Financial Diary: Preliminary Ratio Analysis

The objective of this week’s blog is to identify the preliminary ratios for my investment in Kathmandu Limited (KMD) and Metheven Limited (MVN). This analysis would help evaluate the strengths and weaknesses of KMD and MVN.

  *click on the picture to enlarge.

Justification for favourable and unfavourable performance:

EPS

It is portion of a company’s profit allocated to each outstanding share of common stock. KMD has EPS of $0.156 per share and $0.071 per share for MVN (Kathmandu Ltd & Metheven Ltd, 2011). EPS for KMD and MVN is less than the industry in which they operate hence unfavorable. For better understanding of the EPS ratio click on the following link http://www.investopedia.com/video/play/earnings-per-share#axzz1XFSomqhX.

P/E Ratio

P/E ratio is the amount investors are willing to pay relative to each dollar of earnings. KMD P/E ratio is 34.82 compared to 12.88 for CAV (Cavalier Ltd, 2011). MVN P/E ratio is 20.84 compared to 11.11 for EBO. It is favourable as both the companies are in a sector expecting higher earnings growth in the future. To understand P/E ratio better click on the following link http://www.investopedia.com/video/play/price-to-earnings-ratio#axzz1XFSomqhX.

ROE

It is a measure that shows how efficient a company is at generating profit. The shares I have invested in are generating profit but less efficiently when compared to its competitors (Industrial Benchmark not available) hence unfavourable (CAV and EBO). To increase your understanding further for the ROE ratio click on the following link http://www.investopedia.com/video/play/return-on-equity#axzz1XFSomqhX.

Debt – to – Equity

It  measures a company’s financial leverage. Usually investors prefer companies with low Debt – to- Equity ratio. Saying that the Debt – to – Equity ratio depends upon the strategy of the company. For KMD it is favourable as it has $0.22 of debt for every $1 of equity compared to $0.56 of CAV. In contrast for MVN it is unfavourable as it has $0.46 of debt for every $1 of equity compared to $0.32 of EBO (Ebos Ltd, 2011). To better understand Debt – to – Equity ratio click on the following link http://www.investopedia.com/video/play/debt-to-equity-ratio#axzz1XFSomqhX.

Dividend Yield

It indicates how much a company pays in dividend each year relative to its share price. KMD and MVN pays more dividend compared to the industry and its competitors hence is favourable. For better understanding click the following link http://www.investopedia.com/video/play/understanding-dividend-yields#axzz1XFSomqhX.

Performance of portfolio:

Though some of the above ratios are unfavourable for my investment in the long run the company would do well. I said in my first blog I believe that being patient is a solid factor in determining success in investing.

*Kathmandu Limited has just been listed on NZX in 2009 hence no historical data is available.  Metheven Limited and Ebos Limited analysis is based on the average of last 3 year data. Basis of the calculation for all the ratios is shown in appendix 1.

Position Summary  (Word Count: 298)

Symbol Description Qty Cost Basis Price Value P/L Action
KMD Kathmandu Holdi… 10000 2.030 2.060 20,600.00 300.00 Activity Close
MVN Methven Limited… 10000 1.390 1.440 14,400.00 500.00 Activity Close

References

NZX Limited. (2011). The New Zealand Stock Exchange. Retrieved from:  https://www.nzx.com/markets/NZSX/sectors/G05

Kathmandu Limited (2011). Share Prices. Retrieved from: https://www.nzx.com/markets/NZSX/securities/KMD

Methven Limited (2011). Share prices. Retrieved from: https://www.nzx.com/markets/NZSX/securities/MVN

Cavalier Corporation Limited (2011). Share prices. Retrieved from http://companyresearch.nzx.com.libproxy.unitec.ac.nz/deep_ar/newpage.php?default=CAV

Ebos Group Limited (2011). Share prices. Retrieved from http://companyresearch.nzx.com.libproxy.unitec.ac.nz/deep_ar/newpage.php?pageid=livedata&default=EBO

Berman, K., Knight, J., Case, J. (October 7, 2008). Leverage Ratios – The Balancing Act: Financial Leverage for Entrepreneurs. Retrieved from http://hbr.org/product/financial-statement-analysis-identify-the-industry/an/TB0069-PDF-ENG?N=0&Ntt=Financial+ratios.

APPENDIX 1:

About these ads

13 thoughts on “Financial Diary: Preliminary Ratio Analysis

  1. Great analyses and justification. I like the inclusion of links for people like me! Maybe you could summarise your blog with a brief explanation of how your selected ratios adequately cover all aspects of performance.

      • Cheers, Karan. I think you have done a really good job completing this blog early, and making changes based on classmates’ comments. Here’s hoping you get 100% : )

  2. Hi Karan, Alvin was talking about looking at the F/s of a company going back three years and then comparing the averages of the three years and then comparing these results with both the companes…

  3. That is a nice presentation!! I am just wondering whether you can put some more details of the ratios. The segments of ratios show a better picture of the companies I believe.

    • Thank you for your comments Alex. The above added links shows you videos of the above stated ratios which gives a more detail about the ratios. What do you mean by segments of ratio. Can you be more clear about it so that I can use it in my analysis.

  4. Hay enjoyed reading, comparing to idustry average was really affective as it gave a good represetation of what other companies ware doing in that sector. You have two figures for KMD have an EPS should it be $0.156 per share or $0.058? Also what year is this data related to?

  5. Good job !!!!!!! You choose most important ratio for those two company, and good summarise relevant ratio. I see most of ratio are profitability ratio (shareholder more interesting), less Liquidity and Solvency ratio. I know just 300 words. anyway, well done..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.
The Esquire Theme.

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: