Green Environment Analysis
Financial planning and financial analysis are some of the major aspects on which the entire capability of an organization depends upon. When it comes to organizations, then the name of net productivity and efficacy are some of the major things that stride under its capability and effectiveness. Increasing the shareholder’s net with the help of effective and timely decisions is an important aspect from the viewpoint of an organization and organizations always required to have effective economic decision on the basis of different information. Finance is a broad field which has the tendency and capability to analyze the effectiveness of the financials of an organization and the tools which used to assess the same. Financial analysis is one of those tools which is used for the same purpose in a market.
The main theme of this section is the continuation of the same project which is of Waste Management and Going Green. As the company is new one, hence most of the answers are on the assumption basis. We will analyze the firm from different angles, like, profitability, market share, asset management and liquidity and all of these sections are important to cover in this particular analysis. We have considered the company of Waste Management in which we are trying to save the earth by Going Green. The name of our company is Green Environment and it is a hypothetical company. The idea of the project is new as well as effective and there are certain aspects and risks which will affect the business from different viewpoints. There are two different types of risk which is associated with our project which are systematic risk and unsystematic risk. Systematic risk is the one that could not be diversified while unsystematic risk could be diversifying accordingly.
The systematic risk which we will be facing in our project is the high regulations of the government and other international governmental organizations that will use different amount of regulations on our projects and we have to comply with them accordingly and effectively at the same time. There is a need to get sufficient support from the government and central bank related to this particular stance, like government initiation to increase the financial aspect of the company would be effective for the company in future. On the other hand, there are unsystematic risks as well that associated specifically with the company which are investment concerns and high competition. The company can diversify their portfolios of products as well as investment securities by diversifying their portfolio and investing in different securities to get the desired result, while competition could be resolved by decreasing the price recognition of the company accordingly and become economically active and prosper.
Financial Ratio Analysis
There are two different parts of this particular analysis which is required in this section of the report, which is economic analysis in which different risk factors both systematic and unsystematic would have been analyzed accordingly along with the analysis of the financial capability of the company. There are number of ratios which could be used for the same purpose. Financial forecast has been done on the basis of the years from 2014 to 2018 and all of the currencies are in Arab Emirati Dirham (AED).
Every organization strives hard for profitability and maximizing the net worth of an organization. It is always required to have sufficient actions and activities from which the profitability of an organization could be enhanced accordingly and effectively at the same time. With the help of profitability analysis, organizations can get apprehension over their effectiveness in particular. There are two different ratios that used to come under the same ambit with the names of Net Profit Margin (NPM) and Gross Profit Margin (GPM) and both of these ratios are essential for the sake of an organization as far as increasing their financial capability is concerned from different slants.
Net Profit Margin (NPM)
Net profit margin is an important measurement of financials used by the analyst of an organization. It is one of the most important and widely used tools used by the organizations to analyze that how much net profit earned by a company on the basis of its net sales. Net worth and capability of an organization would have been analyzed considerably with the help of this particular ratio. The NPM of the selected company for five forecasted years is mentioned below
|Revenue in Million||Net Income in Million||NPM|
From this above mentioned analysis, it is found that the NPM of the selected company will lie in a remarkable range which can be analyzed from the above mentioned table and graph. The NPM of the selected company was 62.5% in the financial year (FY) 2014 which increased and then decreased with similar percentages of 4.17 for years 2015 and 2016 respectively. The NPM of Green Environment will increased for two consecutive years by 4.17% and 8.33% in the years 2017 and 2018 respectively showing the capability of the company to increase its financial belongings. The average NPM of the selected company is 66.67%, showing that the company has the ability to generate AED 66.67 from the net sales of AED 100.
Gross Profit Margin (GPM)
Likewise NPM, Gross Profit Margin (GPM) is yet another important ratio that comes under the ambit of profitability analysis. This particular ratio diverse that how much gross profit earned by the company on the basis of its net sales. With the help of this particular ratio, an analyst can analyze the effectiveness of managing the cost of the company accordingly. The lower the cost, the higher will be the gross profit of the company. The GPM of the selected company for the next five years is mentioned below
|Revenue in Million||Gross Income in Million||GPM|
It is clear from the above mentioned table and chart that the GPM of the selected company is quite high and effective which is an evidence that the company has the capability to increase its financial belongings accordingly and effectively at the same time. The GPM of Green Environment will be 75% of its sales in the year 2014, which increased to a level of 83.3% in the year 2015, showing an increase of 8.33% as compared to the same period of last year. An increment of 4.17% and 2.08% has been envisaged in the financial years (FY) 2017 and 2018 respectively. The average GPM of the company is 80.25% for five forecasted years, which is quite high and effective as well for the company showing that the company has the power to mitigate its direct cost and increase its financial belongings accordingly.
Asset Management of Efficiency Ratio
Asset Management Ratios also known as Efficiency Ratios are some of the effective ratios that used to analyze the capability and ability of an organization as far as managing its operational assets accordingly. The higher the asset management ratio’s amount, the higher will be the chance for the company to have high inclination towards the analysis. There are two different ratios which could be used for the same purpose, with the name of Return on Assets (ROA) and Return on Equity (ROE).
Return on Assets (ROA) Analysis
Return on Assets (ROA) is a measurement or financial tool used to assess the capability of an organization as far as managing its operational assets are concerned. It is one of the most important ratios that used to assess the profitability of an organization in terms of utilizing its assets accordingly. The computed ROA of the company is mentioned below
|Total Assets in Million||Net Income in Million||ROA|
The above analysis is showing clearly that tendency and ability of the company as far as utilizing its operational assets effectively. From the analysis, it is clear that the ROA of the selected company in the year 2014 will be 31.25% and it increased by 16.37% in the year 2015. The ROA of the company has the capability to increase accordingly each year with regular and effective percentages, like it increased by 8.14% and 13.95% respectively for years (FYs) 2017 and 2018 respectively. The average ROA of the selected company is 44.21%, which is quite high and effective and the company should grow accordingly on the basis of these high amount of ROA in particular.
Return on Equity Analysis
An analytical tool which is used to analyze how much effective and organization in terms of utilizing its net equity is known as Return on Equity (ROE). It is one of the most important tools that come under the ambit of financial analysis used by the analyst to increase their investment return. The computed ROE of Green Environment is mentioned below
|Total Equity in Million||Net Income in Million||ROE|
Table and graph mentioned above is showing the tendency of the company in terms of utilizing its equity accordingly. The ROE of the selected company was 25% in the year 2014 which increased by 8.33% in the year 2015 and then decreased by 208 basis points in the year 2016. The ROE of Green Environment increased for two consecutive years by 7.97% and 3.64% for years (FYs) 2017 and 2018 respectively which is quite high. The average ROE of the company is 34.33%, showing that the company is able to generate 34.33 AED from its net Equity amounting to 100 AED.
Liquidity Ratio Analysis
Liquidity Ratio Analysis (LRA) is one of the most important ratios that come under the ambit of Liquidity Analysis and the ratio which is used for the same purpose is Current Ratio (CR).
Current Ratio Analysis
Current Ratio is an important ratio that comes under the ambit of Liquidity Analysis. It is a ratio that used to assess the capability of an organization as far as meeting with the financial obligation is concerned. A CR of higher than 1, is an indemnity that the company has enough capability to meet with its financial obligations and promises in particular. High amount of CR is always be effective from the viewpoint of an organization.
|Current Assets in Million||Current Liabilities in Million||CR|
The analysis is clearly showing that the Current Ratio (CR) of the selected organization lies in a good and sophisticated range which could be found from the above mentioned analysis. The CR of the company will be 1:33 in the year 2014 which decreased by 8, 5 and 12 basis points in the years 2015, 2016 and 2017 respectively, but still manages to keep it on the level of 1. The average CR of Green Environment is 1:20, showing that the company has the ability and stance to meet with its current financial obligations in particular and able to meet with its short term financial promises as well. It is an important ratio that used for different purposes in an organization and usually banks would used this particular ratio to analyze the paying back stance of a company.
The ratio which used to analyze that how much active an organization as far as meeting with its long term financial obligations in particular. This particular aspect is known as Solvency Ratio. The ratio that comes under the ambit for the same analysis is Debt to Equity (D/E) ratio and it is an important ratio used for the purpose of analysis.
Debt to Equity Ratio Analysis
A ratio that is used to assess the proportion of debt in equity of a company is known as debt to equity ratio. It is one of the most important ratios used for the long term liability is concerned and it is particularly known as Solvency Ratio in particular. The provision of the same ratio is quite high and it is equally beneficial for Green Environment as well.
|Total Debt in Million||Equity in Million||D/E|
From this particular analysis, it is found that the total debt to equity of the company is perfect that les in an effective environment. The debt to equity of the company lies in the range from 0.80 to 1.02, which is quite effective in particular. This particular aspect is effective from the viewpoint of the company. The proportion of debt in the equity of the company on average is quite low which 25% is only while rest of the equity has been financed with equity which is quite high and effective. This particular aspect is showing that the level of solvency of the selected company is quite high and effective and it is one of the most important sign for the company as far as their future economic consequences is concerned and Green Environment should prolong the same.
Market Value Ratio
Investment is an important aspect from the viewpoint of an organization and no organization could be in the sake of economic prosperity and expansion without having high amount of investment associated with it. There are number of ratios that could be used for the same analysis and among them, the name of Earnings per Share (EPS) is one of them which have its own importance and recognition lies in a broad nutshell.
Earnings per Share (EPS)
According to International Accounting Standards (IAS-13), every organization is required to show the share analysis on the basis of its income statement. High EPS is always be effective from the viewpoint of an organization.
|Share Capital in Million||Equity in Million||EPS|
The earnings per share of the selected company are effective and high and it is showing that the company has the ability to increase their economic belongings with the help of effective and timely strategies in particular. The average EPS of Green Environment is 1.18 AED which is showing that the company is economically prosper and active and it would remain in the same jurisdiction for a long span of time. The market value and market tendency of the company is strong and high which leads to increase the financial and strategic prosperity of the company for a long span of time.
“Green Environment” is a non-profit organization which wants to improve the standards of waste management in Emirates. This is a newly born company and therefore it needs the support of government and other organizations. The company is a hypothetical one, which is trying to make such strategies from which they can decrease the stance of waste and manages all of such things accordingly and effectively.
Waste management is always one of the major problems for any country. In order to live a healthy life, it is necessary to keep the environment clean. It can be observed that in most of the countries, the reason behind the diseases and viral health problems is that they do not keep their environment clean. According to the report of W.H.O, one quarter of the disease are caused due to unclean environment. From the analysis, we have already found that the establishment of such waste management company could be extremely important and vital for the sake of an organization and it is equally beneficial for the company. The main theme of this part is to do two different analysis which are risk analysis and financial ratio analysis. From the analysis, it is found that Green Environment would certainly get an upper hand as far as increasing its financial aspect and keep the amount of wastage in Abu Dhabi and then the entire UAE accordingly and the government of the region should assist them in achieving their goals.