Essays on Financial Analysis for Fujairah Cement Industries Case Study

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The paper "Financial Analysis for Fujairah Cement Industries" is a perfect example of a finance and accounting case study. Fujairah Cement Industries is a publicly listed company founded in 1979 in the Emirate of Fujairah. The company’ s headquarters is in Dibba town where it has its largest plant facility. The facility has a capacity to produce 500,000 M. T of clinker with a cement grind machine of 800,000 tons per annum (Fujairah Cement Industries, 2016). The company’ s main product is the cement that is labeled by the popular name: Fujairah Cement, which has continued to enjoy a significant level of premium presence within the UAE and such other foreign-based markets as AGCC; Middle East: Africa; India and Bangladesh (Fujairah Cement Industries, 2016).

It is important to note that Fujairah Cement is a household name considering that it is engaged in the generation of high quality and excellent service within the construction field. The focus of this paper is conducting a company analysis; in relation to ratios; common size and Du Point, in order to establish the strengths and weaknesses of the organization and thereafter come up with a suggestion from a financial analyst point of view. Ratio Analysis 2.1 Liquidity Ratios Year/Ratios 2013 2014 2015 Current Ratio = current assets/current liabilities 455,335,960/483,005,149 =0.94 479,336,640/434,301,623 =1.1 429,814,518/338,822,523 = 1.27 Quick ratio= current assets- inventories / current liabilities 455,335,960-292,503,998/483,005,149 =0.33 479,336,640-295,507,123/434,301,623 =0.42 429,814,518-228,449,329/338,822,523 = 0.59 Analysis As can be seen from the chart-1 below, current ratio increases within the three-year period from 0.94 to 1.27 in the period between 2013 and 2015 respectively.

The same ratio pattern can be perceived with the quick ratio that increases from 0.33 to 0.59 in the period between 2013 and 2014. The increase in these ratios indicates that the company’ s ability to meet its short term commitments even without the use of current stock; has indeed improved over time.

This is an indication that Fujairah has been able to strengthen the level of its current assets in order to counter possible short-term obligations from suppliers. Chart-1 2.2 Efficiency Ratios Year/Ratios 2013 2014 2015 Total Asset Turnover= Sales/Total Assets 588,220,340/1,721,005,239 =0.34 615,499,320/1,732,959,507 = 0.35 612,207,552/1,734,750,246 = 0.35 Receivables turnover= sales/ accounts receivables 588,220,340/141,689,108 = 4.15 615,499,320/161,917,850 =3.80 612,207,552/168,639,094 =3.63 Inventory turnover= Cost of Goods Sold/Inventory 571,204,326/292,503,998 =1.95 559,617,603/295,507,123 =1.89 536,932,115/228,449,329 =2.35 Day’ s sales inventory= inventory/cost of goods sold*365 292,503,998/571,204,326*365 =186 days 295,507,123/559,617,603*365 days = 192 days 228,449,329/536,932,115*365 days = 155 days Analysis The company’ s total asset turnover ratio increases significantly within the three-year period from 0.34 to 0.35 in 2013 and 2015 respectively.

The insignificant improvement in the ratio is an indication that the company is facing management-related problems thereby affecting its ability to generate sales from the existing asset-base. This might be attributed to poor management policies in relation to replacement of worn-out assets like production equipment. The receivables turnover ratio has decreased over the three-year period from 4.15 to 3.63 in 2013 and 2015 respectively. The decrease in the ratio is a clear indication that the company has lost its capacity to quickly collect cash on products sold on credit terms.

This has the effect of reducing its overall capacity to execute day-to-day business operations due to the lack of sufficient cash resources. The inventory turnover ratio increases from 1.95 to 2.35 in the period between 2013 and 2015 respectively. The increase in the ratio value of the firm is an indication that it is making enough efforts to translate the existing stocks to revenues. This might be attributed to perfect pricing policies and marketing campaigns over the period for its products. It is likely that the firm has adopted an affordable pricing model for most of its cement product in most markets for which it operates thereby ensuring to post significant amounts of revenues. The day’ s sales inventory increases from 182 days to 192 days in the period between 2013 and 2014 and later drops down to 155 days in 2015.

The decrease in the ratio is an indication that the company has made efforts to ensure the sale of its stock in order to cut down on storage and management costs. This is a healthy attribute as it helps the company to accumulate enough cash flow resources needed in conducting daily business operations.

References

Fujairah Cement Industries. (2014). 2013/14 Annual report. Retrived from https://www.adx.ae/English/News/Pages/20150222081926697-FCI-EN.PDF

Fujairah Cement Industries. (2015). 2014/15 Annual report. Retrieved from http://www.fujairahcement.com/wp-content/uploads/2016/05/FINAL-FS-FCI-YE-2015-FS-ENGLISH.pdf

Fujairah Cement Industries. (2016). About Us. Retrieved from http://www.fujairahcement.com/company-profile/

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