1.0 Introduction

In this report, the selected organisation of focus is the Qatar National Cement Company (QNCC). This is an organisation which operates as a major producer of Ordinary Portland Cement, Sulphate Resistant Cement, Hydrated Lime and Washed Sand in State of Qatar (QNCC, 2021). Since its establishment in 1965, the organisation has been producing Ordinary Cement in sufficient quantity for meeting the demand of cement in the State of Qatar. In line with the requirements of this project, the organisation is listed in FTSE and also in Qatar Security Index. In this regard, it is relevant to evaluate the organisation risks, capital structures, sources of finance and decisions relating to strategic investment.

2.0 Part A

2.1 QNCC Capital Structure

Adopting the definition of Yapa Abeywardhana (2017) which is based on the market timing theory, capital structure is an outcome of attempts of issuing securities (stocks and debts) at times deemed appropriate for their issuance. Hence, the capital structure is identified as the compilation of all the factors such as the organisation size and maturity influencing financing options of an organisation which may be available. It is through this that appropriate investment dynamics of an organisation are informed (see figure 1);

Figure 1: Capital Structure

Source: CFI (2021)

For the last quarter of 2021, QNCC had issued and issued a paid-up share capital of approximately QAR 653.5 million (QNCC, 2021a). This is while containing 49 million shares of QAR 5.05 each. Within the same period of review, their shareholders equity increased with 17.1% to QAR 2.35 billion from previous QAR 1.98 billion in the last comparable quarter. Similarly, the book share per value (BVPS) recorded an increase to QAR 60.89 from QAR 32.98 with the stakeholders equity to asset ratio declining to 63.2% from previous 69.54% in first quarter of year 2021 (GCC Equity Report, 2021).

At the same time, considering the QNCC overall non-current liabilities, they had reduced by upto 19.8% to QAR 788 million as a consequence of the 30% decrease of their non-current portion of term loan. This was as a result of the finalisation of their agreement with leading financial institutions in obtaining approximately $120 Million credit for financing their construction of new plants as a strategy of mitigating their COVID-19 pandemic. This term loan has been accruing an interest of approximately 0.70% annually and set to be repaid within an equal timeline of 10 semi-annual instalments (Khaleej Times, 2008). As a result of this, the QNCC debt to equity ratio has significantly decreased to 14.9% from 19.5%.

2.2. Alignment of QNCC Capital Structure with Strategic Goals

Considering the QNCC strategic goals, they include expansion of their operations locally and internationally, improved profitability and a high-level market dominance. To achieve this, the organisation capital structure is aligned with this objective. According to Das et al. (2020) research which leveraged on different examples to link capital structure with strategic goals, relevant insights were obtained. The study noted that in all the strategic goals set in an organisation, it must be aligned to the organisation capital structure. One of the QNCC strategic goal was to leverage on the Middle East market environment. The strategy followed by QNCC in diversification of their operations in Middle East and globally inform its current debt and equity financing part of the capital structure. For instance, in 2020, the organisation had a total debt of QAR 269.82 million and QAR 3.04 billion. The identified organisation debt is applied for boosting reduced risks hence a positive relation of leveraging and degree of diversification. This is for example evident from their operations in the Saudi Arabia where in 2020 the organisation obtained an overall sales of KSA SAR 623.20 (CIC, 2021). Additionally, it can be argued that the aggregate business activities identified to be practiced in QNCC have a direct implication on cash flow stream decrease on the variability of earning for integrated business practices. QNCC is always leveraging from an easier prediction and reduction of variability of earning as their insurance pool magnitude increased by product and geographical diversification. As a result, Deb et al. (2017) note that in theory, the process have an impact on enhancing the market value of diversity firm debt and linked with equity value decline.

Further, having unbalanced goals lead to unbalanced performance which affect the credibility of an organisation operations and their viability (HBR, 2021). It is in this regard that the capital structure of QNCC is directly linked with their organisation strategy. For example, in QNCC, they have set their performance to be approximately 75% in terms of profits and also revenues. This is achieved by reducing their RONA essential for funding their growth on sustainable practice with the management in QNCC ensuring that they are decreasing on the potential funds deficit by increasing the organisation debt or reducing dividend pay-out.

2.3 QNCC View of Risks and Returns

As noted by Almujamed (2018), the uncertainties linked with the returns in an investment contribute to an organisation risks. Risks are linked with the possibility which are realised from the returns noted to be less than the returns which are expected. For QNCC risks, since the emergence of COVID-19 pandemic, QNCC (2020) note that the organisation has faced a decline in the revenues with approximately 4% as a result of the decline in the overall sales and costs (see figure 2);

Figure 2: QNCC Revenues and Sales Decline

As evidenced in figure 2, from the risks and returns, the organisation is still profitable, in a good financial position and a high-quality earnings. The QNCC risks and returns can hence be noted to be what Racicot and Théoret (2019) identify as efficient portfolio which offers a maximum return on average for a specified level of portfolio risk. QNCC has at all times focused on diversifying on their operations and also acquisition and resorting to their equity securities as the medium of exchange. This is in line with HBR (2021) findings that from the risks and returns, it is possible for an organisation to generate a response to their product market forces and prioritising growth and diversification. The outcome of this is reemphasizing of their ROI and shareholder benefit as the price of that dependency. At one point, from their evaluation of risks, it was evident on the need for the organisation to effectively measure controlling process of their operational costs. This is while competition being noted as an immediate threat with more liberalization of the industry eliciting immense implication on organisation prospects. This was after the organisation failed to successfully acquire the construction of a sand plant in Ireland with a risk of approximately QAR 84 million (GCC Equity Report, 2021). These findings had been obtained from the organisation capital structure analysis (See figure 3);

Figure 3: Capital Structure Factors

3.0 Part B: Organisation Financial Performance and Approach to Managing Stakeholders Expectations

According to Bărbuță-Mișu et al. (2019), for success in financial performance analysis, it is important to put into account the aspects of revenues, profits, operational efficiency, capital efficiency and solvency and liquidity. The rationale of this is since an organisation financial performance identify the scope to which financial objectives are being or has been accomplished. In order to analyse the financial performance of QNCC, the ratio analysis used include profitability ratios, operational ratios and structure rations.

3.1 Profitability Ratios

As illustrated in table 1, a summary of the trend analysis of QNCC in the last four years has been provided;

Year End	2021	2020	2019	2018
Return on Shareholder’s Funds (%)	8.99	9.98	10.98	3.25
Return on Capital Employed (%)	4.87	7.98	6.65	1.24
Return on Total Assets %)	3.15	5.74	3.78	1.32
Profit Margin (%)	3.14	3.98	3.87	0.89
Gross Margin (%)	8.09	7.57	6.98	6.54
EBIT Margin	5.03	4.67	4.02	2.76
EBITDA Margin (%)	7.67	6.26	7.43	5.98

Table 1: QNCC Profitability Ratios

As noted in Myšková and Hájek (2017), the importance of profitability ratios is to measure and evaluate an organisation capacity of generating profits in line with revenues. Different profitability rations offer relevant insights and information for an organisation financial wellbeing and performance. In light of the profitability ratios of QNCC, the ROE has increased from 3.25% in 2018 to 10.98% in 2019. In the last two years of 2020 and 2021, QNCC has maintained a high ROE of 9.98% evidencing on the organisation being limitedly depending on debts in cash generation. As evidenced on the Return on Capital Employed, the organisation has managed to post a high-level trend in the years of interest. In entirely, the organisation has managed in gaining an increase in the trend in the last 4 years evidencing a growth in the profits and earnings in each revenue achieved. Nevertheless, due to COVID-19 economic downturn, there has been a decrease in the sales volume leading to a reduced ROA and profits margins.

3.2 Operational Ratios

Year End	2021	2020	2019	2018
Net Assets Turnover	2.88	3.45	3.65	3.22
Fixed Assets Turnover	2.75	2.89	2.98	2.74
Interest cover	3.24	5.37	4.23	2.98
Stock Turnover	27.26	25.87	26.30	25.76
Debtors Turnover	134.90	110.78	126.14	117.28
Debtor collection (days)	3.56	4.27	3.98	4.24
Creditors payment (days)	33.23	34.87	36.90	34.89

Table 2: QNCC Operational Ratios

As evidenced in Soboleva et al. (2018), the operational ratios are used to compare assets and organisation operating expenses of the organisation for other performance benchmarks. In the case of QNCC, over the past four years, there has been a significant increase. For instance, the asset turnover has increased in terms of revenues generation for total assets applied. In table 1, it is evident that there is a small increase in appropriate application of assets with a slight decrease in 2020 and 2021 due to a decline in efficiencies in appropriate usage of net assets and fixed assets in generating revenues. For the payments of the creditors, QNCC is shown as averaging approximately 32 days for the past four years with a small increase of approximately 2 days in 2019 which was approximately 37 days. QNCC having a limited credit payment period lowers organisation liquidity with a long process reducing credit access opportunities. Putting into account of the credit payment period of QNCC, it is higher compared to the debt collection timelines, credit payments having a significant implication on organisation liquidity. Further, interest cover ratio evidence EBIT sufficiency in being in a position of handling the interest organisation roles. By pursing this, ratio reduced in 2021 with evidence of sufficiency in QNCC covering interests expenses for a year.

3.3 Structure Ratios

Year End	2021	2020	2019	2018
Current ratio	0.83	0.71	0.81	0.89
Liquidity ratio	0.70	0.59	0.70	0.78
Asset cover	4.22	6.89	5.55	4.95
Gearing (%)	332.89	265.34	389.76	567.90

Table 3: QNCC structure ratios

It is evident as shown in table 3 that the organisation current ratio is higher than one in expected situations which means existence of sufficient current assets for caring current liabilities. In the past four years, the current ratio has been less than one which is an indicator of the organisation insufficient current assets for covering their current liabilities. Current assets are only able to achieve maximum of 89% of the current liabilities. Conversely, their liquidity ratios is an average of 0.7 with the significant difference evidenced in 2018 at 0.78 and 2020 at 0.59. The existence of a low liquidity ratio is an indicator of an increased possibility of the organisation encountering financial issues in a short-term basis. Considering the Gearing percentage, it is evident that the organisation has appropriately geared with the most reduced percentage gearing being 265% with the highest being 2018 567. Despite of the gearing lowering by more than from 2018. The readings are still substantially enormous noting that QNCC is still significantly dent funded complicating capacity of management efficiently owing to high-level interests which are incurred by the organisation.

3.3 Approaches of managing stakeholders expectations…..

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