Basem Financial Ratio

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The ratio of return on equity shows how much profit is made by a company as compared to its capital. It shows the ability of a firm to generate profit from its shareholder investments. Return on equity is also an indicator how effective is the management at using equity for growth and operation. For Talke, the trend of return on equity is consistent to net profit. This is due to the shareholder’s equity only increasing by the profit for the year for the period under consideration. It is evident that Basem has been generating a much higher return for the capital invested by its shareholders. Apart from the higher profit for the year, Basem has been managing its financing requirements through working capital management. This means that they are…show more content…
A high ratio generally means that the company has been aggressive in financing its growth with debt. Such capital structure is likely to result in volatility in the earnings as a result of additional interest expense. This can also said to be a measure of the gearing level of the company. The optimum level of gearing is different to specific business sectors. For example, capital intensive industries such as logistics tend to have a slightly higher long term debt/equity ratio while electronics manufacturing companies have a relatively lower ratio The company had a debt equity ratio of 2.44 in FY 2011. The company kept its profits in retained earnings to increase its equity and thus its gearing level went down. They also made a repayment of about 5.5 million long term loan bank and this reduced the debt equity ratio to 1.82 in FY 2012. In FY 2013, accounts payables, accrued expenses and other liabilities went up by 20 million. At the same time SR 5.6m loan was also repaid. This resulted in a slightly increase in the debt equity ratio. Basem’s debt equity ratio is high and can be seen as aggressive. However it has been noted that Basem is relying on improved working capital and its liabilities include limited debts that are subject to…show more content…
Usually the finance costs go up with the provision of a longer credit period to the debtors, but it also promotes sales. S.A. Talke’s debtor days are much higher than those of its competitor. This is due to Talke relying on two major customers. These two customers have extended credit terms and represent about half of the accounts receivables at the year end. Payable Days (Payables / COS X 365) S.A. Talke Basem Year 2011 2012 2013 2013 Payable days 141 95 165 58 Payable days helps to evaluate the company’s liquidity. It can also demonstrate effective cash management. A lot of large companies started extending their credit terms since the credit crunch as alternative finance. The above trend shows that the Company has much higher payable days compared to Basem. As the Company on average takes about 4 months to collect the amounts due from its customer, it has negotiated longer credit terms with its suppliers. Total Assets Turnover (Sales/Total Assets) S.A. Talke Basem Year 2011 2012 2013 2013 Sales 38,410 63,722 84,064 342,104 Total assets 61,339 62,344 78,935
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