Overview of Saudi Cable Company
The Saudi Cable Company was established in the year 1396H (1976G), and at first, it was operating as a limited liability company. The initial capital was approximately SR3.5 million. The company’s main objective was to engage in the manufacture and trade of copper rods, wires as well as power cables. The company manufactures rods of all tensions and sizes.
The company makes communication wires and cables comprising of; fiber optics and copper ground conductors used for communication and electrical purposes, PVC insulating compounds, pallets, and wooden reels. Within a short period, the company experienced substantial progress and emerged as a pioneer in manufacturer of cable in the Middle East. Later on, in 1409H (1988G), the firm was converted into a joint-stock company with a paid-up capital of SR270 million.
After a few years, the Company share capital increased to SR760 million, and as of 29/11/2015, the company had 12,453 shareholders who were fully registered. At the end of the financial year 2015, the locals Turkish and Saudi, contributed approximately fifty-nine percent of the total Group workforce of 1,833 workers, as compared to fifty-seven percent of the 1,759 employees who were working for the company at the end of 2014 (Saudi Cable Co. (2110.SR), n.d). The company’s registered office is located in Jeddah at Industrial Area.
The following are the equity profile of the company
Authorized share capital (SAR) 360,614,060 with a face value of 10, issued shares 36,061,406, and paid-up capital of 360,614,060 with Paid up shares at 10. The company has the following items as well: Market capital 109.508m, Beta (5y monthly) 0.50, PE Ratio (TTM) NIL EPS (TTM) -0.32, and nil Earning rate. Tax is 30%
Components of Cost of Capital for Current Period appears as follows
Cost of Equity
The value of equity refers to the return a firm requires to decide if an investment meets capital return requirements. Firms usually utilize the cost of equity as a capital budgeting threshold for the rate of return which is required. A company’s cost of equity is used to represent the compensation the market demands in exchange for the ownership of the asset and bearing the risk of ownership. Below is the calculation for the cost of equity in Saudi Cable Company.
Cost of equity =dividends/current+ price growth rate= nil/10
Or =Risk free + beta (equity(risk market)-Risk free )
= 0 +0.50(0.32(110.172)-0=17.62752%
Cost of Debt
Cost of debt =I(1-T)/t =1(1-0.30) /0.30 =2.3333%
Cost of Preference
Cost of preference share capital refers to the part of the cost of capital in which one calculates the amount that is payable to preference shareholders in the form of dividends with a fixed rate. The Saudi Cable Company also has a cost of capital. The calculation below shows how the cost of preference in the company is calculated.
Cost of preference = Dividend per share/EPS=10/0.32=31.25%
Weighted Average Cost of Capital Based on Book Value
WACC is calculated by multiplying the cost of every source of capital (equity and debt) by its relative weight, and then adding the products together to determine the value. In the above formula, E/V represents the proportion of equity-based financing, while D/V represents the proportion of debt-based financing.
WACC=360,614,06 /360,614,060(17.62752%)+(360,614,06 /360,614,060(2.3333%)+360,614,06 /360,614,060(31.25%)=0.600874
Weighted Average Cost of Capital Based on Market Value
WACC=360,614,06 /360,614,060(0. 1762752)+(360,614,06 /360,614,060(0.23333)+360,614,06 /360,614,060(31.25%)=0.06182
Conclusion
In conclusion, the Saudi Cable Company is the leading manufacturer and provider of the total energy and telecommunications cable systems, which are utilized in the Middle East and some other parts of the globe. The Saudi Cable Company is uniquely placed to meet the requirements of the customer.
Since 1975, when the company was incepted, public utilities and governmental agencies all over the world have benefited from the quality of the services and products provided by SCC. The company’s ability to deliver world-class total solutions, as well as its passion for customers are the significant factors which have made the company assume market leadership.
The company has experienced gradual development over the years due to its ability to provide high-quality products and also meet the demands of the customer. Based on the calculation, it is evident that the company is doing well despite the high number of competitors in the market. The company is, therefore, supposed to develop various strategies which will help in ensuring that it can generate more income.
Overview of Electrical Industries Company
Electrical Industries Company (EIC) is a firm that is involved in the provision of diversified electrical services and products, particularly in the Middle East and the Kingdom of Saudi Arabia. Electrical Industries Company owns the “The Saudi Transformers Co” and “Wahah Electric Supply Company of Saudi Arabia.” The Electrical Industry Company was established in the year 1982 and is currently among the leading transformer manufacturing firms in the globe (Company Details, n.d.).
Saudi Transformers Company is involved in the production and distribution of transformers, packaging substations as well as low voltage panels. The company is a major supplier of substations and transformers to residential, commercial, and industrial sectors in Saudi Arabia (Electrical Industries Company (1302.SR), n.d.)
The Wah Ah electric is a branch of the Electrical Industries Company, and it is also based in Saudi Arabia, it was established in 1976, and it is a renowned manufacturer of a various electrical distribution products comprising of power transformers, whose power ranges up to approximately 69 kilo volts, low voltage circuit breakers consisting of MV/ LV Switchgear and other electrical equipment.
Most of the industries based in Saudi Arabia and the Middle East recognize and prefer WESCOSA for its product reliability, technical competencies, as well as the company’s capacity to commission and also test all its supplies, which provides the company with additional features to be able to perform its projects. The firm is also involved in the provision of industrial services comprising of: instrumentation and calibration services, modifications, refurbishment as well as the oiling of transformers and upgrade of electrical equipment, etc. The company mainly operates through subsidiaries.
Equity Profile of the Company
The company has an Authorized Capital (SAR) 450 million with a share capital of 10 par value, issued share capital of 45 million, with a paid-up value of 10 and paid-up capital of 450 million (Electrical Industries Company(1302.SR), n.d.). The company has no investment limit on the shares as per the amended rules for Qualified Foreign financial institution investment in listed securities and instructions for the foreign strategic investors’ ownership in listed companies based on the company’s bylaw and the issued instructions by related regulators and supervisory authorities.
Components of Cost of Capital for Current Period appears as follows
Cost of Equity
Cost of equity =dividends/current+ price growth rate=0.1/10=1%
Cost of Debt
Cost of debt =I(1-T)/t =1(1-0.30) /0.30 =2.3333%
Cost of preference
Cost of preference = Dividend per share/EPS=0.1/10=1%
Weighted Average Cost of Capital on Market Value
WACC=60,000,000/600,000,000(0.0539214%)+60,000,000/600,000,000(2.3333%)+60,000,000/600,000,000(8.3333%)=0.018030
Weighted Average Cost of Capital on Book Value
WACC=60,000,000/600,000,000(6.39214)+60,000,000/600,000,000(0.0233)+60,000,000/600,000,000(0.083333)=0.118030
Conclusion
In conclusion, Electrical Industries Company is involved in the provision of the following services: transformers, low voltage equipment, cable management systems, industrial services, medium voltage equipment, and high voltage equipment. Mainly, the company provides diversified electrical products in the Middle East, and it is one of the companies that are doing well business-wise in that region.
The last annual financial report issued by the management of the company showed that the company experienced a decrease in sales due to low demand from the company’s major customers and delay experienced in the delivery of finished products.
Additionally, changes in the inventory provision policy and write off slowed down the moving of materials due to adjustments in technical specifications, thus resulting in losses of approximately 21.7 SAR million. The decrease in the inventory value as per IFRS of the company resulted in a loss of roughly 9.1 SAR million. The company’s financial expenses increased from 9.3 SAR million to 11.1 SAR. The increase in expenditures was triggered by the rise in financial levels and financial charges.
The company can be able to reduce its expenses by lowering financial costs and engaging in the production of some of the raw materials which are used in the manufacturing of their products. The financial status of the company is substantial, and hence the management should put effort into ensuring that the company remains at the top and can meet the demands of the customers.
Overview of Saudi Ceramics Company
Saudi Ceramics Company is involved in the manufacturing and selling of various types of products comprising of water heaters, ceramic products as well as other components. The company’s investment capital amount is SR600 million, and it is divided into 60 million shares of approximately SR 10 each. The firm’s financial year usually begins on January 1 and ends on December 31 of every year. The company is located in Riyadh, Saudi Arabia, and is part of the clay refractory and product manufacturing industry. Saudi Ceramics Company has more than three thousand employees.
The company solely depends on the level of consumer spending. The profitability of individual companies relies on efficient distribution and production. The company has large economies of scale in production. The company can effectively compete with other companies by engaging in the production of specialized products. The company has authorized capital SAR 600million with a par value of 10, issued shares of 60 million, and paid-up shares 600milion. The company has the following items: market capital 1.338b, Beta (5monthly) 0.31 PE ratio TTM 187.39, EPS(TTM) 0.12
Components of Cost of Capital for Current Period appears as follows
Cost of equity capital Cost of equity =dividends/current+ price growth rate=Risk free+beta(equity(risk market)-Risk free )
=0+0.13(0.31(1.338b)-0=0.0539214%
Cost of Debt
Cost of debt =I(1-T)/t =1(1-0.30) /0.30 =2.3333%
Cost of preference
Cost of preference = Dividend per share/EPS=10/0.12=8.3333%
Weighted Average Cost of Capital Based on Book Value
WACC=60,000,000/600,000,000(0.0539214%)+60,000,000/600,000,000(2.3333%)+60,000,000/600,000,000(8.3333%)=0.018030
Weighted Average Cost of Capital Based on Market Value
WACC=60,000,000/600,000,000(0.000539214)+60,000,000/600,000,000(0.2)+60,000,000/600,000,000(8.3333%)=0.118031
Conclusion
The financial status of the company has declined in the first few years. The decline has been attributed to a reduction in demand and the dumping of imported goods. The objective of this strategy is to maintain the company’s market share. The company’s cost of sales increased as a result of changes in the price of raw materials.
Additionally, the finance costs increased due to the debt restructuring during the financial year. The company made announcements that it has signed agreements with several banks to reschedule most of its loans, which will also improve its liquidity and cash flow. The company is to pay these debts through semiannual payments by the end of the year 2024.
References
Company Details. (n.d.). Web.
Electrical Industries Co. (1303.SR) (n.d.) Web.
Saudi Cable Co. (2110.SR) (n.d.). Web.