Oman Agriculture Development Company SAOG is a member of OMZEST Group and is based in Oman. The company is located at Sohar, where it has an eight hundred hectare farm. The company mainly deals in the production of dairy products. Other products of the company are vegetables, juices, and beverages. It also ventures into trading of various products, training, services and construction. The brand names of its different products are Sohar, Sunfarms, Moo Cow, Nakhal, Nizwa and Sun Up.
The Structure and Contents of the Data
Example concerning Balance Sheet
The Balance Sheet of Oman Agriculture Development Company can be found at ‘Appendix 1’.
Property, Plant & Equipment consist of such tangible assets that are expected to be of use for at least two years. Such assets should not be sold during the course of the financial year. The entity should be able to use such assets. The word assets can be further elaborated. Such assets may consist of the following:
- Land and Building
- Equipment and Machinery
- Furniture and fittings
- Any construction that is in progress
In other words it can be said that such assets that are very important for the performance of business but cannot be disposed easily are included in Property, Plant and Equipment. The value of such assets is depreciated each financial year because of their tangible nature. Such assets have a particular life after which they become obsolete or of no use. The value of such assets depends on the nature of business of an organization. For example in furniture manufacturing unit, Property, Plant and Equipment the amount of such assets can be very high because most of these will be directly related to the business. In organizations where there is huge use of machinery, the value of Property, Plant and Equipment will also be high. On the other hand, in a real-estate broker’s office the value of such assets will be very low due to the fact that in order to run the business, the only things required will be a computer and some tables and chairs and of course an office.
ii) In Oman Agriculture Development Company SAOG, the amount against the Property, Plant and Equipment is 4.24 million Omani Riyals, Buildings and improvements are 1.14 million Omani Riyals. Both combined will amount to 5.38 million Omani Riyals. But depreciation on these assets has been shown amounting to 4.49 million Omani Riyals that comes to 76.12%. This makes the remaining amount of Property, Plant and Equipment (Net Fixed Assets) as 0.89 Omani Riyals. This is 15.14% of the Total Assets.
iii) It is evident from the figures in the balance sheet of Oman Agriculture Development Company SAOG that on an average, the company is taking a depreciation of extra 3%, as compared to the previous year, into account, except in the year 2011, when the depreciation was only 0.72% more than that in 2010. The possible reason for this might be that the company must have sold some of its property or some machinery.
Example concerning Income Statement
The Income Statement of Oman Agriculture Development Company can be found at ‘Appendix 2’.
- Revenue consists of sales of products in an organization. Actually the term revenue consists of the cost of sales and the gross operating profit. Cost of sales is the amount equivalent to the opening stocks plus the cost of goods purchased minus the closing stocks. So it is understood that cost of sales takes into account the cost of purchasing raw materials and the finished goods. In a service industry, these products are the services provided to the customers.
- The company recognizes revenue when the sales have been materialized or the services have been rendered.
Example concerning Cash Flow statement
The Cash Flow statement of Oman Agriculture Development Company can be found at Appendix 3.
Operating cash flow is crucial in order to meet the operational and other capital expenses. Oman Agriculture Development Company SAOG generated Cash primarily from Operating activities as a result of high net Income combined of cash generated from Depreciation expenses and Non-cash items.
The Performance of the Current Year Versus Previous Years
Current ratio (Total Current Assets / Total current liabilities): This ratio is related to the company’s ability to meet its short term obligations. As a precaution, it should be high enough. As compared to 2006, the Current ratio in 2010 has decreased from 0.98 to 0.41. The reason for the decrease is that the increase in the total current assets in 2010 (as compared to 2006) is less, percentage wise, than the increase in the total current liabilities (as compared to 2006), again percentage wise. The current assets have increased only 8.16%, whereas the current liabilities have increased 158.15%. Owing to the formula, the ratio is thus decreased. From the computed ratios, we can see that this ratio has decreased with each passing year, except 2010. Now this is a great cause of concern for the company.
Quick Ratio ([Cash and Equivalents – Inventory] / Total Current Liabilities): The inventories have been subtracted from the cash and equivalents because they are the least liquid. In 2006, the Quick ratio was -0.535 whereas in 2010, it is -0.12. The main reason for this change is the change in the cash and equivalents, which has increased manifolds, to be precise, 1129.20%. The dividing factor i.e. the current liabilities have increased only 158.15%. Hence the difference is observed.
Cash Ratio (Cash / Total Current Liabilities): If the cash ratio is high, it means that the company has enough cash which is not good. Excess cash should be invested to gain returns. However, from the table, it is evident that the Cash ratio in 2010 is at an increase of 500%, from 0.01in 2006 to 0.05 in 2010. But the increase doesn’t mean that the ratio is high. It is only the comparison. Actually the ratio is low and it means that the company must have invested its funds elsewhere. This is a good sign for the future. This increase is because increase in the cash and equivalents is far more than the increase in the current liabilities. The percent wise increases are: 1129.20% in cash and equivalents and 158.15% in current liabilities.
Total Debt Ratio ([Total Assets – Total Equity] / Total Assets): There has been an increase of 93.75% increase in this ratio. The deciding factor for this ratio is the total equity. An astronomical decrease in the total equity is the reason for the increase in the Total Debt ratio. The increase in the debt ratio is not a good sign because it shows that the company is going into debts year after year.
Times Interest Earned Ratio (EBIT / Interest): The increase in this ratio, from -1.16 in 2007 to 2.96 in 2010 is because the EBIT has decreased more (percentage wise) than the interest (percentage wise). The ratio was highest in 2009, which shows that in 2009, the company was more capable of covering its interest charges. But a decline in the ratio in 2010 (as compared to 2009) shows that the company has become less capable as far as covering the interest charges is concerned.
EBIT/Interest Ratio ([EBIT + Depreciation] / Interest): The EBIT/Interest ratio has increased from -3.22 in 2007 to 2.07 in 2010 i.e. an increase of 64.28%. From the table we know that the depreciation has been almost constant (minor fluctuations). The increase in the EBIT/Interest ratio shows the company’s present ability to pay the interest from the earnings, leaving scope for paying taxes and new investments. The difference between the Times Interest Earned Ratio and the EBIT/Interest Ratio is that in EBIT/Interest Ratio, before the division, depreciation is added to the EBIT.
Inventory turnover Ratio (Cost of Sales / Inventory): We see that there is not much of a difference in this ratio. There has been a nominal change of 8% (from 3.50 in 2007 to 3.78 in 2010). It doesn’t mean that the figures haven’t changed. We notice that although the ratio has increased, but the figures of sales and inventory in 2010 have decreased in comparison to their respective figures in 2007. But there is a point. The decrease in the sales is 22.64%, whereas the decrease in the inventory is 28.42%. The sales and inventory both have decreased means that the company products are not in that much demand. The management should take some remedial actions immediately.
Inventory Days Ratio (Calendar days / Inventory Turnover Ratio): This ratio depicts the number of days for which stocks were held. There is a decrease in this ratio from 104.36 in 2007, to 96.56 in 2010. It’s a good sign because the more number of days stocks are held, the cost keeps on increasing.
Receivable Turnover Ratio (Net Sales / Account Receivables): This ratio tells us how many times of the accounts receivables the money is collected from the debtors. The ratio has decreased from 6.74 in 2007 to 5.33 in 2010. A decrease in this ratio means that the collection from the debtors has decreased. This is not a good sign because late collections mean more interest on the amount.
Days Receivables Ratio (Calendar days / Sales Receivable Ratio): This ratio tells us in how many days the payments are collected from the debtors. The ratio has increased from 54.13 in 2007 to 68.54 in 2010. Again an increase is seen here. It means the company is not paying attention on the collection part. Giving more days to the debtors means piling up more interest.
Total Asset Turnover Ratio (Sales / Total Assets): This ratio tells us how professionally the company is utilizing its assets. The figures denote the amount of dollars being earned for each dollar of the assets. This ratio has decreased from 1.07 in 2007 to 0.69 in 2010. The decrease in this ratio shows that the company is not utilizing its assets in a proper manner.
Profit Margin Ratio (Net Income / Sales): This ratio has decreased from zero in 2007 to -0.27 in 2010. This is a matter of great concern for the company management. It means that the company is going into losses. If the same approach goes on, the stakeholders will withdraw their money and the company will be in doldrums.
Returns on Assets Ratio (Net Income / Total Assets): This ratio has also decreased from zero in 2007 to -0.19 in 2010. This shows that the company assets are not helpful in generating income. The company should think of acquiring some new profitable assets.
Return on Equity Ratio (Net Income / Total Equity): This ratio has increased from 0.02 in 2007 to 0.79 in 2010. But in 2009, the figure was 6.01. It means that the year 2009 was best for the shareholders. For each dollar of their investment in the company, they earned 6.01 dollars. But in 2010, there was a drastic plunge.
PE Ratio (Price per share / Earnings per share): There has been a drastic decrease in this ratio. It has dipped from 63.40 in 2007 to -1.39 in 2010. This shows that the company shares have lost ground in the share market. By this, the credibility of the company is affected.
Market to Book Ratio (Market value per share / Book value per share): This ratio has decreased from 0.942 in 2007 to -1.223 in 2010. It means that the company has been unsuccessful in creating value for its shareholders.
A comparative chart for the last four years can be seen at ‘Appendix 4’. After a careful study of the figures, it is clear that in terms of profitability, the year 2008 (with a ratio of 0.02) was the best for the company and the year 2009 (with a ratio of -0.60) was the worst. In 2007 and 2010, the ratios were 0.00 and -0.27 respectively. Even the sales were highest in 2008. Return on the assets is an important factor for any company. In 2008, the ratio was 0.02, whereas in 2009, it was -0.32. At ‘Appendix 5’ we can see the ‘Sales’ and ‘Net Income’ graph. Although the year 2008 has been the most beneficial for the company, yet in comparison to the year 2009, the company has managed to improve the figures in 2010. There has been an increase of 39.19% in the sales and the net income has also increased. In terms of ‘Market-to-book Ratio’ also, 2010 has been better. Even the ‘Profit Margin Ratio’ has risen from -0.60 to -0.27. But the year 2009 has been good for the company in terms of its ability to cover up fixed interest charges with the current earnings. The ‘Times Interest Earned’ ratio in 2009 is the highest i.e. 8.54. But in 2010, it decreased by 65.33%, to 2.96. The ‘Total Debt Ratio’ has increased from 1.05 in 2009, to 1.24in 2010. The ‘Receivable Turnover Ratio’ has also increased from 5.08 in 2009 to 5.33 in 2010 i.e. an increase of 4.92%.
So we can come to the conclusion that in comparison to the year 2009, 2010 has been a better financial year for the company.