About the company
Founded in the year 1982 by George Washington University alumni Fadi Ghandour and his business partnerBill Kingson as Arab American Express, Amarex is an international main company and the first Arab company to secure listing on NASDAQ. The company was originally headquartered in Jordan which was late moved to Dubai, UAE. It is also the first mail delivery company to originate from Middle East. At present, it is the second largest mail delivery company after DHL and is continuing its expansion path through multiple acquisitions of mail delivery companies around the globe with some major acquisitions including, Priority AirFreight, InfoFort and Freight Professionals, etc.
The company is listed on NASDAQ where it got listed through an IPO issue of $7 Million during 1997. Later in 2005, courtesy consistent growth in its operations, it also got listed on Dubai Stock Exchange, with an IPO issue of $270 Million.
Pro-forma Income Statement
Pro-Forma Balance Sheet
Ratio Analysis
In this section, in order to have a deep insight into the financial statements of the company, we will conduct the ratio analysis for the year 2012 and 2013. The ratios to be covered under this section include, Liquidity Ratios, Profitability Ratios, Efficiency Ratios, Market Ratios and Leverage Ratios.
i)Liquidity Ratios:
In order to access the short-term payment obligation of the entity, we will include the following liquidity ratios:
-Current Ratio: Current Assets/ Current Liabilities
-Quick Ratio: Cash+ Receivables/ Current Liabilities
Liquidity Analysis
Referring from the above financial data, we can infer that over a year, the liquidity roots of the company have gone strong. As for the current ratio, the multiple has increased from 1.87 to 2.22 courtesy the current assets which have increased by 31.81% while the current liabilities had increased by 11%, thus providing a surge in the current ratio multiple. We even tested the liquidity using the stringent measure and again found the similar trend where the quick ratio of the company has increased from 1.63 to 2.01.
Hence, the liquidity position of the company is indeed strong and the company has the capacity to honor its short-term obligations.
ii)Profitability Analysis:
For the purpose of calculating the profit margins of the company, we will discuss the net profit margins and the return on equity, with the latter ratio also decoded through Dupont analysis
-Net Profit Margin: Net Profit/Revenue
-Return on Equity: Net Income/ Total Equity
-Return on Equity: Dupont Analysis
Dupont ROE: (Net Income/ Revenue)* (Revenue/ Total Assets)* (Total Assets/ Total Equity)
2012: (244/3105)*(3105/2715)*(2715/2046)
=0.078*1.14*1.32
=11.80%
2013: (278/3325)*(3325/2986)*(2986/2127)
=0.083*1.11*1.40
=12.93%
Profitability Analysis
Referring to the data above, we can witness that during 2013, the company has been successfully increasing its profit margins from 7.86% to 8.36%. The result is sourced from increased net income and revenue figures during the latest fiscal year.
The shareholders of the company will also be ecstatic to witness the increase in the ROE multiple from 12.39% to 13.32%. We even checked the sustainability of increased ROE multiple using the Dupont analysis and found that the increase in the ROE has been sourced from surged net income margins accompanied by marginal increase in the financial leverage form 1.32 to 1.40 while the asset turnover has reduced from 1.14 to 1.11.
However, increased ROE sourced from net margins is still acceptable although the company needs to improve its asset turnover. Overall, we can assert that the profitability roots of the company have gone strong.
iii) Efficiency Ratios
In order to access the efficiency of the management of the company to use their asset base, we will discuss the following efficiency ratio:
-Payables Period: 365/Payables Turnover
Efficiency Analysis
Referring to above financial data, we can infer that over a year, the company has been paying off their bills in 38 days only as compared to 40 days in 2012. This will allow the company to procure short-term credit on favorable terms.
iv) Leverage Ratios
With the objective of accessing the capacity of the company to honor their long-term obligation and to decode their capital structure, we will discuss the following solvency ratios:
-Total Debt- Equity: Total Debt/ Equity
-Interest Coverage Ratio: Operating Income/ Interest Expenses
Solvency Analysis
Noted from the above financial data, we can infer that during the year, the company has increased their reliance on the debt financing as the debt equity ratio increased from 0.01 to 0.06. However, the increase is justified as although the company has increased their debt reliance but has also been able to increase their interest coverage ratio from 39.31 46.27 in 2013. Thus, we can infer that the company now also has strong solvency roots.
v)Market Ratios
These ratios are also called Investment Ratios and provide direct indication if the stock is undervalued or overvalued when compared with the industrial averages. Hence, through these ratios, investors get to know if a particular stock is an investment opportunity.
-PE Ratio: Market Price/ EPS
-Price/Sales Ratio: Market Price/ Revenue
Market Ratio Analysis
Noted from the above financial data, we can infer that although the PE ratio of the company is less than the industrial average, but the multiple of 16.58 is still encouraging. (Price-Earnings Ratio) In addition, Price-Sales ratio multiple is lower than the industrial average that indicates the stock is relatively undervalued and offers an investment opportunity for the investors.
Economic Value Added
Another measure of company’s financial performance that is calculated as follows:
EVA= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)
= 366(1-.0928)- (121+2127)*.118
=332.03- 265.26
=$66.76
Recommendation: Buy Aramex
Referring to the trends in multiple ratio section where we found that the company has strong liquidity and improved profitability margins which are accompanied by better solvency and efficiency position, we would recommend the stock purchase to our investors. In addition, the market ratio has indicated that the company has strong growth potential with the PE ratio as high as 16.58 and is also undervalued with Price-Sales ratio lower than the industrial average.
Hence, we are sure that the investors will benefit from stock purchase of Aramex.
Works Cited
Apple Inc- Industry Peers. (n.d.). Retrieved December 1, 2014, from Morningstar: http://financials.morningstar.com/competitors/industry-peer.action?t=AAPL®ion=usa&culture=en-US
Aramex- Key Ratios. (n.d.). Retrieved December 6, 2014, from Morningstar: http://financials.morningstar.com/ratios/r.html?t=ARMX®ion=are&culture=en-US
Economic Value Added. (n.d.). Retrieved December 9, 2014, from Investopedia: http://www.investopedia.com/terms/e/eva.asp
PE Ratio. (n.d.). Retrieved December 6, 2014, from Investopedia: http://www.investopedia.com/terms/p/price-earningsratio.asp
Price to Sales Ratio-Industrial Average. (n.d.). Retrieved December 6, 2014, from CSI Market: http://csimarket.com/Industry/industry_valuation_ttm.php?ps&ind=1101
Price-Sales Ratio. (n.d.). Retrieved December 1, 2014, from Investopedia: http://www.investopedia.com/terms/p/price-to-salesratio.asp
