seprod ratio analysis

“MADE BY SEPROD MUST

Financial Ratio Analysis

Review Period 2007

For Tutor: Mr. Damien Francis

“MADE BY SEPROD MUST BE GOOD”


Review Period 2007-2009

Group: EBBA3bPOM/FIN


EBBA3bPOM/FIN

2 | P a g e Financial Statement Analysis 2007-2009

Project Management Report

This assignment was authored by the following members of EBBA3POM/FIN double major

group;

Names ID #

Gerron Thomas 0601486

Novlette Johnson-Williams 0703558

Rose Bachan 0704821

Lamar Hemmings 0701126

Monea Hibbert 0704459

Anna-Kaye Smith 0500866

Project Time Line

Name of Member Dates of Meetings Duration Total

hrs

Place of Meeting Assigned Task

Gerron July 19-21 16 BDO Question 4&6

Novelette July 19-21 16 BDO Question #5

Lamar July 19-21 16 BDO Question #2

Rose July 19-21 16 BDO Question #3a,b

Anna July 19-21 16 BDO Question #1

Monea July 19 4 BDO Question #3c

Members completed all task assigned on the specified dates and time duration listed. Please

see Declaration of Authorship for member confirmation of co-authoring the project.


Table of Contents

Ratio Analysis ................................................................................................................................. 4

Trend Analysis vs. Common-Size Analysis .................................................................................... 7

Company overview ......................................................................................................................... 9

Business Segments ........................................................................................................................ 10

Social Corporate Responsibilities ................................................................................................. 10

Economic Outlook......................................................................................................................... 11

DETAILED TREND ANALYSIS ................................................................................................ 13

Profitability Ratios .................................................................................................................... 15

Market Value Ratios.................................................................................................................. 20

Asset Management Ratios ......................................................................................................... 23

Debt Ratios ................................................................................................................................ 27

Liquidity Ratios ......................................................................................................................... 34

Client Profile ............................................................................................................................. 40

Findings ......................................................................................................................................... 40

Action Plan .................................................................................................................................... 41


Ratio Analysis

Purpose of Ratio Analysis

Financial Ratio analysis is a tool used to highlight the relationship between different accounting

data over different time periods across different firms of similar industries. The information that

is used in ratio analysis is derived from the company’s annual, audited financial statements.

Value of Financial Ratios

Financial Ratios are generally used to establish financial trends in a company, it is a reliable way

of making inferences about a company’s financial position, its operations and most important –

its attractiveness as an investment. Financial Ratio Analysis proves to be a valuable tool as it

attempts to analyze financial statements and extract information related to the strengths or

weakness of a firm

Classification of Ratios

Financial ratio analysis groups the ratio into several categories which provide information on the

varying facets of a company's finances and operations. An overview of some of the more

popularly used categories of ratios is given below. Additionally, ratio analysis is essentially a

comparison; one company may be compared with another to establish whether or not a company

is operating viably in its industry.

• Leverage/Debt Ratios which show the extent that debt is used in a company's capital

structure.

• Liquidity Ratios which give a picture of a company's short term financial situation or

solvency.

• Operational/Asset Management Ratios which use turnover measures to show how

efficient a company is in its operations and use of assets.

• Profitability Ratios which use margin analysis and show the return on sales and capital

employed.

• Solvency Ratios which give a picture of a company's ability to generate cash flow and

pay its financial obligations.

• Market Value Ratios which give an insight into the company’s attractiveness as an

investment in terms of the rate of return on its shares.


Limitations of Ratio Analysis

Despite the usefulness of using ratios in financial analysis, particularly for identifying a

company’s weaknesses and strengths, there are limitations to their use which typically result

from what is known as a creative accounting. Other factors are listed below.

Creative Accounting

This is the term to given to a practice of financial managers to compile or present a company’s

financial information in such a way that the ratios appear favorable. These methods range from

disguising loans as leases and repaying loans at the end of a financial period and re-borrowing

the amount in a subsequent period. These examples illustrate the manger who wants to remove

the impression that his company is heavily financed by debt, which may deter investors.

However, depending on the intent or impression that the manager wants to create, that manager

may adjust his financial information to achieve that end. Simply put, financial managers can

manipulate data which when used to arrive at a ratio, results in misleading information.

Other Limitations of Ratio Analysis

1. In a company’s first year of operation, there will be no comparative figures hence there

would be no indication of whether or not a ratio is improving.

2. Comparisons about industry averages may not be as revealing as anticipated because a

business may be affected by factors that are not common in the industry.

3. Ratios based on the historical costs of assets as opposed to the current cost may result in

distortions in the Returns of Capital Employed Ratio. Undervalued assets will distort the

ROCE and reduce the gearing ratio.

4. Ratios are influenced by the choice of accounting policy

5. Financial statements are subject to manipulation and so are the ratios based on the

manipulated statements.

6. Inflation over a period may distort results and ratios.

7. Comparative study required: Ratios are useful in judging the efficiency of the business

only when they are compared with past results of the business. However, such a

comparison only provide glimpse of the past performance and forecasts for future may

not prove correct since several other factors like market conditions, management policies,

etc. may affect the future operations.

8. Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final

regarding good or bad financial position of the business. Other things have also to be

seen.

9. Problems of price level changes: A change in price level can affect the validity of ratios

calculated for different time periods. In such a case the ratio analysis may not clearly

indicate the trend in solvency and profitability of the company. The financial statements,


therefore, be adjusted keeping in view the price level changes if a meaningful comparison

is to be made through accounting ratios.

10. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are

no well accepted standards or rule of thumb for all ratios which can be accepted as norm.

It renders interpretation of the ratios difficult.

11. Limited use of single ratios: A single ratio, usually, does not convey much of a sense.

To make a better interpretation, a number of ratios have to be calculated which is likely

to confuse the analyst than help him in making any good decision.

12. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios

have to interpreted and different people may interpret the same ratio in different way.

13. Incomparable: Not only industries differ in their nature, but also the firms of the similar

business widely differ in their size and accounting procedures etc. It makes comparison

of ratios difficult and misleading.


Trend Analysis vs. Common-Size Analysis

Definitions

Trend Analysis is a form of comparative analysis that is often employed to identify current and

future movements of an investment or group of investments. The process may involve comparing

past and current financial ratios as they relate to various institutions in order to project how long

the current trend will continue. This type of information is extremely helpful to investors who

wish to make the most from their investments.

Trend analysis usually involves choosing one fiscal period as a base period and then expressing

subsequent quantities as a percentage of the data associated with this base period. In the case of

an income statement, changes in all items could be assessed in relation to the base period.

Significant changes can then be investigated further. Note that trend analysis can be performed to

determine changes in the number of physical units as well as dollar amounts.

On the other hand, Common-size analysis (also called vertical analysis) expresses each line

item on a single year's financial statement as a percent of one line item, which is referred to as a

base amount. The base amount for the balance sheet is usually total assets (which is the same

number as total liabilities plus stockholders' equity), and for the income statement it is usually

net sales or revenues. By comparing two or more years of common-size statements, changes in

the mixture of assets, liabilities, and equity become evident. On the income statement, changes in

the mix of revenues and in the spending for different types of expenses can be identified. This

approach facilitates identifying deviations in the components of statements by focusing on

relative differences through time.

Features of Trend Analysis and Common-Size Analysis

Trend Analysis

� In the case of a trend analysis all the given years are arrange in an ascending order.

� The first year is termed as the base year and all of the base years are taken as 100%.

� Items in the subsequent years are compared with that of the base year.

� If the percentages in the following years is above 100% it indicates an increase over the

base year and if the percentages are below 100% it indicates a decrease over the base

year.

� A trend analysis gives a better picture of the overall performance of the business.

� A trend analysis helps in analyzing the financial performance over a period of time.

� A trend analysis indicates in which direction a business is moving i.e. upwards or

downwards.

� A trend analysis facilitates effective comparative study of the financial performance over

a period of time.


� For trend analysis at least three (3) years financial is essential. The broader the base the

more reliable is the data and analysis.

Common-Size Analysis

� A common size statement analysis indicates the relation of each component to the whole.

� In case of common size Income statement analysis net sales is taken as 100% and in case

of common size balance sheet analysis total funds available/total capital employed is

considered 100%.

� It is used for vertical financial analysis and comparison of two business enterprises of two

(2) years financial data.

� Absolute figures from the financial statement are difficult to compare but when converted

and expressed as percentage of net sales in case of income statement and in case of

Balance Sheet as percentage of total net assets or total funds employed it becomes

more meaningful to relate.

� A common size analysis is a type of ratio analysis where in case of income statement

sales is the denominator (base) and in case of Balance Sheet funds employed or total net

assets is the denominator (base) and all items are expressed as a relation to it.

� In case of common size statement analysis the absolute figures are converted to

proportions for the purpose of inter-firm as well as intra-firm analysis.

Limitations

Trend Analysis

� Trend analysis provides little insight into the root causes of variations.

� It fails to indicate what the entity’s normal or benchmark position is.

� It can be undermined by frequent changes in financial reporting formats.

� It can be heavily influenced by the choice of the base fiscal period.

Common Size-Analysis

As with financial statements in general, the interpretation of common size statements is subject

to many of the limitations in the accounting data used to construct them. For example:

� Different accounting policies may be used by different firms or within the same firm at

different points in time. Adjustments should be made for such differences.

� Different firms may use different accounting calendars, so the accounting periods may

not be directly comparable.


Introduction

Company overview

History

Seprod Limited was incorporated in Jamaica in July 1940 and became a public

company listed on the Jamaica Stock Exchange in 1985. Their principal activities include

manufacturing and distributing edible oils and fats, corn products and other house hold consumer

products. The company employs a direct labour force of over 370 persons, with a multiplicity of

support labor. Seprod's corporate office is located at Felix Fox Boulevard.

The Board of Directors is thirteen (13) in number and was chaired by Mr. Desmond Blades who

died on September 9, 2009 and was succeeded by Mr. P. B. Scott on October 5, 2009. Mr. Byron

Thompson is the Chief Executive Officer and Group Managing Director.

Seprod’s main subsidiaries are:-

� Caribbean Products Company Limited

� Industrial Sales Ltd

� International Biscuits Ltd

� Serge Island Dairies Ltd

� Jamaica Grain and Cereals Ltd

� Serge Island Farms Limited

� Belvedere Limited

� Golden Grove Sugar Co. Ltd

Mission Statement

PROVIDE a sufficient quantity of good quality products at reasonable prices to our

customers.

MAINTAIN a good return on investments to our shareholders.

PROVIDE our employees with reasonable remuneration and opportunities for personal

development and job satisfaction.

PERFORM the role of a good corporate citizen and contribute to the public welfare.

Competitive Landscape

The Jamaican Conglomerates and Holdings Industry of which Seprod is apart include

major competitors. Competition in the market may be classified as

Oligopolistic competition which can give rise to a wide range of different outcomes. In some

situations, the firms may employ restrictive trade practices (collusion, market sharing etc.) to


raise prices and restrict production in much the same way as a monopoly. Where there is a

formal agreement for such collusion, this is known as a cartel.

Firms in the manufacturing selling and distribution part of the conglomerates and

holdings industry, often collude in an attempt to stabilize unstable markets, so as to reduce the

risks inherent in these markets for investment and product development. There are legal

restrictions on such collusion in most countries. There does not have to be a formal agreement

for collusion to take place (although for the act to be illegal there must be actual communication

between companies)–for example, in this industries there may be an acknowledged market leader

which informally sets prices to which other producers respond, known as price leadership.

In other situations, competition between sellers in the industry can be fierce, with

relatively low prices and high production. This could lead to an efficient outcome

approaching perfect competition. The competition in an oligopoly can be greater than when there

are more firms in an industry if, for example, the firms were only regionally based and did not

compete directly with each other.

Business Segments

Seprod’s manufacturing businesses performed well during the year 2007. The biscuit

business which was added in September of 2007 made a useful contribution to the Group’s

profit. Milk production was disappointing as adverse weather conditions from Hurricane Dean

followed by a protracted period of torrential rains impacted negatively on the animals. This

resulted in a shortage of milk in the trade. All other areas performed well in terms of output,

productivity and profitability.

The distribution side which entails the merchandising of consumer’s goods continues to make

useful contribution to the Group’s profits posting improved performance over last year.

During the year 2008 Seprod’s subsidiary companies experienced mixed results depending on

the degree of vulnerability to the conditions which prevailed during the year. Overall all

companies made positive contributions to the Group’s profit.

The year 2009 brought success for Seprod as the main business segment of manufacturing and

distribution performed well. The manufacturing segments continued to record growth in bottom

line. Profit from the distribution segment increased marginally due to intense competition which

necessitated a reduction in margins as a strategy to protect market share.

Social Corporate Responsibilities

As one of Jamaica's high technology companies, Seprod strive to meet the needs of

everyone and anticipate the aspirations of their consumers and customers to respond

innovatively, creatively and competitively with the products and services which add value to

their lives, thus living up to their motto "Made by Seprod....Must be Good". Seprod seeks to

create and maintain an environment where every employee is provided the opportunity to


develop to his or her maximum potential. They are committed to honesty and integrity in all

relationships with suppliers of goods and services. They evaluate their suppliers on the basis of

quality, price and service.

Seprod's role as a good corporate citizen is underscored by its involvement in the

community, the country at large and by its support of various charities, educational activities and

civic organizations. These have included contribution to United Way of Jamaica, “Title Sponsor”

of the Primary Schools Athletic Championship, sponsors of the Jean Pierre U16 Netball

Championship 2009, hosts of a annual Scholarship Awards Function for children of employees

who were placed in high schools for the academic year 2009-2010 by way of the Grade Six

Achievement Test (GSAT), sponsorship of the Junior Achievement Programme, financial

support to charities, service clubs and assistance to schools, to name a few.

The Company recognizes community involvement as an important obligation and as a

viable business objective. Their support of worthwhile community projects in areas where they

operate generally improves the well being of the community, creating a better place for their

employees to live and a better place for them to operate.

Economic Outlook

In the year 2007 The Seprod Group invested heavily to improve the efficiency of their

production facilities. They continue to streamline their production to reduce waste with

continuous improvement to their plants and training of employees to achieve greater output and

improved productivity. They worked with their suppliers where possible to come up with new

materials that will meet their specifications and result in reduced cost. Management was

confident that these changes will help to control cost increases and to sustain an efficient

operation going forward in the year 2008.

Seprod ended the year 2008 in an uncertain economic environment due to the effects of

the global recession. This unfortunately is continuing as they are not further constrained by the

fact that they do not know when it will end nor do they know the ultimate impact on their

business. However, they are undaunted by these uncertainties. They are confident in that they

have long standing expertise and core competence in the business in which they operate. Their

team has the experience of managing in difficult times so they are employing every technique

that works during these times and they are positive that they will emerge equipped to move the

company forward in the year 2009.

The speed of the economic recovery and the likely extent remains uncertain in the year

2009, Seprod is some what cautious about the outlook in the short term. However, their

management team is equipped with the requisite experience, knowledge and skill to manage in

difficult times.


In addition, they have excellent brands which offer good value proposition to attract,

retain and even deepen relationships with customers. Therefore, they are confident good revenue

and profit will be achieved.


DETAILED TREND ANALYSIS

In an attempt to determine the feasibility of providing a loan to Seprod Ltd., The

Company was assessed via the use of various financial ratios. The various ratios highlights

strengths and weaknesses in the company’s financial position and also provide opportunities to

make comparisons with prior year’s performance and also comparisons with competitors in the

manufacturing industry.

The following ratios provided salient points relevant to the analysis of trends and

movements in financial information.

� Profitability Ratios

� Shareholders Funds/Market Value

� Asset Management/Activity Ratios

� Debt Ratios

� Liquidity Ratios

Despite the limitations of using ratios to analyze financial statements, the need still exist

to use a standard, widely accepted means of comparing data and drawing general inferences.

This however is flawed by the inability to acquire all the relevant information from the

company’s financial statement needed to calculate some ratios as due to the stipulation of

updated International Accounting Standards, some calculations and information are irrelevant to

the presentation of financial statements.


Comprehensive Ratio Report Table of Comprehensive Financial Ratio’s

Description 2007 2008 2009

Profitability

Profit Margin 16% 10% 16%

Gross Profit Margin 2% 23% 29%

Operating Profit Ratio 15% 16% 23%

Return on Capital Employed 16% 29% 37%

Return on Total Assets 16% 13% 18%

Market Value

Dividend Yield 0.02 0.03 0.04

Earnings per Share 1.96 1.82 2.86

Dividend Cover 5.6 4 4.4

Price Earnings Ratio 7 10 6

Market to Book Value 1.38 1.56 1.33

Asset Management

Debtor Turnover 11 11 9

Days Sales Outstanding 51 35 38

Creditor Turnover 13 15 11

Payment Period 29 24 32

Stock Turnover 7 7 5

Stock Period 41 54 74

Debt Ratios

Times Interest earned 24 51 89

Cash Flow Interest 17 29 68

Operating Cash Flow To Sales 0.06 0.03 0.1

Operating Cash Flow To Net Profit 0.37 0.34 0.65

Gearing 0.07 0.07 0.11

Debt Ratios 0.2 0.22 0.24

Debt to Equity 0.24 0.28 0.32

Liquidity

Current Ratio 4.22 3.88 3.78

Quick ratio 2.9 2.35 2.54

Operating Cash Flow to Current Liabilities 0.55 0.44 0.96


Presentation of Financial Ratios

Profitability Ratios

Fig 1.1 depicting Profit Margin Ratio for the years 2007-2009

Net Profit Margin Ratio

The Net Profit Margin ratio calculated by taking the company’s profit after tax as a

percentage of its sales attempts to measure the overall profitability and hence it is very useful to

company as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory

return on its investment which would be a major determinant behind the ability to secure a loan.

The firm’s Net Profit Margin ratio reflects a 6% decrease in 2008, moving from 16% in

2007 to 10% in 2008. In 2009 however sales increased marginally by a similar 6%. The decrease

in the net profit margin percentage was possibly due to a greater percentage change between

2007-2008 in expense with respects to increases in sales. The increase in 2009 could also be as a

result of the marginal increase in sales mirrored with a slight decrease in expenses thus

improving the company’s profit after tax. Despite just a marginal 6% increase in the Net Profit

margin Ratio, Seprod in comparison to other manufacturing companies listed on the Jamaica

Stock Exchange has enjoyed satisfactory returns on investment after clawing through a rigid

period of macro-economic situations such as the recession and implementation of the Jamaica

Debt Exchange.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2007 2008 2009

Profit Margin

2007

2008

2009

Financial Statement Analysis 2007

Fig 1.2 depicting Gross Profit Margin Ratio for the years 2007

Gross Profit Margin Ratio

The Gross Profit Margin ratio remained at a constant 23% in 2007 and 2008. There was

however an upward trend where the ratio showed a slight increase to 29% in 2009.

margin average of 25% means that for each dollar of sales that Seprod generates it is contributing

25cents to its net income. This tie

pricing strategy which is evident in both the Gross Profit and Net

cutthroat pricing industries such as manufacturing you would expect the profit margin much

lower because of the heavy competition. We can interpret that Seprod either has exceptional

products which loyal customers are willing to p

resources and the threat of entry in the unique areas of manufacturing Seprod has created the

opportunities to achieve above average returns

0%

5%

10%

15%

20%

25%

30%

2007 2008

Gross Profit Margin

Financial Statement Analysis 2007-2009

s Profit Margin Ratio for the years 2007-2009


however an upward trend where the ratio showed a slight increase to 29% in 2009.

average of 25% means that for each dollar of sales that Seprod generates it is contributing

ties in with gross profit margin, Seprod presumably has a healthy

pricing strategy which is evident in both the Gross Profit and Net Profit Margin ratios. In



products which loyal customers are willing to pay for, or due to economies of scale, scarce


opportunities to achieve above average returns

2008 2009

Gross Profit Margin

2007

2008

2009

16 | P a g e


however an upward trend where the ratio showed a slight increase to 29% in 2009. A profit

average of 25% means that for each dollar of sales that Seprod generates it is contributing

in with gross profit margin, Seprod presumably has a healthy

Profit Margin ratios. In



ay for, or due to economies of scale, scarce



Fig 1.3 depicting Operating Profit Ratio for years 2007

Operating Profit Ratio

To further determine the companies

efficiency, the Operating Profit Ratio which is the companies pre

expressed as a percentage of sales,

revenue is left over after paying for variable costs of production such as wages, raw materials,

depreciation and other administrative/selling&distribution expenses. A healthy operating margin

is required for a company to be ab

This ratio is very essential in determining Seprod’s opportunity in an attempt to secure a

loan. The companies Operating Profit Ratio saw an upward trend from 2007 where it was 15% or

$0.15 before interest and taxes for every dollar of sales. In 2008 these figures increased marginal

by 1% to 16% but then took a 44% increase to 23% or $0.23 for every dollar of sales before

interest and taxes are computed. This proves significant as the net profit marg

by taxes and various interest expenses which might deter the true profitability potential of the

company. Thus the operating profit ratio shows the firms true ability to earn from the resources

employed.

0%

5%

10%

15%

20%

25%

2007 2008



Fig 1.3 depicting Operating Profit Ratio for years 2007-2009

To further determine the companies effective use of a pricing strategy and operating

efficiency, the Operating Profit Ratio which is the companies pre-tax and finance cost profit

expressed as a percentage of sales, it is a measurement of what proportion of a company's



is required for a company to be able to pay for its fixed costs, such as interest on debt.


Profit Ratio saw an upward trend from 2007 where it was 15% or

nterest and taxes for every dollar of sales. In 2008 these figures increased marginal


interest and taxes are computed. This proves significant as the net profit margin ratio is affected


Thus the operating profit ratio shows the firms true ability to earn from the resources

2008 2009


2007

2008

2009

17 | P a g e

pricing strategy and operating

tax and finance cost profit

at proportion of a company's



le to pay for its fixed costs, such as interest on debt.


Profit Ratio saw an upward trend from 2007 where it was 15% or

nterest and taxes for every dollar of sales. In 2008 these figures increased marginal


in ratio is affected


Thus the operating profit ratio shows the firms true ability to earn from the resources


Fig 1.4 depicting Return on Capital Employed for years 2007

Return on Capital Employed

The return on capital employed (ROCE) ratio, expressed as a percentage

company's ability to generate returns from its available capital base.

the sum of a company's debt and equity capital, we

impacts a company's profitability.

indicator because it gauges management's ability to generate earnings from a co

pool of capital.

Seprod’s ROCE ratio reflects a general upward trend between the years 2007

2007 the companies ROCE was 16%, which when compared to 2 other companies classified as

manufacturing companies listed on the Jamaica Stock

Salada foods who showed an average of 11% for TCC and 14% for Salada foods, can be

classified as above industry average. The net income generated from capital employed in 2008

showed a percentage change of 81% moving s

the percentage change was reduced, reflecting a 28% change moving from 29% to 37%. The

significant increases in the company’s ROCE are assumable as a result of the implementation of

tight controls subsequently reducing expense thus increasing the net profit in 2008 and 2009.

0% 10%

2007

2008

2009



apital Employed for years 2007-2009

return on capital employed (ROCE) ratio, expressed as a percentage

company's ability to generate returns from its available capital base. By comparing net income to

bt and equity capital, we get a clear picture of how the use of leverage

ofitability. ROCE measurement is a more comprehensive profitability

indicator because it gauges management's ability to generate earnings from a co

Seprod’s ROCE ratio reflects a general upward trend between the years 2007


manufacturing companies listed on the Jamaica Stock Exchange, Trinidad Cement Company and



showed a percentage change of 81% moving significantly from 16% to 29%. In 2009 however



reducing expense thus increasing the net profit in 2008 and 2009.

20% 30% 40%


2007

2008

2009

18 | P a g e

return on capital employed (ROCE) ratio, expressed as a percentage, measure the

By comparing net income to

get a clear picture of how the use of leverage

a more comprehensive profitability

indicator because it gauges management's ability to generate earnings from a company's total

Seprod’s ROCE ratio reflects a general upward trend between the years 2007-2009. In


Exchange, Trinidad Cement Company and



ignificantly from 16% to 29%. In 2009 however



reducing expense thus increasing the net profit in 2008 and 2009.


Fig 1.5 depicting Return on Total Assets for years 2007

Return on Assets

An indicator of how profitable a company is relative to its total assets is the

gives an idea as to how efficient

calculated by dividing a company's annual earnings by its total assets

Seprod’s ROA shows a fluctuated movement between the 3 years. In 2007 the ROA was

16%, decrease by 3% to 13% in 2008 then making a marginal increase to 18% in 2009. The

decrease in the firms ROA was of significant importance and could be highly contributed by the

reduction of profits in 2008 as a result of macro

increase in the net profit and a marginal increase in the total investment reflected recovery for

Seprod as the ROA displayed a percentage change of 38%.

0% 5% 10%

2007

2008

2009

Return on Total Assets


Fig 1.5 depicting Return on Total Assets for years 2007-2009

An indicator of how profitable a company is relative to its total assets is the

o how efficient management is at using its assets to generate earnings.

calculated by dividing a company's annual earnings by its total assets.


13% in 2008 then making a marginal increase to 18% in 2009. The


reduction of profits in 2008 as a result of macro-economic factors such as the global recession.


Seprod as the ROA displayed a percentage change of 38%.

10% 15% 20%

Return on Total Assets

2007

2008

2009

19 | P a g e

An indicator of how profitable a company is relative to its total assets is the ROA which

at using its assets to generate earnings. It is


13% in 2008 then making a marginal increase to 18% in 2009. The


economic factors such as the global recession. A



Market Value Ratios

Figure 1.6 depicting Dividend Yield for the years 2007

Dividend Yield Ratio

Seprod Ltd. Dividend Yield Ratio reflected a normal yield curve which highlights a trend

of consistent increases in the dividend the company pays out each year relative to its share price.

Seprod’s Dividend Yield ratio increased by 1% each year

2008 to 4% in 2009.

Figure 1.7 depicting Earnings Per Share for years 2007

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

0.045

2007

Dividend Yield

0

0.5

1

1.5

2

2.5

3

3.5

2007

Earnings per Share


Figure 1.6 depicting Dividend Yield for the years 2007-2009



Seprod’s Dividend Yield ratio increased by 1% each year, moving from 2% in 2007 to 3% in

Figure 1.7 depicting Earnings Per Share for years 2007-2009

2008 2009

Dividend Yield

2007

2008

2009

2008 2009

Earnings per Share

2007

2008

2009

20 | P a g e



, moving from 2% in 2007 to 3% in


Earnings per Share

The earnings per share is another measure of profitability and when compared with EPS

of similar companies, it gives a view of the comparative earnings or earnings power of the firm.

EPS ratio calculated for a number of years indicates whether or not the earning power of the

company has increased. The EPS again affected by the economic conditions in 2008 fell from

$1.96 in 2007 to $1.82 then made a significant increase moving up to $2.86 in 2009. An Earning

per share is generally considered to be the single most important variable in determining a share's

price. It is also a major component used to calculate the price-to-earnings valuation ratio. In the

manufacturing industry Seprod boast one of the highest EPS and is a major determinant in the

market price of Seprod’s share.

Fig 1.8 depicting Dividend Cover for years 2007-2009

Dividend Cover

The dividend cover ratio tells us how easily a business can pay its dividend from profits.

In 2007 the firm was able to pay its dividend 5.6 times. This was as a result of the significant

portion of the ratio been covered by a net profit figure 5.6 times the ordinary dividend reported in

the firm’s financials. The reduction in the firms net profit and an increase in the firms ordinary

dividend reduced the dividend cover to 4 times in 2008 and was marginally increased in 2009 by

.4 times. Improvements in the firms net profit figure in 2009 also boosted the dividend cover 4.4

times.

0

1

2

3

4

5

6

2007 2008 2009

Dividend Cover

2007

2008

2009


Fig 1.8 depicting Price Earnings Ratio for years 2007

Price Earnings Ratio

P/E ratio is the ratio of a company's share price to its per

ratio 7 in 2007 suggests that investors in the stock are willing to pay $6 for every $1 of earnings

that the company generates. This figure grew to $10 in 2008 but fe

Fig 1.9 depicting Market to Book Value ratio for years 2007

0 2 4

2007

2008

2009


1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

20072008

Market to Book Value


Price Earnings Ratio for years 2007-2009

P/E ratio is the ratio of a company's share price to its per-share earnings. Seprod’s P/E


that the company generates. This figure grew to $10 in 2008 but fell to 7 in 2009.

Fig 1.9 depicting Market to Book Value ratio for years 2007-2009

6 8 10


2007

2008

2009

20082009


2007

2008

2009

22 | P a g e

share earnings. Seprod’s P/E


ll to 7 in 2009.



Seprod’s Market-to-Book Value Ratio, reflects the ratio of the current

book value per share. It measures how much the company is

with the amount of capital invested by current and past shareholders into it. Seprod Market to

Book Value ratio since 2007 as also fluctuated moving from 1.38 in 2007 to 1.56 in 2008 and

then 1.33 in 2009.

Asset Management Ratios

Fig 2.0 depicting Debtor Turnover Ratio for years 2007

Debtors Turnover ratio

Seprod’s Debtors Turnover Ratio

simple words it indicates the number of times average debtors (receivable)

a year. The preferred formula to calculate this ratio is the net credit sales divided by the average

debtors. The information for credit sales as however been excluded from the annual statements

for Seprod so we opted to use the sal

management of debtors was more efficient in 2008 and 2009 than in 2007 as the debtors turnover

ratio reflects that debtors were turnover 8 times in 2007 and remained a constant 9 times between

2008 and 2009.

7.4

7.6

7.8

8

8.2

8.4

8.6

8.8

9

9.2

2007

Debtor Turnover


Book Value Ratio, reflects the ratio of the current share price

book value per share. It measures how much the company is worth at present, in comparison



Fig 2.0 depicting Debtor Turnover Ratio for years 2007-2009

Turnover Ratio indicates the velocity of debt collection

simple words it indicates the number of times average debtors (receivable) are turned over during



for Seprod so we opted to use the sales over the debtors assuming all sales were on credit. The



2008 2009

Debtor Turnover

2007

2008

2009

23 | P a g e

share price to the

worth at present, in comparison



debt collection of the firm. In

are turned over during



es over the debtors assuming all sales were on credit. The




Figure 2.1 depicting Day Sales Outstanding for year 2007

Day Sales Outstanding Ratio

The Day Sales Outstanding ratio represents the average number of days for which a firm

has to wait before its debtors are converted into cash. As previou

Management Ratios are derived from the assumption that all sales and purchases are on credit

thus quantifying the figures used from the Annual Statement. The DSO for 2007 was 51days,

2008 35 days and 2009 38 days. Measuring the qual

could assume that management was too liberal and inefficient in credit collection as he took

almost 2 months for the debtors to be turned over. The subsequent years however efficiency

increased once again attributed to tight control policies.

0 10 20

2007

2008

2009

Days Sales Outstanding


Figure 2.1 depicting Day Sales Outstanding for year 2007-2009


has to wait before its debtors are converted into cash. As previously explained the Asset

derived from the assumption that all sales and purchases are on credit


2008 35 days and 2009 38 days. Measuring the quality of debtors in 2007 to 2009 and 2009 we



ed to tight control policies.

30 40 50 60

Days Sales Outstanding

2007

2008

2009

24 | P a g e


sly explained the Asset

derived from the assumption that all sales and purchases are on credit


ity of debtors in 2007 to 2009 and 2009 we




Fig 2.2 depicting Creditors Turnover for years 2007

Creditors Turnover Ratio

Seprod’s Creditors Turnover Ratio

simple words it indicates the number of t

a year. Creditors Turnover trend also showed fluctuations where creditor’s turnover period was

on an average 13 times. 2008 amassed for the highest total of 15 times, 2007 13 and 2009, 11

times.

0

2

4

6

8

10

12

14

16

2007 2008

Creditor Turnover

0

5

10

15

20

25

30

35

2007 2008

Payment Period


Fig 2.2 depicting Creditors Turnover for years 2007-2009

Turnover Ratio indicates the velocity of credit payment

simple words it indicates the number of times average creditors (payables) are turned over during

Creditors Turnover trend also showed fluctuations where creditor’s turnover period was


2008 2009

Creditor Turnover

2007

2008

2009

2008 2009

Payment Period

2007

2008

2009

25 | P a g e

credit payment of the firm. In

) are turned over during

Creditors Turnover trend also showed fluctuations where creditor’s turnover period was



Fig 2.3 depicting Payment Period Ratio for years 2007

Payment Period (Days)

The creditor’s turnover ratio represents the number of days

creditors with relation to inventory purchases

longer time period than 2008 which was approximately 24 days coming from an average 29 days

in 2007. This situation enhances the cr

business is taking the full advantage of credit facilities allowed by the creditors.

Fig 2.4 depicting Stock Period Turnover Ratio for year 2007

Stock Turnover Ratio

Seprod’s Stock Turnover Ratio

over during the review period and evaluates the efficiency with which a firm is able to manage

its inventory. This ratio indicates whether

Stock Turnover Ratio for Seprod reflects that stock was turned over a constant

2007 and 2008. However an increase in the average stock met with a decrease in cost of sales in

2009 reduced the ratio to 5 times. The reduction in the ratio in 2009 could imply over investment

in inventories or stock accumulation in relati

contributed via the acquisition of subsidiaries.

0

10

20

30

40

50

60

70

80

2007 2008

Stock Period


.3 depicting Payment Period Ratio for years 2007-2009

ratio represents the number of days taken by the firm to pay its

with relation to inventory purchases. In 2009 Seprod took 34 days to pay its creditors a


This situation enhances the credit worthiness of the company and also shows that the

the full advantage of credit facilities allowed by the creditors.

Fig 2.4 depicting Stock Period Turnover Ratio for year 2007-2009

Seprod’s Stock Turnover Ratio indicates the number of time the stock has been turned

eview period and evaluates the efficiency with which a firm is able to manage

its inventory. This ratio indicates whether investment in stock is within proper limit or not. The

Stock Turnover Ratio for Seprod reflects that stock was turned over a constant



in inventories or stock accumulation in relation to total investment. This could possibly be

contributed via the acquisition of subsidiaries.

2008 2009

Stock Period

2007

2008

2009

26 | P a g e

by the firm to pay its

In 2009 Seprod took 34 days to pay its creditors a


also shows that the

indicates the number of time the stock has been turned

eview period and evaluates the efficiency with which a firm is able to manage

is within proper limit or not. The

Stock Turnover Ratio for Seprod reflects that stock was turned over a constant 7 times between



on to total investment. This could possibly be


Fig 2.5 depicting Stock Turnover Ratio for year 2007

Stock Period Ratio

This ratio reflects how long stock has been held or how quickly stock has been

2007 the stock period ratio was 41 days starting an upward trend moving to 54 days in 2008 and

74 days in 2009.

Debt Ratios

Fig 2.6 depicting Times Interest Earned

0

1

2

3

4

5

6

7

8

2007

turn

ov

er

tim

es

Stock Turnover

0

10

20

30

40

50

60

70

80

90

2007 2008

Times Interest earned


Fig 2.5 depicting Stock Turnover Ratio for year 2007-2009

This ratio reflects how long stock has been held or how quickly stock has been


Fig 2.6 depicting Times Interest Earned ratio for years 2007-2009

2008 2009

year

Stock Turnover

2007

2008

2009

2008 2009

Times Interest

earned, 89

times

Times Interest earned

2007

2008

2009

27 | P a g e

This ratio reflects how long stock has been held or how quickly stock has been turned over. In



Times Interest Earned

Seprod’s TIE ratio shows

2008 then a significant increase to 89 times in 2009. This was as a result of constant increases in

the operating profit of the firm and also marginal decreases in total fixed interest payments. T

Times Interest Earned ratio is very important from us the lender's point of view. It indicates the

number of times interest is covered by the profits available to pay interest charges. It is an index

of the financial strength of Seprod. Seprod’s increas

and periodical interest income.

Fig 2.7 depicting Cash Flow Interest ratio for years 2007

Cash Flow Interest

This ratio indicates the cash actually available to meet interest charges. In 2007, for every

1$ of interest there was $17 worth of cash to cover that interest charge. This figure increased in

2008 to 29 and a further 134% change in 2009 up to 64. The upwa

once again the massive increase in cash flow gained from operating activities.

17

0

10

20

30

40

50

60

70

80

2007

Cash Flow Interest


Seprod’s TIE ratio shows an upward trend moving from 24 times in 2007 to 51 times in


the operating profit of the firm and also marginal decreases in total fixed interest payments. T

is very important from us the lender's point of view. It indicates the


of the financial strength of Seprod. Seprod’s increasing TIE ratio assures the lenders a regular

Fig 2.7 depicting Cash Flow Interest ratio for years 2007-2009



2008 to 29 and a further 134% change in 2009 up to 64. The upward trend of this ratio signified

once again the massive increase in cash flow gained from operating activities.

29

68 times

2008 2009

Cash Flow Interest

2007

2008

2009

28 | P a g e

an upward trend moving from 24 times in 2007 to 51 times in


the operating profit of the firm and also marginal decreases in total fixed interest payments. The

is very important from us the lender's point of view. It indicates the


ratio assures the lenders a regular



rd trend of this ratio signified


Fig 2.8 depicting Operating Cash Flow to Sales ratio for year 2007

Operating Cash Flow to Sales

This ratio compares Seprod’s operating

investors and creditors an idea of the company's ability to turn sales into cash.

flow to Sales ratio reflected a slight consistency where in 2007, Cash Flow from Operating

Activities represented 6% of Sales, in 2008 this figure declined to 3% which could be possibly

attributed to an increase in credit sales/receivables or a drastic drive towards reducing the

creditors figures. In 2009 however there was a 202% change between the operating cas

figures from 2008, this change spiraled the ratio to a 10% standpoint in 2009.

worrisome to see Seprod’s sales grow without a parallel growth in operating cash flow

evident sales has been increasing constantly

of sale and/or the collection experience of its accounts receivable

0% 2% 4%

2007

2008

2009

Operating Cash Flow To Sales


Fig 2.8 depicting Operating Cash Flow to Sales ratio for year 2007-2009

This ratio compares Seprod’s operating cash flow to its net sales or revenues, which gives

investors and creditors an idea of the company's ability to turn sales into cash.


ented 6% of Sales, in 2008 this figure declined to 3% which could be possibly


creditors figures. In 2009 however there was a 202% change between the operating cas

figures from 2008, this change spiraled the ratio to a 10% standpoint in 2009.

sales grow without a parallel growth in operating cash flow

evident sales has been increasing constantly. Positive and negative changes the

of sale and/or the collection experience of its accounts receivable has shown up in this indicator.

Operating Cash

Flow To

Sales, Ratio

0.1:1

6% 8% 10% 12%

Ratio

Operating Cash Flow To Sales

2007

2008

2009

29 | P a g e

or revenues, which gives

investors and creditors an idea of the company's ability to turn sales into cash. Seprod’s Cash


ented 6% of Sales, in 2008 this figure declined to 3% which could be possibly


creditors figures. In 2009 however there was a 202% change between the operating cash flow

figures from 2008, this change spiraled the ratio to a 10% standpoint in 2009. It would be

sales grow without a parallel growth in operating cash flow and as

company's terms

up in this indicator.


Fig 2.9 depicting Operating Cash Flow to Net Profit ratio for year 2007

Operating Cash Flow to Net Profit

To measure the amount of cash flow generated from reported profits the operating cash

flow to net profit ratio is used. This ratio is significant as it attempts to derive cash figures

separate from other related income items. In 2008 a decline in this ratio was a str

possibly cash flow problems. The 2007 Cash Flow to net Profit ratio reported that 37% of Net

Profit was attributable to Operating Cash Flow. This figure declined to marginally to 34% but

realized an over 100% increase to 65%.

0% 20% 40%

2007

2008

2009

Operating Cash Flow To Net Profit


Fig 2.9 depicting Operating Cash Flow to Net Profit ratio for year 2007-2009

Operating Cash Flow to Net Profit

the amount of cash flow generated from reported profits the operating cash


separate from other related income items. In 2008 a decline in this ratio was a str



realized an over 100% increase to 65%.

40% 60% 80%

Operating Cash

Flow To Net

Profit, 0.65:1

Operating Cash Flow To Net Profit

2007

2008

2009

30 | P a g e

the amount of cash flow generated from reported profits the operating cash


separate from other related income items. In 2008 a decline in this ratio was a strong indicator of




Fig 3.0 depicting level of Gearing for years 2007

Gearing Ratio

In an attempt to measure the proportion of Seprod’s total capital that has been borrowed

or to demonstrate the degree to which Seprod’s activities are funded by owner's funds versus

creditor's funds we utilize a gearing ratio which is a measure of the firm’s financial leverage.

Seprod’s gearing ratio showed a constant trend of 0.07:1 in the years 2007 and 2008. The figure

had a marginal increase to .11:1 in 2009. To assess the effecti

make a comparison to 3 companies classified under the manufacturing section on the Jamaica

Stock Exchange. Jamaica Broilers gearing ratio for 2009 was 1.2:1 and in 2008 1.32:1, Salada

Foods showed an average gearing ratio

Limited gearing ratio was 1.1:1 for 2009, 1.3:1 for 2008. Using these three companies assessing

the 2009 period the average gearing ratio for 2009 is .9:1. Therefore despite the slight increase in

Seprod’s Gearing Ratio which would’ve indicated an increased level of risk, we can assume that

Seprod’s is adopting a low gearing ratio with respects to a sample chosen from the

manufacturing industry.

0

0.02

0.04

0.06

0.08

0.1

0.12

2007 2008

Gearing


depicting level of Gearing for years 2007-2009


demonstrate the degree to which Seprod’s activities are funded by owner's funds versus

we utilize a gearing ratio which is a measure of the firm’s financial leverage.


had a marginal increase to .11:1 in 2009. To assess the effectiveness of Seprods gearing ratio we



Foods showed an average gearing ratio .5:1 for the years 2008 and 2009, Trinidad Cement



Gearing Ratio which would’ve indicated an increased level of risk, we can assume that


2008 2009

Gearing Ratio

, 0.11:1

Gearing

2007

2008

2009

31 | P a g e


demonstrate the degree to which Seprod’s activities are funded by owner's funds versus

we utilize a gearing ratio which is a measure of the firm’s financial leverage.


veness of Seprods gearing ratio we



.5:1 for the years 2008 and 2009, Trinidad Cement



Gearing Ratio which would’ve indicated an increased level of risk, we can assume that



Fig 3.1 depicting Total Debt Ratio for years 2007

Total Debt Ratio

To determine the proportion of debt Seprod has relative to their assets. This is another

measure that gives an idea to the leverage of the company along with the potential risks the

company faces in terms of its debt

period 2007-2009 of 0.22:1 which implies that for every 1 asset it is financed by 0.22 worth of

debt and 0.78 worth of equity. Making another comparison to the industry using the 3 previous

companies as examples the manufac

means Seprod in comparison to other company has been successful in managing their debts.

0 0.05 0.1

2007

2008

2009

Debt Ratios

2007


depicting Total Debt Ratio for years 2007-2009


gives an idea to the leverage of the company along with the potential risks the

company faces in terms of its debt-load. Seprod reflects an average debt ratio over the review

2009 of 0.22:1 which implies that for every 1 asset it is financed by 0.22 worth of


companies as examples the manufacturing industry average debt ratio is 0.44:1 which therefore


0.1 0.15 0.2 0.25

Debt

Ratio, 0.24:1

Debt Ratios

2007 2008 2009

32 | P a g e


gives an idea to the leverage of the company along with the potential risks the

erage debt ratio over the review

2009 of 0.22:1 which implies that for every 1 asset it is financed by 0.22 worth of


turing industry average debt ratio is 0.44:1 which therefore



Fig 3.2 depicting Debt to Equity for years 2007-2009

Total Debt to Equity

The Debt to equity ratio indicates the proportionate claims of owners and the outsiders

against the firms’ assets. The purpose is to get an idea of the cushion available to outsiders on the

liquidation of the firm. Seprod boast in 2007 a debt to equity ratio of 0.24:1, 2008 .28:1 and 2009

.32:1. As is evident the ratio has increased over the past few years and can be assumable a

situation in which management is attempting to incorporate more debt in the financing of the

business. If the debt used to finance increased operations makes advances, the company could

potentially generate more earnings than it would have without this outside financing. If this were

to increase earnings by a greater amount than the debt cost (interest), then the shareholders

benefit as more earnings are being spread among the same amount of shareholders.

Debt to

Equity, 0.24:1

Debt to

Equity, 0.28:1

Debt to

Equity, 0.32:1

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

2007 2008 2009

Debt to Equity

2007 2008 2009


Liquidity Ratios

Fig3.3 depicting Current Ratio for years 2007

Current Ratio

This ratio is a general and quick measure of liquidity of a firm. It represents the

safety or cushion available to the creditors. It is an index of the firm’s financial stability. Seprod

boast a relatively high current ratio which is an indication that the firm is liquid and has the

ability to pay its current obligations in time

ratio was 4.22:1 which posits that the company’s current assets where almost 4 times the amount

of current liabilities. This figure decreased marginally in the subsequent years to 3.88:1 in 2008

and 3.78:1 in 2009. A decrease in the current ratio represents that there could’ve been a

deterioration in the liquidity position of the firm which was possible as the inventory figure in

the current liabilities had a large percentage change over the review period.

3.5

3.6

3.7

3.8

3.9

4

4.1

4.2

4.3

2007 2008

Current Ratio


Fig3.3 depicting Current Ratio for years 2007-2009

This ratio is a general and quick measure of liquidity of a firm. It represents the



ability to pay its current obligations in time and when they become due. In 2007 Seprod’s current



1 in 2009. A decrease in the current ratio represents that there could’ve been a


the current liabilities had a large percentage change over the review period.

2008 2009

Current

Ratio, 3.78:1

Current Ratio

2007

2008

2009

34 | P a g e

This ratio is a general and quick measure of liquidity of a firm. It represents the margin of



and when they become due. In 2007 Seprod’s current



1 in 2009. A decrease in the current ratio represents that there could’ve been a



Fig3.4 depicting Quick Ratio for years 2007

Acid Test Ratio

In order to get a more precise test of the firms liquidity position the exclusion of

inventories from the liquidity ratio which will result in the formulation of the acid test ratio must

be considered. The acid test ratio still identified Seprod position as highly liquid as the ratio in

2007 was 2.90:1 which ultimately states liquid current assets were almost 3 times greater than

current liabilities. This figure trended downwards in 2008 t

2009 to 2.54:1. The significance of the exclusion of the inventories from the test of liquidity is

evident as the acid test ratios were reduced drastically. Hence inventories represented a large

portion of Seprod’s current asset. This if not monitored properly could run the firm into liquidity

problems as the inventories can be considered the least liquid of the current assets.

0 0.5 1

2007

2008

2009

Quick ratio


Fig3.4 depicting Quick Ratio for years 2007-2009





current liabilities. This figure trended downwards in 2008 to 2.35:1 but increased marginally in



ent asset. This if not monitored properly could run the firm into liquidity


1.5 2 2.5 3

Quick ratio

2007

2008

2009

35 | P a g e





o 2.35:1 but increased marginally in



ent asset. This if not monitored properly could run the firm into liquidity



Fig3.5 depicting Operating Cash Flow to Current Liabilities Ratio for years 2007

Operating Cash Flow to Current Liabilities

In order to measure how well current liabilities are being covered by the cash flow

generated from a company's operations, the operating cash flow ratio provides an opportunity for

us to investigate how has the cash fl

settling short term debt obligations. The operating cash flow ratio can gauge a company's

liquidity in the short term. Using cash flow as opposed to income is sometimes a better

indication of liquidity simply because, as we know,

Seprod’s operating cash flow to current liabilities ratio in 2007 was 0.55:1 or for every $1 of

short term debt the company has raised $0.55 of cash flow from operating activities.

ratio reduced to 0.44:1 but then increased to 0.96:1

the increase in the firms operating profits in 2009 which also

flow from operating activities.

0

0.2

0.4

0.6

0.8

1

1.2

0 0.5 1 1.5

Operating Cash Flow to Current

Liabilities


Fig3.5 depicting Operating Cash Flow to Current Liabilities Ratio for years 2007

ting Cash Flow to Current Liabilities



us to investigate how has the cash flow generated from operating activities has been used in



y simply because, as we know, cash is how bills are normally paid off.


short term debt the company has raised $0.55 of cash flow from operating activities.

ratio reduced to 0.44:1 but then increased to 0.96:1 in 2009. This increase could be as a result of

the increase in the firms operating profits in 2009 which also affected an increase in the net cash

Operating Cash

Flow to Current

Liabilities, 0.96:

1

1.5 2 2.5 3 3.5

Operating Cash Flow to Current

Liabilities

1

2

3

36 | P a g e

Fig3.5 depicting Operating Cash Flow to Current Liabilities Ratio for years 2007-2009



ow generated from operating activities has been used in



cash is how bills are normally paid off.


short term debt the company has raised $0.55 of cash flow from operating activities. In 2008 the

This increase could be as a result of

an increase in the net cash


Common Size Analysis Income Statement and Balance Sheet

PERIOD 2009 2008 2007 2009 2008 2007

Amount Amount Amount

000 000 000

Current Assets

Inventories

1,427,412

1,333,459

794,994 15.45 17.76 12.17

Biological Assets

213,270 - - 2.31 0.00 0.00

Receivables

1,021,887

981,999

813,551 11.06 13.08 12.50

Available-for-sale-investments

997,781

403,599

172,637 10.80 5.38 2.64

Current Portion of Long Term

Receviable

414,603

264,185

245,715 4.49 3.52 3.76

Taxation Recoverable

16,990

16,351

16,351 0.18 6.56 0.25

Cash & Bank

275,402

380,186

489,793 2.98 5.06 7.50

Total Current Assets

4,367,345

3,379,779

2,533,041 47.28 51.36 38.78

Non-Current Assets

Fixed Assets

2,580,809

2,128,771

1,866,885 27.94 28.35 28.58

Intangible Assets

44,679

52,019

59,360 0.50 6.81 0.91

Available-for-sale-investments

1,243,086

684,840

741,271 13.50 15.05 11.35

Investment in Associates - - - 0.00 0.00 0.00

Long Term Recivables

828,708

1,116,357

1,211,579 8.97 0.00 18.55

Retirement Benefits Assets

21,300

15,900

24,100 0.23 4.34 0.37

Biological Assets

149,933

129,565

95,630 1.62 38.64 1.46

Deferred Tax Assets

370

606 649 0.00 1.02 0.01

Total Fixed Assets

4,868,885

4,128,058

3,999,474 52.72 54.98 61.22

Total Assets

9,236,230

7,507,837

6,532,515 100.00 100.00 100.00

Liabilities & Stockholders Equity

Current Liabilities

Payables

681,568

515,926

426,754 7.38 6.87 6.53

Current Portion of Long Term

Receviable

165,135

106,231

91,618 1.79 1.41 1.40

Taxation Payable

309,458

249,333

81,167 3.35 3.32 1.24

Bank Overdraft - - - 0.00 0.00 0.00

Total Current Liabilities

1,156,161

871,490

599,539 12.52 11.61 9.18


Equity

Share Capital

561,287

561,287

561,287 6.08 7.48 8.59

Capital Reserve

720,575

764,021

849,264 7.80 10.18 13.00

Retained Earnings

5,696,919

4,550,042

3,844,996 61.68 60.60 58.86

Non Controlling Interest

7,571 - - 0.08 0.00 0.00

Non-Current Liabilities 0.00 0.00 0.00

Long Term Recivables

633,255

366,302

410,094 6.86 4.88 6.28

Deferred Tax Assets

394,262

335,295

212,735 4.27 4.47 3.26

Retirement Benefits Obligations

66,200

59,400

54,600 0.72 0.79 0.84

Total

8,080,069

6,636,347

5,932,976 87.48 88.39 90.82

Total Equity & Liabilities

9,236,230

7,507,837

6,532,515 100.00 100.00 100.00

Income Statement

Revenue

9,495,060

9,257,660

6,189,984 100.00 100.00 100.00

Cost of Goods Sold

(6,744,696)

(7,158,157)

(4,752,099) -71.03 -77.32 -76.77

Gross Profit

2,750,364

2,099,503

1,437,885 28.97 22.68 23.23

Finance & Other Operating Income

756,239

520,064

409,072 7.96 5.62 6.61

Selling Eexpenses

(241,335)

(243,547)

(196,770) -2.54 -2.63 -3.18

Administrative Expense

(1,019,715)

(874,836)

(679,864) -10.74 -9.45 -10.98

Other Operating Expense

(34,771)

(36,926)

(37,318) -0.37 -0.40 -0.60

Operating Profit

2,210,782

1,464,258

933,005 23.28 15.82 0.15

Finance Cost

(24,881)

(28,796)

(38,596) -0.26 -0.31 -0.62

Negative Goodwill - -

138,048 0.00 0.00 2.23

Share of Results of Associates - -

202,612 0.00 0.00 3.27

Profit Before Taxation

2,185,901

1,435,462

1,235,069 0.23 0.00 19.95

Taxation

(699,964)

(497,259)

(222,060) -7.37 -5.37 -3.59

Net Profit

1,485,937.00

938,203.00

1,013,009.00 15.65 10.13 16.37


STENO COMMERCIAL BANK FINAL REPORT AND

ASSESSMENT

for SEPROD LTD.

Seprod Ltd

3 Felix Fox Boulevard

Kingston

Jamaica. W.I

Telephone: (876) 922-1220

Fax: (876) 922-6948

Submitted by:

Gerron Thomas, Novelette Johnson-Williams, Rose Bachan, Lamar Hemmings, Anna-

Kaye Smith, Monea Hibbert.

EBBA3POM/FIN

Date of Submission- 22/7/2010


Assessment

Client Profile

Client needs to secure a US$5 million loan to be used as financing for retooling of one of its

processing plant

Findings

After conducting a thorough assessment of the firm’s financial position via the use of financial

ratios the following issues were highlighted as major determinants behind awarding the loan to

Seprod Ltd.

• The company’s current situation with regards to profitability is very strong and

improving, as when compared to various competitors in the market the ratios used to

analyze their profitability presented strong results. This as increased investor confidence

in the firm and has been reflected in the market price of the firms share increasing

significantly over the review period.

• The financial ratios however suggest that despite the firm’s recovery from a volatile

financial crisis there needs to be an aggressive attempt to increase the Return on Total

Assets as this will further provide opportunities for the firm to gain of investment made

by the shareholders. Increasing the returns on assets will also contribute to the overall

profitability of the firm which should decrease any uncertainty with regards to the firm

not being able to honor its debt obligations.

• Of key interest to the commercial bank are the results of the debt ratios. These ratios are

the deciding factors behind the firm securing the loan. The firm currently boasts a very

solid position in terms of paying its interest charges from their operating profit. This

solidifies the choice of awarding the loan pending consistent payment of outstanding

interest payments.

• The company is also in a satisfactory position with regards available cash flow to satisfy

interest payments. This is further strengthened by the fact that the firms operating profit

has been trending upwards which previews increased net income in the subsequent

operating years.

• The firm’s level of gearing is also of major significance as after assessment of industry

leaders the firm posits one of the least risky positions with respects to total financing of

their business.

• The management of firms asset was assessed and the results proved satisfactory

• The firm should however look at reducing the average collection period for debtors as the

payment of debts could influence the operating cash flow which subsequently affects the

firm’s ability to make interest payments from operating cash flows.


• Management as also being very efficient in maintain the debt ratios and as a major pre-

requisite of the Steno Commercial Bank a firm which holds a excellent position with

regards to debt management is qualified for a loan.

• This criterion along with the situation of profitability, asset management and liquidity

influences the decision of the firm to award a loan.

• Other interesting findings also were the firms increasing inventory figures which need

immediate attention. An increasing inventory could reduce the liquidity of the firm and

can threaten the opportunities for the firm to honor short term debt obligations

Action Plan

The loan will be awarded to Seprod over a 10 year period at 10% per annum. The firm’s

treatment of this loan will determine future business positions.

______________________________ ____________________________

Signature Date

ZAg{ÉÅtá July 27, 2010

seprod ratio analysis

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