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Abu Dhabi National Paper Mill Financial Management Report


Introduction

Abu Dhabi national paper mill is the oldest tissue manufacturer within the region. The initial production for the company was in 2002 with close to 22000 jumbo tissue paper rolls. The company currently produces averagely 27000 jumbo tissue rolls rendering it to be the biggest paper mill within the region. The company manufactures and markets its products to the regional, local and overseas converters. The company has been expanding its level of production on a yearly basis. The company has plans of introducing a de-inking and new tissue machines. This will assist Abu Dhabi national paper mill meet the high market demand for quality tissue products. The company strives to preserve the environment by meeting all international standards of air pollution. This paper focuses on calculation of basic financial management ratios and a report for the company.

Income statement and balance sheet for the company

Consolidated income statement for Abu Dhabi National paper mill (1.1-31.12)

Amounts in NOK million 2009 2010 2011
Operating revenue
Other income
Total revenue and other income
Material, goods and services
Salaries, wages and the social security costs
Other operating expenses
Operating expenses before depreciation, amortization and impairment
Operating profit before depreciation and amortization
Depreciation, amortization and impairment
Operating profit
Finance income
Finance expense
Profit (Loss) from equity accounted investees
Profit (Loss) on the foreign currency forward contracts
Profit before tax
Income tax expense
Profit from continuing operations
Profit from discounted operations
Profit for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Earning per share on continuing operations
Basic earnings per share
Diluted earnings per share
Share price
29600
324
32924
(13009)
(9200)
(4270)
(26479)
(3121)
(758)
2363
40
(410)
(11)
(90)
1892
(712)
1180
578
1758
6.12
6.10

3.95
3.85
52.7

33207
158
33365
(14589)
(10727)
(4741)
(30057)
3308
(817)
2491
85
(509)
(22)
(78)
1908
(634)
1334
675
2010
7.25
7.25

4.75
4.75
62.95

35667
807
36474
(16233)
(11353)
(5443)
(33029)
3445
(876)
2569
183
(641)
(73)
35
2073
(482)
1591
3663
5254
19.37
19.32

5.77
5.66
99.25

Consolidated balance sheet for Abu Dhabi paper national mill as at 31st December

2009 2010 2011
Assets
Non-current assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Employee benefit assets
Non-current interest bearing receivables
Other non current operating assets
Equity accounted investees
Other investments
Total non current assets
Current assets
Current tax assets
Inventories
Trade and other receivables
Derivative financial instruments
Current interest bearing receivables
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Equity and liabilities
Equity
Issued capital
Treasury shares
Other capital paid in
Reserves
Retained earnings
Total equity attributed to the equity shareholder
Non controlling interests
Total equity
Non current liabilities
Non current borrowings
Employee benefits obligations
Deferred tax liabilities
Other non current liabilities
Total non current liabilities
Current liabilitiesCurrent borrowings
Current liabilities
Provisions
Trade and other payables
Derivative financial instruments
Liabilities classified as hold for sale
Total current liabilities
Total liabilities
Total liabilities and equity
7549
441
7256
87
150
230
50
95
1585895
825
15580
360
740
4200
5320
27120
42978600
(15)
1534
(820)
7867
9166342
9508

8300
438
922
634

10294

1200
325
2100
17584
147
1820
23176
33470
42978

7479
487
6783
95
225
221
424
157
15885238
1085
14870
385
621
3198
3135
24134
40021546
(9)
1534
(703)
8554
10105189
10345

7508
647
829
753

9737

716
115
1039
15278
243
1539
19930
29667
40021

7409
533
6310
103
704
191
246
418
15914103
1765
12117
540
534
1308
1831
18198
34112455
(7)
1534
(565)
9731
11148169
11317

5371
577
1310
661

7919

629
86
935
12934
247
45
14876
22745
34112

Calculation of ratios

Short-term solvency ratios

Current ratio

Current ratio = total current assets ÷ total current liabilities

  • Current ratio for 2009 = 27120 ÷ 23176 = 1.17
  • Current ratio for 2010 = 24234 ÷ 19930 = 1.22
  • Current ratio for 2011 = 18198 ÷ 14876 = 1.22

Quick ratio

Quick ratio = (Total current assets – inventory) ÷ Total current liabilities

  • Quick ratio for 2009 = (27120 – 825) ÷ 23176 = 1.13
  • Quick ratio for 2010 = (24234 – 1085) ÷ 19930 = 1.16
  • Quick ratio for 2011 = (18198-1765) ÷ 14876 = 1.10

Asset management ratios

Receivables turn over

Receivables turnover = sales ÷ accounts receivables

  • Receivables turnover for 2009 = 32924 ÷ 15580 = 2.11
  • Receivables turnover for 2010 = 33365 ÷ 14870 = 2.24
  • Receivables turnover for 2011 = 36474 ÷ 12117 = 3.01

Day’s receivables

Day’s receivables = 365 ÷ receivables turnover

  • Day’s receivables for 2009 = 365 ÷ 2.11 = 172.99
  • Day’s receivables for 2010 = 365 ÷ 2.24 = 162.95
  • Day’s receivables for 2011 = 365 ÷ 3.01 = 121.26

Inventory turnover

Inventory turnover = cost of goods sold ÷ inventory

  • Inventory turnover for 2009 = 26479 ÷ 825 = 32.10
  • Inventory turnover for 2010 = 30057 ÷ 1085 = 27.70
  • Inventory turnover for 2011 = 33029 ÷ 1765 = 18.71

Day’s inventory

Day’s inventory = 365 ÷ inventory turnover

  • Day’s inventory for 2009 = 365 ÷ 32.1 = 11.37
  • Days inventory for 2010 = 365 ÷ 27.7 = 13.52
  • Day’s inventory for 2011 = 365 ÷ 18.71 = 19.51

Fixed assets turnover

Fixed assets turnover = sales ÷ net fixed assets

  • Fixed assets turnover for 2009 = 32924 ÷ 15858 = 2.08
  • Fixed assets turnover for 2010 = 33365 ÷ 15885 = 2.1
  • Fixed assets turnover for 2011 =36474 ÷ 15914 = 2.29

Total assets turnover

Total assets turnover = sales ÷ total assets

  • Total assets turnover for 2009 = 32924 ÷ 42978 = 0.77
  • Total assets turnover for 2010 = 33365 ÷ 40021 = 0.83
  • Total assets turnover for 2011 =36474 ÷ 34112 = 1.07

Debt management ratios

Times interest earned ratio

Times interest earned ratio = EBIT ÷ interest expense

  • Times interest earned ratio for 2009 = 1982 ÷ 712 = 2.78
  • Times interest earned ration for 2010 = 1908 ÷ 634 = 3.01
  • Times interest earned ratio for 2011= 2073 ÷ 482 = 4.3

Debt ratio

Debt ratio = total debt ÷ total assets = (Total assets-total owner’s equity) ÷ Total assets

  • Debt ratio for 2009 = (42978 – 9508) ÷ 42978 = 0.78
  • Debt ratio for 2010 = (40021 – 10345) ÷ 40021 = 0.97
  • Debt ratio for 2011 = (34112 – 11317) ÷ 34112 = 0.67

Debt to equity ratio

Debt to equity ratio = total debt ÷ total owners equity

  • Debt to equity ratio for 2009 = (42978 – 9508) ÷ 9508 = 3.52
  • Debt to equity ratio for 2010 = (40021 – 10345) ÷ 10345 = 2.87
  • Debt to equity ratio for 2011 = (34112 – 11317) ÷ 11317 = 2.04

Equity multiplier

Equity multiplier = total assets ÷ total owners equity

  • Equity multiplier for 2009 = 42978 ÷ 9508 = 4.52
  • Equity multiplier for 2010 = 40021 ÷ 10345 = 3.87
  • Equity multiplier for 2011 = 34112 ÷ 11317 = 3.01

Profitability ratios

Profit margin

Profit margin = net income ÷ sales

  • Profit margin for 2009 = 1758 ÷ 32924 = 0.05
  • Profit margin for 2010 = 2010 ÷ 33365 = 0.06
  • Profit margin for 2011 = 5254 ÷ 36474 = 0.14

Return on assets

Return on assets = net income ÷ total assets

  • Return on assets for 2009 = 1758 ÷ 42978 = 0.04
  • Return on assets for 2010 = 2010 ÷ 40021 = 0.05
  • Return on assets for 2011 = 5254 ÷ 34112 = 0.15

Return on equity

Return on equity = net income ÷ total owners’ equity

  • Return on equity for 2009 = 1758 ÷ 9508 = 0.18
  • Return on equity for 2010 = 2021 ÷ 10345 = 0.19
  • Return on equity for 2011 = 5254 ÷ 11317 = 0.46

Market value ratios

Price to earnings ratio

Price to earnings ratio = price per share ÷ earning per share

  • Price to earning ratio for 2009 = 52.7 ÷ 6.10 = 8.64
  • Price to earning ratio for 2010 = 62.95 ÷ 7.25 = 8.68
  • Price to earning ratio for 2011 = 99.25 ÷ 19.32 = 5.14

Market to book ratio

Market to book ratio = price per share ÷ book value per share

  • Market to book ratio for 2009 = 52.7 ÷ 58 = 0.9
  • Market to book ratio for 2010 = 62.95 ÷ 67 = 0.94
  • Market to book ratio for 2011 = 99.25 ÷ 101 = 0.98

Report about the performance of the company

Interpretation of short-term solvency ratios

Solvency ratios show the ability of an entity to meet its debt obligations. The current ratio shows the ability of an entity to pay for the short term liabilities using its current assets. A company has outstanding performance with a current ratio that is over one. Abu Dhabi national paper mill performs well on this parameter because the ratio is high across the three years. On the other hand, the quick ratio is an indicator of the short term liquidity of an organization. A company is more stable than the other when this ratio is high. Abu Dhabi national paper mill has a high solvency quick ratio because it is over one and increasing over the three years. This means that the company has the ability of meeting its debt obligations in the future. These solvency ratios grant the company favor in the eyes of investors (Robinson et al. 2008).

Asset management ratios

This set of ratios identifies the efficiency and effectiveness of an organization in managing its assets to generate revenue. High asset management ratios show that the organization is using its assets well to generate income. The company has an increasing receivable turn over ratio which is an outstanding performance. The other asset management ratios also reveal satisfactory organizational performance. This means that the Abu Dhabi national mill has an exceptional ability to use its assets to generate income (Brigham & Houston 2012).

The inventory turn over ratio shows the number of times the company sells and stocks its inventory every year. This value should neither be too high nor too low at any given time. This company has a stable inventory turnover ratio, and this shows a stable management in place. The company has an increasing trend in the receivables turnover ratio, inventory turnover ratio, fixed asset turn over ratio and total asset turn over ratio. This results into a declining trend in the day’s receivables and day’s inventory ratios.

Debt management ratios

The debt management ratio is a measure of how much the operations of an entity comes from debt financing instead of other sources like personal savings and stock. An organization has a promising future if it has low and decreasing values of these ratios. It is better for a profit making organization to use most of its assets in financing operations than heavily relying on debt. This is because it is extremely expensive for an organization to manage debt. This category has the times interest earned ratio, debt ratio, debt to equity ratio and the equity multiplier. The debt management ratios do not reveal a given trend, but they are primarily low.

Profitability ratios

These ratios form the most prestigious financial analysis ratios especially to the investors of the company. There is no investor who can confidently put his or her resources in a company that in making loses. Most investors look for companies whose profitability keeps on increasing on a yearly basis. The company has an excellent performance in its profit margin. Abu Dhabi natural paper mill has an increasing trend in the profit margin over the period of analysis. This trend reveals that the organization is stable in the long run (Thukaram, 2007, p. 99). Other profitability ratios are the return on assets and return on equity respectively. The company has positive values on these ratios, and this reveals that it is highly profitable. These rations have an increasing trend which shows the long term sustainability of the organization. These results earn the company a competitive advantage and investor confidence within the market.

Market value ratios and other equations

Some of the ratios that fall under this category include the price to earning ratio and market to book ratio. The price to earning ratio for the company has a negative trend because of the increase in share prices with time. This shows that the company does not increase the earnings for shares as the price increases. This can be demoralizing to share holders, and the company should consider high interests for its investors. There is a remarkably small variation between the market and book share values. This does not have any significant effect on the company and its stakeholders.

Conclusion and recommendations

The Abu Dhabi natural paper mill company performs well in most the financial parameters. Analysis of the solvency ratios reveals that the company meets its debt obligation using its current assets. The asset management ratios reveal that Abu Dhabi national paper mill has a high ability of using its assets to generate income. This is a result of its strong leadership team that is efficient in resource allocation. Analysis of the debt management ratios reveals that the company funds most of its operations from within. This works for the well being of the enterprise because it is extremely expensive to rely on debt financing.

The most valuable thing the company should undertake is to reward investors by paying them high share interests. The company has an increasing share price value over the three years. The challenge is that the increase in share interest is not proportional to the rise in share price. The best way the company can attract and retain several investors is rewarding them according to the performance of the enterprise. In general, the company’s financial analyses show that Abu Dhabi national paper mill has a stable financial position. The company should just enhance its operations to ensure better performance in the future.

References

Brigham, F.E. and Houston, F. J., 2012. Fundamentals of financial management. Mason: Cengage learning.

Robinson, T., Henry, E. and Greuning, H., 2008. International financial statement analysis. New Jersey: John Wiley & Sons.

Thukaram, R., 2007. Management Accounting. New Delhi: New age international publishers.

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IvyPanda. (2020, June 5). Abu Dhabi National Paper Mill Financial Management. Retrieved from https://ivypanda.com/essays/abu-dhabi-national-paper-mill-financial-management/

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"Abu Dhabi National Paper Mill Financial Management." IvyPanda, 5 June 2020, ivypanda.com/essays/abu-dhabi-national-paper-mill-financial-management/.

1. IvyPanda. "Abu Dhabi National Paper Mill Financial Management." June 5, 2020. https://ivypanda.com/essays/abu-dhabi-national-paper-mill-financial-management/.


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IvyPanda. "Abu Dhabi National Paper Mill Financial Management." June 5, 2020. https://ivypanda.com/essays/abu-dhabi-national-paper-mill-financial-management/.

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IvyPanda. 2020. "Abu Dhabi National Paper Mill Financial Management." June 5, 2020. https://ivypanda.com/essays/abu-dhabi-national-paper-mill-financial-management/.

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IvyPanda. (2020) 'Abu Dhabi National Paper Mill Financial Management'. 5 June.

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