In this paper,we perform a financial analysis and a review of corporate governance for GULF CEMENT COMPANY P.S.C.The report adopts the following format: a. Introduction about the company b. Horizontal/vertical analysis should be used (use annual reports for 2008, 2009, 2010).for financial statement –when you breakdown the item analyze the significant item and then break it down more. c. Trend analysis need to be considered against the same sector. d. Relevant ratios should be employed focus on Liquidity Measures (Working Capital, Current Ratio, Quick Ratio), profitability (Return on equity, Return on investment, Gross margin ratio)and Solvency ratios(Debt Ratio, Debt/Equity Ratio) for the three years and show how did you calculate each ratio, then give an explanation for the results e. Cash flow performance, in particular the operating cash flow. f. Need to forecast cash flow in order to ascertain the ability to repay future debts. g. Determine the corporate governance mechanisms for each company (e.g., board size, shareholders, and auditors). h. Link these mechanisms with the results of your analysis i. Demonstrate the main sources of risk including those beyond your company's control j. Marks will be awarded for your own personal opinions and, in particular, recommendations. It is important that you provide academic support for your critical evaluation and recommendation, as marks will be awarded for this
Gulf Cement Company PSC (GCC) is according to Market Research (2011) a publicly traded company that deals with the production of cement. The company manufactures as well as exports cement to a total of twelve nations. The company deals with the production, marketing as well as sales of clinkers, cements as well as other related products. The company's product portfolio is made up of Portland cement, Portland blast furnace cement as well as ground furnace slag. The company's products are offered in the domestic and oversee markets. The company also has a manufacturing facility which operates in the Emirate of Ras Al Khaimah's Khor Khuwair area. This facility has an annual production capacity of close to two and half million tons of cement as well as 1.3 million tonnes of clicker. Gulf Cement Company PSC (GCC) also owns an electricity power generating station. It is headquartered in the city of Ras Al Khaimah of the United Arab Emirates. In this paper we perform a vertical and horizontal analysis of the company using the 2008, 2009 and 2010 financial statements. The review of the company's corporate governance mechanisms is also performed as well as the risks that it is exposed to.
In this paper, we begin with a calculation of the financial ratios. Then we present the vertical and horizontal analysis. A z-score analysis then follows and then it is then followed by review of the company's corporate governance mechanisms is also performed as well as the risks that it is exposed to.
Vertical Analysis
Horizontal analysis
Liquidity measures
Working capital
Working capital reveals the company's current position
It is calculated by considering the equation;
Working capital = Current Assets - Current Liabilities
2008 Working capital= 1,129,771,212- 151,535,647 = 978,235,565
2009 Working capital=1,032,407,213-118,726,784 =913,680,429
2010 Working capital=1,024,262,609-109,969,006=914,293,603
The trend indicates a general reduction in the working capital and this means the company's position has been on a downward spiral without much improvement.
Current ratio
This ratio measures the ability of the company to effectively pay its short-term obligations.
2008 Current ratio= 7.5
2009 Current ratio =8.7
2010 Current ratio =9.3
The trend indicates a general increase in the liquidity ratio. This is generally a good indication that the company can effectively pay its short-term obligations.
Quick ratio
Quick ratio is what indicates the general increase in a company's liquidity ratio. It measures the firm's ability to effectively meet its various short-term obligations using most of its liquid assets. A higher figure reflects a better position of a given company.
2008 Quick ratio = 5.95
2009 Quick ratio =6.83
2010 Quick ratio =7.23
The trend in quick ratio generally indicates an improvement or good trend in the company's ability to effectively meet its various short-term obligations using most of its liquid assets.
Profitability ratios
Return on investment (ROI)
A performance measure is employed in evaluate the efficiency of a given investment. It can also be used in comparing its efficiency to several other investments.
Return on Investment = Net Income after taxes/Shareholder's Equity (Total Assets-Total Liabilities)
2008 Return on investment = 2,118,827/( 1,810,626,071- 246,564,395)= 2,118,827/1,564,061,676 = 0.14%
2009 Return on investment = 36,165,310 / (1,649,954,411-172,891,948) = 36,165,310/1477062463= 2.5%
2010 Return on investment =73,636,501 / (1,592,528,763-123,488,012) =73,636,501/1,469,040,751=5%
The ROI trend indicates that the company is performing well through the years. It is experiencing an impressive growth in its ROI
Gross margin ratio
It indicates the proportion of revenue which is converted into gross profit
Gross Margin =
Gross Profit
Revenue
2008 Gross margin ratio = 329,441,609 / 1,078,139,939 =0.31=31%
2009 Gross margin ratio = 167,328,041 / 743,155,447=0.23=23%
2010 Gross margin ratio = 7,641,325 / 609,253,683=0.01=1%
The trend indicates a general reduction in the proportion of revenue which is converted into gross profit.
Solvency ratios
Debt ratio
The debt ratio shows the proportion of total debt that a given company has as compared to its assets. It provides an idea of the potential risks that a given company faces in regard to the debt-load.
2008 Debt ratio= 1,500,000/1,810,626,071= 8.3
2009 Debt ratio = 630,000/1,649,954,411= 3.8
2010 Debt ratio =0/1,592,528,763=0
The trend indicates a general reduction in debt in comparison to the total asset base.This shows that the proportion of total debt that a given company has as compared to its assets has been decreasing over the years, appositive sign for the company.
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