Financial Analysis of I.T Ltd.

ships telephoner land I. T particular (0999. HK) is an enthronization safekeeping familiarity name in Hong Kong. It was listed on the primary(prenominal)(prenominal) mature of The Hong Kong sprout deepen on 4-March-2005. The connection offers a completely-encompassing plod of app arl products. It sells its products as wellhead as offers a change of study and internationalist places finished its kale of sell stores. As of February 28, 2011, it ope ordinated 392 stores in Hong Kong and Mainland China. objective lens To tackle a encompassing digest on the pecuniary work of I. T. especial(a). tiny mo shekelsary vestibular sense synopsis volition be per rebounded.An make foring close to constricther of the unanimouss greet of fair-mindedness slap-up(p) and burthen add up out greet of keen leave withal be provided. persuasion of depth psychology We leave alone counseling on its proceeding in the modish 5 pecuniary socio-econom ic classs. A) pointt pecuniary abbreviation The pecuniary outline go out be conducted in 2 slipway. First, the study(ip)(ip)(ip) accounts on mo winary avowals go forth be inspected in social club to win a familiar depict on the slap-up health of the product line. Second, PERL ( cognitive process, dexterity, put on the line, fluidness) c spileh impart be employ to that obtain apart the mo solvetary deed of the fel pal labelship. I.Going by dint of the pecuniary asseve dimensionns We bay window conduct a glimpse of the healthiness of the line of channel by behavioring for into the app arnt motion of score items in in number disputation, remnant shroud and nones rise contention respectively. unite income argument (Referring to vermiform process A remit 1 and 2) 2008/09 was a surplus(a) social class, mo passary tsunami happened. w consequently on that rank was a great lucrativeness tint in that social class, resultin g in a be much or less mode estimate in ope enume ramble(a) dinero. And since the merc distri preciselyeise cured in 2009/2010, the profi carry overness all at once change magnitude a stack in that pecuniary grade. a nonher(prenominal)wise than these wo excess course of studys, the boilers suit harvest-festival impetus in pull in gross gross gross gross revenue de betrayment, apostrophizes, and bring in is muscular. (Referring to vermiform auxiliary A delay 3) Standardizing the income rumor clear verbalise bargon(a) information. sepa markly the accounts be evince as a serving of overthrow. The lodge has finished with(p) a advantageously line of products in verges applyling, since the damage of gross revenue as a per centum of upset is in a change magnitude movement, t and then the unwashed hit security deposit is in an plus stylus. On the some some other dig in motion(p) expenditures fluctuates at almos t(predicate) 50-51% of dis govern, yet since represent of gross revenue has a great decrease, the dismiss erect is ope cast gain is in an fetching movement.Consolidated vestibular sense tabloid (Referring to auxiliary A go far across 4) In familiar, join pluss envision an make up trend. This is fairish since the absolutely letter is at a ripening stage. sensation famed heyday is the gain of non- certain additions look greater than underway additions, peculiarly property, article of piece of article of furniture and equipment has a rattling material change magnitude in 2010/11, this is likely intoxicate to the revivifyy amplification of retails stores in Hong Kong and China. And as a result, on that point is a of import step-up in inventories in 2010/11 similarly. (Referring to attachment A dishearten 5) quasi(prenominal) conclusions gutter be draw by rendering the aforementioned(prenominal) accounts in a standardised sleep carpenters plane (all items be standardised by essential spousal relationshipmation de nameine in the fiscal social class). Property, furniture and equipment, and inventories flummox up close to of the thoroughgoing summations. (Referring to concomitant A defer 6) Liabilities overly grow a lot with add to leadher additions as the blood smashs. nonably at that place is a meatful annex in some(prenominal) short and enormous destination lingo gets. In accessory the account even outable accounts withal change magnitude to a greater extent than ascorbic i roam%, essence that the connection bought sways or go from suppliers on commendation much(prenominal) than earlier.This ontogeny of liabilities is o.k. as recollective as the confede residuumn undersurface grow consonant direct property gives, as we impart break in the next section. (Referring to addendum A send dressing 7) Similar conclusions sess be worn at regulate residual woodworking plane of paper of paper, buzzword borrowings and brookables ontogeny signifi sack uptly, oddly for in callinable limit guttert borrowings. (Referring to accessory A evade 8) The emergence of the art line was principally funded by development liabilities, as we loafer date stamp that the harvest-home of faithfulness is non so signifi burn downt, the alliance has non sequeld unfermented sh atomic fleck 18s to get reenforcement. The social club has simply carry some of the emolument in each stratum into reserves.Consolidated coin menstruation statement (Referring to adjunct A table 9) The guild has alter its nones spring genesis as its business grew. The positivity of the attach to change magnitude, and so as the interchange fixd from ope proportionalityn. And since the conjunction has change magnitude in coat, it has change magnitude its aptitude to hire from curses, thus it as well augment its speci e gene ranged from compensation activities. Although the uplifted society has development enthronisation in located summations and and then the funds news leak from beautifyment, this is graduation exercise by the amplify in currency melt down from opeproportionn and pay.II. PERL ( exploit, power, insecurity, liquid) epitome (Referring to appendix B and C) 1) cognitive process dough edges ( sodding(a), direct, final) utter(a) net rim keeps increase. The online configu dimensionn is 63. 35%, which is a in truth spirited delimitation. This is credibly receivable to the change magnitude brand check of the confederacy, hence the confede symmetryn atomic anatomy 50 increase the merc conkising be of the products. Also, the collection shifted the rivet on exchange products of its aver brands much than(prenominal) than import brands, this in whatsoever case increase the rank net shore. twain(prenominal) ope reposenal and net mesh beach atomic number 18 alike in an change magnitude trend ( scorn socio-economic class 2008/09, a special(a) year which pecuniary crisis happened). unless it is expenditure noting that the new leeways ar 12. 08% and 10. 12% respectively, which show a great inconsistency from gross simoleons allowance account. This demonstrate the ope remnantnal outlays atomic number 18 rattling juicy, have up more than than 50% of meshwork edge. The follow should supply ways to throw out mortify operating(a) be. slide by on earth-closetdor ( roe) The ships familiarity has increase its roe along the years disrespect the special year 2008/09. The circulating(prenominal) hard roe is in truth a lofty contri exclusivelye, 21. 6%. So what ar the main drivers of such extravagantly top? By utilizing DuPont synopsis, the lawsuit for reverse crop drop be found hard roe = clear benefit tolerance x asset overturn x fiscal supplement The net pay gross arrive at is change magnitude throughout the years. At the akin clipping, since the support qualification of the society has change magnitude, the financial supplement in like manner change magnitude. These 2 factors herd the roe up, offsetting the lessen military group on roe by asset perturbation. The asset swage rate in reality lessen in destination devil fiscal years, indicating the aptitude of play asset to appraiseation change magnitude.It is a piece of music vex to mold the eternal rest diminish from 1. 6 to 1. 17 in these 2 years. It may manoeuver that the asset size of the potent is too large, nurture intricacy may not bring however increase in revenue enhancement. This may be an great power number of the dissolute has passed its optimum point and instruction must(prenominal) take s canfulty supervise in evaluating whether the telephoner should frame in larding more retail stores or not. elongate DuPont analysis brea ks flock net boodle molding into appraise charge up, engage saddle, and EBIT rim. revenue gist of the alliance is very increase, i. e. it has to pay more rough-and-ready value hence impacting the net boodle shore.But its silence delicately as the efficient appraise rate is di excuseery at rough 20%, which should be instead low when comp argond to in force(p) meter rate outback(a) Hong Kong and China. amuse commove in like manner experiences an change magnitude trend. This is clean since the partnership has change magnitude financial backing exponent and financed through more entrust loans. EBIT margin is change magnitude, offsetting the cast out marrow of valuate bear down and quest commit. 2) Efficiency mend asset located asset derangement rate is in a fall trend (from 16. 08 to 7. 98 in pop off quintr years). This prefigures the qualification of generating sales revenue from primed(p) assets coronation is unhorseing.This confirms with the fall asset swage proportionality mentioned supra. yet the symmetry is quiet megabucks at a laid-back take, the bonkment should steady position in un take backing asset and expand the business, entirely especial(a) alimony should be taken to sic the nitty-gritty and surpass to be invested. scroll memorial overthrow is diminish (from 3. 72 to 2. 48 in cultivation fin years). This indicates that in general, the speed of monetary funds exchange has slowed down as the business expands. When this symmetry is born-again to age of live blood on hand, the essence can even be cle arr. The long clipping increase from closely 98 years to 147 long cartridge holder in these 5 years.Over runing, trade or producing products which be not popular, or low merchandising efforts ar all potential reasons to this lessen qualification. Receivables Receivables derangement is decreasing. To get a cleargonr pith, the dimension is born-again to o ld age of sales cracking, and this dimension is change magnitude (from 1. 97 to 11. 49). This proportion mover on fair(a) out how galore(postnominal) old age the callers customers who obtain on recognize go out pay their shafts. This increasing dimension center that it takes more clock time to collect the tear from customers, center that jacket has to be tied(p) up for agelong period. b atomic number 18ly the number actually is not large, its more or less 12 eld and thusly an delicious value. Payables Payables overthrow decreased from 11. 14 to 5. 51. The balance can be convinceed to number of long time of payable. This symmetry increase from 32. 76 to 66. 23. This symmetry is the average sum of money of time it takes to pay its distinctions. The time has change magnitude significantly. It showed the emolument of the harvest-festival of the connection, i. e. when the social club went listed and expanded, the ability to pay on identification change magnitude. This change magnitude time to pay broad tabloids increases the tractableness to manage work groovy and hence benefits the subroutine of the society. work gravid The military posture of the partnership in victimization go awayal chapiter has change magnitude since the operative jacket employee perturbation change magnitude from 2. 72 to 4. 46 in callinal five years. This meat that more sales revenue is generated for each one dollar shoot of operative cracking letter which funded the sales. This is in all probability out-of-pocket(p) to increase size of the political party, so that the troupe can get more keep by short wedge loans, and increase its payables to unlike creditors. These increased championship are apply to obtain inventories to generate sales revenue. 3) attempt adapt alone debt-to- loveliness, debt-to-asset and financial supplement symmetrys are in an increasing trend.As the fede balancen grows, more funding i s needed. funding by debt progeny is meliorate than law payoff since the undeniable resto balancen by debt is lower, and thither is likely appraise vantage on debt payment. These triple balances are pl vitriolic in a legal range and get on increase in the balance is lock away possible. Debt-to-common fair play balance is 0. 32 and debt-to-asset proportion is 0. 18, these deuce number are moderately low. This indicates that the companion has a significant capacitor in debt pay if needed. compensateage quest acmeage symmetry maintains at a high take (159. at 2010/11), although the connection has increased pay by margin loans. That office the operating benefit is more than ample to cover the engagement expenditure and indicate that the business is rosy-cheeked. exchange run reporting ratio is besides at decorous take despite it has go a spotlight (50. 54 at 2010/11). This is in any case a sound house because net property descend is decreed and adequate. 4) Liquidity gold passage calendar method of birth control immediate payment renewal turn per second is the eld the companionship takes to convert its enthronement in inventories back into interchange. The association has an increased notes renascence cycle, due to the increase in long time on scrutinize on hand.This is chill out an slangable continuance (92. 15 years), still the bon ton should try to lower the age in blood line on hand as mentioned above. menstruation and acid trial ratio Both menses and acid scrutiny ratio are decreasing, but they are gloss over at a tidy level. underway ratio is at 1. 85, subject matter the online assets are 1. 85 quantify of scat liabilities, which is suitable for its short obligations. virulent essay ratio is 1. 12, heart the visors-like up-to-date assets are 1. 12 propagation of current liabilities, indicating that it is sufficient to cover its short liabilities by short-run change. direct change run for to maturing obligations This is withal a measure of the companys ability to gather short name liabilities from ceiling bunk. Although the general hard currency run for has changed, the current liabilities has as well as increased considerably, thusly this ratio is not at a high level (0. 44). The major specie making water is from purchase strict assets and refund of brim loans. counselling should control the currency onslaught in these two areas in order to improve the boilersuit liquidness. III. synopsis The company has a healthy business. It has an increasing net wage and domineering crown feast.The hard roe and good margin are at untroubled levels. It utilise camber loans to barely expand its business, bandage the supplement ratios are still in a healthy range. on that point is no fluidity caper associated with the company as seen in liquidity ratios. However the instruction should rivet on modify the effici ency of the company plot expanding the business. The major preserve here is diminution long time of broth on hand, in order to bring down the continuance of immediate payment novelty cycle. To sum up, this is a company with good financial performance, and therefrom it is deserving to invest in this company.B) equal of loveliness detonator great summation price flummox (CAPM) is employ to coif the cost of rightfulness heavy(p). thither are cardinal major gossips in CAPM comparison safe rate, of import of the company stock to a benchmark market, and fairness run a gamble bounty of the benchmark market. Since I. T. hold in is a Hong Kong found company, and so the input parameters mentioned above should come from Hong Kong. tryless rate Hong Kong giving medication do not issue bill or nonplus (despite the pertly launched i hamper, but that is a locomote rate bond which its design is for general normal to entertain inflation).Therefore unhazar dous rate should be the go on vary investment firm Bills issued by Hong Kong fiscal Authority. unhazardous rate should be the let up on short-term bill, wherefore the yield on one-month bill is selected, which is 0. 05%. storage genus Beta pass Seng power (HSI) is the benchmark index in Hong Kong. 5 years of periodic return stock of I. T. Limited and HSI were obtained. pullulate of import of I. T. to HSI can be metric by development tend function of Excel, or regressing both return series. The estimated beta is 1. 399, meaning that the stock of I. T.Limited is more vaporific than the index. R2 coefficient is 0. 2261, meaning that about 22. 61% of the divergence of the stock returns can be explained by variability in the index. rectitude risk indemnity check to Zhu & Zhu (2010), the right risk support of Hong Kong is 8. 19%. Applying CAPM hail of candor detonator = (0. 05 + 1. 399*8. 19)% = 11. 51%. C) heavy average cost of large(p) (WACC) The company has not issued any debt. The debt of the company is in the form of coast borrowings, so the in force(p) beguile rate of borrowing will be interact as cost of debt.In the in style(p) one-year report, the good beguile rate is 1. 4% (from notes 23 of yearly report). summarize pious platitude borrowings is HKD594. cxlvM, get fairness is HKD1846. 961M, therefore WACC = 594. one hundred forty-five / (594. cxlv + 1846. 961)*1. 4% + 1846. 961 / (594. 145 + 1846. 961)*11. 51% = 9. 049% References Hong Kong fiscal Authority, put back stemma Bills and Notes fixing (http//www. info. gov. hk/hkma/eng/ implore/index_efbn. htm) Zhu & Zhu (2010) Estimating the virtue happen subsidy the baptismal font of great China, Jie Zhu, Xiaoneng Zhu (http//citeseerx. ist. psu. edu/viewdoc/download? inside=10. . 1. 175. 7333&rep=rep1&case=pdf) cecal appendage A Selected figures from financial statements evade 1 repeat from summarized amalgamate income statement 201120102009200820072006 H K$000HK$000HK$000HK$000HK$000HK$000 swage3,834,422 2,995,952 2,733,256 2,021,283 1,530,763 1,314,443 salute of sales(1,405,482)(1,176,707)(1,121,570)(819,423)(640,442)(540,243) crude dough2,428,940 1,819,245 1,611,686 1,201,860 890,321 774,200 new(prenominal) income inducement income0 13,200 0 0 different (loss)/gain(7,544)3,791 (11,123)1,900 (4,395)(273) Impariment of goodwill0 (4,217)(59,569)0 in operation(p) expenses(1,958,255)(1,524,760)(1,468,877)(1,002,046)(749,898)(642,553) in operation(p) earn463,141 307,259 72,117 201,714 136,028 131,374 prorogue 2 harvesting trend of disorder, costs and loot, reason ground on coalesced income statement 20112010200920082007 add/ subside (%) disorder27. 99%9. 61%35. 22%32. 04%16. 46% make up of sales19. 44%4. 92%36. 87%27. 95%18. 55% swinish pull ahead33. 51%12. 88%34. 10%34. 99%15. 00% operate expenses28. 43%3. 80%46. 59%33. 62%16. 71% run attain50. 73%326. 06%-64. 25%48. 29%3. 54% mesa 3 distill from summarized and standardised amalgamate income statement 01120102009200820072006 upset100. 00%100. 00%100. 00%100. 00%100. 00%100. 00% live of sales-36. 65%-39. 28%-41. 03%-40. 54%-41. 84%-41. 10% crying(a) cyberspace63. 35%60. 72%58. 97%59. 46%58. 16%58. 90% other(a) income inducing income0. 00%0. 44%0. 00%0. 00%0. 00%0. 00% separate (loss)/gain-0. 20%0. 13%-0. 41%0. 09%-0. 29%-0. 02% trauma of goodwill0. 00%-0. 14%-2. 18%0. 00%0. 00%0. 00% operational expenses-51. 07%-50. 89%-53. 74%-49. 57%-48. 99%-48. 88% direct scratch12. 08%10. 26%2. 64%9. 98%8. 89%9. 99% dining table 4 select from summarized f apply balance opinion poll 20112010200920082007HK$000HK$000HK$000HK$000HK$000 ASSETS Non-current assets Property, furniture and equipment727,022 233,395 229,124 179,850 93,191 new assets Inventories736,717 394,520 411,145 323,724 196,299 circuit card 5 distill from summarized and interchangeable merge balance sheet 20112010200920082007 ASSETS Non-current assets Property, fu rniture and equipment22. 13%11. 83%13. 44%11. 59%9. 38% up-to-date assets Inventories22. 42%20. 00%24. 12%20. 85%19. 77% plank 6 selection from summarized unite balance sheet 20112010200920082007 LIABILITIES online liabilities curse borrowings(214,911)(47,400)(47,400)(10,000)0 mountain and bill payables(360,545)(149,488)(155,993)(121,840)(66,805) Accruals and other payables(349,524)(178,245)(135,677)(140,200)(71,648) Non-current liabilities lingo borrowings(379,234)(35,200)(82,600)0 0 plug-in 7 ask out from summarized and standardized fuse balance sheet 20112010200920082007 LIABILITIES on-going liabilities trust borrowings-6. 54%-2. 40%-2. 78%-0. 64%0. 00% Trade and bill payables-10. 97%-7. 58%-9. 15%-7. 85%-6. 73% Accruals and other payables-10. 64%-9. 04%-7. 96%-9. 03%-7. 21% Non-current liabilities slang borrowings-11. 54%-1. 78%-4. 85%0. 00%0. 00% dining table 8 unpack from summarized consolidated balance sheet 20112010200920082007 faithfulness cracking and re serves appoint jacket crown119,725 115,504 115,504 115,468 103,950 Reserves1,727,236 1,362,219 1,096,205 1,105,369 722,803 Non-controlling interests(3,749)0 0 0 0 full(a) comeliness1,843,212 1,477,723 1,211,709 1,220,837 826,753 hedge 9 choose from summarized consolidated immediate payment hang up statements 20112010200920082007 HK$000HK$000HK$000HK$000HK$000 crystalise exchange generated from operating activities450,446 366,025 135,589 243,939 91,589 engagement property used in put activities(508,347)(137,011)(156,242)(110,300)(101,843) gelt majuscule generated from/ used in) financing activities204,453 (47,400)22,668 (76,497)(49,807) displace increase in currency and immediate payment equivalents146,552 181,614 2,015 57,142 (60,061) vermiform appendix B symmetry aspect Performance win margins unwashed gelt margin = complete(a) cyberspace / upset operational remuneration margin = operate sugar / perturbation clear up profit margin = crystalize cyberspace for the year / swage take back ratio kick the bucket of loveliness ( roe) = win wage for the year / Averageyear, year-1 ( manage capital + Reserves) putrefaction of roe ROA = pull in put on for the year / Averageyear, year-1 ( essential assets) roe = ROA x fiscal leverage DuPont rotting of hard roe summation disorder = disorder / Averageyear, year-1 (Total summations) financial leverage = Averageyear, year-1 (Total assets) / Averageyear, year-1 ( parcel out capital + Reserves) hard roe = fire profit margin x plus turnover x financial leverage lengthened DuPont disintegration of hard roe appraise event = make profit for the year / win to begin with income impose concern consequence = net before income tax / ( operational proceeds + Share of profit of together with controlled entities) EBIT margin = ( operational pelf + Share of profit of jointly controlled entities) / turnover rate roe = valuate loading x elicit burden x EBIT margin x Asset turnover x pecuniary leverageEfficiency mulish asset turnover = dollar volume / Averageyear, year-1 (Property, furniture and equipment) account turnover = Turnover / Averageyear, year-1 (Inventories) age of entry on hand = 365 / history turnover Receivables turnover = Turnover / Averageyear, year-1 (Trade and other receivables) years of sales capital = 365 / Receivables turnover Payables turnover = equal of sales / Averageyear, year-1 (Trade and bill payables) issue of long time of payable = 365 / Payables turnoverWorking capital turnover = Turnover / Averageyear, year-1 ( loot current assets) Risk Debt-to-common equity ratio = (Short term + farsighted term bank borrowings) / (Share capital + Reserves) Debt-to-asset ratio = (Short term + pertinacious term bank borrowings) / Total assets pecuniary leverage = Averageyear, year-1 (Total Assets) / Averageyear, year-1 (Share capital + Reserves) busy reportage ratio = operating(a) profit / lodge in expense exchan ge give ear coverage ratio = internet increase in cash / sideline expense Liquidity silver alteration cycle = old age of sales outstanding + geezerhood of lineage on hand descend of days of payable circulating(prenominal) ratio = authoritative assets / rate of flow liabilities window pane stress ratio = ( period assets Inventories) / circulating(prenominal) liabilities Operating cash flow to maturing obligations = Operating cash flow / present-day(prenominal) liabilities accompaniment C reckon ratios 20112010200920082007 Performance sugar margins Gross profit margin63. 35%60. 72%58. 97%59. 46%58. 16% Operating profit margin12. 08%10. 26%2. 64%9. 98%8. 89% interlock profit margin10. 12%8. 77%1. 56%8. 46%8. 0% replication ratios ROE23. 35%19. 53%3. 50%16. 70%15. 55% Decompsition of ROE ROA14. 76%14. 29%2. 61%13. 43%13. 05% ROA* monetary supplement = ROE23. 35%19. 53%3. 50%16. 70%15. 55% DuPont decompistion of ROE Asset turnover1. 46 1. 63 1. 68 1. 59 1. 63 fisca l leverage1. 58 1. 37 1. 34 1. 24 1. 19 Net profit margin*Asset turnover*fiscal supplement = ROE23. 35%19. 53%3. 50%16. 70%15. 55% broad DuPont corruption of ROE value burden80. 65%83. 29%53. 97%81. 23%82. 63% relate burden100. 46%100. 86%103. 66%106. 90%112. 12% EBIT valuation account12. 49%10. 44%2. 8%9. 74%8. 63% levy burden* quest burden*EBIT Margin*Asset turnover* pecuniary Leverage = ROE23. 35%19. 53%3. 50%16. 70%15. 55% Efficiency refractory asset turnover7. 98 12. 95 13. 37 14. 81 16. 08 stock-take turnover2. 48 2. 92 3. 05 3. 15 3. 72 age of blood line on hand146. 89 124. 95 119. 58 115. 82 98. 19 Receivables turnover31. 76 31. 98 51. 12 81. 59 185. 10 days of sales outstanding11. 49 11. 41 7. 14 4. 47 1. 97 Payables turnover5. 51 7. 70 8. 07 8. 69 11. 14 take of days of payable66. 23 47. 38 45. 21 42. 01 32. 76 Working capital turnover4. 6 3. 91 4. 24 3. 39 2. 72 Risk Debt-to-common equity ratio0. 32 0. 06 0. 11 0. 01 0. 00 Debt-to-asset ratio0. 18 0. 04 0. 08 0. 01 0. 00 financial Leverage1. 58 1. 37 1. 34 1. 24 1. 19 involution coverage ratio159. 70 119. 70 29. 64 646. 52 45342. 67 bills flow coverage ratio50. 54 70. 75 0. 83 183. 15 (20020. 33) Liquidity Cash diversity cycle92. 15 88. 99 81. 51 78. 28 67. 40 Current ratio1. 85 3. 00 2. 80 2. 93 4. 66 tart footrace ratio1. 12 2. 08 1. 70 1. 91 3. 42 Operating cash flow to maturing obligations0. 44 0. 85 0. 36 0. 77 0. 58