Sustainability of their inventories consist of mobile accessories, mobile

Sustainability
of any company depends on the extension of earnings retained and the return
earned on the earnings retention. During the last 5 years company recorded its
highest sustainable growth rate in the year of 2010. But after the year 2010 it
has gradually declined and again increased after 2013.

Following reasons can
be highlighted for this decline:

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1. Decline in retention
ratio

2. Decline in ROCE

All the ratios
regarding return on invested capital provides good evidence to the declining
pattern of sustainable growth rate.

 

 

 

 

 

 

 

 

 

 

1          
CREDIT
ANALYSIS

 

As
per the ratio analysis (based on the calculations) Current ratio of the company
has decreased from year 2012 to 2013, but again increased in year 2014. Quick
ratio has also taken the same pattern as current ratio. When comparing with the
expansion of current assets over last two years, current liabilities show a
considerable decrease than current assets. That is the direct reason for the
rise of current and quick ratios in year 2014. Trade and other payables and
other non- financial liabilities have a greater impact on this. Anyway we can
conclude thatthe company is maintaining a positive liquidity position only by
looking at the current and quick ratios but it is not enough since the ratios
are below 1. Normally if a company maintains a Current/Quick ratio around 2 is
considered to be a healthy one.

According
to the asset composition analysis we can see that Dialog has successfully
maintained their inventory level as lower as possible within past three years.
However this isobvious for a company operating in telecommunication sector
since most of their inventories consist of mobile accessories, mobile phones
& scratch cards. Therefore there is no any huge variance between the
current ratio and the quick ratio. They have a greater portion of liquid assets
in their asset portfolio.

 

Company’s
account receivable period has increased from year 2012 to 2013 and decreased in
year 2014. Their credit sales have been increasing over past three years and
account receivables has increased from year 2012 to 2013 and considerably
declined in year 2014.This indicates that the company is following more aggressive
credit policy. Also when consider about the telecommunication industry, we know
that most of these accounts receivable balances are either corporate customers
or individual customers using post paid packages.

Debtor’s
outstanding period has been becoming lower over the past two years and that is
a good sign of the company’s credit policy. Company’s success in managing
current liabilities is varied.  Their
credit purchases have been rising over recent years. Creditor’s outstanding
period has increased from year 2012 to 2013 and also increased in year
2014.Creditors  may  have 
offered  more  flexible 
credit  terms  to 
the  company  and 
this  also indicates that the
company has strong negotiation ability with the creditors.

These
findings are consistent with the company’s improving liquidity. They are maintaining
positive liquidity position over recent years. As there is a tendency of losing
the company’s profitability  when  they 
are  more  focusing 
on the  liquidity,  company 
should  also  beware 
of profitability status.  

 

 

 

 

 

 

 

 

1.1       
Capital Structure
and Solvency

 

Analysis
of solvency involves several key elements. Analysis of capital structure is one
of these. Simply capital structure refers to the sources of financing for a company.
In accordance with our computations on capital structure we can see they have
been maintaining a low debt to equity ratio in 2012 but it has increased over
past three years (from 30% to 53%).

It
seems to be they have given less protection to their equity holders by
increasing the debt proportion. The total debt to equity capital ratio also has
different increasing percentages over the past three years since they had been
more into debt capital. 

However
they should be mindful when investing funds collected from long term sources.
It is necessary to have a proper trade off when collect & invest funds
between long term and short term sources in order to reap maximum benefits to
the entity.

Over
the past three years since the company has taken lot of debt, interest coverage
ratio has decreased from 28 times to 15.5 times over the past 3 years. This
indicates that the company’s interest cost has increased significantly. So they
should now try to look into equity capital since currently the company’s
gearing is around 53%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2          
PROSPECTIVE
ANALYSIS

 

The
detailed Prospective income statement and Balance sheet are provided in the
workings of the report. (Refer Annexure)

2.1       
Prospective
Income Statement

Income
statement was prepared for 2 years assuming the sales growths of 6.3% for 2015
and 7% for 2016. This is based on the forecasted levels of GDP growth, Market
growth and forecasted rates of subscriber penetration. Key cost items were
forecasted based on historical averages as a percentage of sales. It was also
assumed that there will be no acquisitions and disposals into the future.

2.2       
Prospective
Balance Sheet

Working
Capital components were forecasted based on the existing levels of turnover
ratios. 2014 retention ratio was assumed to continue in both 2015 and 2016.It
was also assumed that 50% of the incremental capital investments are
compensated through debt. Since a debt moratorium on current liabilities will
be enforced in 2015 It was assumed that 50% of the current liabilities will be
paid in 2015.

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