Guidelines for the answer ( 5.1 to 5.11 need to be answered taking into consideration the guidelines given below
1. A Contents page showing clearly the page number and /contents of each page of your project.
2. An executive summary showing the most important findings and research which was covered in the discussion.
3. An introduction to your topic and how you have carried out your research.
4. The discussion of your topic with -footnotes of all your source of research and websites that you have accessed.
5. A conclusion page which summarizes all your findings clearly referring to the topic.
6. A Bibliography showing all the books, websites, that you might have visited .
5. Topic and Research Analysis ( Question to be answered based on Financial statements attached )
5.1 ldentify any company in the listed on a Stock Exchange.
5.3 Analyze the Financial Report and include the following in your analysis:
5.4 Determine the composition of the Equity of the company (Common stock,
Preferred stock and Bonds issued by the company.
5.5 Calculate the average cost of Equity of the company.
5.6 Determine the Dividend policy of the company.
5.7 What is your opinion regarding the financial risk the company's
management is prepared to take.
If the company's management is prepared to take risk, does it reflect in the Return on Equity? think the management is not taking adequate financial risks by having the
optimum financial structure for optimum returns.
5.8 Assuming this company wish to expand their operations and become a
global player in their industry, how in your opinion must this company
finance its operations to achieve the lowest weighted cost of capital as well
as achieve maximum return on capital.
5.9 Did the company's shareholders become wealthier or poorer over the last
financial period as a result of the financial policy of the company?
5.10 Did the Debt position improve or worsen during the last financial
period. If the debts did increase, did the Return on Equity increase or
5.11 Write a paragraph (as part of your conclusion) of at least a typed?
page as your future predictions for this company based on your findings ,/
after you have made the above observations. Also recommend to the
Board of directors a future financial policy that the company
Fujairah Cement Industries Company
Table of Contents
Executive Summary 1
Table 1 Financial Ratios for 2007 and 2008 3
Table 2 Composition of the Equity 4
Given the results of operations for Fujairah Cement Industries Company, my conclusion is that its common stock is not a good investment unless the company drastically redesigns and revamps its internal processes to make it more efficient. Though the more than half a billion Dirham expansion of the company in 2008 resulted to a more than 30% increase in sales, net profit only increased by about 13% which did not affect the market's perception of the company's outlook at all. The price of Fujairah's common stock declined by 10% in the same period.
Moreover, the company's expansion put a tremendous strain in its financial resources resulting to an explosive increase of total debts from 60% of total financing to 700%. This resulted to a more than 3% decline in the return on equity. Nevertheless, the return on equity is still above the average cost of equity, but the margin is so small that unless management do something about it, cost of equity will eventually overtake returns.
In any investment decision, financial analysis of the company or asset being considered is an integral process. This process must be carried on and executed properly and thoroughly as funds invested in any asset, if the risk is too great, can be lost in an instance, a loss which any investor can't afford to have.
Fujairah Cement Industries Company is a public shareholding company established on December 20, 1979 (Fujairah Cement Industries Company, 2008, p. 8) and was listed in the Kuwait Stock Exchange in October 10, 1993 under the ticker symbol FCEM and stock number 807.
The company was a direct response to the construction boom in the United Arab Emirates which began in the latter part of the 1970s and the Emirates desire to be self sufficient "in the manufacture and processing of building materials, portland cement manufacture being the prime industry in this field" (Fujairah Cement Industries Company, 2002). Since it was established in 1979, the company has undergone several expansion in its production capacity which proved to be financial successes. Hence, "[over] the last few years Fujairah Cement has been continuously moving forward to upgrade its technology. At present, steps are being taken to incorporate the latest quality control and cost saving equipments along with other world technology in the field of cement manufacturing, as far as possible" (Fujairah Cement Industries Company, 2002)
In doing the financial analysis, several financial tools were used including financial ratios, historical stock price analysis, and literature review among others.
As succinctly put by Achim, Borlea and Breban (2010), "[in] the actual context of economic globalization, time means money for every investor" (p. 212). Hence, any investing decision must be made with all available information at hand.
The point of financial analysis and investment research therefore is to perform a board research on the main activities or businesses of the organization be these economic, technical, sociological, or managerial and then compare the results of these activities as regards expectations by management, by the market and with the performance of its industry as a whole. The next section of the paper presents the financial analysis for Fujairah Cement Industries Company.
Table 1 Financial Ratios for 2007 and 2008
A capital structure discussion is provided.