The subject company that I chose is the Emirates Telecommunications Corporation Group. It is a limited company that is publicly listed on the Abu Dhabi Securities Exchange (ADX) as ETISALAT. The principal activities of the company are those related to telecommunications, media with related equipment, contracting, and consultation services to international telecommunications firm and consortia. Given the industry in which it does its business, 60% of its interest is controlled by the Emirates Investment Authority.
The accounting ratios and financial analysis are based on the two most recent annual reports – 2013 and 2012. Results are compared with other public telecommunications provider namely Ooredoo and the Emirates Integrated Telecommunications Company. Ooredoo was formerly known as Qatar Telecom and traded on the ADX as ORDS. The latter was rebranded as Du in 2006 and listed on the Dubai Financial Market (DFM) as DU. Financial results for the year 2011 are also used in turnover computations to determine the average amounts. All numbers were rounded off to the nearest hundredths.
Liquidity Ratios
Current Ratio = Current Assets ÷ Current Liabilities
Acid Test Ratio = (Cash + Temporary Investments + Accounts Receivable) ÷ Current Liabilities
Absolute Liquid Ratio = (Cash + Temporary Investments) ÷ Current Liabilities
Current Cash Debt Coverage Ratio = Net Cash Provided by Operating Activities ÷ Average Current Liabilities
Dividend Yield Ratio = Dividend per Share ÷ Market Price per Share
Dividend Payout Ratio = Dividend per Share ÷ Earnings per Share
Liquidity ratios are used to measure the company’s ability to pay its short-term obligations. It is analyzed in relation to activity ratios and computed by comparing the adequacy of the current and liquid assets with the current liabilities. The absolute liquid ratio is the most conservative among the first three liquidity ratios.
The liquidity of Etisalat has improved from 2012 especially its debt coverage ratio. However, the overall liquidity of the company lags behind Ooredoo and the Emirates Integrated Telecommunications Company
Profitability Ratios
Gross Margin = Gross Profit ÷ Net Sales
Profit Margin = Net Income ÷ Net Sales
Earnings per Share = Net Income Available to Common Stockholders ÷ Weighted Average Number of Shares Outstanding
Price Earnings Ratio = Market Price per Share ÷ Earnings per Share
Operating Ratio = (Operating Costs ÷ Net Sales) x 100
Return on Assets = (Net Income ÷ Total Assets) x 100
Return on Equity = (Net Income ÷ Average Stockholders’ Equity) x 100
Profitability ratios measure the performance of the management in the employment of various business resources in the realization of profits. The market prices used in the computations were closing rates as of November 10, 2014. The ratios were computed from the amounts in their respective annual reports. Although Ooredoo’s presentation currency is the Qatari Riyal, these amounts were no longer converted to UAE Dirham given that foreign exchange differences were deemed negligible.
The profitability of Etisalat is slightly better than its competitors in the telecommunications industry. However, it is important to note that its operating costs are significantly higher at 63.57%. If these costs continue to increase, it may result to adverse effects on Etisalat’s future earnings.
Activity and Solvency Ratios
Working Capital = Current Assets – Current Liabilities
Asset Turnover = Net Sales ÷ Average Total Assets
Debt to Equity Ratio = Total Liabilities ÷ Total Stockholders’ Equity
Times Interest Earned = Earnings before Interests and Taxes ÷ Interest Expense
Fixed Assets to Equity Ratio = Total Fixed Assets ÷ Total Stockholders’ Equity
Proprietary Ratio = Total Stockholders’ Equity ÷ (Total Assets - Goodwill)
Proprietors’ Fund Ratio = Current Assets ÷ Total Stockholders’ Equity
Since the company primarily engaged in providing telecommunication services instead of manufacturing, only two activity ratios were computed: the working capital and asset turnover. Both of these ratios showed favorable business operations for the company.
Solvency ratios were also computed to measure Etisalat’s ability to continue as a going concern. Almost all of its solvency ratios improved from its previous standing. This indicates that the company now has a more favorable capital structure and credit rating. Although the proprietary ratio decreased from 2012, it is still higher than that of both Ooredoo and the Emirates Integrated Telecommunications Company.
References:
- “du Annual Reports.” EITC. Emirates Integrated Telecommunications Company,
2013. Web. 10 November 2014.
- “Etisalat Annual Reports.” Etisalat. Etisalat Telecommunications Corporation, 2014.
Web. 10 November 2014.
- “Ooredoo Annual Reports.” Ooredoo. Ooredoo Qatari Shareholding Company, 2014.
Web. 10 November 2014.
- Rich, Jay, Jefferson Jones, Maryanne Mowen and Don Hansen. Cornerstones of
Financial Accounting. Ohio: Mason, 2012. Digital Print.
