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.
Justification for favourable and unfavourable performance:
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 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.
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.
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.
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)
|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|
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.