Financial ratio: The following are the financial rations: ETISALAT COMPANYDU UAE CO. 1999201019992010Gross profit margin21.64%21.75%27.58%27.98%Net profit margin6.16%6.46%26.58%31.24%Return on equity41.19%40.45%10.65%11.03%Assets turn over3.51%3.82%0.39 times0.36 timesReturn on assets21.69%24.71%10.47%11.34%Inventory turn over65days57days91 days 98 daysDebtors turn over1.8 days1.34days261 days282 daysCreditors turn over49days44days250 days248 daysCurrent ratio1.322.214.171.124Quick ratio0.310.330.991.43Debt asset ratio65.30%58.90%43.67%41.70%Debt equity ratio1.881.430.7750.717Times interest earned17.9times25.38 times11.03 times12.48 timesPART VIProfitabilityProfitability is the ability of sustaining growth and earning income in long-term and short-term. The degree of a company’s profitability depends on income statements, which gives report of the firm’s operational results. Profitability ratios compares variables of income to sales, they provide us with an idea in regards to what income of a company comprise.
Gross profit margin-this is the ratio of profit or gross income to salesBasing on the gross profit margin, Etisalat Company has a slight increase of gross profit from 2009 to 2010 an increase of 0.11%, which is an improvement, while DU Holding Ltd. Gross profit increased from 27.58% in 2009 to27.98percentage in 2010. However, there is a difference of about 6% of gross profit margin between the two companies. The gross profit margin has increased because, the companies have increased the prices of their products, or the companies have found ways to reduce their production costs, or even the two.
DU Company most likely has reduced its manufacturing costs compared to Etisalat Company, or DU Company is selling its products at a higher price compared to Etisalat Company or both. Also DU Company may be taking advantage of its previous higher gross profit margins by doing a lot of marketing of its products. Etisalat. Net profit margin has increased in 2010 to 6.46% from 6.16% in 2009. An increase of 0.30%, while, DU ltd.
Net profit margin has increased from 26.58% in 2009 to 31.24% in2010 an increase of 5.34%. Overall Etisalat Ltd. Net profit margin is too small in comparison with DU Ltd. a difference of more than 20%. The profit margins for the companies have increased possibly due to; reduced costs of production, booming prices, increased efficiencies, of products of the companies. Harvey Norman Company is better than Etisalat. Possibly, because the latter has poor management or DU Company has a bigger market share. In 2009 Etisalat company had a return on equity margin of 41.19% which dropped slightly in 2010 to 40.45%, while DU return on equity increased 10.65% to 11.03%. Though DU Returns on Equity increased from the previous year its returns on equity are almost a quarter of Etisalat Ltd.
Returns on Equity. Returns on equity of Etisalat possibly have reduced due to inflation, poor management, customers are unwilling to pay above average for company products, new competitors making the company spend much on sales and advertisements, while those of DU have increased due to economic growth, business may be booming.
Etisalat have stayed in business for long therefore has many customers willing to purchase the products and it controls the market share. In 2009 Etisalat Asset Turn Over was 3.51 times, in 2010 the turn over increased to 3.82. That of DU ltd. Reduced from 0.39 times in 2009 to 0.36 times in 2010.for Etisalat company assets turn over may have increased due to increased sales while for DU company assets turn over have reduced do poor management. Returns on Assets. This ratio makes the company know if to take a project or not.
The purpose of the ratio is for a company to begin a project it expect return from the project. Acceptance criteria: ROA greater than rate at time of borrowing, accept the project, ROA less than rate at time of borrowing, reject the project.