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:
karanjatakia 
Good writing! Well Structured! I like the way you describe what each of the headings represents! Why do you thinks their ROE is lower than the industry figure?
Thank you for your comment.
I feel KMD and MVN are fast growing companies hence having a lower ROE ratio. I would also say that a lower ROE could be a possible buying opportunity.
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.
Thank you for your comments Cons.
After reading your comment I have included that summary in the blog hope it better explains all aspects of the 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% : )
Thank you Cons your comments helped me a lot. I have made some changes based on your suggestions let me know if any further changes are to be made.
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…
Thank you to bring that to my knowledge. For KMD it is not possible to go back three years as they are listed on NZX since 2009. For MVN i have trided doing that.
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.
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?
Thank you for your comment Dita. I have changed the error. the EPS is $0.156 and not $0.058. the data for KMD it is for the year 2010 and for MVN it is based on the past average.
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..