Analysis for Methanol Chemicals Company PLC - Research Paper Example

?RUNNING HEAD: COMPANY ANALYSIS Company Analysis – Methanol Chemicals Company PLC April, Company analysis – Methanol Chemicals Company PLC Earnings per share The share of the company has been performing well in the market for the past four years. This is given by the fluctuating value of earnings per share during the four year period with some years recording increase in earnings per share. Business description Methanol Chemicals Company PLC produces formaldehyde and methanol for use in the pharmaceutical, agricultural, construction and paper manufacturing industries. In general, the company is engaged mainly in the manufacture of methanol of premium grade like formaldehyde. The company has earned a reputation of being a world class company. It has also earned a reputation as dependable and a quality manufacturer that possess very sophisticated logistical support and marketing system. The company is committed to advance in its leading position in the manufacture of chemicals by the way it undertakes its investments and this will be achieved by intensified research and development and with the production of tailor made products which will be made to meet the specific needs of the customers. To remain competitive in the market, the company also plans to increase its methanol capacity to the production capacity of231,000 tons a year. Industry overview and competitive positioning Methanol Chemicals Company PLC operates in a manufacturing industry where it manufactures agricultural fertilizers, solvents, pharmaceuticals, laminates for the wood industry and various types of concrete admixtures. The company offers diversified products with 26 different products in more than 50 countries across the globe, which provides profitability and flexibility for the company. The company has performed well financially in the past years and this is provided by the sustained economic growth and profitable operations which have been experienced in the company. The company operates in a very competitive environment but it has been able to gain competitive advantage over all its competitors, making it a global leader in the industry. The existing economic environment had a huge impact on the performance of the industry. That is, the existing economic growth in Saudi Arabia has led to an increase in the company performance with high profits resulting from increased economies of scale. Investment summary The performance of the company has been increasing in terms of investment for the last five years. This is given by the increase in the amount of shareholder value in the five year period. The company seems to have acquired investor confidence and this has made the company to be in a position of trading 2,116,530 shares in the last three months which were trading at a price of 2.43 per share. The company has also recorded an increase in shareholders’ equity, the share capital, share premium, statutory reserve and retained earnings for the last five years – a clear indication that the company has had high investor confidence which has made the investors heavily invest in the company (Brown and Reilly, 2012). Valuation The company uses market value as its valuation technique. This method is applicable for quoted companies only and is determined by multiplying the quoted share prices and the number of issued shares. This valuation method takes into consideration the perception of the investors on the performance of the company and the capabilities of the management in delivering a return on their investments. For example, the market value of the company by the end of the first quarter of 2012 was 66,380,450 with a market capitalization of 2,116,530 – a clear indication that the company was performing better in the market (Pendlebury and Roger, 2004). Financial analysis There have been fluctuations of the performance of the company during the last five years. This is indicated by the fluctuations in the company’s current ratio, profit margin, solvency ratio, price earning ratio, return on assets and return on shareholders’ funds. Though the performance of the company is characterized by fluctuations, the company has performed better in most of the last five financial years like in 2008, 2011 and 2005. In general, the company was in a healthy position during the past five financial years and this indicates that the company performed well (Bull, 2008). The company has also been performing well during the first quarter of the 2012 financial years and it is expected to continue with the same spirit during the second quarter though inflation and fluctuations in the global market are likely to affect the performance of the company. The company has recorded a net profit of SAR 25.25 million compared to SAR 9.65 million which was recorded at the same period during the 2011 financial year. Earnings per share also increased to SAR 0.21 up from SAR 0.08 for the same period last year. Earnings EBIT and EBITDA for the company have increased from 49,543 in 2005 to 113,154 in 2011 and from 67,021 in 2005 to 267,542 in 2011 respectively. This is a clear indication of how good the company has been performing over the past five years. Cash flow The cash flow for the company has also been on the rise since 2005. Though with fluctuations and with a decrease in cash flow during the 2007 and 2009 financial years, the company has experienced an increase in its cash flow from 57,216 in 2005 to 224,600 in 2011, which shows that the company has had a healthy financial performance over the five years. Balance sheet and financing The performance of the company has been on the rise and this is indicated by the increase in the company’s total assets from 426,981 in 2005 to 3,028,003 in 2011. There has been an increase in the shareholders funding from 181,955 in 2005 to 1,483,413 in 2011 – a clear indication that the financing of the company has been increasing during the five year period. High financing of the company is an indication of a company with increasing performance (Pendlebury and Roger, 2004). Investment risk Liquidity risks If investors invest in Methanol Chemicals Company PLC, they are likely to face high liquidity risks given to the fact that its assets are highly liquid since its cash is easily convertible with little loss in value. This is given by the high liquidity ratio recorded in the company for the five years. Due to the high liquidity, investors may not be able to realize the required value. Business risk Any investor investing in an industrial enterprise is likely to face business risks as there is always the possibility of business failure soon or later. If Methanol Chemicals Company PLC does not perform well in future, the market value for its share will also go down sharply, hence a business risk. Conclusion From the above analysis, it is very clear that Methanol Chemicals Company PLC has had a healthy financial performance which is indicated by the company net profits, gross profit and financial ratios (Bull, 2008). The good performance experienced by the company may be attributed to the large customer base enjoyed by the company and the competitive advantage enjoyed by the company from its large economies of scale. References Bull, R. (2008). Financial ratios: How to use financial ratios to maximize value and success for your business. Oxford; Burlington, MA: CIMA. Gibson, C.H. (2010). Financial reporting and analysis: Using financial accounting information. [S.l.]: South-Western Pub. Pendlebury, M.W, & Vane Groves, R.E. (2004). Company accounts: Analysis, interpretation and understanding. London: Thomson Learning. Methanol Chemicals Company PLC annual reports. Retrieved 26th March 2012 from http://www.chemanol.com/en/Default.aspx?pageid=568. Methanol Chemicals Company PLC. Retrieved 26th March 2012 from http://www.chemanol.com. Reilly, F.K., & Brown, K.C. (2012). Investment analysis and portfolio management. Mason, OH: South-Western Cengage Learning. Read More