In the past, to finance acquisitions, the firm has mainly utilized "short-term debt and repaid such debt through the subsequent issuance of equity and long-term debt." The company has $11.5 million in variable rate debt which, if the interest rates increase, could cause an increased amount of cash to service the debt. With the company's current debt to equity ratio (mentioned in the financial analysis segment), and the current economic crisis, it may be difficult to raise the required capital to complete the acquisition.
Some concerns about the company's acquisitions are with stand-alone debt which increased to $14.5 million from $3.2 million, and they are counting with the sales of the some of these acquisitions assets to repay part of this debt. They are counting in their experience and ability to execute assets sales and drop -- downs to get meaningful cost saving as this is not the first time they have acquired a company with their acquisition of Santa Fe pacific partners in 1997 and KN Energy in 1999.
C. The trend within the sector is one of mass consolidation. In the midst of the current market pessimism, many companies are going bankrupt or struggling to remain profitable. This creates purchasing opportunities as stronger competitors now have an opportunity to purchase a rival at very low prices relative to their intrinsic value. This is especially important for Gulf Cement Company as it now has a means to increase earnings per share while also diversifying its distribution network. As such, the industry is taking advantage of low asset values and purchasing competitors then might not have otherwise considered.
Cost of goods sold
Return on Equity
Return on Assets
Return on Investment
Debt / Equity Ratio
Earning per share
As stated earlier, the financial statements do have some question marks in regards to accounting policies and gimmicks. Many of which can be attributed to the bad economic environment in which the company operates. Even with some of these gimmicks, the company is doing reasonably well in regards to debt, profitability, cash flow and earnings. Below is a comprehensive break down of many of the profitability, debt and cash flow metrics used by analyst to evaluate a company and its financial statements? Overall, the company does need improvement in some areas, but in aggregate the company has many strong points as well. We also must acknowledge that the company is in a cyclical business in regards to its operations. As many other cyclical operations, the company occasionally underperforms the market during periods of extreme macroeconomic pessimism. Likewise, during periods of mass euphoria, the company generally outperforms the market. The financial statements used to conduct this ratio analysis (2008-2010) have been periods of extreme uncertainty and market volatility. As such, these numbers may not be indicative to then what the business might produce in normal economic circumstances. Nonetheless, I believe these assessments below are indicative of company performance.
Return on Assets
One of the most widely used profitability ratios, because of its relation to both the profit margin and asset turnover, is the Return on Asset ratio. ROA helps show how well the company controls its costs and how efficient they are in utilizing their resources. The ROA of 4.46% is quite acceptable and may be an indication of management effectively using capital to create shareholder wealth. This is of particular interest to the bank as incompetent management may plunge the company in bankruptcy. The company is in a strong financial position as they are receiving $.44 for every dollar invested. By gaining $.44 for every dollar invested, the Gulf Cement Company has historically shown it can do so adequately.
Return on Equity
The return on equity (ROE) is the best measure of the return, since it is the product of the operating performance, asset turnover, and debt-equity management of the firm. It is the ability to show how well the firm can generate profits through the leveraging and borrowing of money. The ROE for Creative Activities Pty Ltd. is again a satisfactory 11%. Shareholders who are financing the business operations of the company are gaining $.11 for every dollar invested. Again, if the Gulf Cement Company needs