CUT Limited has experienced significant growth in both their financial prowess and infrastructure continuously for the past 5 years, benefiting from sound versified business portfolio and strategic accelerated investment in warehousing infrastructure, services and market coverage. 2. Introduction CUT Limited is founded in 1970 and listed in the Singapore Exchange since 1993. They operate in around 90 countries through their regional offices and network of service partners. They have a global network connectivity to 1 ,500 inland destinations and around 200 direct ports.
They have just been listed as among the top 2000 biggest public-listed companies in the world by Forbes 201 5 ranking (The Straits Times, 2015). They target companies in the Heimlich, electronics, and health care industries, include inventory management, distribution, land, air, and sea freight forwarding for its integrated logistics services. The group Structure Of Civic Limited is shown in the next page. Page 1 of 33 3. Competitors and Market Conditions The competitors to CUT Limited are DHAL International Gumbo, TNT Holdings B. V. , Yamaha Holdings Co. Ltd, Nippon Express Co. , Ltd, Mitosis-Kooks Holdings Co. , Ltd and Neptune Orient Lines Limited. Their closest competitor will be Neptune Orient Lines Limited. Based on 2014 financial data, CUT Limited is teeter at turning its investment into profits with a return on assets of 2. 92% while Neptune Orient Lines Limited only managed a 1. 99%. This shows that the management of CUT Limited is making wise choices in its investments. The International Monetary Fund has revised its 2014 growth forecast for the world economy from the initial forecasted 3. % to 3. 3% Page 2 of 33 this year. This has impacted negatively for Neptune Orient Lines Limited with a gross loss Of S$281. 97 million. CUT Limited have progressively streamlined their products and services to stabilize their portfolio which yield positive exult in their financial statement with a gross profit of S$131. 648 million, opposing the economic uncertainties. 4. Key Elements of Financial Performance Financial statement analysis measures the business risks and returns of investments.
It has the process of collection, evaluation, analysis and interpretation of an organization financial data (Pamela and Frank, 2012). A good financial performance analysis through thorough research and discussions will bring about improvements in functions and processes of an organization (Malthusian, 2008). Gibson and Caesar (2005) have mentioned hat performance indicators are necessary in exposing different aspects of the organization performance. Before every restructuring or reforming of an organization, financial analysis has to be conducted to estimate the impact to it.
For example, ratio analysis reflects the actual state of affairs of the performance of any business (Financial Markets Department, 2000; Bragg, 201 2; Chemicals and Damnation, 2001 Thus, an In-depth financial performance analysis will enable investors to compare and analyses their potential investments (Thomas, et al. , 2012). It also determines the financial soundness ND market position of the organization in the market (Lee, et al. , 2009). Page 3 of 33 5. Financial Statement Overview There are three key components to a financial statement which are Balance Sheet, Income Statement and Cash Flow Statement (Daniel, 201 1).
The balance sheet summarizes a company’s assets, liabilities and shareholders’ equity for a financial year. The investors will know what the company owns and owes as well as the shareholders’ invested amount Noon and Benjamin, 1977). The income statement, also known as profit and loss statement, measures the company’s financial performance for a financial year. It shows the summary of the company’s revenue and expenses through both operating and non-operating activities, assessing its financial performance. The net profit or loss over the financial year will be shown (John, 1999).
The cash flow statement is a mandatory aspect of a company’s financial report which records cash flow activities of a company (Mahout, Roman and Andre, 2012). Investors will then have a better understanding of a company’s operation and cash flow activities. The cash flow statement is derived from the balance sheet and income statement. It can be used to predict future cash flow for budgeting purpose. The investors will view it as an indicator of a company’s financial health. Page 4 of 33 6. Critical Analysis of CUT Limiter’s Financial Statements 6. 1 Liquidity Ratios 6. . 1 – Current Ratio The current ratio measures a company’s ability to pay off its short-term obligations such as debt and playable with its short-term assets such as cash, inventory and receivables. CLIP Limited has been relatively financially sound in paying their obligations with its strongest stand in year 2010 at a high ratio of 1. 8. Page 5 of 33 6. 1. 2 – Quick Ratio The quick ratio measures a company’s ability to meet its short-term obligations with its liquid assets, excluding inventories. CUT Limited sees its strongest year in 201 0 with a ratio of 1. 8 which means SSI . 78 of liquid assets to cover each S$l of current liabilities. However, it dips lower and lower to a precarious position every year until 2014 when it rises slightly higher at 0. 91 . Page 6 of 33 6. 1. 3 – Absolute Liquid Ratio The absolute liquid ratio is useful when used in conjunction with current and quick ratio. This ratio is computed to eliminate accounts receivables from the liquid assets due to some doubts in their liquidity. CUT Limited has achieved good ratio of 1. 04 in 2010 but fared poorly every year below the ideal range of 0. With the worst year in 2013 at 0. 06. Page 7 of 33 6. 1. 4 – Current Cash Debt Coverage Ratio Current cash debt coverage ratio is used to measure the relationship been net cash provided by operating activities and the average liabilities of the company. This ratio shows the ability of the company to pay its current liabilities from its operations. CUT Limited fared poorly in this aspect with less than a ratio of 1, trending downwards year after year, picking up slightly only in 2014 at a ratio of 0. 11 only. Page 8 of 33 . 2 Solvency Ratios 6. 2. – Debt to Equity Ratio Page 9 of 33 62. 2 – Fixed Assets to Equity Ratio Fixed assets to equity ratio measures both the contribution of the stockholders’ and the debt sources in the fixed assets of a company. CUT Limited has consistently achieved a ratio of less than 1 for the last five years. This indicates that the stockholders’ equity is financing both the fixed assets and also a part of the working capital. Page 10 of 33 62. 3 – Current Assets to Equity Ratio Current assets to equity ratio measures the stockholders’ funds invested in the current assets of a company.
CUT Limited has a gradual trend Of increasing ratio from 2010 till 2013 before ending 2014 with a slightly lower ratio at 4. 33. This indicates that the stockholders’ equity is less than the current assets and the company is using debts to finance a portion of its current assets. Page 11 of 33 62. 4 – Proprietary Ratio The proprietary ratio is used to evaluate the capital structure stability of a company. This ratio shows the stockholders’ total capital contribution Of the company. CUT Limited is in a strong financial position in year 201 0 but its ratio fell for the next three years to an unfavorable ratio due to its investments regionally.
However, the ratio went up slightly to 18. 75% in 2014. Page 12 of 33 6. 3 Activity Ratios 63. 1 ? Inventory Turnover Ratio Inventory turnover ratio indicates the number of times a company’s inventories are sold and replaced over a period. CUT Limited has an extremely high ratio of 316. 24 in 2010 but it decreases rapidly and consistently in the next four years, increasing only slightly in 2014 at 18. 62, after restructuring their investment portfolio in Asia. Page 13 of 33 63. 2 – Receivables Turnover Ratio Page 14 of 33 6. 3. 3 – Average Collection Period
The average collection period is computed to gauge the estimated amount of time for a company to receive the payment owed from their clients, in terms of receivables. CUT Limited has the longest collection period in 201 0 at 6887 days. This decreases in the next two years at 48. 28 and 49. 25 days respectively. However, it went up to 63. 59 days in 2013 before decreasing slightly to 51. 12 days in 2014. Page 15 of 33 6. 3. 4 – Asset Turnover Ratio The asset turnover ratio indicates the efficiency of a company’s deployment of its assets.
It measures the amount of sales or revenue generated per dollar of assets. This ratio is normally used to make comparisons within the same sector since company from a different industry may result in a wide variation of result. CUT Limited is achieving a good ratio incrementally with only a slight decrease in 201 3 at a ratio of 2. 24. Page 16 of 33 6. 4 Profitability Ratios 6. 4. 1 – Net Profit Ratio The net profit ratio measures the short-term overall profitability of a company. This ratio is used to gauge the sufficiency of the net profit to achieve good returns on its investment.
It indicates the company’s ability to face adverse economic conditions and to judge its performance over time, impairing its business results with its competitors. CUT Limited has a positively good net profit ratio of 24. 41% in year 2010 but has decreased significantly in the next four years. Page 17 of 33 6. 4. 2 – Gross Profit Ratio page 18 of 33 6. 43 – Operating Ratio The operating ratio shows the efficiency of a company’s management by comparing operating expenses to net sales, excluding debt repayment or expansion into account. Page 19 of 33 6. 4 – Operating Profit Ratio The operating profit ratio is used to determine the ability of the management in running the company. CUT Limited achieves 25. 5% in 2010 but has seen his ratio decreases for the next four years, ending at an extremely low range of 0. 98% in 2014 which generally means a high-cost operating model. Page 20 of 33 6. 5 Market Position Analysis Ratios 6. 5. 1 – Dividend Payout Ratio The dividend payout ratio is the percentage of earnings paid to shareholders as dividends as compared to how much it is retaining for reinvestment. It is an indicator of how well the earnings support the dividend payments.
Investor will have greater confidence in the company with a healthy dividend payout ratio. CUT Limited has the highest ratio in 2010 at 27. 97% before the Asia decreased in 201 1 at 26. 04%. The lowest point is in 2012 at 16. 69% before moving gradually up in the next two years at 19. 83% and 21% respectively. Page 21 of 33 6. 5. 2 – Dividend Yield Ratio page 22 of 33 6. 5. 3 – Price Earnings Ratio The price earnings ratio measures the number of times the earnings per share has been covered by the current market price Of an ordinary share. This ratio shows the current investors’ demands for a company share.
It also demonstrates how much an investor is willing to pay for one dollar of earnings. CUT Limited has benefited from external investments since 201 1 after their regional expansion plans. The ratio grew from 3. 29 to 10. 31 although it decreased to 6. 81 before rebounding to 7. 66 and 8. 56 in year 201 3 and 2014 respectively page 23 of 33 6. 5. 4 – Price to Book Value Ratio The price to book value ratio is used to compare a stocks market value to its book value. This ratio shows how the market perceives the value of a particular stock. C.V. Limited has achieved less than 1 in ratio for 201 0, 2011 and 2012.
It improves in 2013 with a ratio of 1. 1 and better it in 2014 with a 1. 27, increasing the market valuation of its stock. Page 24 of 33 7. Limitations of Report This report listed the financial ratio analysis for CUT Limited but it will not be as useful without benchmarking to industry leaders’ ratios (Defiance, Countryman and Avenges, 2004). Ratio analysis will be more accurate if different divisions are used to be compared against different industry’ averages. Different accounting practices may also distort such comparisons (Porter and Norton, 2012).
Ratios need to be interpreted carefully but they cannot show whether the company performance is good or bad (Slater and Olson, 1996). An informed analysis can be made only when there’s initiative information. In general, ratios provide guidelines to assessing a company (Burros, 1998) but they may not present a full or complete picture of the company’s financial situation (Kurt, 201 1). 8. Conclusion CUT Limited is seen as a highly potential company for investment from the price to book value ratio and price earnings ratio (Babe and Kim, 1998).
The company has incurred high expenses from the operating profit ratio as well as debts from the debt to equity ratio which is due to their rapid expansion and investment plans in Asia since year 201 1 It has fared poorly in the net refit ratio as it has not yet reaped the return of investments which may take between 5 to 10 years to see the actual results. Average collection ratio is on the high side with clients paying up after more than 50 days. The quick ratio shows that the company has a low liquid assets to cover their liabilities which is not a good indicator (All, 2015).
Page 25 of 33 9. Our Recommendation CUT Limited is a highly potential company but it can also be considered a high risk profile due to its high debt to equity ratio (Small Business Development Corporation, 2015). Its management is rather aggressive in its investment and they may consider slowing down the pace of investment and limit its expenses to minimize any chance of bankruptcy arising from possible poor investments and expansion plans. They should reassess their credit policy given to the clients, shortening to 30 days credit terms and re-evaluate their debt collection process.