios
a) Current ratio Current Ratio is termed as a liquidity ratio that measures company’s ability to pay short-term obligations. (http://www.investopedia.com)
Formula: Current Ratio = Current Assets / Current Liabilities
2007: Current assets = $341,399,000 Current liabilities = $705,582,000 Current ratio = $341,399,000 / $705,582,000 = 0.483854
2008: Current assets = $447,843,000 Current liabilities = $831,193,000 Current ratio = $447,843,000 / $831,193,000 = 0.53879544
b) Quick ratio Quick ration is termed as an indicator of the company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. (http://www.investopedia.com)
Formula: Quick Ratio = (Current Assets – Inventories) / Current Liabilities
2007: Current assets = $341,399,000 Inventories = $32,429,000 Current liabilities = $705,582,000 Current ratio = ($341,399,000 - $32,429,000) / $705,582,000 = 0.437894
2008: Current assets = $447,843,000 Inventories = $41,342,000 Current liabilities = $831,193,000 Current ratio = ($447,843,000 - $41,342,000) / $831,193,000 = 0.489057
c) Cash flow from operations to current liabilities Cash flow from operations to current liabilities is termed as a measure of how well current liabilities are covered by the cash flow generated from a company's operations.
(http://www.investopedia.com)
Formula: Cash flow from operations to current liabilities = Cash Flow from Operations / Current Liabilities
2007: Cash flow from operations = $267,935,000 Current liabilities = $705,582,000 Current ratio = $267,935,000 / $705,582,000 = 0.3797362
2008: Cash flow from operations = $331,885,000 Current liabilities = $831,193,000 Current ratio = $331,885,000 / $705,582,000 = 0.47037056
Efficiency ratios
d) Debtors' …show more content…
turnover Debtors turnover ratio is termed as a ratio that indicates the number of times the debtors are turned over a year. The higher the value of debtor’s turnover the more efficient is the management of debtors or more liquid the debtors are.
Formula: Debtor’s Turnover Ratio = Net Credit Sales / Average Trade Debtors
2007: Net Credit Sales = $1,873,853,000 Average Trade Debtors = $251,846,000 Debtor’s Turnover Ratio = $1,873,853,000 / $251,846,000 = 7.440472 2008: Net Credit Sales = $2,356,105,000 Average Trade Debtors = $318,023,000 Debtor’s Turnover Ratio = $2,356,105,000 / $318,023,000 = 7.4806
e) Average days sales unallocated Average days sales unallocated is the average daily receivables turnover ratio and is calculated as 365 / receivables turnover. Receivables turnover ratio is termed as a measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. (http://www.investopedia.com).
Formula: Average days sales unallocated = 365 / Receivables Turnover Receivables Turnover = Net Credit Sales / Average Accounts Receivable
2007: Net Credit Sales = $1,873,853,000 Average Accounts receivable = $251,846,000 Receivables Turnover = $1,873,853,000 / $251,846,000 = 7.440472
Average days sales unallocated = 365 / 7.440472 = 49.05603
2008: Net Credit Sales = $2,356,105,000 Average Accounts receivable = $318,023,000 Receivables Turnover = $2,356,105,000 / $318,023,000 = 7.4806
Average days sales unallocated = 365 / 7.4806 = 48.79288
f) Inventory turnover Inventory turnover ratio is termed as a ratio that indicates how many times a company’s sold and replaced over a period. (http://www.investopedia.com).
Formula: Inventory Turnover Ratio = Sales / Inventory
However, this ratio can also be calculated as Cost of goods sold / Average Inventory.
2007: Sales = $1,882,252,000 Inventory = $32,429,000 Inventory Turnover Ratio = $1,882,252,000 / $32,429,000 = 58.04225 2008: Sales = $2,371,418,000 Inventory = $41,342,000 Inventory Turnover Ratio = $2,371,418,000 / $41,342,000 = 57.36099
g) Inventory turnover in days Inventory turnover in days is the average days to sell the inventory.
Formula: Inventory Turnover Ratio = 365 / Inventory Turnover Ratio
2007: Inventory Turnover Ratio = 58.04225 Inventory Turnover Ratio in days = 365 / 58.04225 = 6.288523 2008: Inventory Turnover Ratio = 57.36099 Inventory Turnover Ratio in days = 365 / 57.36099 = 6.36321
Profitability ratios
h) Net Profit Margin Net profit margin is calculated as net income divided by revenues or net profits divided by sales. (http://www.investopedia.com).
Formula: Net profit margin = Net Profit / Sales
2007: Net Profit = $198,072,000 Sales = $1,882,252,000 Net Profit Margin = $198,072,000 / $1,882,252,000 = 0.105231 = 10.5231 % 2008: Net Profit = $245,116,000 Sales = $2,356,105,000 Net Profit Margin = $245,116,000 / $2,356,105,000 = 0.104034 = 10.4034 %
i) Interest Cost as Percentage of Sales
Formula: Interest cost as percentage of sales = Interest cost / Sales
2007: Interest Cost = $64,886,000 Sales = $2,356,105,000 Interest Cost as Percentage of Sales = $64,886,000 / $2,356,105,000 = 0.02754 = 2.754 % 2008: Interest Cost = $50,473,000 Sales = $1,873,853,000 Interest Cost as Percentage of Sales = $50,473,000 / $1,873,853,000 = 0.026935 = 2.6935 %
j) Asset Turnover Asset Turnover is termed as the amount of sales generated for every dollar’s worth of assets.
It is calculated by dividing sales in dollars by assets in dollars.
Formula: Asset Turnover = Revenue / Assets
2007: Revenue = $1,886,081,000 Assets = $2,900,462,000 Asset Turnover = $1,886,081,000 / $2,900,462,000 = 0.650269
2008: Revenue = $2,380,327,000 Assets = $3,629,001,000 Asset Turnover = $2,380,327,000 / $3,629,001,000 = 0.655918
k) Return on Assets For this assignment please use the following formula shown in Note ** to Table 14.1 in your prescribed text: (net profit + interest + income tax) / average total assets
Asset Turnover is termed as the amount of sales generated for every dollar’s worth of assets. It is calculated by dividing sales in dollars by assets in dollars.
Formula: Return on Assets = (Net Profit + Interest + Income Tax) / Average Total Assets
2007: Net Profit = $210,054,000 Interest = $50,473,000 Income tax = $80,402,000 Average Total Assets = $2,900,462 Return on Assets = ($210,054,000 + $50,473,000 + $80,402,000)
/ $2,900,462,000 = 0.117542998 = 11.7542998 %
2008: Net Profit = $250,406,000 Interest = $64,886,000 Income tax = $81,461,000 Average Total Assets = $3,629,001,000 Return on Assets = ($250,406,000 + $64,886,000 + $81,461,000) / $3,629,001,000 = 0.109328435 = 10.9328435 %
l) Return on Ordinary Shareholders’ Equity Return on Ordinary Shareholders Equity (ROE) is the amount of net income returned as a percentage of shareholder’s equity. Return on equity measures the company’s profitability by revealing hoe much profit a company generates with the money share holders have invested. (http://www.investopedia.com).
Formula: Return on Ordinary Shareholders’ Equity = Net Income / Shareholders’ Equity
2007: Net Income = $1,886,081,000 Shareholders’ Equity = $1,438,445,000 Return on Ordinary Shareholders’ Equity = $1,886,081,000 / $1,438,445,000 = 1.31119438
2008: Net Income = $2,380,327,000 Shareholders’ Equity = $1,962,079,000 Return on Ordinary Shareholders’ Equity = $2,380,327,000 / $1,962,079,000 = 1.213166
Long-term solvency or financing ratios
m) Debt to Equity Debt to Equity Ratio is termed as a company’s financial leverage calculated by dividing its total liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is using to finance its assets. (http://www.investopedia.com).
Formula: Debt to Equity Ratio = Total Liabilities / Shareholders’ Equity
2007: Total Liabilities = $1,462,017,000 Shareholders’ Equity = $1,438,445,000 Debt to Equity Ratio = $1,462,017,000 / $1,438,445,000 = 1.016387 2008: Total Liabilities = $1,666,922,000 Shareholders’ Equity = $1,962,079,000 Debt to Equity Ratio = $1,666,922,000 / $1,962,079,000 = 0.849569
n) Debt to Total Assets Debt to Total Assets Ratio is a metric used to measure a company’s financial risk by determining how much of the company’s assets have been financed by debt. This is calculated by adding short-term and long-term debt and then dividing by the company's total assets. (http://www.investopedia.com).
Formula: Debt to Total Assets Ratio = Total Liabilities / Total Assets
2007: Total Liabilities = $1,462,017,000 Total Assets = $1,438,445,000 Debt to Total Assets Ratio = $1,462,017,000/ $1,438,445,000 = 1.016387 2008: Total Liabilities = $1,666,922,000 Total Assets = $1,962,079,000 Debt to Total Assets Ratio = $1,666,922,000 / $1,962,079,000 = 0.849569
o) Interest Coverage Interest Coverage Ratio is a measure of how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period. (http://www.investopedia.com).
Formula: Interest Coverage Ratio = EBIT / Interest Expense
2007: EBIT = $340,929,000 Interest Expense = $50,473,000 Interest Coverage Ratio = $340,929,000 / $50,473,000 = 6.754681 2008: EBIT = $396,753,000 Interest Expense = $64,886,000 Interest Coverage Ratio = $396,753,000 / $64,886,000 = 6.114616
p) Cash flow from operations to total liabilities Cash flow from operations to total liabilities is termed as a measure of how well total liabilities are covered by the cash flow generated from a company's operations.
Formula: Cash flow from operations to total liabilities = Cash Flow from Operations / Total Liabilities
2007: Cash flow from operations = $267,935,000 Total liabilities = $1,462,017,000 Current ratio = $267,935,000 / $1,462,017,000 = 0.183264
2008: Cash flow from operations = $331,885,000 Total liabilities = $1,666,922,000 Current ratio = $331,885,000 / $1,666,922,000 = 0.1991
Market-based investment and other ratios
q) Price/Earnings P/E Price/Earnings ratio is a valuation ratio of a company’s current share price compared to its per-share earnings. (http://www.investopedia.com).
Formula: Price/Earnings ratio = Market Value per Share / Earnings per Share (EPS)
2007: Market Value per Share = $15.06 Earnings per Share = $0.666 Price/Earnings ratio = $15.06 / $0.666 = 22.6126
2008: Market Value per Share = $14.55 Earnings per Share = $0.75 Price/Earnings ratio = $14.55 / $0.75 = 19.4
r) Dividend yield Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. (http://www.investopedia.com).
Formula: Dividend Yield = Annual Dividends per Share / Price per Share (EPS)
2007: Annual Dividends per Share = $0.46 Price per Share = $15.06 Dividend Yield = $0.46 / $15.06 = 0.030544 = 3.0544 %
2008: Annual Dividends per Share = $0.52 Price per Share = $14.55 Dividend Yield = $0.52 / $14.55 = 0.035739 = 3.5739 %
s) Dividend cover Dividend Cover ratio is a financial ratio that shows the percentage of earnings paid to shareholders in dividends. It is calculated as earnings per share divided by dividends per share. (http://www.investopedia.com).
Formula: Dividend Cover = Earnings per Share / Dividends per Share
2007: Earnings per Share = $0.666 Dividends per Share = $0.46 Dividend Cover = $0.666 / $0.46 = 1. 447826
2008: Earnings per Share = $0.75 Dividends per Share = $0.52 Dividend Cover = $0.75 / $0.52 = 1. 442308
t) Net tangible asset backing For this assignment please use the following formula: Net tangible assets ÷ Balance of no. of ordinary shares issued for accounting purposes
Net tangible asset backing ratio is a financial ratio that shows the actual net amount of tangible assets represented by each ordinary share of the company.
Formula: Net tangible asset backing = Net tangible assets / Balance of no. of ordinary shares issued for accounting purposes
2007: Net tangible assets = $751,025,000 Balance of no. of ordinary shares = 297,247,195 Net tangible asset backing = $751,025,000/ 297,247,195 = 2.526601
2008: Net tangible assets = $928,770,000 Balance of no. of ordinary shares = 326,845,998 Net tangible asset backing = $928,770,000/ 326,845,998 = 2. 841613
Performance and Financial Standing
Sonic Healthcare has a record of steadily improving growth every year during the past few years. The company has noted stability in terms of industrial growth as well as investor returns
Performance
Performance during the year 2008 was important for the company especially during the worldwide recession. By looking at the financial ratios, it is very much evident that the company has shown growth in all areas. The ratios shows that the ROI has reduced when compared to the previous year but this is due to some major acquisitions the company has made during the period.
The above arguments can be supported by analysing the financial ratios presented above.
Short-term solvency or liquidity ratios
The company has a improved very much in these ratios thus proving the excellent performance during the year 2008. During the recession period it has shown that it has enough funds for mobility. The company has enough funds for liquidity and can meet the short-term liabilities without much difficulty. During this period it is important to have liquid funds for the stability of the company.
Efficiency ratios
The efficiency ratios have marginal increase over the previous year which could be due to the market conditions as well as due to the acquisitions made during the year. The market was going through recession but at the same time the company didn’t lose efficiency. It is due to the nature of business. Also the company has acquired some additional business units. At the same time it should be noted that the company should have more focus in improving efficiency.
Profitability ratios
The profitability ratios show a down turn as opposed to the other ratios. This is because of acquisitions made during the year and this should improve during forthcoming years. Even though the ratios are down, when it is compared against the global market performance, the company has done well. But this should be considered with a view to its prior years performance.
Long-term solvency or financial ratios
These ratios have improved overall to a great extend except the interest ratios but gain this is well evident due to the additions in the assets. The company has expanded acquiring multiple units and extending its services to other regions as well. This is a growth in good direction which will help in future performance.
Market-based investment and other ratios
Since the share price has gone down, its market performance is not well but at the same time, since the dividend and earnings per share is good, it will not affect much in the performance. Since there are lot of acquisitions and the earnings per share is showing good benefits, it is an indicator for share value increase for future.
Financial Standing
The company has a very good financial standing. It could show good performance with along with acquisitions and expansions to other countries. The market was not very supportive in terms of sales but considering the overall market plunge the minor reductions in some rations should not be considered as negative.
The company should be focusing on being more efficient by improving the process and efficiently managing the new units as well.
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UNIT PDM 101
ASSIGNMENT – STUDY PERIOD 2, 2009
Name : XXXXXXXXXX
Student ID : NNNNNNN
Unit No : UNIT PDM 101
Title : Financial Management
2009
Issac
[Type the company name]
9/16/2009
| |Pages |
|Income Statements |46 |
|Balance sheets |47 |
|Cash flow statements |49 |
|Notes to the financial statements |50-62 |
In addition to the above, the following year 2006 information is extracted from Sonic Healthcare …show more content…
Limited's 2006 Annual Report and provides the 2006 values for certain items. This information is needed to calculate some of the comparative ratios for 2006:
|Item |2008 Value 2 |2007 Value 2 |2006 Value 1 |
| |$’000 |$’000 |$’000 |
|Shareholders' equity |$1,962,079 |$1,438,445 |$1,302,345 |
|Number of ordinary shares |326,845,998 |297,247,195 |295,203,095 |
|Total assets |$3,629,001 |$2,900,462 |$2,354,387 |
|Inventories |$41,342 |$32,429 |$26,926 |
|Receivables |$314,151 |$247,601 |$197,553 |
|Current Assets |$447,843 |$341,399 | |
|Current Liabilities |$831,193 |$705,582 | |
|Cash Flow from Operations |$331,885 |$267,935 | |
1 Taken from 101 Info Kit SP2 2009
2 Taken from the Consolidated Balance Sheet for the year 2008
Sonic Healthcare Limited's share price was $15.06 in 2007 and $14.55 in 2008.
Using consolidated figures, the following ratios are derived for the year 2007 and 2008.
Short-term solvency or liquidity ratios
a) Current ratio Current Ratio is termed as a liquidity ratio that measures company’s ability to pay short-term obligations. (http://www.investopedia.com)
Formula: Current Ratio = Current Assets / Current Liabilities
2007: Current assets = $341,399,000 Current liabilities = $705,582,000 Current ratio = $341,399,000 / $705,582,000 = 0.483854
2008: Current assets = $447,843,000 Current liabilities = $831,193,000 Current ratio = $447,843,000 / $831,193,000 = 0.53879544
b) Quick ratio Quick ration is termed as an indicator of the company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. (http://www.investopedia.com)
Formula: Quick Ratio = (Current Assets – Inventories) / Current Liabilities
2007: Current assets = $341,399,000 Inventories = $32,429,000 Current liabilities = $705,582,000 Current ratio = ($341,399,000 - $32,429,000) / $705,582,000 = 0.437894
2008: Current assets = $447,843,000 Inventories = $41,342,000 Current liabilities = $831,193,000 Current ratio = ($447,843,000 - $41,342,000) / $831,193,000 = 0.489057
c) Cash flow from operations to current liabilities Cash flow from operations to current liabilities is termed as a measure of how well current liabilities are covered by the cash flow generated from a company's operations.
(http://www.investopedia.com)
Formula: Cash flow from operations to current liabilities = Cash Flow from Operations / Current Liabilities
2007: Cash flow from operations = $267,935,000 Current liabilities = $705,582,000 Current ratio = $267,935,000 / $705,582,000 = 0.3797362
2008: Cash flow from operations = $331,885,000 Current liabilities = $831,193,000 Current ratio = $331,885,000 / $705,582,000 = 0.47037056
Efficiency ratios
d) Debtors' …show more content…
turnover Debtors turnover ratio is termed as a ratio that indicates the number of times the debtors are turned over a year. The higher the value of debtor’s turnover the more efficient is the management of debtors or more liquid the debtors are.
Formula: Debtor’s Turnover Ratio = Net Credit Sales / Average Trade Debtors
2007: Net Credit Sales = $1,873,853,000 Average Trade Debtors = $251,846,000 Debtor’s Turnover Ratio = $1,873,853,000 / $251,846,000 = 7.440472 2008: Net Credit Sales = $2,356,105,000 Average Trade Debtors = $318,023,000 Debtor’s Turnover Ratio = $2,356,105,000 / $318,023,000 = 7.4806
e) Average days sales unallocated Average days sales unallocated is the average daily receivables turnover ratio and is calculated as 365 / receivables turnover. Receivables turnover ratio is termed as a measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. (http://www.investopedia.com).
Formula: Average days sales unallocated = 365 / Receivables Turnover Receivables Turnover = Net Credit Sales / Average Accounts Receivable
2007: Net Credit Sales = $1,873,853,000 Average Accounts receivable = $251,846,000 Receivables Turnover = $1,873,853,000 / $251,846,000 = 7.440472
Average days sales unallocated = 365 / 7.440472 = 49.05603
2008: Net Credit Sales = $2,356,105,000 Average Accounts receivable = $318,023,000 Receivables Turnover = $2,356,105,000 / $318,023,000 = 7.4806
Average days sales unallocated = 365 / 7.4806 = 48.79288
f) Inventory turnover Inventory turnover ratio is termed as a ratio that indicates how many times a company’s sold and replaced over a period. (http://www.investopedia.com).
Formula: Inventory Turnover Ratio = Sales / Inventory
However, this ratio can also be calculated as Cost of goods sold / Average Inventory.
2007: Sales = $1,882,252,000 Inventory = $32,429,000 Inventory Turnover Ratio = $1,882,252,000 / $32,429,000 = 58.04225 2008: Sales = $2,371,418,000 Inventory = $41,342,000 Inventory Turnover Ratio = $2,371,418,000 / $41,342,000 = 57.36099
g) Inventory turnover in days Inventory turnover in days is the average days to sell the inventory.
Formula: Inventory Turnover Ratio = 365 / Inventory Turnover Ratio
2007: Inventory Turnover Ratio = 58.04225 Inventory Turnover Ratio in days = 365 / 58.04225 = 6.288523 2008: Inventory Turnover Ratio = 57.36099 Inventory Turnover Ratio in days = 365 / 57.36099 = 6.36321
Profitability ratios
h) Net Profit Margin Net profit margin is calculated as net income divided by revenues or net profits divided by sales. (http://www.investopedia.com).
Formula: Net profit margin = Net Profit / Sales
2007: Net Profit = $198,072,000 Sales = $1,882,252,000 Net Profit Margin = $198,072,000 / $1,882,252,000 = 0.105231 = 10.5231 % 2008: Net Profit = $245,116,000 Sales = $2,356,105,000 Net Profit Margin = $245,116,000 / $2,356,105,000 = 0.104034 = 10.4034 %
i) Interest Cost as Percentage of Sales
Formula: Interest cost as percentage of sales = Interest cost / Sales
2007: Interest Cost = $64,886,000 Sales = $2,356,105,000 Interest Cost as Percentage of Sales = $64,886,000 / $2,356,105,000 = 0.02754 = 2.754 % 2008: Interest Cost = $50,473,000 Sales = $1,873,853,000 Interest Cost as Percentage of Sales = $50,473,000 / $1,873,853,000 = 0.026935 = 2.6935 %
j) Asset Turnover Asset Turnover is termed as the amount of sales generated for every dollar’s worth of assets.
It is calculated by dividing sales in dollars by assets in dollars.
Formula: Asset Turnover = Revenue / Assets
2007: Revenue = $1,886,081,000 Assets = $2,900,462,000 Asset Turnover = $1,886,081,000 / $2,900,462,000 = 0.650269
2008: Revenue = $2,380,327,000 Assets = $3,629,001,000 Asset Turnover = $2,380,327,000 / $3,629,001,000 = 0.655918
k) Return on Assets For this assignment please use the following formula shown in Note ** to Table 14.1 in your prescribed text: (net profit + interest + income tax) / average total assets
Asset Turnover is termed as the amount of sales generated for every dollar’s worth of assets. It is calculated by dividing sales in dollars by assets in dollars.
Formula: Return on Assets = (Net Profit + Interest + Income Tax) / Average Total Assets
2007: Net Profit = $210,054,000 Interest = $50,473,000 Income tax = $80,402,000 Average Total Assets = $2,900,462 Return on Assets = ($210,054,000 + $50,473,000 + $80,402,000)
/ $2,900,462,000 = 0.117542998 = 11.7542998 %
2008: Net Profit = $250,406,000 Interest = $64,886,000 Income tax = $81,461,000 Average Total Assets = $3,629,001,000 Return on Assets = ($250,406,000 + $64,886,000 + $81,461,000) / $3,629,001,000 = 0.109328435 = 10.9328435 %
l) Return on Ordinary Shareholders’ Equity Return on Ordinary Shareholders Equity (ROE) is the amount of net income returned as a percentage of shareholder’s equity. Return on equity measures the company’s profitability by revealing hoe much profit a company generates with the money share holders have invested. (http://www.investopedia.com).
Formula: Return on Ordinary Shareholders’ Equity = Net Income / Shareholders’ Equity
2007: Net Income = $1,886,081,000 Shareholders’ Equity = $1,438,445,000 Return on Ordinary Shareholders’ Equity = $1,886,081,000 / $1,438,445,000 = 1.31119438
2008: Net Income = $2,380,327,000 Shareholders’ Equity = $1,962,079,000 Return on Ordinary Shareholders’ Equity = $2,380,327,000 / $1,962,079,000 = 1.213166
Long-term solvency or financing ratios
m) Debt to Equity Debt to Equity Ratio is termed as a company’s financial leverage calculated by dividing its total liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is using to finance its assets. (http://www.investopedia.com).
Formula: Debt to Equity Ratio = Total Liabilities / Shareholders’ Equity
2007: Total Liabilities = $1,462,017,000 Shareholders’ Equity = $1,438,445,000 Debt to Equity Ratio = $1,462,017,000 / $1,438,445,000 = 1.016387 2008: Total Liabilities = $1,666,922,000 Shareholders’ Equity = $1,962,079,000 Debt to Equity Ratio = $1,666,922,000 / $1,962,079,000 = 0.849569
n) Debt to Total Assets Debt to Total Assets Ratio is a metric used to measure a company’s financial risk by determining how much of the company’s assets have been financed by debt. This is calculated by adding short-term and long-term debt and then dividing by the company's total assets. (http://www.investopedia.com).
Formula: Debt to Total Assets Ratio = Total Liabilities / Total Assets
2007: Total Liabilities = $1,462,017,000 Total Assets = $1,438,445,000 Debt to Total Assets Ratio = $1,462,017,000/ $1,438,445,000 = 1.016387 2008: Total Liabilities = $1,666,922,000 Total Assets = $1,962,079,000 Debt to Total Assets Ratio = $1,666,922,000 / $1,962,079,000 = 0.849569
o) Interest Coverage Interest Coverage Ratio is a measure of how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period. (http://www.investopedia.com).
Formula: Interest Coverage Ratio = EBIT / Interest Expense
2007: EBIT = $340,929,000 Interest Expense = $50,473,000 Interest Coverage Ratio = $340,929,000 / $50,473,000 = 6.754681 2008: EBIT = $396,753,000 Interest Expense = $64,886,000 Interest Coverage Ratio = $396,753,000 / $64,886,000 = 6.114616
p) Cash flow from operations to total liabilities Cash flow from operations to total liabilities is termed as a measure of how well total liabilities are covered by the cash flow generated from a company's operations.
Formula: Cash flow from operations to total liabilities = Cash Flow from Operations / Total Liabilities
2007: Cash flow from operations = $267,935,000 Total liabilities = $1,462,017,000 Current ratio = $267,935,000 / $1,462,017,000 = 0.183264
2008: Cash flow from operations = $331,885,000 Total liabilities = $1,666,922,000 Current ratio = $331,885,000 / $1,666,922,000 = 0.1991
Market-based investment and other ratios
q) Price/Earnings P/E Price/Earnings ratio is a valuation ratio of a company’s current share price compared to its per-share earnings. (http://www.investopedia.com).
Formula: Price/Earnings ratio = Market Value per Share / Earnings per Share (EPS)
2007: Market Value per Share = $15.06 Earnings per Share = $0.666 Price/Earnings ratio = $15.06 / $0.666 = 22.6126
2008: Market Value per Share = $14.55 Earnings per Share = $0.75 Price/Earnings ratio = $14.55 / $0.75 = 19.4
r) Dividend yield Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. (http://www.investopedia.com).
Formula: Dividend Yield = Annual Dividends per Share / Price per Share (EPS)
2007: Annual Dividends per Share = $0.46 Price per Share = $15.06 Dividend Yield = $0.46 / $15.06 = 0.030544 = 3.0544 %
2008: Annual Dividends per Share = $0.52 Price per Share = $14.55 Dividend Yield = $0.52 / $14.55 = 0.035739 = 3.5739 %
s) Dividend cover Dividend Cover ratio is a financial ratio that shows the percentage of earnings paid to shareholders in dividends. It is calculated as earnings per share divided by dividends per share. (http://www.investopedia.com).
Formula: Dividend Cover = Earnings per Share / Dividends per Share
2007: Earnings per Share = $0.666 Dividends per Share = $0.46 Dividend Cover = $0.666 / $0.46 = 1. 447826
2008: Earnings per Share = $0.75 Dividends per Share = $0.52 Dividend Cover = $0.75 / $0.52 = 1. 442308
t) Net tangible asset backing For this assignment please use the following formula: Net tangible assets ÷ Balance of no. of ordinary shares issued for accounting purposes
Net tangible asset backing ratio is a financial ratio that shows the actual net amount of tangible assets represented by each ordinary share of the company.
Formula: Net tangible asset backing = Net tangible assets / Balance of no. of ordinary shares issued for accounting purposes
2007: Net tangible assets = $751,025,000 Balance of no. of ordinary shares = 297,247,195 Net tangible asset backing = $751,025,000/ 297,247,195 = 2.526601
2008: Net tangible assets = $928,770,000 Balance of no. of ordinary shares = 326,845,998 Net tangible asset backing = $928,770,000/ 326,845,998 = 2. 841613
Performance and Financial Standing
Sonic Healthcare has a record of steadily improving growth every year during the past few years. The company has noted stability in terms of industrial growth as well as investor returns
Performance
Performance during the year 2008 was important for the company especially during the worldwide recession. By looking at the financial ratios, it is very much evident that the company has shown growth in all areas. The ratios shows that the ROI has reduced when compared to the previous year but this is due to some major acquisitions the company has made during the period.
The above arguments can be supported by analysing the financial ratios presented above.
Short-term solvency or liquidity ratios
The company has a improved very much in these ratios thus proving the excellent performance during the year 2008. During the recession period it has shown that it has enough funds for mobility. The company has enough funds for liquidity and can meet the short-term liabilities without much difficulty. During this period it is important to have liquid funds for the stability of the company.
Efficiency ratios
The efficiency ratios have marginal increase over the previous year which could be due to the market conditions as well as due to the acquisitions made during the year. The market was going through recession but at the same time the company didn’t lose efficiency. It is due to the nature of business. Also the company has acquired some additional business units. At the same time it should be noted that the company should have more focus in improving efficiency.
Profitability ratios
The profitability ratios show a down turn as opposed to the other ratios. This is because of acquisitions made during the year and this should improve during forthcoming years. Even though the ratios are down, when it is compared against the global market performance, the company has done well. But this should be considered with a view to its prior years performance.
Long-term solvency or financial ratios
These ratios have improved overall to a great extend except the interest ratios but gain this is well evident due to the additions in the assets. The company has expanded acquiring multiple units and extending its services to other regions as well. This is a growth in good direction which will help in future performance.
Market-based investment and other ratios
Since the share price has gone down, its market performance is not well but at the same time, since the dividend and earnings per share is good, it will not affect much in the performance. Since there are lot of acquisitions and the earnings per share is showing good benefits, it is an indicator for share value increase for future.
Financial Standing
The company has a very good financial standing. It could show good performance with along with acquisitions and expansions to other countries. The market was not very supportive in terms of sales but considering the overall market plunge the minor reductions in some rations should not be considered as negative.
The company should be focusing on being more efficient by improving the process and efficiently managing the new units as well.
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UNIT PDM 101
ASSIGNMENT – STUDY PERIOD 2, 2009
Name : XXXXXXXXXX
Student ID : NNNNNNN
Unit No : UNIT PDM 101
Title : Financial Management
2009
Issac
[Type the company name]
9/16/2009