Introduction
Studying a corporation’s financial information to make business decisions is known as financial statement assessment. It is used by various parties to understand an institution’s overall health and assess the company’s value and economic condition. It serves as a surveillance instrument for the internal participants who manage the organization’s finances.
This financial valuation evaluates Aamal Company’s ability to obtain a yield on its investment. The return must at least be similar to the price of that capital to grow its operations competitively and to generate enough cash flow to satisfy its commitments and grasp opportunities. This report analyzes the balance sheet, profit and loss, cash flow statement, and debt maturity or liquidity profile of Aamal Company.
Note: all figures are in thousands.
Balance Sheet
Overview
Aamal Company’s balance sheet is a financial statement that presents the financial position of a business at a specific date. It depicts a firm’s assets, liabilities, and equity, along with their relationships. The accounting equation states that an institution’s assets must equal its liabilities and owners’ equity. A balance sheet review examines Aamal’s financial position and performance. Over the last three years, Aamal Corporation’s balance sheet has undergone significant transformations affecting its financial stability and performance.
Total Assets
Total assets increased from QAR 8,898,159,396 in the year 2020 to QAR 8,994,336,530 in 2021. Aamal’s equity offering and improvement in retained profits boosted its book ownership, contributing to the increase. Additionally, debt issuance led to a spike in the company’s liabilities and, consequently, its overall assets.
Cash Flow
Cash decreased from QAR 290,351,283 in 2020 to QAR 148,569,058 in 2021, whereas other receivables also lowered from QAR 29,181,293 in 2020 to QAR 28,725,563 in 2021 (Aamal Company Q.P.S.C., 2021). Modifications to the firm’s credit strategy and increased challenges with timely receivables collection are the two primary causes of declining receivables.
Debt and Solvency Ratio
The current portion of Aamal’s long-term debt increased from QAR 139,474,580 in 2020 to QAR 194,231,732 in 2021. Aamal’s elevated solvency ratios may indicate that the organization finances too much of its operations with debt, putting it at risk of cash flow or bankruptcy.
Ratios
The firm’s liquidity ratios, current, quick, and cash percentages, are used to estimate a debtor’s ability to repay existing debts without raising additional resources. Aamal’s current ratio decreased from 2.17 in 2020 to 1.62 in 2021. Its cash ratio also declined from 0.52 in 2020 to 0.20 in 2021. Aamal’s quick ratio decreased from 1.87 in 2020 to 1.39 in 2021.
The decline in the company’s three liquidity ratios mentioned above can be explained by the rise in Aamal’s current proportion of long-term debt. However, Aamal’s working capital grew from 2.04 in 2020 to 3.37 in 2021 (Aamal Company Q.P.S.C., 2021). The growth indicates that the company can repay an amount greater than the total of its current liabilities. Therefore, the bigger the ratio of a company’s assets to its current obligations, the higher its capacity to pay its debts.
Leverage Ratio
Aamal’s leverage ratios assess the corporation’s ability to meet its financial obligations. Debt-to-equity (D/E), debt-to-EBITDA, and interest coverage ratios comprise the leverage proportion. Aamal’s D/E percentage increased from 0.13 in 2020 to 0.14 in 2021. Consequently, the firm’s interest coverage proportion rose from 0.79 in 2020 to 16.65 in 2021 (Aamal Company Q.P.S.C., 2021).
A higher percentage of interest coverage suggests the business has stronger financial strength and can better meet its interest commitments. However, Aamal’s debt-to-EBITDA decreased from 0.72 in 2020 to 0.52 in 2021 (Aamal Company Q.P.S.C., 2021). The decline shows that Aamal is reducing its debt or boosting its earnings.
Efficiency Ratio
Aamal’s efficiency ratios include stock days, net turnover to total assets, and net trade debtors’ days. The company’s net turnover to total assets increased from 0.15 in 2020 to 0.18 in 2021. Consequently, Aamal’s net trade debtors’ days increased from 109.69% in 2020 to 142.17% in 2022. The rise in net trade debtors indicates that Aamal is issuing more credit to its customers than it collects, leading to bad debts. However, the enterprise’s stock days decreased from 60.90% in 2020 to 54.67% in 2021 (Aamal Company Q.P.S.C., 2021).
Summary
Overall, Aamal’s balance sheet underwent several modifications during the three years. The company’s total assets increased while other receivables decreased. The firm also witnessed reductions in most items on its balance sheet, including leverage and efficiency ratios, which affected its ability to meet its long-term obligations. A spike in long-term debt suggests the business relies on debt to finance its operations, which could affect its financial stability and market performance.
Profit and Loss Account
Overview
A profit and loss statement (P&L) reveals whether or not Aamal Company earns a profit. A P&L report is a financial statement outlining the revenues, expenditures, and expenditures incurred for a particular period, typically a calendar quarter or year. It differs from the statement of liquidity in that it is prepared using accounting principles such as revenue recognition, matching, and accruals. This document allows traders and analysts to evaluate Aamal Company’s financial viability and achievements. It summarizes the company’s revenue, expenses, and profit.
Revenue
Aamal’s revenues, also known as sales, increased from QAR 1,003,321,901 in 2020 to QAR 1,164,872,521 in 2021. The company’s revenue growth is attributed to higher industrial manufacturing, increased property sales, persuading existing customers to purchase more frequently, enhancing its advertising approach, offering competitive prices, and maintaining excellent relationships with clients.
COGS
The cost of goods sold (COGS) refers to a firm’s costs of producing and delivering goods or services to customers. Thus, this comprises direct costs such as supplies, labor, and transportation, but excludes indirect costs such as rent and utilities. Aamal has witnessed a spike in its COGS from QAR 965,867,117 in 2020 to QAR 1,168,575,522 in 2022 (Aamal Company Q.P.S.C., 2021). The rise might result from increased prices for Aamal’s inputs.
Operating Expenses
The total operating expenses that Aamal pays during its usual business activities. Operating expenses (OpEx) include rent, machinery, stock-outs, advertising, salaries, insurance, maintenance, and funds committed to technological advancement. The firm’s overall OpEx rose from QAR 139,552,079 in 2020 to QAR 142,786,000 in 2021. The increase is due to Aamal’s variable costs: rising advertising, utilities, and staff wages expenses.
Gross Profit
Aamal Company’s gross profit rose from QAR 340,973,771in 2020 to QAR 425,521,322 in 2021. The increase in gross profit is attributed to a rise in sales from QAR 1,003,321,901 in 2020 to QAR 1,164,872,521 in 2021 (Aamal Company Q.P.S.C., 2021). An improvement in the company’s gross profit percentage is significant because it enables the company to use profits to boost cash flow, fund other initiatives, or grow Aamal Company.
EBITDA
Aamal’s EBITDA increased from QAR 194,574,509 in 2020 to QAR 375,517,210 in 2020 (Aamal Company Q.P.S.C., 2021). EBITDA is one of the most frequently used metrics to evaluate an organization’s financial well-being and its ability to generate cash. Aamal’s EBITDA growth can be attributed to an upsurge in sales and to OpEx reductions achieved through effective performance. When a business’s EBITDA margin is high, its credit burden is considered lower.
Net Profit
Aamal Company’s net profit rose from QAR 123,292,937 in 2020 to QAR 304,927,871 in 2021 (Aamal Company Q.P.S.C., 2021). Similarly, as with other items on the profit and loss account, the firm’s net profit increased due to an upsurge in sales. An institution’s net profit reflects a greater ability to keep costs under control and to sell items at prices above costs. A high profit margin indicates excellent operational oversight, low expenditures, and efficient pricing strategies.
Net Income
After considering distributed dividends, a business’s accumulated net income or revenues are retained earnings. Since such gains were not distributed to stakeholders as part of payouts, retained earnings are essential in bookkeeping. This word suggests that the corporation retained those earnings rather than distributing them to shareholders. Aamal Corporation witnessed an increase in its retained income from QAR 128,707,063 in 2020 to QAR 52,927,871 in 2021. The rise was due to the company reporting growth in net income and higher revenues.
Operating Profit
Aamal Company’s operating profit increased from QAR 201,421,692 in 2020 to QAR 282,735,322 in 2021. The firm’s operating income rose as sales increased across its four key business segments: industrial manufacturing, trading and distribution, managed services, and property. The operating profit is an essential metric since it indirectly indicates productivity. In an organization’s main operation, the larger the operating profit, the more valuable it is.
Total Turnover
Aamal’s total turnover increased from QAR 1,306,840,888 in 2020 to QAR 1,594,096,844 in 2021. The overall turnover grew as the firm’s sales increased, while assets were either maintained at current levels or improved more slowly (Aamal Company Q.P.S.C., 2021).
Summary
Overall, Aamal Company’s P&L account showed an increase across most items, affecting its financial well-being and effectiveness. In 2021, an increase led the enterprise to register positive figures in other items linked to sales. As discussed in the section above, its COGS, net income, gross profit, total turnover, operating profit, and other metrics rose due to increased revenue. As sales have continued to increase, the firm’s profitability has risen over the past three years.
Cash Flow Statement
Overview
A cash flow report is an accounting document that summarizes an institution’s cash inflows from daily operations and foreign portfolio investments. In addition, it contains all cash outflows used to fund corporate operations and capital expenditures during the period. The financial statements of Aamal Corporation provide analysts and shareholders with a complete picture of the engagements that drive the organization’s growth. The cash flow statement is considered the most straightforward of the income statements because it covers the cash generated by the organization in three primary categories: operations, investments, and financing.
Cash from Operating Activities
Aamal’s cash from trading activities increased from QAR 58,137,073 in 2020 to QAR 395,148,828 in 2021. The growing cash flow from its operating activities indicates the company’s four primary business operations are successful. Therefore, it offers an alternative predictor of a company’s potential profitability, in addition to the conventional ones such as net earnings or EBITDA.
Cash After Operations
The firm’s cash after operations rose from QAR 59,753,968 in 2020 to QAR 284,406,904 in 2021. The growth is explained by a reduction in change of prepayments expenses of the business from (QAR 108,511,605) in 2020 to (QAR 120,223,899) in 20201 (Aamal Company Q.P.S.C., 2021).
Cash After Debt Amortization
Aamal’s cash after debt amortization increased from QAR 514,263,934 in 2020 to QAR 92,585,338 in 2021. The change was caused by a spike in the firm’s current portion of long-term debt from QAR 131,079,099 in 2020 to QAR 155,429,703 in 2021.
Financial Surplus
The organization’s financial surplus requirements increased from (QAR 385,987,967) in 2020 to (QAR 186,335,602) in 2021. The change was due to an alteration in its fixed assets, such as plant and machinery, decreasing from QAR 128,275,967 in 2020 to QAR 93,750,264 in 2021 (Aamal Company Q.P.S.C., 2021). Therefore, this insinuates that the company reduced its dependency on debt to finance the purchase of such assets.
Summary
Overall, Aamal Corporation’s cash flow statement indicates that its four business segments are performing well and generating higher revenues. The cash it obtains from its trading activities enables it to finance some of its assets and obligations. Thus, this will, in turn, lower the firm’s reliance on debt to facilitate most of its operational expenses. A reduced reliance on debt means Aamal has been profitable from its activities; thus, it is financially viable and effective. However, after debt amortization, the organization’s cash rose, indicating that the corporation’s long-term debt increased. Therefore, this insinuates that the firm would still require debt financing to meet some of its obligations.
Debt Maturity/Liquidity Profile
Over the last three years, the Aamal Company has maintained a prudent debt maturity profile. The total debt (including interest-bearing debt) as of the end of 2021 was QAR 139,474,580, whereas the total assets were QAR 8,994,336,530. The debt-to-asset ratio was 2.16%, slightly outside the industry norm, while the net debt-to-EBITDA ratio was 0.52, within the industry norm. In 2021, the company increased its overall debt by QAR 139,474,580 from QAR 194,231,732 in 2020. The company has found it challenging to minimize its total debt, which is bad for its financial health.
For the past three years, the leverage ratio, for instance, the interest coverage ratio, has also increased from 0.79 in 2020 to 16.65 in 2021, showing that the firm can meet its interest obligations and is in good financial health. Furthermore, Aamal’s D/E percentage has risen over the past three years. The firm’s D/E ratio increased from 0.13 in 2020 to 0.14 in 2021, indicating its dependency on debt to finance its activities rose. The current proportion of Aamal decreased from 2.17 in 2020 to 1.62 in 2021. Therefore, this indicates that the corporation’s current assets as of 2021 could not cover its liabilities over the past three years.
Reference
Aamal Company Q.P.S.C. (2021). Consolidated financial statements and independent auditor’s report for the year ended 31 December 2021.