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Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc394139965” Financial Statement Analysis for the year 2011 and 2012 PAGEREF _Toc394139965 h 2

HYPERLINK l “_Toc394139966” Company overview PAGEREF _Toc394139966 h 2

HYPERLINK l “_Toc394139967” Ratio Analysis PAGEREF _Toc394139967 h 3

HYPERLINK l “_Toc394139968” Statement of cash flows PAGEREF _Toc394139968 h 7

HYPERLINK l “_Toc394139969” References PAGEREF _Toc394139969 h 10

HYPERLINK l “_Toc394139970” Appendix PAGEREF _Toc394139970 h 12

HYPERLINK l “_Toc394139971” Income Statement PAGEREF _Toc394139971 h 12

HYPERLINK l “_Toc394139972” Balance sheet PAGEREF _Toc394139972 h 13

HYPERLINK l “_Toc394139973” Cash Flow Statement PAGEREF _Toc394139973 h 14

Financial Statement Analysis for the year 2011 and 2012In the given report, analysis of the financial statement of the company Etihad Etisalat CO is conducted which help to provide a clear and precise idea at about the company financial performance over the given period of time i.e. 2011 and 2012. The financial analysis help to provide a clear understanding on the financial position of the company in the UAE business environment and the financial market and also help other user to take effective decision related to the investment in the given company (Horrigan, 1967).

Company overviewEtisalat is one of the first telecommunication firms in United Arab Emirates, which established in the year 1976 with around paid capital of (AED) 7906140000 and the par value of the share is 1.00 AED. The trade aim of the ETIHAD ETISALAT CO, which was launched in the year 2005, the company, is the winning bidder for Saudi Arabia second best GSM licence in the year 2004, which in real helps to provide mobile communication around the nation. The major owner of the the company is the federal government of UAE, which have 61.03% of total share of the company. The prime services of the company are to provide suitable offer, which suit each and everybody need. Etisalat is also provide several other core service to the nation which are TV, internet and host of other significant service which provide service across the UAE.

Financial statement helps to provide a clear knowledge of the financial position of the company in the financial market. The financial statement is generally prepared with the help of several key team or committee. The audit committees of the company consist of a Chairman and member. The Chairman of the audit committee is H.E. Essa Abdulfattah Kazim and the team member of the audits committees six key member, which under the supervision of the Chairman prepare the audit report of the financial statement. The auditor report to the shareholder help to provide a identification of the problem determined from the financial statement analysis which is evaluated on the basis of the International Financial Reporting Standard (IFRS) (Helfert, 1987). According to the auditor report, the company consolidated financial statement determined fairly and the financial performance, cash flows for the given year ended in accordance with the international financial reporting standard.

Total asset, Total liabilities and Total stockholder equity

ETIHAD ETISALAT CO (7020) BALANCE SHEET

Year 2011-12 2012-12

Total assets 37501 38623

Total liabilities 19113 17717

Total stockholders’ equity 18388 20906

From the analysis of the table given above clear indicate that the total asset and total stockholder equity is increase for the given company which is a positive sign for the company financial potion in the market as the liabilities is decreasing the capital flow for the company is increasing. On the contrary, the liability of the company is decreasing which help to provide the company increase in the liquid asset.

Ratio AnalysisThe financial ratio analysis is obtained from the key financial statement, which are income statement, statement of financial and the cash flow statement. The three financial statement are the most essential statement which help to calculate the significant ratio which help to determine the company several significant aspect such as solvency risk, liquidity risk, profitability, efficiency , activities and market ratio (Gil Lafuente, 2005). The ratio helps the company and other key several users to determine the company current financial position in the market and its ability to generate income and sustainability in the coming future.

Liquidity: Liquidity ratio help to provide a clear and precise idea about the company current asset and liabilities also help to determine the company capability to meet its short-term obligation. In the year, 2011 the company is at liquidity risk as the current and quick ratio are both below one. It indicate in the year 2011 the company is not able to meet its short-term obligation. On the other hand the company financial capabilities increase which is indicate in the current ratio and quick ratio which signify that the company was able to meet its short-term obligation in the year 2012.

Liquidity/Financial Health 2011-12 2012-12

Current Ratio 0.55 1.03

Quick Ratio 0.44 0.72

Activities: The activities help to determine the significant ratio of the company, which is calculate from the financials statement, which are also termed as the efficiency ratio. The efficiency ratio include the days sales outstanding, days inventory ratio, payable period, receivable turnover ratio, inventory turnover ratio, fixed asset turnover ratio and the asset turnover ratio (Fridson & Alvarez, 2002). The given ratio helps to identify the overall management capability of the company. The company is able to manage it overall business operation or not is determined with the help of significant activity. From the overall analysis of the activities of the company, indicate that the company is efficiently manage it inventory, fixed asset turnover, payable turnover and receivable turnover which help the company to maintain its asset management which eventually help the company to earn more revenue for the given period of time.

Key Ratios -> Efficiency Ratios    

Efficiency 2011-12 2012-12

Days Sales Outstanding 110.06 94.52

Days Inventory 14.38 18.73

Payables Period 271.66 215.61

Receivables Turnover 3.32 3.86

Inventory Turnover 25.39 19.49

Fixed Assets Turnover 1.39 1.4

Asset Turnover 0.57 0.62

Leverage: Leverage also help to determine the company susceptible to the long term solvency risk. The gearing ratio is determined with the help of the debt equity ratio and the financial advantage ratio or debt ratio. The financial leverage ratio which indicate that the total capital used to increase the level of profit is better in the year 2011 which help the company Etisalat to have greater degree of independence and higher financial leverage. Debt to equity ratio is one of the most significant indicators of the leverage of the company which is determined with the help of the debt to equity ratio. The debt to equity ratio indicates the ratio between debt and equity. The ratio is less in the year 2011 however in the year 2012 the ratio increase which indicate that the company is able to meet its current liabilities.

Financial Gearing Ratio 2011-12 2012-12

Financial Leverage 2.04 1.85

Debt/Equity 0.05 0.36

Profitability: Profitability ratio is determined with the help of the income statement of the company. The income statement is also known as the profit or loss statement, which helps to signify the income, incurred and expense occurred for the given period. The profitability ratio include net profit margin, gross profit margin, operating margin, asset turnover, return on asset, financial leverage, return on equity and return on invested capital which collectively help to indicate the profitability ratio of the company. The profitability ratio analysis helps to determine that the company net profit margin is increasing which is a positive for the company overall growth (Palmer, 1983). The higher the profit margin more the better it is for the company overall growth which help to lower the relative price of the product which are sold. Return on asset help to calculate the profit incurred with the available asset, which from the analysis indicate that the company is generated profit from the last year. Return on equity is one of the most significant factors to determine the profitability ratio of the company. It helps to determine the return total earned on common stockholder investment in the company ETISALAT. The analysis help to determine the ROE, which indicate that the company were off better in the year 2012 than in 2011as the return on equity, is increasing in the year 2012 (Financials.morningstar.com, 2011).

Key Ratios -> Profitability

Year 2011-12 2012-12

Revenue 100 100

COGS 48.51 49.1

Gross Margin 51.49 50.9

Operating Margin 53.14 26.19

EBT Margin 25.62 25.75

Profitability 2011-12 2012-12

Tax Rate % 1.06 1.15

Net Margin % 24.68 25.45

Asset Turnover (Average) 0.57 0.62

Return on Assets % 14.98 15.81

Financial Leverage (Average) 2.04 1.85

Return on Equity %  29.56 30.63

Return on Invested Capital %  26.12 25.19

Market ratio: Price earnings ratio (P/E) helps to determine the amount of the investor who is interested to pay each dirham of the organization total earning. Higher the rate of the share betters the chance or the confidence level of the investor in the company ETISALAT. The market ratio consists of the book value, earning per share which collectively help to determine the market of the company.

Price earnings ratio of the company in the year 2011 and 2012 help to provide clear and precise idea that the company is better in the year 2012 which help to increase the level of confidence in the investor to invest in the given company which will yield the investor a better return in the coming future (Financials.morningstar.com, 2011).

Financials

2011-12 2012-12

Revenue SAR Mil 20,052 23,642

Earnings Per Share SAR 7.12 7.82

Dividends SAR 2.95 4.55

Shares Mil 700 770

Book Value Per Share SAR 26.95 27.15

Statement of cash flowsThe statement of cash flow is one of the most significant financial statements, which help to provide a clear and precise idea about the company three primary activities, which are operating activities, financing activities and investing activities, which help to generate the net cash inflow and outflow incurred for the given period.

Determine the changes in cash

The net cash flow is determine with the help determining the difference between the cash at the beginning and the cash at the end of the period which is also termed as the total cash inflow and total cash outflow. The change in the cash flow calculated in the year 2011 is positive on the contrary, the total cash flow in the year 2012 is negative which indicate that the company is not able to generate revenue from the overall activities (Financials.morningstar.com, 2011).

ETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Net change in cash 28 -387

Cash at beginning of period 1661 1690

Cash at end of period 1690 1302

Net change in cash 28 -387

Determine the net cash flow operating activities

The cash flow statement consists of three primary activities, operating activities is one of the activities in the cash flow statement. The net cash flow from operating activities helps to provide the cash flow from key operating activities. In the year 2011 the cash flow from operating activities is 6673 where as the cash flow from operating activities in the year 2012 is increases 7037 (Financials.morningstar.com, 2011).This indicates the cash flow from the operating activities is increases in the year 2012.

ETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Cash Flows From Operating Activities    

Inventory -173 -252

Prepaid expenses   -1094

Accrued liabilities   -356

Other working capital -1423 46

Other non-cash items 8269 8692

Net cash provided by operating activities 6673 7037

Determine cash flow from investing and financing activities

The cash flow statement consist of the three core activities investing and financing activities are the two core part of the cash flow statement which help to generate the net cash flow for the given period of time (Ardalan, 2000). The cash flow statement helps to determine the cash flow from investing activities and financing activities, which indicate that the company that the company is making efficient use of the resource. The investing activities of the company in the year are -3408 and -5408 in the year 2011 and 2012 respectively. On the other hand, the financing activities the company cash flow is -3237 and -2338 for the year 2011 and 2012 respectively which indicate the company net cash flow from investing and financial activities is not efficiently managed.

ETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Cash Flows From Investing Activities    

Investments in property, plant, and equipment -3700 -4860

Property, plant, and equipment reductions 10 84

Acquisitions, net -168  

Purchases of intangibles   -310

Other investing activities 450  

Net cash used for investing activities -3408 -5086

Cash Flows From Financing Activities    

Debt issued 870 7415

Debt repayment -1832 -6253

Dividend paid -2275 -3500

Other financing activities    

Net cash provided by (used for) financing activities -3237 -2338

ReferencesArdalan, A. (2000). Economic & financial analysis for engineering & project management (1st ed.). Lancaster, Penn.: Technomic Pub. Co.

Bowlin, O., Martin, J., & Scott, D. (1990). Guide to financial analysis (1st ed.). New York: McGraw-Hill.

Financials.morningstar.com,. (2011). Growth, Profitability, and Financial Ratios for Etihad Etisalat Co (7020) from Morningstar.com. Retrieved 26 July 2014, from http://financials.morningstar.com/ratios/r.html?t=7020&region=sau&culture=en-US

Financials.morningstar.com,. (2014). Growth, Profitability, and Financial Ratios for Etihad Etisalat Co (7020) from Morningstar.com. Retrieved 26 July 2014, from http://financials.morningstar.com/ratios/r.html?t=7020&region=sau&culture=en-US

Fridson, M., & Alvarez, F. (2002). Financial statement analysis (1st ed.). New York: John Wiley & Sons.

Gil Lafuente, A. (2005). Fuzzy logic in financial analysis (1st ed.). Berlin: Springer.

Hansen, B., & Palmer, A. (1997). FRAN, Financial Ratio ANalysis and more (1st ed.). Radnor PA (5 Radnor Corp CTR Suite 200, Radnor 19087-4585): U.S. Dept. of Agriculture, Forest Service, Northeastern Forest Experiment Station.

Helfert, E. (1987). Techniques of financial analysis (1st ed.). Homewood, Ill.: Irwin.

Horrigan, J. (1967). An evaluation of financial ratio analysis (1st ed.). Chicago: University of Chicago.

Horrigan, J. (1978). Financial ratio analysis (1st ed.). New York: Arno Press.

Morley, M. (1984). Ratio analysis (1st ed.). Berkshire, England: Published for the Institute of Chartered Accountants of Scotland by Gee & Co.

Palmer, J. (1983). Financial ratio analysis (1st ed.). New York, N.Y.: American Institute of Certified Public Accountants.

AppendixIncome StatementETIHAD ETISALAT CO (7020) INCOME STATEMENT

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Revenue 20052 23642

Cost of revenue 9728 11608

Gross profit 10324 12034

Operating expenses    

Sales, General and administrative 2870 3443

Other operating expenses 2149 2399

Total operating expenses 5019 5842

Operating income 5305 6192

Interest Expense 213  

Other income (expense) 46 -104

Income before taxes 5138 6088

Provision for income taxes 54 70

Net income from continuing operations 5083 6018

Other -5083  

Net income   6018

Net income available to common shareholders   6018

Earnings per share    

Basic   7.82

Diluted   7.82

Weighted average shares outstanding    

Basic   770

Diluted   770

EBITDA 7500 8591

Balance sheetETIHAD ETISALAT CO (7020) BALANCE SHEET

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Assets    

Current assets    

Cash    

Cash and cash equivalents 1690 1302

Short-term investments    

Total cash 1690 1302

Receivables 6334  

Inventories 470 721

Prepaid expenses   2493

Other current assets 1399 5910

Total current assets 9893 10427

Non-current assets    

Property, plant and equipment    

Gross property, plant and equipment 16412 24716

Accumulated Depreciation   -7461

Net property, plant and equipment 16412 17255

Goodwill 1530  

Intangible assets   10942

Other long-term assets 9665  

Total non-current assets 27607 28197

Total assets 37501 38623

Liabilities and stockholders’ equity    

Liabilities    

Current liabilities    

Short-term debt 6096  

Accounts payable 8002  

Other current liabilities 3949 10075

Total current liabilities 18047 10075

Non-current liabilities    

Long-term debt 977 7506

Other long-term liabilities 89 137

Total non-current liabilities 1066 7643

Total liabilities 19113 17717

Stockholders’ equity    

Retained earnings 9810 11726

Accumulated other comprehensive income 8578 9180

Total stockholders’ equity 18388 20906

Total liabilities and stockholders’ equity 37501 38623

Cash Flow StatementETIHAD ETISALAT CO (7020) Statement of CASH FLOW

Fiscal year ends in December. SAR in millions except per share data. 2011-12 2012-12

Cash Flows From Operating Activities    

Inventory -173 -252

Prepaid expenses   -1094

Accrued liabilities   -356

Other working capital -1423 46

Other non-cash items 8269 8692

Net cash provided by operating activities 6673 7037

Cash Flows From Investing Activities    

Investments in property, plant, and equipment -3700 -4860

Property, plant, and equipment reductions 10 84

Acquisitions, net -168  

Purchases of intangibles   -310

Other investing activities 450  

Net cash used for investing activities -3408 -5086

Cash Flows From Financing Activities    

Debt issued 870 7415

Debt repayment -1832 -6253

Dividend paid -2275 -3500

Other financing activities    

Net cash provided by (used for) financing activities -3237 -2338

Net change in cash 28 -387

Cash at beginning of period 1661 1690

Cash at end of period 1690 1302

Free Cash Flow    

Operating cash flow 6673 7037

Capital expenditure -3700 -5170

Free cash flow 2973 1867

Financial Statement Analysis

The ratio analysis has been a very useful tool to carry out an evaluate analyses of information performance’s of the company. Thsese ratios are calculated from current year figures and then compared to past years, other companies, the industry and so on. The ratio analysis does provide a basis for the investors to make investment decisions. Another important aspect of the financial ratio is that it highlights the performance of the company in the industry, its weakness and is also the basis for the comparison of the company’s performance with the competitors and also compare the past performance of the company with the current performance.

There are numerous ratios thar can be estimated from the financial statements of a company’s activity. The ratios are divided among Profitability, Liquidity, Efficiency and Capital Structure Ratios.

The proposed report will be conducted with the objective of investigating the financial analyses of John Lewis in 2013 and 2012. In particular, the study will include the financial ratios profitability, Liquidity, Efficiency and Capital Structure Ratios.

Different aspects of the performance of the company have been highlighted. Thus the ratios calculated for the company are analysed and based on the interpretations of the comparison between the performance of the both years has been made. In order to provide an insight into the key areas of the company and the also the performance, the recommendations are made in the end of the report. Furthermore, the reccomendations analyse the way in which the John Lewis could improve its performance in the market.

Profitability Ratio Analysis

The profitability ratio analysis of the company has been divided into two parts, margins and returns. The margin analyses involves ratios such as gross profit margin, net profit margin and interest to sales ratio. Return of Capital Employed (ROCE), Gross Profit Ratio, Net Profit Ratio, Administrative Expenses to sales Ratio. The formulas and the calculator of these ratios are shown below and expressed as a percentage.

1 – Gross Profit Ratio (GP Ratio) : Gross Profit x 100/ Sales

2013 – 449.70 x 100 /8.465,50 = 5.31%

2012 – 391.00 x 100/7.758,60 = 5.04%

2 – Net Profit Ratio (NP Ratio) : Net Profit before tax x 100/Sales

2013 – 151,50 x 100/8.465,50 = 1.79 %

2012 – 136,20 x 100/7.758,60 = 1.76%

3 – Interest Expenses to Sales Ratio : Administrative Expense (interest) x 100/ sales

2013 – 81,00 x 100/8.465,50 = 0.96%

2012 – 70,50 x 100/7.758,60 = 0.91%

Based on the ratios it can be said that the gross profit and the net profit of the John Lewis has been quite low. This can be attributed to the sector where in due to fierce competition the margins can be quite low. Thus highlighting the need to improve the operational efficiency as well as the financial cost of the company as it will impact the returns which have been discussed further in this section. Also it can be seen that the profits in 2013 have improved in comparison to the previous year showing that the company has been successful.

The second aspect of the profitability ratios are the returns. These include return to shareholders equity, capital employed and the total assets. The calculations for these ratios have been based on the formulas shown below.

Return on capital employed: Profit before Interest and tax (Gross Profit) x 100 / capital employed

2013 – 449.70 x 100/3.642,20 = 12.35%

2012 – 391.00 x 100/3.633,60 = 10.76%

As the profit of the companies have increased the returns have also improved.

The analysis for the return on assets and the capital employed highlights that John Lewis have employed huge assets and thus the return on asset value is quite low. Also the performance of John Lewis in terms of return on capital employed is appreciable and have increased from 2012 to 2013.

Efficiency Ratio Analysis

The efficiency ratios highlights that how efficient the company has been in utilizing the assets of the company. The following ratios have been included in the efficiency ratio analysis of the company and are expressed in number of days.

Debtor Turnover Ratio (DTO) : Trade Receivables x 365/Credit Sale

Sales Revenue to Capital Employed : Sales/Capital employed

Total Asset Turnover : Sales/Total Assets

Inventory Turnover Ratio (ITO) : Inventory x 365/Cost of Sales (or purchases)

Inventory Turnover Ratio (ITO) : Inventory x 365/Credit

It is very important to analyse these ratios as these highlight the ability of the company to efficiently utilize the resources. The various ratios that have been shown above contribute differently to the performance and utilization of the resources.

The sales revenue to capital employed ratio highlights that for John Lewis the sales have increased considerably in comparison to the capital employed. This has been the reason for the increase in the returns on the capital employed that has been shown above. In case of Marks and Spencer it can be seen that the sales to capital employed ratio has come down. Thus the operational expenses of the company have come down considerably as although sales to capital employed ratio has come down the returns on capital employed has improved.

The debtor turnover ratio of both the companies have been high and that the creditor turnover is quite low. Thus the cash flow contribution from the trade receivables and the payables has been efficiently utilized by the company. This can be encouraging as both the companies have maintained this level however it can also be said that the companies are not in a position to impove cash flow further by increasing the trade payables and reducing debtors. Thus it can be said that John Lewis has been able to improve the cash flow as the creditor ratio has come down and the debtor ratio has increased.

The inventory turnover ratio shows that the inventory levels have been maintained by John Lewis whereas that of marks and Spencer has increased the inventory levels. Howver the level of inventory levels is estimated by analyzing the liquidity ratios of the two companies. Overall the efficiency ratios highlight the efficient performance of the two companies.

Liquidity Ratio Analysis

The liquidity ratios of the company shows the ability to convert the current assets of the company into current liabities. This is considered as the ability of the company to meet the short term needs of the company. The liquidity ratios that have been included in the analysis have been shown below.

Current Ratio = Current Assets/ Current Liabilities

Acid Ratio = (Current Assets – Inventory)/ Current Liabilities

The current ratio of the companies have been quite low and alarming. Since the value of current ratio has been lower than one the current assets of the company are less than the current liabilities. This means that the assets of the company will be utilized to meet the current liability requirements. In case of John Lewis the inventory levels have considerable contribution in the current assets. This has been highlighted by the acid ratio of the company.

The acid ratio of the two companies also highlight the issue which means that the two companies will be in very difficult liquidity position. The inventory levels has been quite high. This has been the case for both the companies as well.

In case of the operating cash flows ratio to the current liabilities it has been seen that operating cash flow ratio of John Lewis has been quite low and also in comparison to Marks and Spencer it has been lower further. This can be the major issue as the company is already having lower current ratio and also the operating cash flow of the company isn’t sufficient enough to fulfill the current liabilities requirements of the company.

Overall the liquidity ratios of both the company isn’t quite encouraging and further in case of John Lewis it has been a greater issue for the reasons that have been discussed above.

CAPITAL STRUCTURE RATIO

The Capital Structure ratios provide the information on the debt level of the company. This is very important as it will impact the returns to the shareholders and also provides information on the option available for the company to have additional leverage. The ratios that have been calculated are as below.

Debt to Equity Ratio: Long Term Borrowings/ Shareholders equity

Debt to Total Assets: Long Term Borrowings/ Total Assets

Debt to Capital Employed: Long Term Borrowings/ Capital Employed

Interest Coverage Ratio: Gross Profit/ Interest Expense

The gearing ratio of John Lewis shows that the debt to equity ratio of John Lewis has been quite optimum and that in case of marks and Spencer the the debt level has been quite high. The high debt level generally would mean that the returns of the company would be impactd but in case of Marks and Spencer the returns have been maintained but generally there has been quite a issue for returns to shareholders and the decision making.

John Lewis has maintained the interest paid to the sales ratio. Marks and Spencer has although reduced the interest cost. This has been done by reducing the debt levels which can be seen by the debt to equity ratio. Thus reducing the debt levels by 1% the interest cost has reduced considerably.

One more consideration is that although the debt levels of John Lewis has reduced the interes paid by the company has increased as the sales have also increased. Thus the company will have to consider this as the debt levels have reduced but the interest rate would have gone high.

Overall the gearing ratio for John Lewis has been optimal and further the company will have to maintain it so that the considerations can be made to the other ratios that have been discussed above.

Interpretation and Recommendations

The above discussion highlights information regarding John Lewis. The interpretation of the various ratio shows that the company has quite strong financial statements. However there are quite considerations that the company company has to amend. Firstly the liquidity ratio of the company has not been strong enough and that the interest paid by the company.

However for John and Lewis the profit margin could be improved. Thus highlighting the need to improve the operational efficiency as well as the financial cost of the company as it will impact the returns which have been discussed further in this section. Also with respect to the profit, it be seen that it has improved in comparison to the previous year.

The sales revenue to capital employed ratio highlights that for John Lewis the sales have increased considerably in comparison to the capital employed. This has been the reason for the increase in the returns on the capital employed that has been shown above.

The debtor turnover ratio of John Lewis have been high and that the creditor turnover is quite low. Thus it can be said that John Lewis has been able to improve the cash flow as the creditor ratio has come down and the debtor ratio has increased.

John Lewis has maintained the interest paid to the sales ratio.

Thus John Lewis need to reduce the current liabilities so that the non current assets developed by the company are not impacted. Secondly although the interest paid by John Lewis has reduced the rate at which interest is paid has increased. This has been highlighted by the gearing ratios of the company.

References

Helfert E.A., (1996), Techniques of Financial Analysis: A Practical Guide to Measuring Business Performance

Palepu, K.G., Healy, P.M. and Bernard, V.L., (2007), HYPERLINK “http://www.flipkart.com/business-analysis-valuation-8131501515/p/itmdytsda6hdtezx/search-books-valuation/30?pid=9788131501511&ref=166cce82-5dd5-45f7-aedf-bb4383eb246c&_l=THjGib6Q4EgfaGQbpMwtiQ–&_r=2KsT0cDpCiHgzyrBF1lBvQ–“Business Analysis and Valuation: Using Financial Statements, Texts and Cases,

Leo Troy, (2012), Almanac of Business & Industrial Financial Ratios

HYPERLINK “http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Charles%20K.%20Vandyck”Charles K. Vandyck, (2006), Financial Ratio Analysis: A Handy Guidebook, Trafford Publishing

Benedict, A and Elliot, B (2008) Financial Accounting an Introduction. Edinburgh gate: Pearson Education.

John Lewis 2013 2012 Gross Profit £449.70 £391.00 Net Profit £151.50 £136.20 Sales £8,465.50 £7,758.60 Capital employed £3,642.40 £3,633.60 Total Assets £5,363.60 £5,245.90 Fixed Assets £4,116.00 £4,014.00 Current Liabilities £1,721.20 £1,612.30 Current Assets £1,247.60 £1,231.90 Total Liabilities £3,462.40 £3,237.00 Total Equity £1,901.20 £2,008.90 Total Liabilities+Equity £5,363.60 £5,245.90 Loans £627.70 £726.70 Interest Paid £81.00 £70.50 Account Receivable £191.90 £213.20 Account Payable £1,451.30 £1,207.30 Inventory £514.00 £465.20                         Operating cash flows £644.00 £544.00

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Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc386971986″Executive Summary PAGEREF _Toc386971986 h 3

HYPERLINK l “_Toc386971987″Introduction PAGEREF _Toc386971987 h 4

HYPERLINK l “_Toc386971988″The BMW Group PAGEREF _Toc386971988 h 4

HYPERLINK l “_Toc386971989″The History PAGEREF _Toc386971989 h 4

HYPERLINK l “_Toc386971990″Corporate Governance PAGEREF _Toc386971990 h 5

HYPERLINK l “_Toc386971991″Organizational Structure PAGEREF _Toc386971991 h 5

HYPERLINK l “_Toc386971992″The Business Strategy PAGEREF _Toc386971992 h 6

HYPERLINK l “_Toc386971993″The Product Lifecycle PAGEREF _Toc386971993 h 7

HYPERLINK l “_Toc386971994″Competitor Analysis PAGEREF _Toc386971994 h 7

HYPERLINK l “_Toc386971995″Competitiveness PAGEREF _Toc386971995 h 8

HYPERLINK l “_Toc386971996″Financial Analysis PAGEREF _Toc386971996 h 8

HYPERLINK l “_Toc386971997″Financial Performance PAGEREF _Toc386971997 h 8

HYPERLINK l “_Toc386971998″Sales PAGEREF _Toc386971998 h 9

HYPERLINK l “_Toc386971999″Profitability PAGEREF _Toc386971999 h 10

HYPERLINK l “_Toc386972000″Capital Structure PAGEREF _Toc386972000 h 11

HYPERLINK l “_Toc386972001″Ratio Analysis PAGEREF _Toc386972001 h 11

2) Describe the capital structure of the company, what kind of debt is used, calculate and comment on debt ratios. Benchmark with main competitors of the company.3) Explain the company’s policy in terms of leasing and whether it uses operating and/or financial lease.4) Ratio analysis: Apply techniques learnt in class, trying to include added value comments related to the ratio result (suggestion: benchmark with main competitors and try to reach conclusions related to differences). Evaluate Company’s leverage, liquidity, efficiency, profitability and market value.5) Evaluate company’s working capital management, as well as short-term and long-term financial policies.6) Finally, give your view on the following question: If you were the new Company’s CFO, what changes would you suggest, in terms of financing strategy and financial policies or choices? Explain your recommendations.

The BMW Group: Executive Summary

This report seeks to provide the overall performance of BMW group and the strategic measures put in place by the company to survive in an environment that is very competitive. The company has a rich history of success in the motor industry as it involves services such as developing, assembling, selling cars, manufacturing, and a variety of financial services. The company has in the past been ranked the most valuable car brand name in the whole world as it has 140 global sales offices and employing over 100,000 people across the world. The report will provide the basic organizational structure of the company and how corporate governance has contributed to the success of the company. Due to the fact that the company has a target market whose customers vary greatly in their tastes and preferences, the company has put in place strategies that will ensure that all its customer needs are satisfied across the world. The report also explores the strategies that the company has put in place to project and forecast the future in order to improve the efficiency of the company in the dynamic global market.

The number one determinant of success of any company is the maintenance of leadership and efficiency through innovation. This report presents the measures adopted by BMW to counter its major competitors in the motor industry. Proper financial analysis and investment in development and research are some of the factors identified to give BMW a competitive advantage and thereby making it continue being the market leader. The company has also used the strategy of brand acquisitions to diversify its operations in different target markets. The report also presents a summary of financial performance and most notably how its sales volume has performed globally. The financial report also presents the company’s profitability compared to its performances in the previous years. The last part of the report focuses on the company’s management of its capital in relation to its objectives and the mission statement.IntroductionThe Bavarian Motor Works were launched in 1916. It is a German automobile, motorcycle and engine manufacturing company, headquartered in Munich. Their automotive segment consists of developing, manufacturing, assembling, selling cars, off-road vehicles & spare parts and accessories, while they as well offer financial services such as car leasing, retail customer & dealer financing and insurance activities.

The BMW GroupBMW is part of the “German Big 3” among Mercedes and Audi, however as well is a global company as it was recognized and awarded by many market research companies such as Frost & Sullivan or Forbes to be the 1st global company of 2013. Further, BMW was ranked by MillwardBrown as the world’s most valuable brand name in the car industry. It is one of Germany’s largest industrial companies.

It has 140 global network sales offices worldwide and employs over 100,000 people in engineering, manufacturing, R&D and sales. The company has 29 production and assembly line sites in 14 countries on 4 different continents. Its main sites are found in German cities such as Leipzig and Munich and in Shenyang, China.Additionally, BMW Groups global supplier network consists of more than 1200 suppliers.The HistoryThe company first produced airplane engines until it switched to a car production in 1929. However, BMW was forced into the production of airplanes during the WWII. The early expansion of subsidiaries and plants into foreign countries made the company internationally known from the early beginning of existence. BMW launched its first production plant in a foreign country in 1972. It was in South Africa, in Pretoria where the plant was named Rosslyn. With this plant BMW back then began to produce vehicles to provide them to the British, Indonesian and Australian market. One year later they established a distribution center in France. 1975 BMW North America was established. In 1998 they constructed their first production plant in the U.S. Since then the company has been growing with some ups and downs however constantly, being present in.

In the year 1994 BMW took over the British Rover Group, which they sold a few years later again. However, keeping the brand MINI, which belonged to the Rover group. In 2002, then they took over Rolls Royce as well. Through these 3 brands, MINI, Rolls Royce and BMW the group covers the premium and luxury market segment well and strong. Additionally, this targeted three different types of customer types. MINI targets through its advertising campaigns an urban, modern and young audience, whereas Rolls Royce targets the top 1% of the social class and BMW all premium segment interested audiences. In 2012 and 2013 the automotive company introduced the BMW i3 and i8 as well as the electric and first hydrogen vehicles. These achievements made them the leading sustainable car company worldwide due to their fuel efficiency.

Corporate GovernanceBMW AG is a stock corporation based on the German Stock Act. It consists of three representative bodies: The annual general meeting, the supervisory board and the board of management.

Organizational Structure

As demonstrated above, BMW consists of three main divisions, the automotive, the motorcycle and the financial services division.

The automotive division is divided up into three individual sectors. These sectors present individual car brands such as BMW, Mini and Rolls Royce. The motorcycle division consists of BMW and Husqvarna motorcycles. The last sector is the financial one. It offers among other activities car leasing and car sharing programs, insurance activities and customer deposit business.

Target Market

The overall target audiences of the BMW Group are customers found and interested in the premium car segmentation. The main importance of the company is the customer satisfaction, as the customer is the base of their existence and for all their actions. Depending on the individual brands, meaning Rolls Royce, MINI and BMW, the specific target audience varies to a certain extent. The different target market of the individual brands creates diversity and differentiation in the company itself.

The Business StrategyThe BMW Group mainly focuses every approach and decision on sustainability, looking at the long term effects in the future. Their forecasting and projecting of market trends, individual economies and continually increasing company efficiency is their key to success, belonging to the premium products and services providers worldwide.

Therefore, as the world continues to change at a rapid pace, individual mobility remains a focus of political regulation and national industrial policy. BMW Groups mission statement is: “The BMW Group is the world’s leading provider of premium products and premium services for individual mobility.” This already underlines the drive of wanting and maintaining to be the best and the number one company in the car industry worldwide.

In year 2000 BMW developed of new strategy specializing on premium segment in German & international automotive market. The launching of that new business strategy, the “Strategy Number One” was in 2007.

The strategy “Number One” consists of a common automotive platform strategy, where the BMW group shares strategic alliances with Alfa Romeo & Fiat to decrease manufacturing costs. It focuses ultimately on profitability and to enhance long-term value in times of change. It applies to technological, structural as well as cultural aspects of our company. The model below demonstrates each step by step factor of the “Number One” strategy. The ultimate factor, the access to technologies and clients is achieved through their continuous heavy in investing in research and development (R&D). This allows the company to maintain and increase its efficiency and leadership through innovation, new and improving technology and guarantees its future sustainability.

2104390554990The Product LifecycleThe constant introduction of new and existing models can be seen to avoid a negative ROI.

Competitor AnalysisBMW’s strongest and main competitors are Audi, Mercedes and Smart. Further competitors are Porsche, Toyota, Jaguar and Lexus. The return on investment (ROI) comparison graph below indicates the steady growth after the crisis, whereby the BMW Group is the second best performing next to the Audi Group.

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CompetitivenessThe strong investment in research and development provides a strong advantage due to the coming up with innovative and technological development of products and tools before its competitors. This long term thinking makes them continuous market leaders. An example would be the development and launching of increasingly sustainable vehicles such as the first Hydrogen car worldwide.

The quick and response and long term thinking towards changes in the market are essential to remain market leaders. BMW has expanded into foreign markets way before the crisis and were one of the first automotive companies to invest in Asia. However, they saw the potential in Asia and the BRIC countries (Brazil, Russia, India & China) as well as the recognition of the saturated European market and its high risk due to the PIGS countries (Portugal, Italy, Greece & Spain).

Another aspect is their constant introduction of new and current products together with their unique design creating permanent market penetration.

Further, through the acquisition of various brands, such as Mini Rolls Royce and BMW the BMW group has achieved a strongly diversified market presence with completely different target markets and marketing approaches.

Financial AnalysisFinancial PerformanceThe past, recent and current financial performance is shown in the table below. One can see that despite the minor reduction in numbers of the year 2008, one year after the crisis, the numbers in revenues and especially in the net profit have recovered and increased constantly throughout the 5 years. The revenue of the BMW Group of 2012 was €76,848 million.

Sales-2952751094740The BMW Group financial performance is not only reaching a yearly all time high overall, the company also achieves that in each sector when one takes a closer look at the sales. The automobile brands sector increased by a total of 10.6% having sold 1,845,186 units from 1,668,882 units in 2011. The motorcycle sector grew by 3.1% as well breaking the sales volume record with 117,109 BMW and Husqvarna units.

The financial services sector also made progress in the number of retail customer contracts worldwide by 12.1% to 1,341,296 units and the leasing and financial contracts with retail customers and dealerships by 7.1% to 3,846,364 units.

Profitability3810001316355The profitability over the time frame of 2000 until the third quarter of 2013 is demonstrated in the table below in Earnings before interest and taxes (EBIT). After the economic crisis, the BMW Group had a profit all time high performance of over approximately 4% above the normal average. However, this peak is fading off slowly, when one takes the quarterly EBIT percentage into account of the year 2013.

Capital StructureWhen it comes to the management of BMW’s capital the company is focusing as mentioned in their objectives and mission statement above on the long term approach, which is also mirrored in their Number One strategy. Additionally to its objectives the company has the goal to provide their shareholders with a fair return.

-2019303781425The capital structure can be influenced by the amount of risk of their assets and certain economic conditions. However, the BMW group takes a large amount of financial instruments and factors into account to find the optimal capital structureand “matching maturities” for the financial management.The debt is managed by having a fixed target debt ratio of the capital. Below in the table is the current structure comparison of the end of the year 2012 and 2011. One can see that the total capital has increased by €4,787. The proportion of the total capital however has shrunk minimally. The target debt ratio is nowhere exactly stated, but it can be assumed that it lies by 60%.

Ratio AnalysisThe added value is a very valuable financial performance indicator. It measures whether the BMW Group is “meeting its minimum requirements for the rate of return expected by capital providers”. In other words, it measures the financial success of the company.

1304925472440The added value formula is the following:

Working Capital Management

Working capital management is an essential function of especially short term and long term financing of a company. The BMW Group has an efficient working capital management, as when many companies struggled due to the economicsovereign debt crisis in the year 2008 and 2009. However, BMW recovered in the year 2010 almost fully again. The company even had the importance of the working capital management stated in their annual report of the year 2009, saying “Stringent working capital management is a further key parameter for managing the business”.

Working capital management basically exists to manage the highly important and essential key to survival of a business, the liquidity of a company. It further is responsible for the management of the cash in- and outflow, cash funds, investments and equity.

Financial Statements

Name

Institution

Date

Financial Statements: How to Navigate in them

Introduction

It is important to determine the financial position of a firm. In most cases, organizations become successful when they prudently carry out financial management and publish the statements as ways of ascertaining their health at any given time. Seconding this is that, financial statements can be applied to woo investors into the firm. This is backed by the knowledge that financial statements either are applied wholly to determine whether the firm is at shutdown, break-even point, or profit making. This research will assess four financial statements of the following companies; General Mills (US), Meiji Group (US), Caterpillar (US) and Komatsu Japan. The case analysis will attempt to examine several factors that makes-up a financial statement, and as a result, prove the firm viability in relation to operations. The research will attempt to prove to that determining the financial position of a firm is categorically imperative in deliberating the future success factors of the firm.

Assignment 1: Case Study Analysis

Balance Sheet

The components that are disclosed

General Mills

According to the Fiscal year 2011, General Mills experienced the following components of stockholders. The company offered pension and other post-retirement benefit plans amounting to about US$220.8 M.

Meiji Group

For the year ending March 31, 2013, Meiji group disclosed an interest cost of US $24, 726, Service Cost $ 42, 362, Amortization of net retirement benefit obligation at transition as $20066, Amortization of actuarial loss at $70266, and Amortization of Prior Service cost US $ 585. The contribution to employees pension Fund was $ 2098 while the additional retirement benefits paid on a temporary basis $ 335, and others amounted to US $ 11,078. These figures present the wider Meiji Group CSR framework and how the group is committed towards achieving decisive goals in relation to CSR.

Preferred Stock

Yes, both companies do have preferred stock on shares. The companies are offering preferred stock shares. For the special features, the group has enabled members to possess shares and voting rights in all profits or losses. This affects the equity investors who do not provide sufficient financial resources vital in supporting the group’s activity. In addition, the group has a legal structure specially mandated to oversee these provisions.

Report treasury shares

Yes, the companies do report to treasury shares. In the year 2010, General Mills shares increased its provision for treasury shares to a magnitude US $ 595 Million this partially offset by $ 568 million related to stock-based compensation plans. In addition, the company improvised Additional paid in capital by $ 13 million from fiscal 2010, which was partially related to stock compensation activity. On the other hand, Meiji increase treasury to common stock by 9,000 shares. The two provisions can be attributed to the purchase of shares that are less than a unit.

Income Statement

Basic and diluted earnings per share for each company

In the fiscal year 2011, the basic earnings per share increased from $2.32 to a present of $ 2.80. General Mills reported diluted EPS of $ 2.70. However, this was still an increase from $ 2.24. This can be attributed to losses from the market-to-market valuation of certain commodity position and grain inventories. In addition, the economic recession did affect the total consumption. On the other hand, Meiji group recorded a $ 24 net income per share in the year ended 2013. This was a significant increase from the previous year, which stood at $ 9.6.

Have the companies reported any discontinued operations

In each of the fiscal year, 2011 and 2013 for General Mills and Meiji Group none of the companies registered a discontinuity of activities.

Stock compensation plans

General mills have recognized a straight-line over the vesting period. The group has been recorded in SGA. Showing the cost of total sales in the consolidated statement, aggregate earnings, and allocation to each of the reportable segments in the results. The value of compensation plans that include income tax benefits is at $ 546.2. In contrast, Meiji Group has a subsequent stock compensation of $ 1,500 and the reporting plans are under the fair value of intrinsic worth since they are segmented into two food and pharmaceuticals.

Financial Ratios

Compute the following ratios. Also, interpret and assess each group of ratios for the company. What type of story are the ratios telling the analyst?

General Mills

Profitability ratios:

Gross Profit Margin = Gross Profit/ Total Revenue 2, 428/ 14.880 billion = 1.631

Net profit margin = Net Income/ Sales Revenue 1,803/ 14.880 = 0.121

Return on stockholders’ equity = Net Income/ Total Equity 1, 803/ 6,612 0.27 of a dollar

Liquidity ratios:

Current ratio = current assets/ current liabilities 18, 674/ 12,063 = 1.54

Quick ratio = cash in hand+ cash at bank+ receivables / current liabilities

= 619+1, 1623/ 995.1 =12.03

Inventory turnover

Inventory Turnover = Cost of goods sold/ average inventory

Average inventory = Beginning Inventory +Ending Inventory/2

= 1,344+ 1,609/ 2 = 1, 476.5

Now Inventory Turnover = (8,926+3,192+17.4.4.4)/ 1,476 =8.22

Inventory Turnover =8.22

Leverage ratios:

Debt-to-assets = Total Liabilities/ Total assets

= 12062/ 18674 = 0.64

•Debt-to-equity

Times-covered ratios = (Net Income + Taxes) / Interest Expense

(1,803.5 +721) / 360 = 7.06

7.06

Meiji Group

Profitability ratios:

Gross Profit Margin = Gross Profit/ Total Revenue 3747/ 11030 = 0.3397

Net profit margin = Net Income/ Sales Revenue 162.99/11053 =0.01465

Return on stockholders’ equity = Net Income/ Total Equity 1, 803/ 6,612 0.27 of a dollar

Liquidity ratios:

Current ratio = current assets/ current liabilities 341211/ 312124 = 1.093

Quick ratio = cash in hand+ cash at bank+ receivables / current liabilities

= 179179+1947729/350267.31 =6.0722

Inventory turnover

Inventory Turnover = Cost of goods sold/ average inventory

Average inventory = Beginning Inventory +Ending Inventory/2

= 7,083,000+ 8,218,000/ 2 = 4500

Now Inventory Turnover = (7,908+3, 793+274)/ 4500 =2.611

Inventory Turnover =2.611

Leverage ratios:

Debt-to-assets = Total Liabilities/ Total assets

= 4,649,000/ 3,206,000 = 1.45

Debt-to-equity

Times-covered ratios = (Net Income + Taxes)/ Interest Expense

(179,128 +130413) / 16,470 = 18.79

7.06

What type of information do you find in footnotes to the financial statements?

Although the two companies had significant difference, there were significant similarities in how each of the companies managed growth. Growth is calculated on the income statement as well as the balance sheet on a three-year basis. On the other hand, cost management ratios are evident to take many forms. In the two reports, financial statement analysis and profitability analysis, the developers looked at the costs as a percent of total sales – evident in the two. Secondly, the financial statements have considered balancing. Everything is considered which include product positioning and the company product strategy. Consequently, a low-cost profit strategy seems appealing to the two companies.

While it is evident that the cost of sales is high, it is good to note that the companies have developed a coherent financial analysis mechanism. In this case, if General Millers or Meiji desired to manage cost, then schemes of profit maximization would be the key towards achieving decisive goals. As such, the two companies have experienced an upward growth strategy in relation to sales. As a result, it is good to argue that sales are changing in-accordance to the total volumes of produce. According to the financial statement, a higher expenditure on inputs is resulting in better output as well as better remuneration.

Balance sheet, income statement, or other measures such as ratios the most informative?

Yes, the two companies approach is informative on the desired information. Primarily, the goal of developing a balance sheet or a financial statement is entirely obliged to determine the company current state in productiveness. In this case, a balance sheet or a financial statement assists the respective stakeholders of this firm to determine the current position of the firm. Skinner (2011, pp. 206) joins this discussion in what the journals discusses as derived necessity to create authentic administration protocols.

Consequently, accounting and administrative controls are adequate to ensure that different transactions are executed according to standards and financial that is required in most of these developments. From the financial statement, each item can be analyzed independently. As such, we see that the total operating expenses (which in this case include costs of revenue) in both balance sheets has reduced substantially as the firms increased their activities. The cumulative results of these changes can be explained by the percentage changes of total income, which automatically means a marginal change in tax ratio.

Advantages and disadvantages of using ratios for analysis

Rations are vivid since they give a more accurate data regarding the firm current situation. In fact, the cost accounting approach in the above financial statements/ report are valuable since they do not have any of the problems of regarding the data used to prepare them they are indeed rigid requirements. As for this case, Easton (2002, pp. 75) joins the debate in his argument on what he contemplates as achieving acceptable accounting principles. Acceptable accounting principles are accomplished since any desired adjustment can be realized in the course of developing the report. Secondly, reports become easy to develop and reorganize. Thirdly, through this approach, it becomes possible to ensure that trends are established. In fact, comparing two or more things in a company is possible. Fourthly, this approach highlights important information in a simpler concise manner, and in this case, it is easier to judge the company be using ratios in studies. However, Easton (2002, pp. 75) further assess that ratios explain the relationship between the companies’ past information while ideally users are concerned about the current information. Secondly, the comparison of the two companies is not appropriate since one company is based on the service industry while the other company is operating in goods dispensation. Therefore, in this regard, the ratio approach is not constructive since it fails to meet the sense of the target. Lastly, the ratios tend to use assumptions, and this approach can be contested significantly.

Assignment 2: Session Project

Part I

Caterpillar and Financial Statements

Caterpillar makes a series of equipments, which include large-scale turbine generators capable of powering cities and earthmoving equipments. Its closest rival is Komatsu based in Japan that manufactures similar product and have the same color and branding. Caterpillar has implemented various technologies all geared towards combining mechanical and electronic platforms on a back-to-back methodology.

Because of constant blending with other industry, Caterpillar financial position has faced significant challenges. Firstly, the recession of 2008-2009 triggered low economic growth in the company although significant microeconomic decline was experienced in the 80s. Secondly, falling oil prices and stiffened economies are primarily responsible performing poorly in the general economic analysis. Thirdly, it should be noted that rivals (Komatsu) had adopted Caterpillar Maru, and due to the good political ties between Japan and developing countries, Caterpillar was losing influence of business. Caterpillar made a loss of US $ 1B in the late 1980s and early 90s.

Scholarly, it has become appropriate to examine how Caterpillar survives in the capital industry. Primarily, Caterpillar took advantage of growth by applying decisive technologies as answers to the needs of the dwindling financial statement. Secondly, the company continued to introduce new models the line excavators which used high-pressure hydraulics and thus, affecting positively to the market. Caterpillar interests me because it announced 1.1 billion investments even after suffering a 20 percent loss in total revenue and subsequently one billion losses in the same decade (Spirkina, 2008, pp. 900).

Ideally, Caterpillar management demonstrated to the public that the nature of a financial statement did not constrain the firm from achieving vital goals.

Pratt (2010, p. 4) joins this argument in what the texts argues as re-costing investment strategy. In this case, the company in question does not use financial statements to determine its weaknesses or inability but the feasibility of achieving its vital goals using a collective approach. In fact, through financial statements, the company can determine areas of investments, and subsequently invest in these areas, taking to account the firm needs a much wider approach in relation to dealing with finances. Based on this approach, I will benefit collectively in understanding the importance of financial statements in motivating the firm total health.

Assignment 2: Session Project

Part II

Financial position of Caterpillar

As established earlier in this discussion, Caterpillar closest rival is Komatsu and the company does have keen business strategies all geared towards ensuring that Komatsu does not prevail in key Caterpillar markets.

Compute:

Return on Assets =

Caterpillar

Return on Assets = Net Income/ Average Total Assets

= 1,011/ 35, 138 =0.0287

Versus

Komatsu

= 1.344/24653 = 0.0545

Profit Margin =

Caterpillar

Gross profit margin = gross profit/ total revenue

208/ 711 =0.2925

Versus

Komatsu

2003/18456 = 0.1085

Assets Utilization Rate =

Revenue/ Total Assets

Caterpillar

711/ 35, 138 = 0.0202

Versus

Komatsu

1845/24653 = 0.07486

Assess your company’s competitive financial position.

After a close analysis of the above report, it is good to argue that the Caterpillar edges out rivaling Komatsu in the financial profitability section. The following internal analysis has identified the main sources of information based on strategic development. In this case, it is prudent to argue that Caterpillar has enjoyed significant performance in the last decade. This is distanced from the company performance in 1980s, which saw Komatsu charging negatively against the company. Then it is good to argue the 80s investment in the capital assets led sustainable competitive advantage.

Compute the free cash flow for your company and its competitor.

Free Cash Flow for the company

ITEMS Cost of debt 14% EBIT

Tax rate 34% Investment

Cost of equity 16% Amount borrowed

CASH FLOWS TO STOCKHOLDERS Year 2011 2012 2013

Earnings before Interests taxes 3,803 6,999 8,692

Less interest -246 -363 -482

Earnings before taxes 11,307 15,734 18,023

Taxes 968 1,720 2,528

Net income 2,700 4,928 5,681

Investment by shareholders -24 -24 -14

Net cash flow to shareholders 3 3.36 3.36

WEIGHTED AVERAGE COST OF CAPITAL Proportion Weighted

Cost of of Market Cost of

Capital Value Capital

Debt (after-tax) 5.00% 11.50% 4.80%

Equity 9.00% 69.50% 14.50%

Weighted average cost of capital 11.30%

Caterpillar relative cash position

In assessment, Caterpillar demonstrates a higher degree of roll returns and guarantees superior returns. The increased number of financial assets is what makes the overall returns. In this case, the roll returns pushes the company to relatively high cash position for inquiring cash on investment to a spot position. In analysis, investing in financial investments ensures that the company has derivative advantages. A financial asset directly offers the benefit of avoiding the finance cost and technically disadvantage of losing the dividend. According to Caterpillar income statement, it is good to note assets are primarily responsible for forward contract, which generates positive roll return.

Assignment 3:

3.1 Managerial accounting versus financial accounting

In context, both management and financial reports seek to adhere to the fundamental concept of cost measurement and recognition when contemplating of future, presents, and past. Financial accounting measures and reports do follow strict guidelines and largely those accepted accounting principle in reporting to past operations to external users. However, on the other hand, management accounting guides a firm on the desired decisions, creation of effective at their jobs and on overall improvement of the aggregate organization’s performance. Secondly, managerial accounting is not a subsequent of financial accounting but it player a wider role in the process of tax accounting, financial accounting, and information analysis. Thirdly, managerial accounting reports for internal use and in this case, it reports to user driven needs. In fact, this approach is decisive since it encourages the use of innovative presentation techniques proper data analyses and to a greater regard expand the usefulness of information to stakeholders.

3.2 Explain the contribution margin concept/computation and when to use the information

The contribution margin of revenue received is chiefly responsible for the enhancement of variable costs of producing a product. This concept is important and complicated than it my first appear. In computation, it is necessary to consider the nature of constrained resource and the impact that they do have on relative organizational development. The basic formula for calculating contribution is contribution margin = price – variable cost. In this case, the fixed cost is paid in any event in an excess of the revenue is paid on variable costs and is used to provide extra money to the organization. As this is the case, the general rule to achieve a contribution margin is based on the financial viewpoint. The organization is required to proceed with elements that should contribute directly and inherently to improve the overall financial life to the organization. As a result, one can use this information when computing the aggregate financial situation of a firm. In fact, these computations will naturally guide a firm to determine when to reinvest (for instance, Caterpillar when to buy more tractors) and when to hoard.

Conversely, it is good to acknowledge that management accounting examines and compare, the past, present, and the future of the firm. Indeed, management accounting looks to the important past, present, and the future of the firm. As a result, management accounting specifies the structural cogitation of analysis. They can be applied towards examining converging industries economic markets and operation decisions. Therefore, in the analysis is positive to argue that management accounting is applied widely in determining what should be done in the financial accounting.

References

Accounting for Management. (n.d.). Difference Between Financial and Managerial Accounting. Retrieved from HYPERLINK “http://www.accountingformanagement.com/financial_accounting_vs_managerial_accounting.htm” t “_blank”http://www.accountingformanagement.com/financial_accounting_vs_managerial_accounting.htm

Duncan, P. J., & Easton, S. A. (2002). The pricing of High Yield Equity Notes. Accounting and Finance, 42(3), 239-249.

Skinner, D. J. (2011). Accounting Research in the Japanese Setting. The Japanese Accounting Review, 1(2011), 135-140

Spirkina, G. V., & Efimova, L. B. (1987). Steels for parts of the propulsion system of industrial Caterpillar tractors. Metal Science and Heat Treatment, 29(12), 899-901

Pratt, J. (2011). Financial accounting in an economic context. Hoboken, NJ: Wiley

Principlesofaccounting.com. (n.d.). Chapter 17 Multiple Choice Questions. Retrieved from HYPERLINK “http://www.principlesofaccounting.com/questions%20-%20%20multiple%20choice/chapter%2017%20-%20multiple%20choice.htm” t “_blank”http://www.principlesofaccounting.com/questions%20-%20%20multiple%20choice/chapter%2017%20-%20multiple%20choice.htm

Unknown. (n.d.). The Role of Management Accounting in The Organization. Retrieved from HYPERLINK “https://docs.google.com/viewer?a=v&q=cache:MWZE_XMqFOUJ:www.swlearning.com/accounting/albrecht/management_2e/expanded/exp_01.doc+Financial+versus+managerial+accounting%3F&hl=en&gl=us&pid=bl&srcid=ADGEESjWheQRI7nzm3i5Zmwsd3la9aWDQDy9N3RbBWiQns9ic71gNJoRxVa75E4KWSi0GthsbXrfNpSEQ_UZvr0QenNE-Ut6XU_9v6Yda0SVULodDfzIGRSb8Pf30b9I3qN0lWmUoXzZ&sig=AHIEtbRDmHJSiuRsS9v6FrbERAz9cqTPEw” t “_self”https://docs.google.com/viewer?a=v&q=cache:MWZE_XMqFOUJ:www.swlearning.com/accounting/albrecht/management_2e/expanded/exp_01.doc+Financial+versus+managerial+accounting%3F&hl=en&gl=us&pid=bl&srcid=ADGEESjWheQRI7nzm3i5Zmwsd3la9aWDQDy9N3RbBWiQns9ic71gNJoRxVa75E4KWSi0GthsbXrfNpSEQ_UZvr0QenNE-Ut6XU_9v6Yda0SVULodDfzIGRSb8Pf30b9I3qN0lWmUoXzZ&sig=AHIEtbRDmHJSiuRsS9v6FrbERAz9cqTPEw

Financial statements of Enron Waste Management

Executive Summary

Financial statements are developed to respond directly to reflect on the company financial history, current situation and project the future. In fact, through financial statements, a firm will be a better position to orient strategic management. Consequently, issues related to excesses, and losses can be singularized out this point. Financial statements have been applied to woo investors to get committed to the firm financial health. However, improper auditing of financial statement are applied to portray false figures and the firm illegal portrayal. In fact, recent strategies in the fraud arena have focused on using financial statement and a lucrative feint is overstatement of profits. The commencing analysis will attempt to examine the nature of fraud

Enron Waste Management

In October 2001, Enron Waste Managers conducted one of the most corrosive accounting fraud by twisting accounting practices and defrauding stakeholder over $ 6 billion American dollars. The fraud took centre stage in a span of five years. As a result, stakeholder presentations began complaining about the situation. The company senior management violated and aided corrupt individuals to process fraud incidences. Consequently, the management aided violations of antifraud, reporting and record/keeping provisions of federal securities laws. As part of the technicalities, Enron top management overstated earnings to a magnitude of 1.4 billion and this was a seductive approach to attract new investors.

Technically, fraudsters affiliated to the Enron, adjusted the SEC document to influence wooing of the funding. The management hired independent auditors who would earn additional fees for configuring reports to fraudulent orientation. To achieve this, waste management officials presented an illegal document called Proposed Adjusting Journal Entries. In fact, officials constantly refused to make corrections and instead of entering on closed door agreement with auditing bodies. This forced one auditing Anderson to write off the accumulated errors over ten year period this affecting reliable accounting practices. For this conduct, Andersen was forced to pay $ 220 million to Waste Management shareholder and $ 7 million to SEC.

However, this repayment was not satisfactory since waste management shareholders further lost $ 20.5 billion U.S dollars. Further to this, over eleven thousand Enron were laid off as part of the downsizing program to repay the amount resulted in the fraudulent activities. However, Enron had to pay Andersen along with the consulting fees and spin/off firm. Although Andersen was finally paid its auditing dues, it should be recalled that Andersen one of its largest client.

Following the development of Enron case, it became integral to respond to corporate scandals and this forced the American Congress to develop Sarbanes Oxley Act of 2002. The US congress envision a law which would minimize fraudulent. Many hearing in response to Enron case were devoted towards examining the role played by Arthur Andersen in influencing external information statement. Enron as well performed audits on WorldCom and Waste Management. Through the influence of Securities and Exchange Commission (SEC) banned Anderson from accepting new audit from clients.

Explain the causes of the frauds using the fraud triangle

There are two primary causes of fraud in an organization. One ethical factors causing greed, and two a general will to conduct fraud with intent to appeal to the public and potential investors. The list below shows potential causes of fraud in an organization. Firstly, this report identifies lack of transparency as the lid cause factor of fraud. Secondly, procuring of an non/independent internal audit department. In this case, an organization internal audit department is not independent and does not report according to the standard expectations. Thirdly, excessive complex organizational structure is as well primarily responsible for hindering revenue streams. Fourthly, improper provision of accounting controls. The organization constantly ignores documents such as bank reconciliation and this can be an early indication of corporate fraud. Sixthly, lack of proper moral direction from the executive encourages the development of unprofessionalism in auditing system.

To achieve corporate deceit, fraudsters develop a financial triangle one that strategizes on the nature of corporate fraud. On the top is the perceived opportunity. Fraudsters will convince the top executive on the possibility of a ghost opportunity. The goal is to make sure that the opportunity appears very legitimate on the short and long run. The fraudsters move to the next level, which is the incentives pressure. The pressure to build incentives is primarily oriented from the ability to orient fraud pressures constantly. Thirdly, the fraudsters create a rationalization policy one that seeks to approach the situation in more repellent. The goal here is to minimize visibility entirely.

Compare and contrast the causes of the frauds across the three international jurisdictions.

There are several similarities that explain similarities of the fraud cases in three jurisdiction, Australia, United Kingdom and United States, with the following companies HIH Insurance and Onetel of Australia, Enron and waste management of US, and Barings Bank and Equitable life Ins (UK). The three situations have common similarities and to some extent numerical differences. Firstly, as part of the similarities, it is notable that the three situations do involve top management in influencing decisions made and consequently altering the quality of auditing. However, as noted, there are a number of differences in each of the corporate fraud. In this case, the quality of auditing system is heavily debatable. One will notice that the level of involvement of auditing companies naturally differs. While Anderson, the principal auditing company for Enron was an integral engineer in Enron, other firms the situation is different with the auditing firms not being in central fraud planning section.

Part 2 XYZ Ltd

Balance Sheet Year 1 ($) Year 2 ($)

Assets    

Current Assets    

Cash 45,000 15,000

Accounts Receivable 150,000 200,000

Inventory 75,000 150,000

Fixed Assets (net) 60,000 60,000

Total Assets 330,000 425,000

Accounts Payable 95,000 215,000

Long/term Debt 60,000 60,000

Total Liabilities 155,000 275,000

Stockholder’s Equity    

Reserves 25,000 25,000

Paid/up Capital 75,000 75,000

Retained Earnings 75,000 50,000

Total 175,000 150,000

  330,000 425,000

INCOME STATEMENT    

     

Net Sales 250,000 450,000

     

Opening Inventory 55,000 75,000

Purchases 145,000 375,000

Closing Inventory /75,000 /150,000

Cost of Goods 125,000 300,000

Gross Margin 125,000 150,000

Operating Expenses    

Selling Expenses 50,000 75,000

Administrative Expenses 60,000 100,000

Net Income 15,000 /25,000

Additional Information    

Average Net Receivables 150,000 210,000

     

Required:

Apply horizontal and vertical analysis to the financial statements of XYZ Ltd

Horizontal, reports each amount on the financial statement in comparison to another item. Each item on the balance sheet is configured in relation to the total assets.

Cash

45,000/ 45,000=100%

Against

15,000/45,000=33.33%

Accounts Receivable

150,000/150,000=100

Against

200,000/150,000=133.33

Inventory

75,000 /75,000=100%

Against

150,000/75,000=200%

Fixed Assets

60,000/60,000=100

Against,

60,000/60,000=100

On the other hand, the Vertical analysis ensures the percentage amount is presented in relation to sales. The figures are listed from the income statement.

Sales, 250,000/250,000=100%

Against

450,000/250,000=180%

Cost of goods

125,000/125,000=100%

Against

125,000/300,000=240 %

Gross Margin 125,000/125,000=100%

Against 125,000/150,000=120%

This analysis attempts to reveal relationships among items on the financial statement and trends of individual items, which occur with time. The relationship guides this report in making a better and sound judgment on what current performance of the company. In fact, the two major techniques vertical analysis, and horizontal analysis are imperative in aiding the understanding of the firm’s health.

b) Undertake ratio analysis for years 1 and 2.

Ration analysis in financial statements is applied to obtain a proper indication of a firm total financial performance in key areas. This approach will guide this report to determine debt management rations, assets management rations, market value rations, and profitability rations. The approach further guides computation ratios and facilitates the comparison of the firm total industry competitiveness. The accounting information provided is based on the nature of historical costing mechanism. Hence, it is good to note

Current Ration = Total Current Assets/ Total current liabilities

Year One= 330,000/155,000 =2.12

Against Year Two = 425,000/275,000= 1.54

Inventory Turnover= COGS/ Inventory

Year one, 125,000/ 75,000=1.66

Against year two=300,000/150,000= 1.5

Fixed Assets Turnover= Days 365/ Net Fixed Assets

Year One, 365/60,000=0.006

Against Year Two, 365/60,000=0.006

Total Assets Turnover = Sales/ Total Assets

Year One, 250,000/330, 000=0.75

Against Year Two, 450,000/425,000=1.05

Profit Margin = Net Income/ Sales

Year one, 15,000/250,000=0.06

Against Year Two,

25,000/450,000=0.055

Return on Assets= Net Income/ Total Assets

Year One, 15,000/330,000=0.045

Against Year two, 25,000/ 425,000=0.058

Identify any trends and abnormalities in the financial statement and provide possible explanation.

A key thing which as been identified from this financial statement is limitation from ration analysis. The financial statement places emphasis on indicators and key rations. It is abnormal since there is no single measure, which is capable of capturing relevant and important information on the company. In this company, the calculation on different rations happens to be the starting point. Analysis requires development of ratios, understating of reasons and forming expectations. The overarching rule of a ration is in fact ought to be and depends on the nature of particular of the industry that the financial statement is adopted from.

Consequently, from the financial statement one will notice the ratios are expected to be generated on a benchmark framework. After looking at the financial statement, one fails to notice this framework. Additionally, from the above financial statement, one will notice that they will be non-operating items; for instance, judgements include effects on the comparison between year and year two. While this approach seems legitimate, it is more meaningful to ignore effects on items and the financial ratio. For this reason, one will notice that ratios mean that there is a comparison between past ratios is not specified on given industrial or business standard. The financial statement is basically blank and does not demonstrate proper or what can be considered coherent information.

To analyse this, the best possible option is applying financial statement, which does place greater emphasis on the summary of key ration and current ration. However, as stated, there is lacks a single approach that seek to merge a single approach into a collective financial statement. It should further be noted that the possibility of engaging on window dressing presents a working challenge. Based on these two, one will notice that the above financial statement are ratios computed using standard numbers and this presents serious problems which can evoke fraudulent activities.

d) Identify the related accounts that the forensic accountant might want to further investigate.

A forensic auditor may identify the contra account and how it can be applied to offset inefficiencies in the financial statement. A contract account builds normal debit balance and creates a credit balance. The contra account is vital since it is deducted from the balance of the related assets accounts in the financial statement and resulting difference is understood as the book of assets. Improvising the contract account ensures that journal entry reduces the overall book value of assets.

In fact, the forensic accountant will be in a better position to derive a contra assets accounts. This is regular account that carriers a debit balance and also carriers a credit balance. The advantages of a contra account are that it carries doubtful accounts on accumulated depreciation depression. The accounts also create an allowance for doubtful account, which offsets a company accounts. Secondly, a contra account creates a liability account. The credit balance created has a common liability on accounts. This ensures that cash receivables are issued on a bond on maturity.

The contra account also creates a contra revenue account. This allows the creation of sales allowance, sale returns and sale discounts. The accounts also creates total amount of company’s revenue.

Conclusion

Financial Analysis of National Medical Center Group Dubai

For the years 2013 & 2012

Submitted by:

Hossam Magdy Eloraby

Student ID : 1332005

(7AC002) Accounting and Financial Management

(Westford India, June 2014 Delivery)

Wolverhampton Business School

Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc410121773” Background PAGEREF _Toc410121773 h 4

HYPERLINK l “_Toc410121774” About HealthCare Industry in UAE PAGEREF _Toc410121774 h 4

HYPERLINK l “_Toc410121775” About NMC Group PAGEREF _Toc410121775 h 5

HYPERLINK l “_Toc410121776” NMC Top Pick in Sector PAGEREF _Toc410121776 h 5

HYPERLINK l “_Toc410121777” Details of DCF analysis PAGEREF _Toc410121777 h 6

HYPERLINK l “_Toc410121778” About the founder PAGEREF _Toc410121778 h 8

HYPERLINK l “_Toc410121779” SWOT Analysis PAGEREF _Toc410121779 h 9

HYPERLINK l “_Toc410121780” Financial Analysis PAGEREF _Toc410121780 h 11

HYPERLINK l “_Toc410121781” Ratio Analysis PAGEREF _Toc410121781 h 12

HYPERLINK l “_Toc410121782” Profitability Ratios PAGEREF _Toc410121782 h 14

HYPERLINK l “_Toc410121783” Asset Utilization Ratios PAGEREF _Toc410121783 h 14

HYPERLINK l “_Toc410121784” Liquidity Ratios PAGEREF _Toc410121784 h 15

HYPERLINK l “_Toc410121785” Debt Utilization Ratios PAGEREF _Toc410121785 h 16

HYPERLINK l “_Toc410121786” Summary PAGEREF _Toc410121786 h 17

HYPERLINK l “_Toc410121787” Company Source of Funds of Revenue PAGEREF _Toc410121787 h 18

HYPERLINK l “_Toc410121788” Gross Patient Service Revenue (GPSR). PAGEREF _Toc410121788 h 18

HYPERLINK l “_Toc410121789” Net Patient Service Revenue (NPSR). PAGEREF _Toc410121789 h 18

HYPERLINK l “_Toc410121790” Adjustments to GPSR revenue to calculate NPSR include: PAGEREF _Toc410121790 h 18

HYPERLINK l “_Toc410121791” Private Payers PAGEREF _Toc410121791 h 19

HYPERLINK l “_Toc410121792” Health Maintenance Organizations (HMOs) PAGEREF _Toc410121792 h 19

HYPERLINK l “_Toc410121793” Preferred Provider Organizations (PPOs) PAGEREF _Toc410121793 h 19

HYPERLINK l “_Toc410121794” Point of Service (POS) PAGEREF _Toc410121794 h 19

HYPERLINK l “_Toc410121795” Indemnity insurance PAGEREF _Toc410121795 h 19

HYPERLINK l “_Toc410121796” Uninsured PAGEREF _Toc410121796 h 20

HYPERLINK l “_Toc410121797” Other Operating Revenue PAGEREF _Toc410121797 h 20

HYPERLINK l “_Toc410121798” Investment Income PAGEREF _Toc410121798 h 21

HYPERLINK l “_Toc410121799” Unrestricted Donations PAGEREF _Toc410121799 h 21

HYPERLINK l “_Toc410121800” References PAGEREF _Toc410121800 h 22

HYPERLINK l “_Toc410121801” Appendix PAGEREF _Toc410121801 h 23

HYPERLINK l “_Toc410121802” Financial Summary PAGEREF _Toc410121802 h 23

HYPERLINK l “_Toc410121803” FY2013 Financial Highlights –A year on year comparison PAGEREF _Toc410121803 h 26

HYPERLINK l “_Toc410121804” FY2013 Business Highlights – A year on year comparison PAGEREF _Toc410121804 h 26

2

Background

About HealthCare Industry in UAEThe healthcare sector in the UAE is mainly managed by the government through the Ministry of Health (MoH) and the authorities Emirate. Each Emirate has its own health authority, like Dubai has DHA, (Dubai Health Authority), Abu Dhabi has HAAD. UAE government has tried to make UAE as the regional tourism hub. It is promoting medical tourism. UAE government has introduced compulsory health insurance, which has been followed by each emirates, in its own way. AS per Collins, after compulsory health insurance was introduced to Abu Dhabi, the revenues of most of the private hospitals doubled in subsequent years (Audit, 2014). In 2013, Dubai has also included the insurance plan in it system and has made it mandatory for everyone to have medical insurance

In UAE, there are total 88 hospitals, which include private and public sectors. These organizations provide various services related to healthcare industry. The total bed were 9176, by end of 2011. So, each hospital has on the average of 104 bed per hospital. Dubai & Abu Dhabi has 35 no. of hospital each, as per Colliers international 2013

The private sector contributes to 2/3rd of the total no. of hospitals.

About NMC GroupNMC is a healthcare group in the United Arab Emirates (UAE). Its headquarters are in Abu Dhabi, UAE’s NMC has branches capital in other emirates. Of UAE, which include Dubai, Sharjah & Al Ain. National Medical Company is listed on the London stock Exchange (LSE), since 2012. It is a part of the Foreign Trading Stock Exchange (FTSE).

NMC Healthcare group was created by H.E. Abdulla Humaid Al-Mazroei & B.R. Shetty, in 1975. It grew up and opened hospitals in Deira (1999) and Al Nadha (2004) in Dubai, in Al Ain (2008) & recently opened hospital in Sharjah, as well.

NMC has diversified into other lines of businesses, other than hospital & NMC. NMC has also ventured into pharmacies, hospitality (Foodland restaurant), financial services (UAE exchange is one of the prominent business), jewelry, education, advertisement, real estate, information technology & pharmaceuticals (NMC, 2014).

NMC is a very socially responsible company. This healthcare group is a sponsoring a cricket team, which has won many titles.

The NMC healthcare group is a composition of NMC Healthcare Division and NMC Distribution Division.

NMC Healthcare includes:

Abu Dhabi Specialty Hospital, Al Ain Specialty Hospital, Dubai Specialty Hospital, Dubai General Hospital, Sharjah Medical Centre, BR Medical Suites, NMC Day Surgery Centre in Mohammed Bin Zayed City & Third party hospital operations & management. In addition to this, NMC is adding new assets, medical facilities to the existing hospitals in Abu Dhabi & Dubai.

Segments

NMC distribution division includes wholesale of pharmaceutical goods, medical equipment, cosmetics, food and IT products and services.

NMC Top Pick in SectorNMC Health exchanges at an 18% and 8% rebate to EM social insurance peers on the premise of 2014e P/E and EV/EBITDA products, separately. While some markdown is supported because of the way that NMC’s plan of action incorporates an appropriation segment, which offers lower development and edges than the medicinal services part, we regardless view the valuation crevice as extreme. Our examination recommends a reasonable estimation of GBP 5.51/offer for the organization, 21% over the predominating business sector cost (Audit, 2014). Also, provided for its current system of three social insurance offices in Dubai (2 hospitals and one facility), alongside expected opening of an alternate clinic in Q2 14 (DIP Hospital), NMC is best situated among the recorded human services organizations to profit from the progressing take off of obligatory protection in Dubai. We along these lines feel that the organization offers the best esteem to speculators inside our social insurance scope and positions as our top pick in the part.

Details of DCF analysisOur DCF-based valuation of NMC has expanded to GBP 5.87/offer, 55% higher than our past evaluation of GBP 3.79/offer. Key elements driving the higher valuation are:

Fundamentally lower capital use of USD 293mn over our 5-year gauge period versus USD 419mn in our past model (use on various key ventures, for example, Brighpoint and DIP hospital is generally finish).

Our past model expected that NMC’s present 5-year contract to oversee Sheik Khalifa Hospital would not be restored upon fulfillment. Given the organization’s solid execution to date in working the office (NMC created Usd5.4mn from the agreement, meeting all its Kpis) and the predominating absence of supply of value healing facility administrators, we now feel that this suspicion is excessively moderate. Our amended model expect that the agreement will be replenished upon fulfillment (Colliers, 2014).

By moving the time of DCF investigation 1 year forward, Free Cash Flow in the most recent year of our unequivocal figure period (which structures the premise for Terminal Value) increments fundamentally from USD 102mn to Usd152mn. This is determined by a mix of 1) better usage at existing and new social insurance offices and 2) commitment from Third Party Management Services (administration of Sheik Khalifa Hospital), which was at one time rejected in our model.

We have brought down the expense of value from 12% to 11%, in accordance with that used for Al Noor. This reductions our WACC to 8.8% versus 9.2% in our last valuation.

About the founderB R Shetty is CEO & MD of the NMC Group of Companies & UAE Exchange. He is a trained pharmacist and he spotted an opportunity in the co acquired National Hospital, in Abu Dhabi. Today, this group has hospitals and NMC all across UAE and has patient base of more than one million, a year. Shetty has been awarded for Padmashree and Pravasi Bharatiya Samman. He is also the chairman of Abu Dhabi Indian School, AD, UAE. Shetty is involved in many philanthropic activities. He has investments in India as well, in medical institutions. He is founder member of the Indian Pharmaceutical Association in UAE. He is member of:

Advisory Board of Financial Sector),

Economic Department, Government of Dubai, UAE &

Pharmaceutical Committee, Dubai.

He is also the chairman of Abu Dhabi Indian School, AD, UAE. Shetty has been awarded for Padmashree and Pravasi Bharatiya Samman.

SWOT AnalysisSTRENGTHS: NMC has created competitive advantage through following those, its strengths include:

Market leader in healthcare plans segment: Special expertise, innovative service,

Market Capitalization Cost advantages, due to many branches,

Customer focused approach Cultural advantage, connected to Asians

Excellent reputation

Experienced staff

Latest Technology

International exposure

Diversification,

Easily accessible locations of the hospitals.

WEAKNESSES: NMC might need improvements in following:

Too much reliance on external funds

Targeting only Asians customers

Marketing gaps.

OPPORTUNITIES: Some significant trends exist in the market, which NMC can exploit, for its benefits, which include:

Some competitor’s leaving are market,

New & upgraded technology

Opening branches in neighboring gulf countries

Introduce new products to target specific segment of people: New market segment including Insurance business,

Diversification into niche market of commodity market, add new niche, or horizontal business.

THREATS: No one is immune to threats, NMC must consider these threats seriously, which includes:Competitor developing new product & service line,

New competitors like Americans, Canadian competitors are entering market and expanding,

Fast changing economic scenarios (economic shift), Changing Government regulations: new rules and regulations,

Change in insurance plans,

Competitors improved channels of distribution

Staff leaving for better prospects

Seasonality due to holidays, festivals Strengths

Financial AnalysisMost of the subsidiaries are 100% owned. The financial analysis of NMC Healthcare group include the above mentioned activities, together it is called ‘group’. NMC group follows IFRS, issued by IASB, for finalization and consolidation of its accounts. The functional currency is in UAE Dirhams, whereas the reporting currency is USD. The reporting period of financial statements in one year, i.e 1st Jan to 31st Dec (Colliers, 2014).

The primary economic environment influencing UAE and the effect of the local environment is limited to expenses incurred within the UK. The ability of the Company to meet its obligations and pay dividends to its shareholders is dependent on the economy of, and the operation of its subsidiaries in, the UAE.

Ratio AnalysisRatio Analysis

Year

S.No. Ratios 2009 2008

1 Gross Margin 33% 32%

2 Profit Margin 12% 12%

3 Operating Profit Margin 15% 19%

4 Return on Capital Employed 9% 8.30%

5 Return on Equity 19.30% 18%

6 Receivable Turnover Ratio 3.15 Times 2.70 Times

7 Average Collection Period 115 Days 133 Days

8 Fixed Asset Turnover Ratio 2.41 Times 2.42 Times

9 Total Asset Turnover Ratio 0.72 0.68

10 Current Asset Ratio 2.13 2

12 Quick Acid Test Ratio 1.91 1.72

13 Debt to Total Asset 52% 54%

14 Debt to Equity Ratio 110% 116.47%

15 Time Interest Earned 5.82 6.79

16 Inventory Conversion Period 94 days 80 days

17 Payable Deferral Period 76 days 76 days

18 Cash Conversion Cycle 133 days 137 days

To compare the position of the healthcare care group, am horizontal analysis has been

done, which involved the evaluation of firm’

As NMC Health care is in related businesses i.e. related to the supply chain components of healthcare industry, the comparison is possible. The accounting principles followed are same, reporting dates are also same, even the functional/reporting currency is same.

Profitability RatiosThe company has been able to effectively generate and maintain the profitability of the company. The operations have been able to bring down the direct cost of the business, hence the profit from operations has gone up from 32% to 33%.

The company has been able to maintain a profit margin of 12%, year on year, this suggests that the company has been able to maintain the proportion of profit in sales steadily (Coyne & Hilsenrath, 2002).

The operating profit margins have gone down from 19% to 15%, which shows that the sales dollars which remains after the payment of all costs and expenses, except for interest and taxes.

The return on capital employed, has improved, from 8.30% to 9%, over the year.

The interesting fact to be understood here is that Cost of Capital is approximately 3% to 4% + EIBOR, approximately 7-8%. Hence the cost of capital is more or less equal to return on capital. The business has excel to improve it returns on capital employed, to cover up the short term, long term borrowings.

The responsibility of corporate governance is to take care of the interest of the shareholders of the company. The company has been able to generate better return to shareholders. The returns to shareholders have gone up. This means the market value of the share of NMC healthcare must have risen, after it got registered with FTSE, for fund raising, for its capital projects of starting new medical facilities in different parts of UAE.

Asset Utilization RatiosAlthough the receivable period has gone up, but the conversion cycles are too long. In the report, it is mentioned that funds are receivable from either government or insurance companies, which have long procedures, to release the payments. Even in some cases, company is doing impairment, to adjust the receivable, at the net realizable value. ‘An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. Amounts which are not significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.’ (as per the NMC 2014 A)

In the same lines, the receivable time has down own from last year, but this make the operating cycle, very long. Hence the company should try to reduce the receivable cycle. On evaluation the payable deferral period, it came out that payable cycles are shorter than receivable cycles.

There is a which ‘negative will harm the operating float’, cycle of the company. This will lead to drying up of working capital, in the company. This situation will lead to liquidity crunch, in years to come.

Inventory turnover time has gone up. It generally consist of the medicines sold at pharmacies, the medical equipment etc. the inventory turnover is slow.

The total cash conversion cycle is still positive, but it’s too long, the operating cycle, for a healthcare should not be longer than 3 months.

Ideally this is the time, during which the patient is diagnosed and treated. The company has to work on reducing its cash conversion cycle, for betterment of working capital management.

Liquidity RatiosThe short liquidity is quite strong at this point of time, the current asset are almost 2 times the current liability. This is a very healthy position (Thomas, 2009). To go deeper into liquidity issues, the conservative approach of establishing the financial health in short term, can be done by taking out inventory from the current assets, which states that current assets are still better of and cover the liability fully. The operating cycles have no shortage of liquidity.

But, as the company has raised funds through borrowing, and invested in inventory, the current assets and liabilities may go up. So, even after considering that, company has comfortable liquidity position.

Debt Utilization RatiosThe company is highly financial leveraged, more that 50% of its assets are financed with debts. But looking at the trend, it is visible that management is trying to reduce the part of debt.

Same way, the firm’s financial leverage can be established, it is very highly leveraged in comparison to the equity invested. This is due to the company going public in 2012. NMC healthcare raised funds through IPO and registered the company at FTSE, to finance its capital projects (NMC, 2014).

SummaryThe cost of capital is almost equivalent to return on investment, the group has been able to maintain the cost of capital=return on capital. This means that governance of the group is aiming at reducing the cost of capital by generating, higher returns.

The operating cycle has to be shorten down by increasing the payable cycle and reducing the receivable cycle. The cash conversion h point of time. To improve the operating cycle the float ha to because operating cycle has be less than 3 months, as the cash get stuck between the receivable and payable cycle (Coyne & Hilsenrath, 2002).

The group has to work on it, the operating profit margins have gone down from 19% to 15%. The inventory turnover is also slow, which can leads stocks of medicines getting obsolete, reducing the profit margins. The group has to follow strict regime for working capital management, otherwise the current liabilities will be more than the current assets, which will have drastic effect on the cash /operation cycle.

As company has gone for IPO in the international market, the company has to look into its operation. The money raised from international market through raising shares is payable through dividends, although the share value has gone up. The group has to more stringently follow on its finances, as the company is highly leveraged through these debts.

The group should convert all the projects into cash cows soon, as the project cost should not go up. If they are unable to do so, the capital raised from market will become expensive.

Company Source of Funds of RevenueOperating revenue— earned by conveying patient consideration is the first and essential way that hospital profit. This income is hide their sorted in hospital fund terms as horrible and net

Gross Patient Service Revenue (GPSR).

The measure of cash that NMC would make on the off chance that they were forked over the required funds (that is, the non-discounted rate) for the consideration they convey (complete inpatient and outpatient incomes before derivations). On the other hand, hospital professional vide most patient consideration at short of what full charge and never really gather their terrible patient administration income (Dhabi, 2009).

Net Patient Service Revenue (NPSR).

The aggregate sum of cash the clinic really gathers in the wake of deducting philanthropy care and contractual changes.

Adjustments to GPSR revenue to calculate NPSR include:Free care (also known as charity care) represents administrations accommodated which installment was never expected and for which the patient is not sought after. Tolerant qualification with the expectation of complimentary consideration shifts by state and (here and there) by clinic and is by and large focused around monetary circumstance (salary and resources). NMC esteem free care at full charges on their budgetary proclamations, yet this does not reflect the genuine expense of giving the consideration. (Note: Free care varies from terrible obligation in that awful obligation speaks to administration charges for which a doctor’s facility anticipated that will gather yet winds up not getting paid. For more detail on awful obligation see Section III.) (Hajat, Harrison & Al Siksek, 2012)

Contractual are payment arrangements with organized payers.

Different payers pay different distinctive sums for indistinguishable administrations. Medicare, Medicaid, and private insurance agencies arrange installment courses of action that are focused around expenses, recorded healing facility charges, or other criteria. The value that these gatherings have the capacity arrange shifts (they don’t all pay the same marked down rate) as does the installment strategy.

Private PayersThe private health insurance framework stands parallel to the general population Medicare and Medicaid programs. These payers get a premium— normally from a business in the interest of workers, yet at times from different associations or people to pay for the medicinal services its members need. Private payers arrive in a mixture of sorts

Health Maintenance Organizations (HMOs)

Pay for inpatient hospital administrations by DRG, outlay, or marked down charges. They might likewise pay by arranged capitation rates, especially in an “incorporated conveyance framework” where doctor’s facilities and doctors contract together.

HMOs pay for outpatient hospital services in two common ways:

By capitation, where a supplier is paid a certain sum every patient for a foreordained set of administrations. Capitation installments are frequently depicted regarding “every part, every month (Hajat, Harrison & Al Siksek, 2012).

Preferred Provider Organizations (PPOs)

Pay hospital for inpatient and outpatient consideration focused around an arranged rebate of the clinic’s ordinary charges. Out-of-system consideration is normally paid for at the hospital’s charge rate.

Point of Service (POS)Associations are a crossover of Ppos and Hmos. Installment by a POS tackles diverse structures, contingent upon the particu-lar POS plan. A few POS arrangements pay for administrations utilizing the marked down expense for-administration strategy and some utilization capitation. Out-of-system consideration is normally paid at the healing facility’s charge rate.

Indemnity insurance

Is the conventional type of protection. Under reimbursement protection, arrangements pay for inpatient and outpatient doctor’s facility consideration focused around the hospital’s charges. This strategy can be considered practically identical to different types of protection, for example, auto protection. Reimbursement contrasts from other private safety net providers that utilization the charge for-service technique, for example, PPOs and a few Hmos—in light of the fact that repayment insurance permits the patient to see any specialist or go to any clinic they wish. This flexibility of decision and relative absence of limitations has a tendency to pull in individuals with more prominent medicinal service’s needs, subsequently repayment arrangements are costly and have significantly expanded the copayment and deductible peculiarities of their profit arranges as of late. Thus, the quantity of individuals safeguarded by repayment arrangements is diminishing.

UninsuredThe individuals who don’t have an open or private payer speaking to them in the human services commercial center speak to themselves. These are the uninsured, who must discover the intends to fund their own particular consideration. Pay toward oneself Uninsured or pay toward oneself patients pay whatever charges the healing facility posts as their charge or cost. In 1996, payers toward oneself paid, on assert age, 87 percent more than what their consideration really cost. As a correlation, private safety net providers paid, generally speaking, 22 percent over the expense of their consideration. Pay toward oneself additionally means uninsured, such an extensive amount a clinic’s potential pay toward oneself income winds up as uncompensated consideration.

Other Operating RevenueHospital likewise profit by giving administrations that are continuous business exercises, yet that are not specifically identified with the clinic’s fundamental mission of conveying patient consideration. While these exercises acquire critical and persistent streams of stores, the cash coming about because of these administrations and exercises is called other working income. Some normal classifications that make up other working income include:

i. Cafeteria sales

ii. Gift shop sales

iii. Parking garage fees

iv. Space or equipment rentals

v. Research grants

While it is presumably evident how a doctor’s facility advantages monetarily from rentals, cafeteria, blessing shop, and stopping carport charges, financing from examination gifts merits somewhat more clarification. NMC are an important coliseum for investigating new medications, medicines, and methods, and outside offices store doctor’s facilities to perform such research. The primary associations that store medicinal exploration incorporate the National Institutes of Health and the Centers for Disease Control and Prevention, two national government organizations. Hospitals additionally get subsidizing from pharmaceutical organizations to test new medications and items. Cash from exploration stipends can be a noteworthy wellspring of stores for a doctor’s facility, especially on the off chance that it is an educating hospital.

Investment IncomeInvestment Income is turning into an undeniably critical route for NMC to profit. Classes of attractive securities incorporate shared subsidizes, stocks, and securities. Distinctive hospitals have diverse speculation systems: a few NMC put resources into stocks or other securities that give higher returns at more serious danger, while different doctor’s facilities put resources into more progressive settled rate return instruments, for example, securities and currency business sector reserves. It might be hard to get a feeling of the hospital’s ventures from their budgetary proclamations, in spite of the fact that the general blend of stocks, bonds, and trade are frequently unveiled in for money the references of the reviewed monetary articulations. Since speculation Income can be a “black box” on the grounds that you can’t tell what a clinic is contributing or what the level of danger included is, it is critical to get some information about its venture technique.

Unrestricted DonationsNMC regularly get money related endowments from people and organizations that wish to help the healing facility’s mission. At the point when these stores are not guided to a specific reason, they are considered as non-operating income (once more) for the doctor’s facility and recorded thusly on the Income articulation. Note that this income is not a steady or dependable wellspring of cash for a doctor’s facility (World Health Organization, 2010).

ReferencesAudit IT. (2014). Financial Analysis and Accounting Book of Reference. Available: HYPERLINK ” http://www.readyratios.com/reference/.” http://www.readyratios.com/reference/. Last accessed 12th Sept 2014.

Colliers. (2014). Healthcare and Education Services. Available:

HYPERLINK ” http://www.colliers.com/en-gb/unitedarabemirates/services/healthcar” http://www.colliers.com/en-gb/unitedarabemirates/services/healthcare.Last accessed 12th Sept 2014.

Coyne, J. S., & Hilsenrath, P. (2002). The World Health Report 2000: Can health care systems be compared using a single measure of performance?.American Journal of Public Health, 92(1), 30-33.

Dhabi, A. (2009). United Arab Emirates. Countries and Territories of the World, 444.

Hajat, C., Harrison, O., & Al Siksek, Z. (2012). Weqaya: a population-wide cardiovascular screening program in Abu Dhabi, United Arab Emirates.American journal of public health, 102(5), 909-914.

NMC. (2014). NMC Profile. Available: HYPERLINK “http://www.nmc.ae/.%20Last%20accessed%2012%20Sept%202014.” http://www.nmc.ae/. Last accessed 12 HYPERLINK “http://www.nmc.ae/.%20Last%20accessed%2012%20Sept%202014.” Sept 2014.

Thomas R. Ittelson (2009). Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports. USA: Career Pr Inc; Rev Exp edition (August 15, 2009). 285.

World Health Organization. (2010). World health statistics 2010. World Health Organization.

914400548005

Appendix

NMC Health Plc

FINANCIAL REPORT: Full year ended 31 December 2013

5842013970

London, 25 February 2014: NMC Health Plc (LSE:NMC) (‘NMC’),theleading integrated private sector healthcare operator in the United Arab Emirates, announces its results for the full year ended 31 December 2013.

Financial SummaryUS$m (unless stated) FY2013 FY2012 Growth

Group Revenue 550.9 490.1 12.4%

Gross profit 185.5 160.3 15.7%

Gross profit margin 33.7 32.7 +98bps

EBITDA 92.9 79.6 16.7%

EBITDA margin 16.9% 16.2% +62bps

Net profit 69.1 59.8 15.7%

Net profit margin 12.6 12.2 +36bps

Earnings per share (US$) 0.367 0.343 7.0%

Dividend per share (GBP pence) 4.4 4.1 7.3%

Normalised operating cashflow 85.1 35.3 141.2%

Total Capital Expenditure additions in the year 82.7 118.9 -30.5%

Capital Expenditure relating to four capital projects announced at IPO 72.2 82.3 -12.3%

Total cash 268.7 257.5 4.4%

Total debt 332.4 303.6 9.5%

Net debt 63.7 46.1 38.0%

Divisional performances Healthcare revenue 289.3 251.6 15.0%

Healthcare EBITDA 81.7 68.2 19.8%

Healthcare EBITDA margin 28.2 27.1 +113bps

Healthcare occupancy 64.7% 60.5% +420bps

Distribution revenue 300.2 271.1 10.7%

Distribution EBITDA 29.9 26.2 14.1%

Distribution EBITDA margin 10.0 9.7 +30bps

Notes:

Normalised operating cash flow is a non-IFRS line item and is equivalent to Net cash from operating activities.

Total cash is represented by bank deposits and bank balances and cash.

Total debt is a non-

Financial Reform Ethics

Name

Course

Tutor’s Name

Date

Contents

TOC o “1-3” h z u HYPERLINK l “_Toc291371548″Introduction3

HYPERLINK l “_Toc291371549″Historical Background of the Legislation5

HYPERLINK l “_Toc291371550″Political Effects of the Legislation7

Social and HYPERLINK l “_Toc291371551″Ethical Effects of the Legislation on Business9

HYPERLINK l “_Toc291371552″Conclusion PAGEREF _Toc291371552 h 12

HYPERLINK l “_Toc291371553″Works Cited PAGEREF _Toc291371553 h 13

Financial Reform Ethics

INTRODUCTION

Passed by the Congress on June 30, 2010, Dodd-Frank Wall Street reform is a landmark legislative alteration to financial supervision which was signed into law by President Barack Obama on the 21st of July, 2010 (Paletta). It is expected to address various system loopholes and weaknesses which have contributed to the recent economic downturn in the USA and the world at large. Its effect has often been compared to the changes made years back in 1930, after the great financial depression. It is expected to impact financial institutions as well as other establishments involved in commercial activities (see fig. 1). Although the regulations affect the financial institutions within the United States, their influence will be felt by many other financial entries operating outside the United States but engaged in financial activities within the country. Full implementation of the act will mark a remarkable shift in various financial activities in the United States, including banking and securities, compensation of executives, protection of consumers as well as corporate governance structures. All these areas will be affected either directly or indirectly by the general framework of the act. While big, complex financial entities are heavily impacted by the reforms, smaller corporations will also be subject to complicated and expensive regulatory procedures. The act is intended to be put into effect in several phases.

Implementation phase began with its enactment on June 30, 2010. Participants as well as regulators were and are still expected to continue responding to the legislation after its enactment. The enforcement of the act paved the way for long duration of policy making expected to last for up to 18 months. Its implementation has seen market participants engage in critical decision making more so considering the prevailing uncertainties with regard to financial

Fig. SEQ Figure * ARABIC 1: Aspects of the Bill (Littenberg)

-1270-112395regulation (Carney). Various players have expressed concern that the reforms were complex and had a number of ambiguities, many of which would only be resolved upon the adoption of the

accompanying regulations. Even then, some stakeholders still emphasize the need for continuous consultations with the staff from the various agencies charged with financial issues review. The rule making agencies are expected to come up with the policies which are to form the framework of the act’s implementation. However, the new legislation is premised on the structure of the preceding US financial framework, and hence it is important that one understands the old regulations as a foundation to understanding the new ones (Paletta and Lucchetti).

The implementation process of the new law is dynamic. Various market participants will be expected to alter their operations and behavior in response to the implementation of the new law. During the realization process, several challenges are expected and, likewise, significant market opportunities. Players, both locally and internationally, will have to face the expected and unexpected consequences of the act’s implementation (Carney).

HISTORICAL BACKGROUND OF THE LEGISLATION

Upon signing by the President, the act became the law on July 21, 2010, being the final product of an initiative spearheaded mainly by the Democrats in the 111th United States Congress. Its initial proposition is traceable to Barney Frank in the House of Representatives and Chris Dodd in the Senate Committee. It is from these two politicians the bill later came to borrow its name. The proposal to use the names of the two originated from the conference committee in order to appreciate their involvement. The late 2000’s economic recess facilitated the passing of the bill in a bid to create a swooping alteration in financial regulations across the United States. It reflects a significant change in the regulatory structure of financial institutions in the USA and affects all federal regulatory agencies. Generally, the bill impacts all financial service aspects across the industry (Morgenson).

Between 2007 and 2010, a financial crunch hit the globe, starting from the United States. In 2009, President Obama proposed an overhaul of the financial regulatory system in the USA (Obama). The scale of transformation became later the biggest since the great depression times. Upon the bill finalization, President Obama stated that up to 90% of proposals had been included in it (Morgenson). The bill was mainly aimed at enhancing the financial stability of the country through increased accountability of the US financial system and its improved transparency. Additionally, it aimed at protecting American tax payers from abuse by financial activities as well as other purposes, including bringing bailouts to an end (“Obama Signs Sweeping Financial Overhaul”).

The Act upgrades the current regulatory processes and enhances the oversight role of various regulatory authorities. It focuses on establishing a rigorous standards evaluation and supervision mechanism to galvanize the economy as well as the American consumers and businesses. Additionally, it aims at bringing the cases of tax payer’s bailout of financial entities to an end providing advanced warning systems on the country’s economic stability. Furthermore, the regulation targets at executive compensations and corporate governance in general, through creation of rules on the same (Cooper). The legislation proposes rules which eliminate the loopholes accused of causing the economic depression. The new or transformed agencies are charged with the oversight role on various aspects of financial regulation. The agencies will be required to report to the Congress on the current plans and elaborate on future goals annually. Some of the institutions affected by these changes include the Federal Deposit Insurance Corporation abbreviated as FDIC, the U.S. Securities and Exchange Commission abbreviated as SEC, and the Securities Investor Protection Corporation abbreviated as SIPC as well as the Federal Reserve (Grim).

Prior to passing the bill, investment advisers were not obligated to register with the SEC if they had less than 15 clients during the preceding 12 months and did not present themselves to the public as financial advisers. The new regulation does away with this remission and, instead, subjects all hedge funds, financial advisers, and private equities to a mandatory registration and supervision procedures. Under the new regulation, various non-banking financial entities will be subject to Fed supervision in the same manner as banks.

All financial regulatory agencies are affected by the legislation enforcement. The Office of Thrift Supervision is eliminated while two other agencies are formed. They are the Financial Stability Oversight Council and the Office of Financial Research (Grim). Various additional consumer protection agencies are also provided for including the Bureau of Consumer Financial Protection. As one might put it, the act reflects a complete paradigm shift of the American financial landscape. However, for a smooth transition upon signing, only a few of its provisions become effective, while the others come into effect gradually, within the next 18 months, as regulatory agencies formulate rules that will foster implementation. It is only then that the full impact of its implementation will be felt.

POLITICAL EFFECTS OF THE LEGISLATION

The passing of the legislation was preceded by much partisan politics. Its signing saw a shift from the partisan debate on whether or not to pass the bill to policy making by regulatory agencies. There is a widespread expectation that the implementation of the act will face many challenges and may be headed for a slowdown as a result of the increased influence of the Republicans. The Republicans are likely to slow down the implementation process as witnessed by the recently debated budget where no money was set aside for the same (Appelbaum and Dennis) . However, as the Republicans continue to direct their efforts towards fighting the implementation of the legislation, Wall Street and financial industry players have accepted its passage and are now focusing their efforts on lobbying the regulators charged with the formation of the required laws. As The Examiner’s senior political columnist T. Carney puts it, “This is one reason government growth is never reversed. Companies and lobbies sink costs into working on the regulatory process and complying with new rules — the last thing they want is for those rules to disappear”.

As law makers focus their attention on the law implementation, banks and financial institutions have already realized that the actual impact of the law will depend on policy making and are, therefore, directing plenty of resources into lobbying. It is believed that the million of dollars invested in lobbying is already paid off with financial institutions celebrating a victory in watering down the provisions meant to reduce risky trading.

According to the Wall Street journal, spending on lobbying by banks in the first quarter of 2011 was quite higher compared to spending during the same period in 2010 (Nasiripour and Grim). It has been cited as a loophole upon which the regulations may have ended up yielding less than it had been anticipated (Nasiripour and Grim). The federal regulators have been provided with too much discretion which political players as well as financial entities are banking on to soften the impact of the legislation on them. Banks and other financial entities have identified this discretion and used it through extensive meetings between them and the regulators, which caused a loophole. Financial services sector has, however, kept fighting for continued control over derivatives reforms, consumer protection, and fees charged for debit card usage, a role that is to be taken away from them by the new legislation.

Generally, the effect of politics on the process of implementation is bound to have some undesirable effects on the outcome of the final legal guidelines provided by regulatory authorities. The legislation adoption has seen banks, credit unions, and other finance related entities put efforts into shaping the process of implementing the act (Paletta and Lucchetti). Reports indicate that lobbyists of the financial industry are spending more than necessary time with regulators charged with the responsibility of writing rules for the law implementation. Additionally, some are lobbying the Congress to roll back several provisions, for instance, the limit on fees charged for debit cards. A lot of efforts and resources have been directed at influencing the outcome of rules by regulating agencies as witnessed by the recent trends in lobbying spending. The effects of the Act, however, go beyond mere political rhetoric and squabbles. It is expected to affect various areas within the financial sector.

In what passes off as a political sabotage of the legislation’s implementation, Senator Jon Tester sponsored a legislation that delays the implementation of the debit card fee rule by a period of two years (Paletta and Lucchetti). This amendment, in essence, holds back the rules proposed by the Federal Reserve capping debit card charges at 12 cents per transaction. This move may enormously affect banks’ revenues. Tester argued that there was a need for more time to evaluate the legislation (Paletta and Lucchetti). Harry Reid is also in the process of attempting to secure adequate votes for other controversial amendments to the small business bill. These include the measure aimed at blocking the regulation of greenhouse gases, ethanol subsidies, and protection of Social Security. For instance, Bank of America Corporation has pointed out that capping move would deny it approximately $2.3 billion of revenues every year. The overall picture across the financial service industry does not differ from the total annual loss approximated at $13 billion annually if the capping rule comes into effect.

SOCIAL AND ETHICAL EFFECTS OF THE LEGISLATION ON BUSINESS

Ethical issues also arise from the implementation of the legislation. Executives have been often subject to lots of criticism regarding payment and benefits entitlement. To curb the vice of executives accruing large amounts in form of benefit at the expense of stakeholders, the act requires disclosure of all incentive based compensation arrangements in which banks and other financial institutions engage. Additionally, the legislation prohibits any forms of incentive based compensations which, according to the laws to be defined by regulators, encourage and promote the risk of excessive compensation allocation and/or can result in financial losses of a financial entity.

In Fund Advisers, advisors bid to protect consumers from unscrupulous activities whereas the legislation makes it mandatory for all financial advisors not only to register but also present the updated reports to the agency to assess the systematic risks. If the proposal is adopted, there will be a substantial burden on advisers to report their activities. This proposal puts much emphasis on managing assets worth over $1 billion. Additionally, consumers are to be protected from unethical practices through creation of a HYPERLINK “http://www.pwc.com/us/en/financial-services/regulatory-services/publications/assets/closer-look-fiduciary-duty-march.pdf” t “_blank”Uniform Fiduciary Standard for Broker-Dealers and Investment Advisers. This is expected to rein in the personalized advisers who inappropriately bank on clients’ ignorance.

Human capital is important in any business. However, this resource is susceptible to mismanagement and improper usage across various industries. The act emphasizes the need for transparency and accountability in management of human resource. Based on the SEC proposed laws, all market participants are expected to present annual reports, which illustrate the annual meetings’ proceedings, and the materials of nominated candidates for executive positions because as long as the minimum of 35% of corporate voting rights are held by a shareholder group. The authority of such a shareholding position must not be used to seek control over the entities operation. According to the regulation, shareholders are only allowed to nominate a maximum of 25% of the board’s composition.

Further independence is guaranteed through formation of various committees which facilitate implementation. National Security Exchange is placed under an obligation to deny listing to those companies which fail to comply with the requirement for the formation of an independent committee. Independence is defined based on the independence of the persons within the board with regard to possible benefits a person receives from the corporation or its subsidiaries. Any affiliations of the firm or its affiliates call into question individuals’ independence.

Hiring of compensation consultants requires that all other possible affiliations within the hiring firm are considered. The services offered by an advisory firm to a corporation are put into consideration in addition to any fees paid by an advisory firm; other factors include the measures adopted by an advisory firm to minimize the possibility of conflict of interest. Any possible businesses as well as personal relationships are also taken into account in addition to relation between an advising entity and a compensation committee. Possible holdings by the entity within the company are also considered.

Additionally, the National Security is compelled to ensure that the standards they adopt for listing motivate the financial institutions to establish expansive clawback policies. It requires that such a corporation reclaims any erroneously paid incentives from its executive within the preceding three years when a company has to prepare an accounting restatement because of non-compliance with financial regulations. In instances where directors and employees are allowed to engage in the purchase of financial instruments, a corporation must indicate the same in its reports, especially if such instruments are meant to hedge or offset equity securities market downfall.

The social impact of the legislation is further expected to be felt through the systematic evaluation of financial scenarios, which enables to raise the alarm early enough on possible financial risks. This function is assigned to the Financial Stability Oversight Council who is expected to research on and identify possible risks faced by firms as well as financial undertakings. Additionally, the newly established office of Financial Research will gather information on behalf of the Council for purposes of trend analysis. Moreover, the Council will identify all non-banking financial entities and bring them under the supervisions and power of the Federal Reserve. The Oversight Council has a mandate to come up with prudential standards for primary financial regulators and apply them to activities deemed as resulting in systematic risks. A vast majority of systemic risk provision requires implementation of which is left at the discretion of regulators. Either statutory standards are to be modified, or exemptions are to be issued, as deemed appropriate by the regulators.

CONCLUSION

In conclusion, it is important to mention that the financial crisis came at the time when banks had excessive amount of leverage and too many risks in terms of assets. Critics of the legislation argue that banks were, therefore, not the problem as well as that endeavors to regulate the banks were not the solution. Instead, they emphasize that attempts should be made to help banks strengthen their balance sheets and hence absorb potential losses and hold fewer risky assets. Generally, though the legislation is expected to come with lots of benefits to various stakeholders, similarly, a number of challenges are expected to couple its implementation. Its enforcement is bound to affect the financial business sector both politically, socially, and ethically, either negatively or positively.

Works CitedAppelbaum, Binyamin, and Brady Dennis. “Legislation by Senator Dodd Would Overhaul Banking Regulators.” Washington Post. 11 Nov. 2009. Web. 20 April 2011.

Carney, Timothy. “Wall Street Lobbyists to GOP: Hands off Dodd-Frank.” Washington Examiner. 13 Feb. 2011. Web. 20 April 2011.

Cooper, Helene. “Obama Signs Overhaul of Financial System.” New York Times. 21 Jul. 2010. Web. 20 April 2011.

Grim, Ryan. “GOP Sen. Shelby: Reorganize The Fed.” Huffington Post. 18 Mar. 2010. Web. 20 April 2011.

Littenberg, Michael. “A Dodd-Frank Cheat Sheet for New Directors.” NACD Directorship. 15 Apr. 2011. Web. 20 April 2011.

Morgenson, Gretchen. “Strong Enough for Tough Stains?” New York Times. 25 Jun. 2010. Web. 20 April 2011.

Nasiripour, Shahien, and Ryan Grim. “Dodd’s Banking Bill Takes the Fed Down a Notch or Two: Help Us Dig Through It.” Huffington Post. 17 Jun. 2010. Web. 20 April 2011.

Obama, Barack. ” HYPERLINK “http://www.whitehouse.gov/the_press_office/Remarks-of-the-President-on-Regulatory-Reform/” Remarks by the President on 21st Century Financial Regulatory Reform.” White House. 17 Jun. 2010. Web. 20 April 2011.

“Obama Signs Sweeping Financial Overhaul, Pledges ‘No More’ Bailouts.” Fox News. 21 Jul. 2010. Web. 20 April 2011.

Paletta, Damian. “It Has A Name: The Dodd/Frank Act.” Wall Street Journal. 25 Jun. 2010. Web. 20 April 2011.

Paletta, Damian, and Aaron Lucchetti. “Law Remakes U.S. Financial Landscape.” Wall Street Journal. 16 Jul. 2010. Web. 20 April 2011.

Financial Analysis of National

Medical Center Group Dubai

School

Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc410121773” Background PAGEREF _Toc410121773 h 4

HYPERLINK l “_Toc410121774” About HealthCare Industry in UAE PAGEREF _Toc410121774 h 4

HYPERLINK l “_Toc410121775” About NMC Group PAGEREF _Toc410121775 h 5

HYPERLINK l “_Toc410121776” NMC Top Pick in Sector PAGEREF _Toc410121776 h 5

HYPERLINK l “_Toc410121777” Details of DCF analysis PAGEREF _Toc410121777 h 6

HYPERLINK l “_Toc410121778” About the founder PAGEREF _Toc410121778 h 8

HYPERLINK l “_Toc410121779” SWOT Analysis PAGEREF _Toc410121779 h 9

HYPERLINK l “_Toc410121780” Financial Analysis PAGEREF _Toc410121780 h 11

HYPERLINK l “_Toc410121781” Ratio Analysis PAGEREF _Toc410121781 h 12

HYPERLINK l “_Toc410121782” Profitability Ratios PAGEREF _Toc410121782 h 14

HYPERLINK l “_Toc410121783” Asset Utilization Ratios PAGEREF _Toc410121783 h 14

HYPERLINK l “_Toc410121784” Liquidity Ratios PAGEREF _Toc410121784 h 15

HYPERLINK l “_Toc410121785” Debt Utilization Ratios PAGEREF _Toc410121785 h 16

HYPERLINK l “_Toc410121786” Summary PAGEREF _Toc410121786 h 17

HYPERLINK l “_Toc410121787” Company Source of Funds of Revenue PAGEREF _Toc410121787 h 18

HYPERLINK l “_Toc410121788” Gross Patient Service Revenue (GPSR). PAGEREF _Toc410121788 h 18

HYPERLINK l “_Toc410121789” Net Patient Service Revenue (NPSR). PAGEREF _Toc410121789 h 18

HYPERLINK l “_Toc410121790” Adjustments to GPSR revenue to calculate NPSR include: PAGEREF _Toc410121790 h 18

HYPERLINK l “_Toc410121791” Private Payers PAGEREF _Toc410121791 h 19

HYPERLINK l “_Toc410121792” Health Maintenance Organizations (HMOs) PAGEREF _Toc410121792 h 19

HYPERLINK l “_Toc410121793” Preferred Provider Organizations (PPOs) PAGEREF _Toc410121793 h 19

HYPERLINK l “_Toc410121794” Point of Service (POS) PAGEREF _Toc410121794 h 19

HYPERLINK l “_Toc410121795” Indemnity insurance PAGEREF _Toc410121795 h 19

HYPERLINK l “_Toc410121796” Uninsured PAGEREF _Toc410121796 h 20

HYPERLINK l “_Toc410121797” Other Operating Revenue PAGEREF _Toc410121797 h 20

HYPERLINK l “_Toc410121798” Investment Income PAGEREF _Toc410121798 h 21

HYPERLINK l “_Toc410121799” Unrestricted Donations PAGEREF _Toc410121799 h 21

HYPERLINK l “_Toc410121800” References PAGEREF _Toc410121800 h 22

HYPERLINK l “_Toc410121801” Appendix PAGEREF _Toc410121801 h 23

HYPERLINK l “_Toc410121802” Financial Summary PAGEREF _Toc410121802 h 23

HYPERLINK l “_Toc410121803” FY2013 Financial Highlights –A year on year comparison PAGEREF _Toc410121803 h 26

HYPERLINK l “_Toc410121804” FY2013 Business Highlights – A year on year comparison PAGEREF _Toc410121804 h 26

Background

About HealthCare Industry in UAEThe healthcare sector in the UAE is mainly managed by the government through the Ministry of Health (MoH) and the authorities Emirate. Each Emirate has its own health authority, like Dubai has DHA, (Dubai Health Authority), Abu Dhabi has HAAD. UAE government has tried to make UAE as the regional tourism hub. It is promoting medical tourism. UAE government has introduced compulsory health insurance, which has been followed by each emirates, in its own way. AS per Collins, after compulsory health insurance was introduced to Abu Dhabi, the revenues of most of the private hospitals doubled in subsequent years (Audit, 2014). In 2013, Dubai has also included the insurance plan in it system and has made it mandatory for everyone to have medical insurance

In UAE, there are total 88 hospitals, which include private and public sectors. These organizations provide various services related to healthcare industry. The total bed were 9176, by end of 2011. So, each hospital has on the average of 104 bed per hospital. Dubai & Abu Dhabi has 35 no. of hospital each, as per Colliers international 2013

The private sector contributes to 2/3rd of the total no. of hospitals.

About NMC GroupNMC is a healthcare group in the United Arab Emirates (UAE). Its headquarters are in Abu Dhabi, UAE’s NMC has branches capital in other emirates. Of UAE, which include Dubai, Sharjah & Al Ain. National Medical Company is listed on the London stock Exchange (LSE), since 2012. It is a part of the Foreign Trading Stock Exchange (FTSE).

NMC Healthcare group was created by H.E. Abdulla Humaid Al-Mazroei & B.R. Shetty, in 1975. It grew up and opened hospitals in Deira (1999) and Al Nadha (2004) in Dubai, in Al Ain (2008) & recently opened hospital in Sharjah, as well.

NMC has diversified into other lines of businesses, other than hospital & NMC. NMC has also ventured into pharmacies, hospitality (Foodland restaurant), financial services (UAE exchange is one of the prominent business), jewelry, education, advertisement, real estate, information technology & pharmaceuticals (NMC, 2014).

NMC is a very socially responsible company. This healthcare group is a sponsoring a cricket team, which has won many titles.

The NMC healthcare group is a composition of NMC Healthcare Division and NMC Distribution Division.

NMC Healthcare includes:

Abu Dhabi Specialty Hospital, Al Ain Specialty Hospital, Dubai Specialty Hospital, Dubai General Hospital, Sharjah Medical Centre, BR Medical Suites, NMC Day Surgery Centre in Mohammed Bin Zayed City & Third party hospital operations & management. In addition to this, NMC is adding new assets, medical facilities to the existing hospitals in Abu Dhabi & Dubai.

Segments

NMC distribution division includes wholesale of pharmaceutical goods, medical equipment, cosmetics, food and IT products and services.

NMC Top Pick in SectorNMC Health exchanges at an 18% and 8% rebate to EM social insurance peers on the premise of 2014e P/E and EV/EBITDA products, separately. While some markdown is supported because of the way that NMC’s plan of action incorporates an appropriation segment, which offers lower development and edges than the medicinal services part, we regardless view the valuation crevice as extreme. Our examination recommends a reasonable estimation of GBP 5.51/offer for the organization, 21% over the predominating business sector cost (Audit, 2014). Also, provided for its current system of three social insurance offices in Dubai (2 hospitals and one facility), alongside expected opening of an alternate clinic in Q2 14 (DIP Hospital), NMC is best situated among the recorded human services organizations to profit from the progressing take off of obligatory protection in Dubai. We along these lines feel that the organization offers the best esteem to speculators inside our social insurance scope and positions as our top pick in the part.

Details of DCF analysisOur DCF-based valuation of NMC has expanded to GBP 5.87/offer, 55% higher than our past evaluation of GBP 3.79/offer. Key elements driving the higher valuation are:

Fundamentally lower capital use of USD 293mn over our 5-year gauge period versus USD 419mn in our past model (use on various key ventures, for example, Brighpoint and DIP hospital is generally finish).

Our past model expected that NMC’s present 5-year contract to oversee Sheik Khalifa Hospital would not be restored upon fulfillment. Given the organization’s solid execution to date in working the office (NMC created Usd5.4mn from the agreement, meeting all its Kpis) and the predominating absence of supply of value healing facility administrators, we now feel that this suspicion is excessively moderate. Our amended model expect that the agreement will be replenished upon fulfillment (Colliers, 2014).

By moving the time of DCF investigation 1 year forward, Free Cash Flow in the most recent year of our unequivocal figure period (which structures the premise for Terminal Value) increments fundamentally from USD 102mn to Usd152mn. This is determined by a mix of 1) better usage at existing and new social insurance offices and 2) commitment from Third Party Management Services (administration of Sheik Khalifa Hospital), which was at one time rejected in our model.

We have brought down the expense of value from 12% to 11%, in accordance with that used for Al Noor. This reductions our WACC to 8.8% versus 9.2% in our last valuation.

About the founderB R Shetty is CEO & MD of the NMC Group of Companies & UAE Exchange. He is a trained pharmacist and he spotted an opportunity in the co acquired National Hospital, in Abu Dhabi. Today, this group has hospitals and NMC all across UAE and has patient base of more than one million, a year. Shetty has been awarded for Padmashree and Pravasi Bharatiya Samman. He is also the chairman of Abu Dhabi Indian School, AD, UAE. Shetty is involved in many philanthropic activities. He has investments in India as well, in medical institutions. He is founder member of the Indian Pharmaceutical Association in UAE. He is member of:

Advisory Board of Financial Sector),

Economic Department, Government of Dubai, UAE &

Pharmaceutical Committee, Dubai.

He is also the chairman of Abu Dhabi Indian School, AD, UAE. Shetty has been awarded for Padmashree and Pravasi Bharatiya Samman.

SWOT AnalysisSTRENGTHS: NMC has created competitive advantage through following those, its strengths include:

Market leader in healthcare plans segment: Special expertise, innovative service,

Market Capitalization Cost advantages, due to many branches,

Customer focused approach Cultural advantage, connected to Asians

Excellent reputation

Experienced staff

Latest Technology

International exposure

Diversification,

Easily accessible locations of the hospitals.

WEAKNESSES: NMC might need improvements in following:

Too much reliance on external funds

Targeting only Asians customers

Marketing gaps.

OPPORTUNITIES: Some significant trends exist in the market, which NMC can exploit, for its benefits, which include:

Some competitor’s leaving are market,

New & upgraded technology

Opening branches in neighboring gulf countries

Introduce new products to target specific segment of people: New market segment including Insurance business,

Diversification into niche market of commodity market, add new niche, or horizontal business.

THREATS: No one is immune to threats, NMC must consider these threats seriously, which includes:Competitor developing new product & service line,

New competitors like Americans, Canadian competitors are entering market and expanding,

Fast changing economic scenarios (economic shift), Changing Government regulations: new rules and regulations,

Change in insurance plans,

Competitors improved channels of distribution

Staff leaving for better prospects

Seasonality due to holidays, festivals Strengths

Financial AnalysisMost of the subsidiaries are 100% owned. The financial analysis of NMC Healthcare group include the above mentioned activities, together it is called ‘group’. NMC group follows IFRS, issued by IASB, for finalization and consolidation of its accounts. The functional currency is in UAE Dirhams, whereas the reporting currency is USD. The reporting period of financial statements in one year, i.e 1st Jan to 31st Dec (Colliers, 2014).

The primary economic environment influencing UAE and the effect of the local environment is limited to expenses incurred within the UK. The ability of the Company to meet its obligations and pay dividends to its shareholders is dependent on the economy of, and the operation of its subsidiaries in, the UAE.

Ratio AnalysisRatio Analysis

Year

S.No. Ratios 2009 2008

1 Gross Margin 33% 32%

2 Profit Margin 12% 12%

3 Operating Profit Margin 15% 19%

4 Return on Capital Employed 9% 8.30%

5 Return on Equity 19.30% 18%

6 Receivable Turnover Ratio 3.15 Times 2.70 Times

7 Average Collection Period 115 Days 133 Days

8 Fixed Asset Turnover Ratio 2.41 Times 2.42 Times

9 Total Asset Turnover Ratio 0.72 0.68

10 Current Asset Ratio 2.13 2

12 Quick Acid Test Ratio 1.91 1.72

13 Debt to Total Asset 52% 54%

14 Debt to Equity Ratio 110% 116.47%

15 Time Interest Earned 5.82 6.79

16 Inventory Conversion Period 94 days 80 days

17 Payable Deferral Period 76 days 76 days

18 Cash Conversion Cycle 133 days 137 days

To compare the position of the healthcare care group, am horizontal analysis has been done, which involved the evaluation of firm’

As NMC Health care is in related businesses i.e. related to the supply chain components of healthcare industry, the comparison is possible. The accounting principles followed are same, reporting dates are also same, even the functional/reporting currency is same.

Profitability RatiosThe company has been able to effectively generate and maintain the profitability of the company. The operations have been able to bring down the direct cost of the business, hence the profit from operations has gone up from 32% to 33%.

The company has been able to maintain a profit margin of 12%, year on year, this suggests that the company has been able to maintain the proportion of profit in sales steadily (Coyne & Hilsenrath, 2002).

The operating profit margins have gone down from 19% to 15%, which shows that the sales dollars which remains after the payment of all costs and expenses, except for interest and taxes.

The return on capital employed, has improved, from 8.30% to 9%, over the year.

The interesting fact to be understood here is that Cost of Capital is approximately 3% to 4% + EIBOR, approximately 7-8%. Hence the cost of capital is more or less equal to return on capital. The business has excel to improve it returns on capital employed, to cover up the short term, long term borrowings.

The responsibility of corporate governance is to take care of the interest of the shareholders of the company. The company has been able to generate better return to shareholders. The returns to shareholders have gone up. This means the market value of the share of NMC healthcare must have risen, after it got registered with FTSE, for fund raising, for its capital projects of starting new medical facilities in different parts of UAE.

Asset Utilization RatiosAlthough the receivable period has gone up, but the conversion cycles are too long. In the report, it is mentioned that funds are receivable from either government or insurance companies, which have long procedures, to release the payments. Even in some cases, company is doing impairment, to adjust the receivable, at the net realizable value. ‘An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. Amounts which are not significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.’ (as per the NMC 2014 A)

In the same lines, the receivable time has down own from last year, but this make the operating cycle, very long. Hence the company should try to reduce the receivable cycle. On evaluation the payable deferral period, it came out that payable cycles are shorter than receivable cycles.

There is a which ‘negative will harm the operating float’, cycle of the company. This will lead to drying up of working capital, in the company. This situation will lead to liquidity crunch, in years to come.

Inventory turnover time has gone up. It generally consist of the medicines sold at pharmacies, the medical equipment etc. the inventory turnover is slow.

The total cash conversion cycle is still positive, but it’s too long, the operating cycle, for a healthcare should not be longer than 3 months.

Ideally this is the time, during which the patient is diagnosed and treated. The company has to work on reducing its cash conversion cycle, for betterment of working capital management.

Liquidity RatiosThe short liquidity is quite strong at this point of time, the current asset are almost 2 times the current liability. This is a very healthy position (Thomas, 2009). To go deeper into liquidity issues, the conservative approach of establishing the financial health in short term, can be done by taking out inventory from the current assets, which states that current assets are still better of and cover the liability fully. The operating cycles have no shortage of liquidity.

But, as the company has raised funds through borrowing, and invested in inventory, the current assets and liabilities may go up. So, even after considering that, company has comfortable liquidity position.

Debt Utilization RatiosThe company is highly financial leveraged, more that 50% of its assets are financed with debts. But looking at the trend, it is visible that management is trying to reduce the part of debt.

Same way, the firm’s financial leverage can be established, it is very highly leveraged in comparison to the equity invested. This is due to the company going public in 2012. NMC healthcare raised funds through IPO and registered the company at FTSE, to finance its capital projects (NMC, 2014).SummaryThe cost of capital is almost equivalent to return on investment, the group has been able to maintain the cost of capital=return on capital. This means that governance of the group is aiming at reducing the cost of capital by generating, higher returns.

The operating cycle has to be shorten down by increasing the payable cycle and reducing the receivable cycle. The cash conversion h point of time. To improve the operating cycle the float ha to because operating cycle has be less than 3 months, as the cash get stuck between the receivable and payable cycle (Coyne & Hilsenrath, 2002).

The group has to work on it, the operating profit margins have gone down from 19% to 15%. The inventory turnover is also slow, which can leads stocks of medicines getting obsolete, reducing the profit margins. The group has to follow strict regime for working capital management, otherwise the current liabilities will be more than the current assets, which will have drastic effect on the cash /operation cycle.

As company has gone for IPO in the international market, the company has to look into its operation. The money raised from international market through raising shares is payable through dividends, although the share value has gone up. The group has to more stringently follow on its finances, as the company is highly leveraged through these debts.

The group should convert all the projects into cash cows soon, as the project cost should not go up. If they are unable to do so, the capital raised from market will become expensive.

Company Source of Funds of RevenueOperating revenue— earned by conveying patient consideration is the first and essential way that hospital profit. This income is hide their sorted in hospital fund terms as horrible and net

Gross Patient Service Revenue (GPSR).

The measure of cash that NMC would make on the off chance that they were forked over the required funds (that is, the non-discounted rate) for the consideration they convey (complete inpatient and outpatient incomes before derivations). On the other hand, hospital professional vide most patient consideration at short of what full charge and never really gather their terrible patient administration income (Dhabi, 2009).

Net Patient Service Revenue (NPSR).

The aggregate sum of cash the clinic really gathers in the wake of deducting philanthropy care and contractual changes.

Adjustments to GPSR revenue to calculate NPSR include:Free care (also known as charity care) represents administrations accommodated which installment was never expected and for which the patient is not sought after. Tolerant qualification with the expectation of complimentary consideration shifts by state and (here and there) by clinic and is by and large focused around monetary circumstance (salary and resources). NMC esteem free care at full charges on their budgetary proclamations, yet this does not reflect the genuine expense of giving the consideration. (Note: Free care varies from terrible obligation in that awful obligation speaks to administration charges for which a doctor’s facility anticipated that will gather yet winds up not getting paid. For more detail on awful obligation see Section III.) (Hajat, Harrison & Al Siksek, 2012)

Contractual are payment arrangements with organized payers.

Different payers pay different distinctive sums for indistinguishable administrations. Medicare, Medicaid, and private insurance agencies arrange installment courses of action that are focused around expenses, recorded healing facility charges, or other criteria. The value that these gatherings have the capacity arrange shifts (they don’t all pay the same marked down rate) as does the installment strategy.

Private PayersThe private health insurance framework stands parallel to the general population Medicare and Medicaid programs. These payers get a premium— normally from a business in the interest of workers, yet at times from different associations or people to pay for the medicinal services its members need. Private payers arrive in a mixture of sorts

Health Maintenance Organizations (HMOs)

Pay for inpatient hospital administrations by DRG, outlay, or marked down charges. They might likewise pay by arranged capitation rates, especially in an “incorporated conveyance framework” where doctor’s facilities and doctors contract together.

HMOs pay for outpatient hospital services in two common ways:

By capitation, where a supplier is paid a certain sum every patient for a foreordained set of administrations. Capitation installments are frequently depicted regarding “every part, every month (Hajat, Harrison & Al Siksek, 2012).

Preferred Provider Organizations (PPOs)

Pay hospital for inpatient and outpatient consideration focused around an arranged rebate of the clinic’s ordinary charges. Out-of-system consideration is normally paid for at the hospital’s charge rate.

Point of Service (POS)Associations are a crossover of Ppos and Hmos. Installment by a POS tackles diverse structures, contingent upon the particular POS plan. A few POS arrangements pay for administrations utilizing the marked down expense for-administration strategy and some utilization capitation. Out-of-system consideration is normally paid at the healing facility’s charge rate.

Indemnity insurance

Is the conventional type of protection? Under reimbursement protection, arrangements pay for inpatient and outpatient doctor’s facility consideration focused around the hospital’s charges. This strategy can be considered practically identical to different types of protection, for example, auto protection. Reimbursement contrasts from other private safety net providers that utilization the charge for-service technique, for example, PPOs and a few Hmos—in light of the fact that repayment insurance permits the patient to see any specialist or go to any clinic they wish. This flexibility of decision and relative absence of limitations has a tendency to pull in individuals with more prominent medicinal service’s needs, subsequently repayment arrangements are costly and have significantly expanded the copayment and deductible peculiarities of their profit arranges as of late. Thus, the quantity of individuals safeguarded by repayment arrangements is diminishing.

UninsuredThe individuals who don’t have an open or private payer speaking to them in the human services commercial center speak to themselves. These are the uninsured, who must discover the intends to fund their own particular consideration. Pay toward oneself Uninsured or pay toward oneself patients pay whatever charges the healing facility posts as their charge or cost. In 1996, payers toward oneself paid, on assert age, 87 percent more than what their consideration really cost. As a correlation, private safety net providers paid, generally speaking, 22 percent over the expense of their consideration. Pay toward oneself additionally means uninsured, such an extensive amount a clinic’s potential pay toward oneself income winds up as uncompensated consideration.

Other Operating RevenueHospital likewise profit by giving administrations that are continuous business exercises, yet that are not specifically identified with the clinic’s fundamental mission of conveying patient consideration. While these exercises acquire critical and persistent streams of stores, the cash coming about because of these administrations and exercises is called other working income. Some normal classifications that make up other working income include:

i. Cafeteria sales

ii. Gift shop sales

iii. Parking garage fees

iv. Space or equipment rentals

v. Research grants

While it is presumably evident how a doctor’s facility advantages monetarily from rentals, cafeteria, blessing shop, and stopping carport charges, financing from examination gifts merits somewhat more clarification. NMC are an important coliseum for investigating new medications, medicines, and methods, and outside offices store doctor’s facilities to perform such research. The primary associations that store medicinal exploration incorporate the National Institutes of Health and the Centers for Disease Control and Prevention, two national government organizations. Hospitals additionally get subsidizing from pharmaceutical organizations to test new medications and items. Cash from exploration stipends can be a noteworthy wellspring of stores for a doctor’s facility, especially on the off chance that it is an educating hospital.

Investment IncomeInvestment Income is turning into an undeniably critical route for NMC to profit. Classes of attractive securities incorporate shared subsidizes, stocks, and securities. Distinctive hospitals have diverse speculation systems: a few NMC put resources into stocks or other securities that give higher returns at more serious danger, while different doctor’s facilities put resources into more progressive settled rate return instruments, for example, securities and currency business sector reserves. It might be hard to get a feeling of the hospital’s ventures from their budgetary proclamations, in spite of the fact that the general blend of stocks, bonds, and trade are frequently unveiled in for money the references of the reviewed monetary articulations. Since speculation Income can be a “black box” on the grounds that you can’t tell what a clinic is contributing or what the level of danger included is, it is critical to get some information about its venture technique.

Unrestricted DonationsNMC regularly get money related endowments from people and organizations that wish to help the healing facility’s mission. At the point when these stores are not guided to a specific reason, they are considered as non-operating income (once more) for the doctor’s facility and recorded thusly on the Income articulation. Note that this income is not a steady or dependable wellspring of cash for a doctor’s facility (World Health Organization, 2010).

ReferencesAudit IT. (2014). Financial Analysis and Accounting Book of Reference. Available: HYPERLINK ” http://www.readyratios.com/reference/.” http://www.readyratios.com/reference/. Last accessed 12th Sept 2014.

Colliers. (2014). Healthcare and Education Services. Available:

HYPERLINK ” http://www.colliers.com/en-gb/unitedarabemirates/services/healthcar” http://www.colliers.com/en-gb/unitedarabemirates/services/healthcare.Last accessed 12th Sept 2014.

Coyne, J. S., & Hilsenrath, P. (2002). The World Health Report 2000: Can health care systems be compared using a single measure of performance?.American Journal of Public Health, 92(1), 30-33.

Dhabi, A. (2009). United Arab Emirates. Countries and Territories of the World, 444.

Hajat, C., Harrison, O., & Al Siksek, Z. (2012). Weqaya: a population-wide cardiovascular screening program in Abu Dhabi, United Arab Emirates.American journal of public health, 102(5), 909-914.

NMC. (2014). NMC Profile. Available: HYPERLINK “http://www.nmc.ae/.%20Last%20accessed%2012%20Sept%202014.” http://www.nmc.ae/. Last accessed 12 HYPERLINK “http://www.nmc.ae/.%20Last%20accessed%2012%20Sept%202014.” Sept 2014.

Thomas R. Ittelson (2009). Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports. USA: Career Pr Inc; Rev Exp edition (August 15, 2009). 285.

World Health Organization. (2010). World health statistics 2010. World Health Organization.

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Appendix

NMC Health Plc

FINANCIAL REPORT: Full year ended 31 December 2013

5842013970

London, 25 February 2014: NMC Health Plc (LSE:NMC) (‘NMC’),theleading integrated private sector healthcare operator in the United Arab Emirates, announces its results for the full year ended 31 December 2013.

Financial SummaryUS$m (unless stated) FY2013 FY2012 Growth

Group Revenue 550.9 490.1 12.4%

Gross profit 185.5 160.3 15.7%

Gross profit margin 33.7 32.7 +98bps

EBITDA 92.9 79.6 16.7%

EBITDA margin 16.9% 16.2% +62bps

Net profit 69.1 59.8 15.7%

Net profit margin 12.6 12.2 +36bps

Earnings per share (US$) 0.367 0.343 7.0%

Dividend per share (GBP pence) 4.4 4.1 7.3%

Normalized operating cash flow 85.1 35.3 141.2%

Total Capital Expenditure additions in the year 82.7 118.9 -30.5%

Capital Expenditure relating to four capital projects announced at IPO 72.2 82.3 -12.3%

Total cash 268.7 257.5 4.4%

Total debt 332.4 303.6 9.5%

Net debt 63.7 46.1 38.0%

Divisional performances Healthcare revenue 289.3 251.6 15.0%

Healthcare EBITDA 81.7 68.2 19.8%

Healthcare EBITDA margin 28.2 27.1 +113bps

Healthcare occupancy 64.7% 60.5% +420bps

Distribution revenue 300.2 271.1 10.7%

Distribution EBITDA 29.9 26.2 14.1%

Distribution EBITDA margin 10.0 9.7 +30bps

Notes:

Normalised operating cash flow is a non-IFRS line item and is equivalent to Net cash from operating activities.

Total cash is represented by bank deposits and bank balances and cash.

Total debt is a non-IFRS line item and includes short term and revolving working capital facilities required for the operation of the Distribution division but excludes accounts payables and accruals, amounts due to related parties, Employee end of service benefit and other payable.

Net Debt is a non-IF

FINANCIAL REPORT FOR HELLEN MUKHWANA

This Report entails amount of money due to be paid to the above mentioned for services rendered for freelance writing of simulation assignments. This is the answering of questions not for students but to provide guidelines to the students on how to answer questions.

The basic pay for the assignments is 180/= per page but this can increase depending on several variances and offer of bonus.

NB. When this payment is processed, it includes purchase of copyright of the papers. This therefore means the papers cannot be submitted otherwise for publication or examination.

This Report is for

Period covering 5th February to 5th March

The Total Amount worked for during the period is

60, 250 – (Sixty thousand and two hundred and fifty only) (Ksh)

1, 200 (One thousand two hundred only) (Ksh) of this amount was sent via Mpesa on 5th Feb. 2010.

10, 000 (Ten thousand only) was delivered in cash on the 21st of February 2010.

THE BALANCE THEREFORE IS 49, 050 (Forty nine thousand and Fifty)

20, 000 (Twenty thousand only) (Ksh) has been received and will be forwarded on 7th March 2010.

20,000 (Twenty thousand only) (Ksh) of the Balance of 29, 050 (Twenty nine thousand and fifty only) (Ksh) Will be forwarded any date between 18th and 29th on March.

The Rest of the amount and that worked for during this period and forth will be forwarded depending on money received.

Entries are made on a daily basis and can only be altered upon query and consensus.

Payments can also be made only after a confirmation and approval via sent e-mail.

NB. Approval of result does not bar query solution.

Details of report; List of Completed Orders (Hellen)

ORDERDATE TOPIC TITLE TOPIC CATEGORY PAGES AMT/PAGE TOTAL Bonus Addition Totals TOTAL

AMOUNT GRAND TOTALS Page Totals

7th and Before

Feb History of government in China and Infrastructure  Technology 2 180 360 + 40 400 Transfer to University Admission Essay  2 180 360 360 None Education 6 180 1560 -100plag 1460 Risk Management and Work Breakdown Structure Management  4 220 880 880 Cardiovascular Sonography  Marfan’s syndrome 2 180 360 360 None Internet menace 2 180 360 360 3820 3820 8th Ethical Aspect Of Stem Cell Research Biology 4 180 720 720 Revolutionary War Vet, John Hopkins  History  3 180 540 540 Hispanic American Diversity Racial and Ethnic Groups 4 250 1000 1000 Characterization Essay (any type) 2 180 360 +40 400 Bonus 1 20 20 +150 170 2830 2830 9th Rise of Europe and religion absolutism 3 180 540 540 Criminal Justice intervention 3 180 540 540 Personal Statements 2 180 360 360 Multicultural Issues in addiction 7 180 1260 1260 Parasomnias 3 180 540 540 Phobias and addictions 5 180 900 900 Bonus 5 20 100 +150 250 4390 4390 11, 040.

10th George W Bush speech 2 180 360 360 TOTAL Page Totals

Multiple Perspective Approach 5 180 900 200 1100 The early Medieval Ages 2 180 360 360 Bonus – – – – – 1820 1820 11th Don’t need one Philosophy 5 180 900 900 Marketing Manager 2 180 360 360 Narrative of the life of 4 180 720 +80 800 Bonus 1 20 20 +150 170 2230 2230 12th Aspects of Memory by Momento 7 180 1260 1260 Bonus – – – – – 1260 1260 13th OFF 14th OFF 15th People versus society in the stranger 3 180 540 540 Week 6 2 180 360 360 Something at school or at home 3 180 540 20×3=60 600 Research proposal Eucation 2 180 360 20×2=40 400 Bonus – – – – – 1900 1900 16th Don’t need one Philosophy 2 180 360 360 Ethical Model 2 180 360 360 Bonus – – – – – 720 720 17th Criminal law 8 180 1440 45×8=360 1800 Educational psychology 4 180 720 20×4=80 800 Writers choice 5 180 900 20×5=100 1000 Psychology in popular media 2 180 360 360 Probation administrators 1 180 180 180 Bonus(Balances can’t allow) – – – – – 4140 4140 12, 070

18th Prescription for peace 2 180 360 360 TOTAL Page Totals

Essay 2 180 360 2×20=40 400 History Discuss Icons 4 180 720 4×20=80 800 Discuss in Essay 6 180 1080 1080 English Literature The plague 7 180 1260 1260 Writers choice 2 180 360 2×20=40 400 Bonus(Balances cant allow) – – – – – 4300 4300 19th to Philosophy Plato’s Republic 6 180 1080 1080 Philosophy  Des Cartes 3 180 540 540 22nd The Declaration of Rights of Men and of the Citizen  History 4 180 720 720 Top famous person in the world Shakesphere 9 180 1620 Order was cancelled -1620 Movie review Crash 3 180 540 540 Bonus 300 300 3180 3180 23rd Banking and non bank Local 9 100 900 900 Critical paper Steinberg&ST 5 180 900 900 World literature Comp&cont 4 180 720 720 Plato’s Republic Plato 5 180 900 4×20=80 980 Bonus 150 150 3650 3650 24th History  Book Review 2 180 360 360 14 None Literature Review 5 180 900 900 25 Philosophy Philosophy of history  5 180 900 900 35 Every man and woman is the image of god/immigration  Religious studies  3 180 540 540 21 Bonus 20×5+150 250 2950 2950 14, 080

25th Critical analysis of Oedipus  Communications  3 180 540 540 TOTAL Page Totals

Analyzing The Man Who Was Almost a Man by Richard Wright  Classics English Literature 3 180 540 10×3=30 570 Roman Fever by Edith Wharton World literature 3 180 540 540 Letter to the Commissioner of the Correctional Services of Canada Criminal law 5 180 900 4×20=80 980 Bonus 150 150 2780 26th The Origins Of Britain’s Industrial Revolution Argumentative Essays History 4 180 720 4×20=80 800 China and the MIng Qing and Japan Shogun  History  3 180 540 100(return order) 640 History; Research paper Paper Assignment 3 180 720 720 Probation Administrators  1 180 180 180 Bonus(Balances can’t allow) – – – – – 2340 27th

Compare/Contrast between two readings  Communications  3 180 540 540 about an article called “Goodbye to All That”by Joan Didion  rhetorical paper  4 180 720 720 Religious studies Give a history of the Catholic Church 5 180 900 20×5=100 1000 Unbowed, A Memoir by Wangari Maathai History  5 180 900 20×5=100 1000 Bonus 150 150 3410 28th P O W E R PR OB LEM 1st

March Religious studies The Fundamentalist Narrative 6 180 1080 20×1=20 1100 capital punishment against capital punishment 4 180 720 50×4=200 920 Religious studies Holidays of different religions  7 180 1260 20×7=140 1400 Bonus 150 150 3570 12, 100

2nd Psychology psychological construct  2 180 360 360 Page Totals

Personal statement  Writing 3 180 540 540 World literature  The topics are attached  6 180 1080 20×1=20 1100 Bonus 150 150 2150 3rd E Hispanics Latin-American Studies 2 180 360 360 Philosophy Gorgias  5 180 900 900 Paper analyzing narrative critical analyzing of a narrative  5 180 900 20×5=100

50×5=250 1250 Bonus Already given in order – – – – – 2510 4th History: See attachment Islamic History 2 180 360 360 E West European Studies Term Paper

6 180 1080 1080 Philosophy  Quiz 2  4 180 720 2×20=40 760 Price increased After request 1 180 180 180 AP Human Geography John F Kennedy 6 180 1080 6×20=120 1200 Bonus 150 150 3730 5th Psychology  Paper should explore a multicultural 9 180 1620 1620 Literature What is so appealing about Clarinda 4 180 720 2×20=80 800 Bonus 150 150 2570 10, 960

TOTAL PAGE 1 11, 040 PAGE 2 12, 070 PAGE 3 14, 080 PAGE 4 12, 100 PAGE 5 10, 960 TOTAL 60, 250 – Grand Total 60, 250

Entries are made on a daily basis and can only be altered upon query and consensus.

Payments can also be made only after a confirmation and approval via sent e-mail.

NB. Approval of result does not bar query solution.

FINANCIAL REPORT FOR HELLEN MUKHWANA

This Report entails amount of money due to be paid to the above mentioned for services rendered for freelance writing of simulation assignments. This is the answering of questions not for students but to provide guidelines to the students on how to answer questions.

The basic pay for the assignments is 180/= per page but this can increase depending on several variances and offer of bonus.

NB. When this payment is processed, it includes purchase of copyright of the papers. This therefore means the papers cannot be submitted otherwise for publication or examination.

This Report is for

Period covering 5th February to 5th March

The Total Amount worked for during the period is

60, 250 – (Sixty thousand and two hundred and fifty only) (Ksh)

1, 200 (One thousand two hundred only) (Ksh) of this amount was sent via Mpesa on 5th Feb. 2010.

10, 000 (Ten thousand only) was delivered in cash on the 21st of February 2010.

THE BALANCE THEREFORE IS 49, 050 (Forty nine thousand and Fifty)

20, 000 (Twenty thousand only) (Ksh) has been received and will be forwarded on 7th March 2010.

20,000 (Twenty thousand only) (Ksh) of the Balance of 29, 050 (Twenty nine thousand and fifty only) (Ksh) Will be forwarded any date between 18th and 29th on March.

The Rest of the amount and that worked for during this period and forth will be forwarded depending on money received.

Entries are made on a daily basis and can only be altered upon query and consensus.

Payments can also be made only after a confirmation and approval via sent e-mail.

NB. Approval of result does not bar query solution.

Approval Note

I hereby confirm that the above entries and information regarding work payment is correct.

Hellen Mukhwana.

Financial Analysis Of The Qeiicc

By (Author)

Name of the Class (Course)

Professor (Tutor)

Name of the School (University)

City

Date

Overview of the QEIICC AccountsThe functions of the QEIICC are spelt out in the statutory instrument 933. They are to provide conferencing and any other related services regarding conference. The main objectives, responsibilities, and goals are set out in a framework document and are issued by the secretary of state. The accounts of the conference are prepared in accruals basis and must be approved by the treasury. The accountants are required to prepare the accounts statement as per the going concern basis.

The chief executive is the accounting officer and has the responsibility to provide a governance statement that highlights internal control system within the conference. The statement shows how the conference centre has achieved its responsibilities and policies that it is mandated to carry out. It must give guidelines on how it will protect and safeguard public resources. The chief executive must give conclusive report pertaining to the financial base of the conference and the report should be timely in every period.

The QEIICC has an audit committee that is made up of three non -executive directors and the chief executive officer who is always in attendance. The main tasks of the committee is to oversee the risk management process within the conference center and are to continuously review the centre of the risk register. The chief executive has to chair monthly meetings where agenda of the meeting are taken by the secretary to the committee. Major reasons for the monthly meetings are to review monthly management accounts presented by the finance officer.

The middle managers or operational manager meet once a month throughout the year to discuss all matters relating to operational activities of the conference. The risk management department has directors and managers whose work is to provide a regular report on the management of risks in their areas of operations and responsibilities. They also give a summary report on key projects the conference centre intends to carry out. The work of the risk management team is cross checked and assessed by the management working group and internal auditors.

There is a system of internal control that is designed to manage risk in areas that are prone to business risk and also to eliminate any failures that can accrue during business operations. Internal control system enables the centre to attain its goals by providing adequate policy guard lines to be followed during risk management. However, the system can only provide reasonable and not absolute risk assurance.

Introduction to the Financial Accounts

The meetings and conference market for many years has remained depressed with clients being cost conscious and this has led to fall in the ratio of rooms hired for conferences. The trend has led to cancelation of many bookings fees that have reached the peak of the year. However, reduced revenue opportunities have prompted a proportionate reduction in cost of doing business.

The major reason for the conference is to promote the business enterprises forward in the ever dynamic environment and also to increase business occupancy to get more revenue. The conference was to address weighty issues relating to business activities in London. The matters include a proportionate drop from reduced government bookings, how significant efficiency savings have been achieved and the viability of the business.

QEIICC Corporate Plan

Since business environment is ever dynamic in the whole world, an inclusive corporate plan will be a major boost to many institutions with elaborate corporate plan. In London during the QEIICC the corporate plan were designed to address various business ideals that include ; how to achieve major savings, to address the challenging times in the business cycles, how to share the dividends paid over the period, to maximize future financial returns and, to restructure fixed cost based in London.

The plan was to tackle strategic goals and objectives to be achieved in the near future. The core corporate plans were to; meet the financial objective of the trading fund order as spelled out in the treasury minutes, maintain the interior of the building brand its services and maximize the revenue generated. Improving services available to customers through continuous upgrading of facilities also was capture in the corporate plan. This was to go hand in hand with improving the standard of services delivered to customers and ensuring that all staff are properly trained, motivated and have the opportunities to develop their skills. Finally maximizing the net surplus from trading activities and property disposal to achieve the best value for the taxpayer and the government was to be capture in the corporate plan.

Revenue Breaks Down

From the revenue breakdown analysis, it can be pointed out that the revenue collected in the financial year of 2012/2013 was relative higher than the previous period of 2011/2012. The following items contributed towards the net increase in the revenue of the QEIICC; room hire, catering commission, other minor income, conference activity and, other rental income. However, there was a slight reduction in revenue from audio visual services and information technology services.

The revenue breakdown shows less improvement in the revenue collected in the current year compared to the previous period and hence stringent measure should be put in place to widen the revenue collection. Nevertheless it should be noted that the revenue collected for the 2012/2013 financial period was below the budgeted one. This can be attributed to the unanticipated reduction in room occupancy during the Olympic Games as several organizations failed to place their orders.

Financial Case Study of the QEIICC

The case study shows that there has been a significant increase in the hotel approximated to be at 70 percent. This was attained through vigorously marketing the conference rooms both internationally and locally. The QEIICC benefited from an extensive booking with the National Organizing Committee from Italy contributing a lot towards it. This enables the projected revenue to exceed the budgeted one hence leading to a net surplus, and the credit for the good work goes to the Centre team members who an aggressively collected marketed the conference.

The summary of performance against targeted shows that payment of two million, two hundred and fifty pounds was made to the exchequer, and that met the financial target. The occupancy level attained that period rose to fifty eight point four percent and was below the targeted one which stood at sixty four percent. It further shows that the accounts were audited and certified by the auditor. The auditor statement reads,” I certify that I have audited the financial statement of the Queen Elizabeth II Conference Centre for the year ended 31 March 2013 under the Government Trading Act 1973”. The auditor opinion shows that the financial statements were prepared according to the accounting standards, principles and practices. Further, the auditor’s opinion shows that all material facts in respect to the expenditure and income recorded in the financial statements have been adhered to and that the statements conform to the authorities that govern income and expenditure.

The statement of financial position of the Conference Centre for the period ended 2012/2013 shows that the total non-current assets sum up to £1,642,000 and the current assets were at £11,867,000, and that leads to a total of £13,509,000 for the value of the assets. The value of property, plant and equipment for the year 2012/2013 was less than those in the year 2011/2012 by a margin of £580,000. Intangible assets also reduced from £7,000 to £2,000 in the same year and that consequently to a reduction in the value of non-current assets compared to the previous period. However, there was an improvement in the value of current assets for the year 2012/2013 compared to the year 2011/2012. This increase in the current asset was attributed to the increase in the value of cash and cash equivalent which increase from £9,127,000 to £10,749,000 for the current period.

The total current liabilities for the year 2012/2013 were less than that of the year 2011/2012 with a margin of £606,000. This was attributed to the reduction in the value of trade and other current payables. There was also a reduction in the value of total non-current liabilities for the period 2012/2013. From this revelation, it is clear that the current assets both in the previous year and current year are higher than the current liabilities in those periods. This means that the conference can meet its current debts efficiently by paying their liabilities off without borrowing money from other external sources. The Conference Centre is safe and cannot be liquidated since it can use the available current assets to offset the current liabilities. The comparison between the non-current assets and non-current liabilities for the two periods indicate that the non-current assets are higher than the values of the non-current liabilities hence the Conference Centre cannot be placed under receivership as it can pay all its debts as they accrue.

The statement of the financial position shows that the total value of non-current assets for the current period is relatively lower than the previous period, and this can be attributed to either depreciation of the current assets or disposal of the current assets. The current assets for the year 2012/2013 is higher than the value of current assets in the year 2011/20112, and this makes the Conference Centre at a better place to settled its immediate debts in the current year and also to purchase equipment with the extra cash at hand.

The Conference Centre, in the current year has reduced their current liabilities compared to the previous year, and this is commendable for the Conference Centre since current liabilities are treated like current expenses, and a reduction in expenses means an improvement in the firm’s profitability. The non-current liabilities for the current period have also decreased in value from £144,000 to £123,000. The whole summary of the financial position of the Conference Centre indicate fine financial progress in managing the available resources.

Comprehensive Net Income Statement

The statement of net income indicates that there is an increase in the revenue collected in the year2012/2013 compared to the year 2011/2012. The revenue base Conference Centre has improved, and this can be attributed to sound investment policies laid down by the management. However, the depreciation and amortization for the current period has increased from £801,000 to £810,000 implying that more assets had depreciated in the current year than the previous year. The overhead costs and expenditure for the current year has gone down. Both the staff cost and other expenditure has relatively reduced, and this increases the operating profits for the conference centre. Reduction in staff cost could have been cost by the introduction of information technology where on few workers may be required to do the job. Retrenchment of staff can also leads to reduction in the staff cost.

Both the operating surplus for the year 2012/2013 and interest receivables have increased, and that has led to increase in the value of operating surplus for the year after interest. The same period show a reduction in the amount of money paid to the exchequer and retained surplus deficit too was reduced. Therefore, the statement shows a positive net income for the year ended 2013 since there was an improvement in the total revenue collected a couple with a reduction in the major in expenses incurred by the Conference Centre.

Statement of the Cash Flows

There is a general increase of cash flow in the year 2012/2013 compared to the year2011/2012. The cash flow generated from operating activities like operating surplus after interest rose from £2454,000 to £3510,000 posting a positive value. In overall, net cash flow from operating activities in the year 2012/2013 was £4,071,000 compared to £3,748,000, and this is a clear indication that more funds came in into the organization. There was also an increase in the value of cash flow from financing activities, for example, payment to the exchequer rose from £1,200,000 to £2,250,000 in the current period.

Statement of Changes in Taxpayers’ Equity

The statement for the period ended 31 March 2013 shows that the compressive net income for the year the balance as at April 2011 was -£1,254,000, and that in March was £9,617,000 indicating sustainable value for the taxpayers’ equity. In summary, the financial statement of QEIICC has shown sound financial accountability and transparency. The fact can be proven by how the accounts are prepared to use the accounting principles and how the management is held accountable for their work.