Financial Analysis of Astra Industrial Group

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The following report provides the financial analysis of Astra

Industrial Group (ASTRA Saudi Arabia) and also makes recommendations for investors to purchase the company’s stocks. Astra Group is a successful retailer of food items and it is gradually capturing its targeted markets. The company’s stocks are listed on Tadawul, Saudi Arabia. The financial analysis of ASTRA Group is conducted in the following.

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Gross Profit Margin = Gross Profit / Net Sales
Description 2011 2010
Gross Profit 554.3 m 507.2 m
Net Sales 1,382 m 1,121 m
Gross Profit Margin 40.11% 45.27%

From the financial analysis of the Group’s income statement for the period of 2010-11 it can be seen that the sales of the Group have increased by SAR 261.5m. The increase in the sales can be due to two major factors – greater volumes of the product sold in this period and an increment in the sales price charged to the customers. The cost of goods sold by the group has also increased due to the increased level of sales activity and production by SAR 214.4m (ASTRA Group, 2010; Bloomberg, 2012). This increment stands at 25% up from the previous year. The direct expenses of production such as material used, assigned labor, and direct overheads of the last period have also increased because of the production volumes have raised. Similarly, the gross profit earned in the year 2011 is 8.5% more than the previous year 2010 i.e. showing an upward movement of SAR 47m as the sales of the group have increased.

Operating Income Margin = Operating Income / Sales
Description 2011 2010
Operating Income 278.7 m 175.3 m
Net Sales 1,382 m 1,121 m
Operating Income Margin 20.17% 15.64%

It can be observed by looking at the financial statements that the group has maintained and controlled its operating expenses in the past year and aims to reduce the operating costs in the forth-coming periods as well. The operating expenses of the group have reduced significantly by 20.3% or SAR 56.2m. If the operating expenses of the year are compared with the gross profit then it can be seen that the operating expenses are 49.7% of the total gross profits for the year 2011, and 65.4% of the total gross profits for the year 2010. This considerable reduction is mainly due to the discharge of Research and Development (R&D) expenses in 2011. The overall operating income of the group has increased significantly by SAR 103.4m. Low expenses and high revenues have resulted in the growth of operating income that is 37.1% higher than the previous fiscal year (Bloomberg, 2012; ASTRA Group, 2010).

The expenses relating to the interest are abridged 100% in the year 2011 due to zero payments by the group. There were no investment and interest incomes in the year 2011, and the net of the total interest expense and income of the period 2010 was SAR 21.5 m. In the year 2010, the group suffered from a loss on equity investments valuing SAR (5.4)m that pushed down the earnings before tax of the group. In 2011, the group has recorded no loss or gain on equity investments but the group has recorded a staggering of SAR 30.6m as non-operating loss in the financial statements. However, in both years, the group has incurred some losses that have adversely affected the earnings before tax excluding unusual transactions. The earnings before tax deductions have improved by SAR 26.5 m in the period ending 2011 and are 10.6% greater than the previous accounting period (Bloomberg, 2012; ASTRA Group, 2010).

Net Profit Margin = Net Profit after taxes / Net Sales
Description 2011 2010
Net Income after tax 248.1 m 259 m
Net Sales 1,382.00 m 1,120.50 m
Net Profit Margin 17.95% 23.11%

In 2010, the group sold an asset that resulted in a capital gain of SAR 28.8m, and boosted up the earnings before tax inclusive of the unusual transactions. This in turn has increased the earnings by SAR 2.4m; no sale proceeds have incurred in the year 2011, and hence the earnings before tax of 2011 are 9.6% lower than the previous year. The overall net income of the group has reduced in 2011 as compared to 2010 due to the above-described facts by SAR 10.9 m, which is 4.4% lower than the previous year.

The overall performance of the current year i.e. 2011 of the group has quite improved, the expenses of the group have been controlled by it, and cost-cutting measures have been applied through lean management strategies. The profit hikes of the previous year were due to the sale of assets and minority interest transactions otherwise the operational performance of the preceding year i.e. 2010 was not effective enough (Bloomberg, 2012; ASTRA Group, 2010).

As per the financial comparative analysis of the figures of the balance sheet of the group, Cash and Cash Equivalents have reduced radically by SAR 821.3m that is the result of discharge of the short-term investments, which were worth SAR 751m in the year 2011. The total account receivable of SAR 563m in 2010 has approached zero value in the year 2011 that indicates a massive reduction in the account receivables as the group has collected all its trade debts.

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Dividend Payouts = Dividends/ Net Income
Description 2010 2011
Dividends 92.6 m
Net income 258 m 259 m
Dividend Yield Ratio 3.57

The dividend payouts of the Group are sufficient and effective, and are attractive enough to retain the shareholders.

Price Earnings Ratio = Market Price of Share/ EPS
Description 2011 2010
Market Price of Share SAR 3.38 SAR 3.11
EPS SAR 3.35 SAR 3.57
Price Earnings Ratio 1 0.87

The price earnings ratio of the group has improved over the last two years, which is considered as a sign of financial improvement by the group. The earnings per share of the group given in the financial statements are of the SAR3.49 per share in 2011. The EPS for 2011 has been calculated applying an assumption that the number of outstanding shares of the group remaining was same as in 2010 (ASTRA Group).

Current Ratio = Current Assets / Current Liabilities
Particulars 2011 2010
Current Assets 1,841.90 m 1,970.80 m
Current Liabilities 845.9 m 818.9 m
Current ratio 2.18 2.41

The impact of low accounts receivables and short-term investment in 2011 has made the current ratio drop down by 0.23%. Other account payables and borrowings of the group have also approached zero value in the year 2011 from their high values in 2010 that has turned overall liabilities to fall. However, other current liabilities of SAR 845.9m emerged in the year 2011 and are the only active account of current debt of the group. The liquidity of the group is stable and the following benchmarks are showing good and reliable performance by the group.

Working Capital = Current Assets – Current Liabilities
Particulars 2011 2010
Current Assets 1,842 m 1,971 m
Current Liabilities 846 m 819 m
Working capital 996 m 1,152 m

The movement of the working capital in the group has reduced considerably by 16% during the last fiscal year. This reduction is solely due to the movements of creditors’ and debtors’ accounts radically upward and downward respectively. The movements in the current account of the group are very rapid where as the non-current accounts appear to be moving organically.

Working Capital Turnover = Sales / Working capital
Particulars 2011 2010
Sales 1,382 m 1,121 m
Working Capital 996 m 1,152 m
Working capital turn over 1.39 0.97

The rate of working capital turnover has increased due to low working capital and high-generated sales for the year. The group is rotating invested amounts in a more frequent cycle than the previous year.

Debt Ratio = Total Debts / Total Assets
Particulars 2011 2010
Total Debts or Total Liabilities 1,171.90 m 1,144.30 m
Total Assets 2,962.90 m 1,970.80 m
Debt ratio 40% 58%

The overall position of the debt and the ability of assets to cover the liabilities of the Group have decreased by 18% in the past years. Increasing assets of the group have contributed in the reduction of debt ratio as the group is regularly buying and investing in new long-term assets.

Return on Assets = Net income After Tax/Total Assets
Description 2011 2010
Net income after tax 248 m 259 m
Total Assets 2,963 m 1,971 m
Return on assets 8.37% 13.14%

Due to the reduced profits of 2011 and increased assets and investments, the return on the assets has fallen as compared to the previous period. Group sales of 2011 are comparatively higher than 2010 and due to the sale of assets and other income, the net profits of year 2010 boosted up and gained a higher rank in return generation.

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Return on Investment (ROI) = Net Income before taxes
Description 2011 2010
Income before taxes 248 m 259 m
Total Equity & Liabilities 2,962.90 m 2,889.20 m
Return on investment 8.37% 8.96%

The equity of the group has increased by SAR 46.1m that is nearly 2.6% of the previous year and liabilities of the group have increased as well by SAR 106.6m in the year 2011. Both increased equity and overall liability have contributed in the reduction of the return on investments as investments have increased and net income has fallen in the last year (Bloomberg, 2012).

The overall performance of the ASTRA Group is adequate and satisfactory, the group is focusing on cost cutting, and the company has applied lean management technique, which has resulted in costs and expenses reductions. From sales to expenses, the group has performed very well in the financial year 2011. Increased sales have covered the augmented production cost generating gross profits higher than the previous year. This shows that the current years’ performance is appreciable. Group is also engaging itself in different long-term investment projects that will be generating more profits for the group in the future ahead. Earnings per share and dividend payout of the ASTRA Group for the year 2011 are also attractive for shareholders to invest in its stocks. This investment can prove to be a sufficient return provider for the investors. Thus, it can be stated that the performance and movements of the group is target oriented and pursuing towards a long-term success that makes the company worth purchasing.

Works Cited

ASTRA Group 2012. Annual Report. PDF File. Web.

Bloomberg 2012. Astra Industrial Group. Web.

Morley, Micheal F. Ratio Analysis, Scotland: Gee and Co, 1984. Print.

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