Financial Analysis or Financial planning
1.0 Background
In financial analysis and planning, the ratios are critical in identifying the various strengths and weaknesses of an organisation. According to WFL (2018), in line with the different ratios, it is possible for an organisation/business to measure efficiencies and profitability while offering a manner of establishing the relationship of one accounting variable to another on their financial statements. In this report, different ratios have been evaluated. This is through the use of STC and Zain in Saudi Arabia. The rations have been calculated in excel by using financial reports of 5 years which is from 2016 to 2021. The selected ratios are categorised in the following main categories;
- Liquidity ratio
- Solvency ratio
- Profitability ratio
- Activity Ratio/efficiency ratio
2.0 Calculation of the Ratios
2.1 Table of the Ratios applied
| Selected Ratio for use | Sub-categories of the Ratios | Rationale for use | Formula used |
| Liquidity ratio | Current ratio | This is used in assisting business in comparison of current assets with current liabilities Assists a business in analysis of if they are in a position of paying due debts in financial year | Current assets ¸current liabilities |
| Quick ratio | This is similar to current ratio apart from their comparison with current liabilities | Current ratios-Inventory ¸ Current Liabilities | |
| Cash ratio | Used in measuring an organisation liquidity particularly the ratio of an organisation total cash and cash equivalents to their current liabilities | Cash+Marketable Securities¸ Current Liabilities | |
| Financial Leverage Ratios | Debt to equity ratio | Used in comparing an organisation total liabilities to their shareholder equity and applied in evaluating how much leverage an organisation is using. | Total liabilities ¸ Total shareholders’ equity |
| Interest coverage ratio | This is the minimum acceptable amount of the organisation sold, consistent revenues | Times-interest-earned EBITDA ¸ Interest expense | |
| Profitability ratio | Gross profit margin | This evidence the subtraction of cost of goods sold (COGS) from net sales | (Gross profit/Net sales) x 100 |
| Net Profit Margin Ratio | This is used in measuring the amount of net income or profit generated as a percentage of revenue | (Profit after tax/ Net sales) X 100 | |
| Return on capital employed | Calculated by division of net operating profit, or earnings before interest and taxes (EBIT) by capital employed | (EBIT[1-TAX]/Net Assets) x100 | |
| Return on Equity | This is used in measuring the financial performance and calculated through division of the net income by shareholders equity | (PROFIT AFTER TAXES/Net worth) x 100 | |
| Earnings per share (EPS) | This include the organisation profit divided by outstanding shares of their common stocks | Cost of good sold/ Average Inventory | |
| Price Earnings Ratio | This is the ratio used to value an organisation measuring current share price relative to their earnings per share | Share price ¸ earnings per share |
2.2 Data used in ratio analysis
As identified in the excel sheet, the data used in the analysis has been sourced from two organisations. The organisations include;
STL Saudi Arabia– This is a company which had been introduced in 1998. Its headquarters are in Riyadh Saudi Arabia. As evidenced in STC (2021) they are the leading players in the Saudi Arabia telecommunication services in the Middle East. This is in the areas of landline, mobile and internet services. To source the data to be used in the analysis, this organisation owned by the Government of Kingdom of Saudi Arabia has been sourced from Tadawul Saudi Exchange (2022) which is the official trading site for organisations in the country. This is the official Saudi Exchange website or platform.
Zain Saudi Arabia– As evidenced in Zain (2021) the organisation has been operating in KSA for upto 25 years. In 2008, the organisation was listed in the Tadawul. This organisation ensures provision of fixed lines, mobile telephony and internet services in the brand name of Zain Saudi Arabia. The data applied in the analysis of the financial data has been sourced from Saudi Exchange (Saudi Exchange, 2022a).
4.0 Interpretations in a graph
As evidenced in the excel, it is evident that different calculations of the ratios are based on the data which have been used appropriately. The ratios are cumulatively obtained from the years 2016, 2017, 2018, 2019 and 2020. The graphs which can be used for interpretations are as illustrated in the following;
Current ratio…..
Please click the icon below to receive this assessment in full