Sample Assignment - Cash Flow Analysis and Security Valuation - CIMIC Group Limited

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2.0 Company’s Overview.. 2
3.0 Financial Statement Analysis- Purpose. 2
4.0 Financial Statements Analysis. 3
4.1 Income Statement Analysis. 3
4.2 Balance Sheet Analysis. 4
4.3 Cash Flow Analysis. 5
5.0 Comparison of Cash Flow.. 6
6.0 Operational Analysis. 7
6.1 Horizontal Analysis- Income Statement 7
6.2 Horizontal Analysis- Balance Sheet 8
6.3 Horizontal Analysis- Cash Flow Statement 9
6.4 Ratio Analysis. 10
Profitability Ratios Analysis. 11
Liquidity ratio. 12
Long Term Solvency Ratio. 13
Market Performance Ratios. 14
Efficiency Ratio Analysis. 15
Demand and supply analysis. 16
8.0 CIM Adjusted Share Price. 16
9.0 Conclusion & Recommendations. 17
13.0 References. 18
 
2.0 Company’s

CIMIC Group Limited (formerly known as Leighton Holdings prior to April 2015) is a leading international contractor. It is active in the telecommunications, engineering and infrastructure, building and property, mining and resources, and environmental services industries. It has operations in AustraliaSouth East AsiaNew Zealand, and the Middle East. Leighton Holdings changed its name to CIMIC Group Limited. CIMIC stands for Construction, Infrastructure, Mining and Concessions. Founded in 1949 by Stanley Leighton, an Englishman, Leighton Holdings was first listed on the Melbourne Stock Exchange in 1962. It established an operation in Asia, known as Leighton Asia in 1975.
 

3.0 Financial Statement Analysis- Purpose

The main aim of financial analysis is to form a basis for the Conceptual Framework along with many other features of the Framework emerging from it and to give financial information related to the entities of reporting which are valuable to the current and potential lenders, investors and some other creditors which help them in making decision of supplying resources to the entity. Also, user are directed who supply resources to entity of reporting but they don’t have capability to force the entity for giving them information which they need to make decisions related to their investments. The conceptual framework designed by regulatory bodies play important role in transparency and accountability of this information and analysis.

The objectives are required to find the intentions and goals of financial statements. The fundamentals are basically the concepts and ideas of financial reporting and accounting. These analysis help in finding the limitations of financial reporting, selection of transaction, events among various transaction and events, and these also find the circumstances and how they should be measured, summarized and reported.

4.0 Financial Statements Analysis

4.1 Income Statement Analysis

The income statement for CIM for last three years is as given below. It clearly shows that net profit is in decreasing trend due to decrease in revenue and rising operating expenses compare to revenue as given below:-

Particulars

12/12

12/13

12/14

Operating Revenue

18,904,400,000.00

22,516,600,000.00

16,817,700,000.00

Other Revenue

0.00

235,300,000.00

8,100,000.00

Total Revenue Excluding Interest

18,904,400,000.00

22,751,900,000.00

16,825,800,000.00

Operating Expenses

-17,122,000,000.00

-20,874,100,000.00

-16,148,600,000.00

EBITDA

1,782,400,000.00

1,877,800,000.00

677,200,000.00

Depreciation

-1,032,100,000.00

-905,400,000.00

-543,200,000.00

Amortisation

-24,400,000.00

-27,900,000.00

-34,700,000.00

Depreciation and Amortisation

-1,056,500,000.00

-933,300,000.00

-577,900,000.00

EBIT

725,900,000.00

944,500,000.00

99,300,000.00

Interest Revenue

47,300,000.00

47,000,000.00

50,000,000.00

Interest Expense

-210,100,000.00

-255,400,000.00

-240,000,000.00

Net Interest Expense

-162,800,000.00

-208,400,000.00

-190,000,000.00

PreTax Profit

563,100,000.00

736,100,000.00

-90,700,000.00

Tax Expense

-121,000,000.00

-267,200,000.00

-22,100,000.00

Net Profit after Tax Before Abnormals

442,100,000.00

468,900,000.00

-112,800,000.00

Abnormals

0.00

0.00

0.00

Abnormals Tax

0.00

0.00

0.00

Net Abnormals

0.00

0.00

0.00

Reported NPAT After Abnormals

442,100,000.00

468,900,000.00

678,600,000.00

Outside Equity Interests

8,000,000.00

39,800,000.00

-2,100,000.00

Shares Outstanding at Period End

337,164,188.00

337,235,188.00

338,503,563.00

Weighted Average Number of Shares

337,106,520.00

337,222,530.00

338,503,563.00

EPS Adjusted (cents/share)

133.10

150.10

-33.94

EPS After Abnormals (cents/share)

133.10

150.10

199.85

4.2 Balance Sheet Analysis

The balance sheet for CIM for last three years is as given below. It clearly shows that both current assets as well as total assets is in rising trend which shows the company’s aggressive strategy to improve its operations in Australia as well as in global arena.

Particulars

12/12

12/13

12/14

CA - Cash

1,847,000,000.00

1,720,700,000.00

1,976,900,000.00

CA - Receivables

3,440,800,000.00

5,051,100,000.00

5,069,300,000.00

CA - Prepaid Expenses

0.00

0.00

0.00

CA - Inventories

549,500,000.00

556,000,000.00

361,600,000.00

CA - Investments

0.00

0.00

0.00

CA - NCA Held Sale

0.00

0.00

0.00

CA - Other

682,900,000.00

250,300,000.00

307,400,000.00

Total Current Assets

6,520,200,000.00

7,578,100,000.00

7,715,200,000.00

NCA - Receivables

673,400,000.00

803,000,000.00

922,800,000.00

NCA - Inventories

473,400,000.00

364,400,000.00

356,700,000.00

NCA - Investments

973,800,000.00

918,300,000.00

1,125,900,000.00

NCA - PP&E

2,064,100,000.00

1,752,600,000.00

1,626,500,000.00

NCA - Intangibles(ExGW)

176,200,000.00

232,700,000.00

192,200,000.00

NCA - Goodwill

79,100,000.00

340,600,000.00

363,800,000.00

NCA - Future Tax Benefit

246,000,000.00

86,300,000.00

240,800,000.00

NCA - Other

0.00

0.00

0.00

Total NCA

4,686,000,000.00

4,497,900,000.00

4,828,700,000.00

Total Assets

11,206,200,000.00

12,076,000,000.00

12,543,900,000.00

CL - Account Payable

4,507,300,000.00

5,548,500,000.00

4,309,800,000.00

CL - Short-Term Debt

634,300,000.00

589,500,000.00

1,163,300,000.00

CL - Provisions

478,400,000.00

528,300,000.00

933,800,000.00

CL - NCL Held Sale

174,300,000.00

105,100,000.00

93,800,000.00

CL - Other

0.00

0.00

0.00

Total Curr. Liabilities

5,794,300,000.00

6,771,400,000.00

6,500,700,000.00

NCL - Account Payable

195,400,000.00

344,800,000.00

272,600,000.00

NCL - Long-Term Debt

2,126,200,000.00

1,535,600,000.00

1,832,000,000.00

NCL - Provisions

173,400,000.00

178,100,000.00

157,000,000.00

NCL - Other

0.00

0.00

0.00

Total NCL

2,495,000,000.00

2,058,500,000.00

2,261,600,000.00

Total Liabilities

8,289,300,000.00

8,829,900,000.00

8,762,300,000.00

Share Capital

2,027,200,000.00

2,028,600,000.00

2,052,500,000.00

Reserves

-229,400,000.00

-9,700,000.00

219,000,000.00

Retained Earnings

1,046,700,000.00

1,201,300,000.00

1,482,200,000.00

Other Equity

0.00

0.00

0.00

Convertible Equity

0.00

0.00

0.00

SE Held Sale

0.00

0.00

0.00

Outside Equity

72,400,000.00

25,900,000.00

27,900,000.00

Total Equity

2,916,900,000.00

3,246,100,000.00

3,781,600,000.00

4.3 Cash Flow Analysis

The cash flow statement for CIM for last three years is as given below. It clearly shows that ending cash is in rising trend due to positive net operating cash flows and net financing cash flows as given below. It shows company is having enough cash to meet its future operational expenses.

Particulars

12/12

12/13

12/14

Receipts from Customers

19,945,400,000.00

24,186,800,000.00

25,628,600,000.00

Payments to Suppliers and Employees

-18,734,100,000.00

-23,072,000,000.00

-24,218,800,000.00

Dividends Received

19,100,000.00

16,300,000.00

23,500,000.00

Interest Received

28,900,000.00

21,700,000.00

25,300,000.00

Interest Paid

-199,500,000.00

-231,500,000.00

-229,100,000.00

Tax Paid

49,600,000.00

-118,400,000.00

-85,700,000.00

Other Operating Cashflows

0.00

0.00

0.00

Net Operating Cashflows

1,109,400,000.00

802,900,000.00

1,143,800,000.00

Payment for Purchase of PPE

-1,261,400,000.00

-1,018,100,000.00

-733,400,000.00

Proceeds From Sale of PPE

102,100,000.00

149,800,000.00

81,800,000.00

Investments Purchased

-43,700,000.00

-200,000,000.00

-1,900,000.00

Proceeds From Sale of Investments

0.00

0.00

33,700,000.00

Payments for Purchase of Subsidiaries

-10,800,000.00

-53,300,000.00

-530,500,000.00

Proceeds from Sale of Subsidiaries

172,400,000.00

641,300,000.00

0.00

Loans Granted

-39,200,000.00

0.00

0.00

Loans Repaid

0.00

0.00

0.00

Other Investing Cashflows

0.00

0.00

0.00

Net Investing Cashflows

-1,080,600,000.00

-480,300,000.00

-1,150,300,000.00

Proceeds from Issues

0.00

1,400,000.00

23,900,000.00

Proceeds from Borrowings

896,300,000.00

254,100,000.00

1,458,200,000.00

Repayment of Borrowings

-542,600,000.00

-568,700,000.00

-678,600,000.00

Dividends Paid

-273,000,000.00

-354,500,000.00

-395,900,000.00

Other Financing Cashflows

260,000,000.00

-68,000,000.00

-207,600,000.00

Net Financing Cashflows

340,700,000.00

-735,700,000.00

200,000,000.00

Net Increase in Cash

369,500,000.00

-413,100,000.00

193,500,000.00

Cash at Beginning of Period

1,503,200,000.00

2,007,700,000.00

1,720,700,000.00

Exchange Rate Adj

-25,700,000.00

126,100,000.00

62,700,000.00

Other Cash Adjustments

0.00

0.00

0.00

Cash at End of Period

1,847,000,000.00

1,720,700,000.00

1,976,900,000.00


5.0 Comparison of Cash Flow

The cash flow statement can be analyzed and compared in three categories as given below:-

Operating Activities

Operating activities are those activities that relate to the provision of good and services, and other activities that are neither investing nor financing activities. As shown in the table, it shows that it is in increasing trend due to increase in net receipts from the customers despite increase in interest payment from 2011 to 2014.

Investing Activities

Investing activities are those activities that relate to the acquisition and/or disposal of non-current assets (including property, plant and equipment, and other productive assets and investments) not falling within the definition of cash. As shown in the table, it clearly shows that it is in decreasing trend due to huge investments in PPE by the company.

Financing Activities

Financing activities are those activities that change the size and/or composition of the financial structure of the entity (including equity), and borrowings not falling within the definition of cash. It clearly shows that it is in increasing trend due to increase in borrowings to meet company’s expansion needs.

6.0 Operational Analysis

6.1 Horizontal Analysis- Income Statement

The horizontal analysis for income statement is given below. It clearly shows that EBIT as well Net profit as percentage of Revenue is in decreasing trend due to increase in Operational expenses as shown below:-

Particulars

12/12

12/13

12/14

Operating Revenue

100.0%

100.0%

100.0%

Other Revenue

0.0%

1.0%

0.0%

Total Revenue Excluding Interest

100.0%

101.0%

100.0%

Operating Expenses

-90.6%

-92.7%

-96.0%

EBITDA

9.4%

8.3%

4.0%

Depreciation

-5.5%

-4.0%

-3.2%

Amortisation

-0.1%

-0.1%

-0.2%

Depreciation and Amortisation

-5.6%

-4.1%

-3.4%

EBIT

3.8%

4.2%

0.6%

Interest Revenue

0.3%

0.2%

0.3%

Interest Expense

-1.1%

-1.1%

-1.4%

Net Interest Expense

-0.9%

-0.9%

-1.1%

PreTax Profit

3.0%

3.3%

-0.5%

Tax Expense

-0.6%

-1.2%

-0.1%

Net Profit after Tax Before Abnormals

2.3%

2.1%

-0.7%

Abnormals

0.0%

0.0%

0.0%

Abnormals Tax

0.0%

0.0%

0.0%

Net Abnormals

0.0%

0.0%

0.0%

Reported NPAT After Abnormals

2.3%

2.1%

4.0%

Outside Equity Interests

0.0%

0.2%

0.0%

Shares Outstanding at Period End

1.8%

1.5%

2.0%

Weighted Average Number of Shares

1.8%

1.5%

2.0%

EPS Adjusted (cents/share)

0.0%

0.0%

0.0%

EPS After Abnormals (cents/share)

0.0%

0.0%

0.0%

6.2 Horizontal Analysis- Balance Sheet

The horizontal analysis for balance sheet is given below. It clearly shows that ending cash is in rising trend due to positive net operating cash flows and net financing cash flows as given below. It shows company is having enough cash to meet its future operational expenses.

Particulars

12/12

12/13

12/14

CA - Cash

16.48%

14.25%

15.76%

CA - Receivables

30.70%

41.83%

40.41%

CA - Prepaid Expenses

0.00%

0.00%

0.00%

CA - Inventories

4.90%

4.60%

2.88%

CA - Investments

0.00%

0.00%

0.00%

CA - NCA Held Sale

0.00%

0.00%

0.00%

CA - Other

6.09%

2.07%

2.45%

Total Current Assets

58.18%

62.75%

61.51%

NCA - Receivables

6.01%

6.65%

7.36%

NCA - Inventories

4.22%

3.02%

2.84%

NCA - Investments

8.69%

7.60%

8.98%

NCA - PP&E

18.42%

14.51%

12.97%

NCA - Intangibles(ExGW)

1.57%

1.93%

1.53%

NCA - Goodwill

0.71%

2.82%

2.90%

NCA - Future Tax Benefit

2.20%

0.71%

1.92%

NCA - Other

0.00%

0.00%

0.00%

Total NCA

41.82%

37.25%

38.49%

Total Assets

100.00%

100.00%

100.00%

CL - Account Payable

40.22%

45.95%

34.36%

CL - Short-Term Debt

5.66%

4.88%

9.27%

CL - Provisions

4.27%

4.37%

7.44%

CL - NCL Held Sale

1.56%

0.87%

0.75%

CL - Other

0.00%

0.00%

0.00%

Total Curr. Liabilities

51.71%

56.07%

51.82%

NCL - Account Payable

1.74%

2.86%

2.17%

NCL - Long-Term Debt

18.97%

12.72%

14.60%

NCL - Provisions

1.55%

1.47%

1.25%

NCL - Other

0.00%

0.00%

0.00%

Total NCL

22.26%

17.05%

18.03%

Total Liabilities

73.97%

73.12%

69.85%

Share Capital

18.09%

16.80%

16.36%

Reserves

-2.05%

-0.08%

1.75%

Retained Earnings

9.34%

9.95%

11.82%

Other Equity

0.00%

0.00%

0.00%

Convertible Equity

0.00%

0.00%

0.00%

SE Held Sale

0.00%

0.00%

0.00%

Outside Equity

0.65%

0.21%

0.22%

Total Equity

26.03%

26.88%

30.15%

6.3 Horizontal Analysis- Cash Flow Statement

The horizontal analysis for Cash flow statement is given below. It clearly shows that ending cash is in rising trend due to positive net operating cash flows and net financing cash flows despite their decreasing trend as given below. It shows company is having enough cash to meet its future operational expenses.

Particulars

12/12

12/13

12/14

Receipts from Customers

100.00%

100.00%

100.00%

Payments to Suppliers and Employees

-93.93%

-95.39%

-94.50%

Dividends Received

0.10%

0.07%

0.09%

Interest Received

0.14%

0.09%

0.10%

Interest Paid

-1.00%

-0.96%

-0.89%

Tax Paid

0.25%

-0.49%

-0.33%

Other Operating Cashflows

0.00%

0.00%

0.00%

Net Operating Cashflows

5.56%

3.32%

4.46%

Payment for Purchase of PPE

-6.32%

-4.21%

-2.86%

Proceeds From Sale of PPE

0.51%

0.62%

0.32%

Investments Purchased

-0.22%

-0.83%

-0.01%

Proceeds From Sale of Investments

0.00%

0.00%

0.13%

Payments for Purchase of Subsidiaries

-0.05%

-0.22%

-2.07%

Proceeds from Sale of Subsidiaries

0.86%

2.65%

0.00%

Loans Granted

-0.20%

0.00%

0.00%

Loans Repaid

0.00%

0.00%

0.00%

Other Investing Cashflows

0.00%

0.00%

0.00%

Net Investing Cashflows

-5.42%

-1.99%

-4.49%

Proceeds from Issues

0.00%

0.01%

0.09%

Proceeds from Borrowings

4.49%

1.05%

5.69%

Repayment of Borrowings

-2.72%

-2.35%

-2.65%

Dividends Paid

-1.37%

-1.47%

-1.54%

Other Financing Cashflows

1.30%

-0.28%

-0.81%

Net Financing Cashflows

1.71%

-3.04%

0.78%

Net Increase in Cash

1.85%

-1.71%

0.76%

Cash at Beginning of Period

7.54%

8.30%

6.71%

Exchange Rate Adj

-0.13%

0.52%

0.24%

Other Cash Adjustments

0.00%

0.00%

0.00%

Cash at End of Period

9.26%

7.11%

7.71%


6.4 Ratio Analysis

The financial analysis of CIM is given below covering five important sections as given below:-

Item

12/12

12/13

12/14

Profitability Ratios

 

 

 

Net Profit Margin (%)

2.38

2.26

-0.68

EBIT Margin (%)

3.84

4.19

0.59

ROE (%)

15.82

15.80

-3.06

ROA (%)

5.36

5.71

0.42

Long Term Solvency Ratio

 

 

 

Financial Leverage

3.84

3.72

3.32

Liquidity Ratio

 

 

 

Current Ratio

1.13

1.12

1.19

Quick Ratio

1.03

1.04

1.13

Activity Ratios

 

 

 

Inventory Turnover

34.40

40.50

46.51

Days Inventory

10.61

9.01

7.85

Days Receivables

0.00

81.88

110.02

Market Performance Ratios

 

 

 

Price/Book Value

2.07

1.67

2.01

PER

13.43

10.73

-66.29

Profitability Ratios Analysis

The detailed profitability ratio analysis for CIM is given below:-

EBIT Margin ratio

CIM

The EBIT margin is calculated as ratio between profit after operating expenses and the total revenue earned expressed in percentage. The above table clearly shows that CIM maintains a low EBIT margin which is in decreasing trend. (Annual Report, 2013, 2014)

Ratio-Net Profit Margin

CIM

The profit margin is calculated as ratio between net profit and the total revenue earned expressed in percentage. The above table clearly shows that CIM maintains a negative profit margin which is in decreasing trend in last three years. (Annual Report, 2013, 2014)

Ratio-ROE

CIM

The ROE is calculated as ratio between Net income and the total equity expressed in percentage. The above table clearly shows that CIM maintains a low ROE which means it is giving bad return to the shareholders. (Annual Report, 2013, 2014)

Ratio-ROA

CIM

The ROA is calculated as ratio between Net income and the total Assets expressed in percentage. The above table clearly shows that CIM maintains a low ROA which means it is not giving good return to all the stakeholders including equity and debt holders. (Annual Report, 2013, 2014)

Liquidity ratio

The detailed Liquidity ratios for CIM are given below:-

Ratio-Current ratio

CIM

The current ratio is calculated as ratio between current assets and the current liabilities. The above table clearly shows that CIM maintains a good current ratio which means it will have to maintain it so as to have enough cushions during problematic period.. (Annual Report, 2013, 2014)

Ratio-Quick ratio

CIM

The quick ratio is calculated as ratio between difference of current assets and inventory with the current liabilities. The above table clearly shows that CIM maintains a good quick ratio as explained above. It means it will have to maintain it to have enough cushions during problematic period. (Annual Report, 2013, 2014)

Long Term Solvency Ratio




Leverage ratio

The financial leverage is calculated as ratio between Debt and total assets. The above table clearly shows that CIM maintains stable D/E ratios as per industry average standard. (Annual Report, 2013, 2014)




Market Performance Ratios

The market performance ratio analysis is as given below:-




Ratio-P/Book Value ratio

CIM

The P/Book Value is calculated as ratio between price per share and Book value per share. The above table clearly shows that CIM maintains good stable P/B ratios over the years. It shows the growing strength of faith posed by the investors on the company. (Annual Report, 2013, 2014)


Ratio-PER

CIM

The P/E is calculated net earnings divided by total shareholders’ stocks outstanding. The above table clearly shows that CIM maintains low PER in last 3 years.



Efficiency Ratio Analysis


This section will do detailed analysis of efficiency ratios. It clearly shows that CIM efficiency ratios are in increasing trend due to improvement in its operations in last 3 years. However, the problem is that decreasing trend is seen in the Receivables days despite increasing in inventory turnover and other ratio. (Ian,2014)




Demand and supply analysis



MCQ (Macquarie Holdings ) Is the leading competitors with largest market share followed by CIM. CIM will need to ensure optimal quality assurance and continuous improvement to ensure it remains a leading competitor and has a major portion of the market. Besides these it will have to innovate its existing offerings to improve its profitability amongst the customers.


8.0 CIM Adjusted Share Price


The adjusted share price of CIM is as given below:-

It clearly shows that it is in decreasing trend due to eroding profitability despite improvement in other parameters. It decreases from 31.12 in 2010 to 21.55 in 2015. However, while comparing with leading competitors MCQ we found that it maintain the same level whereas CIM decreases by 50% during the same periods of 5 years.

However, while comparing with Market index S&P 200 ( ASX) , we found that MCQ able to match up with market index performance whereas CIM decreases by 50% in the same periods.





9.0 Conclusion & Recommendations


The entire analysis shows following as the major risks factors

  1. The efficiency ratios are in increasing trend. However, the problem is that decreasing trend is seen in the Receivable days despite increasing in inventory turnover and other ratio.

  2. The profitability analysis shows that the Profit is in decreasing trend. Hence, company will have to develop its operational and logistics framework to earn more profits.

  3. The Liquidity ratio is in improving trends showing the need for the company to improve it further through more investments in current assets.

  4. The Capital structure is moving towards the safer side. Hence company will try to meet global standards to compete with other competitors

Hence, the analysis clearly shows that there is need to operational efficiency and liquidity of the company. The best way is to improve operational management to increase efficiency as well as liquidity.

13.0 References
  • Penman, S.H., 2010. Financial Statement and Security Valuation. Fourth Edition, McGraw-Hill.

  • Peirson, G., Brown, R., Easton, S., Howard, P., and S. Pinder. 2015. Business Finance, 11th edition. Mc-GrawHill, Australia.

  • Viney, C., 2009. McGrath’s Financial Institutions, Instruments and Markets, 6th edition, McGraw-Hill, Australia.

  • Tim Koller, Marc Goedhart, David Wessels,Valuation, Wiley publications, New York, Fifth edition,2013

  • Ian Giddy, Methods of Corporate valuation, New York university, 2014.

  • Malakooti, Behnam (2013). Operations and Production Systems with Multiple Objectives. John Wiley & Sons. ISBN 978-1-118-58537-5.

  • Australian Securities Exchange: www.asx.com

  • Australian Prudential Regulation Authority: www.apra.gov.au

  • Australian Financial Markets Association: www.afma.com.au